Economic policy has failed to address inequality.
According to hopeful social research hypotheses, democracy begins reducing inequality in approximately 20 years. In their 2012 book, “Democracy and the Left,” researchers Evelyne Huber and John D. Stephens find fresh support for the idea in the examples of Latin American countries.
Some of these countries have similarities with Kosovo in terms of their transformation into democracy. There, the reduction in inequality came through the improvement of policies, which were tested early on by international organizations, after the invigoration of domestic left-wing movements.
On the 10th anniversary of its independence, Kosovo is nearing the end of its second decade as a democratic country, with nearly 17 years passing since the first free elections were held. However, it is unlikely that Kosovar electoral democracy will challenge the country’s high levels of social inequality any time soon.
Historically, inequality has been one of the main causes of the war, political distrust and continuous emigration. The way Kosovar citizenship was conceptualized after the war, and the reality of the political left will only maintain these high levels of inequality.
Sociologist Thomas H. Marshall defined citizenship as the possession of civil, political and social rights. The quality of a citizenship depends on how rights and standards of living are allocated. In order for civil and political rights to be shared by as many people as possible, the unity of social rights must lean towards equality.
Kosovo has the highest level of inequality in Europe because its social rights were not designed by international organizations to aim for equality. The failure for this lies also with the left, who has yet to come to power with an agenda for reforming these rights.
The postwar recipe of the World Bank
Although most of the basic laws that launched Kosovo’s postwar social policy — including on labor, taxes, and social transfers (e.g. pensions, social insurance and other social security benefits) — were drafted around the first elections and early parliamentary years, they were designed by the World Bank and promulgated by the United Nations Mission in Kosovo (UNMIK). The UN Special Representative was the ultimate authority and international organizations enjoyed public trust, as they were seen as the voice of the West after NATO’s intervention in the war.
The Kosovo Assembly did not have the power to change the essence of these laws. However, elected local actors, who were promoted by foreign diplomats, also showed no sign of interest in change. Although Kosovar politicians of the time’s knowledge of policy can’t be overestimated, they were declared ideologically on the right and generally viewed every initiative that was presented as economically liberal as a necessary escape from the “inglorious” Yugoslav legacy.
Political context and fatigue from the ’90s explains the lack of resistance from the former workers of self-management socialism, which was in place from 1952-89. As they silently awaited the return of some of the rights they enjoyed in the past, new laws installed the strict neoliberal recipe and the social policy of residualism, in which most people are expected to find solutions in the market. This leaves the government limited to minimal social transfers and dealing with market failures.
As demonstrated in what follows, the new policy was radically different in design from self-management. Yet both models, for different reasons, shared similarly poor outcomes.
On labor, the new policy enabled employers to fire employees with a one month prior warning. The law did not set a minimum wage nor did it require obligatory health insurance at work. It did not create unemployment protection, and the paid maternity leave lasted only twelve weeks.
During self-management socialism, labor protection was rigid and even included an unemployment protection program. Maternity leave lasted up to two years and workers were provided health insurance for themselves and their families, as well as receiving subsidies for consumption.
Pensions and conditional social assistance funds were programmed by the World Bank in such a way as to require minimal public spending.
Moreover, UNMIK signed 465 sales contracts in the process of privatizing former public enterprises to which former workers could not return. Towards the end of the de-industrializing administration of the United Nations, budgetary organizations (administration) became the biggest employer with 39 percent in 2007, compared to the 25 percent in 1986 which worked in the non-economic sector (or administration) during the last years of socialist autonomous Kosovo.
In regard to social transfers, attention centred on pensions. The most serious change came with the establishment in 2002 of the Kosovo Pension Saving Trust (KPST) fund. This fund resembled a model tested during the ’80s and ’90s in Chile. It installed obligatory individual pension savings in the market.
In the past Kosovo applied the pay-as-you-go pension model, in which the current generation of workers pays for current pensioners. This change wiped out any kind of solidarity between workers and previous generations. It also took away government guarantees for pension income. Space was created for other voluntary savings in the market.
In exchange for this radical marketization and individualization, a universal basic pension was created for people over 65 and later for people with permanent disabilities. Financing was provided through government revenues. But these pensions and conditional social assistance funds were programmed by the World Bank (by interconnecting payments with minimal consumption costs) in such a way as to require minimal public spending.
