Re: Political Economy of Yugoslavia

[chip poirot <csp@xxxxxxx>]

phillp2@xxxxxxxxxxxxxxx wrote:

> <Snipping>
>

> However, the main point is that 'privatization' has not, and did not,
> bring in any influx of new capital but, rather, allowed foreign firms to
> buy capital equipment at firesale prices and either strip the assets
> or engender profits that are promptly exported from the domestic
> economy.  I believe this has also been the case in Russia.  I think
> this was one of the reasons that Serbia also balked from the
> market 'reforms' required by the IMF previously.  My experience is
> old now, but talking to managers in Serbia earlier in the decade,
> there was a great fear that privatization, which could only occur by
> foreign capital or by managerial take-overs (without real
> compensation) since there were no pools of private domestic
> capital to inject into the economy, would lead to increased
> exploitation of workers and enterprises without any commensurate
> stimulus to economic growth. (By the way, I have survey evidence
> of this in the case of Slovenia.)

I think this is a very valid point. I've tried to examine similar problems
in some detail in a lengthy paper on the Bulgarian and Romanian economies
(as of yet unpublished). The privatization process has, as of yet, not
worked very well at all. Of course, there is a big difference between
Bulgarian and Romanian and firms in the former Yugoslavia. As I noted in an
earlier post, even though Yugoslavia did engage in some of the typical
Stalinist large scale white elephant industrialization projects, it also
emphasized a number of areas that were competitive. Being outside the CMEA
had distinct advantages.

The problem in Bulgaria and Romania, as in Russia and elsewhere is that a
significant amount of the industrial structure has to be entirely revamped.
This is  a classic case where rigid production functions and sunk costs
really matter. It is an all or nothing deal, with most socialist countries
lacking the internal capital necessary to carry out the task. Privatization
has resulted  in a lot of insider deals being cut, with managers or insiders
getting assets at bargain basement prices. Its a sort of catch-22: If you
privatize, you will lose half the work force and face unemployment rates in
the 25-30% range for years. If you don't revamp the state sector, then the
central government has to in some way continually subsidize an unworkable
and ecologically destructive industry.


> As I indicated in another post, self-management has I think been
> given a 'bum rap' in that it was much more successful than has
> generally been credited by the capitalist press (and economists) in
> the west.  Whatever its faults, it was popular with workers -- at
> least in Slovenia where public opinion polls gave it overwhelming
> support.  I believe the same was true throughout Yugoslavia.  My
> meetings with workers and trade unions in Serbia and Cerna Gora
> would support this view.  Opposition to self-management and social
> capital came largely from economists and managers (cum
> capitalists).

Actually, I think you might have misunderstood my point in my previous post.
I didn't say that self management was bad. I said that it was often blocked
by the party bureaucracy and that recentralization of planning in the 1970's
worsened the conflict. There are many good reasons why worker owned and/or
managed firms should work at least as well as shareholder owned firms that
have to hire and supervise "independent" managers. Nevertheless, I think
that just as management has an incentive to overcompensate itself by
inflating stock performance, self management in an economy with soft budget
constraints will face similar problems. My guess is that the increases in
wages over and above the increases in productivity in Yugoslavia were a
means of the management/party bureaucracy used to temporarily deflect
conflict over the control of the "self-managed" enterprises.

> So, to answer your question, why have the Bosnian Muslim
> opposed privatization despite the fact that their mini-country was
> the creation of American designs to incorporate the region in the
> 'American Empire', I can only suggest that they have looked at the
> results of privatization in Croatia, the Czech Republic, Macedonia,
> etc. and realized that its a mug's game.

I'll reserve the right to come back to this point at a future date. I do not
believe that Washington or the EU desired the breakup of Yugoslavia. Quite
the contrary-policy has tended to follow the realist dictates of people like
Kissinger and Lampe who wanted to promote stability through large
nation-states.

> As others have noted,
> little if any net inflows of capital have come to Bosnia since
> Dayton, and what money has come in has gone to pay the
> international money lenders.  Privatization would do little to bring in
> new money so it is counterproductive to sell out to foreign capital
> which will either raid the real capital stock, or buy out at firesale
> prices to repatriate any profits abroad.

This is no doubt true. But I also think you cannot ignore the fact that
privatization often takes place covertly. Insiders oppose the entrance of
outsiders into the process.

> I must admit, I have never understood the allure of privatization of
> social capital which is merely a shift from public ownership of
> mutual funds to private ownership of mutual funds with no essential
> change in management or capital access.  Am I missing
> something?
>

I have never understood the allure of state owned  property. As noted above,
a persistent problem with state owned industries in Bulgaria, Romania and
Russia is that their performance leads to the growth of arrears over time,
requiring the granting of state credits. The theory behind privatization is
that private firms facing hard budget constraints would have the incentive
to modernize. In the long run, this would lead to an increase in output. As
of yet, this has not happened.

A partial solution might be better state supervision of state owned
enterprises. As of right now, what his happening is that you have state
desertion and very loose supervision through state funds-which are
controlled by insiders. So effectively, the state sector is run for private
gain and the resources are carted off by insiders. Privatization to the
public and/or workers, with effective regulation and oversight of
privatization funds and transparency in the privatization process would also
help.

However, at some point in some way the fact must be faced that the
industrialization process in most former socialist countries built white
elephants.

>
> Paul
> Paul Phillips,
> Economics,
> University of Manitoba
>
> Date sent:              Fri, 4 Jun 1999 13:14:50 -0400
> Send reply to:          pkt@xxxxxxxxxxxxxxxx
> From:                   "J. Barkley Rosser, Jr." <rosserjb@xxxxxxx>
> To:                     POST-KEYNESIAN THOUGHT <pkt@xxxxxxxxxxxxxxxx>
> Subject:                Re: Political Economy of Yugoslavia
> Originally to:          <pkt@xxxxxxxxxxxxxxxx>
>
> >        Question for Paul Phillips:
> >       I grant that Warren Zimmerman's sandbagging
> > of the de facto cantonization agreement in Bosnia-
> > Herzegovina in 1992 contributed significantly to the
> > outbreak of the war there.  If this was done for motives
> > of imperialist economic domination, then why do we
> > now hear that the Muslim Bosniaks are resisting
> > privatization?
> > Barkley Rosser