Serbia's "Work Ethic" and Social

UNCLAS SECTION 01 OF 04 BELGRADE 000041 SIPDIS E.O. 12958: N/A TAGS: ECON SOCI PHUM PREL SR SUBJECT: Serbia's "Work Ethic" and Social Stability ¶1. Summary: The concept of a "work ethic" in Serbia is hard to define, but there is noticeable pessimism among Serbia's work force that is a result of a few different factors. First, ethics in general, and work ethics in particular, are affected by the transitional nature of the economy and society after over four decades of "soft socialism." Second, the low pay and limited options available to much of the workforce erode initiative to seek out opportunities to work. Finally, there is a distinct difference in work ethics in the labor force among those employed by publicly owned enterprises and those employed by privately owned enterprises. The combination of high unemployment and a "transitional work ethic" is unlikely to breed political instability, but it does make the young and the unemployed particularly vulnerable targets for revanchist populism and/or a desire to emigrate. End summary. ECONOMIC TRANSITION ¶2. According to respected local economic analysts, the majority of the Serbian population has a pessimistic view of work that was created by Serbia's previous socialist regime. The socialist state ensured neither economic growth nor economic efficiency. Income and benefits were guaranteed, and Tito's ability to play the US and USSR off of each other during the Cold War assured there would be plenty of money in government coffers to subsidize an inefficient, lackadaisical economy. Workers became used to a high standard of living relative to the rest of the Eastern Bloc and relatively easy travel throughout Europe, in exchange for minimal effort in worker-managed (i.e., socially-owned) or state enterprises. ¶3. Following decades of such laxity, Serbia's economy and workforce are now going through a very difficult transition to a capitalist economy. In this new environment, the older generation still believes the state should support the worker. Many parents discourage their children from taking jobs "below their station" in which they would have to actually work, simply for the sake of money or career advancement. This sentiment is increasingly being internalized by the younger generation, which in many cases snubs the corporate ladder and waits for an employment offer that meets its own aspirations. This sentiment, combined with a tradition of older generations supporting younger ones, has led to children staying at home well into their adult years and unmotivated - by their parents or themselves - to find work. The phenomenon of students taking on part-time employment is uncommon, though there is a growing trend of students working summers on the Montenegrin coast. ¶4. In this transitional economy, many citizens view employment as a "necessary evil," working only because of the financial need to survive. For those who do work, extrinsic rewards such as money, status, and power take precedence over intrinsic rewards such as challenge, growth, and accomplishment. A recent local study highlighted this problem. A recent survey of one-half of Serbia's urban population over 18 from its four largest cities (Kragujevac, Nis, Novi Sad, and Belgrade),found that 52.9% were ready to relocate for a better salary elsewhere, while reasons like the chance for professional advancement (14.7%) and the desire for change or challenge (7.4%) were far less motivating factors. Financial motives, say local experts, have become so important that they have pushed self-actualization far into the background, which in turn makes it difficult to create and maintain a positive work ethic. ¶5. A further disincentive to work in the formal economy is a deep-seated mistrust of the government. Opinion polling routinely shows the government as one of the least-trusted institutions in the country, beating out only the Hague Tribunal in some cases. This mistrust filters into the labor market by sapping the faith of the workforce that the government will put income and VAT taxes to good use or allow them to operate a business without government interference/corruption. Citizens do not see the government as providing needed services or infrastructure improvements, but instead see inefficient revenue collection, opaque budgetary processes, and a mind-numbing litany of local and national financial scandals from their leadership. Further, the procedures for setting up a business, and the petty corruption they see as endemic to the process, creates a further disincentive to join the formal economy and forces businesses "underground." (Note: USAID is helping to address this issue through supporting a project to simplify business registration procedures. End note.) LIMITED OPTIONS ¶6. The Serbian "work ethic" varies according to occupation, management ideology, cultural norms, and level of income and education, making it difficult to generalize. Given the existence of a large informal economy in Serbia, unemployment statistics are not exactly accurate but can help paint a broad picture of the workforce. In March, 2005, there were some 900,000 citizens searching for a job in Serbia, with about 2.4 million employed citizens. The unemployment rate of the young is about 48%, compared to a rate in the EU of only about 15%. The general unemployment rate in Serbia and Montenegro, compiled by the national employment service, is about 28%, compared to 10% in the EU. However, the unemployment rate compiled by the Republic Office for Statistics, consistent with ILO and Eurostat methodology, is 19 percent. ¶7. As prominent local analysts note, statistics for 2005 show that earnings per worker have been increasing from the levels of the Milosevic era, but many still feel financial stress. Real wages in Serbia in 2002 increased almost 30 percent over ¶2001. Since then, though, reported wages have generally exhibited a downward tendency. The average reported monthly salary in Serbia in August, 2005 amounted to around 210 euros (although real average wages may in fact be somewhat higher, given rampant underreporting of wages). Nearly 70 percent of households report that they cannot make ends meet on a monthly wage. A recent survey by a local polling agency found that only 12.7 percent of respondents said they did not have financial problems, whereas one-third said they could barely get by. Over 38 percent of respondents hold two jobs, and 25 percent receive help from relatives in order to make ends meet. ¶8. The work environment is improving, yet many problems still exist. Age discrimination is a reality; young employees are preferred. Many job applicants complain that personal connections are needed for almost any job; citizens must have acquaintances at a company in order to have the opportunity to be employed there. Different forms of flexible employment such as part-time jobs, temporary jobs, and self-employment are present in the formal economy only in a very small percentage. Moreover, in rural areas and small towns, options for employment are virtually non- existent; many citizens farm for a living. In Belgrade (which in any case is not representative of most of Serbia) the alternatives are better, prompting many students and employees to leave their hometowns