In 2007, a basic pension had a value of 40 euros. The maximum social aid for a family of seven was 75 euros per month. Market payments relative to pensions and social assistance value were rising, whereas social protection did not improve.
In 1981, children of workers, or approximately 37 percent of children in Kosovo, received cash allowances. By the end of UNMIK’s mandate, allowances were issued for less than 1 percent of children (around 3,500) who had permanent disabilities, or were orphaned or adopted.
Whereas during the socialist period workers’ income tax comprised the main source of the province’s revenues, under UNMIK, income and corporate taxes made up less than 1 percent of the GDP until 2007. Since the end of the war, government revenues were mainly filled by Value-Added Tax (VAT) and other border taxes, which meant society equally, rather than proportionally, contributed to public spending.
Although the revenues were financed by everyone and social transfers were minimal, according to the residualist ideology, the expectation that the market would produce flourishing welfare proved unfounded.
In 2007, the employment rate, at 19.7 percent, was lower than the highest level of employment during socialism — 23 percent, whereas inequality in disposable family income, expressed through Gini index, was 37.1 percent only one percentage point lower than in 1978 (the last year with available, comparable data in the socialist period) when it hit 38.1 percent.
Kosovo had the highest inequality then and retains that record now when compared with other former Yugoslav entities. During self-management, inequality was caused by the low rate of employment and the fact that most social transfers were interconnected to labor or bureaucratic benefits.
Under UNMIK, inequality was caused by low levels of employment and social spending, and the fact that the tax structure was not oriented towards equality. Therefore, both models failed to contribute to a citizenship of shared standards and rights.
The rise of self-governance: Particularism and the new bureaucratic class
With the rise of Kosovar self-governance during the final years of the UNMIK administration and after the declaration of independence, government revenues grew, but social policy worsened.
The main culprit for this was the block with the most political power, comprised of parties that stemmed from the Kosovo Liberation Army (KLA) and headed by the Democratic Party of Kosovo (PDK) which has maneuvered the government steering wheel in the last 10 years. It directed public funds primarily towards its supporters and bureaucrats.
On one hand, PDK’s policy is characterized by particularism. While it has done nothing in the social protection sector besides decentralization, PDK has most often revisited schemes which are interconnected with former KLA members, and created a compensation scheme for former political prisoners.
Schemes for relatives of martyrs and invalids of the KLA, as well as pensions for the Kosovo Security Forces and Kosovo Protection Corps, provide the highest payments, and together with the new veterans’ scheme include around 60,000 people. This type of particularism is motivated by elections. It rewards supporters and punishes other groups — civilian victims, other factions involved in the war, women and ethnic communities.
PDK’s governance corresponds with the acceleration of privatization: up until 2016, almost twice as many sales contracts were signed, but their value was over 50 million euros lower than UNMIK’s sales. Since the basis of its electorate is not comprised of former socialist workers, and considering where these sales of enterprises have often ended, privatization comprises another punishment of others by PDK.
On the other hand, its governance is creating a new class of well-to-do people which is interconnected with bureaucracy and public money. Until 2016, the average income in the public sector grew by 184 percent in comparison with 2007, whereas income in the private sector grew by 37 percent at most.
As VAT was increased multiple times, in 2008 PDK amended the law on personal income tax by reducing the highest bracket from 20 percent to 10 percent. If the current law for health insurance, adopted in 2014, begins its implementation, the entirety of government policy will create a situation where the state takes taxes from all of society, whereas it pays good salaries, good pension savings, nine months paid maternity leave and generous health insurance only to administration workers.
PDK has also increased public investment in municipalities where it received greater political support. Although the rate of formal employment based on KPST data has increased to 28.3 percent (2016) — generally in the private sector — the fact that only the richest 20 percent of society were made even more rich shows an interconnection rather than independence between bureaucracy and the market.
In 20 years of democracy there was no universal scheme of allowances for children, and the number of public kindergartens barely surpasses 40 at a national level.
PDK’s particularist actions have emboldened other parties. The last time the Democratic League of Kosovo (LDK) found itself at the head of government, it adopted a concept document (2016) for annulling universal pensions. Simultaneously, it increased and categorized pensions which are paid by the state for former socialist workers, with whom it has more electoral affinity.
It is not surprising that Prime Minister Haradinaj of AAK put the cherry on top of this particularistic approach in his first 100 days, with the scheme for the “Kumanova Case” — in which he allocated 10,000 euros for each family that was involved. He also attempted to increase his own salary, making it 6 times larger than the average income of Kosovar families, a decision currently on hold due to official conflict of interest arguments.
