Excerpt from the paper Industrialization – myth or reality? Ljubodrag Savić
University of Belgrade, Faculty of Economics
Accelerated industrialization had a very significant place in the post-war development of Serbia. Very impressive results were achieved in a short time. According to the level of development, Serbia belonged to the group of medium-developed industrial countries at the end of the eighties of the last century. In the last decade of the 20th century, Serbia faced enormous problems (disintegration of the SFRY, civil war, sanctions, hyperinflation, aggression of the NATO pact), which had a very unfavorable effect on the development of industry. After the October changes in 2000, it was believed that the worst was over and that better days were ahead for Serbia.
Instead of industrialization, a development model was established that relied on the inflow of foreign capital, imports and the dynamic growth of services. The chosen development strategy, the disastrous model of privatization and the complete liberalization of Serbia's foreign trade practically continued the accelerated collapse of Serbian industry, which began in the last decade of the 20th century. Since the beginning of the global economic crisis, Serbia has been in a very difficult economic situation. In the search for possible answers, how to overcome the crisis and establish an efficient and long-term sustainable development model, re-export-oriented industrialization seems like a completely realistic and acceptable alternative.
Accelerated industrialization had a significant place in the post-war development of Serbia. Very impressive results were achieved in a short time. At the end of the eighties, Serbia belonged to the group of medium-developed industrial countries.
The collapse of socialism in Eastern Europe and the fall of the Berlin Wall caused major tectonic disturbances in the wider Balkan areas as well. The SFRY disintegrated and a civil war began, which produced enormous destruction and a large number of human casualties. Serbia has experienced hyperinflation, devastating international sanctions and barbaric bombing by NATO countries. As an epilogue to these events, October 5, 2000 took place. It was believed that the worst was over, and that much better days await Serbia.
It has indeed dawned on some, but not yet on most. The ruling political elite, with the support of part of the business and intellectual elite, established a system that provided incredible wealth and enormous power to a small number of chosen and favored ones. A development model was established, which relied on the inflow of foreign 298 Ljubodrag Savić capital, imports and dynamic development of services. An important lever in its functioning was the "strong" dinar, due to which imports were significantly more profitable than exports.
Such a model of development continued the collapse of Serbian industry, which began in the last decade of the 20th century.
The devastating effects and unexpected duration of the global economic crisis showed that the neoliberal model of development was the key cause of its onset.
The crisis spilled over into Serbia, but it would have happened even if there had been no global economic crisis.
Solutions to the problems were offered by the authors of some of the 106 different strategies for the development of Serbia adopted since 2001. None of them, including those who gave them opportunities for years, asked themselves why we fell into a severe economic crisis, despite so many strategies? Is the problem with those who commissioned those strategies or those who wrote them, or both? The current government has also formed the Council for National Revival, whose recently released paper on reindustrialization is not far behind similar ones that have been pompously launched in the last few years. The first was created at the "famous" Kopaonik Business Forum. In the middle of 2010, the "Post-Crisis Development Model of Serbia" saw the light of day, followed by the document "Europe 2020" of the former president, and in 2011, the "Strategy for the Development of the Industry of Serbia from 2011-2020" was offered to the public. years". Despite a number of more or less serious documents, the Serbian industry is sinking into an ever deeper economic crisis. So what's the problem? Precisely because the current government has not learned much from the bad experiences of the recent past. If it was, the new Reindustrialization Strategy would not have been proposed by some of the big Serbian capitalists, who have become enormously rich on imports and services, using the benefits of the overvalued Serbian dinar. The strategy of new industrialization should be proposed by those who are convinced that it can rescue Serbia from a deep economic and social crisis.
The key prerequisite for its adoption and effective implementation is the general national consensus and unreserved support of the state.
Due to the severity and number of problems, the re-industrialization of Serbia seems like an impossible mission, but the experiences of countries from the distant and recent past show that it is feasible. Since the re-industrialization of Serbia cannot happen by itself, an activist approach of the state is necessary, which does not imply state management of industrial development.
The aim of the paper is to assess the effects of the current development model, to point out the importance of industrialization for the overall economic and social development of the country, and to propose the basic elements of the future strategy of the development of Serbian industry.
