Professor Miodrag Zec: “We idolize loyalty and we suppress competence.”

Read an interview with Mr. Miodrag Zec, a professor at the Faculty of Philosophy in Belgrade, conducted during conference “Economy in Media – Media on Economy” organized by Center for Research and Studies GEA.

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Professor Zec, what is the situation in Serbian economy today, what are the biggest problems?

There is a wide spectrum of problems in Serbian economy and I would put them in two groups. One group involves the problems of concept, i.e. the model you choose while the other group includes problems of how you implement economic policy. I think both these groups contain a whole array of problems. When you choose one model of development of economy and society, and relations with your environment, it is like a metabolism. It simply defines all your results. We constantly hope for different results than those we achieve. That is a problem because Serbia, as most Western Balkan countries, applied one transitional algorithm which led us exactly where it was supposed to. All this did not happen accidentally because we have used a mechanism that leads to the national currency appreciation. You have a two currency system, you have a system in which capital inflow in trade, insurance, etc. appreciates the course and it destroyed the economy. Not a single country would be able to endure this because that was actually created on purpose in order to hand over the market. All this was not done for the sake of the development of industry. We are in despair now and lament why the industry does not exist, but it simply cannot exist. Serbian economy is like a sick patient who takes one therapy but not consistently enough. Doctor says he should take three pills a day, but he takes only one thinking it is enough. Well, it isn’t enough.

So, what should have been completed in the first phase, which emerged as a problem now, was monetary stability and identification of all deficits and resolving them in a reasonable time. These deficits include deficits on the state, company, and individual levels. The opposite happened instead: state deficits persisted and were covered from privatization revenues and redistribution of assets. Company deficits are being resolved only now while deficits of individuals escalated through the system of loans.

The expectation that the EU would bring an equalization of wages was pure madness. What actually happened was the equalization of prices, and prices will consume entire wages here. It happened in the entire Balkans and all countries in transition. People now ask themselves what happened. Well, what had to happen – happened. We were late with resolving this problem because of our syndrome of supported society inherited from the communist era. There is a basic imbalance in production and consumption that has been covered in various ways for thirty years. It became monetized eventually, causing public debt to explode – absolutely and relatively as a part of GDP.

Then, enter the liberalization of prices, courses, because of our technical incompetence. For example, let’s compare Slovenia and Serbia. Slovenia did everything opposite to what Europe recommends now. It chose radical devaluation of Tolar and expansion of exportation. Slovenia began to experience problems in the budget and external debt for the first time when it introduced Euro. It did not have any previously, but it has some now. We in Serbia entered a two-currency system right away, just like here in Bosnia and Herzegovina. We have a two-currency system that is actually worse than the use of only a foreign currency, like in Montenegro. There is this whole machinery of money emissions in Serbia and B&H, which is linked to a firm currency in the end. We have costs of emission but no emission profit, no possibility of deficit monetization through the monetary system. But we do have costs, the Central bank, administration, management, printing, conversion costs, etc.

The World Bank was inconsistent also. When you look at the reports of the World Bank for 1997, 2007, and 2015, you see these are completely different reports. You remember how the World Bank praised the voucher privatization, only to completely abandon it in 2002. Privatization in Serbia did not serve as a way of advancing the economy but as a way of ownership redistribution. Nothing new was done according to company balance sheets. People simply got their hands on some assets they did not know what to do with. It is as if you won an American aircraft carrier through vouchers but you did not have money even for fuel costs and port fee, let alone the money needed to repair that ship and to use it. That is what happened to our companies.

Furthermore, that privatization has lasted for a quarter of a century already. What is the problem in Serbia now is that costs of the restructuring of the public sector are due. We did not use the privatization revenues and net capital inflow when we had it for restructuring companies. Instead, the restructuring comes only as the last phase in a moment when we have lost the major part. I think that is the biggest problem in Serbia and the Balkans.

Another issue is why do you wish to restructure something now when you may not need it anymore as well? There is the geostrategic issue. It is as if I were to renovate my house in Knespolje with seven new bedrooms which I don’t actually need because no one lives there. That is a huge problem in the economy. There are several points in the economy over which ideas fight each other. Those who advise us to do something now did not do the same with themselves.