to come to Belgrade. Although options are greater and salaries are slightly higher, they soon find that the cost of living is significantly higher, especially if renting. As a result, relocation to Belgrade is not a possibility for most citizens, limiting opportunities to break out of a cycle of poverty in the countryside. THE CHANGING FACE OF LABOR: PUBLIC VS PRIVATE ENTERPRISE ¶9. There is a distinct difference between employees who work for the public sector and those who work for the private sector. As of June, 2005, state-owned and socially owned enterprises still had a decisive influence on economic activity; they employ 11.7% of total employed persons, earn 16.8% of income, and account for 13.4% of net profits in the economy. During Serbia's socialist regime, within state- or socially-owned enterprises there was always a surplus of employees, low productivity, and a hierarchical system that made no sense. Social ownership gave low-level employees the power to make important production, sales, and purchase decisions that would normally be left to management professionals and company directors in a market economy. Loss of employment was avoided at all costs - if the enterprise did shut down, employees were often redistributed to other enterprises. These hiring practices made going to work senseless for many. The system did not motivate people to work or to get the most out of resources. It sapped the incentive to work efficiently and develop enthusiasm for one's job. ¶10. Privatization in the context of the ongoing transition to a market economy, though, has inspired many citizens to start up their own small businesses, which is in turn starting to change attitudes toward work. The idea of customer service - non-existent in public enterprises - plays an important role in the private sector. Enterprises no longer protect everyone, even those who are not contributing properly. Bankruptcy and liquidation of non-functioning companies are more common. Competition is transforming previously monopolized industries. All of these factors require a tougher and more efficient workforce. Small business owners identify with their occupation and look for ways to keep up with the competition. The private labor force is working toward achieving goals, showing dedication to the job and the company, professionalism, and respect for other members of their team. ¶11. Younger generations and employees that primarily worked in private companies are thus more open to change, more dedicated to their occupation, and more understanding of the need for new mechanisms to keep operations running efficiently. Unfortunately, many of those who best understand the need for these institutional changes flee the country at the first opportunity. This "brain drain" did not abate with the imposition of travel restrictions during the Milosevic regime (indeed, it may have intensified),and the trend continues even today. UNEMPLOYMENT DOESN'T EQUAL POLITICAL PRESSURE ¶12. Sonja Cagronov, the director of the Serbian Government Agency for Public Administration, recently conducted interviews with public sector employees and found no public employees to be proud of their occupation. Employees of public enterprises do not identify with their occupation. Rather, they maintain their employment simply out of a desire for job security. The dismissal of employees that are unqualified or non-performing is rare, so, as a result, employees do not see the need to be productive or to emotionally "buy in" to their jobs. Yet despite this lack of respect and identity, as privatization reorganizes socialist enterprises, employees are upset that "their" company and job are being taken away. Many of those who invested time in the context of the old system now feel betrayed by their leadership. ¶13. It would be logical to conclude, then, that continued unemployment and the transitional pains of privatization would cause political tension among the grumbling proletariat. Oddly, this is not happening. The reasons for this appear to be threefold. First, official unemployment figures do nothing to capture those employed in the informal economy. A brief glance down Belgrade's main "walking street" shows a plethora of nominally unemployed youth lazily sipping cappuccinos and chain smoking while dialing expensive cell phones clad in the latest fashions. A visit to the robust nightlife scene similarly shows a youth that is dressed to the nines, wired with all the latest technology, and unafraid of spending on a night out. The sources of this unexplained disposable income are myriad - they include parental support, but also side jobs, remittances from relatives abroad, and unregistered businesses, mostly service-oriented but also including supplemental "family farming" and the like. They also undoubtedly include some criminal activity, but the more usual scenario is a family member with unreported income from a more "normal" line of work. ¶14. Second, the state still supports, though only minimally, many of the workers deemed redundant. A trip to the Zastava auto plant in Kragujevac in 2004 revealed a company deep in crisis that had re- assigned thousands of workers to a company-owned (read: government-owned) retraining facility. Yet the then-mayor of the city complained that no one shows up for training, only to pick up their "training" pay equal to 50 percent of their previous wages. He said "help wanted" notices routinely go unanswered, despite the healthy population of unemployed in the city, because the government support checks (combined with informal income) are more than enough to keep people satisfied with their lot in life. ¶15. Finally, despite the fact that jobs are scarce, wages are low, and future prospects are modest at best, life is still far better in Serbia now than it was 10 years ago, or even five years ago. The hyper-inflation of the Milosevic years and the barter economy that ensued left deep scars on people here - especially on the young, who are the ones just now coming into the labor force and thus most affected by unemployment problems today. For many of them, even today's modest prospects are a far cry from the deprivation of their youth. This in itself blunts somewhat the urgency for dramatic change and leads to complacency with the current pace of marketization in the country. COMMENT ¶16. People are neither incompetent nor lazy in Serbia, but low productivity and mobility of labor, mass unemployment, long-term unemployment, low wages, and high wage disparities among the employed with similar qualifications have eroded the will and the incentive to work. Moreover, the rapid build-up of wealth by SAM's criminal and quasi-criminal classes has created a set of poor role models for younger citizens. This is not in itself a recipe for unrest. A bustling informal economy and continued (though minimal) state support for redundant workers have maintained a minimal standard of living for people, at least in comparison to the "bad old days" under Milosevic, thereby staving off political activism. That said, savvy populists, including the Radical Party, have already begun to use standard of living issues and comparisons to a Titoist "golden age" to entice economically disaffected but politically unsophisticated voters into their camp. POLT