In-dependence and Privatisation: Setting the Framework

Macedonia declared its full independence from the Yugoslav Federation in September of 1991 and immediately embarked on the road to economic and political liberalization under Western supervision. The circumstances under which this transformation began to unfold could hardly be called auspicious. War in Bosnia and Croatia, and Macedonian participation in international sanctions on Serbia and Montenegro, cut off traditional export markets. Hyperinflation of the local currency reached 1664 per cent in 1992. Inflation was brought down after introducing an IMF stabilization package in 1993 in combination with price controls and a wage freeze in April of that year. Control of wages was extended until 1996. A World Bank and IMF reform programme was laid out in 1994 the purpose of which was to start large scale privatization, reduce inflation and reform the banking sector (Jeffries 1993: 346).

From a purely administrative point of view privatization in Macedonia developed at a faster pace than many neighbouring countries, but the larger political and ideological overhaul of Macedonian society that came with privatization is still a matter of intense public debate with unresolved questions. The initial problem the state faced was one of ownership. The inherited legal category “socially owned” implied difficulties that were not present in other Eastern Bloc countries where capital was unambiguously state owned. The prospect of nationalizing the economy in order to privatize it appeared too unpalatable for a government struggling to transform a socialist economy under IMF and World Bank tutelage. Instead, a complex legal document was drafted that became the “Law on Transformation of Enterprises With Social Capital”5. It laid out the

framework by which all such enterprises were subjected to a re-registration in the courts

5

See: “Закон за Трансформација на Претпријатијата со Општествен Капитал” [Law for the Transformation of Socially Owned Enterprises], Republic of Macedonia, Official Bulletin 38/93, 21.06.1993

and by legal fiat were transformed into joint stock or limited liability companies. The document itself was largely based on the incomplete Yugoslav privatization program of 1989, developed under the guidance of Harvard economist Jeffrey Sachs who acted as an advisor to the Yugoslav government. Sachs was also the chief creator of the Shock Therapy program for transforming East European states into fully operational market economies in order to achieve, in Sachs’ words: “a recovery of human freedom and a democratically based rise in living standards” (cited in, Gowan 1995: 5).

A new government Agency was formed to control and oversee the organization of the transformation, offer legal assistance and provide the government with reports and estimates regarding the size, number and value of SOEs. In the process of registration SOEs (whose decision making bodies remained the worker’s councils and the

managerial board) were obliged to choose from one of the approved methods of privatization and transfer their assets to the Agency to act as a trustee (of the still socially owned capital) and facilitate the finding of interested buyers. The “transformation” thus became a half-way form of nationalization in which the

“trusteeship” of socially owned capital was moved from workers to the state. All profits however from the sale of socially owned capital were appropriated by the state with the aim of supporting development projects and reducing the national debt.

The sale or privatization of capital varied according to the size of enterprises. Small (below 50 employees) and medium (below 250 employees) enterprises were free to choose between any of the methods prescribed by the Law. This included employee and management buyouts or a direct agreement with an interested external buyer. Large (over 250 employees) enterprises had to choose their method in consultation with the Agency. In order to facilitate the process many large enterprises were split up into their respective BOALs and became medium sized before being offered for sale. The shares

were offered first to existing employees as privileged buyers and after three months to any willing investors whether foreign or domestic. A majority of 51 percent of total shares was necessary to claim ownership, with the Agency continuing to claim

dividends from any shares remaining in its possession. Employee buyouts became the dominant model for small enterprises whereas management buyout prevailed in the case of medium and large enterprises (see Drakulevski 1999: 32). Article 55 of the Law defined management buyout as “the sale of the enterprise to people who will take over the management of the enterprise”. As former employees this meant that the existing management boards would enjoy preferential treatment and could take over the

enterprise by presenting a development strategy and purchasing 20 percent of the capital with an obligation to purchase a minimum of 51 percent majority shares within a period of five years (Shuklev 1996: 12).

