[ALBANIAN

ECONOMY AND MDG

PROGRESS]

Albanian economy and MDG progress

Introduction

1. Global Recession
2. Albanian economy
Short presentation of Albanian economic system
Regional crisis impact on Albanian economy
Future perspectives
3. MDG progress in Albania
4. Marxist theory and Albanian economic development
Marxist theory
Periphery-center politics
Classes and class conflict
Robin Hood redistribution

Conclusions

Introduction
The scope of this presentation is to analyze Albanian economic system, global
economic recession and its impact on Albanian economy. Albania managed to both avoid
recession and maintain financial stability in the wake of the global economic crisis. Until
1

recently, Albania coped with the unfavorable external economic environment quite well. The
economy avoided a sharp fall in output, inflation stayed low and stable, and the banking
system remained sound. Albania's main external links are through exports, banks, and
remittances, mainly with its two next door neighborsItaly and Greece.
Despite the problems in Europe, spillovers to Albania through these channels have been
limited so far. There are several reasons for this. First, Albanias exports are a small part of
the economy. And, since the onset of the crisis, the country has been able to reorient and
redirect some of its exports towards new products and markets. Second, although most banks
in the country are foreign owned, they depend largely on domestic deposits. This is partly the
result of sound regulatory policies adopted by the central bank prior to the global crisis,
which helped contain systemic risks. As a result, the Albanian banking system has not
experienced the kind of withdrawal of funding we have seen in some other countries in the
region. Third, even though remittances from Albanians living abroadmainly those in
Greece and Italyhave been on a declining trend, the effect has been partly offset by
returning migrants bringing back their savings to Albania. Not least, the authorities timely
and sound policies in response to the crisis have also played a role. A fiscal stimulus at the
onset of the crisis, and more recently, the central banks gradual easing of monetary policy,
proved useful. In addition, policies to ensure that banks had adequate capital and liquidity
were instrumental in maintaining financial sector stability.

1. Global Recession

We now live in a nation where, doctors destroy health, lawyers destroy justice,
universities destroy knowledge, governments destroy freedom, the press destroys information,
religion destroy morlas, and our banks destroy the economy1

In world history we mention permanent crisis in all ages of human development, from
antiquity to the present, but the impact of global crisis differes. In recent years, the term
crisis is used frequently: economic crisis, banking crisis, financial crisis, political crisis,
cultural crisis, structural crisis, food crisis, drug crisis, educational crisis, oil crisis, gas crisis,
government crisis, parliamentary crisis, etc. and all this terms with direct impact in our lifes.
Global recession is defined slightly differently than national recession. A nation would be
considered in a recession when GDP declines for two consecutive periods. A global recession
has to take into account developing nations as well as developed nations, therefore requiring
a benchmark for growth comparison which is set at around 3%. In early 2009, the IMF and
the World Bank predicted the global GDP growth rate to decrease to approximately 0.5%,
meaning they expect a global recession to persist through 2009. 2 This is a global recession
definition, taken from the investopedia dictionary, but to understand better this terms, first of
all we need to find out origins of the crisis. The periodic crises resulting from the capitalist
business cycle now unfolds at the global level. The current crisis of the world economy is
an outcome of the consolidation of economic power that the globalization of capital has
secured for the transnational corporations. This has led to a string of problems associated
with the financial, banking, real estate, and productive sectors of the economy that have
triggered the current economic crisis. The central problem of our present capitalist economic
system is the recurrent business cycle which is now operating at the global level. It manifests
itself in a number of ways, including:

The problem of overproduction/underconsumption

Increasing unemployment and underemployment
Decline in real wages and rise in super-profits
The sub-prime mortgage and credit card debt
Speculative corporate financial activities
Increased polarization of wealth and income

1 Chris Hedges
2 http://www.investopedia.com/terms/g/global-recession.asp

The way how everything start, on my opinion, gives the possibility to look critic on
the way how things works, if we agree or not to this economical system, if political
intervention did the best to stop it, or at least if peoples reaction was good enough as the
only one who was infected directly from world crisis. I am a little bit sceptic on the way
how all it starts, also at our reaction, everything started from the Banks, we gave them
the opporunity to controll us, and this is what they did, they are controlling us. My
opinion is full of pessimism so i would like to stop it here and to face with the next
challenges.

