By Biagio Carrano
It is hard to feel part of a state that you perceive as corrupt – even more so when that perception worsens year after year. Since 2016, maybe not by chance when the Serbian economy began to grow at a relatively steady pace, the country’s Corruption Perception Index (CPI) as measured by Transparency International has shown a constant decline. In that period, while the nation’s GDP rose from $42 to $89 billion, the CPI score dropped from 42 to 35, placing Serbia second-to-last among the countries of Southeastern Europe, only one point ahead of Bosnia and Herzegovina. And while the principle “correlation is not causation” still holds true, this inverse correlation suggests that economic growth has failed to improve the country’s institutional quality. Worse still, part of the population has almost experienced this development as a burden, perceiving it as the enrichment of only that minority with the right political connections, while the rest of the country has faced rising prices, higher rents, and widening inequality between those who could afford (or pay for) access to certain services – including public ones – and those who could not. 
The underground, informal economy – ranging from simple tax evasion to complex money-laundering operations – continues to grow in scale year after year. According to the most recent figures published by NALED, whereas a decade ago it was worth around $12 billion, today it stands at nearly $20 billion. More than one-fifth of the wealth produced in the country is the result of practices that either bypass fiscal principles or break national as well as international criminal laws.
And yet, since 2015, successive governments have announced a variety of plans to combat the shadow economy. Whether due to inefficiency or a lack of political will, official data and the opinions of Serbian citizens alike seem to highlight the irrelevance of these plans. For over a year, efforts at digitalisation and administrative simplification, meant to improve the business environment, have stagnated.
Corruption is not merely theft or a stripping away of the future. Beyond its many forms (bribery, extortion, misuse of public funds, nepotism, exploitation of State organs for personal or party interests), the main long-term harm of corruption lies in the erosion of trust in institutions. Classic studies by Robert Putnam and Francis Fukuyama have shown that strong social capital enhances institutional efficiency. In this sense, social capital is the collective conviction that mutual trust – both between individuals and between them and institutions – improves not only people’s lives, but also the effectiveness of state bodies.
But Serbian society has for years been experiencing a profound crisis of trust. A few months before the collapse of the Novi Sad station canopy – the event that detonated the protest movement, which still shapes the country’s life today – a social survey showed how little confidence young Serbs had in institutions. At the very bottom of their list were the government, the president of the Republic, and political parties; at the very top were university researchers and scientists. So much so that the last two governments chose to attack and accuse academics and scientists themselves of inspiring the protests, even going as far as to replace respected scientists merely because they were not considered blindly loyal.
To speak of corruption in Serbia, therefore, means to trace the steady decline in trust in institutions and in the sense of belonging to a political and social project that has characterised the country since the 1970s. These are long-term processes, but ones that any politician aspiring to be a statesman – or even to go down in history (hopefully for the right reasons) – must confront if he wishes to leave behind strong and respected institutions.
The Yugoslav social pact
The socialist rhetoric of the ubiquitous slogan “Unity and Brotherhood” (backed by the equally omnipresent and ruthless UDBA, the secret police) was legitimised by the improvement of living conditions and by the ambition to guarantee social services comparable to the welfare state of Western countries. As early as the 1950s, the spectacular development of livestock farming created a surplus that not only ensured meat and milk for all families in the Federation, but also made Yugoslavia one of Europe’s leading meat exporters. Investments in heavy industry, able to absorb a large labour force, accelerated the accumulation of fixed capital and laid the foundations for basic industrial sectors such as steel, chemicals, and mechanical engineering.
The “voluntary” labour required of citizens to build housing and infrastructure was compensated with the allocation of flats for use and with virtually free holidays. At the heart of this economic model was co-management of enterprises (despite the contradictions that would eventually mark its failure). By directly involving workers in company decision-making, it fostered a stronger bond between employees and their enterprise, and among workers themselves – an economic tie that became a social, community bond, a new sense of belonging that transcended ethnic origins or lingering religious beliefs.
Most workers spent their entire lives in the same enterprise, and this guaranteed, stable, long-term belonging also reinforced loyalty towards institutions and the political order. Statistical data show that strikes were extremely rare in the 1950s and 1960s and that Total Factor Productivity was very high. During this twenty-year period, which was also characterized by ideological enthusiasm, annual economic growth reached rates of 9% per annum. Economist André Sapir, noting the highest rate of growth among socialist countries, spoke of an economic miracle – to which one might add the institutional miracle of a country that, having emerged from a civil and interethnic war, had managed to establish a model of coexistence and trust in the State.
