At this point we should stress an insightful introductory remark of Jordà et al.
(2010, 1): “It is a great irony that crises are orphans right up to their inception, at which point they become the scions of new economic orthodoxies [italics added]
and a few fortune tellers.” If the global financial crisis that struck across Europe in 2007 revealed that EMU ruled by monetarists orthodoxy failed to achieve real convergence, so will the same, prolonged economic recession and crisis of Europe competitiveness unveil shaky grounds of the adjustment policy based on neoclassical recipes, which assume potential of flexible labour market to restore the lost competitiveness, and again, bring Europe back on the road to real convergence.
When working on the terrain of adjustment policy one has to consider two corner solutions: austerity measures, or (further) stimulation of aggregate demand. The first approach so far proved to be rather costly adjustment policy for some countries, since it brought crisis of under-consumption at the doors. The second corner solution appears not a viable option anymore, since the hardest hit countries already reached dangerous levels of public debt. This shortage of easy solutions indicates that an economy, once driven out of the tracks because of overspending, possesses no solution that excludes future under-spending. Moreover, even if under-spending (austerity) is accepted it can be rather complicated to implement with success.
If we assume that there are two forces that drive output, investment and consumption, and introduce income distribution as endogenous variable, a distressed economy that is staggering for international competitiveness, will inevitably become stuck in one or another type of crisis. An increase of labour share in value-added will increase domestic consumption, but decrease incentives
to invest, and a profitability crisis and unemployment will emerge. An increase of capital share in value-added would stimulate investments, but, if not followed with increase of consumption, the crisis of under-consumption will emerge. Theory of regional economic integrations suggests that factor mobility will wipe out local disequilibria toward a new regional equilibrium, but the process has so far failed.
EMU policy package currently combines country specific fiscal tightening response and all-across-EMU relaxation through expansionary monetary policy, which, despite of unprecedented extent, have not put in danger traditional measures of monetary stability yet. Such a combination was designed as a proper response of a monetary integrated area on asymmetric economic shock.
Through the post crisis recovery package, leading countries (e.g. Germany) endeavour to protect growth, while, in countries hit most hard during the financial turmoil, stability was targeted as their prime concern. However, in this episode, road to stability goes through restored international competitiveness.
As is always the case, there will not be one-size-fits-all policy. If an economy were producing only for export, its output would be driven by world demand, and the domestic demand would not matter. For the group of countries that we study, the case of Ireland is the sole one close to this ideal. For other countries, domestic consumption will drive output to a larger extent. Therefore, the policy orientation should be case specific. If an economy is one of export-led type, wage cuts, and consequently domestic consumption cuts, would likely decrease import and increase export, boost international competitiveness and output. An overall economy would benefit from this policy action, as happened recently in Ireland.
However, if an economy is wage-led one, with domestic demand (consumption) that dominates international demand (consumption), wage cuts would probably harm domestic demand more than it would stimulate international component of total demand for national product, and the trade-off would hardly be positive at the end of the day. In such economies, reward of capital investments will be protected if decreasing share of profit in output is compensated with increased total output, due to the increase of total consumption.
It is obvious that countries outside of monetary union have some extra room to maneuver. They have at hand nominal devaluation. Let us discuss merits of internal (real) vs. external (nominal) devaluation. Internal devaluation which is aimed to restore competitiveness based on downward adjustment in relative wages probably impacts on the wages in all sectors. Currency devaluation, on the opposite side, impacts on the (real) wages exactly where is needed (Flassbeck 2016, 18) in the industries that compete internationally. External devaluation will have an
immediate positive effect on profit margin in export oriented industries, i.e.
increase share of profit relative to labour costs, providing that wages and prices do not follow an upward trend after the depreciation. The effects of currency devaluation on profit margin and wages in import oriented industries and non-tradable sector will depend on the way that wages adjust internally. However, it is likely that such development would not harm domestic consumption as much as internal devaluation (wage decrease) would do. Mechanism of internal devaluation rests on the assumptions that wages in industries exposed to international competition do not follow labour productivity, so that unit labour costs do not tend to equalize internationally, or, wages in non-tradable sectors do not align downward with the wages in tradable sector, opposite to mechanism explained in Balassa (1964). Therefore, a government has to put pressure on wages in non-tradable sector, most likely the public sector, hopping that the wage decrease will spread throughout the labour market.
6. CONCLUSION
The theorem that unit labour costs direct trade flows across nations belongs to the basic economic regularity known as “law of one price”, which, in this particular case, means that the same resource must be priced the same all over the world.
More specifically, reward for labour should be related to its productivity, which is the measure of its quality. Unfortunately, opposite to the laws of physics, economic laws are possible to ignore for some time.
