The Search for Inclusive VET in Context: The Economic Agenda in the Western Balkans and Turkey

1. The Search for Inclusive VET in Context: The Economic Agenda in the Western Balkans and Turkey Will Bartlett European Institute LSE

2. Outline • Effects of the crisis on output and employment • Causes of crisis – transmission factors • Policy responses and constraints – IFIs and domestic • New growth strategies and implications for VET • Unanswered questions concerning VET and social inclusion

3. Developments in the Western Balkans and Turkey • Severe impact of economic crisis in 2008-09 • Severe output shock followed by drop in sustainable growth rate in the future (exception: Turkey) • Leading to rising unemployment especially among young people • Need for “new growth model” based on domestic resources and increased productivity • Implies new policy emphasis on education and skills

17. Transmission factors • Export demand • Foreign direct investment • Remittances • Credit crunch

23. IFI policy responses • 2009 IMF Stand-By Arrangements • €3.5bn Romania; €1.1bn BiH; €402.5m Serbia • Vienna Initiative • IFIs provide €24.5bn loans to 17 parent banks of banks in CEE/SEE region • “Vienna Plus” proposed by EBRD • to encourage substitution of foreign borrowing by local currency borrowing • More efficient absorption of EU structural funds • But this solution is now not available due to eurozone crisis • Austrian Central Bank has instructed Austrian banks to focus on core domestic capital, boosting capital reserves and limiting cross-border lending

24. Parent bank default risk to July 2011 (CDS index)

25. Domestic policy instruments • Fiscal policy • fiscal retrenchment limits expenditure for VET • Monetary policy – • Few options due to euroisation; currency board; euro adoption • Trade policy – • Need to make CEFTA work; raise skill content of exports • Growth policy • Competitiveness approach or new industrial policy? • Raise education performance to increase productivity

26. Domestic policy responses to crisis • Monetary policy relaxation: • Deposit guarantees (€50,000 in 2008 SRB, HR) • Reducing reserve requirements • Reductions in central bank interest rate • Fiscal policy tightening: • Initial expansionary fiscal policy raised deficits above 3% GDP in most countries in 2008-09 • In 2009-10 most governments introduced austerity programmes backed by Fiscal Councils

28. The new growth model for WB+T? • WB countries have been under such fiscal surveillance from World Bank and EU accession process for years, so did not fall into Greek debt trap • actually experienced it decades earlier within former Yugoslavia • Yet, the growth model of the 2000s based upon external finance and credit fuelled consumption cannot be repeated in the future • Need for much greater reliance on domestic resources • Retrenchment has created some fiscal space • Endogenous growth faces limits of low competitiveness due to low productivity • In this context, education and VET systems are now at the top of the agenda for economic growth

29. Growth Model proposals from IFIs • European Commission (DG ECFIN June 2010) • Structural reforms to boost domestic savings and investment • “Skills mismatch” and inadequacies in education should be rectified with measures to raise skill level of workforce • EBRD (2010) recommends export led growth • prioritising intra-regional trade and regional cooperation • EBRD transition report (2011) • “a new eurozone recession … could result in a substantial reversal of bank debt flows and a large contraction of credit in the region, with severe consequences for output”.

30. World Bank views • SEE Regular Report - November 2011 • Fiscal space exhausted (with exception of Macedonia) • Deeper integration with EU needed • ‘largely unfinished agenda of structural reforms’ to raise domestic productivity • “Skills, Not Just Diplomas” November 2011 • Improve knowledge about skills (surveys, tracer studies) • “Lack of relevant data on students and their individual performance is particularly acute in the vocational sector…” • Education reforms should focus on • Per capita financing; • school autonomy; • accountability for learning outcomes

31. Conclusions: Challenges from the labour market • Dramatic job loss from first recession; prospects of worse to come • High youth unemployment • High long-term unemployment • 80% in BiH and Kosovo out of work for more than 1 year • Low employment rate especially among women • Women ‘largely excluded’ from labour market (World Bank 2011: 27) • Skills mismatches • Graduates of vocational schools over-represented among unemployed • Phenomenon of over-education of university graduates (e.g. Montenegro)

32. Challenges for VET provision • Legacy of inadequate VET schools with out-dated curricula • though some attempts at reform • Limited investment by employers in workforce training • Underdeveloped adult education and life-long learning systems • Lack of formal mechanisms for skills anticipation and forecasting • though some skills surveys being carried out e.g. in Macedonia

33. VET and the economic crisis • Global economic crisis and looming double dip recession from eurozone crisis • leading to falling demand for labour and job losses • Workers who have lost and will lose their jobs will need access to retraining programmes to develop new skills in preparation for economic recovery • This implies a need for improved adult education systems and incentives for employers to train workers on the job and through apprenticeships

34. Unanswered questions • How to involve more long term unemployed, youth, women in employment and training? • How to make curricula more relevant to needs of employers when recovery occurs? • skill anticipation and forecasting through surveys and tracer studies? • How to reform VET to make it more inclusive of marginalised groups and poor households? • Is World Bank approach to improve efficiency through per capita financing and greater school autonomy relevant? • Is there an alternative approach which would emphasise also equity rather than just efficiency? Community-based schooling and social planning, combined with genuine decentralisation to local authorities?