This has been a very engaging debate and I want to thank Omar as well as the organizers and contributors. In this concluding statement, I’d like to highlight both those areas where we agree and those where we still end up with different perspectives.

We can agree on the following:

Everyone needs skills and continued skills upgrading.This is a no brainer. We all value education and those of us who are parents want to make sure our kids have the opportunity to learn and acquire the skills so that they become successful adults. Everything else being equal, countries with a higher-skilled workforce are doing better.

Support is needed for older low-skilled workers. Johannes makes an important point about the vulnerable “older generation”, those 40 years and above. Many already lost their jobs (often in inefficient socialist-type enterprises) and many more will as inefficient SOEs get restructured, sold or shut. How can this transition-generation be helped to adapt to 21st century jobs?  The Western Balkans is not alone in dealing with these challenges. Eastern Europe, including East Germany, also had to go through this painful transition. The starting point should be to lower the financial barriers to hiring low-skilled workers: taxes and social security contributions, for instance, remain excessively high in the Western Balkans.

An auspicious business environment and better skills are complements not alternatives. As Indira points out there is not always a trade-off. Many reforms to the business environment are revenue neutral (in fact, can even help the state mobilize more resources). Governments can improve the business environment and enhance skills at the same time and both efforts can reinforce each other, especially if they are combined with labor market reforms. But the relationship goes both ways: skills need jobs as much as jobs need skills.

Yet priorities are needed. Some commentators felt we had created an artificial distinction between jobs and skills, both of which are key ingredients of successful economic development. However, this debate was about priorities for policy. Imagine a normal day of a Prime Minister in the Western Balkans today. Should he/she worry most about creating jobs or improving the quality of the education system and how should policy initiatives be best sequenced to maximize impact?

My priority for the Western Balkans would be job creation. Here is why:

The education system is doing better than the economy. Most of the data, including on labor costs, and experience of other countries suggest that the education system in the Western Balkans is good enough relative to the professional opportunities and needs that the economy creates. If that was not so, you wouldn’t see so many people from the region seeking and finding good jobs abroad. A lot needs to be done to upgrade the education system, as Omar highlights, but that’s also true in almost every other aspect of the economy. Though survey data is not always consistent, as highlighted by some commentators, with a few exceptions, skills fail to appear on top of firms’ assessments of main impediments.

Skills alone do not determine the long-term prospects of nations, the economic environment does. The business environment is not just a short-term challenge but also critical in the long-term. The Soviet Union and its allies had a well-educated workforce, but their economies collapsed all the same. Moreover, while building skills is important, deploying them effectively is also key. In the Western Balkans, too many managers and employers are spending their time dealing with the government bureaucracy instead of serving clients.

We need a dynamic concept of skills and the business environment. Today, we are all part of a global labor market. Half the world is younger than 29 years and the new generation is much better educated than previous ones. Skill gaps to some extent are inevitable given the pace at which the global economy changes and the exponential speed at which global knowledge grow doubling every 13 months (according to IBM). Gap filling strategies are not only likely to be inefficient but also ultimately unsuccessful or self-defeating (if the better-skilled migrate abroad). While the automotive industry in Slovakia, Serbia or Macedonia actually needs skilled workers, the best strategy is likely to be to open (labor) markets for firms to get the talent they need where it can be found. A few jobs may go to foreign workers but the wealth that these businesses create and the opportunities that come when the economy grows faster help everyone.

The Western Balkans, first and foremost, need more jobs which can only come from the private sector because the public sector is already too large. With a dynamic and open environment for firms to operate in, workers will get the skills they need because most of today’s learning is informal and on the job. You don’t learn entrepreneurship in academic courses. You need to do it to learn it.

This post first appeared on The World Bank’s Future Development Blog

Author: Wolfgang Fengler is the World Bank’s Lead Economist in Trade and Competitiveness for the Western Balkans.

Image: Students sit for an exam at the French Louis Pasteur Lycee in Strasbourg, June 18, 2012. REUTERS/Vincent Kessle