Kosovo: economic, social and demographic causes of the crisis

By Prof. Tomislav Popovic, [9 April 1999]

I am reproducing here an e-mail I received from Tomis Popovic, a friend in Belgrade who is director of the Institute of Economic Science associated with the University of Belgrade. This is an independent (of government) research institute with a highly western, liberal economics outlook. It has an academic co-operation and exchange agreement with the University of Manitoba and Professor Popovic has given seminars and lectures here.

Paul Phillips, Economics,
University of Manitoba

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Following the world media and expert magazines, as well as numerous discussions in the world public, The Institute of Economic Sciences has reached the conclusion that most people are not fully aware of the demographic, social and economic situation in Kosovo, and therefore the solutions that are being proposed do not lead to a more permanent end of the crisis.

We believe that it is our personal and professional duty to inform the world public about ce rtain important facts and the assessments of the Institute of Economic Science contained in a number of studies, completed just before the breakup of the former Yugoslavia, on the most important structural characteristics of the Kosovo economy (and population).

The main finding of these studies is that the development strategy of Kosovo was based on erroneous theoretical and analytical premises, which promoted the creation and deepening of longterm economic, social and demographic imbalances. These imbalances were fertile ground for the aggravation of interentity antagonism and conflicts, especially in the circumstances involving internal (stalled democratisation of the country) and external factors related to the bloc and subbloc confrontation of geostrategic interests, the creation of a new configuration of Europe and the change of borders of sovereign countries.

Within the framework of current developments, the main thesis of these studies is that the geostrategic and political treatment of the Kosovo problem as a territorial issue, and not as an issue of development, conditions and way of living of the people and the system of the organisation of the society, will not lead to more permanent solutions. Forced and improvised solutions in the existing economic. social and demographic milieu of Kosovo can only present a temporary respite in a series of disturbances and confrontations in the wider area of the Balkans in the future.

Certain facts from the Institute's studies substantiating this thesis are as follows. Economic imbalance : In the 19801988 period, the net inflow of grants (mostly) amounted to 34% to 40% of the Kosovo gross domestic product, while small and mediumsize companies accounted for only 0.9% of total investments. The level of investment selffinancing from Kosovo's own sources was only 10%; The share of agriculture in NMP was about 25% (1988), and only 16% in investments. Since investments were dominated by capitalintensive and technologicallyintensive industries, i.e. slowreturn investments (mostly in the energy industry and mining), the share of fixed investment in the gross domestic product was 48.5% (in the SFR Yugoslavia under 30%), with a very high annual growth rate, despite a low capacity utilisation rate, below 30% (the nonf errous metal industry 30.2%, leather and footwear production 26.3%, machinebuilding industry 3.9%…)

Such a “development” orientation and corresponding production structure promoted the aggravation of the social imbalance in several directions, including the following: the low share of capitalintensive industries and technology resulted in the chronic and extremely high unemployment rate: in 1988 it was 57.8% in Kosovo, in comparison with 16.8% in the former Yugoslavia; of 1,893,0 00 inhabitants, only 123,000 workers were employed in material production industries, while in the entire sociallyowned sector, of 232,000 workers only 23% were women, unlike the Yugoslav average of 39%; the continually high inflow of grants led to deformities in human capital, in the development sense, so, for example, the share of university students in the total population of Kosovo was 1.58%, which was above the Yugoslav average of 1.41%; on the other hand, the share of illiterate persons in Kosovo was 17.6% of persons above 10 years of age, which was almost twice the Yugoslav average of 9.5% at the time; one of the fundamental social imbalances, clearly demonstrating how misguided the “development” strategy implemented for decades was, is reflected in the fact that, of the 1,294,000 inhabitants living in rural areas in 1988, twothirds were nonfarming population, i.e. 43% of the entire population. In view of the current armed conflict in Kosovo, it is clear that in such a social and economic environment, and in the circumstances involving rigid and, to a large extent, traditional, often archaic, social and individual

values, it was quite simple to draw the ethnic Albanian people in Kosovo into an adventure leading to the creation of an ethnically ‘pure’ state, under the wing of NATO and with the promises of powerful international lobbies, for the purpose of a postbloc change of borders in Europe.

