Fear of Privatization

Sales in the Shadow of Corruption

There is no social group in Serbia which does not fear privatization. In this, workers, managers, private entrepreneurs, and government officials are all equal. The reasons for their apprehension vary: workers and managers are afraid of being fired, private entrepreneurs of the absence of the rule of law, the government of a poor response by foreign buyers, and of the possible failure of the process.

AIM Belgrade, November 6, 2001

Tenders for the sale of certain Serbian factories published in several domestic and foreign newspapers marked the start of privatization according to new rules adopted last spring. Domestic cement factories, as the most profitable companies which even without foreign capital can successfully compete on the market, were given the privilege of acting as "bait" for foreign buyers. The Serbian government selected them, the best it has to offer, to provide money for reviving other deeply indebted firms, burdened by obsolete equipment. The goal is to salvage them from closure by financially aiding them and increasing their price.

The Privatization Ministry's good intentions, however, are not enough to remove doubts and fears that the privatization process could be yet another, maybe the biggest plunder of Serbia. The road from the one-time communist slogan "Factories to the workers!" to the current, "Companies to the capitalists!" is laden with apprehension particularly because not all possibilities for corruption have been eliminated. There is a very good reason for such fears: Serbia is among the most corrupt countries in the world. The law, of course, envisages control mechanisms, but the public does not trust them too much, and controllers are generally perceived as goats that are supposed to guard cabbage.

The fear of privatization is so widespread that there is no social group that is looking forward to this operation, which is essentially political although it affects the economy. The most fearful, it is said, are workers, mostly because privatization paves the way to firing redundant workers, whose numbers are estimated at over 500,000. Although privatization laws specify that the workers are entitled to 30 percent of the company's assets, this does not exempt them from being fired by the majority owner, after which the value of their shares will be completely unclear, because of uncertainty surrounding the fate of the company.

Workers also fear what the Serbian government may do, that is, whether privatization will be public or the government will succumb to pressure from foreign buyers to consider all contracts as business secrets, as is customary elsewhere in the world. Because of widespread corruption in all secret deals, the people of Serbia are very suspicious of government plans, moreso because it failed to earn the trust of the public despite a deluge of promises. The mistrust has two origins: one is because the government embarked on reforms without previously making a social contract, and the other is that Privatization Minister Aleksandar Vlahovic used to work for Deloitte & Touche, which is now the chief consultant in the sale of the Beocin cement factory.

Although it is believed that workers will pay the price of privatization, managers, especially general managers, are also upset. The future owners will not have much understanding for their incompetence. In the past poor business results were frequently concealed by political loyalty and explained away as due to social reasons, which was accepted by the authorities, ready to go to great lengths to prevent social unrest. Many believe that incompetent managers will bear the brunt of reforms, and that many general managers will become redundant even before the workers bellow them, or at the same time.

Private entrepreneurs, the main prospective buyers of state and communal property, are also anxious over how privatization will proceed. Their fears are many. Domestic capital owners are still hesitant to appear as buyers because they are afraid they might be asked where their money came form, especially after a law taxing Milosevic-era profit was passed, threatening to turn many a Serb tycoon into a pauper. It is, therefore, believed that the first wave of privatization will pass without their participation, or that they will take part from the shadows, purchasing shares through mediators.

They also believe that Serbia still lacks the rule of law and view privatization as a great risk, because the national justice system has always been more forgiving of debtors than creditors. The government itself added to this legal insecurity by exerting pressure on the courts. The justice system is being purged, but the campaign has yet to restore trust, because the public has to be convinced that the practices of the past are indeed no more. Even Yugoslav President Vojislav Kostunica has said the judiciary will not be purged of corruption and bias simply by replacing obedient followers of the former regime with supporters of the current government. Such warnings were prompted by instances in which the parties in power have shown that they do not hesitate to meddle in affairs outside their jurisdiction.

Domestic businessmen also are not happy with the disappearance of state and communal property, because this used to be the main source of their profit and wealth. Practice has shown that entrepreneurs doing business with state-run and communal companies, who used to buy their goods at low prices and sell at much higher prices, fared the best. In certain cases business relations between the two sectors were so intertwined that it was hard to draw a line between them. If communal companies disappear, many private businesspeople will have reason to worry about the future of their companies.

The current Serbian government also fears privatization, because its survival depends on its success. Although Serbia is politically and economically still on its feet thanks to foreign donations, assistance is not nearly what it actually needs. Assistance pledged to help economic revival has not materialized, and development now depends on funds that will be obtained through the sale of domestic companies. If foreign buyers fail to show an interest in purchasing domestic factories, the government will not have the money to invest in the faltering economy. This could make the population even poorer, causing the now tacit popular dissatisfaction to escalate into a fierce conflict. Polls have shown that plummeting standards of living are beginning to try the public's patience and that trust of the government is rapidly dropping.

Ratomir Petkovic

(AIM)