If we take Britain for example, for 400 years it eliminated Spain and the Netherlands from the sea because of its Act of Navigation according to which not a single ship could sail into a British harbor unless it was owned by Britain, had British crew, etc. Once they created the best navy in the world they allowed free traffic in all ports. Then, there is America and its efforts on becoming independent from Britain. There is a fine historic example when the American finance minister Alexander Hamilton and his English peer met to discuss free trade when Hamilton said: “I want just the opposite because if this model is implemented it would lead us to specialize in animal husbandry and beaver hunting and you in textile.” Through customs America tremendously advanced its industry and this guy Hamilton later found himself on a ten dollar bill. He is the only person who was not a president to achieve that.

Then what is the path to increasing the competitiveness of small countries such as Serbia and Bosnia and Herzegovina?

A small country must turn to itself and say: “now I first need to make an effective and cultural state that can be small and yet functional.” Of all our countries, not a single one did this. No one explained how much clerk that country should have, what they should do, how much they cost, what they should know, etc. A country is a framework which provides its people firm stronghold for their work. I cannot say to people what they should do but I can say the only way of making a fortune is by creation. Our people are not aware of the fact that the only way of the development of society is through the creation of excess. Small countries are like families. You have to get out of your backyard to bring something to your home, instead of exhausting each other by fighting over who had more for breakfast or for supper that would not come. It is a matter of awareness of one nation and that is developed in long-term through education. We have a system in which everyone believes studying is not worth the effort. Effectiveness and competitiveness can only be achieved if it will be a part of the general awareness and use of the “work – love – pray” algorithm. Unfortunately, we live in revolutionary times in an unstable political space exposed to all kinds of the devastation of assets, domestic and foreign occupations, living in a belief that fortunes come fast and last shortly. It happens here. Every 10-15 years there is a radical reconstruction.

Are radical reconstructions sometimes a chance for thorough reforms?  

In my opinion, the essence is to introduce to a society the key value that creation makes sense. Here, the only thing that is believed to make sense is to wait for a favorable opportunity to reallocate. We, as the Balkans, chose the latter. Awareness change demands a lot of time, new generations to grow. You know, it is easier to rob caravans than to weave silk. It takes a year for a Persian carpet to be completed; it is easier to steal it. We have such a mentality: “I don’t have patience for that. It is not my vocation”. So why are the Chinese such a miracle? They sit there and accept the algorithm, it does not matter whether they weave carpets or assemble iPhones, it’s the same. Someone else designs patterns, develops software, he just solders. But he is ready to sit and solder for 18 hours. He does not move, he does not need public transportation, nothing. The Chinese are not conquerors but they are the biggest nation in the world. China never conquered anyone and no one conquered China. Those who tried failed. It is simply a cultural thing. Let’s get back to Serbia. I think the problem here, unlike the Czech, unlike the Poles, the Slovakians and others, is that communism was not entirely forced upon us from abroad. As communism declined they just changed their jerseys and said: “Let’s get back to the old geostrategic alliances with the Germans and establish civil society”. On the other hand, we liked communism. We were not forced into it entirely, or the majority of population liked communism, to say the least. Arguments are still ongoing here on whether communism failed because of the people were not good enough or the concept was bad.

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In your opinion, is there any new political party in Serbia or the Balkans that can offer the new algorithm?

I think we have moved away from that goal even further. I think that what we have done with this kind of system of education is the most difficult thing we have done to ourselves. We idolize loyalty and we suppress competence. I understand that what happened here geostrategically was that we have been enslaved, but at least we should have maintained control over our system of education to some extent. We should have kept these young children, our best fruits, for ourselves, but no. We have turned our education system into an orchard that no one maintains or waters. As soon as there are some good fruits, someone from abroad comes and picks them for themselves. Every peasant knows – I will keep the best ram for my herd, I will not let it go to Germany. I will sell only what I have to. A popular trend here is getting out of the country as the best solution. When one nation suffers from such a massive lack of belief in something, then you have a big problem. The problem is that you do not have a choice. Ambrosia has caught the system. It is easier to perform any kind of revolution than to solve the problem of education. This has to wait. When ambrosia settles in your field you cannot exterminate it for years. Everything else can be solved much quicker, in a matter of a couple of weeks, months, year. Education cannot be resolved that easily.