Figure1. Global Recession 3

Recession
Ireland
United Kingdom
Portugal
Spain
France
Netherland
Italy
Greece
Czech Republic
Hungary
Slovenia

Recovery
USA
Brazil
Austria
South Korea
New Zeeland

Expansion
Russia
Norway
China
Australia
Colombia
Ecuador
Peru
Poland
Turkey
Indonesia
Malaysia

3 http://www.economy.com/dismal/map/

At risk
Canada
Venezuela
Argentina
South Africa
Germany
Switzerland
Denmark
Belgium
Slovakia
Sweden
India

2. Albanian economy
Between 1990 and 1992 Albania ended 46 years of xenophobic Communist rule and
established a multiparty democracy. The transition has proven challenging as successive
governments have tried to deal with high unemployment, widespread corruption, a
dilapidated physical infrastructure, powerful organized crime networks, and combative
political opponents.

Short presentation of Albanian economic system

The Albanian economy in the 1990s experienced a rapid recovery from its near-collapse
in 1992. The rapid economic growth between 1993 and 1996 was exceptional by East
European standards, and represented the highest rate of sustained economic growth of all
transition economies. This investigation indicates that the standard explanations for recovery
and growth in transition economies, such as the pace of economic reform or the levels of
domestic and foreign investment, do not adequately explain the rapid growth of the Albanian
economy. Factors specific to Albania also need to be considered. The main conclusion drawn
here is that the success of the Albanian economy in the mid-1990s rested largely upon the
inflow of remittances from Albanians working abroad. These remittances are shown to have
been much greater in value than was previously assumed by the IMF: in the region of $700
million per annum rather than $400 million. Remittances are also found to have played a
much greater role in Albania's economic recovery than was previously recognised. It is
demonstrated that the rise of pyramid investment schemes in 1996 was closely linked to the
inflow of remittances. Such schemes are also found to have played a part in fuelling the rapid
economic growth in the Albanian economy, before their collapse in 1997. 4 Emigrants
remittances are an important source of income for Albanian households and a source of
employment for many Albanians.

4 ***Korovilas, James P., Post-Communist economies: The Albanian economy in

transition: the role of Remittances and Pyramid Investment Schemes, 2010, p.
239

 Regional crisis impact on Albanian economy

The global financial crisis, which originated in the advanced economies,

has hit the rest of the world strongly, with some developing countries
being particularly affected. However, the impact on economic activity has
varied widely across countries.
The global financial crisis. The Albanian economy was not as adversely
affected by the 20082009 global financial and economic crisis as were
other economies in Europe, including in the south-east. Even though the
crisis was primarily external in nature, it did test the efficacy of the
countrys macro-economic equilibrium, structural reforms, financial and
banking systems and

resiliency of the private sector. Withdrawal of

deposits was the first sign of financial crisis contagion, beginning in late
2008 and extending into early 2009. The Law on Deposit Insurance was
quickly revised by the authorities to increase the insured amount of
deposits, and this proved to be an important measure in restoring
confidence in the financial system. Another major result of the crisis was a
drop in GDP growth to an estimated two to three per cent in 2009 from
the high level of about six per cent experienced between 2002 and 2008.
Recent data show a return to positive territory in early 2010 though with
less strong growth. The relatively positive performance over the past
couple of years is seen as a function of the rapid crisis response of
government in terms of providing some fiscal stimulus combined with
prudent approaches to monetary policy.

Future perspectives
Before i start to analyze the Albanian tax system, i will show how taxes can be
categorized. Taxes can also be categorized as either regressive, proportional, or progressive,

and the distinction has to do with the behavior of the tax as the taxable base (such as a
household's income or a business' profit) changes:5

A regressive tax is a tax where lower-income entities pay a higher fraction of their
income in taxes than do higher-income entities. (Regressive taxes can also be thought of as
taxes where the marginal tax rate is less than the average tax rate. This will be discussed in
more detail later.)

A proportional tax (sometimes called a flat tax) is a tax where everyone, regardless of
income, pays the same fraction of income in taxes. (Proportional taxes can also be thought
of as taxes where marginal and average tax rates are the same.)

