Personnel changes are only the first step in dealing with the situation we found. Minister of health Zlatibor Loncar said this a couple of days ago, explaining the replacement of 11 hospital managers all over Serbia. As someone already noticed, representatives of the government, particularly those belonging to the Serbian Progressive Party (SPP) and particularly the prime minister, keep talking about the “situation they found”, as if they came into power yesterday and not four years ago. That is why the subject of this article won’t be the above-mentioned execution – which is a scandal in itself, due to the manner it was implemented in, i.e. en gros and through some sort of kangaroo court – but a brief reminder of the situation in Serbia, more precisely of the main causes of the situation Serbia finds itself in today. This is the main subject of the article “Long-term consequences of economic breakdown of Serbian economy during the 1990s”by Milojko Arsic, professor at the Faculty of economics. In this article (pdf), the author deals with the potential and actual, i.e. achieved, economic growth of Serbia during the period 1989-2015. The article was actually published some six months ago (Quarterly Monitor no. 44, April), but came in very handy on this occasion.
According to Arsic himself, the motive for this analysis is the need to explain the huge lag of Serbia today compared to the countries which were once its equal or even less developed. The gross domestic product of the countries of Central and Eastern Europe (Poland, Czech Republic, Slovakia, Hungary, Bulgaria and Romania) in 2015 was 60% higher compared to 25 years ago, while Serbia is still 25% below that level. So, today, these countries as a whole are exactly 85% more developed than Serbia.
For reasons which don’t need further explanation, Arsic divides the analyzed period into two parts: before and after the year 2000. The fact that Serbia has entered the new millennium with a gross domestic product half of what it was a decade before (quite precisely – 53% lower) is more or less well-known. However, some inner “in-depth” features of this destruction which not only influenced the huge “short-term” fall of the gross domestic product, but also hindered the future development, are unknown.
One of the most important indicators of that fall, according to Arsic, is the fact that the gross capital of Serbian economy was decreased by 40% during the last decade of the 20th century. The main reason of that “capital destruction of the capital” was the low level of investments, which was only 12.5% of GDP annually during the 1990s. The level of 17-18% of GDP is necessary in order to merely keep the current value of capital level. Low investments “particularly influenced those components of capital which are relatively quickly depreciated” (i.e. which should quickly be replaced with new ones) “like equipment”. The actual value of equipment was also cut almost in half during that period, i.e. it was reduced by 45%. The fact that, at the beginning of the 2000s, the equipment in Serbian factories was 30 years old, while in Germany or Denmark the average age of machinery was only 13 years, is illustrative of this. Arsic concludes that, all in all, “the 1990s practically saw the de-industrialization of Serbia”.
But, this is not all. In addition to the physical, human capital was also destroyed. “1990s also saw the obsolescence of engineering and managerial knowledge, craft skills and others. This was due to the fact that the vast majority of the economy was inactive and sanctions prevented any contact abroad. Globally, the 1990s were a time of great economic growth and rapid technical progress, which quickly made the knowledge and skills of the Serbian workforce obsolete. Migrations of many qualified workers, engineers, and managers contributed to this loss of human capital”, Arsic writes.
“The numbers”, however, failed to illustrate the before mentioned disaster. The number of formally employed was decreased by about 500,000, i.e. 20% (it fell from 2.6 to 2.1 million) during the 1990s. This was still significantly less than the decrease of production and the value of capital, which were decreased by 50% and 40% respectively. The productivity was also decreased by 40% during the 90s. All this implies that the surplus of employees in 2000 was at least 40%, i.e. 800,000 people.
In summary: the situation the new government found in 2000 was as follows: production, capital and productivity were cut in half, while, on the other hand, the number of employees was almost double that required. Factory halls stood as Potemkin villages, without equipment or people necessary to meet the demands of the modern market.
In other words, the resources of Serbian economy were practically destroyed. That was the state of affairs in 2000 when Djindjic’s government took over.
The fact that, after 2000, Serbia started recovering slowly is evident. The most illustrative of this is the fact that, since then, GDP has increased by 25% (just as a reminder: it increased from 50% to 75% of its 1989 level). The key, of course, was the growth of investments. During the first four years, their level was 17% of GDP on average and they reached their peak of 23% before the economic crisis. Significant increase of investments during the period 2004-2008 led to an increase of the value of capital by 15%, which was, unfortunately, the only period during the last 25 years that Serbia saw a rise in the value of capital. In 2009, investments started to fall (to 17% annually on average) which is in line with stagnation of gross domestic product, causing the situation where achieved gross domestic product is 20% lower than potential. Still, the consequences of mistakes in economic (and not only economic) politics of the last fifteen years were much less severe than those from the 1990s. The author explains that:
“The present low level of development and quality of life of citizens aren’t dominantly the consequence of economic policy and reforms (privatization, liberalization, etc.) implemented in Serbia since 2000, but of the breakdown of Serbian economy during the 1990s.”
In conclusion, it may be unfair not to say that the title of this article is not entirely adequate. Not only because representatives of today’s SPP and their “radical ancestors” (some of which are still alive and kicking) weren’t the main actors of government and politics back then – although, if it were entirely up to them, the situation would have probably been much worse – and an attempt to put the blame on them is some sort of historical injustice. Besides, it is evident that many who intimately despise the SPP agree with them in the belief that the most damage was done after 2000, by liberalization and privatization. Or that they were the straw that broke the camel’s back, at least. This analysis showed that – no matter how grotesque the privatization was and despite the fact that there was practically no liberalization – the roots of the situation in Serbia today are completely different and much deeper.
Translated by Marijana Simic