If the economies were resilient, they would prevent the pressure to accumulate to the level that crisis becomes inevitable, and, it would not be that visible that economic law regulates our lives. Economic crises are signs that our undertakings are limited by economic laws. They are punishments for the committed crimes.
Fortunately, the economic systems have circuit breakers built-in. Those are hard facts of economic life. Attempts to seize unjustified reward for any resource will be mirrored in lost international competitiveness, external debt accumulation and ultimately in jeopardized growth.
The episode that we have studied here points out some policy fallacies. The first one is that ongoing monetary integration per se helps achieving pre-conditions necessary for creating one such integration, especially in terms of relative size of output shocks and their synchronization (Karras, Stokes 2001). Namely, merits of monetary integration are strong if there is perfect intraregional migration of labour and unrestrained inflow and outflow of capital funds, but also mutual compatibilities of the member countries in matters of economic institutions and coordination of national policies, in the complementarities of their trade patters,
business cycle and shock synchronization (Swofford 2000). Those economic conditions make an abandoning of monetary autonomy almost a costless strategy.
However, even the very father of optimal currency area theory, Mundell (1961) underlined that at the beginning of the monetary unification, member countries have been far from an optimum currency area in terms of mobility of economic resources (capital and labour) and price and wage flexibility. According to Rogoff (2005) EMU failed to achieve the level of its labour market integration and flexibility, and remains a non-optimal currency area, decades after the creation.
Secondly, it is a pitfall that adjustment mechanism that goes through divergent price and wage trajectories, if needed, will operate well (automatically) and at costs that societies readily accept.
ACKNOWLEDGMENT
This chapter is written as a part of the research project OI179015 (Challenges and Prospects of Structural Changes in Serbia: Strategic Directions for Economic Development and Harmonisation with EU Requirements), financed by the Ministry of Education, Science, and Technological Development of the Republic of Serbia.
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ATTITUDES AND IMPACT ON PURCHASING DECISION
Isidora LJUMOVIĆ, PhD, Research Associate∗ Ivana LEČOVSKI-MILOJKIĆ, PhD student•
Abstract: The objective of this research is to analyse attitudes of the consumers towards the organic products and to determine the level of confidence they have towards the legally established label for organic products. A large number of studies have shown that when buying, consumers usually opt for a product with a trademark that guarantees a certain quality. We used questionnaires designed specifically to obtain customer-level data in order to evaluate their attitudes towards organic products and labelling. Having in mind identified constrains and literature review, we structured questionnaires to test their opinion about organic food, basic criteria when opting for groceries and are they willing to pay more for the organic products. Survey results show that consumers in Serbia have awareness of the importance of healthy eating habits and they are ready to allocate more money to buy organic products due to their quality, safety and nutrition. Their basic criteria when opting for groceries is food composition, followed by recommendation and price.
Keywords: consumer attitudes, organic products, organic production, organic certification process, national organic label
1. INTRODUCTION
Recent years brought environment preservation in the focus, stressing out concerns about food safety and intensive development of organic production and new alternative ways to produce healthy, safe and environmentally friendly products.
Organic products have a number of advantages in terms of their wellbeing and absence of numerous harmful chemicals that are widely used in conventional production. In addition, the negative impact on the environment has been minimized. The organic products do not contain substances that are harmful to health - pesticides, heavy metal residues, hormones and other veterinary preparations, mycotoxins, synthetic additives or genetically modified organisms.
∗ Institute of Economic Sciences, Serbia, isidora.ljumovic@ien.bg.ac.rs
• Faculty of Organizational Sciences, Serbia, ivana.lecovski@gmail.com
Another aspect of organic production put points out that the products are produced in accordance with the basic laws of nature, in harmony with the flora and fauna, compliant with climatic conditions and as such have the vitality that primarily has a positive impact on the consumer. This sustainable production system does not pollute the environment. Synthetic protective agents and artificial fertilizers are not used, animal breeding takes place in a way that contributes to the well-being of animals themselves and enables the production of far more secure products of animal origin for consumers. During production, priority is given to renewable energy sources and the use of energy is minimized during production and processing.
Organic production is a legally regulated and includes the control and certification process from the farm to the market (FAO, 2011). It is a complex, strictly controlled production system that operates under the defined rules of IFOAM (the International Federation of Organic Agriculture Movements), which every country adapts specifically to its conditions and specificities of the local market and then regulates it. There are a number of conditions that each producer must fulfill in terms of the use of the law of the foreseen techniques and resources in order to carry out organic agricultural production. This fully controlled production is regulated in the Republic of Serbia by the Law on Organic Production (Sluzbeni glasnik RS", No.30/10,07.05.2010).