Transformations  in
Business & Economics

JEL classification: Y20.

The challenges, defined in the European Union (EU) foundation documents, constitute EU economic convergence, high supply of employment and social security level, improvement of the standard of life and life quality, as well as socio-economic cohesion and solidarity of member-states. The majority of new member-states, as compared to the established EU countries, bristles with difficulties in low living standards and struggles with low economic level. In order to approach the development level of the leading EU member-states, the new-comers should orientate themselves towards dynamic economic progress. In such a case, the mobility of prices is also a visible fact in national economies of the new EU member-states, where the price ceiling for most of the goods is considerably lower as compared to the old EU countries.

The latter situation provokes the attitude towards price stability in relation to the inflation criterion. Would the inflation criterion be the instrument for measuring the achieved output or the tool for achieving the desired output? Lithuania’s efforts of joining the Euro zone in 2006 and disputes, which followed afterwards, demonstrate that in most cases only discrete perceptions of measuring price stability and the inflation criterion prevailed.

A new angle of comprehending the inflation criterion could be suggested through the prism of national economic progress and the improvement of living standards. It depends of the final output, what should be achieved with the inflation criterion; therefore, we could orientate ourselves towards: 1) the fixation of stability in current low level of economic and price level or 2) we could utilize this criterion as an instrument for measuring and monitoring growth in economy, living standards and prices.

According to Orientation 1, the inflation criterion will be utilised as an instrument for pertaining the growth of prices and inflation within dedicated boundaries. In this case, price elasticity will decrease and, consequently, effecting national economic growth. National commitment for price stability and low inflation, pursuing low price policies, interrogates a close-up control and restrictions in pay rise, at least on a temporary basis. Therefore, under such circumstances, a country should remain a “reservoir” of cheap labour force. Such a situation would not support the EU principle of achieving “… the rise of living standards, the improvement of life quality, the socio-economic cohesion and solidarity of member-states”.

In a country with a speeded introduction of the Euro, it would be of utmost difficulty to stabilize prices in line with the three EU countries, which managed to achieve the best price stability results. It is presumed that a country, which formally adhered to the inflation criterion before the entrance to the Euro zone, could experience problems in price and inflation increase, while trying to maintain the EU prerogatives on socio-economic welfare.

Alongside with these problems, other threats might pose destructible consequences to the EU image and other issues of social or monetary nature. It could be quite difficult to admit and explain to the general public that the price increase, after the introduction of the Euro, is the outcome of hasty and unprecedented decisions rather than a product of the Euro itself or the EU expansion.

In the context of the EU principles of improvement of the standard of life and life quality, as well as socio-economic cohesion and solidarity, representatives of the International Currency Fund (Mody, 2007) have given some insights on the increase of salaries in Lithuania with a discrete and biased meaning. They ponder that increasing costs of labour force impacts Lithuania’s competitiveness on the international scale; businesspeople will find it more strenuous to export their manufactured goods, followed by the economic slow-down and, finally, recession.

Such generalizations are short of expert insights and demonstrate a biased approach in selecting evaluative arguments in a particular situational analysis. The following counter-arguments oblige us to have some doubts on the propriety of opinion, expressed by the International Currency Fund.

Firstly, the pay increase in Lithuania generates a more attractive market for labour force; therefore, on one hand, it should decrease the emigration flows of Lithuanian labour force and, on the other hand, Lithuania could become more attractive for the immigration of professionals.

Secondly, the accumulation of professionals, creativity and initiatives might increase the quality of manufactured goods in Lithuania and strengthen the intellectual component of the labour market, which stands for the major prerequisite in national and international competitiveness of a country.

Thirdly, the increasing quality of goods and services would impact changes on competitive accentuates: from the competition on prices to the competition on quality. This consideration would positively influence the international image of Lithuania: from the international image of a cheap producer to a quality producer.

Fourthly, it should foster the growth of creativity skills and professional competencies in marketing and selling on international markets.

Finally, we propose to seek professionals in foreign markets. But we also should consider the fact, what awaits us if we follow the pay rise recommendations initiated by the International Currency Fund: what potential labour force might choose Lithuania as a potential country for employment, what could be their qualifications and expertise, which countries they might come from?

The EU financial support for SMEs creates well-grounded opportunities for technological progress. Enterprises, by seeking the EU financial aid, acquire new technologies and equipment, which could not be obtained by their own financial capabilities. In such a way, they achieve and sometimes surpass the technological level of adequate companies in the EU. At the same time, such companies manage to increase their competitiveness on national and international markets.

On the other hand, the phenomenon of speedy competitive advantages should make us stop and think over the future competitive strategies and the opportunities of exploiting them to the full without loosing the momentum.

The opportunities for technological advancement and renovations, as promoted by the EU, could reach us in two ways. Firstly, via the EU financial aid and, secondly, via a better access to scientific and technological innovations. The EU financial support to business enterprises provide them with an impulse and strong motivation for future development and long-term survival on the market. These business objectives could only be achieved and sustained, if after the EU financial aid is seized to exist the company is able to further invest into technological innovations.

The afore-mentioned issues and presumptions imply that research of closing the gap of less developed countries awaits an in-depth scientific discussion and proposition of improved political and strategic decision-making.

Editor-in-Chief Prof. Habil. Dr. Vytautas P. Pranulis