The Economic Consequences of Slobodan Milo w evi '

Abstract

MODERN ECONOMIC DEVELOPMENT has been associated with profound structural changes. Agriculture became increasingly commercialised and therefore specialised, it increased in productivity and shifted towards livestock raising. It supported a rising standard of food consumption, while permitting an overall shift of resources towards secondary and tertiary activities. Industry expanded as a proportion of total output and, within the industrial sector, there was a shift from low value added processing of primary products and the manufacture of single-use consumer goods towards higher technology sectors, especially in the production of machines and metal manufactures, producer goods and consumer durables. Growth caused a disproportionate rise in productive capital stock, and a corresponding deepening of social infrastructure. Fast growing economies were associated with rising personal and corporate savings, supplemented by the net inflow of capital. Public authorities increased their participation in total output. They devoted a rising proportion of their own activity (excluding transfer payments) to the provision of social services to the population, particularly healthcare and education, while reducing the proportion devoted to internal and external security. Rising healthcare and education provisions were accompanied by improvement in the human capital stock, which in turn facilitated the assimilation and development of new technologies, which sustained economic advance. This general statement of the relationship between economic growth and structure loosely follows the template set up in the 1960s by Simon Kuznets.1 Economic structure in countries experiencing protracted secular decline should therefore undergo changes the reverse of those associated with growing economies, though this has not to my knowledge been tested. We would expect economic decline to be associated with a growing dependence on agriculture, especially for selfconsumption, a deterioration in agricultural practice, and a diminution in the physical capital stock in productive industry and in infrastructure. Industrial structure would shift away from metal goods and producers goods, and the quality of the industrial technology applied would deteriorate. Decline would also be associated with negative saving and net capital export. Within the sector of state provision, spending on state security would rise relatively, resulting in a sharp run-down of healthcare and education. This would threaten the quality of the human capital stock. Between 1978 and the fall of the Milosevic regime in 2000 Serbia-Montenegro (from 1992 the Federal Republic of Yugoslavia) experienced protracted secular