The political economy of consolidating Kosovo : property rights, political conflict and stability / Dana Eyre ; Andreas Wittkowsky - [Electronic ed.] - Bonn, 2002 - 24 S. = 80 KB, Text . - (Frieden und Sicherheit)
Electronic ed.: Bonn : FES Library, 2002
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Dana Eyre/ Andreas Wittkowsky
The Political Economy of Consolidating Kosovo:
The political economy of long-lasting violent conflicts is characterised by the
The United Nations Interim Administration Mission in Kosovo (UNMIK) had
Frieden und Sicherheit
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Dana Eyre/ Andreas Wittkowsky *
The Political Economy of Consolidating Kosovo:
Andreas Wittkowsky, Economic Policy Advisor, Office of the Deputy Special Representative of the Secretary General, EU Pillar (Reconstruction and Economic Development), UNMIK.
The opinions expressed are solely those of the authors, and do not represent the official views of UNMIK, the United Nations, or any other agency or organization.
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While the traditional socialist claim that property is theft may be open to dispute in this post-Marxist world, there is no doubt that property induces theft. Non-property, or the absence of robust institutions of property ownership, however, almost intrinsically produces theft, the more in a post-conflict environment that is characterised by a power vacuum and weak political institutions. Although political thinking on conflicts has lately increasingly focussed on the role of the distribution of and the fight for resources in the roots of conflict, [Cf. Paul Collier: Economic Causes of Civil Conflict and their Implications for Policy. Washington DC: The World Bank, 15 June 2000.] the question of the role of clear property rights, and political-economy issues in general, in the post-conflict peace building process have little been touched by this debate. Establishing clear property rights, mainly through privatisation, has been viewed primarily as a problem affecting economic development and left to the mainstream" economists. Consequently, the question of property rights has hardly been addressed when drawing up peace keeping missions like the United Nations Interim Administration Mission in Kosovo (UNMIK).
In the following we hold that establishing clear property rights is of utmost importance for any strategy dealing with post-conflict stabilisation, as it has direct impact on three areas, most obviously; (i) economic development, but also (ii) establishment of the rule of law, and (iii) building of genuine democratic institutions. Although in a post-socialist environment this necessarily means giving a high priority to privatisation and property issues resolution mechanisms, we also feel that this issue is far more central in the process of building peace generally than has heretofore been recognized. Concentrating on experience from Kosovo, we think that some general conclusions can be drawn for other conflict areas.
In the following, we start (i) with an overview of the concept of social property in Kosovo inherited when it fell under UNMIKs administration mandate. This is followed by (ii) UNMIKs approaches to property issues and the reasons for a rather conservative approach to commercial social property. In (iii) we line out examples and patterns of increasing conflict over commercial social property, which (iv) finally leads to a rethink of the approach to property administration and the development of a privatisation scheme. In (v) conclusions are drawn both with respect to tactical and conceptual lessons from this history.
1. The heritage of social property
Yugoslavias Third Way Socialism
Socialist Yugoslavia, after World War II, initially embarked on a Soviet style economic model. It was based on the centrally-planned development of state property, largely gained through the expropriation of enemies" and other private owners.
In the 1950s, in connection with the break between Tito and Stalin, the system took another course, developing the unique features that since then were associated with Yugoslavias Third Way" socialism. Centralised state control was replaced, at least formally, by decentralised self-
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management, consisting of two elements: (i) workers collectives electing their directors and controlling the enterprises, and (ii) the socio-political communities (municipalities) carrying out most economic activities of the state (although in practice this decentralisation was less straight forward than in ideology, as the Communist party was eager to keep the grip on key decisions).
[Cf. Janez Őmidovnik: Disfunctions of the System of Self-Management in the Economy, in Local Territorial Communities and in Public Administration. In: James Simmie/ Jo×ze Dekleva (eds.): Yugoslavia in Turmoil: After Self-Management? London/ New York: Pinter Publishers 1991, pp. 17-32.]
In this process of reform and the establishment of a unique Yugoslav model of socialism, social property became the dominant form of ownership. As defined in the Yugoslav Constitution of 1974: Means of production and other means of joint labour, the output of joint labour and the incomes realised in joint labour, the means for fulfilling common and general needs, natural resources and other assets in general use are all socially-owned property. No person may acquire the right of possession over the socially-owned assets".
[Quoted from Adil Fetahu: Transformation and Privatisation of Kosova Socially-Owned Assets. Prishtina, January 2002.] midovnik notes that the nature and legal status of social property were
never clearly defined
The question continually arose, in legal and economic theory, as well as in practice of social property of what social property really was; how it differed from state property on the one hand, and from private property on the other. Whose property was it?"
