Why is Serbia poor - and is it true?
The starting point for this article is a series of entries on messaging boards and social media across the internet recently published, purporting to struggle with the question of why Serbia is so poor and coming up with various more or less tenuous and in some cases politically controversial answers.
We have decided not to provide links to these various internet sources because we consider it appropriate to starve a mostly bogus issue of the oxygen of publicity. Instead our intention here is to present a more balanced narrative. Few people are balanced in discussions of Serbia, Serbs included. The matter cries out for an impartial and judged analysis.
Serbia's 2020 GDP per capita (before COVID which made a mess of all the economic statistics) was some USD7,700. While not as high as some of its neighbours, that is because Serbia is not in the EU and this makes a big difference as we shall come to explore.
Serbia is not actually that poor a country. Poorer countries in Europe (in 2020, so before the Ukrainian war - something else which made a mess of all the statistics) include Ukraine (USD3,700 per capita), Moldova (USD4,550 per capita), Bosnia and Herzegovina (USD6,000 per capita), Albania (USD5,200 per capita) and North Macedonia (USD5,800 per capita). On the same metric, Russia is at USD10,100 per capita; Romania USD12,890 per capita; Bulgaria USD10,000 per capita; Croatia USD13,800 per capita; Kosovo USD4,300 per capita; Turkey USD8,530 per capita (all figures approximate and for calendar year 2020). These are the proper points of comparison for a country in the Western Balkans, not the United Kingdom, France or the Netherlands.
Contrary to widely circulated casual assertions, Serbia is not incredibly corrupt. It has some corruption; but not nearly as much as it used to. Serbia's non-functional bureaucracy is better described as hopelessly lethargic than actively kleptocratic. Some of this is cultural; it stems from the communist era conviction that a safe job on the government payroll, plus a small amount of stealing on the side, was the best way of getting on safely in life.
Serbs are not natural entrepreneurs or risk takers; but they can be so when they go abroad. There are specific reasons why Serbs in Serbia are unable to embrace the entrepreneurial spirit.
Serbs are very unusual people. There is no doubt about that. Proud, paranoid, clannish, vocal, insular, gregarious, anarchic, gossipy, non-committal, stubborn, lazy, fun-loving, arrogant, friendly, unreliable, argumentative, conservative, indiscreet, unhinged, nationalistic, sexy, eccentric: there are plenty of words that could be invoked to describe their national personality. However these things have nothing to do with GDP. National wealth is the product of having effective economic structures in place, not the consequence of incohate conceptions of national personality.
From an economist's point of view, the main reason Serbia remains a middle income country is its moribund infrastructure, by which we mean roads, railways, mail, city transportation, and land ownership institutions, amongst others. Infrastructure, in this broadest sense of the word, are the connections between different parts of the economy, and the injection of a common sense of order into the assets that make money.
The fact that the Serb national personality has some features that appear to be non-conducive to economic growth (e.g. laziness; unreliability) is a flawed way of looking at the problem. As infrastructure is improved and opportunities to make money multiply, those qualities will disappear from the national personality as Serbs come to learn that the propagation of such qualities is bad for business. The once crooked taxi drivers of Bucharest, Romania's historically notoriously ramshackle capital city, learned to be honest and to learn some English, and to work hard, because they saw that if they did this then with some months of work under these values they would be able to afford the latest plasma screen TV.
Serbia's geopolitical position as between Western Europe, Russia and China is not a hindrance to her economic growth. Indeed it has drawn investment, as geopolitical blocks with various interests (in particular China and the United Arab Emirates) have invested. However those investments have not turned a profit; and that is because Serbian infrastructure is so poor.
Serbia's political confrontation with the only partially recognised Republic of Kosovo, once a Serbian province over which many Serbs have strong nationalist sentiments, is not an obstacle to economic growth per se but it serves as one by proxy because Berlin and Brussels use the Kosovo recognition issue as a pretext not to accelerate Serbia's EU membership course (which would entail the making of massive grants to dramatically improve Serbia's infrastructure, as has occurred with all new EU member states upon accession).
On the other hand, the large amount of money that a cash strapped Serbian government invests in supporting parallel government institutions in Northern Kosovo is simply wasted. The only way to prevent this leakage of funds from the Serbian government budget is to impose peace and stability upon Kosovo through a sensible federalisation process or a much touted 'land swap' (currently off the table due to Germany's tepid approach to the issue for reasons not entirely clear).
Serbia's courts are poor but not horrendous and not particularly corrupt. Their problems derive from the socialist model of legal structures, in which the courts existed to rubber-stamp decisions of prosecutors in whose hands most of the judicial power lay. This entailed a degradation in the importance and hence quality of civil justice; all legal problems of substance were criminalised and were dealt with by the prosecutor's office. This mindset continues to prevail. Obviously the Serbian court system requires root and branch reform to maintain a proper separation of powers: police investigate, courts grant warrants (not prosecutors); prosecutors prosecute cases and act as a check upon the power of investigation and an important buffer between police conclusions and trial (their real role should be to filter out bad cases, not to investigate proactively cases for themselves); the more capable prosecutors should be made judges, and the less capable ones police investigators; the status of the judiciary should be elevated as the final arbiters of law and facts (not prosecutors). All these are standard parts of a judicial reform package that Serbia urgently needs. The best experts in this field lie within the EU and this should be an EU task as part of the process of EU accession.