4.3 (De)valuing the Industrial Commons

The value of an enterprise was defined in the law as the book value of assets minus liabilities (Article 7). Although seemingly a straightforward affair, assessing the value of enterprises was likely to produce odd figures for several reasons. Determining the real market value of assets in conditions where markets were not yet fully operational meant more politics and less accounting. The accounting system of the Republic itself diverged considerably from international standards and did not include standards on accounting for such things as state guarantees, government aid or financial information from affiliates (Shuklev 1996: 15). In addition, many books showed assets in former Yugoslav republics in the form of credits or property that were virtually impossible to recover due to war and bankruptcies of former trading partners. Further ambiguities

arose from the self-management accounting system under which wages were not considered a cost of production and were already in 1955 redefined as income (Woodward 1995: 176).

Then came the question of efficiency. Once again, determining how capable enterprises were to generate profits under market conditions was difficult, considering that self- managing enterprises were not designed to compete on the market or to generate profits as an end in itself. Their chief aim was to sustain Yugoslavia’s consumer culture and guarantee political rights through employment for which they depended on a wider network of support and risk socialization involving protected markets, “soft loans” from banks and other enterprises and links to political structures. How well individual

enterprises would perform once severed from this system was anyone’s guess.

To address the particularities of poor performers when drafting the Law, it was decided that enterprises operating at a loss could also be transformed if they could show they had either found a way to cover their losses, or simply by reducing the overall value of socially owned assets with the consent of the Agency (Article 5). This placed managers in a uniquely advantageous position to assume ownership of enterprises through

controlled bankruptcies (cf Verdery 1996: 211). Given the high dependency of enterprises on the above mentioned support networks, it took very little effort to

bankrupt a company and decrease the value of its assets before applying for a buyout. A two year legal vacuum from 1994 to 1996, during which political parties struggled to form a stable government, allowed management teams to stop all restructuring activities that might increase the value of their enterprises and undermine their chances of buying them out (Slaveski 1997: 34). All this was a major concession to the former socialist managerial elite who were now in a perfect position to translate their vast social and cultural capital (links to influential persons, knowledge and expertise) into economic

capital as well. Faced with domestic political instability, war in neighbouring ex- Yugoslavia, Greek sanctions and domestic interethnic tensions, the state had little choice but to sell at whatever price, as well as resort to some “creative” solutions to facilitate the sale of SOE’s.

In order to increase the available capital in circulation the state allowed the use of frozen hard currency savings for the purchase of enterprise assets. Namely, due to severe inflationary fluctuations of the Yugoslav Dinar during the last years of the federation a great number of savers opted to keep their bank savings in more stable foreign currencies, usually Deutschemarks. Pressed for hard currency reserves, the Yugoslav state encouraged foreign currency deposits by offering high annual interests rates on hard currency savings of up to 10 percent. With the demise of Yugoslavia and the withdrawal of the Dinar, the Macedonian government found itself ill prepared for the introduction of the new currency, the Denar, which took much longer to implement than expected. To avoid running out of hard currency, the government continued the imposition of capital controls and restricted access to hard currency savings. For savers this meant that around half a billion Euros worth of foreign hard currency savings continued to be little more than irretrievable numbers in bank accounts.

The new state appropriated this amount as a public debt by issuing hard currency bonds to bank clients with a maturity of 15 years and an annual interest rate of 1.5% (Dnevnik 1997). Citizens however were allowed to use their bonds prior to maturation at their full face value to pay VAT on real estate, pay customs (merchants only), or for the purchase of shares from socially owned assets sold by the state. In the meantime however,

through informal public initiatives, it became possible to trade these “frozen deposits” as they became known, for cash in hand at a discount that hovered around 58 percent (see Brown 2003: 30). Given the dire economic situation and the lack of requisite

information among workers to place informed bids on SOE assets, many newly

impoverished savers who could not afford to wait for bonds to mature opted to sell their savings at extremely unfavourable rates to obtain cash in hand. Managers who did possess valuable insider information could thus buy up these “frozen savings” and receive a further 58 percent discount when using them to buy enterprise assets.