TRANSITIONAL EFFECTS OF THE DEVELOPMENT OF SERBIA
In the post-war development of our country, industrialization had a very prominent place. In a few decades, Serbia, as part of the former SFRY, was classified as a medium-developed industrial economy. With the disintegration of the state, the introduction of sanctions by the international community and wars on the territory of the former country, industrial development was dramatically interrupted.
With the change of government in the year 2000, Serbia began implementing the second phase of transition. Instead of industry, the primacy in development was given to services. We spent a quarter more than we produced, and imports were twice as high as exports. The process of destroying Serbian industry continued with the bad concept of privatization.
The current world economic crisis has confirmed several important facts that have been pushed under the carpet for years. The collapse of the financial and then the real sector showed that the market mechanism is not as perfect and superior as it was believed until the beginning of the current economic crisis. Declining production and job losses suspended the free trade mechanism that had been built for decades. Due to the severity and prolonged duration of the economic crisis, the real sector of the economy has again found itself in the focus of anti-crisis measures by the governments of most countries of the world.
The previous decade of economic development in Serbia was marked by tertiaryization and deindustrialization. The global economic crisis hit the Serbian economy and especially the industry hard, confirming the warnings of a few that the development model, dominated by the service sector, based on the inflow of foreign capital and revenues from privatization, cannot provide satisfactory and long-term sustainable development. Long-term neglect of the development of the real sector and a significant reduction in the inflow of foreign capital and income from privatization made the "old" model of development unusable.
The problem of rigid and ineffective socialist industrialization of the former socialist countries, now members of the EU, after the initial transition crisis, was elegantly solved by developing modern industry, based on the inflow of foreign capital and rapidly growing exports. Such an orientation led to the growth of the industry's participation in the creation of the gross domestic product. In 2011, it was 41 percent in Romania, 36 percent in the Czech Republic, 35 percent in Slovakia, 32 percent in Slovenia, and 31 percent in Hungary. In the same year, the share of industry in the GDP in Norway was 40 percent, in South Korea 39 percent, in Russia 37 percent, in Germany 28 percent and in Japan 26 percent (World Bank 2013). At the same time, only 18 percent of the gross domestic product was created in our industry. In the last few decades, and even during the economic crisis, China recorded double-digit growth rates of industrial production, due to which the participation of industry in the creation of GDP grew, reaching 47 percent in 2011.
A clear turn towards re-industrialization was clearly made by the European Union at the Lisbon Summit in March 2000, when it was planned that by 2010 the European Union would become the most competitive economy in the world. The new industrialization in the EU was based on knowledge, innovation and entrepreneurship. The EU has recognized (Commission of the European Communities, 2002) that it is necessary to abandon as soon as possible the "widespread but erroneous assumption that in information and service societies, and on the knowledge-based economy, the manufacturing industry no longer plays a key role". The EU maintained the same 300 Ljubodrag Savić attitude towards industry in the document "Europe 2020" (European Council 2010).
Bearing in mind the importance of industry in the economic development of most countries of the world, it is inexplicable why Serbia in the second phase of the transition pursued an economic policy that led to the complete collapse of Serbian industry. It was believed that market forces would work and that free competition would give birth to a modern and highly efficient economy, which could easily engage in international exchange. The biggest victim of such an approach was the industry, which from being the engine of development in most of the post-war period, became a chronic patient who expects radical and urgent therapy.
What are the effects of the post-war industrialization of Serbia? In the period 1955-1990, the average annual growth rate of industrial production was 7,7 percent, which is why its physical volume in 1990 compared to 1955 increased 11,4 times (Savić 2013: 334). 1,1 million workers were employed in industry (1955 thousand in 275), and 44 percent of GDP was created in it.
Industrial centers were the carriers of development.
In the last decade of the 20th century, the industry of Serbia fell into a crisis, achieving a declining average annual rate of physical production volume of -6,6 percent. In the year 2000, the industry employed 765 thousand workers, and the participation of the industry in the creation of GDP was 29 percent. Most of the industrial centers were in a deep economic crisis.
Even after the October changes, the agony of Serbian industry continued.