A progressive tax is a tax where lower-income entities pay a lower fraction of their
income in taxes than do higher-income entities. (Progressive taxes can also be thought of
as taxes where the marginal tax rate is higher than the average tax rate).
Most societies have progressive income-tax systems, since it is (rightly or not) viewed as

fair for higher-income entities to contribute a higher fraction of their income in taxes, since
they are spending a much lower fraction of their incomes on basic necessities. Progressive
income-tax systems also partially balance out other tax systems that are likely to be
regressive in nature.
If we see Albanian history, it was concquered from Otoman Imperial for a period of 500
years (till 1912), after that there were consecquences from Balkan Wars (1913), First Wold
War, Second World War and than 45 years under Comunist Regime. It shows shortly that
those who loose in this case are the people, after 1991 in Albania it was implemented flat tax,
which, as i show, is a tax where everyone, regardless of income, pays the same fraction of
income in taxes. Albania does not have the luxury where 95% of peoples who win less
money, to pay the same with that 5% of those who already control everything. Albanian
economy is now in most critical stage of crisis. Growth economic model without
employment, even negative economic growth recently has caused more poverty and a greater
number of unemployed people. Entrepreneurship in Albania has become excruciating.
Clientelism has taken all paths of competition. Corruption has wedged state. Albanian capital
is concentrated in the hands of only 5% of people, while the system of taxation is the image
of injustice: who wins more pays less, who wins less pays more. Finding a job is almost
5 http://www.ecol.ro/content/the-economic-jerry-built-of-optimal-taxation-progressive-vs-flat-tax

impossible. So as a future perspective the only way that Albania and albanians, recover their
economy, is a fair taxation. Taxation wich is proposed from the Socialist Party, wich on the
23d of Junes ellection, have the opportunity to take the power to governance. They propose
a progressive tax, to give power to majority (95 %), but this doesent mean that this model is
against rich peoples, no, it is for all the citizens, is a possibility to stop clientelism, to stop
monopollies. I will give here an example: teachers in Albania has a medium income per
month 300 US$, with the existant system of tax they need to pay 10% or 30$, a Member of
Parliament takes 1500 US$ and pays 150$. But is it the same? The teacher left with 270$ to
take care of his/her family, while a Member of Parliament has 1350$.
The problem on this case, is that there will be a lot of difficulties to implement a
progressive tax, on my opinion, peoples will see the results after 2 years. From one side is the
Democratic Party wich is trying to convince peoples that it is wrong to change it, and the
Socialist Party wich says that it is necesarlly and fundamenally to do this thing.

3.

MDG progress in Albania

United Nations (UN) Global Summits and Conferences on global social, economic and
environmental issues facing both developing and developed countries were synthesized in the
Millennium Summit of September 2000, where 147 heads of state and of government and
191 nations, including Albania, adopted the Millennium Declaration. On July 2003, the
Albanian Parliament passed a resolution in support of the Millennium Declaration
encouraging all stakeholders to track progress in achieving the [Millennium Development
Goals] MDGs on a regular basis through national monitoring and evaluation systems and the
preparation of annual progress reports that encourage public debate and offer
recommendations on ways to improve national development policies.6

Progress:

Since 2002, Albanias strong economic growth has been a major contributing factor
to its positive tracking toward the achievement of a number of MDG targets in such

6 http://planipolis.iiep.unesco.org/upload/Albania/Albania_MDG_2010.pdf

areas as combating extreme poverty and gender inequalities, improving some

aspects of health and expanding access to safe drinking water and sanitation.

On the positive side, the proportion of the population in absolute poverty declined
from over 25% in 2002 to 12.4% by 2008. Maternal mortality rate in 2008, at 10
per 100,000 was down by half from the 2001 level and is well on track to meeting
the 2015 target. Considerable progress has been made in eliminating gender
disparities (especially in education) and there is a moderate chance that the 2015
targets will be met.

In some of the infrastructure areas, a greater proportion of the population (82.1%)

had access to drinking water by 2009, though the 2015 target of 98% will not likely
be reached. With a strong probability of continued domestic and external financing
on sanitation, it is likely that the 2015 target of 90% of the population having
access can be reached.

One of the most successful areas has been Albanias investment in information and
communication technology (ICT) as both an indicator of better governance (in
terms of, for example, reduced corruption, and increased transparency of, and
improved access to, some government services) and in building strong partneships.
partnerships.