[Janez Őmidovnik: Disfunctions of the System of Self-Management in the Economy, in Local Territorial Communities and in Public Administration. In: James Simmie/ Jo×ze Dekleva (eds.): Yugoslavia in Turmoil: After Self-Management? London/ New York: Pinter Publishers 1991, pp. 17-32.]
When Yugoslavia broke up, every successor republic and partly sub-entities thereof dealt differently with this key question of the ownership of socially owned" property. In most republics present and past employees got some share of the property for free, and more at a special discount rate. Moreover, another share of the socially owned property was reserved for different state funds, reflecting the interest of the general public. In one of the Bosnia and Hercegovina entities, the Republika Srpska, a voucher scheme for all citizens was set up.
[Cf. Allen Shinn: Summary of Privatization Provisions of Slovenia, Croatia, Bosnia-Herzegovina, and Macedonia. Prishtina: UNMIK, 8 March 2001.]
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Social property in Kosovo
The abolition of Kosovos autonomous status by the Miloseviæ regime on 23 March 1989, and the following Provisional Measures", introduced a quasi-Apartheid regime, fiercely countered by social and labour unrest. Albanian managers and workforces in public administration and socially owned enterprises (SOEs) were dismissed on a large scale, and substituted by Serbs. Subsequently, many socially owned enterprises registered in Kosovo courts were merged into Serb companies, and privatisation procedures, in form if not in spirit, as foreseen under the Markoviæ laws were initiated. However, the general decline of the Yugoslav economy, accelerated by the successor wars and the international sanctions regime, seriously affected the Kosovo SOE sector, too. Meanwhile, the Kosovo-Albanians were increasingly running a parallel economy of private enterprises, mainly in trade.
As a result, a strange symbiosis between Serb and Albanian business emerged. The Serbs were desperately looking for cash and started to rent out the idle assets of SOEs to the Albanian entrepreneurs who had the cash. Some Albanian businessmen were well connected with Serbs and had an influential role in providing sanction breaking services for the Yugoslav economy.
[Cf. Lessons Learned and Analysis Unit of the EU Pillar: De-industrialisation and the Collapse of Social Property. A Case Study of Peja. Prishtina/ Berlin: February 2002.]
Following the 1999 air campaign against Yugoslavia and the establishment of an international mandate through UN Security Council Resolution 1244, the Yugoslav Forces and state institutions withdrew from Kosovo, KFOR troops moved in and the UN Interim Administration Mission (UNMIK) was set up. In the power vacuum in between, a large portion of the Serb population fled or were forced out of Kosovo. Kosovo Albanians were taking over most socially owned property, either promoted by local leaders of the Kosovo Liberation Army (UCK), or the self-styled Provisional Government of Kosovo" of Hashim Thaçi, and partly by KFOR or UNMIK.
2. UNMIKs approach to property issues
UN Security Council Resolution 1244 established an international military presence (KFOR) and an international civil presence (UNMIK) in Kosovo. UNMIK received a unique structure, consisting of four so-called Pillars, managed and funded by different international organisations:
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Based on these principles, the concrete authorities of UNMIK had to be established through the Regulations promulgated by the Special Representative of the Secretary General (SRSG), the senior UN official leading the mission. Therefore the first UNMIK Regulation, Reg. 1999/1 of 25 July 1999, defined the authorities of the SRSG. One basic principle established that the law applicable in Kosovo prior to 24 March 1999 continues to apply when it does not conflict with international human rights standards, the fulfilment of UNMIKs mandate, or the UNMIK Regulations issued.
[UNMIK/REG/1999/1, 25 July 1999, Section 3, http://www.unmikonline.org/regulations/1999/reg01-99.htm.]
With respect to property Regulation 1999/1 determined that UNMIK shall administer property of the Federal Republic of Yugoslavia or the Republic of Serbia in Kosovo.
[UNMIK/REG/1999/1, 25 July 1999, Section 6. http://www.unmikonline.org/regulations/1999/reg01-99.htm.]
"UNMIK shall administer movable or immovable property which is in the territory of Kosovo, including monies, bank accounts and other assets, where UNMIK has reasonable and objective grounds to conclude that such property is: (a) property of, or registered in the name of, the Federal Republic of Yugoslavia or the Republic of Serbia or any of their organs; or (b) socially owned property.