Demographic imbalance: Such a social structure, notably high unemployment, especially of women and young people, low and decreasing, especially per capita, level of development, etc., promoted a demographic explosion and an ensuing demographic imbalance, followed by an intensified historical inheritance of very difficult and dangerous ethnic conflicts and distrust. Thus, in the period of only 33 years, between 1948 and 1981, the number of inhabitants under the age of 20 increased more than twofold, from 379,000 to 828,000. They are at their peak of reproduction, which is a basis for the further deepening of the demographic imbalance and corresponding political and militarystrategic consequences, coupled with the further impoverishment of the population. As a result, only on that basis, the effects of huge capital inflows in the Kosovo economy were annulled. If economic efficiency, measured by the ratio between GDP and fixed assets in the sociallyowned economy, was marked as 100 in 1952, it was 93.0 in 1960, 70.7 in 1970, 59.9 in 1980 and 51.9 in 1987. Despite the increase in the technical equipment level of labour, in the 19811988 period, labour productivity fell by 16%.

In the 1989–1999 period, during and after the breakup of the second Yugoslavia, the civil war in Bosnia and Herzegovina and Croatia, all the previously mentioned social and economic characteristics of Kosovo have deteriorated, inter alia, under the influence of several groups of factors: the market potential for products from the Kosovo area has been reduced from 23 million consumers to only 4.5 million consumers with 1989 purchasing power; preferential status on the markets of the European Union, COMECON and numerous developing countries, has been lost; the inflow of grants has been reduced significantly, while the inflow of fresh funds from abroad in the form of direct or portfolio investments has ceased completely, due to high commercial and noncommercial risks; during UN sanctions, hyperinflation and numerous irregularities related to the economic system and the macroeconomic situation in the FRY, the share of the grey economy was increased, accompanied by a rapidly rising crime rate in the area; the Kosovo population has accumulated an enormous quantity of arms owing to the civil war in the area of the former Yugoslavia, with a large share of arms stolen during the (orchestrated) civil unrest in Albania having been transferred to the area of Kosovo; acrosstheboard destruction of houses, equipment and households, factories and infrastructure, makes living and working conditions impossible and the entire situation overwhelmingly unbearable, unfortunately for a long period of time.

In view of all the relevant facts and Institute's numerous studies and expert analyses of a strategic nature, we maintain the following: in the following longterm period, the population of Kosovo and the surrounding broader area of Serbia, Montenegro, Macedonia, Albania and Bosnia and Herzegovina will face additional social and economic erosion so the entire region will be even more explosive in the social and military sense; inter alia, the lack of permanent solutions leads to a rechannelling of the already scarce resources to military purposes; the experience of Bosnia and Herzegovina indicates that the so called international community, in spite of numerous promises and programmes, has neither the motive nor the interests, organisational forms, mechanisms and appropriate resources to restore and reconstruct at least 50% of the destroyed economic capacities and social infrastructure, compared to 1989, for the next ten years at the shortest.

Unfortunately, on the contrary, the militant establishment of one part of the “international community” possesses the mechanisms to efficiently create or activate focal points all over the world, followed by economic and social destruction, and within a very short period of time, at that; the consequences of the war and the results achieved through war will have permanent and very serious negative economic effects on this area and wider consequences in the entire area of SouthEast Europe and the Mediterranean, which also affects the programmes of integration an d development of the European Union, the free flow of capital and goods and construction of infrastructure (the SECI initiative of the US) in this area; in a wider international context and over a longer term, the military approach to the problems in Kosovo and its immediate surroundings (Macedonia, Albania, Serbia, Montenegro and B & H) delivers a powerful blow to several decades of the trends of multilateralism and liberalisation of the world economy (WTO), to the globalisation of the world economy throug h transnational companies and the general concept of an open economy and open society, on which precisely the American approach to the strategy of development in the world and the system of international economic relations was based during the previous 50 years; military solutions in Kosovo and around Kosovo will discourage and slow down the processes of transition in the entire area of central and eastern Europe, reactivate the processes of militarisation and Cold War in the world; finally, the extortive “solutions” for the crisis in Kosovo, which are imposed by war or other kinds of pressures, will, from the standpoint of development perspectives and life conditions, be another historical deceit of the Albanian population in Kosovo, and at the same time to of all other nations living in their neighbourhood.

With a high regard for your achievements, especially in the business world, and your devotion to the principles upon which the impressive development of the world was based during the previous five decades, we would be extremely grateful if you could use your influence to end this tragic war. To that end efforts should be made to profoundly change the way of thinking among the powers that be, whose main premise is that the price of peace is greater than the price of war. It is our hope that the data and assessments presented here will help you and, through you, the liberal public of the world in this effort.