Serbia has vibrant economic potential. People are relatively well educated, due to the influence of the monolithic University of Belgrade, one of the largest universities in Europe (but that also requires significant reform). Agriculture is excellent. Food is superlative. The country has massive untapped tourist potential. Serbia is rich in natural resources that are not properly exploited due to poor infrastructure and incompetently managed foreign investment (much of it, it is must be said, being Chinese). She may be landlocked but she has cordial relations with Montenegro where lies her closest port. Modern construction quality is high. Geographical location in the Balkans is excellent. Her secondary industry is poor to appalling, mostly due to its communist legacy; much infrastructure of secondary industry needs to be ripped down and started again. (The presence of polluting factories in the centre of towns and cities is a particular problem that must be addressed head on; these institutions need to be destroyed and moved out of town, something that again requires very substantial investment.)
Hidden personal debt is a major factor in economic retardation in Serbia. Because civil justice institutions are so ineffective, banks are reluctant to lend and hence people borrow money within informal structures, a lot of it financed by the drug trade (heroin and cocaine from further south in the Balkans transit Serbia on their way to Western Europe). Those loans are then enforced using the criminal underworld and violence. Obviously the solution to this is to squeeze out the informal lending sector in favour of banks; but this requires massive investments in judicial reform, discussed above.
Roads and driving are shocking and dangerous. Enormous resources are required to rebuild Serbia's entire road network and to impose better driving standards and better auto quality (both of these are rule of law issues).
Serbia's railway network is barely existent and needs massive investment for a comprehensive series of frequent, regular trains to operate across a small country flat in the north and hilly in the south. This should be straightforward.
Belgrade must have the worst public transport and mass transit of any city of its size in Europe. Despite some foreign investment the buses remain mostly terrible. The metro system is barely existent and is in urgent need of construction. An EBRD credit has been agreed in principle but the massive funding required to construct a functional metro needs disbursing immediately.
Street quality in Belgrade is uniformly terrible. Almost every street in the city centre needs resurfacing; an enormous task being undertaken too slowly.
Pollution in Belgrade arguably retards economic growth; the causation of health problems and by making walking round the city a disagreeable experience. Other Serbian cities and towns have similar problems.
Progress is slowly being made on improvement of the city's appearance (many older buildings are in atrocious conditions of disrepair) and the ugliness consequent on this and upon issues such as graffiti not being cleaned from the city's walls perpetuates Belgrade's reputation as a dirty, unkempt and unsafe place. (These inferences may not be fair but they are the inferences our all-important foreign investors draw.)
English language fluency is not as good as it should be for a small middle income country reliant upon foreigners and foreign investment for her advancement (she cannot do it herself). Much more money needs to be spent subsidising English language learning so that, like the Netherlands, everyone is fluent at it. Old fashioned methods of didacticism and pedagogy are partly to blame which is why the public education system requires substantial reform.
The system of land registration and ownership in Serbia is structurally unsound and must be rewritten in its entirety to remove the complex and inconsistent layers of competing ownership claims over the same parcels of land. Due to the vested interests involved, so dramatic a reform could probably be undertaken only by an international commission of experts.
The country's much touted e-government reforms have been a failure because the hopeless, incompetent, lazy and ineffective civil servants behind the e-portals have not changed and they have no interests in participating in a system of bureaucracy that achieves results for its citizens. Hence the governmental e-portals allow the insertion of data but the process of paying for government services is made very difficult and obscure; and ultimately the citizens do not get the services they need without going to an office, waiting in long lines, begging and pleading, taking a whole day off, and more. Serbia needs radical civil service reform, and this will require confrontation with vested interests, if there is to be a transition to a more responsive and efficient style of government. The idea of the Serbian public sector being an easy job with no responsibilities and and opportunity to steal from time to time must be comprehensively eradicated and despite the various half-hearted international projects and programmes focusing on civil service reform, virtually no progress has been made in this regard whatsoever over the last few years.
The EU should prioritise Serbia. In her President they have a fairly high quality domestic partner. The country is small enough that the absolute quantity of resources would not be backbreaking. Serbia's imagined connections with Russia are quite irrelevant (they are economically nnegligible
The element of political autocracy in Serbia is not a priority to reform. Serbs are used to living in light autocracy and it suits them to reign in the more anarchic aspects of their national personality. Serbia is a vibrant democracy in every respect, with a strong and capable autocratic regime in power and a lousy opposition movement that does not challenge the governing regime on any of the important issues this essay discusses but instead cavorts with Russian paramilitary groups and seeks to whip up Serbian nationalism and hysteria (example: the recent attempts to derail Serbia's 2022 EuroPride gay rights march). There is no credible opposition movement into which to invest at this time and that presents a difficulty.
Nevertheless the difficulty can be resolved with proper levels of investment later on, that should facilitate the emergence of a more effective Opposition focused upon doing battle with the government over issues such as effectiveness of government spending upon improving people's lives. There is no point investing in an Opposition movement at the current time, whose contemporary leaders set up far-right neo-Nazi groups and fly to Moscow to create agitation in concert with the Russian security and intelligence services. If the Russians want to do this sort of thing in Serbia (and the evidence suggests that their interests in Serbia are fairly half-hearted for the most part) then they can pay for it themselves.
We conclude that Serbia has rosy prospects. It is a vastly better country than just one decade ago. And we predict that trend to continue. But the EU should accelerate dramatically Serbia's accession process, and invest shrewdly in improving Serbia. While it takes a certain expertise on the Balkans to deal with Serbia; and a lot of that expertise has atrophied since the 1990's wars, it can still be done.