Administration by UNMIK of property shall be without prejudice to the right of any person or entity to assert ownership or other rights in the property in a competent court in Kosovo, or in a judicial mechanism to be established by regulation." [UNMIK/REG/2000/54, 27 September 2000, Section 6.1 and 6.2. http://www.unmikonline.org/regulations/2000 /reg54-00.htm.]
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Recently, the Constitutional Framework for Provisional Self-Government in Kosovo defined the powers and responsibilities that will remain exclusively in the hands of the SRSG", even after the Provisional Institutions of Self-Government (PISG) have been established. They include:
"Authority to administer public, state and socially-owned property in accordance with the relevant UNMIK legislation in force, in cooperation with the Provisional Institutions of Self-Government;
Regulation of public and socially-owned enterprises after having consulted the Economic and Fiscal Council and the Provisional Institutions of Self-Government" [UNMIK/REG/2001/9, 15 May 2001, Chapter 8.1(q) and 8.1(r). http://www.unmikonline.org/regulations/2001/ reg09-01.htm.]
This requirement for administration, without greater specification of the bounds of administration, reflects the underlying compromises that shaped Security Council Resolution 1244. The final status" of Kosovo was deliberately left open, reflecting splits within the Security Council, indeed even the means and timing of final status resolution was left unclear as a result of these differences. Because of this, and as the mission was an interim administrative," only general tasks for economic reconstruction were formulated, but no detailed powers were explicitly given to UNMIK such as the formal resolution of issues such as the ownership of socially owned" property. Thus, the administration of social property has been and will remain in the hands of UNMIK, but UNMIKs ability to resolve issues of ownership has not been explicitly established.
As a result, two different routes have been taken by UNMIK in dealing with property issues. Building on the precedent of Bosnia-Hercegovina, for residential property, UNMIK has a Housing and Property Directorate designed to administer, and resolve, disputes over property ownership. This system, though inadequately funded, at least has the formal responsibility of adjudicating and resolving ownership claims. In the area of industrial and commercial property, however, lacking a legal framework or a clear precedent to follow, UNMIK has moved far less robustly toward resolving fundamental issues. With this paper, we wish to point out the consequences of this approach to property issues, and to highlight some of the consequences that have grown out of it.
After 23 March 1989, socially owned residential property in Kosovo was largely transformed into private property, although mostly in a discriminatory way. As in the other parts of former Yugoslavia, the large part of Kosovo apartments was initially socially owned property, allocated to the employees through their employers. In the follow-up of the discriminatory mass dismissals in the early 1990s, many (although not all) Albanians fired lost their apartments and Serbs moved in. In 1992 a large scale privatisation of socially owned apartments took place, and both Serb and Albanian occupants bought their apartments. Later, many Serbs sold their apartments on to Albanians, although this was forbidden under the applicable Yugoslav law. In the course of the 1999 conflict a large number of private Albanian houses were destroyed by Serb civilians, paramilitaries and Yugoslav state organs. In the following Serb exodus many flats were simply taken over by Albanians (and in the emerging Serb enclaves the other way round).
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UNMIK addressed the issue of residential property as early as November 1999 by establishing the Housing and Property Directorate and Claims Commission (HPD). HPD consists of an administrative branch (the Directorate) and a judicial branch (the Commission). While the Directorate has the task to supervise the utilisation of abandoned residential property, and to collect claims of potential owners, the Commission is to settle any dispute over residential property.
[UNMIK/REG/1999/23, 15 November 1999. http://www.unmikonline.org/regulations/1999/reg23-99.htm.]
1. In general, if someone legally acquired property under the law applicable at the time of the acquisition, the property title remains valid. This reflects the general imperative of the international law governing UNMIKs mandate to protect private property rights, although in the following some important qualifications to the general principle are made.
2. Anybody who lost property between 23 March 1989 and 24 March 1999, as a result of discriminatory laws or procedures, has a right to restitution of the property. This reflects the recognition of the post-autonomy period as clearly contradicting international law, and thus puts a question mark to property transactions that benefited from the discriminatory regime. As the beneficiaries knew the political background very well it can be assumed that they have not necessarily acquired property under good faith.
3. Any refugee or displaced person who lost possession of property has the right to return to the property or to sell it. On request of the owner, the HPD can issue and execute eviction orders against the current occupant. This reflects the violation of international law in the course of violent evictions in the power vacuum, but also takes into account political realities by establishing disposal of the property as an alternative to return.
