Jakob Modéer's Balkan & Europe Blog

A visit to the port of Durres, on the Albanian coast, should be a regular visit for students in urban planning and tourism development. Most of what can go wrong in the dash for quick cash has done so in Durres. Urban planning rules and directives for hotel constructions have been ignored in order to maximize the economic return of every single square meter. The result is an unattractive diversity of huge apartment blocks and hotels, built 2 meters from each other with little or no green areas. Add to this the universal presence of uncollected garbage, free flowing sewage water which finds its way through the hotel areas and into the sea where the majority of the tourists go swimming. In the centre of town, a new front line of properties are emerging out of the sea, through massive land fills. One can only imagine the reaction of those hotel and apartment owners, who some years back invested (and most certainly paid off public officials) in front line property to wake up one morning and see a new row of blocks being built right in front of their noses. Their only salvation will be that in 5 years time the same faith awaits the current front liners (until the construction boom reaches the shores of Italy…)

Why politicians love infrastructure development
The roads in Bulgaria are in a notoriously bad state, to the extent that the casual visitor may be forgiven to think he is in rural Africa, rather than in a EU members state. The depth and sheer number of the potholes are extraordinary. The creation of new holes seriously out paces the state’s feeble attempts to fill in the holes. Why is it so difficult to construct proper roads in Bulgaria? Is the terrain particular difficult, is there a lack of know how? No. The simple answer is corruption. This is how it works or rather how it does not work out in the end, neither for the drivers nor the taxpayers.
Step 1. Central or local government decide on a piece of road to be built.
Step 2. A public tender procedure is announced, in accordance with national procurement laws and directives of the EU. Road construction companies prepare technical offers and, yes, bribe enough public administrators and/or local politicians to win the tender.
Step 3. The winning company starts construction. As a standard the layer of macadam should be, say 50 cm and the asphalt layer minimum 15 cm. However, to quickly recover the “success fee” (fancy word for ‘bribe’) and to make a whooping profit, the construction company reduces the macadam layer to 20 cm and the asphalt to 5 cm.
Step 4. In a ‘normal’ country, a construction company would not get away with such simple tricks, easy profit on the account of road safety. The local municipality or state organ financing the construction would hire an independent agent to evaluate the work of the construction company, measures would be taken and the truth would come out. However, in the Balkans this is common practice. Because the construction company has already paid off the politicians to win the tender, the same politicians will respond by looking the other way.
Step 5. The poorly constructed road starts to break into pieces already on its maiden voyage, effectively creating a new market for ad hoc road repair. This explains why so many Bulgarian roads look like a grey quilt, and why road construction is such a popular business and why the state loves to invest in infrastructure.
Lessons learned: To cheat pays off in the Balkans.
Negative consequences: A higher than EU average number of horrific accidences with loss of human lives and the rapid destruction of automobiles are the two most obvious negative consequences of having roads that look like Swiss cheese. Beyond that, the flow of easy cash through public institutions suddenly makes holding public office or working in public administration attractive. Unfortunately, it attracts the wrong people, persons who encourage and feed-off corruption and bribery. “You pay me, I will serve you” for services which by law is free of charge for citizens! Now, because so many public servants owe their job, not to their own skills and experience, but to a ‘patron’, the focus of these servants are to serve the wishes of the patron, and not the general public or their immediate supervisor. This means that most of the time at work is spent doing jobs for the patron, identifying new opportunities and playing video games on the laptop. There is little or no time to complete the services required by the job description in serving the public. As a consequence, public administration in the Balkans is notoriously ineffective and rude. A non-functioning public administration has direct negative impact on the overall competitiveness of the private sector, as enterprise owners have to spend endless of hours standing in queues or finding ‘personal’ solutions with every single public office.

