Good morning, capitalism! Good bye social protection!

Mirjana Dokmanovic, PhD
Women’s Centre for Democracy and Human Rights

While making notable progress towards macroeconomic stability and a functioning market economy through privatization and structural adjustment, Serbia has not avoided the negative impacts of these processes on the population. The level of social and economic rights achieved during the previous socialist period has been dramatically lowered, while human insecurity has increased, justified by the need to attract foreign investment and stimulate economic growth.Serbia’seconomic, social and human development is still heavily marked by the legacy ofthe past and the turbulent events of the 1990s. The dissolution of the formerYugoslavia and the associated hostilities and armed conflicts were followed bythe imposition of international sanctions, which cut off important markets andtransit routes to other countries. These circumstances, in addition to theKosovo crisis and the NATO intervention in 1999, have severely disruptedeconomic activities and resulted in a high level of uncertainty in all thesuccessor states.

In the past 15 years, Serbia has undergone several state transformations, from a‘unit’ within the Socialist Federal Republic of Yugoslavia to an independentstate after the dissolution of the state union with Montenegro, which declaredindependence in 2006. Post-conflict consolidation and recovery is still anongoing process.

One of the paramount foreign policy priorities today is rapprochement with theEuropean Union, with entering the EU as the ultimate goal. Relations with the EUare progressing in the framework of the Stabilization and AssociationProcess and the European Partnership as key instruments of pre-accessionstrategy for potential EU membership candidates. However, this process has notalways run smoothly. In May 2006 negotiations for a Stabilization andAssociation Agreement with the EU were suspended for almost a year, due toSerbia’s alleged failure to cooperate with the International Criminal Tribunalfor the Former Yugoslavia. After the parliamentary elections in January 2007 andthe establishment of the new government in May 2007, the international communityresumed economic support for Serbia and encouragement to continue on the path oftransition.

Late transition, usual recipes

Due to the political upheaval and violent conflict in the region during the1990s, Serbia’s transition to a
market economy hasbeen delayedin comparison with the countries in Central and Eastern Europe. The country’s structural adjustment programmes (SAPs), dictated by theInternational Monetary Fund (IMF), have features familiar from previous SAPexperiences in other transition countries, requiring the removal of all obstacles to international tradeand foreign investment, prompt privatization, labour market flexibility andreduction of all social costs. Serbia started the transition from a very weakposition, with a destroyed regional infrastructure and regional market, a highlevel of political uncertainty, and weak institutions. Economic sanctions,hyperinflation, under-investment, and loss of markets after the break-up of theSocialist Federal Republic of Yugoslavia led to a 50% decline in output between1990 and 1993. By 2000, recorded per capita GDP had fallen to USD 1,042, aboutone half of its 1990 level.

In 2000, under the auspices of theStability Pact for South Eastern Europe (SPSEE), the World Bank and its maindevelopment partners in the region (European Commission, European Bank forReconstruction and Development,
Organisation forEconomic Co-operation and Development, European Investment Bank,Council of Europe and Council of Europe Development Bank) adopted acomprehensive approach to development in the SEE. The priorities established fordomestic sector reform include accelerating privatization and structuralreforms; alleviating constraints to foreign direct investment; increasingflexibility in labour market legislation; promoting trade liberalization;reducing the size of the public sector and the overall level of public spending;and reorienting state functions to meet the needs of the market economy (WorldBank, 2000). The reform process is being guided by the World Bank and IMF. TheSPSEE Working Group on Trade Liberalization and Facilitation was established in2001 to foster regional economic integration and trade liberalization within theWorld Trade Organization.

After the October 2000 overthrow of Slobodan Milosevic, the new governmentadopted a comprehensive economic policy based on this framework. This hasresulted in slow but positive economic trends towards increased macroeconomicstability. In 2005, real GDP grew by 6.3% compared to 5.1% in 2001. Growthremained strong at 6.7% year-on-year, and total industrial production expandedat a rate of 7.8% year-on-year. The highest growth rates were achieved insectors which had undergone substantial privatization or restructuring in recentyears, such as food and beverages, tobacco, chemicals, rubber and plasticproducts and base metals. The 2005 current account deficit decreased to 9.8% ofGDP from 12.6% in 2004, due to strong growth of exports (up 13.2% year-on-year)and declining imports (down 6.7% year-on-year), although imports still remainedat about 2.5 times the level of exports. Capital inflows increased in 2005 andreached EUR 3.6 billion compared to EUR 2.4 billion in 2004. Foreign directinvestment rose to about 5.7% of GDP in 2005 from 4.3% of GDP in 2004, reachingover USD 2 billion in 2006, predominantly related to privatization. The annualinflation rate was finally lowered in 2006 to a tolerable 6.6%, while the dinarunexpectedly strengthened relative to the euro.

t the end of 2006, a European Commission evaluation concluded thatSerbia has made notable progress towards macroeconomic stability and being afunctioning market economy, but that stabilization and reform efforts need to becontinued in order to enable it to cope with competitive pressure and marketforces within the EU (European Commission, 2006). Unfortunately, these positivemacroeconomic indicators do not mean a lot to the majority of the population,which is coping with increasing economic, social and human insecurity.

