Mass protests in Bosnia – it’s the economy, stupid!

Bosnia and Herzegovina’s political establishment has been rocked by a popular uprising that has swept the country. The chain of events began on February 6th in the northeastern industrial city of Tuzla, when some 6,000 workers from five factories, Dita, Konjuh, Polihem, Resod Guming and Poliolechem, gathered in front of the cantonal government of Tuzla to protest against the closure of their factories. The workers blamed the closure of the factories on crony privatization by new owners tied to the ruling political elite and various asset-stripping schemes which aimed at bankrupting the once successful firms. Their protest in front of the cantonal government of Tuzla quickly turned violent as police responded brutally to the protests. The protesting workers were joined by youth, students and other citizens in a confrontation that ended with the burning of the government building in Tuzla. The cantonal government of Tuzla promptly resigned, while similar protests spread to the Federation’s other regions, including Bihac, Travnik, Mostar and the capital Sarajevo. The violence in Sarajevo led to the tragic burning of the Bosnian archives, including, in some accounts, the entire collection of nineteenth century documents from the period when Bosnia was a protectorate of Austria-Hungary – though these later turned out to be exaggerated claims. The burning of the archives (which was unintentional, and happened as fire spread from a nearby government building) was used as a pretext by the ruling political elites and some foreign diplomats to discredit the protests and their demands by calling them hooligans, vandals, and anarchists.

In spite of efforts by elites to discredit the protests, the movement that began in Tuzla exploded into widespread mass protests united by the grievances of the Bosnian citizenry against corruption, abuse of power, and the worsening economic conditions in a country that already faces one of the highest unemployment rates in Europe. The protestors charge the political class with nepotism, corruption and mismanagement and blame them for the mess Bosnia has been in over the last several years, and even longer. What has drawn the attention of many observers is the explicitly anti-nationalist message that the protests have sent. These are seen not only in the slogans that the protestors carry (“We are hungry in three languages” – a reference to Bosnian, Croatian, and Serbian, the languages of the three constitutive nations of Bosnia-Herzegovina), but also by the fact that the protests have crept from Tuzla, Sarajevo, and the mainly Bosniak regions of Bosnia to Mostar (a predominantly Croat town) and a small protest was also organized in Banja Luka, the regional capital of Republika Srpska, the Serbian entity of the country. I will have something to say about the allegedly surprising nature of anti-nationalism in Bosnia, but let me begin by examining what may have led the explosion of protests at this very moment.

There are attempts by various Western “Balkan analysts” to lay blame for the protests on the dysfunctions of the Bosnian political elite and the indecisiveness of the international community, and in particular the European Union (EU), in taking the lead on reform in Bosnia. The EU and the US play an important role in Bosnia because of the presence of EU troops in the country and the continued role of the Office of the High Representative (OHR), an institution set up with the Dayton Accords of 1995 to provide a means for a Western-appointed supervisor with supra-sovereign powers to enact and veto laws and bar from power officials seen to be threatening the tenets of the peace agreement. While the OHR has often been criticized as an instrument of Western imperialism, its interventions have in some instances been instrumental in promoting the unity of the country, such as the introduction of uniform license plates and other measures that reinforce a united Bosnian state. In 2008, the Western powers, and France and Germany in particular, aimed at the closure of the OHR, believing that it had outlived its usefulness. However, that decision was suddenly reversed, and instead, a set of conditions were drawn up which the Bosnian political elites were expected to fulfill in order for the Western powers to decide to shut down the OHR and end the international supervision of Bosnia. Western analysts have been critical of the West’s intention of withdrawing from Bosnia, citing risks posed to the unity of the country by nationalist parties. They are especially worried about the intentions of Milorad Dodik, the prime minister of Republika Srpska, who has on more than one occasion over the last several years threatened with Srpska’s secession from Bosnia-Herzegovina (and recently made a statement to that effect again). On the other hand, in the Bosniak-Croat Federation, relations between the ruling Bosniak nationalist Party of Democratic Action (SDA) and its Croat counterparts have been less than cordial. Last year, the three members of Bosnia’s three-member Presidency (where each member represents one of the national groups) failed to agree on a law permitting the issuance of national identity cards, leading to the tragic death of an infant who could not get proper medical attention abroad due to the lack of identity papers allowing its parents to obtain a passport.

