WEATHER: What is the state of the economy?, What is our budget??
VLADIMIR VUCKOVIĆ: The budget always has two aspects - stabilization and development. The size of our deficit and public debt indicate that there is no reason for great concern about stability, since the budget deficit is below 3 percent of gross domestic product, and the public debt is below 45 percent of GDP and can be said to be under control. This is important because disturbances in the fiscal area have wider consequences for the economy and society - let's just remember the period ten years ago when the entire economic and social environment was destabilized by large fiscal imbalances.
What we continuously lack is the development aspect of conducting fiscal policy. Insufficient investments are made in education, healthcare, ecology, and we do not have a clear plan and priorities for public investments either. In this sense, we can talk about irresponsible policies. In a situation where the private sector is struggling to fill the budget, those who decide on public funds must take special care of where they will invest every dinar. International experience shows that strong redistribution and expansion of demand initially result in growth and support for policies, but this ignores budgetary and inflationary risks, as well as the foreign exchange position of the state, which later leads to a crisis.
Serbia has a deficit and borrows to fill budget holes, and any talk about having money for unplanned expenses is pointless - it looks like if a household with a chronic deficit, after taking a loan, would say that there are no problems with family finances.
What is the state of the real and financial sector in relation to GDP?
The financial system is stable, public finances are sustainable, the development model is vulnerable. Serbia is not facing the problem of sudden collapse, but the problem of missed transformation.
photo: marija janković...
The financial sector of Serbia is stable and that is good and important. Banks are capitalized, liquid, profitable and with a very low share of problem loans. So, we don't have a banking crisis, we don't have a panic withdrawal of deposits, we don't have a problem like we had in some earlier periods. Economic growth has been below Serbia's potential for years, partly due to unfavorable international circumstances and partly due to domestic circumstances. In a paralyzed state, the private sector cannot be expected to think, invest and employ in the long term. Despite this, a solid growth of around 3 percent is expected, but an important question is where that growth comes from. It is not the same if GDP grows due to productivity, exports, technology and the growth of domestic firms, or if it grows due to government spending, large infrastructure projects, construction, borrowing and one-off investment waves. The first model is more durable and has the ability to accelerate, while the second can sound good, but does not create the basis for more dynamic development.
In order to make this clearer to everyone, an objective interpretation of GDP is also important. GDP does not tell enough about the quality of jobs, how much domestic value is added, how much growth is paid for by borrowing and what could have been done with the same money. Growth of a few percent may look good, but at the same time citizens feel that rising food, housing and everyday costs have eaten up much of that progress. The outlook for GDP is therefore mixed. In the short term, growth is likely to be decent, especially due to investment, Expo, public works and spending. But in the long term, Serbia cannot develop only through construction cycles, subsidies to foreign investors and state-led projects. Real development requires productivity, education, growing domestic firms, independent institutions, competition and legal certainty.
And borrowing?
In the case of borrowing, the picture is also twofold. Serbia is not over-indebted in the classical sense. The debt is not dramatic if we compare it with many European countries. But the problem is not only the ratio of debt to GDP, but what we finance with that debt, at what price we borrow and what kind of return society gets on that money. Here, too, interpretation is important for an objective assessment. It is constantly repeated that the debt is below 60 percent of GDP, as if this is proof that everything is fine. But Serbia is not Germany or the Netherlands. The threshold is lower for us, because we have a smaller economy, higher exchange rate risk and higher interest rates. There are also potential mines from the operations of public companies, local finances, contracts through special projects, so fiscal risks are not always visible in aggregate and publicly available numbers.
What is the relationship between poverty and economic insecurity?
Official data show that poverty is decreasing. Today, Serbia is not a country of extreme poverty from the nineties. Employment is higher, salaries have increased significantly, pensions are higher, and part of the population has actually improved their position. A large part of society, however, is vulnerable. There are people that one broken machine, illness, loss of job, rising rent or spike in food prices quickly bring back below the safety line. The key to understanding Serbia is that the problem is not only poverty, but widespread economic insecurity.
Therefore, I would not describe the future projections as catastrophic, but neither optimistic. Poverty is likely to decrease if wages, employment and pensions continue to rise. But that reduction will be slow and limited unless the development model changes. Poverty in Serbia stems from low productivity, regional differences, poor education, poor job quality, insufficiently effective social protection. Employment alone is not enough if the pay is low, if the job is insecure, if there is no progress and if no other options are visible in the local environment. Poverty is also transmitted through expectations - children from poorer families have fewer chances for education and less opportunity to get out of the vicious circle. It is the problem of the whole world, not only ours.
It is a good ground for clientelism.
Clientelism is easily created in such a society, that is, the exchange of goods and services for political support. Empirical research shows a strong connection between clientelistic regimes and poverty. When voters are vulnerable, a small, immediate, and selective benefit—a job, a one-off, a subsidy, a gift, local government attention—may have greater political value than the abstract benefit of long-term growth, institutions, or public goods. Poorer voters are cheaper to maintain and easier to mobilize. Thus, a vicious circle is created between poverty and bad policies.
Is the political elite here?, actually, hinders institutional and economic changes?
It is well known, and economic Nobel laureates have written about it, that elites block institutional and economic changes that would lead to wider prosperity and poverty reduction if those changes threaten their political power or economic interests. Keeping people in poverty and implementing populist policies can be a strategic recipe for staying in power, especially in contexts of high inequality and weak institutions. Poverty becomes a political resource even when the government does not consciously produce it as a goal.
