за четвртак 5. октобар 2006.

 

Најстарији дневни лист на Балкану.
Први број изашао 25. I 1904.
Оснивач Владислав Рибникар.

 

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THE ECONOMICS OF SERBIAN POPULISM
The Irish model in Serbia

(Илустрација: Новица Коцић)

Here in Serbia, we are great funs of fairs for common folk and one such event is just about to begin.  The talk of the town are EUR 1.6 billion from the National Investment Plan and how much will go to which municipality - the adrenalin is pumping, life is getting interesting. And it seems that everyone will get a slice of the cake. For instance, in the township of Blace they will build a swimming pool worth half a million euros. A hefty number of local swimmers will certainly gratify the confidence which the Government of Serbia has selflessly put in them. And three times more money the Government will allocate to itself for attracting foreign investment (when you come to think of it, though, maybe they would be better off with building another three swimming pools). For “incentives for creating innovations”, whatever that may mean, they intend to set aside two and a half million euros. And that is peanuts compared to “incentives for improving the quality of supply in the catering industry” at a price of a full ten million euros, which then really gives a meaning to all the above mentioned swimming pools, incentives and innovations, doesn’t it?

If someone went carefully through other items of the National Investment Plan, he would probably find many more exotic examples. What is more, even the coordinator of the National Investment Plan complained to the citizens that a large number of project proposals were unprofessionally prepared. Which, to be fair, was anticipated by nearly all who know a thing or two about economics and economic policies – from the IMF, to the World Bank, to foreign and domestic professors of economics. They said even more – that it was a wrong way to go, as it would generate inflation and further increase trade deficit, interest rates and the exchange rate, accompanied with new impetus to voluntarism and corruption in the public administration. Alas, the only “critic carrying some weight”, the IMF, was neutralized in a timely manner, by not entering into a new arrangement, so that now nobody can prevent the Government from this latest fiscal adventure. The opinions of all other critics can hardly fill a quarter of a smallish ballot-box, and are rightfully dismissed for reasons of being irrelevant. Just think for yourselves: if Evita Peron had asked the IMF what to do, what would have ever become of her?

Then the Irish model somehow crept into the story, but only as of late. I suppose this is because Ireland simply did not exist before 2006, hence the Government did not have time to incorporate its experiences in one of 13 or 14 strategies designed in the past three years (while at the same time everybody is wringing their hands over Serbia’s having no strategy). Nevertheless, we should add that some of the subsequently discovered features of the Irish model could make its (both governmental and non-governmental) proponents to give it up for good. For instance, that part of the Irish model in which public spending was to be cut from 55 to 35 percent of GDP in just ten or so years. Thus one would have to learn and announce that Ireland implemented a very severe neoliberal shock therapy! And in Serbia, where the Irish model is kept on the pedestal as a symbol of the “win-win combination”, the exact opposite thing has been done: the public spending has been increased by another 13 percent. I wonder if any proponent of the Irish scenario has even noticed that lethal detail.

Although wrapped in noisy silence, the key to all the problems of the Serbian economy remained the same – it lies in the non-privatized sector of large socially owned and public enterprises and that without a radical break in this field Serbia is doomed to high and rising unemployment and despair. Serbia is being eaten up by unearned, but paid wages – a thing that has not happened in Ireland since the early 1980s. And that was the second crucial reform step in Ireland, that freeze on growth in nominal wages. Is there any chance to do something like that in Serbia? I doubt it, although this is precisely the way to attract foreign investors. This is how it was done in Ireland, which resulted in a fall in unemployment rate from 16 to 4.5 percent and where at present 87 percent of exports is now carried out by US multinatonals, which definitely do it better than anybody else. It would be difficult to even imagine a better outcome, but one must remember that it took a lot of energy and courage to do it. And if we take a moment to look a bit more closely at all these stories about tigers and dragons – Celtic, Asian, you name it, we shall see that all these stories are about saving and sacrificing, about gradually growing wages and fast rising profits. It is the only way to have any wage growth while creating new jobs. Economics has not yet invented any other miracle.

And as for Serbia, what does the future hold for us over there? First the National Investment Plan, and then the elections. In the meantime, inflationary pressures will rise, which is the last thing we need, bearing in mind our unemployment rate of more than twenty-five percent. Still, one can trace two safeguards to rising inflation – one is embodied in the person of the governor, who is quite resolute to contain inflation, which is possible, in principle, but at the price of higher interest rates and even stronger appreciation of the exchange rate, yet there is no other way: getting sober was always much less enjoyable than getting drunk. The second barrier to reckless spending are the upcoming elections, which creates space for the next prime minister and his future ministers to start seriously thinking about the Irish model, but this time using brains more generously than before.

In the meantime, we in Serbia can actually have a sigh or relief. None of these things things has to be done right now, for presently there are three nice and easy “reform” steps ahead of us: first to make a toast, then to share the money from the National Investment Plan, and finally to vote. And all these things are things we know and like to do.

 

Danica Popoviæ

Professor at the Belgrade Faculty of Economics 
and a member of the Center for Liberal-Democratic Studies

[published in daily magazine Politika, 5 October 2006]


 

 

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