Secondly, the state here is occupied with entrepreneurship. Had it ever worked the USSR would have never collapsed. The state exists for the sake of five things: protection of borders – military, internal security – police, judiciary, education system, and healthcare. That is why the state exists. Its purpose is not to give loans and say: ”Pero, you will produce apples, and Milorad, you will make plums.” It can perform this function as well through taxes, but everyone here thinks that this is what the state does. They think it is one big pot where they hold the ladle. No one can tell people where their place in business is. They will figure it out on their own. For Pete’s sake, people such as Kantorovich, Lange, Simon Kuznets, etc., have won the Nobel Prize for the centralized distribution of investments. The state should say: “Here’s a honey frame and I will guarantee you a fair and impartial game”. The state should make the frame and bees should make honey by themselves. This search for investors comes down to having the prime minister going around and catching investors like bees and pushing them inside a bee hive and then they do nothing but sting. You give them sugar so they will not want to make honey. They will want only sugar. It is not a good way.

Are we able to get back on track of recovery, do we have money for that? We do. We do have enough money to pay our doctors as we should, we have money to pay our engineers as we should, but we cannot afford to educate our professionals for the Germans. We do it all wrong – the best ones flee. The state is an idea. I decided where the highway is going to be built, however, I do not have money for that so no one can use it, but I cannot build a house on the highway instead. You cannot make a house in flood areas. You build it, water comes and takes it away, you build people a new one. Thereby, you send them a message – do as you please, you will be taken care of anyway. When you do it once, it is done. That is the problem because you do something that you should not. In Spain debt is eternal. Here, if you can avoid paying it for five years, you’re clear and nothing can happen to you. When you have an idea, you have industry and creation. One can use creation to achieve certain social values or some other way around. Here’s an example from Serbia: balancing the budget by decreasing wages and pensions. Wages are an ongoing thing and one can always say: “I don’t want to work for that salary”. But in the case of pensions – we have a system in which we pay one-third of the wage for pensions and then someone comes and says post festum it does not apply anymore. It cannot be done that way because it will cause even greater deficit when people stop paying their contributions knowing it is useless. Instead of recovering the pension system we will remain in imbalance. Some of the richest people from the Republic of Srpska that will become pensioners tomorrow will not receive a 300 Euro pension because they did not pay their contribution to the pension fund. They said: “I won’t pay 70% for contribution. I will either avoid declaring any profit or will pay 10% tax on declared profit. This single fact tears down one important pillar of intergenerational solidarity established since Bismarck times. Pension system must be pay to go.

Therefore, it is important to look in all directions. How did the English solve the problem of pollution? The same as if you were to say: “Article 1 – Belgrade must be supplied with water from Pancevo and must discharge it in Batajnica.” But no, everything is the opposite here, everyone pollutes everyone. That is why making laws is important. That is society and state. How do you increase effectiveness? You put everyone in that frame. One more thing – one who invests must be accountable. In our transitional countries, the main principle is the socialization of loss and privatization of gain. That is the source of everything. Instead of being the opposite, of having the loss always privatized and you being obliged to pay for it while gain should be partially socialized through tax policy so someone who is rich would pay for someone else’s kid to become a good doctor. Then such a system would have sense.

What are our comparative advantages and do we have any in the first place?

We might have some advantages, as far as Serbia and the Republic of Srpska are concerned. The population has some potential, there is still a good degree of literacy and I think only a small change in the system of values is needed, where you would set new rules of the game. That is when we are on a 100-meter run; those who get there first will actually be rewarded without us getting in their way and not acknowledging their result. That is how I see it and the state is the tool for that. Individually we have various interests and the state serves to direct us all. I deeply believe that if we establish institutions and procedures that can keep the system in balance, we have a chance.