The problem is not the aid to the poor, but the discretionary aid presented as the mercy of the government. I think the most accurate statement is that the government does not want to keep people poor and that in some sense it believes that it works for the benefit of the citizens, but it is also clear that it has an incentive not to build a system that makes people less dependent on it. A healthy alternative is - freedoms of individuals and organizations, appropriate public goods, planned and predictable social rights, education, health, rule of law and institutions that reduce the discretion of politicians.
How do the mechanisms of enrichment work in this regime?
photo: marija janković...
The problem is not that someone has capital, but how they acquire it and what their survival depends on. The concept behind it is "captured state". Not enough profit is made in the market, and too much is based on access to public money, information, permits, land, regulation, subsidies, public procurement, state-owned enterprises and large infrastructure deals. Capital originates from the government, depends on the government and therefore defends the government. Its advantage is not that it produces better, but that it has better access to the system. And all of this creates a distorted picture of economic success - we see buildings, projects, traffic and nominal growth, but behind this there is often not greater productivity, but the redistribution of public resources towards politically connected actors.
The most dangerous effect is not just injustice, but long-term economic sterility. Such a system discourages normal entrepreneurs, makes people look for shortcuts, protection, connections and loyalty, and casts knowledge, innovation and competition in the shade. It produces wealthy individuals, but it does not produce a strong economy.
What does the relationship between a small country like Serbia and a giant like China look like from an economic perspective??
China is a great power and a huge global player. It, like any great power, enters into business because it has its own interests. This is what Germany, France, the USA, and the EU as a whole do. Critical raw materials are of interest to one, large infrastructure projects to another, military equipment to a third, market access and geographical position to a fourth. The question is whether Serbia knows what its interest is in these relations and whether it has institutions that can protect that interest.
Returning to China, when a Chinese company, bank or state enters into a project, it is often not just a simple commercial deal but part of a wider policy of markets, resources, technology and influence. However, it does not mean that these jobs are automatically harmful. The problem arises when Serbia enters such businesses without sufficient transparency, without analysis of costs and benefits, without public competition, without assessment of environmental and financial risks, and without a clear plan of what the domestic economy will gain from it. A small country must make up for the lack of size with an excess of rules, contractual discipline, transparent procedures, anti-corruption mechanisms and institutions that know how to say - this suits us, this does not, this can be done under these conditions. It is not good that every big project is presented as a historic opportunity, while the issues of price, public procurement, environmental standards and control of contracts are pushed into the background.
So again, the problem is in our backyard. It is dangerous for Serbia to be a platform for other people's strategies without having its own.
What does the Expo project mean for citizens??
The Expo has one visible, official side - an international exhibition, new infrastructure, better visibility of Serbia, urban development of a part of Belgrade, tourism, hotels, construction activity, a certain short-term impulse to the economy. All this is not without importance and should not be underestimated in advance. The second level is that the Expo in the economic sense is much more than what is listed. It enables the concentration of huge public money, accelerated procedures, control of deadlines, land, construction, infrastructure and related works. In other words, the Expo becomes a platform through which the image of success is simultaneously produced and economic power distributed.
The real question is not whether it is nice to have an exhibition or a new complex, but how much it costs, who pays, who earns, under what conditions it is contracted, what will be the lasting benefit and what is the alternative. Because every dinar that goes to the Expo does not go to schools, healthcare, local infrastructure, sanitation, science, energy efficiency or reducing the tax burden. The real cost of such a project is not only what is written in the budget, but also what society is giving up. That is why the most important question is whether this project goes through the rules that would apply to everyone else or whether a special corridor is created for it. If a special corridor is created, then the risk is not incidental, but systemic, and corruption becomes a built-in possibility of the model.
And what prevails??
In this kind of institutional environment, when it comes to the Expo, I am afraid that damage will prevail. Serbia needs large public investments, but they are a development opportunity when they go through clear priorities and analyses. Instead of easily classifying those who are for the Expo and those who are against it, the question is whether Serbia is building a project that will remain with the citizens or a system through which the citizens will repay other people's profits. Can such a corrupt potential serve to maintain power? It can, in a political-economic sense. Large projects create a web of dependencies: contractors, subcontractors, consultants, media, local interests and politically connected firms. When a significant part of the business community depends on the continuation of the same system, it becomes the economic support of order. Capital acquired in non-transparent projects can later be turned into various forms of protection - legal, media, political and business. That is why it is difficult for a captive state to get out of captivity.
How the Mokrogorsk Business School works?
The Mokrogor business school functions differently from classical education. We do not start from the idea that people should be delivered a theory, so that they can see for themselves what to do with it. We start from real management problems - how to make a decision, how to lead a team, how to understand finances, how to set a strategy, how to take responsibility when circumstances are not ideal. In that sense, Mokrogorska is a school of managerial maturation. We do not try to make people into someone else, but to help them better understand themselves, their work, the organization and the society in which they work.
When it comes to young people, I really see reason for optimism. In many young people who go through the school, something important can be seen - the need for work to be meaningful, willingness to learn, less tolerance for empty hierarchy and greater openness to discuss the responsibility and results of the organization. I notice that they are often not burdened with old patterns to the extent that previous generations were. They don't respect authority just because it is authority, they ask why it can be demanding for organizations, but it is healthy for society.
The school helps to create small professional communities in which different rules are normalized. That is why I would say that Mokrogorska is not only important as a business school. It is also important because it shows that there are people in this country who want to work seriously, to grow, to measure themselves against the better ones and to not accept the idea that it can hardly be better here.
