Small Country, Big Government: The Case of Montenegro

By , 19 Mar 2018, 14:00 PM Business

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March 19th, 2018 - It has been just over 10 years since Montenegro, a small country with approximately 650, 000 citizens on the Adriatic Sea, restored its independence. Still, it is facing significant problems with crony capitalism and the most prominent governmental administration ever seen. 

On October 2016, Montenegrin citizens voted in parliamentary elections for a new country leadership. Once again, the Democratic Party of Socialists won a wobbly majority after being unbeatable for almost three decades. Today, Montenegro faces another social and economic crisis that could shake everything and could push the country into populism.

Back in 2006, the idea was to promote an economy based on privatization and free trade. This was meant to stimulate the business climate after an extended period of communism and socialism. It was the perfect way for Montenegro to join negotiations for the European Union and NATO but also to improve their position on the global competitiveness list. For the first few years, Montenegro’s economy had impressive growth, but it was followed by a series of problems caused by crony capitalism and non-transparent privatizations.

Many employees of previously publicly owned companies were dissatisfied and had questions about suspicious privatizations and the involvement of government in them. Instead of using mechanisms of a free market and healthy competition, Montenegro’s government took on the role of managing and creating conditions of its market — expecting to fix everything and to create order.

Montenegro’s government issued financial guarantees for many of the state companies when they were privatized. Today these guarantees are a problematic component of public debt. Investors who were often closely associated with government officials used this opportunity to raise their capital and create strong bonds with politicians. The negative impacts of this cooperation are more and more visible in the economy. Especially on local levels where towns like Budva (a small coastline town and popular tourist destination) are on the brink of bankruptcy and the local economy is devastated by high levels of corruption.

To secure social peace and to justify lousy privatization, the demand for employees in the public sector grew year after year. This pushed Montenegro into old habits again. According to the budget plan for 2017, around 1.8 billion euro will be spent on public administration which is approximately 60% of entire Montenegro’s GDP, and the trend is growing.

Public administration is becoming an increasingly popular path for young Montenegrins, and many of them see it as an ideal career direction. Because of suspicious privatizations, young people often identify entrepreneurs as criminals and slaveholders. Therefore, they prefer to join political parties and seek opportunities in the public sector, knowing that they will be secured on the payroll — no matter what results they deliver. In a country where more than 55% of all employees are in public administration and other state channels, this is a recipe for an uncertain future full of fraud and corruption.

In the Global Competitiveness Report for 2016/2017, Montenegro was placed  82nd — 12 positions down compared to last year. The report states that the most problematic factors for doing business in Montenegro are related to “inefficient government bureaucracy”, “corruption”, “tax rates” and “poor work ethic” in the national labor force.

It is evident that Montenegro is languishing in the race with regional countries as it is placed behind Croatia, Macedonia, Albania - and who knows what else next year could bring for Montenegro as populists and leftists are louder each day.

Even though Montenegro is classified as an efficiency-driven economy together with 30 other developing countries, it is far away from the innovation-driven group of the most influential global economies. For Montenegro to succeed, it will be necessary to face many problems and find the best possible solutions which have so often been found in the free market, healthy competition, entrepreneurial capitalism and minimal state. All those ideas are relatively young in Montenegro and not well accepted by the more elderly population, but they are slowly gaining a foothold among the young.

Economic and social changes are long and complicated but not impossible. It is up to younger generations to face modern challenges of the global market and to learn from those mistakes. There is hope there will be those who will overthrow Leviathan and not allow him to rise again.

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