There are many examples of incomplete systems in the world. You make a state without a prenuptial agreement. In England, if you want to get married you have a prenuptial agreement so you know how you will divorce in case love disappears because chances are that love will disappear. For example, you’ve made this big machinery called the European Union and you did not plan an exit and divorce strategy. Of course, the English first waited for the best time to get in and now they say it’s time to exit and get the divorce proceedings off their back. It is a big experiment in such a big magnitude that is very dangerous. You have the emission of money without a country and budget. Whose money is it, who is accountable for it and who buys it? Earlier in the Balkans, we had the German Mark which was always bought by Bundesbank in the same steady course. Even now, when some old lady from Doboj finds old buried German Marks, she can still use the system to get Euros for it. Therefore, it is important to think the model through. Therefore, I insist that it is not simple to govern a country at all. I am not the first one to think so; you have Plato’s “Theory of the State”. The belief here is that someone who cannot do anything is capable of making a state. Someone who cannot make a loaf of bread, a shoe, write a poem, he can make a state. We continue to promote this belief, which is wrong. As a result, those few elite members do whatever they like, while clerks only seek ways to steal. We have to get dignity back first. If being a teacher is the worst job, it is better to make burgers and avoid paying VAT or hold a stall at Banja Luka market then to teach mathematics to people. In that case, we got what we wanted. Unfortunately, I think we are about to get even more than we expect. Simply, the true essence of some things we consider generally known remains unknown to us. Everyone knows apples fall from trees but the greatest genius of the humankind, Isaak Newton, had to be born to describe it – which forces occur, what is the speed of the fall, etc. The same goes for the state, too. Everyone thinks they know. Both in the economy and in society things appear simple and everyone thinks they know, but it is not like that. In this transition, we see things are not like that. You warm the liquid but it does not boil, you warm the milk but skim does not appear.

Can we talk about the role of experts and academic community in the shaping of the economic system? The academic community, especially professors of economics, is criticized for mainly describing past events rather than offering concrete answers to current economic problems?

The role of academic community is important, however, political elites, mainly in transitional countries, have established such communication in which academics are expected only to applaud to and confirm what they had already decided. In case academics refuse they will be banished, etc. It would be the best for the government if it would listen to criticism. You simply do not get the chance to tell someone something that is in a collision with their attitude. I do not know why is it such a problem for the chief of the country to gather some people once or twice a year and ask them what they think is wrong here. It can be closed for public, as long as there is some dialogue. Even in the Middle Ages court jesters were allowed to tell the emperor he was naked. Some societies have that and they can get the best of those who know something.     

There’s an interesting story and it is in our discourse, a religious one. Everyone knows the story of the unfaithful apostle Thomas, when, after the apparition, Christ says: “Blessed are those who believed and yet who did not see”. We have that religious moment in our public and political life. It is when you say to the people the rate rises, but it actually falls.

Speaking of academic community, how do you feel about the fact that in B&H and the Republic of Srpska professors of economics were after all in the position to perform the most important political and executive functions?

Two things are important here. Knowledge is one thing, but the operational or political talent to implement something is another. Only few have ever been able to possess both these characteristics. Still, it is of utmost importance that politicians and experts can reach each other and exchange opinions. Bismarck used to say: “Give the power to professors and there goes the country”. That was his attitude, which may have been a little extreme. Similar goes for my students of economics who think it is easy to get rich once you have finished the studies of economics. Being able to get rich is one skill while knowledge is something else completely. Some made their fortune on knowledge and science (Ricardo, Keynes, etc.), and some died poor (Adam Smith as a failed nobleman, etc.). These are two different things. Academics should be the correctors of things and should be present in public. They should be able to say what they have to the others, and the latter should decide between political options. That is something that cannot be learned in school. Lech Walesa did not go to school to start a revolution, he was an electrician, but the time was like that. It is terrible if society neglects its most educated members if it does everything to get rid of them, regardless of whether they support or criticize the government. The worst is when they disappear when they lose competence. Skerlic said: “I am not a hen that lays eggs, but I do know what a rotten egg is.” The phrase is frequently used here. They often say, for example: “Here, professor, take RMK Zenica for example and tell us what to do.” Well, I’m not going to do that. I teach theory. I say what the books say and I support it with historical examples – these people tried this but what happened was the opposite, etc. Ten years ago I wrote an article on what would happen to Europe and it happened. I got expelled from the university for claiming that socialism would collapse and so it did. People who used to swear by it were the ones destroying it afterward wholeheartedly. For a society, it is important to enable a communication of different ideas and to have one place where it will be decided which ideas are to be chosen. That is why the political system in the form present here and globally is turning into a joke. You have Alexander the Great as the greatest conqueror the world has ever seen. His teacher was Aristotle. Twenty of his classmates conquered the world and history remembers it as the biggest and the most functional conquest ever. But, Alexander the Great did not complete management studies.