In this hegemony of particularism and inequality, such actions have become natural. Faced with this approach, in 20 years of democracy there was no universal scheme of allowances for children, and the number of public kindergartens barely surpasses 40 at a national level. The politicians in their discourse often say that Kosovo’s youth is its “richest resource,” but the state’s policies actually do very little for its future generations.
Elections have influenced the way the national budget is used, not through new quality social rights rather, but by concentrating wealth at the highest levels of power. Social spending (around 6 percent of the GDP) and the social transfers coverage (around 20 percent of society) are just about the same as they were in the best period of self-management socialism (during the end of the ’70s). However, Kosovo has escalated problems of social stratification. From 2015, inequality in income has reached 43 per cent and is the highest in Europe.
High inequality is the main reason why nearly 15 percent of the population (as projected for 2018) have emigrated towards the West or have renounced their citizenship since the declaration of independence, and why there is such a high level of mistrust for politicians.
A citizenship aiming for solidarity and universalism
Around 67 percent of the population is of working age, but Kosovo is growing old too. Its population of children under the age of 14 has fallen at a rate of 47 percent since 1971 in comparison to the total population. It must strive to keep its citizens, in order to have more taxpayers and future innovators. This also means having a chance to achieve genuine democratization. More social equality would help such goals and chances.
Among democratic countries, equality is higher where left-wing, social-democratic parties stay in power for longer. Going back to the example of Chile, which is now considered one of the Latin American leaders on social policy, the left has dominated since the turn of the century.
In Kosovo, PDK abandoned its leftist program inspired by the Popular Movement of Kosovo (LPK) early on, whereas Vetëvendosje has not proven itself able to achieve power at the central level. Its governance of the capital city Prishtina has shown positive, but modest, signs (it initiated a food program for children in schools, employed dozens of impoverished people, improved healthcare facilities).
Political power is decisive, and a clear agenda against social inequality is needed, one which aims universal access, solidarity and progress. The three have never coexisted here.
A reformatory government would cancel the planned health insurance and substitute it with a national health insurance model in which insurance is automatically given by citizenship.
In labor, such an agenda requires the establishment of a program for protecting the unemployed, compensating medical leave and encouraging child care from both male and female parents. The government should also consider a temporary “one person one job” law, with a concrete objective of allocating job resources as widely as possible. It should also launch government projects which would open new jobs for low-qualified workers and beneficiaries of particularistic schemes.
In the long term, these steps could stimulate a reduction of informality as formal employment becomes rationally more attractive. The income of poorer classes, which has continuously fallen in recent years, would also grow in accordance with general standards.
In the social transfer sector, it is necessary to close down particularistic schemes. A reformatory government should transform the temporary program of contributory pensions to a permanent public program with income guaranteed by the government, but financed from current workers’ contributions. This scheme could function parallel to the current private savings fund (KPST) in order to reform and develop capacities for the future.
For Kosovo’s future society, the universal scheme for protecting children and the improvement of childcare services is an urgent matter. All social transfers would have to be interconnected with market income levels (rather than minimal consumption) so that standards in the community are more balanced.
A reformatory government would cancel the planned health insurance and substitute it with a national health insurance model in which insurance is automatically given by citizenship, and a level of payments for services and medicine (for example: up to 100 euros) is paid by users, whereas everything else is paid for by the national budget. The current health insurance plan comes with the risk of excluding the unemployed, just like self-management did, and would eventually cost more to taxpayers, like KPST.
Ultimately, such a reform would improve the tax base so that future increases in government revenues would be realized by taking more from the richest in the market through higher taxation rates for income and property.
Kosovo has a better infrastructure, more freedom of expression and more party plurality than it had during Yugoslavia’s best decade. Yet, the dependence on remittances remains the same, as does the need to seek welfare by migrating to the West (especially in rural areas). Disposable family income paradoxically remains just about similar. And the feeling that there is something deeply unjust in the big social discrepancies is becoming all the more aggressive.
Perhaps more factors than inequality are required to cause great upheavals, as we have experienced in the past, but coupled with the extensive political crises, it does not dignify the state of Kosovo on its tenth anniversary.
All calculations were made by the author based on source data released by Kosovo Agency of Statistics and Kosovo Pension Saving Trust.
Feature image: Majlinda Hoxha / K2.0.
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