In dealing with the issue of residential property, UNMIK broadly followed the precedent established in Bosnia. There, residential property issues were recognized as a key part of the peace building process. Indeed, as noted in the Property Law Implementation Program inter-agency framework document, the right of all the citizens of Bosnia and Herzegovina, displaced during the war, to return to their homes ... (is a) fundamental provision of the Peace Agreement (that) can only be met if the property issue is fully solved.
[Property Law Implementation Program, Inter-Agency Framework Document. October 15,2000. Office of the High Representative, Sarajevo. http://www.ohr.int/plip/key-doc/]
UNMIK followed, indirectly, this precedent and established a Housing and Property Directorate early on in its administration. Although there are both legal and political issues associated with
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the residential property issue, UNMIK, through HPD embarked early on an effort to build mechanisms to resolve property issues. This effort recognizes the reality of discriminatory property transfers before the conflict and bases its efforts to achieve justice mainly based on compensation (rather than on restitution in kind). However, in the area of industrial and commercial property, lacking a clear legal framework in SCR 1244, and lacking a precedent, UNMIK was less able to address equally complex issues, with potentially negative consequences for the larger peace process.
Commercial property and public utilities
In the commercial sphere, there are about 350 socially-owned enterprises (SOEs) registered in Kosovo, ranging from small and medium size enterprises to a few large industrial complexes such as the Ramiz Sadiku factory in Peja/ Pec and the Trepca industrial complex (subject of a disputed privatisation). Employment estimates vary between 30,000 and 60,000 currently employed, although many workers are only formally on the payroll. Moreover, there are about 60 utilities in the power, transport, telecommunications, waste, water, and sewage sectors whose status is similarly unclear. Commercial SOEs and most of the public utilities have been placed under the authority of UNMIKs European Union Pillar, which has lead responsibility in the area of reconstruction and economic development. Its Department of Trade and Industry (DTI) was charged with the SOEs, and the Public Utilities Department (PUD) with the power, water, waste, and sewage utilities.
In the sphere of these enterprises, two contradictory positions evolved within UNMIK, and as a consequence policies came off the ground only slowly: The European Union Pillar, and the large donors behind it, favoured an overall and quick privatisation of socially owned and public enterprises. In contrast to that, staff in the UN Civil Administration Pillar cautioned of such a radical intervention that had been alien to former UN missions, and aimed at preserving the status quo of property rights. A change in property rights, it was argued, goes far beyond an administration" mandate as laid out under Resolution 1244 and should not be part of UNMIKs activities.
As a result of these, and other related disagreements, UNMIK found itself in a very strange position. In particular in the socially owned enterprises, UNMIK had to formally maintain socialist self-management and subsequently did not only experience the economic shortcomings of that system so well known in Yugoslavia already, but increasingly also learning of the political deficits of supporting a system that formally looked like workers self-management but in the end always relied upon the existence (and through the state, funding allocations) of the Communist Party as the final regulator". It turned out that there is only one thing worse than a socialist economy under the guidance of a communist party, and that was a socialist economy without a communist party.
Conceptual work on the privatisation of commercial property started as early as the strategy dealing with housing property. Papers noting the need to address the privatisation issue were circulated in UNMIK as early as January 2000. Over the course of 2000, the DTI initiated a process of drafting a white paper on enterprise development that was supposed to be a consensus policy document for the whole of UNMIK. A draft paper presented in August 2000 stressed the
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importance of defining property rights and to attract private capital into state and socially owned enterprises. Focussing on privatisation, two options were lined out:
Kosovo is confronted with two broad choices for the longer term. Existing public or socially-owned enterprises could simply be left as they are, while encouraging new enterprises to grow to take their place. Such a policy would preserve the fiction that existing ownership was undisturbed, while actually abandoning enterprises to uncertainty and decay, and in many cases leaving assets to be taken over by self-appointed management who lack both the skills and the mandate to reform them. That would not deal with the enterprises properly, and it would not treat workers fairly. The alternative would be to positively choose to follow a policy of privatisation. This would entail dealing directly with issues of ownership, management, the interests of workers, and those of the wider community. Such an approach would place existing enterprises in the same position as new companies, with the best chance to attract new investment and to be able to compete in future." [UNMIK Department of Trade and Industry: White Paper: Enterprise Development Strategy. Prishtina, August 2000, p. 13.]
