Hail the state and its spending!

By Miša Brkić

“I’m not saying that Serbia doesn’t need a plan to prevent decline. But, when there is no plan, the Declaration* is not bad either. I believe that the Declaration will be followed by a plan, although its authors say that it already prescribes concrete measures of what needs to be done in order to stop the country’s decline. Lest anyone consider me a partisan, I welcome the Declaration on Preventing the Decline of Serbia, authored by the Freedom and Justice Party. But…

In its introduction, the Declaration precisely detects the important anomalies of Serbian society, which it considers to be symptoms of decline. Therefore, as the first proposal, the Declaration offers a National Anti-Violence Strategy and there are also proposals for transforming the society of professions into a society of knowledge (point 5), the adoption of a National Anti-Corruption Plan (point 6) and the formation of a Regional Criminal Court to fight organized crime with the support of the EU and other international institutions (point 7).

In the aforementioned areas, decline can be prevented only by political will and political action. There are, however, areas where this is not possible.

In economics, for example, political will and action most often and mostly contribute to decline, never to recovery. When it comes to economic measures against the decline, the Declaration focuses on political will and political action. And this is where it is flawed and imbued with a high dose of populism.

First of all, the Declaration advocates (point 2) for the protection of the population’s living standard by “putting a stop to printing of money, determining the retail price structure of 100 basic groceries, limiting retailers’ margins and interest on loans, taxation of extra profits in energy, mining and trade, a significant increase in investments in agriculture through increase in subsidies, abolition of excise duties on fuel for farmers and guaranteed buy-up of farmers’ products at pre-defined prices”.

This proposal is flawed for at least three reasons. First, it emphatically cares about the living standard and not about the growth of production/employment and the increase of productivity. Then, it doesn’t say who exactly should do all these unsolicited tasks (determining, limiting, investing, buy-up). Intentionally or by accident, the Declaration says nothing about that, but it clearly implies that the state should do all of this. In the end, the effects of these measures are unknown because the proposal does not include a calculation of how much it will all cost and who will pay for it.

Although it sounds tempting at first glance (like all demagoguery), these measures would have severe consequences for the market economy, opening a Pandora’s Box of commodity shortages and inflation. As for the demand to stop printing money, it means nothing in itself without a serious monetary reform that implies full independence of the central bank.

The Declaration also advocates (point 3) the protection of economic potential “through the ban on further borrowing, the ban of the sale of natural resources and an obligation for every investor who receives state subsidies to pay at least the average salary to its employees.”

The Declaration advocates the introduction of a state of emergency in the Electric Power Industry of Serbia (EPS) and appointing a professional, instead of politically-favourite management, which will make this company again “a driving force behind the country’s development”. The proposal on prohibiting the state from borrowing more money sounds like Fidel Castro’s idea from 1965. Nowadays borrowing is a common way to raise capital to finance development (from China to America).

The problem is not in borrowing but in the state’s ability to generate a GDP high enough to comfortably service that debt. With the proposal to ban the “sale” of natural resources, the Declaration is on the trail of false sovereignty and cheap eco-populism, while inciting social hysteria about the importance of “national economic resources” and vilification of the public (I had to paraphrase the respected academician V. Cvetković).

The proposal regarding investors contains an explicit acknowledgement that the Declaration supports subsidies that enable the authorities to promote corruption as a tool for the country’s economic development. Also, declaring a “state of emergency” in the EPS and branding EPS as a “driving force behind the development of the Serbian economy” sounds depressingly socialist and statist.

I expected the Declaration to promote the “electrification” of the economy through the production of electric vehicles and batteries and not to turn EPS into a coal-fired locomotive.

Furthermore, the Declaration proposes (point 4) an increase in the starting salary of doctors to 150,000 dinars, nurses to 85,000 dinars, teachers and educators to 100,000 dinars and social workers by 25 percent, as well as mandatory stimulation of young people to enrol in these faculties through various forms of state scholarships and alter benefits for buying their first apartment and a decent salary.

The Declaration does not say, but of course, it is implied, that the state should prescribe what constitutes a “decent” wage. And who determines what “decent” wages are? The state again! However, nowhere does it say how the state will provide money for such an endeavour and subsidies for housing loans.

Will it do that through borrowing (which is supposed to be banned) or additional (extra) taxation of the private sector? What if the owners of private medical and educational institutions say that they cannot provide the state-prescribed wages and start closing health centres, clinics, elementary and high schools, colleges and kindergartens? Will the public health and education sectors be able to accommodate the patients, pupils and students who now use private sector services?

The Declaration wisely remains silent on the topic of how to free the market from state control, how to reduce the power concentrated in the hands of the government, how to prevent the use of the state budget as an instrument of social control and how to revive independent market institutions.

The Declaration trivializes the economy in a populist manner and reduces it to only one topic – distribution, redistribution and consumption. But in order to give to someone, you have to take from someone. It doesn’t say from whom. It is not at all difficult to assume that they mean the business sector.

Entrepreneurs and business people are not recognized by the Declaration as factors preventing the decline of Serbia. And there is no prevention of decline without the active role of people who create new value. The Declaration also does not say anything about how its signatories, if and when they come to power, intend to stop the greedy state from stealing from businesses as it sees fit.

And how they intend to, exclusively through economic policy measures, encourage entrepreneurs and business people to earn more and become wealthier in order to employ even more workers. The economy can prevent further decline if the economy and citizens earn more money.

The Declaration also does not say anything about what kind of environment should be created in order for new tycoons, the calibre of Kostić, Mišković, Aleksić, Popović, Šaponjić, Iković, Saranović, Mojsilović, Milutinović, Mastilović and Božilović, to “hatch” without the help of the state… The formula is simple – the richer the people, the richer the country. Such a state cannot fail. But that’s why a state that believes that redistribution is the solution to stopping decline will quickly sink.

(It is clear that the Declaration has its limitations. It is not a classic programme. It is more of a kind of proclamation. But regardless, it must, at least in a footnote, unequivocally state that the persistent and dedicated generation of new value is the first prerequisite for Serbia not to collapse.)”

(Danas, 25.09.2023)


***On 18th September, the opposition’s Freedom and Justice Party (SSP) unanimously adopted the Declaration on Preventing Serbia’s Decline.

This post is also available in: Italiano

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