Academic journal article Independent Review

Property Rights, Liberty, and Corruption in Serbia

Academic journal article Independent Review

Property Rights, Liberty, and Corruption in Serbia

Article excerpt

The privatization process in Serbia, which began in the early 1990s, may be characterized as a dismal failure so far. It was originally expected to be completed by the end of 2005; however, at the end of that year an amendment to the privatization law made the process open ended. The amendment reflected the reality that less than half of state assets had been privatized. In fact, only small-scale industrial plants and a few big firms had acquired new private owners. Almost all the leading plants, facilities that once were the pride of the Communist regime and now only generate losses, have remained in government hands. Moreover, all state enterprises that had been formed by special laws (natural monopolies and local utilities), which were also slated for privatization according to the original privatization law, have remained in the government's portfolio. In addition, the government has changed the Share Fund law in accordance with its declared interest in influencing the decisions of all companies that have minority state ownership (almost all privatized companies). This action indicates clearly that the government does not intend to loosen its grip on the economy.

Various surveys rank Serbia among the most corrupt states in Europe. According to the 2006 Transparency International Corruption Perception Index (CPI), Serbia shares ninetieth position worldwide, with only five European countries ranked as more corrupt--Albania, Belarus, Macedonia, Russia, and Ukraine. (1) The Heritage Foundation (2006) has not ranked Serbia in its latest survey of economic freedom around the world, although it paints the situation in colors as dark as those used at Transparency International: "Belgrade's underground power structure remains in the grip of war criminals, corrupt security chiefs, and ultranationalist politicians." (2) The Freedom House country report repeats almost the same wording, stating that "corruption remains deeply entrenched [in Serbia] at all levels" (2006, 16). The latest World Bank survey found corruption in Serbia to be on the rise between 2002 and 2005 (Anderson and Gray 2006, 54-58), especially in the government's procurement and among the judiciary (the second-highest increase among transition countries, exceeded only by Albania).

The link between the two important features of postcommunism--privatization and corruption--is by no means accidental. Several studies have explored the likely connection between the privatization scheme and the extent of corruption. Kaufmann and Siegelbaum found that spontaneous privatization and management-worker buyouts are the methods with the greatest potential for corruption, whereas privatizations by vouchers or by sale fare better (1997, 434). Under forceful World Bank pressure, Serbia accepted the sale privatization model in 2001, yet corruption there is greater than in countries that adopted some of the supposedly more corruption-boosting strategies. For example, Slovenia, another spin-off from Yugoslavia, relied on a worker-buyout scheme, but by all accounts it is the least corrupt country in the region. (3)

In this article, I argue that government-induced definition of ownership rights must lead to inefficiency, waste, and insecure property rights, which is a recipe for high overall corruption and the erosion of efforts to liberalize society. First, I deal with the mainstream (neoclassical) approach to transition efforts in central and eastern Europe (CEE), which fosters the governmental role in shaping the economic system; second, I briefly explain the privatization process and recent institutional changes in Serbia; third, I explore the causes of the current extensive corruption in Serbia; fourth, I try to establish common features of government assignment of property rights in two dissimilar political, economic, and cultural environments; and finally, I present some tentative conclusions.

The Two-Tier Neoclassical Consensus and the Role of Culture

At the beginning of the transition process in CEE, economists affiliated with international financial organizations in Washington reached a consensus on the reform agenda for the region. …

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