Searching for Adam Smith in Serbia – A Personal Story

In 1943, at the Yalta Conference, presidents of the three most prominent Allied countries, the United States, the Soviet Union, and Great Britain, met to discuss the organisation of the post World War II world. It was agreed that the world should be divided into interest spheres after the defeat of Nazi Germany. Yugoslavia fell under the Soviet interest sphere, and the political advantage was given to the communist resistance movement over the royalists. None of the resistance had a vision of a post-war country that would benefit its citizens. In 1948, thankfully, Yugoslavia distanced itself from Stalin’s grip over this part of Europe and strengthened its ties to Western European countries and the United States. 

This signalled the start of a different type of communism. This version did not cause the abolition of religion or private ownership. In Capitalism and Freedom, Milton Friedman argues that being a capitalist in a communist country is virtually impossible, while the same cannot be said of the opposite. In the former Yugoslavia, everyone who opted to be an owner of private enterprise could do so. 

My grandfather, the kindest person I ever met, had his own construction company in those days. Being a skilled builder and good employer, he ran that company for over 30 years. He passed away in 2017 with several hundred people at his funeral, remembering him as the way he always was, calm, polite and good-natured. 

Providing work for his company in those days wasn’t easy. Large construction efforts were usually the domain of large state-owned companies. People in the country were relatively poor and opted to build houses on their own. The fact that there were a few such privately owned companies in the entire country wasn’t very helpful, as the demand was also low.

In this largely centrally controlled country, the state manufactured almost everything, from cigarettes to cars. But this didn’t mean that consumer demand was able to be met.  As Adam Smith noted in his time, importing foreign goods should not be restrained, but encouraged. Whatever is more cheap to buy, than to produce, should be bought, he advised. But, the only system which existed in those days was “market socialism”. Scarce resources were not used efficiently, causing many of the economic sectors to  lag behind those in more market-oriented countries. This approach where every sector was planned to be developed internally caused all these sectors to be underdeveloped. The only thing this system could provide was social welfare, but this too was endangered in the late 1980s, as the economy was heavily pressured by the high taxes aimed at providing this social function. As the economy wasn’t profit-oriented and was riddled with high taxes, any attempt at private enterprise was hard to maintain. 

My grandfather had a steady number of workers who worked for him for years, yet he still had trouble providing for his own family (his wife, my grandmother, my mother and my aunt). The municipalities around the country that would hire him, like the one of Goc, where he built a children’s resort, were able to provide him with only subsistence. Again as Smith noted, the prices of goods or services brought to market consist of rent, the wages of labourers, and the profits of stock. As the economy in those days was aimed at providing free education and healthcare and burdened with high taxes, growth and prosperity were conspicuously absent. State authorities tried to overcome this by providing ever higher salaries to workers, but as this wasn’t followed by an equal rise in aggregate output, the result was inflation (double digits in late 1970s), followed by unemployment (also double digits by the early 1980s).

In my grandfather’s case, the  local authorities’ socially-oriented plans could not provide adequate demand for his private services, and market forces were effectively off the table. The planners had neither sufficient funds nor the ability to allow the forces of competition to suggest any notion of cooperation between the private and state sectors. Had my grandfather only been lucky enough to experience Adam Smith’s system of natural liberty, our family history might look very different.