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