a) Institutional Environment
In the period of overall development activities, with the purpose of "establishing of an open society" (particularly in ex-socialist countries), the determination of limiting factors that have impacts in neglect of private sector development, is rather a complex task. These factors are connected with : a) factors of neglect in implementation of economic reforms in ex-socialist countries, especially in Yugoslavia; b) some degenerating processes, which characterize the economy of Serbia and Montenegro; c) inherited structure and current economic, social and political situation in Kosova.
a) Limiting factors of private economy development that obstruct the development of private economy in ex-socialist countries are also expressed in Kosova with certain specifics, in general they are connected with problems of property transformation, establishing of integral market in ideological burdens and problems like this;
b) Among factors that are closely connected with limiting factors that influence the development of market economy and particularly private sector in Kosova, are degenerative processes that characterize Serbia’s and Montenegro’s economy, since the period 1989-1997. These processes directly influenced the neglect of market economy development, of private sector as well as of establishing of open society in Kosova. Without pretension of including all of them, these processes can be synthesized as follows: expropriation of population’s savings in hard currencies, the occurrence of two hyperinflations in a five year’s period, an evident decrease of investment activities, which led to the decrease of the value of assets. ( e.g. in 1995 the volume of gross fixed investments in production was 2.8 times lower than depreciation). The loss of trust in creators of economic system and economic policy, the overall lack of capital, expressed through inadequate tax policy, has led to the loss of interest for the foreign capital engagement in economies of these countries.
The increase of obligations of Serbia, Montenegro and Kosova in economy, as well as of state obligations (foreign debt is accounted to more than 9 billion dollars) is evident. To this sum must be added also old hard currency savings, which cover a sum of 4.2 billion dollars. As for obligations that derive from interests, the obligations against foreign countries increased form 600 million dollars per year, whereas the obligations against population increased for 130 million dollars per year. This represents an obstacle to development.
Factors treated as outside factors and which are not under control of economic system and economic policy, are: the loss of East market with a considerable number of "third world" countries, as well as the loss of markets in some of republics of former Yugoslavia and the cutting of technological and business relations between economic subjects of Serbia, Montenegro and Kosova and economic subjects of former Yugoslavia.
c) Relying on factors of the neglect of implementation of economic reforms in ex-socialist countries, the degenerating processes in ex-Yugoslavia, and relying on current economic, social and political situation, as well as in the results of the poll realized in terms of this project, specific limiting factors that have impact in development of market economy and in creation of private sector in Kosova, can be synthesized as follows:
1) introduction of double sanctions: UN sanctions against Serbia and Montenegro, and on the other hand , Serbia’s sanctions in the form of total economic and political centralization, the abrogation of autonomy and total occupation of Kosova by Serbia, as well as neglect of the solution of Kosova’s status;
2) a hard heritage in terms of property regulation, the centralization of economic and political domination of Serbia against Kosova, has led to the rapid nationalization (by state) of social sector and the obvious neglect of property transformation and privatization, and creation of private sector in economy. The process of nationalization of social sector is done for two major purposes: first, of internal shares (stocks) as a model of internal privatization, and of other methods of external sale of property, to obstruct the transition of this property into the hands of Albanian employees engaged in social sector, and to hinder Albanian population from purchasing this property. This is why Albanian employees were forcefully fired from their jobs;
3) collective property - state and social property, as specific forms of collective property, have an "affinity" and institutional support of coordinate mechanisms of centralized bureaucracy. These forms of collective property are in contradiction with capital and labour market. For these reasons, they are considered among major factors inhibiting the development of economy;
4) as a consequence of total centralization of economic and political domination of Serbia against Kosova, the destruction of the banking system, other financial institutions, and a centralization of tax system and tax policy has followed;
5) centralization of economic and political domination stimulated bureaucratization, which is manifested during the process of founding of private enterprises;
6) the system of education up to today, which has not brought out enough staff for private entrepreneurship and market economy. Despite the positive fact that arises from the data of the poll, where the founders of private enterprises with low education are represented by 1.2%, however, relying on the mystification of state and social property as specific forms of collective property from the education system based on this form, there has been no proper education for private entrepreneurship, private initiative, as well as for creating of institutional structure of market economy;
7) previous neglect in the cultivation of entrepreneurship, especially in new conception of entrepreneurship as a component of market economy;
8) the neglect of process of property transformation and privatization.