Clearly favouring privatisation, the paper suggested to establish two institutions dealing with non-private commercial property:
1. An Ownership Adjudication Commission, built along the lines of the Housing and Property Directorate. The aim was to enable the Commission to adjudicate all ownership disputes over enterprises and non-residential assets. Claims were to be brought forward on a case-by-case basis, and after widespread public notice of the case under consideration through the Commission, any submission of further claims would have been limited to 60 days. As in the case of residential property, a restitution scheme in cash was foreseen. The aim was to have clearly adjudicated ownership rights within a clearly limited timeframe if necessary. This was seen as a precondition to get into outright privatisation of the case considered.
2. A Kosovo Enterprise Agency as privatisation agency for non-private enterprises. The agency was supposed to be a part of the DTI, but reporting to an independent steering board representing all parts of Kosovar society. It would have had the mandate to restructure non-private enterprises, transfer them into joint stock companies, and privatise enterprises the titles of which had been adjudicated before, and to liquidate or to bankrupt non-viable enterprises. Following the model of other parts of former Yugoslavia, a part of the privatised shares would have been allocated to the workers, and the proceeds from privatisation would have been transferred into a special fund of the Kosovo budget, serving as the basis to build up pension, social security and human capital building schemes.
The white paper, however, was never finalised as it could not gain internal consensus in the political process. Though periodic efforts to move the privatisation issue forward occasionally emerged, UNMIK basically placed the privatisation issue in the too hard box" until the middle of 2001, nearly 2 years into the mission. Internal disagreements (within relevant Pillars, and between Pillars) meant that UNMIK was unable to forge a position strong enough to overcome external resistance to confronting the privatisation problem. Ironically, disputes between key donor countries over the approach to privatisation in 2001, aligned with internal disagreements,
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helped ensure that no movement toward resolution of ownership questions would take place in 2001. Finally, ambiguities in SCR 1244 and political disputes between nations played out at the UN, meant that building political support for a regulation at the UN level (necessary, since all UNMIK regulations are vetted by the UN headquarters in New York), was exceptionally difficult until the arrival of the current SRSG, Michael Steiner.
When the existence and the mandate of the DTI was formalised through Regulation in December 2000, [UNMIK/REG/2000/63, 7 December 2000, Section 2.2. http://www.unmikonline.org/regulations/2000/reg63-00.htm.] it received the authority to administer the socially owned enterprises that were industrial or commercial in nature. However, because of the political deadlock within UNMIK it lacked an overall mandate to privatise. But from the very beginning it was also clear that the DTI would not have the resources to administer the about 350 SOEs directly. Thus, the status quo found in the enterprises was basically accepted, and the procedures of self-management, as foreseen in Yugoslav law, were applied. For instance, regular elections of workers councils were initiated in 2001, which in turn were supposed to legitimate the enterprise managements.
The only way to get private sector involvement into SOEs was through so-called commercialisation, i.e. to lease the enterprises to outsiders. In the field of public utilities, basic restructuring efforts were encouraged in order to enable private sector participation at a later stage. At the end of 2001, 13 leasing contracts for SOEs (mainly in food processing and construction) were successfully concluded. It turned out, however, that some of these contracts fell short of investment promises, as investors did not develop a sufficient long-term interest in temporarily rented assets. Moreover, the speed of the process, or lack thereof, made it very clear that commercialisation could not be considered as a viable strategy to deal with all SOEs in an acceptable time frame. Thus, although during late 2000 and most of 2001 commercialisation was seen by some parties as an acceptable and functional alternative to privatisation it failed to either serve as a sound basis for economic investment, or to resolve fundamental issues.
3. Increasing fights over social property
The law enforcement vacuum directly after the conflict, an easy enabling framework for enterprise activity laid by UNMIK (including simple business registration procedures, and a very favourable tax regime in particular for small enterprises), and a high purchasing power within Kosovo through the internationally financed reconstruction effort and remittances of Kosovars living abroad led to a further mushrooming of private enterprises. By end 2001, more than 40,000 private enterprises were registered, of which more than 36,700 worked with four employees or less. About 50 % of those were active in trade, and only 10 % in manufacturing. [Fact Sheet Kosovo (December 2001). Compiled from various UNMIK sources. Pristina, December 2001.]