The right not to pay taxes
All Balkan countries suffer from inadequate health care, education, social services as well as poor infrastructure and transportation. The obligation to care for the well-being of all its citizens, the status of its assets and resources, clearly fall with the state. Yet, the state is incapable of generating sufficient financial resources, quality human resource and proper management to even offer basic, but quality services to its inhabitants. To do so, the state needs money. Enter taxation. Let’s look at taxation in the Balkans, where avoiding tax is a national past-time, and for many regarded as a constitutional right. Not to care about the obvious connection between taxation and better functioning society can only be described as a reflection of a high degree of ignorance and/or pure egoism. There is a political and business elite in most Balkan countries, who are in power for one purpose only, to fill their own pockets.
The large majority of the self-proclaimed businessmen in the Balkans are not really businessmen by any Harvard Business School definition of the word. Yes, they have registered enterprises pursuing some economic activity, but that does not mean that they are neither competitive nor economically viable. Still, they do not go bankrupt, some even grow and generate enormous wealth in relatively poor countries. How is this possible? Have the Balkan businessmen discovered flaws in the theories of Adam Smith. Of course not. Their simple business plan is to cheat the state. Cheating the state has long, proud traditions in the Balkans. To cheat the Ottoman rulers was a sign of emerging nationalism, to cheat the communist rulers was a survival mechanism. Even the communists themselves were cheating the state (re-selling cheap oil from the USSR to the West, smuggling of other assets, etc.). The post 1990 generation of con artists, all dressed up in muscles, tight black t-shirts, suits and driving cars right out of the latest Frankfurt car show, have institutionalized tax evasion and late payment, and through aggressive use of the local media created an image as successful ‘biznizmen’. They are not. Their bread and butter is old style racketeering, muscling in on public tenders, not paying VAT, not paying their suppliers, not paying Custom duties and tariffs, privatizing state assets at a price far below market value, grabbing state property for no money at all, etc, etc. Of course, all of the above could not happen if the police, prosecutors, courts, media and politicians were doing their job, which is to protect the state. But the truth is that in most Balkan countries nobody defends the state. Even public officials, hired to protect the state, act like visitors, grabbing what they can as they run for the door. If there were one or two cases of bad behavior, nipped in the butt right away by the authorities, like a kid caught with the fingers in the cookie jar, and punished by his parents, it would have been ok and the other kids would have learned something from the ordeal. But, in the Balkans, the kids are in the jars, all the time, and the parents too. The biznizmen play closely with corrupt public servants, bribe their way out of legal cases and keep the politicians off their backs by financing their political parties.
When this self-destructive system, in which corrupt and criminal behavior is tolerated, even applauded, become the norm a society will find it extremely difficult to grow economically and the quality of life for the majority of the people will remain rock bottom. This is the Balkans, because this is how the Balkans has been for a very, very long time. People in the Balkans may not like it, but they are so used to it, they adapt to survive and they become a quite contributor to the norm.

Why go to school?
Education is the key to economic growth and social progress. This appears to be a universally recognized truth. In Asia, parents will work double jobs to afford sending the kid(s) to a good school, modern Turkey is famous for its attention to quality schooling and in Scandinavia the governments are not holding anything back in financing life long learning initiatives. This is not the case in the Balkans. Public schools are under-financed, poorly staffed, run-down and stuck with old teaching styles. Public universities are not much better, suffering from under-financing, poor management and corruption. It is a well-known fact that university diplomas can be bought. Care to become a MD anyone? €10.000 will do the job, fancy diploma and all. Enter privately owned education facilities. Let’s be honest, most of them are diploma print shops, mainly targeting the newly rich, most of whom do not believe in education, since their own wealth is a result of contacts rather than brains. And as a spoiled brat with newly rich parents, why should I bother to study when mom and dad will fix me up with a job (read, ‘place to go’) upon graduation? In such a climate, it is not difficult to understand that access to quality human resource is a core weakness among Balkan companies. This matters if your are running a hotel catering to the needs of German tourists, or manufacturing furniture to the quality standards of a French buyer, but less so if your main business activity is cheating the state through corrupt practices.