Challenges remain in a number of other target areas. For example, whereas there
has been a minor decline in unemployment since 2002 to a current level of 13.1%,
it is unlikely that the targeted 9% level will be reached by 2015.

Enrolment in basic education has also fallen, and considerable disparities remain
between rural and urban areas, among regions and for disadvantaged groups such
as the Roma. Of some concern is the under-five-year child mortality rate, which
remains high with the 2015 target unlikely to be met, despite the fact that there has

been a steady reduction in both child and infant mortality.

Achieving governance improvement targets will be difficult without a major
government effort and investment in capacity development, administrative reform
and anticorruption measures.

4. Marxist theory and Albanian economic development

The political and economic philosophy of Karl Marx and Friedrich Engels in
which the concept of class struggle plays a central role in understanding society's
allegedly inevitable development from bourgeois oppression under capitalism to a
socialist and ultimately classless society.7

Marxist theory
Marx can be thought of as having offered two sets of ideas, the first of which we can
accept if we wish to, without accepting the second.8

1. Marx gave us a theory of society, i.e , an explanation of how society works, of

how and why history has unfolded, and especially an account of the nature of
capitalism. These are of great value for the task of describing what is going on in
the world and for understanding the problems and directions of our society today.
2. But Marx also regarded capitalism as extremely unsatisfactory and he was very
concerned with getting rid of it, via violent revolution and the establishment of a
communist society. Marxism is therefore also about political goals and action.
Obviously very few people in western society today accept this second set of ideas;
most seem to think capitalism is desirable, most do not want to see it destroyed and most do
not like the idea of revolution or communism.
The following notes are intended to show the value of the first of these sets of ideas. One can
accept Marx's concepts as being very useful for the purpose of understanding our society
without accepting his condemnation of capitalism, his political values or his
recommendations for political action. In other words, if you do not agree with Marxist social
ideals and implications for action, don't let this interfere with your evaluation of Marxist
theory about how our society works.

Periphery-center politics
7 http://www.thefreedictionary.com/Marxist+Theory
8 http://socialsciences.arts.unsw.edu.au/tsw/Marx.html

10

The centre-periphery model is a spatial metaphor which describes and attempts to

explain the structural relationship between the advanced or metropolitan 'centre' and a less
developed 'periphery', either within a particular country, or (more commonly) as applied to
the relationship between capitalist and developing societies. In sociology, however, centreperiphery models are most likely to be encountered in studies of economic underdevelopment
and dependency and tend to draw on theInternational Journal of Economic Development
Research and Investment, Marxist tradition of analysis.
Different regions are endowed with production factors and characteristics that offer
different opportunities for specialization, which can be transform to a regional comparative
advantage. Many outlying regions (peripheral regions) suffer from a high rate of
unemployment, low level of per capita income and net out migration. Outlying areas attract
less investment in comparison to central regions. This is because of the low marginal
productivity of factors of production in the outlying areas. In order to alleviate these
hardships, inflicted on outlying regions, central governments often devise incentive and
investment programs whose main objective is to reduce the gap between regions in the
country and thus reduce regional inequalities.9
Albania as a country, or a political system, has always been influenced by external
countries, wich makes its political or economical system peripherical. Mostly this thing
happends with non-developed countries, and a new way of valuing incommes, by including
progressive tax, will help it to recover and to continue the road to European family.

Classes and class conflict

The social relations of production involve different classes. The basic determinant of
one's class is one's relationship to the means of production. For example in late capitalist
society the two basic classes remaining are the owners of the means of production, capitalists,
and those who own only their labour, the workers or proletariat.
So in any historical period dominant and subservient classes can be identified.
Inequality in wealth and power was of fundamental moral concern to Marx. Some groups
come to dominate others and to win for themselves a disproportionate share of the societys
9 http://ideas.repec.org/p/wiw/wiwrsa/ersa11p1192.html