The temptation to interpret the protest wave in terms of Bosnia’s existing political deadlocks and failed political reforms, while raising the specter of nationalist conflict, obscures the economic failures that have characterized Bosnia’s postwar development, and in particular the ways in which the postwar state has been integrated into the circuits of European and global capitalism. As is clear by the data, Bosnia’s economy was hit badly by the 2008 global financial crisis, and has languished as Europe succumbed to a secular economic crisis with no end in sight. The external shocks of the crisis exacerbated domestic structural limits on growth, while the ensuing domestic economic crisis laid bare the politics of rentier capitalism and “accumulation by dispossession” that has taken root in Bosnia as it did in virtually all postsocialist economies that made the political decision to construct “the free market” by transferring control of collectively-owned assets into private hands.

Political deadlocks and tensions between ruling nationalist parties, corrupt privatization, clientelistic politics and nepotism, and other features of Bosnian political life which have become the object of popular anger, are not new. Indeed, these problems have plagued Bosnia since 1995, when the peace accords ended the bloody civil war in the country and helped entrench nationalist parties as the wheelers and dealers of Bosnia’s future. The question therefore is not why are people protesting, but why now?

The most obvious answer is found in Bill Clinton’s 1992 campaign slogan during his presidential campaign against George H. W. Bush – “it’s the economy, stupid.” Bosnia-Herzegovina was ravaged by the civil war of 1992-95, which led to the death of over 100,000, the displacement of millions and the destruction of homes, factories, infrastructure, and public facilities. The postwar settlement brought about not only the end of fighting, but important foreign aid which helped rebuild the country. The price to pay, of course, was that for aid to flow, not only were Bosnian elites required to adhere to the various political tenets of the Dayton Accords, but also implement the neoliberal program for “transition” to capitalism under the supervision of the IMF and Western aid agencies and “consultants.”

For a while, it seemed like Bosnia was on a path of economic recovery. In addition to the aid money which helped rebuild infrastructure, economic activity was also on the rise. Between 2002-08, GDP growth averaged at around 5% annually – a relatively impressive figure for a small, developing, and not particularly resource-rich country recovering from war. A great deal of economic growth depended on Bosnia’s growing exports. Between 2001 and 2008, Bosnia’s exports grew from 2 billion BAM (1.4 billion USD) to 6.7 billion BAM (4.7 billion USD). This enabled the revival of a great deal of Bosnia’s traditional industries, such as the wood, chemical, and food industries, and mining. The opening up of EU and regional (ex-Yugoslav) markets helped in this revival.

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The economic growth was reflecting in the improving relative welfare of the population – or at least the fortunate among it. Between 1998 and 2008, GDP per capita (in PPP terms) nearly doubled to 7750 BAM (Bosnian Convertible Marka – 5425 USD). More importantly for the working public, wages increased dramatically. Average monthly wages increased by 42%, from 560 BAM in 2005 to nearly 800 BAM in 2008, and even caught up in Republika Srpska where wages had been traditionally lower. Unemployment was on the decline, from its high of almost 50% to 40% in 2008. More importantly, youth unemployment (ages 15-24) fell sharply between 2006-08 from 62% to 47%. A sign of Bosnia’s economic growth was the fact that the country was weaning off of its dependence on remittances from the Bosnian diaspora abroad, as these became an increasingly marginal portion of GDP. For the fortunate among the working population, it seemed like the road to reclaiming the comforts and status of a middle class lifestyle that a good deal of the population had enjoyed before the violent dissolution of Yugoslavia, was within reach.

More significantly for the country’s socio-political dynamics, this period of relative economic prosperity benefited primarily the middle classes, including industrial workers, urban professionals, and public sector employees. World Bank data shows that the income of the top 10% and 20% of earners rose from 22% and 37% of total income in 2001 to 27% and 43% in 2007, respectively. Savings in the country grew tremendously as well. The relative prosperity of a portion of Bosnia’s population is shown by the growth in domestic savings. Between 1998 and 2008, bank deposits in domestic currency grew from a tiny 147 million BAM to 3.5 billion BAM. This suggests that by 2007, nearly half of the income earned in Bosnia was being taken in by the country’s relatively small middle class, contributing to the process of accumulation. By contrast, the income share of the lowest 20% fell from 9% to 6.6% during the same period, although absolute wage growth obscured the growing inequality between wage-earners. While we have no concrete data, there is plentiful anecdotal evidence pointing out that the period has led to the enrichment of politicians, politically well-connected elites and other insiders of all nationalities who benefited from Bosnia’s economic growth and especially the privatization process. Beyond the enrichment of Bosnia’s new capitalists, among the urban classes, a two-tiered system developed in which the fortunate ones with jobs were reaping the fruits of Bosnia’s recovery through increased savings and consumption, while those shut out were experiencing increasing hardships and growing impoverishment. The story of Aldin Siranovic, who issued the call to protest in Tuzla on Facebook and who became unofficial leader of the movement, is illustrative of this. The 26-year old Siranovic has a university degree, as does his wife. While struggling to support their child, neither of them have been able to find work.