The human casualty of corruption
Corruption makes a fool out of good people and good behavior. If bending the rules is norm in a society, whoever is standing up for what is right and civilized behavior, such as paying taxes, working hard, not throwing litter on the street, not parking your car on the sidewalk, adhering to traffic rules, will inevitably be made a fool of. By not punishing bad behavior among the few, the majority of people will soon adopt the same bad behaviors and the fabrics of a well-functioning state and democracy will start to decay, to the point when people will not care about anything but themselves. To reverse this negative trend will require, first of all, that the judicial system work also against the rich and influential. To start putting corrupt politicians and businessmen behind bars would go a long way in saving the Balkans. So far, no Balkan country has been successful in dealing with corrupt officials between 1990 and 2010. So why should not every Balkan boy and girl dream of public office? But, realistically, where to start, and when to stop in prosecuting misuse of state assets? If, for example, a former Ministry of Economy who is taken to justice for corrupt practices during privatization (now there you have some candidates in the Balkans where almost all privatization schemes were complete failures) and if he is sentenced to 20 years in jail, is bound to open his mouth and bring down with him another 30 corrupt officials and businessmen. If, in turn, these 30 persons are given their day in Court, and a stiff sentence, they will for sure spill the beans on another 30 corrupt individuals. The multiplier effect is be well on the way. Can the legal system cope with this onslaught of high level political cases? Can society and democracy cope with the pressure for revenge and justice, when finally after so many years of silence, the truth is let loose? Alexander Solzhenitsyn, the Russian dissident writer, ones said that a people who finally deals heads on with its history will loose an eye, while those who don’t will go completely blind. At this moment in time, there is a universal darkness in the Balkans, and there appears to be no urgency to turn on the light. For this you will need an enlightened despot (Turkey’s Aturk) to force corrective measure on society or an extremely strong grass root movement forcing change from below. Neither is anywhere to be seen in the Balkans today. Ten years ago, Madeleine Albright, former US secretary of state, described the situation in the Balkans: “Many people have yet to free themselves from the prejudices and hatreds of the past. The economy is plagued by underdevelopment and the ravenous parasite of corruption. And quite a few, especially the young, are pessimistic and eager to leave”. Little has changed for the better since then. However, there may be small glimmer of hope from unexpected places. Bulgaria’s new Minister of Interior, Tsvetan Tsvetanov, a FBI trained supporter of a hard-line approach against organized crime, has aired the necessity of special courts to take on corruption and organized crime cases, as the normal judicial system (corrupt in itself) is incapable and/or unwilling to sentence and punish blatant criminals. According to Tsvetanov there was little accountability among current judges. “It’s a problem because there is no official mechanism for cleaning up the judiciary and because so many judges are entangled in Corruption”. Clearly, as a EU member state, Bulgaria could expect support from Brussels in coordinating the establishment of a special Court against organized crime in the country, rather than just stamping such a move as a first step towards a police state. With rampant corruption demolishing any effort to build a law-abiding society, Bulgarians themselves are for the establishment of such a Court. This is a perfect opportunity for the EU to make a difference in the fight against organized crime, and statuate an example on how effectively deal with corruption and organized crime, once and for all.

Why corruption is Balkan’s curse
Corruption is the constant search for easy solutions that benefit myself in the short run. If everybody thinks the same way, well, then you get the Balkans. With such a predominant mentality, you cannot build a democratic state, strong economy or free society. There is simply no platform for any of it.

The way in

For ten years leading up to formal EU membership in 2007, Bulgaria sent well-educated, female foreign ministers to negotiate with Brussels. Their mission was to improve Bulgaria’s negative image abroad, to replace the old stereotype of Bulgaria as a haven for money-washing, organized crime and chronic corruption, into something new, civilized and Western bound. Clearly the tactics worked. But others came to Bulgaria’s aid as well. The bureaucrats in the Delegation of the European Commission in Sofia were probably the most prominent promoter of Bulgarian EU membership, painting a rosy picture of a country in rapid transition in its official reports. To get Bulgaria in the EU as quickly as possible would benefit their careers, for sure. A third force pushing for Bulgaria was the US. Bulgaria, notably unknown to most Americans before the bombing of Serbia in 1999, suddenly turned into a firm ally as NATO fighter jets were permitted to fly over Bulgarian airspace on route to targets in Kosovo and Serbia. For sure, keeping the Russian bear out of Europe also played a role, as Bulgaria was rushed into NATO as well.

