Communist economics, not just communist-inspired nationalist wars, have devastated the Balkans. Western leaders should bear this fact in mind as they devise a plan to fund the economic rehabilitation of the whole area now that the war over Kosovo is finished. One of the key provisions of this plan should be to withhold all aid from those economies that are still run by communists.
The plans that Western leaders are considering are inspired by runaway success of the American reconstruction aid to Western Europe after World War II under the Marshall Plan. It's not clear yet what shape the new Balkan plan will take. German Chancellor Gerhard Schroeder has been one European leader who has put particular emphasis on the need for economic aid to all of Eastern Europe, and he has some ideas about the Balkans. Other leaders have ideas of their own as well. What's important, though, is that those who devise the plan not succumb to delusions.
Because there are two basic differences between the reconstruction of post-war Germany and that of post-1989 Eastern Europe. First, the Nazis on the whole did not remove or kill most non-Jewish entrepreneurs. Although the Nazis did interfere with management, business owners remained, and Germany benefited from their business skills. Secondly, there were no Nazis, or former Nazis, in the post-war government led by Konrad Adenauer.
In the case of Yugoslavia (Slovenia included) and other East European countries, however, communists, unlike the Nazis, did remove entrepreneurs. No amount of cash can make a difference in a situation in which there is an absence of genuine entrepreneurs and owners, and where totalitarians, even in disguise, dictate the pace of reconstruction. Yugoslavia is a case in point: Stalin expelled Tito from the Soviet socialist camp in 1948. By 1952, Yugoslavia was forced to introduce some aspects of self-management for enterprises and to drop some features of central planning. A quasi-market economy proved better than none at all, and there was indeed some economic improvement. Communist managers, however, remained in many plants.
The United States rushed in to help -- not so much to support this new communist experiment, as to encourage a new Yugoslav foreign policy which was deviating from Moscow. Money poured in. From 1952 until 1970 Tito's regime was given about $2 billion present value a year, along with substantial military aid. Everyone was enthusiastic about the great success of the Yugoslav communists. Contributing to this success were the one million Yugoslav guest workers in Western Europe, who sent home another $2 billion a year. In 1970 state aid to Yugoslavia ceased as governments in the West realized that banks, awash with OPEC money, could step into the breach. Yugoslavia had no difficulty in borrowing about $3 billion a year.
Western banks began to worry, however, and ceased their lending around 1979. What happened? Within a decade, Yugoslavia saw wages drop by 30%, back to 1967 levels. The number of workers increased, but output stagnated. Much of the borrowed money had been wasted in investments that didn't make sense by communist managers who didn't understand capitalism. The flood of aid and loans had eliminated the need for Yugoslavia to abandon its inefficient system. The enormous influx of capital had done more harm than good.
Have Western leaders learned anything from the Yugoslav experience? They have said that Serbia will receive no aid for reconstruction as long as Slobodan Milosevic remains president of Yugoslavia. Yet this decision appears to stem more from a desire to punish than from a sober reflection on the uselessness of providing financial support to countries governed by communists. However, Western powers could guide themselves by two simple rules when considering extending aid for Balkan reconstruction.
The first is that "former" communists be removed from government and management posts unless they publicly renounce communist crimes. The main purpose here is not to seek vengeance, but to prevent the return of pernicious ideas and practices. The second is that, wherever possible, property confiscated by communists should be returned to previous owners or their families. This would help reconstitute an independent entrepreneurial layer in society.
The restitution of property is a requirement of economic development. Without the revival of entrepreneurship, not much will happen. In many cases, the original owners who were forced to cough up their property in the 1940s will have died. But giving their property back to their descendants has proved a much better solution, where it has been tried, than leaving it in the hands of "former" communists. Most enterprises in Yugoslavia have continued to be managed by communist bureaucrats. And large proportion of property is retained in government hands. This situation ensures that "former" communists maintain a monopoly on wealth, which often translates into a monopoly on political power.
Entrepreneurship will only prosper under the rule of law, but the rule of law depends on the impartiality of judges. These get appointed by political leaders, so, in Yugoslavia, they are tainted, too. It may be advisable, therefore, to introduce Western supervisory judges, just as, by law, the head of the Bosnian central bank must be a foreigner.
Finally the Western organizations should be careful to coordinate their various approaches. There is little point in promoting aid with one hand and preventing trade with the other. Slovenia, for example, has been asked to forgo its special trade arrangements with Macedonia and Bosnia in preparation for joining the European Union (just as several other East European candidates to the EU have been asked to sever their free-trade ties with third countries). Yugoslavia will have to be given access to Western European markets if any financial support is to work.
The answer for the Balkans, then, is to give aid only where it will be administered by entrepreneurs and free-marketers. The lesson is that the Marshall Plan worked not just because of the money, but because there were people like Adenauer and Erhard around.