After iron – grapes

Do you think that this anecdote will be popular in Serbia in 50 years: the most powerful man in the country came to Smederevo and asked the people what their biggest problem was, and the people said – iron. The powerful man didn’t hear correctly or pretended not to hear, and said “Grapes?^[1] No problem, the state will build you a winery”. And so, Smederevo once again became a orchardist’s paradise.

Legend says that a similar anecdote happened over half a century ago when Josip Broz Tito visited Smederevo and asked what the Smederevo region was known for and the comrades from the Committee patronizingly said “grapes”. The president was either hard of hearing or it was too loud around him, it’s yet to be determined, so he heard that there was a lot of iron in Smederevo and immediately decided to give Smederevo a steel mill.

And the Steel Mill was created.

Naturally, such (political) anecdotes contain a measure of fantasy, trying to emphasize the prevailing and usually devastating influence of politics on the economy. This anecdote was usually told by Smederevo folks nostalgic for Smederevo plums and peaches. This is also true of the story about Broz, who did decide to build the new Steel Mill, although we should remember that steel was smelted in Smederevo all the way back to 1913. However, regardless of this tradition, the Smederevo region was better known for grapes and peaches then for iron and steel.

Now that the tender for sale of the Steel Mill to the American Esmark company fell through, the Serbian government stepped up and rushed into the “iron morning” with an improvised plan “B”.

That plan is a lot like that joke, where a pensioner says that he’s “got the where and the who, just not the how”. Meaning that the government’s got “the where” (the Steel Mill) and “the who” (it’s advertised a vacancy hoping that the world’s best managers for production and sale of steel will apply), the only thing it misses is “the how” (money). What our prime minister calls “the wealth”, and keeps repeating that the Steel Mill has raw materials worth 120 (or 170-180) million euros, is not enough and doesn’t mean that the Steel Mill has the “necessary tools”. Raw materials are only one of the many production expenses of the Steel Mill, which will rise to 900 million or even a whole billion euros this year (according to serious calculations of the government itself).

Our government doesn’t have that kind of money, nor does it have the luxury of borrowing it. Even if it had all that money, it couldn’t spend it on steel production without jeopardizing its relationship with the European Union and its European path. One could say with almost absolute certainty that neither the International Monetary Fund (whose decision on the new arrangement we’ve been waiting for) nor the European Union (which has no money to give) are ready to lend a billion euros to our prime minister to be spent on the preservation of 5,000 jobs in the Steel Mill and social peace in Smederevo.

The European Union will continue to insist that Serbia mustn’t spend budget money on subventions to the Smederevo steel producer. And it will persist in this, just like in the case of Croatia when it didn’t allow Zagreb to subvent shipyards and boat production. Negotiations between Zagreb and Brussels two years ago were arduous, but ended in the privatization of the shipyard and cancelation of state subventions.

And so, our prime minister became a hostage of his own good intentions (without financial coverage) and showed that the road to political fiasco is often paved with cheap populism.

Plan B, so eagerly promoted by our prime minister and his ministers, is a new experiment and an unnecessary adventure which will, once again, prove expensive for Serbian taxpayers. With these “inputs” (costs) and “outputs” (assortment and price), no manager-wizard could make a profit. If US Steel could have done that, it wouldn’t have left Smederevo and sold the Steel Mill to the state for a dollar. It if was so easy as our prime minister imagines, James Bushar, the owner of Esmark, wouldn’t try so hard in day-and-night negotiations to protect himself and his company and minimize the risks.

The longer the fallacy on steel production in Serbia persists, the greater the costs.

That’s why the most important question now is – what to do with the Steel Mill?

Is it possible, as one minister said, “to secure the long life of the Steel Mill with good management and good will”?

Good will? Hardly. There’s an example like that in the socialist realist novel “How the Steel Was Tempered” (Nikolai Ostrovsky), but not in reality.

It’s time for plan C.

It’s time to say – better grapes than iron.

Who will say it?

Those whom the citizens elected to take care of this failed country.

What could be plan C?

To close the Steel Mill and award 5,000 employees with substantial settlements and free seedlings of grapes, apples, apricots and peaches.

Naturally, the first question is – where do we get the money for these substantial settlements?

Well, from the same sources our government uses to secure money for settlements for employees of companies in restructuring which will be liquidated.

And those could really be substantial settlements – the state should spend only as much money as it wasted on the Steel Mill in three years, and it would be a substantial amount, enough to start a sustainable agribusiness.

The majority of the Steel Mill employees could start their agribusinesses on forgotten and neglected family farms in the surrounding villages (Brestovik, Vranovo, Dobri Do, Malo Orasje, Osipaonica, Mihajlovac, Saraorci, Kulic, etc.) and the state could connect them with merchants and exporters. There must be friendly markets for these goods.

Of course, not all 5,000 employees would return to their farms, because some of them have no land or they’ve sold it in the meantime. But, this means that each employee going back to the farm must change his life philosophy. It is not only about learning a new craft (producing grapes instead of iron), but a complete existential “restart”. It’s not easy, and that is why many of them are turning their eyes to the state. But, is it easy for taxpayers and the state to constantly provide money for the unsuccessful business of the Steel Mill?

With smart planning and hard work, in five years at the most, those agribusinesses could generate more contribution to gross domestic product than the current contribution of the Steel Mill (this contribution is the subject of manipulation, by the way). It could, but it’s not certain.

Business always implies risk, but that’s why anyone who’s doing it is trying to minimize it.

Translated by Marijana Simic

Peščanik.net, 25.02.2015.