However, despite all the good looks and good words, in reality, Bulgaria in 2007 was far away from coping with the Copenhagen criteria for EU membership. The Bulgarians knew it, that’s why the EU membership came as such a surprise to most Bulgarian citizens and companies. According to the Copenhagen criteria, to join the EU, a new member State must meet three specific criteria: political (democratic institutions, rule of law, human rights and protection of minorities), economic (functioning market economy and capacity to cope with free market forces), acceptance of the Community Acquis (ability to cope with obligations of membership). How the EU came to the conclusion in 2007 that the rule of law is upheld in Bulgaria remains a mystery. By any measure, and again any Bulgarian taxi driver will confirm this fact, the legal system in Bulgaria is not up to par. To the contrary, it is an under-performing institution, which protects the bad, and leaves the good out in the cold. In summary, 150 business related assassinations in 20 years remain unsolved, famous businessmen whose only claim to fame is their capacity to avoid taxes and steal state assets remain at large and so does generations of politicians, policemen, custom officials, public administrators, prosecutors and others on low state salaries who own properties for which they would have to work 300 years to actually afford. All of the above must have been obvious to Brussels, yet made no impression on the EU as it gave Bulgaria the green light to enter the Club.

Most Bulgarians expected euro notes to fall from the trees as a result of EU membership. The politicians did little to restrain expectations. Instead, what followed was a range of disasters and disappointments – inflation, closure of production units not adhering to tough EU directives and standards, increased brain drain especially among the young and well-educated, outbursts of blatant corruption in the use of EU funds and a horrific realization that the country was incapable of managing the opportunities and responsibilities of EU membership. Why? Well, in good Balkan fashion political change means change in public administration. The winner fills the public sector with his own people. Any capacity built up is effectively lost as the old staff walks out the door. There is no continuity in skills or procedures, everything starts over from scratch, including new desperate attempts by the EU to strengthen administrative capacity.

No way out

There is no historical presence of a member state being asked to leave the EU due to under-performance. There is no clear legal framework for a member to choose to leave the EU. If your are in the Club, you are in forever. This does not send the right signal to the layer of irresponsible politicians that the Balkans has the unfortunate, but very consistent habit of electing to power, over and over again. The EU’s stick is hence non-existence, while the financial carrot has limited influence. In Bulgaria’s case, when the EU decided to “punish” it for misuse of EU funds, the Government turned to the national reserve to keep its abuse of power machine ticking, at least until the next election. Who got hurt? Neither the political elite nor the businessmen dictating policy and new legislation, of course, but the average citizen who saw the quality of health care, education, roads take a nose dive.

Dare to change

So, will the EU learn anything from the Bulgaria case in its current negotiating with countries in Western Balkan? Will it change its approach to taking in new member states? Probably not. This is both unfortunate and irresponsible. A new model for absorbing new member states, which at the time of entrance are far below the EU average on the Copenhagen criteria, is desperately needed. If the EU is to become a global economic and political power, it has to invent new membership rules, which promote the well-performing member states, while at the same time demanding improved performance by the other members of the Club.

To build and enforce positive and sustainable changes in the politics, economy and society of new members states, it is simply not enough that these countries perform well during 10 years leading up to EU membership. Bulgaria did this and has since fallen back into old habits of chronism, corruption and crime. The recent debt crisis in Greece shows that also older members of the EU continue to misbehave like children hoping that they will get away with it, every time.

