Social Aspects of Industrial Restructuring and their Financing

The paper starts by outlining some basic definitions and conceptions of restructuring, noting that in transition economies the needed scale of restructuring is substantial, with the result that unemployment, and the associated social costs, can turn out to be very high unless the process of change is well managed. In what follows, I clarify what is meant by the social aspects of restructuring and give some examples to illustrate why dealing with them might be difficult. Then we examine the financial outlays associated with the identified social costs and consider various views of who should pay for them. Next, we highlight some key trade-offs in the restructuring process, starting from the observation that many countries, not exclusively, but especially countries from the CIS, have bowed to political pressures and allowed restructuring to be delayed, ostensibly for social reasons. While acknowledging that this is an appealing line of argument, I shall argue that in the longer term it is exceptionally costly. The argument continues by identifying a few aspects of restructuring that seem to me to be unusually problematic for transition economies, especially for those that are not on track to join the EU in May 2004. These aspects include the special problems faced by small states, and those faced by rapidly declining regions within larger states. We conclude with a list of major findings about the social aspects of restructuring and their financing, plus a short list of suggested policy recommendations.