When the representative of the Agency, Verica Hadjivasileva-Markovska, gave her report before parliament in May 1997 regarding the progress of the privatization scheme, the numbers were shocking but somewhat unsurprising. She reiterated that the agency lists drawn up in 1993 contained around 1200 enterprises headed for

privatization with an estimated value of 2.3 billion Deutschmarks (around 1.2 billion Euros). By the time of her address the agency had overseen the transformation of exactly 1000 enterprises for which the state managed to receive a meagre 167 million Deutschemarks, out of which 101 million came from “frozen deposits”, 45 million from bonds, and only 21 million came as cash payments. Accusations that the industrial commons were being given away for free that were already spreading like wildfire appeared vindicated by the numbers. Although highly controversial, the arrangement seemed politically less problematic as long as managers could keep enterprises running, employ workers and generate tax revenue. Such expectations however turned out to be baseless. The traditional eastern and Yugoslav markets were no longer existent and technological underdevelopment and political instability made Western markets all but inaccessible for local industry. The prevailing credit crunch and the complete absence of domestic financial markets made borrowing for investment well-nigh impossible,

forcing all restructuring efforts to focus almost entirely on reducing labour costs (cf Gowan 1995: 14).

One by one, hundreds of enterprises lined up for liquidation or bankruptcy with their existing owners trying to minimize losses by laying off workers and making a last ditch effort to peddle any movable or immovable assets from the enterprise. The number of employees in industry dropped from 470,000 in 1990, a year before Macedonia seceded from the Yugoslav Federation, to 221,000 in 2000 (Majhoshev 2005: 64).

Unemployment in 1999 stood at a whopping 47 percent. An ESI (European Stability Initiative) study from 2002 centred on the town of Kičevo stated that ‘as in the rest of Macedonia … economic transition in Kičevo has amounted to a painful process of de-

industrialisation. A quarter of its socialist era enterprises are already in liquidation, and half of the industrial jobs have gone’ (8; my emphasis). For yesterday’s self-managing vanguard of society such scenes were unfathomable. Several decades worth of labour and investment in what were the centres of their social universe, were now disappearing overnight or melting into the pockets of a select few, leaving scores of destitute workers behind. The privatization process became commonly referred to as a “robbery of the national wealth” and in many ways can be summed up as a financially localized version of a state sanctioned capitalist “accumulation by dispossession” of the industrial

commons (see Harvey 2004: 75). A former textile worker from Makedonka described to me the experience of this process with the following account:

“The bigger BOALS were the first to be sold and for nothing, they were virtually given away for free. And inside there were goods that were worth, and I don't want to

exaggerate, maybe 25 or 50 times more than what they sold it for. And then they [the new owners] started selling the machines, the spare parts and so on. And they not only got their money back but doubled their profits. There were machines that were still in their wrapping there … Wagons of iron and metal were shipped out. Colleagues of mine were going there as hired labour to do the cutting and dismantling. They were cutting them up and crying for having to destroy good machines. And no one can tell me that they could

not start something to feed at least a few families in there. All those years it worked and the town lived from it and now all of a sudden its scrap metal!?”

The final question is one often posed by those who lived through the privatization of their enterprises. Consistent with heritage of Yugoslav socialism, when speaking about the closing of factories workers do not mourn the loss of political rights to govern in and through the factory. The language instead is focused on the loss of economic rights to a portion of the social product and the ritual cycle of production and consumption that constituted the communal life of the related self. Thus the role of factories is to

sustain people which means more than just securing certain standards of living and levels of consumption. It also means firmly locating economic activity as a socially embedded practice performed by moral subjects with mutual obligations.

In contrast, these daily scenes of privatization seemed more like a ritual transformation of “subjects into objects, owners into property and profit into debt” (Dunn 2004: 32). Instead of transforming wasteful socialist enterprises into technologically modern and efficient capitalist ones, the process generated a popular perception that privatization meant the transformation of perfectly operational SOE’s into worthless junk. But for workers there was much more to SOE’s than places of employment. They were the sites where social status and identity were realized and performed and their undoing threated the foundations of both. This symbolic crisis was objectified in the actual physical deterioration of SOE’s. The machines, albeit now useless, continued to operate in a sense as symbols of changing social relations and power struggles in which workers ended up as the losers (cf Narotzky 1997: 111). In the act of cutting, workers found themselves embodying an altogether different economic subject position as owners of nothing more than their labour power that few were now even willing to purchase. In other words, workers became a kind of labouring surplus, severed from the webs of

mutuality and interdependence that held the previous system together. Given the importance of these webs for the integrity of the moral self, it should come as no surprise that the economic transformation brought upon the unsuspecting a profound crisis of personhood (see Ferguson 2013: 230).