Privatization of strategic economicsectors

Privatizationhas been carried out through different models and in three phases, in 1991, 1997and 2001. Thebasic scheme in 1997 was primarily insider privatization, carried out throughthe free distribution of shares to current and former employees. Anew wave of privatization started in 2001, based on selling capital throughtenders and auctions, and capital transfer without compensation.

As of 15 June 2007,
nearly 2,000 enterprises with 313,696 employees had been privatized underthe law adopted in 2001, and the privatization process should be completed bythe end of 2007. The government has announced its intentions to totally orpartially privatize the large public and state-ownedenterprises in sectors like electricity, gas, oil, forestry, telecommunications,railways, airports and air transport. As part of the privatization process, 15multinational corporations and several big foreign companies have entered thecountry. Among others, they now control such strategic branches of the economyas the cement, tobacco and oil industries.

From the perspective of the country’s citizens, privatization is seen as arobbery of publicly and state-owned companies by the political and economicelite, due to a lack of transparency, numerous scandals, cases of corruption,violations of the law, and dubious privatizations. Despite promises made by thegovernment, there has been no revision of the privatization process.

Rising unemployment

The formal labour market is characterized by high rates of official and hiddenunemployment, low wages, and low mobility of the labour force. Unemployment hascontinuously increased since the beginning of the economic reforms, due tofactors like the high level of bankruptcies and shutdowns, and structuraladjustments and privatizations accompanied by the dismissal of ‘surplus’workers.
Forexample, after the privatization and sale of the country’s largest cementfactory, Beocin, to the French cement giant Lafarge in 2002, the number ofemployees was reduced in two years from 2,400 to 934 (RoS, 2005a).

In 1990, the unemployment rate was16.7%. At the end of 2001, the registered unemployment rate was 21.8%,and by 2006 it had reached 28.05%. Hiddenunemployment is estimated to represent an additional 20% to 24%. Long-termunemployment remained chronic, with an average duration of 44 months in 2005.Youth unemployment is severe and stood at roughly 48%, while the youthemployment rate was 18%, in comparison to an average of 40% in the EU.

Privatized companieshave played an especially significant role in decreasing employmentopportunities. Furthermore, the downsizing of employment in companies isexpected to continue in the coming years with the privatization of large, highlyoverstaffed state-owned enterprises.

Meanwhile, in the newly created marketconditions, many people are not able to enter the work force due to a lack ofqualifications, or as a result of their age, health problems or disabilities.Those in the worst situation are people who are poor, uneducated, illiterate,elderly, rural dwellers, or members of the Roma community, along with women, whomake up the largest marginalized group suffering from discrimination and socialexclusion. The National Employment Agency has introduced measures to stimulateemployment and self-employment, with special emphasis on women, the elderly,single mothers, the disabled and youth. However, these efforts are insufficientdue to an economic environment unfavourable to small and medium businesses andthe unwillingness of employers in the private sector to eliminate discriminatorypractices.

Violation of workers’ rights

Many workers are not included in official statistics because employers inthe private sector have a ‘habit’ of not signing labour contracts, as a wayto avoid paying salaries regularly and making the obligatory social security,unemployment and pension contributions for their employees. Workers in thegrowing private sector are therefore vulnerable to poverty, as they are noteligible for pensions or any other benefits. According to trade union figures,in September 2006, a total of
142,524 employees had either not been paidor had been paid salaries below the minimum wage (USD 0.84 an hour) guaranteedby law
(CATUS, n.d.).

The violation of workers’ rights is facilitated by weak trade unions and a shortage of mechanisms to protect economic andsocial rights in general. The country also lacks adequate legislation on foreigninvestment that would have incorporated international labour standards.

Because of the inability of the private sector to absorb the surplus workforce, a growing informal sector has emerged. The participation of the workingage population in this ‘grey’ economy is estimated at around 60%. Theinformal economy is a significant source of income for the majority ofhouseholds and is estimated to account for 40% of GDP. These workers falloutside any social safety nets, theprotection of trade unions, and legislation related to safer working conditions.Many workers employed in the formal sector are also active in the grey economy,as a means of compensating for low salaries.

Increasing economic and social insecurity

The economic transition has been accompanied by a decrease in thelevel of economic and social rights gained in the previous socialist period, aswell as disregard for international labour and environmental standards and alack of legislation on corporate responsibility. Full-time employment is nolonger guaranteed, many social benefits for families and children have been cut,and access to employment opportunities, health care, social services andeducation has become more difficult. Due to the privatization of services, manyhave become overly expensive for the majority of the population, while in theprevious system they were free.

