What do we need to know in order to think clearly about the impending political and economic transition for Bosnia and Herzegovina?
The first thing we need to know is that it has been a long time coming.
In the 1970s, after President Nixon ordered the end of the Gold-Dollar standard leading to a flood of cheap money on world markets, among those governments that took advantage of this money was President Tito’s Yugoslavia. The decision, which made some sense at the time, proved fatal. This is because President Reagan, shortly after taking office, ordered the Federal Reserve, Treasury, and Labour Secretaries to do all in their power to strengthen the dollar, placing an extraordinary burden not only on US workers whose employers responded to the higher cost of borrowing by laying off employees, cutting benefits, and closing plants, but also on foreign borrowers who found themselves compelled to pursue similar measures — or so they thought — in order to keep up on payments on their debt. Among those most pressed by the rising cost of their debt were President Tito’s Yugoslavia.
Second, we need to recognize that although President Tito and his successors may have made bad decisions in the 1970s and 1980s, Bosnia’s and Herzegovina’s economic and political woes are part of a global economic transformation.
We have already outlined in some detail the historical and social, as well as economic, consequences following from President Tito’s and his successors’ fateful pursuit of neoliberal economic policies: the selling off of public assets, privatization, deregulation, coupled with severe reductions in the social franchise. Increasing labour unrest throughout the 1980s led directly into the ethnic conflicts of the 1990s from which Bosnia and Herzegovina has not yet recovered.
Naomi Klein, in her book The Shock Doctrine, has written eloquently and passionately about the human consequences of neoliberal economic policies around the globe: in South Africa, Russia, Poland, China, Argentina, and Chile, as well as in the United States and Great Britain. Yet, beyond the justifiable righteous indignation produced by reports, it is often difficult for us to identify the specific policy decisions political actors can make and need to make in order to set their economies on a different path.
The third thing we need to know is that Bosnia and Herzegovina have already taken the first essential steps toward economic transformation.
Politics has somewhere been called “the art of the possible.” It is possible to share wealth more broadly for example. But it is highly unlikely, at least in the short run, that Bosnians and Herzegovinians will, on their own, compel the World Bank, the EU, or the US to reverse their policy preferences.
So what can Bosnians and Herzegovinians do?
- Bosnians and Herzegovinians have already begun to take the first step. They have compelled the leaders of four of their most populous cantons to resign. Leadership change is important because so long as Bosnia and Herzegovina’s cantons are governed by oligarchs committed to a neoliberal agenda, necessary, orderly, non-violent change cannot take place. But change in leadership is only the first step.
- Bosnians and Herzegovinians need to alter the regulatory environment in their country. The oligarchy currently governing the economy and its regulatory environment in Bosnia and Herzegovina favors low-wage, low-benefit — “inferior good” — manufacturing, that, while enriching themselves does not raise the standard of living of Bosnians and Herzegovinians. But given the significant gap between Bosnian and Herzegovinian average wages and EU average wages, it should be relatively easy for a new government to cultivate relationships with both domestic and foreign manufacturers who promise a living wage and benefits to Bosnian and Herzegovinian labourers. One of the leading obstacles preventing this shift in the margin up until now is a regulatory environment that favors the production of “inferior” goods.
- But cultivating relationships with domestic and foreign manufacturers willing to promise a living wage, while important, cannot solve the problem of overall wage deflation. Three measures in concert can help Bosnia and Herzegovina in the short run: the first is a domestic content requirement; the second is a minimum wage above supply; the third is to peg international borrowing and repayment to the standard of living. In any “take off,” nations need to protect their most valuable asset, their human capital. For Bosnia and Herzegovina to permit 50% unemployment and an average hourly wage of .67€ is unconscionable; but it also makes poor economic sense. On this wage, all that Bosnians and Herzegovinians can manufacture will be “inferior goods” — goods that specifically target low income communities. Such goods will not generate significant economic growth. Domestic content itself can be on a sliding scale. At this point, Bosnian and Herzegovinian products constitute so small a part of foreign markets that they have little leverage over, but also little impact on these markets. As the economy recovers, domestic content requirements should be reduced and then eliminated. Equally, important, however; since foreign lenders have a vested interest in the health of the BiH economy, they should peg repayment of loans to improvements in the economy; relaxing terms of repayment to permit the rebound that will benefit all parties (except, of course, the oligarchs).
- The international community needs to recognize that BiH’s economy, on its own, cannot at present support its population; it must also recognize that the direct path leading from EU and World Bank funds into the bank accounts of duly elected constitutional leaders — who also happen to be identical to the oligarchs — has not been a winning policy. This means two things: First, the international community needs to support efforts to constitutionally separate private economic interests from political office holders, including supporting constitutional change requiring the isolation and separation of the two. Second, strict regulatory restrictions need to be placed on who and what is eligible for EU and World Bank loans; these restrictions need to be couple with a rigorous, independent mechanism for monitoring compliance. Only by getting resources into the most efficient and productive hands can the EU and World Bank, as well as other interested international lenders, hope to see their investments produce returns. And only by getting resources into these hands can Bosnians and Herzegovinians anticipate real economic growth.
- Oligarchic and plutocratic control over the BiH economy has shifted marginal costs upward, supply downward, and demand downward. This is a fateful combination for the BiH economy. Strict, rigorous regulation and enforcement of the marketplace will reign in the oligarchy and plutocrats creating more opportunities to entrepreneurs who rely less on oligarchic control over the conditions of production and consumption than on their ingenuity and flexibility. Limiting the power of the oligarchy thus drives costs down. Driving costs down also increases supply at costs that fall within the demand horizon. More employed consumers working for a living wage also places upward pressure on demand.
- But to effect such shifts from private oligarchic mediation of the economy to independent, public mediation of economic mechanisms will require institutional changes that protect the integrity of all institutions in the supply chain from degree granting institutions, to lending institutions, to police and military; and, of course, institutions governing the political process itself. This process itself needs to be liberated from oligarchic control and manipulation so that political agents are free to serve public interests.
Of course, this primer for an economic policy for a Bosnia and Herzegovina is not intended as a comprehensive plan. Nevertheless, it does identify the leading obstacles standing in the way of robust economic recovery and suggests some practical means for overcoming these obstacles.