11

wealth, power and privileges. The ultimate goal Marxists aim at is a classless society, i.e., a
society in which all enjoy more or less equal wealth and power. Marx said history is basically
about the struggle between classes for dominance. "The history of all hitherto existing society
is the history of class struggles".10
Marxists stress that social analysis should focus on class structure and relations. In other
words the most important questions to ask about a society are to do with what groups in
society dominate or gain most benefit from the status quo, or whose interests does the
situation or policy or proposal serve most?
In capitalist society the capitalist class benefits most; those who own and control the means
of production receive a disproportionate share of wealth, power, privileges and status. There
are other classes but as time goes on these are squeezed into either the small capitalist class or
the large working class. Note that there is an important distinction between big business,
which includes the transnational corporations and banks, and small business. Many small
firms and family farms and shops are usually struggling, only providing their owners will low
incomes. These people are not investing capital in order to make profits from enterprises in
which they have no other stake, so they are not really part of the capitalist class. They are
more like peasants who own and work on their own farms. It is also important to note that
most people own some wealth, such as their house, but this is not capital. Most capital,
factories, money, is owned by very few people, perhaps as few as 2% of the worlds people.

Robin Hood redistribution

The Robin Hood plan, was a media nickname given to legislation enacted by the U.S.
state of Texas in 1993 to provide court-mandated equitable school financing for all school
districts in the state. Similar to the legend of Robin Hood, who "robbed from the rich and
gave to the poor", the law "recaptured" property tax revenue from property-wealthy school
districts and distributed those in property-poor districts, in an effort to equalize the financing
of all districts throughout Texas.11 Poverty reduction is arguably the single most relevant
measure of welfare state redistribution and, unsurprisingly, it has become the favoured
10 http://www.icidr.org
11 http://en.wikipedia.org/wiki/Robin_Hood_plan

12

approach in empirical research. Theoretically, it provides a good test of the Rawlsean

maximin principle of justice, namely that any redistribution should be to the greatest benefit
of the worst off. It also speaks most directly to vertical, Robin Hood-redistribution. For two
reasons, research has especially centered on child poverty. One is that poverty in childhood is
known to have seriously adverse consequences for later outcomes such as schooling, health
and social integration.
I can say that the progressive tax, implemented on Socialist Party political program,
as a future tax, instead of flat tax, is same (esencially) with the Robin Hood destrebution of
power (money), by helping those who win less to recover their economies.

Conclusions
What other challenges does Albania need to tackle? What matters over the medium
term is how rapidly Albania can embark on a high and sustained economic growth path.
Attracting investment from domestic and international sources is critical. In addition to the
measures discussed above, the authorities need to address the constraints that hinder private
sector investment in Albania today. These are uncertain property rights, weak enforcement of
the rule of law, and inadequate physical infrastructure. Although with similar socialist legacy,
the peculiarities of Albania and its low level of incomes set it apart from other ex-communist
countries in Eastern Europe. Considering the initial conditions, the path to a new market
economy along with a new democratic society will be painful and not short. Besides the
macroeconomic imbalances, several political, social and mentality constraints determine
endogenously the speed and the strategy of the reform. The economic changes in Albania
began after the political breakthrough and are strongly effected by it. The delayed entering
and rapid changes are accompanied with social uncertainty. Yet, the initial political instability
and the lack of democratic tradition set their own marks on the Albanian transition and make
it more difficult. The economic changes that began in 1991 were the first serious step towards
a market economy. Interrupted by political events the process began in mid 1992 with a
coherent and comprehensive program. The stabilization elements were the main issues in the
short and medium term program. Although based on the well-known packages, stabilization
measures in Albania are more painful than in other Eastern European countries. As a country
who suffered in all its history, Albania deserves a new government who thinks for the 95 % of
13

people and not a kind of Plutocracy government, where the reachest create the monopolity
and have the power.

Bibliography
1. ***Korovilas, James P., Post-Communist economies: The Albanian
economy in transition: the role of Remittances and Pyramid Investment
Schemes, 2010, p. 239

Web:
http://www.investopedia.com/terms/g/global-recession.asp
14

http://www.economy.com/dismal/map/
http://www.ecol.ro/content/the-economic-jerry-built-of-optimal-taxation-progressivevs-flat-tax
http://planipolis.iiep.unesco.org/upload/Albania/Albania_MDG_2010.pdf
http://www.thefreedictionary.com/Marxist+Theory
http://socialsciences.arts.unsw.edu.au/tsw/Marx.html
http://ideas.repec.org/p/wiw/wiwrsa/ersa11p1192.html
http://www.icidr.org
http://en.wikipedia.org/wiki/Robin_Hood_plan

15