Meanwhile, structural changes in employment have led to greater availability oftemporary, part-time, seasonal, and low-paid jobs. The new Labour Law (2001)made the procedures for employment and dismissal of workers more flexible anddecreased the level of severance pay and other obligations of employers. Thegovernment justified the legal changes introduced with the need to make theeconomy attractive to foreign investors. As a result, themajority of the population is facing increased unemployment andinsecurity, in addition to rising crime, corruption, and a widening gap betweenthe poor and the rich, due to the thinning of the middle class and the emergenceof a new economic and political elite made up by war profiteers and formercommunist leaders.

During the preparatory work for the 2003Poverty Reduction Strategy Paper (PRSP), several household surveys wereconducted, showing that 10.6% of the population (800,000 people) lived below thepoverty line of USD 2.4 per day, while another 1.6 million people earned only alittle more. Adding in other vulnerable groups, such as refugees and displacedpersons (700,000), the Roma community, farmers and industrial workers, it isestimated that almost half the population has suffered a decline in theirquality of life and the denial of economic and social rights like the right toadequate housing, health care, education, social security and a decentlivelihood.

Those at the greatest risk of poverty include the unemployed, the uneducated,the elderly (over the age of 65), children, and households with five or moremembers. Persons with disabilities (70,000) and retired people, who receivepensions amounting to roughly 60% of the average salary, are particularly atrisk of poverty. A reform of the pension system is in progress, as thegovernment has determined that it is no longer sustainable to have two millionemployed people supporting 1.26 million retired people.
In addition tothe compulsory social security pension scheme, based on intergenerationalsolidarity, voluntary pension insurance and private pension funds are beingintroduced.

Similar to othertransition countries, women carry the heaviest burden of the transition process,due to cuts in social services, rising unemployment, and the feminization ofpoverty. They have been hit especially hard by the loss of the benefits of theprevious social welfare system, such as affordable child care, free health careand education systems, and job security. They are typically concentrated inlow-paid sectors. Women make up 70% to 80% of employees in publicadministration, health care, social services, and the hotel and restaurantindustry. In addition, women are increasingly shifting from the formal to theinformal economy.

The government’s analysis of the first year of implementation of the PovertyReduction Strategy Paper (RoS, 2005b) and progress towards the MillenniumDevelopment Goals in Serbia (RoS, 2006) recognize that Serbia still lacks acomprehensive policy and effective strategy to eliminate the negative effects ofthe transition on the possibilities of the majority to enjoy economic and socialrights. The new Constitution[1]guarantees a wide scope of the economic, social and cultural rights enshrined inthe International Covenant on Economic, Social and Cultural Rights (ICESCR), andstipulates that the attained level of human rights may not be lowered (Article20.2). It introduces anti-discrimination and gender equality provisions,establishing a policy of equal opportunities as an obligation of the state (Art.15) and social measures to eliminate discrimination on any grounds (Article21.4).

Nevertheless, despite the evident negative effects of the transition on thepopulation, the government’s efforts are still much more focused on attractingforeign investment, building the market economy and protecting the interests ofthe newly established capitalist class, than on protecting, fulfilling andsafeguarding the attained level of economic and social rights as prescribed inthe ICESCR and the new Constitution.


CATUS (Conferederation of Autonomous Trade Unionsof Serbia) (n.d.). Indicators of Social and Economic Trends in 2006.Available from:<>.

European Commission (2006). Progress towards meeting the economic criteriafor accession: the assessments of the 2006 Progress Reports. Enlargement PapersNo 29. Available from:<>.

RoS (Republic of Serbia) (n.d.). National Strategy for Social Protection.Belgrade: Government of Serbia.

RoS (2005a). Impact Assessment of Privatization in Serbia. Belgrade:Government of Serbia, Privatization Agency.

RoS (2005b). First Report on the Implementation of the PRSP in Serbia.Belgrade: Government of Serbia.

RoS (2006). National Millenium Development Goals in Serbia. Belgrade:Government of Serbia.

RoS (2007). The New Concept of Privatization in Serbia. Belgrade:Government of Serbia, Privatization Agency.

Stability Pact for South Eastern Europe (2001). Working Table II on TradeLiberalization and Facilitation. RegionalConference Budapest.

World Bank.
Europe and Central Asia Region (2000). The Road to Stability and Prosperity in South Eastern Europe. ARegional Strategy Paper.


* Due to the recent separation of Montenegro in June2006 there are no available data on BCI and GEI components for Serbia alone.

[1] Adopted by the National Assembly in 30 September 2006. Theofficial English version is available at: <>.