Adriana Mladenova, Senior Economist, Institute for Market Economics, www.ime.bg

Over the past few months, one question has not been avoidable in by Bulgarian society - Just how important is European Union funding for the Bulgarian economy?

We could be more extreme in our assessment - do Bulgarians really need European taxpayers' money to develop their economy and increase living standards? Current research shows that there is no proof that funding can assist the economic growth of a country or increase society's wealth.

On the contrary, it is a source of corruption and biased economic incentives, which usually creates a culture of dependency. A small group of people may gain from subsidies and funds, but this only happens for a short period of time and at the expense of others.

According to comprehensive research, European Union financial support actually has a negative effect on Bulgaria, distorting market indicators. Because of the EU, intelligent business sectors are being constructed in regions of Bulgaria that have an unqualified labour force, resulting in lower economic development. The market then directs resources to other regions accordingly for optimal use.

As we can all agree, Bulgaria is in need of better roads and a more qualified labour force, as well as more effective agriculture and more effective administration. What is the alternative to the suspended "European" money in order to solve these problems?

AGRICULTURE
Alternative: more free market and economic freedom and fewer interventions. Although it is the most subsidised sector of the Bulgarian economy (through state aid, European programmes, etc), agriculture remains significantly behind the remaining sectors. Low contributions to the economic growth of the country were reported not only last year (when the drought led to a record-breaking low harvest), but also over the past three years. This is because of the country's numerous small, labour-intensive family farms, which operate inefficiently and are unable to make a profit. They often rely on subsidies just to survive. For example, only 1.6 per cent of dairy farms in the country have more than 20 cows.

However, is financial aid the answer to this sector? Unfortunately not. In the long term aid will only exacerbate the situation. Funding makes them dependant. It does not teach them about organising or managing an enterprise, about business research or bureaucratic procedures. Under the umbrella of funding - this embraces protectionism, interference and assistance - the only successful people are those who are able to respond to administrative requirements. And very often they are not the entrepreneurs who are seeking to satisfy the market in the most effective way.

INFRASTRUCTURE
Alternative: public-private partnerships and private sectors providing capital for building and reconstruction of roads, airports and other infrastructure projects.

There are different forms of public-private partnerships - concession, privatisation, leasing and green investments. This will ultimately transfer part of the market risk to the private sector, which provides the finances. The use of private capital leads to more effective spending of funds and higher quality of the product or service.

According to data from the World Bank, between US$60 and $100 billion annually are invested in developing countries by private companies for infrastructure projects: transportation, telecommunication, energy, water and sewage. In some regions (Latin America, East Asia) these represent about 40 per cent of the total investment in infrastructure.

SCIENTIFIC INVESTIGATIONS AND HUMAN CAPITAL
Alternative: educational system reform. It is necessary to create incentives to improve business performance and education. This can only take place by competition. In order to gain interest from businesses, universities must outline the tuition fees, the number of student places available, as well as the specialties on offer. Centres for research and development and innovation could become learning centres financed by private sectors. The first steps in the right direction have already been made with delegated budgets providing company directors greater autonomy and the opportunity to increase business education through matriculation. As the saying goes, money follows the student. Scientific research was moved by the interest shown by entrepreneurs.

Global experience shows that the largest scientific institutions are financed, to a large extent, by donations from private individuals and companies, and smaller contributions by large corporations, non-profit organisations and universities. Data indicates that private resources represent a significant part of the funds spent on scientific development. During 2003, more than 63 per cent of funding for research and development in the USA came from business, whereas only five per cent came from non-profit organisations and universities.

ADMINISTRATIVE CAPACITY
Alternative: Less redistribution and a smaller state mean more effective administration. State employees' roles should not just be about determining who deserves financing and who does not. They should be about creating more effective business environments, protecting property rights and creating laws and rules that apply to everyone. In that way, administration would work more efficiently and there would be funds to support higher salaries.

Unfortunately, the real problems that should be on society's agenda are Bulgaria's need for an effective judiciary system. The European Commission's actions and the European anti-fraud office reports prove that Bulgaria is rife with corruption. European funding will not change the fact that Bulgarian laws do not apply to everyone and that there is no system in place to protect property rights. These are the prerequisites for an efficient market economy.