But already by 1965, when company councils were allowed to decide whether to distribute profits as wages or invest them in new production, the choice between improving present conditions or investing in future productivity largely shifted to the former. This began a process of technological backwardness and managerial inefficiency which, due to insufficient investment, would render the entire socio-economic framework unsustainable. By the early 1970s, this economic and social model had begun compensating for inefficiencies and political and managerial shortcomings with foreign borrowing. If in 1971 Yugoslavia’s foreign debt amounted to barely 20% of GDP, the central issue was the inefficiency of the system, which made it impossible to repay debts, thus forcing further borrowing – at the extremely high interest rates of the 1970s and 1980s. The inability to create new enterprises capable of absorbing high unemployment in the country’s poorer regions was addressed through emigration and reliance on remittances from abroad. But this solution – still in use today – ultimately drains and impoverishes the country in the long run, distorting the balance of payments with wealth not generated domestically.
In this context, the Yugoslav model proved unable to withstand the new wave of technological transformation of the 1980s and the geopolitical paradigm shift unleashed in 1989. The inability not only to mitigate change but, politically and economically, to exacerbate it, stands as a case study: between 1991 and 1994, Serbia and Montenegro, at war, lost more than 50% of their Gross Domestic Product. At the same time, war accelerated the delegitimisation of every institution.
Financial scams under state protection
1991 marked not only the beginning of the wars that fragmented Yugoslavia, but also the eruption of two major financial scandals that further shattered public confidence in political institutions and in the very Bank of Yugoslavia.
Dafiment Banka and Jugoskandik were built on a classic Ponzi scheme, where new depositors financed the unrealistic interest promised to earlier investors until, once enough funds had been collected, the deposits disappeared, the speculative bubble burst, and savers lost all their money. Founded by two highly dubious characters, Dafina Milanović and Jezdimir Vasiljević, the two criminal enterprises siphoned away, in less than two years, no less than 450 million German marks in one case, and the equivalent of around 110 million euros in the other, from the savings of Serbian citizens. Neither could ever have begun operating without political support, starting with then-President Slobodan Milošević and his close associates in the ruling Socialist Party. 
No fewer than 200,000 savers were harmed by these scams, in some cases losing their entire savings at the very start of a decade marked by hyperinflation, unemployment, and shortages of basic goods. In a country under embargo, where wages were counted in billions of dinars but worth nothing, those not connected to the Party or the military system could live decently only through smuggling, undeclared work, or by abusing their positions in state enterprises and public administration.
In this sense, the 1990s witnessed in parallel the dissolution of the federal apparatus and the dismantling of the Yugoslav social model. The State that had guaranteed jobs, housing, holidays, and even a voice in enterprise management no longer existed. With the utopia gone, any vision of the future also disappeared, and each person was left to fend for themselves. If until yesterday a manager had thought about the future of his company, today he tried to secure a future for himself and his children by exploiting that same company, fully aware it no longer had a future of its own.
Corruption and embezzlement had, of course, existed in earlier decades, but with prices doubling every 34 hours in January 1994, anything seemed permissible in order to survive. The State had become nothing more than an apparatus of power in the hands of Milošević’s acolytes. And for those excluded from its benefits, what institutional loyalty could remain?
The mystery of the “yellow” privatisations
With the fall of Milošević on 5 October 2000 began the era of privatisations – in an economy that had regressed to the level of barter, this amounted to the dismantling of much of Serbia’s industrial system. Company properties were mortgaged to extract liquidity, machinery was sold off, and workers were dismissed without notice. Of the 630 privatisations completed, only a tiny fraction can be considered successful.
Tenders were tailor-made, companies awarded to front men or improvised financiers with no expertise in the relevant sectors, factories shut down hastily after assets had been stripped, leaving behind skeletons of industry guarded by a lone caretaker. In any privatization process, the key issue is not the sale price, but safeguarding the country’s industrial base. Instead, the economic growth recorded in the early 2000s stemmed largely from property and land sales – assets that families regained through the restitution of goods confiscated under Tito – and from the turnover generated by the sell-off of privatized firms. Growth was thus driven almost exclusively by consumption, with very rare public or private investment, which only began to flow significantly after Sergio Marchionne’s decision to open the FCA plant in Serbia.
In this context, the so-called democratic governments (coalitions of the Democratic Party, Vojislav Koštunica’s Democratic Party of Serbia, the personal party of the economic strongman of the time, former Governor of the National Bank of Serbia Mlađan Dinkić, and the ever-present Socialists) disappointed every expectation of transp
arency, except for Prime Minister Đinđić’s attempts to investigate illicit enrichment during the 1990s.
As studies and investigations have shown, Serbia’s deindustrialisation was far more the consequence of the “democratic” privatisations than of NATO bombs. A decade after Milošević’s fall, disillusionment with the Democratic Party – accused of cronyism and collusion with the country’s economic powers – was widespread. Those citizens who aspired to EU membership, in the hope of enjoying a stronger rule of law, accused the “yellows” (the Democratic Party’s colour) of lacking courage, while the rest of the population simply considered them corrupt.
