Michael Palairet

Kosovo's Industrial Giant (short version)

Michael Palairet, professor at the University of Edinburgh, is a leading authority on the economic and social history of the Balkans.

One of his best-known books - The Balkan Economies c. 1800-1914 - analyses economic development in Serbia, Bulgaria, Bosnia, Montenegro and Macedonia in the century before World War I.

Articles on specific enterprises - the Yugoslav car giant Zastava, the steel plant in Smederevo, the Ramiz Sadiku company in Kosovo's Pec/Peja, and the Croatian shipyards - provide the microanalysis that explains in large part why the ex-Yugoslav socialist economy was in decline from 1979 onwards. This crisis, in most of Yugoslavia's successor states, continues until the present day.

In 2002 ESI's Lessons Learned and Analysis Unit in Kosovo commissioned Professor Palairet to undertake research on one of the most complex and controversial companies in the former Yugoslavia: Kosovo's giant Trepca.

The final article is based on numerous interviews and original company documents seized in 2000 when KFOR and UNMIK closed down the highly-polluting Trepca lead smelter (please click here for the full report on Kosovo's Industrial Giant or here for a short version).

As Michael Palairet puts it, looking at the companies' "golden age" of massive expansion:

"The golden age was one in which employment, direct and indirect, expanded massively and the combine paid (by local standards) a decent wage. Yet the 'golden age' was a mythological era, when Trepca depended on the principle of non-accountability, in which investment and current deficits were funded externally. So long as the funding kept rolling in, the incapacity of Trepca to support itself was nobody's problem. Easy funding came to an end in the 1980s, and with it Trepca's 'golden age'"
"The Trepca system 'as a rule' lost money under Yugoslav socialism … Because of Trepca's incapacity to generate funding of its own for investment, all investment funding had to be financed externally, by fund providers who did not anticipate that they would see any return on (or of) their capital."

But while Trepca consistently performed poorly, this was not because it could not have been managed more effectively: " unlike most heavy industry, which lay in the comparative disadvantage sector, Trepca had good mining assets and low cost access to energy, so on the face of things there were no structural reasons for its inability to trade profitably."

In his analysis of the "Metallurgical Kombinat Smederevo 1960-1990: a case study in the economic decline of Yugoslavia" (in Europe-Asia Studies, 49 (1997) pp. 1071-1101.) Palairet had previously noted:

"My research on Yugoslav enterprise history has convinced me that macro-economic performance was fundamentally conditioned by enterprise difficulties and strategies, and that only by studying how enterprises worked in practice (rather than in theory) can we make sense of what happened in the economy as a whole" (p. 1071).

And in "The economic consequences of Slobodan Miloševic", Palairet stresses the long-term costs of economic mismanagement in the 1980s and 1990s in Serbia:

"The structural shifts extended into the run-down of infrastructure, and towards the attrition of human capital. This occurred through morbidity worsened by degradation of the health care system, emigration and educational deterioration. It was worsened by the displacement from the employment structure of scientists, technicians and competent managers by promoted party cadres, usually of limited technical competence and of unabashed criminality, and the growth of a vast semi-literate police force. () The erosion of human capital could indeed prove the most intractable and unforgivable legacy of the Miloševic regime" (p. 918).
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