How to be ahead of the curve: The role of politicians in Serbia's reindustrialization

Abstract

The implosion of Yugoslavia and economic sanctions which were imposed to Serbia by international community automatically pushed the country into depression. With 60% drop in output and mega-inflation the economy in 1993 passed through near-death experience. The legacy of depression demonstrates its severity up to these days. From Serbia's perspective the principal consequences of the implosion of Yugoslavia are as follows: deepening of old structural imbalances, population migration (including brain drain), and substantial damage to institutions (rules, systemic laws, regulatory bodies, prevailing behavior of economic agents, etc.). Epilogue was a long and deep transitional recession. Serbia's economic fact sheet shows that the economy is not sustainable. To escape a low-growth debt trap Serbia needs a spectacular turnaround. Without radical reforms the threat of default could develop into a full-blown crisis. Damage to the economy from a short shutdown is likely to be limited to economic risk. A longer shutdown could be quite harmful and extend to political and geopolitical risks as well. When you lose confidence, bright people and institutions, turnaround asks for some forces to take the lead in providing a wide range of economic reforms. The role of politicians in that process is unavoidable. But, it is not a trivial task. It is exactly the challenge that makes the triumph of reforms so rewarding. Done well, undertaken with a clear vision and organically, the exercise of reforms becomes a venture that can renew both the economy and political leadership. In that context the key question for Serbia's politicians is: what is the strategy to resurrect the economy and restore its credibility in business community? Money created by stimulus (or quantitative easing) is not applicable in the case of Serbia because it is not possible to refer to 'too big to fail' argument in almost irrelevant and reindustrialized economy. Turnaround is a challenging request for politicians as initiators and facilitators of reforms because they must keep all parts of society in balance while switching toward the new trajectory of economic development. The very first step in Serbia's reform journey is integration with the EU. For lower income economy like Serbia, compatibility with the EU opens the door to convergence effect. While Serbia is becoming politically closer to the EU, it is also becoming economically more vulnerable. As a consequence, a pressure on political leaders to make structural reforms is increasing. Economic reforms need conceptually heterogeneous approach. Macroeconomics looks at the economy from a helicopter perspective. But, it is not the only relevant perspective. Business (or microeconomic) perspective also matters. This is especially true when we are in the process of closing the output gap as the main long-term effect of sustained disequilibrium. Exploring the idea exposed in our previous articles [2], [3] and [4] we focus on various aspects of the reindustrialization strategy. The purpose of this paper is shift to another perspective, the analysis of the role of politicians in this process. What skills and mindsets do politicians need to possess to be initiators and facilitators of reindustrialization? First and foremost, they must be strategists. Their goal is to build something that is not there yet but it is achievable and effective. Strategy is anchored in a clear and compelling vision (or purpose). National economies should exist for reason. But, vision is not a strategy. Strategy is more than a great idea what to do, more than inspiration or a dream. It is a system of activities, a set of mutually reinforcing components under the umbrella of vision. Success of strategy is not due to a host of one simple activity, but to the implementation of great idea in an intricately woven system of activities that work in concert. It is a way of implementation of 7. Schumpeter's idea about creative destruction, to be 'ahead of the curve'. How is the article structured? Before we elaborate arguments for reindustrialization, we seek to understand past mistakes in former economic policies to avoid repeating them again. The previous aspects will be presented in introduction. Economic revival depends on new vision, on where we are heading. It is the principal point of two successive parts of the article dedicated to structural changes in the global economy and in Serbia, respectively. The fourth part provides proposals for reindustrialization as conceptual platform for economic revival. Before conclusion, the final part clarifies the role of politicians in reindustrialization of Serbia.