“Patriots” who weaken the state
When, in 2008, the project of the Serbian Progressive Party was drawn up and promoted (at home, as well as in Germany and Brussels), it was clear that the theme of fighting corruption would resonate most strongly with a disillusioned electorate. And it is surely no coincidence that only a few months after the parliamentary election victory of 2012, which brought Nikolić and Vučić’s Progressives to power, the European Commission requested that Serbia investigate 24 suspicious privatisations. Riding the wave of a declared commitment to combat corruption (and the sensational arrest of Miroslav Mišković, seen as the epitome of the economic magnates who were clipping the country’s wings), within less than two years, the SNS had achieved an absolute majority in Parliament.
While on the subjects of EU accession and official recognition of Kosovo, the electorate and the SNS leadership were often ambiguous, on corruption, the support of SNS voters and the public statements of its leaders were always unequivocal. Yet, why have the governments of the last thirteen years – often backed by overwhelming parliamentary majorities – proved incapable of tackling the issue, while the country continues to sink in Transparency International’s rankings? What remains, thirteen years on, of that banner of anti-corruption that was supposed to restore the rule of law, recover at least a minimum of credibility for state institutions, lay the foundation for a genuine market economy, and, alongside recognition of Kosovo, pave the way to EU accession? Nothing, not even the slogans – for if there is one theme today uniting Vučić’s heteroclite opposition, it is precisely the fight against corruption. And it is paradoxical, though hardly surprising, that a party which came to power under the banner of anti-corruption should now be accused of having created a system of corruption and plunder of the Serbian economy even more tentacular than the one it had promised to dismantle.
Today, almost all the old tycoons have repositioned themselves and reached a modus vivendi with the new ruling class. Miroslav Mišković, for years portrayed in pro-government tabloids as a kind of vampire sucking the blood of the Serbian economy, is today an ideal reference point for many aspiring entrepreneurs, a government partner in various projects, and is waiting for the Serbian state to pay him €12 million in compensation for wrongful detention. Rather than fostering a fully competitive economy, anti-corruption investigations – opened and often stalled for various reasons – have simply redrawn the map of Serbia’s economic powerbrokers, allowing new figures close to the current regime to enter it.
Meanwhile, far too little has been done to make the judiciary strong, independent, and adequately funded. As the EU’s most recent Progress Report underlines: “Pressure on the judiciary and the prosecution services still remains high. Whilst the rules of procedure of the HJC and HPC lay the foundation for a more effective reaction in cases of undue influence, no consistent reduction in undue influence was observed in practice. Government officials, including some at the highest level, and Members of Parliament continue to comment publicly on ongoing investigations or court proceedings, as well as on the work of individual prosecutors and judges.” In this context, it is hardly surprising that between 2019 and 2024, there were only two confiscations of assets obtained through corruption.
The crisis of disillusioned people
What is corruption, if not an index of distrust in the State? If you do not believe the State will guarantee you a pension or decent healthcare, you will seize every opportunity for an extra gain to make yourself and your family a little more secure. If you do not believe the judiciary can investigate you, then as a minister or even as a local councillor, you will try to profit from your position as much as possible. In short, if you do not believe that the State and the society you live in have a future, then you might as well plunder them as much as you can today.
Over the last forty years, the Serbian people have lived through at least three great disillusions: the socialist one, with its social model in which one could live well and work relatively little, but which collapsed, spreading hatred and poverty; the democratic one, when people believed that, after a decade of isolation, within a few years the country could join the European Union and achieve material well-being and the rule of law; and the disillusionment of the Progressive Party, which had come with grand promises of moralisation and strengthening of state institutions, but which today is accused of corrupting and bending every state institution to its own interests.
In the case of the Serbian Progressive Party, there is an added contradiction: it constantly proclaims the need for a strong and autonomous Serbia, yet such a slogan is entirely unworkable if state institutions are not regarded by citizens themselves as free, credible, and independent.
Now that the country is in the throes of a profound social and political crisis (triggered precisely by accusations of shoddy public works due to corrupt practices), it is socially and politically meaningless to accuse the current leadership of this or that corrupt act. The emergency today is the country’s way out of the crisis itself – and it is against this yardstick that the political stature of those now contending will be judged.
From the standpoint of history, Aleksandar Vučić’s true political fault lies in squandering the trust that, from 2014 onwards, Serbian citizens had so abundantly invested in him to rebuild a widespread sense of the State – respect for the law applying to all, citizens’ rights, confidence in credible institutions, a sense of belonging, market rules, and quality of life. In short, in having at the very least contributed to disappointing, once again, the Serbian people.
(the first article of this series has been published here: https://www.serbianmonitor.com/en/the-origins-of-the-serbian-crisis-1-belgrade-waterfront-the-paradox-of-a-balkan-dubai/)
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