EU is a club of very diverse nation states. It includes states with clear Banana Republic tendencies (not functioning judicial system, heavy political involvement in the economy and businessmen in politics, incompetent and over-staffed public administration, etc) glued together with some of the most competitive economies, with highest living standards anywhere in the World. EU member states are like pupils, divided into groups depending on performance, and in classic egalitarian manner the teacher is giving all his/her attention to the under-performing students, ignoring the plea of the better students. And then we wonder why we are not the most competitive economy in the world yet.

A new approach is necessary to break the bad habits of Ottoman rule and communist mismanagement among the potential new member states from South East Europe. Rather than granting full membership to new member states, a trial period of 25 years (at least one generation) with limited voting rights and no presidency should be applied, during which the country will still receive a comprehensive package of technical assistance to build up the capacity to fulfill the Copenhagen criteria in a sustainable manner. Some will argue that this is unfair, and that the countries of Western Balkan will be a B-team within EU. Well, yes, but let’s be honest, they are 20-50 years behind the best performers in the EU anyway (and some of the older member states surely belongs to this category as well) However, upward mobility is the goal and by showing consist improvement on the Copenhagen criteria for 25 years a new member state will earn promotion to the A-team. In simple school terms, the current accession process is like cramming for an exam, taking the test successfully, and forgetting everything you learned the next day…and going back to doing things they way you and your buddies know best! Nobody benefits from this approach.

In recent times, few countries have received more financial support per capita by the international donor community than Kosovo. Since the NATO bombings and consequent defeat of Serb troops in 1999, Kosovo has been “ruled” and “supported” by a series of international organisations, with the UN leading the way. Since the time of the declaration of independence in 2008, the main chunk of financial and technical support for the Kosovo Government comes from the US and EU. This means that for more than 10 years this little country of 2 million inhabitants have enjoyed almost unlimited support of some of the richest and most competent collection of states and organisations in the world. With such friends how could things go so wrong?
Kosovo today is still suffering from irregular supply of electricity, to the extent that it deters private economic activity. The unemployment rate hover around 40%, a rate that in any other country would drive masses of unhappy citizens on to the streets. Youth unemployment is five times higher than the EU average. Almost 30.000 young Kosovars enter the labour market every year, while there are only 3.000 new jobs being created. Emigration is the only option for many. The financial remittance from Kosovo Diaspora makes up about one third of GDP. Donors cover approximately another third. Scrap metal is the number one export. Correction, since the scrap is actually cut up cars imported from Western Europe, it should be considered re-export. For every one euro exported, Kosovo imports goods for ten euro. In a land known for its peppars, the large majority of food articles in the shops are imported from Serbia(!), Macedonia and Croatia. This is clearly not a sustainable economic model. Yet all the wise men of the US, EU, multilateral organizations and their respective millions of dollars/euro have so far been unable to create a strong private sector and a political class who are capable of running a state that cares and does something about energy supply, social services, employment, and so on. On the opposite, an unhealthy relationship of dependency is emerging between Government and Donors, and the large presence of international organisations is distorting the labour market by pushing up salary levels far beyond what the private sector would be willing to pay. As a consequence Kosovo is becoming even less attractive as an investment destination.
That said, the euphoria of independence from Serbia is still going strong among the population. Of course a young state needs time to find its feet, but it also needs space to learn how to walk alone. The time will come when freedom and statehood are no longer enough to please the population. Kosovo is ill prepared for a drop in Diaspora remittances or the day when the international donor community moves on to new hotter spots around the world.
It’s time for Kosovo and its international friends to put the economy before politics, common good before greed, and start building a true European state where the rule of law is implemented (not only a piece of paper), enterprises flourish, the public sector hires staff depending on ‘what’ they know, not ‘who’ they know, and corruption is a sad left-over from days gone by.
One would have expected more from the EU and US, but it is not too late to change the course. In the end, if we cannot succeed in small Kosovo, what can we expect to achieve in Afghanistan and Iraq?