The centralization of economic and political domination of Serbia against Kosova has led to the occurrence of some elements that characterize a symbiosis between representatives of installed Serb authorities in Kosova, from one side, and representatives of speculative economy, i.e. of Mafia, at the other side, which is characteristical for typical colonies. The lack of tradition in creation of motivating system as a determinant of market economy;
9) excluding the Czech Republic, almost all other post-socialist countries are lacking the projecting of a clear strategy of property transformation and privatization process, as well as creation of private sector in economy. The lack of such a strategy has caused a spontaneous implementation of this process in Kosova in a more specific way as in other countries.
All these limiting factors have been reflected on an institutional environment of market economy and private sector in Kosova. With the intention of eliminating, or at least relativizing these factors, in the focus of institutional changes, a favorable space for a radical change in economic system must be created. This change can be pursued with a favorable solution of Kosova’s status, as well as through the realization of a social and economic reform based on private property, democracy and open economy.
b) Legislation
After constitutional amendments by which the autonomy of Kosova and the attributes of state power were abrogated (March, 1989), one of the first discriminating acts against Kosova was "Yugoslav Program of Measures and Activities for Halting of Serbian and Montenegrin Migration from Kosova, the Return of Migrated and the Coming of all those who Want to Live in Kosova" ("Official Paper of SFR of Yugoslavia", no.8). The main purpose of all measures and activities that were determined and operationalized in this Program, was the colonization with the intention to change the national structure of the population of Kosova, in favor of Serbians and Montenegrins and in the detriment of native Albanians.
After the abrogation of autonomy, the functioning of legitimate organs of Kosova became impossible. Organs of Serbia forcefully took their competencies. In the spirit of extraordinary state, the Parliament of Serbia in July 26, 1990 approved the Labour Law in Extraordinary Circumstances, which was implemented only in Kosova and which gave unlimited authorization to high officials of organs and to the directors of enterprises and institutions, so as the Albanians were massively dismissed, and were replaced by Serbs and Montenegrins.
A discriminating law in national basis, which was applied in a specific way only in Kosova was the Law for Special Conditions of Forbidden Real Estate Marketing, according to which buying and selling or hiring of forbidden real estate (property) between persons of different nationalities and between persons and organizations can be done only with the previous agreement of Ministry of Finance of Serbia.
Albanian dismissed workers do not receive any compensation at all, nor do they have any health or social insurance for themselves and their families. More than 270.000 Albanian children do not receive children benefits, because their parents are dismissed. More than 630 Albanian families have been sent out from their residences, which were instead given to Serb families. Such an open discrimination of Albanians has become a rule in the practice of organs and officials of Serb authorities in every segment of work and life in Kosova.
Favoring of Serbs and Montenegrins in Kosova is done through the following:
Taking into account the models and the way of transformation, the organs that evaluate the capital and take decisions on property "transformation", there is a fear that in case of Kosova, the capital owners are tended to be persons and organizations from Serbia.
The Law for National Bank of Yugoslavia suppressed the independence of National Bank of Kosova and it became an affiliate of National Bank of Yugoslavia, with no competencies from the domain of monetary and creditor policy. With the suppression of National Bank of Kosova (in May 5, 1990) and with the opening of the procedure of falimentation of the system of Joint Bank of Kosova, by the end of 1990, practically the banking system of Kosova was entirely destroyed. Joint Bank of Kosova with all its affiliates is already 7 years in the regime of bankruptcy procedure! Its assets were carried over to Belgrade’s "Investbanka". About 1000 employees of various banking profiles, appraised inside and outside the country, were dismissed.
There is too much plunder of enterprises, stores etc. by Serbian authorities under various pretexts. These are carried out by several types of police: financial, market, sanitary police, but also by other state institutions, which are not supposed to be mixed up in business and commerce activities. In conditions of an entirely criminalized economic activity implicated by representatives of oligarchy in power, there are also many cases when businessmen try to avoid many high obligations imposed by Serb laws. Except for this, most of businessmen are not able to follow and have knowledge about enormous laws that change very frequently and many times with retroactive effect. In this context, it would be very useful for the Association of Businessmen of Kosova to gather, process, clarify and spread out information of interest for private businessmen. For registration of a private enterprise and for taking various licenses for the beginning of the activity, one must possess about 23 various documents, and one must go under an exhausting and very expensive procedure with lots of obstacles that are difficult to overcome without certain arrangements. Even there where one cannot point out any difference between people, Serb authorities observe with another dioptry Albanian businessmen and apply law dispositions in a selective way. Instead of stimulation of business development and higher employment, businessmen are at every time and place faced with repressive measures. The right and laws of exaggerated regulations and with various and high fines have exhausted the economy and private initiative, instead of stopping and fighting criminality, abuses, cheating and disloyal competition.
c) Fiscal and Tax Policy
Tax system and fiscal policy were identified as the major limiting factors in the development of private business with too many negative effects for Kosova in general, and for Albanians, in particular.