From 2001-2011. In 0,7, a very modest average annual growth rate of industrial production of only 1,9 percent was achieved. Until the beginning of the global economic crisis, the average annual growth rate of industrial production was 2009 percent, and from 2011-2,7. a decreasing average annual rate of -XNUMX percent was recorded.
The physical volume of industrial production in 2011 was only 5,4 times higher than in the very distant year 1955. In 2013, only 275 thousand workers were employed in the industry, the same as in 1955. The contribution of industry to the creation of GDP was only 18,1 percent. Industrial centers have become the "black holes" of Serbia's development.
Compared to 1990, the level of industrial production in 2013 was only 44 percent. In 2007, there were 28 cities - industrial centers in Serbia, with more than one thousand employees, and in 1990, there were 62 such industrial centers in Serbia. In 2007, Serbia had 55 companies with more than a thousand employees, and in 1990 there were 217 such companies. In 1990, 245 thousand workers were employed in industry in Belgrade, and in 2007 only 14 thousand.
In the transition model of development, the most dynamic growth was recorded by services, based on enormously high imports, which in the period 2001-2011. amounted to 113 billion euros. A huge amount of imported goods had to be transported, sold, insured and financed. An important question, which the managers of Serbia, until the beginning of the global economic crisis, did not consider at all - is: how to properly service a very high and accelerated industrialization in the long term - myth or reality? 301 but the growing public and foreign debt of Serbia, when our exports are very modest and the foreign trade deficit is huge? By neglecting the development of the real sector and the dynamic increase in exports, economic growth based on high imports and enormous foreign borrowing inevitably slows down sooner or later (Savić 2008: 16–18). The development of the economy becomes virtual and dependent on imports, which is determined by the available foreign means of payment, i.e. the possibility of further indebtedness of the country. Therefore, at the beginning of the vicious circle, there is high import, which ensures an above-average growth of services, on which VAT is charged and collected, which all together ensures high GDP growth rates. The functioning of the "model" was facilitated by the overvalued dinar and the artificial increase of the low purchasing power of the domestic unemployed and poorly paid population through "favorable" loans, which the population carelessly took.
The functioning of this "model" of development, as with pyramidal savings, crucially depended on a sufficient inflow of foreign means of payment. According to available data from the Ministry of Finance and the National Bank of Serbia, in the period 2001-2011. over 117 billion euros entered Serbia. Of that, 13 billion euros was new borrowing, 15 billion euros foreign direct investments, 54 billion euros exports, 2,6 billion euros revenues from privatization (a part came through foreign direct investments) (Republic of Serbia, Ministry of Finance, Public Finances Bulletin 2013 : 16–17), 29 billion euros in remittances, and 3 billion euros in donations (National Bank of Serbia 2013, Balance of Payments of the RS 2001–2012).
The tertiaryization of the economy has completely deformed the economic structure, leading to numerous imbalances, which were brought to the surface by the global economic crisis. The privatization model occupies a special place in the collapse of Serbian industry. After a decade of its implementation, it can be assessed that the privatization process in Serbia was not used for the restructuring and revitalization of industrial capacities, which in the previous period were the carriers of economic development, employment and exports of our country. On the contrary, most of the largest industrial companies have sunk deeper and deeper over time, since no government has had an adequate program for their restructuring and privatization until now.
In the processing industry, which makes up the largest part of the total industry, the privatization process is almost complete, as 878 companies have been privatized so far (Republic of Serbia, Strategy and Industry Development Policy of the Republic of Serbia 2011–2020: 91), while only 39 companies remain for privatization. , not counting 258 companies whose contracts have been canceled in the meantime. The fate of privatized companies whose contracts have been terminated is very bad. It is unrealistic to expect that these companies will become efficient again, because they have been very badly managed for several years. Isn't this in complete contradiction with one of the key paradigms that has accompanied the current model of privatization from the beginning - that private property is by definition more efficient than social and state property - which the creators of the current law cited as a key argument that social and state property should be replaced by private property as soon as possible .
(Contents of the entire paper Industrialization - myth or reality? Ljubodrag Savić, Collection of SANU Possible development strategies of Serbia, )