Many small wrong decisions make for a bad Balkan soup

Back in the early 1990’s I studied Russian and East European history and politics under Kristian Gerner at Lund University. A map in one of his books branded the Balkans as “Third World Europe”. Then I might have thought Gerner judgmental, now I know he was dead right. What is wrong with the Balkans? Why this chronic under-performance and inability to build strong states and economies? These are questions that have puzzled non-Balkan people for generations. For the Balkan people however, it is painfully obvious. Generations have lived their lives complaining about the negative consequences of too much nepotism and corruption. Yet, in line with a high degree of fatalism, for which the Balkan mentality is famous, all segments of society show little or no signs of knowing how to break with old, Ottoman ways of life.

Corruption as a way of life

In fact, living in the Balkans you get the feeling that people have come to regard blatant corruption as a way of life. A local politician who does not set out to fill his/her own pockets when in office is regarded as odd among his countrymen. Why? Because, deep inside, most people would do the same. It is one of those small personal decisions we are asked to make in our professional lives. The answer helps explain why the Balkans is Third World Europe, and it will remain so until a larger proportion of its citizens starts to making the “right” decision. In Bulgaria they will tell you that if you want to know a person’s true character, give him/her power! As with everything else in the Balkans, history offers some clarity (or more confusion). In Ottoman times an incoming public official would pay a set sum to the Sultan for the right to collect taxes in a region. Well installed in his new position, the public official’s only mission was to extract as much financial resources out of the local population, to cover his initial investment (payment to Sultan) before somebody else offered the Sultan a higher sum. Today, Balkan politicians far too often see it as their divine right to misuse power for their own gain.  So the approach to public service as not changed much during the last 600 years in the Balkans.

Beyond the politics

But let’s leave the obvious abuse of power by Balkan’s current political leaders aside for a moment. We hear about their flaws and incompetence every day. It’s never-ending fodder for the media. Let’s instead look a little deeper into the Balkan mentality, move beyond socio-economic analysis and look at the individual’s choices.  It’s the choices and decisions we make in our daily lives that in the end makes up society and makes the difference between societies around the World. The Balkan way of life is simply a collection of not so well thought through choices and decisions, i.e. bad decisions, which may benefit the individual at the moment but be detrimental to society and the economy, both now and in the future. It is these every day bad decisions that makes it impossible for the Balkans to ever catch up with the quality of life produced in Northern Europe. Let me give you some anecdotal examples. In the Balkans employees are, in the large majority of cases, hired based on “who” they know, not “what” they know. This automatically takes education and strive for new knowledge and technology out of the equation. This is not a good start if you want to move from a small scale farming to information technology driven economy. One striking negative consequence of this approach to human resource recruitment is low productivity in the private sector and no productivity in the public sector. While the Monday version of a newspaper in Germany is very thin, since nobody has time to read it before dashing off to work, in the Balkans the Monday edition is thick, as reading newspapers at work appears to be a constitutional right for public servants. Why should I bother to work if I am in this position because of “who” I know? The “who” will always protect me!

Monopoly before Competition!

The private sector in the Balkans suffer under an over-regulated and over-staffed state bureaucracy. The under-stimulated public administration spend all their creativity and free time on causing trouble for the entrepreneurs, problems which they themselves then turn around and offer to solve, for a penny or two. But who really cares about the “privatniks” anyway. They are only their to pay their taxes, most politicians would answer. Can you imagine a politician in Washington or Stockholm displaying such disrespect for those that generate the income of the state and citizens? Of course not, but in the Balkans, in this horrible mix of Ottomanism, Communism and Maffiaism, competition among equals is not well received by the men in power. Why do people in the Balkans prefer monopolies to competition? Another choice and another wrong decision. Competition is hard work, while monopolism is hoping that you “know” the right people who can misuse the system, not pay customs duty, bribe the tax man, to your immediate advantage. Of course, we all know (or most of us, I hope) that what they are doing is only stealing from themselves and their children (the future). Without a proper tax base, there can be no development-for-all, only for the few (what is the definition of a Banana republic?) no matter if we are relying on EU membership or international donor organisations for support.