235. Future Trends in Southeastern Europe

By
Julie Mostov

This study considers future trends in Southeast Europe with an eye to problems of governance by examining what is typically understood as state functions and processes that promote institutional accountability and transparency. Three interdependent sets of local factors, that speak to the future of the region, are identified: 1) national or ethnic conflicts and unresolved issues around sovereignty and self-determination; 2) weak governments and fragile political coalitions and alliances unable to provide necessary goods and services and implement sound fiscal and regulatory policies, establish and maintain rule of law, and gain public trust; and 3) weak legal economies plagued by crime, illegal trade and trafficking, energy shortages, inadequate infrastructure, strained budgets, unemployment, poverty, and increasing gaps between the rich and the poor.

Without minimizing the ways in which unresolved questions about sovereignty and hard borders produce instability and conflict, this paper looks at the ways in which weak governments and weak economies undermine stability, democratization, and prosperity in the region while, at the same time, indicating factors for positive change.

Weak Governments

Governments in the region are not only made up of fragile coalitions and uncomfortable alliances, but also lack the capacity to govern effectively and support reform. Communism endowed the region with a legacy of inefficient bureaucracy and informal ties of favors and connections, encouraging discretionary practices and widespread corruption. With the breakdown of the old communist regimes in the region, the new governing elites took control of state-owned (or "publicly-owned," in the case of the Yugoslav self-management system) properties and enterprises to ensure ruling party/government control over resources. During the wars in the former Yugoslav republics, the region grew as a major route for illegal trade and trafficking. The shrinking of legitimate political and economic space promoted by ruling ethnocrats accelerated the criminalization of politics.

The politics of personal ties, covert transactions, and bribes infected all levels of local and central government. Even public offices or actors not involved in some form of illegal or questionable activities have been tarnished by "association." The breakdown of the command state and its mechanisms for generating revenues and providing social benefits facilitated the emergence of "alternative safety nets" and the general acceptance of black market economies and corruption in public administration. Lack of transparency in budgetary processes, procurement policy, and use of public resources, combined with this history of abuse, has undermined public trust and created unfavorable conditions for legitimate business.

Central and local governments lack legitimate and effective means for extracting revenues for public goods, affecting the provision of clean water, public transportation, garbage collection, health care, education, and legal frameworks for secure, legitimate economic activity. The lack of governing capacity in central and local governments and weaknesses in the judicial system are compounded by social factors associated with poverty, war, and social disintegration such as poor health, alcoholism, drug abuse, prostitution, homelessness, HIV/AIDS, and serious disaffection among young people. The inability to generate resources for public goods, to pay salaries of public servants, guarantee pensions, and provide minimum health and welfare benefits has exacerbated dissatisfaction and social unrest, providing fodder for nationalists and extremist parties eager to enflame (or rekindle) ethnic conflicts.

Weak Economies

Weak governments are tightly linked to illegal economies (smuggling and trafficking of drugs, weapons, and humans); corrupt business practices; uneven and slow economic development; lack of significant foreign investment; energy shortages and serious deficiencies in infrastructure; and urban and rural poverty. The regional economies are struggling with structural change, privatization, and limited access to markets, capital, and global economic processes.

The dissolution of the former Yugoslavia and the wars that followed severely disrupted economic activity in the successor states, increasing the down-turns in regional economies and disrupting the legitimate flow of goods and people. War and ethnic conflicts destroyed homes, farms, factories, and communities, and left thousands of displaced people and refugees.

While there has been some privatization of firms, the lack of regulatory and legal frameworks has undermined a system of checks that would encourage real private sector development and investment. At the same time, inflation, complex tax systems and administrative hurdles, such as obtaining business licenses and lack of access to finance pose serious constraints on the private sector and development. The lack of legal and social institutions that could provide some predictability, fairness and transparency in society has undermined the potential for private investment and economic growth.

Directions for Change

These local obstacles to economic growth, stability, and progress toward democracy, however, also indicate steps toward positive change. That is, they highlight the need for effective and accountable public administration at all levels and the development of technical capacities for good governance. Such efforts however, need to be driven by local, practical needs and both local (sub-national) and regional strategies, voiced by regional players.

Institutional Capacity Building

Most public administrations in Southeast Europe suffer from lack of transparency, meaning a lack of information about use of public resources, communication and impartiality in decision- making, as well as accountability of public officials (lack of a merit-based civil service), which again translates into lack of public trust. Inadequate checks and balances and internal controls as well as an overall absence of civil society oversight increase the potential for administrative discretion. Hierarchical, centralized fiscal structures create disincentives for innovation and cost saving and encourage dependencies and cronyism. Municipalities that succeed in collecting revenues and controlling costs are penalized by measures that transfer a sizeable amount of the monies to the central government. On the other hand, decentralization of local governance can also give significant discretion to local officials without real accountability and transparency.

Capacity building of state functions should not be seen as increasing the centralization of authority, nor as the scope of the state. In fact, institutional reforms that aim at increasing transparency and accountability upset prevailing interests and expose mechanisms for abuse of power. Reforms inevitably impose costs on previously privileged groups and constrain politicians' abilities to make deals. However, they can also open the way to new relationships or partnerships around the long-term gains of good governance practices (for example, economic growth and public trust). These partnerships could beneficially extend participation to citizens in monitoring the progress of reforms and result in improvements in service delivery. Regional projects at transnational, national, and sub-national levels offer the greatest opportunities for the development of such new institutional frameworks and partnerships.

Regional Strategies for Action

Regional economic strategies - infrastructure linkages (water works, regional power grids, roads, rails, satellites, and environmental protection) bolster both economic and political capacity. They support power-sharing arrangements at sub-national and transnational levels around "state" functions, which are crucial to development, direct foreign investment, and economic growth.

The potential for regional development has been enhanced by the re-entry of Serbia into the common space as a pro-European, democratizing economy in transition. It improves the picture for regional development by encouraging infrastructure projects and trade integration as well as regional trade policy. This is important not because the countries of the region "ought" to reconstruct old trade or transit links, but because it is in the countries' mutual interests to pool resources and maximize their efforts to advance as a region.

Capacity building requires resources for education and training of new civil servants in public administration, public accounting, and other financial services. The Southeast European countries (and international community) can save on the costs of this training and build a regional corps of experts with common knowledge of practices (accounting standards, procurement procedures, investment regulations, labor standards, and international norms for business taxation) through the development of regional centers of learning and through regional infrastructure projects. The projects can draw in regional and international experts and involve undergraduate and graduate students from respective universities at various stages of the project development and implementation, encouraging regional cooperation among experts and providing incentives to stay in the country for educated, regional youth. Such innovation allows for institutional capacity building and a way to circumvent old political structures and discredited political offices, policies, and personnel, while, at the same time, economizing resources and establishing new practices of accountability and trust.

Conclusion

The basic argument of this paper is that negative trends could potentially be turned around if states are strengthened in Southeast Europe with respect to governance functions (provision of goods and services, economic development, rule of law) instead of territorial control (i.e. reiterating and shoring up hard borders and exclusionary practices). A focus on conditions for integration and integrative policies encourages keeping borders soft, but does not imply neglect of unregulated movement across borders or of effective local governance. Rather, it encourages legal trade, and regional cooperation to block the illicit movement across borders, facilitate safe cross-border activity, arrange mutually beneficial regional development policies, and enhance institutional capacity building at multiple levels of governance.

Julie Mostov spoke at an EES Discussion on June 12, 2001. The above is a summary of her presentation. Meeting Report #235.

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