Since social/state sector was almost entirely passive, covering budget deficit was to be done by overloading the private sector with taxes and other fiscal obligations.
In comparison to the tax system of former Yugoslavia, actual tax and fiscal system of Serbia has undergone almost no qualitative changes, which is not characteristic for other ex-socialist countries. As far as taxes and other fiscal obligations are concerned, the Serbian tax system is closer to the medieval logic for taxes.
Tax on sale of products and services is applied through tax rates: low rate-10%, high rate-20%, tax on services-10%, and tax on railway-3%. Tax on railway is applied in high and low rate, which means that they are in total: high rate 23% and low rate 13%.
During the time of total collapse of public and state economy, the tax on product sales with a rate of 3% is inserted to maintain rail traffic. As far as the relation between tax rates is concerned, there are often manipulations concerning tax obligators and citizens. As with the application of sanctions against Serbia, purchasing power of citizens fell drastically, so that incomes of families were spent mainly for elementary needs, then, in turn, low rate increased from 3% (for food products) to 10% in 1996. In other words, for the period 1990-1996 this rate increased for 233%, respectively for 333% including the tax on railway.
Data from the poll support the ascertainment that punishment is the main motive for controls. In the question if they had financial control during 1996 and for the first six months of 1997, 90% of polled have responded positively for 1996 and 88,65% for the first six months of the year 1197, whereas the number of controls was 1564 for 1996 and 820 for 1997, which means one control per two months. And to the other question if they had punishments from these controls, 196 or 65% have responded positively. It is interesting to say that from the total number of those who have been punished in those periods, 146 or 53% have argued that punishments were passed by arbitrary evaluations. By the act of announcement of financial punishment, tax organs meet double financial effect: encasement of punishments and the increase of basis for calculating of tax on profit of corporations. In most of cases, punishments are encased without the presence of charged party and infringement procedure is directed by the same organ that has made infringement charge, which represents a precedent for modern jurisprudence.
According to law dispositions that regulate conditions concerning dealing with handicrafts, tourism, commercial and service activities, persons dealing with these activities are obliged to keep their business books and have their current account. Relying on the practice applied in Kosova since 1990, obligation of business book-keeping serves to the Serb tax organs only as a cause for punishments, and by no means as a basis for fixing of tax and fiscal obligations. In over 90% of independent activities, taxes and other fiscal obligations are fixed arbitrarily, disregarding indicators of business results with their business books, applying fictive tax bases, many times higher than the real ones. Analyzing some of such cases in Prishtina, we see that decisions for fixing tax and fiscal obligations have no legal bases nor economic and social logic. Since according to economic indicators, purchasing power of population decreases each year with an ongoing tendency, tax and fiscal obligations for private businessmen increase each year for 1,5-2 times.
The same procedure is followed when we deal with obligations from the tax in products sales and services in independent activities, with obligations fixed in a retroactive way for previous year and as obligation must be paid at once in amounts which for some activities cover the sum of 50 thousand DM (butchers in 1996).
As an illustration of previous ascertainment, we present a table with comparison of tax burden according to the business books and arbitrary decisions of tax organs in Municipality of Prishtina. The data are taken from four kinds of independent activities in ten private stores.
Activity # Taxes acc. Taxes acc Difference
of act. books arbitr. decis %
Carpenter 10 9,357 50,409 41,051 438
Retail store 10 38,587 91,585 52,998 137
Restaurant 10 19,504 78,389 58,884 302
Butcher 10 63,846 334,791 270,561 423
Total 40 131,296 554,791 423,495 322
After the introduction of sanctions by the International Community against Serbia, by means of a special law, a republic tax was introduced, which for independent activities covered the sum of 500 DM per year. After abolition of sanctions, this tax was substituted by municipal tax on firms. This tax for enterprises has been up to ten times higher. In these circumstances, the development of private business in Kosova is facing many obstacles compared to other countries in transition, without stimulation and with many barriers.