Miša Brkić, Journalist:

Prosperity Does Not Come Immediately

Will things be better for us and when? Not any time soon

Misa Brkic

A lot of water must pass through the Sava and the Danube for citizens to feel an improvement. Only the naïve still believe that the economy is the same as the lottery – you buy a lottery ticket, draw a premium and it’s immediately better for you. Economics is a process, a lot has to originate and sweat has to elapse for things to be better for everyone individually and collectively.

What to do?

The Serbian Prime Minister made his inaugural speech for six hours in Parliament and before the TV cameras, leaving the impression of a ruler that has a general idea that Serbia should be a prosperous country, but that it’s not really handling the tools with which to achieve this.

The authorities shouldn’t promise anything more, especially not to bid for the introduction of a better life in Serbia. Never and nowhere, except in socialism (which is why it failed), does the government make the people happy. I suppose that’s why they say “everyone is responsible for their own happiness”.

The authorities in Serbia need only to complete reforms and create an environment in which everyone can find their way as they know and are able.

The lessons of those countries that have managed to develop a better life are crystal clear and simple – reduce public spending because it is still much higher than the optimum level, reduce tax rates in order for interested individuals to launch businesses and remove all regulations and state intervention, because they suppress the freedom of entrepreneurship. Serbia needs an environment in which there is freedom of contracting, in which people will be able to work freely on the market without too much interference from the State. Foreign investment means nothing to Serbia; they are not the only thing that’s important. Serbia needs a good system (environment), because institutions create wealth, and not money. If there is no good institution, then only some people (those close to the authorities) will have money, while the majority of the population will live as poorly as it has to date. That’s why ordinary people do not understand what the prime minister was saying – he claims that ever more investments are coming to Serbia, but the citizens do not feel the positive effects.

The authorities in Serbia need only to complete reforms and create an environment in which everyone can find their way as they know and are able

That’s because the system is bad. And the system is bad because one man has become the system. He is the investigator and judge and prosecutor and the Stock Exchange and the Securities Commission and the Antimonopoly Commission and the Central Depository for Securities and the Business Registers Agency and the Development Fund and…

The Prime Minister is trying in vain to prove that ordinary people are already living better because Serbia has a higher economic growth rate, an indicator that the prime minister particularly praises.

But the economy is not a lottery.

The growth of the economy of a country does not immediately generate a better life for individuals. Renowned American economist Richard Ran, head of the Institute for Global Economic Growth, calculated that if the state, for example, has annual growth of two per cent, the income of a citizen can only double in 35 years. So, if Serbia had GDP growth of two per cent in the coming years, current annual income of 4,200 euros (12 average monthly salaries of 350 euros) would rise to 8,500 euros only in 2050.

If, however, GDP grew at a very decent annual rate of four per cent then the average income of citizens would double in 17.7 years. Thus, the income of citizens can quadruple within the average lifespan of citizens of Serbia.

The Serbian economy is currently growing at a rate of about one per cent, and if it continues at this tempo it will take 69.7 years to double the income of the individual – almost an entire lifetime. What is the conclusion?

Without moderately high growth rates (not less than four per cent), there is no chance for citizens “in the short term” to notice prosperity. This is the regularity of the economy but also a problem for politicians whose mandate lasts for four (and maybe eight) years. They would like a quick solution in the short term.

And to ensure there’s no dilemma, Serbia also needs high economic growth in order to reduce the national debt, to maintain some kind of modest network of the health and pension systems, to create more jobs and for its citizens to have higher real wages.