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The seemingly successful drive towards economic prosperity in the early 2000s came to a crashing halt after the global financial crisis of 2008. Like most countries in the EU’s capital and trade dependent periphery, the crisis hit the economy of Bosnia hard. GDP contracted by -3.9% in 2009. The worsening conditions across Europe and the eurozone in particular did not help Bosnia’s economy. In real terms, since 2009, the Bosnian economy has experienced what is effectively a depression. In 2014, real GDP growth is expected to be a mere 2%.

The crisis has depressed private sector activity and placed strains on already burdened public budgets. Wage growth, which benefited the working middle classes during the first half of the 2000s, has remained relatively flat. Unemployment shot up to 46%, including the portion of long-term unemployed which grew from 20% to 25%. Youth unemployment grew from its 2008 low of 47% to 63% in 2012. Moreover, the burden of inflation, which has plagued most of the Balkans after 2008, has added to the difficulties of vulnerable groups.

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The origins of the crisis are twofold. First, the crisis in Bosnia differs in nature from that in, say, Greece or even Slovenia, two EU members in the country’s neighborhood. As a non-eurozone country, Bosnia was not wedded to the capital flows which produced the financial bubbles in the EU periphery. In addition to the collapse of export markets in the eurozone in 2009, there seems to have been, at the same time, a period of “overinvestment” in Bosnia itself in which the crowding out of capital, concentrated among a small portion of the population, produced a local crisis of profitability. In the 2000s, investments were being fueled by falling lending rates and increased risk-taking by banks. The growing hunger of banks (mainly foreign-owned) for risk-taking is seen in their willingness to lay out increasingly larger amounts of their capital as credit. Bank capital-to-asset ratios, which measure bank financial exposure, fell from a conservative 20% in 2001 to a relatively risky 8.8% in 2007. The amount of credit increased tremendously, and by 2007 bank credit as a percentage of GDP grew to 67%, from 23% in 2001. In 2008, the real interest rate was negative, suggesting that the economy was already on an overexpansionary drive. Household consumption was growing at a faster rate than investments, which shows the highly lopsided distribution of the benefits of growth in a country of extremely high unemployment. Growth was limited by the fact that, on the one hand, economic dependency typically places limits on the growth of export markets available to fuel increasing returns of domestic industry, and domestic capital, judging from income distribution, became concentrated among a privileged minority of the population, regardless of national background. Growth, in other words, was not dispersed and expansive in ways that creates more employment (and thus more wage-earners), but concentrated and intensive, fueling wage growth and increasing household consumption among the employed, while channeling investments into “unproductive” areas like housing and consumables and economically vulnerable small businesses.

The crisis brought to Bosnia its own version of “structural adjustment.” During the early 2000s, economic growth enabled the Bosnian government to increase its expenditures every year and pay down the country’s foreign debt all the while running cash surpluses. In 1999, government debt stood at 50% of GDP. By 2007, it had been reduced to a mere 4%, a record low for European standards. After 2008, not only has the growth of public spending been curtailed (growing by a little over 1% per annum), but the government has had to turn to borrowing to finance its expenditures. The financing has been secured primarily through the IMF, which, as it typically does, imposes strict expenditure controls as “conditionality” for continued loans. This has led to critical declines in social expenditures – especially important in a postwar country like Bosnia where many depend on old-age and veteran pensions and other forms of social assistance to get by. Public expenditures for social benefit payments in 2012 have been vulnerable to cuts and were a mere 4.5% higher than in 2008, barely keeping up with inflation.

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The traditional Keynesian formula of responding to shortfalls in the private sector during a crisis by increasing public spending has not been an option in Bosnia. First, the collapse of revenue has meant that the government has had to struggle to keep up with spending, let alone increase it. Second, the traditional route of devaluing has not been possible because of the official peg between the BAM and the euro (at a 2 to 1 rate). This has, just as in euro-member countries facing the current crisis, tied the hands of policymakers who are unable to let the value of the domestic currency fall, and thereby improve the country’s relative trade position by stimulating exports. Like Greece, the politically imposed policy trap (in this case due to Dayton-era arrangements) means that “structural adjustment” takes place at the backs of labor, public budgets, and the overall growth of the economy. This situation is partly responsible for the conundrum in which Bosnia currently finds itself in – a high unemployment, low growth economy with a government that, even with the best of intentions – when it is not politically paralyzed by the ethnopolitics of nationalist parties – can do very little to turn things around.

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Given worsening economic conditions in the crisis years, the fact that Bosnians of all ethnicities have taken to the streets or express sympathy with the protestors is unsurprising. While dissatisfaction with the political class was high over many years in Bosnia and high unemployment stood as permanent proof of the ultimate economic failure of the postwar neoliberal policy model, the Bosnian elites were, so it seems, able to placate sectors of the population in the short run by enabling urban middle classes to gain a share of the postwar economic growth. The deteriorating economic conditions and prospects among these classes, including public sector employees, pensioners, war veterans, workers, and students and youth have produced the current situation in which the most active parts of the population are also the most affected by the crisis. It is, most likely, the reversing fortunes of the middle classes (and especially its more vulnerable and marginal segments, such as educated urban youth) after 2008 that has generated the potential for mobilization on the basis of socio-economic grievances, finding its basic fault in the economic corruption of the existing political parties.

The urban-centered and widely class-based nature of the protests probably also has something to do with their non-nationalist and even explicitly anti-nationalist nature. It is pure prejudice (and one very common among Western observers) to equate ethnicity with nationalism – as a result, one expects every Bosniak to be a Bosniak nationalist, every Serb to be a Serbian nationalist, and so on. For those rooted in such a worldview of Balkan “ancient hatreds,” non-nationalist behavior and even the explicit rejection of national identity as the basis for political mobilization and action comes as a deep surprise. In fact, the history of Bosnia, and especially of urban Bosnia, is not one of interethnic strife but of relatively peaceful coexistence. To take the example of the city of Tuzla, which has been the epicenter of the recent protests, in the last census carried out before the war, some 20% of the city’s population declared itself as Yugoslav. Moreover, the recently deposed government of Tuzla was under the control of the Social Democratic Party, a non-nationalist party (which nonetheless has its base of support mainly among the Bosniak population). It is difficult to recall that non-nationalist and anti-nationalist movements existed during the civil war as well, but these had little power to undermine nationalist politicians whose claims for the need for ethnic separation became self-fulfilling prophesies during the violence of the civil war. At the same time – and ironically for that – it is the deep decentralization of the Bosnian state by the Dayton Accords that has created the conditions for the institutional experimentation we are presently witnessing in Tuzla, in which a citizen Plenum has become an organ of direct democracy, essentially co-governing the canton with the local Assembly. Across all of southern Europe, the North African countries swept by the “Arab Spring,” and most recently in Ukraine, we have seen that the chief target of mass protests are typically national authorities and national centers of power. In the Bosnian case, the regional government of Tuzla would never have been such an important target for protestors (and consequently a site for institutional innovation and experimentation) had it not had a relatively powerful regional authority and – most critically – also been the entity in charge of privatizing local industries. As is usually the case, institutions not only entrench power in particular ways but, by doing so, also sew the seeds for their potential transformation.

In any event, the fact that the most vocal segments of the present protest movement are those who are too young to remember the war and are pointing to a possible future beyond nationalist divisions are a hopeful sign for the future of the country. But the shift to an entirely non- or anti-nationalist politics in the country as a whole seems like a long shot given the still living memory of the civil war, the post-Dayton ethnopolitical institutions, which not only privilege, but premise the entire political process as one of rule by ethnonationalist consensus, as well as the existing nationalist parties which have already seized upon the protests to stir up conspiracy theories about how the alleged real goal behind the protestors is to undermine the power and standing of one own’s or the other national group. The potential for a non-nationalist political solidarity across all of Bosnia which would entirely and categorically reject this approach seems possible, but it will take more than a few symbolic gestures to overcome the divisions that have been sewn by the civil war and entrenched institutionally and politically in post-Dayton Bosnia. Indeed, what has united the grieving populations of all three groups is the belief that political power in Bosnia has been used by parties of all stripes chiefly for personal enrichment at the expense of the rest. The mass protests, which have already produced radical institutional innovation at the local and regional level, are clearly also a call for a much empowered Bosnian central state that not only does away with the logic of ethnopolitics, but also possesses the means to steer the country towards more meaningful and more inclusive economic development.

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About Besnik Pula

Assistant Professor at the Department of Political Science at Virginia Tech. Specializes in political economy, comparative development and postsocialist transformations. All views expressed here are strictly my own.

One comment

  1. I agree completely with the broader theme of your argument – that the current socio-economic problems in Bosnia are the result of poor institutional arrangements rather than weak political organisations (even corruption is proportional to a strength of a country’s institutions – a relationship so many social commentators failed to make this week)
    Would be keen to hear your view on this.

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