The economic recovery positively affected socially owned enterprises as well. A follow-up survey of 192 SOEs, conducted by the Prishtina based think tank Riinvest" in March 2001, found that 86% of the enterprises had been economically active in 2000 (compared to 55-66% in 1999),
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and capacity utilisation had increased to 35% (compared to 28% in 1999). The sales reported increased by the factor 2.57, profits by the factor 3.5, and the number of active employees from 18,171 to 24,662. Above average capacity utilisation was observed in services (58%), transport (54%), construction materials (51%), trade (44%), and construction (41%). [Riinvest: Socially Owned Enterprises and their Transformation/ Privatisation. Prishtina, 8 March 2001]
Although little investment has been done to secure the long-term survival of these SOEs, their increased activity generated a positive cash flow in many areas of the socially-owned sector of the economy, either through the revival of production, or through simply renting out shops, lands and other enterprises to private entrepreneurs who could use these idle assets for their purposes. In Peja, for instance, the old retail enterprises transformed themselves into intermediaries by solely making money through renting out their centrally located shops. [ Cf. Lessons Learned and Analysis Unit of the EU Pillar: De-industrialisation and the Collapse of Social Property. A Case Study of Peja. Prishtina/ Berlin: February 2002.]
To the astonishment to the advocates of the status quo, this grassroots commercialisation of assets did not happen in an orderly way. On the contrary, what evolved were all features of a pirate" economy, where assets of SOEs where stripped for short term benefit, and monies disappeared in an opaque way into both private pockets (at least some with dubious legitimacy and shady connections) and political party coffers. Sometimes, orderly procedures were negotiated between entrepreneurs involved and UNMIK representatives, but there are many cases where this did not happen at all. As a result, issues of ownership and control become further muddied, as entrepreneurs of both legitimate and illegitimate motives sought opportunity in the shadows of a less than clear legal regime. UNMIKs failure to regulate privatisation did not mean that it did not happen, only that it did not happen in a transparent and regulated way, and that benefits seldom reached the workers, or the larger population, at least in spirit the nominal owners" of socially owned enterprises.
The first Municipal elections in Kosovo in October 2000, and the victory of Ibrahim Rugovas LDK in the majority of the constituencies, led to a major shift in the balance of power. Now municipalities were established and legitimated, though with narrower and more circumscribed roles than under previous Yugoslav law. This added a new political dimension to the socially owned" sector of the economy (both SOEs and public utility service providers), as the new municipal leadership in many cases tried to get their representatives into the managements of the enterprises, often enough using dubious methods. As a result, conflicts over cash generating SOEs broke more and more to the open. In the following, we want to line out some examples of these activities, and UNMIKs responses. In the conclusion of the paper, we shall draw both tactical and conceptual lessons from these cases.
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1.IBG and Jugoterm, Gjilane
In April 2001, the Gjilane Municipality appointed new directors in four SOEs, over which the DTI had the administration authority. Local UNMIK officials objected to that procedure and informed the existing directors to stay in their job. In the following, a serious conflict evolved in two of the companies: The Battery Factory IBG and the radiator factory Jugoterm.
In a first step, the Gjilane Municipality and the trade union tried to force the legitimate (based on selection by the extant workers council) IBG director out of office. After receiving threats concerning his personal safety, he removed his family from his home. In late May, the Municipality appointed director broke into several offices, tried to dismiss a part of the staff. At the same time the manager of the bank where the IBG account is held received threats because of refusing to have the new director access to it.
In Jugoterm, the director appointed by the Municipality immediately started to pay out holiday bonuses" out of the SOEs cash reserves to please the workers, and began diverting business orders for Jugoterm products to his own private company. (Such actions, part of the process of pirate privatisation have been noted in many circumstances. They reflect de facto privatisation of formally social assets, including, as in this case, corporate good will.)
As the conflict escalated, showing concrete signs of asset stripping and personal intimidation, the DTI, in consultation with KFOR, decided that both enterprises should be temporarily put under direct UNMIK administration. UNMIKs Office of the Legal Advisor (OLA), however, feared serious liabilities from an action of this type and advised to refer to local Courts for resolving this issue. However, as local commercial courts are not properly working it makes hardly sense to load the responsibility to restore public order on them. An SRSG Determination finally put the SOEs under UNMIK administration in July 2001, three months after the conflict escalated, and an international interim director was appointed by DTI.
2. Higjena Teknika, Prishtina
Higjena Teknika is Prishtinas public waste company, which fell under the administrative authority of UNMIKs Public Utilities department (PUD). UNMIK regulations gave responsibility for management oversight of Public Utility Service Providers (PUSPs) to PUD in order to ensure accountability of donor money, and to develop up-to-date technical capabilities in the sector. This meant that municipalities had only a partnership role in the management of these enterprises. In June 2001, the Prishtina Municipality Assembly, after failing to name participants to a joint supervisory board, appointed a new director to the company. PUD objected, informed the existing director to stay in his job and informed the Municipality accordingly.
On 1 August 2001, the Municipality candidate physically occupied the office of the legitimate director and started to carry out managerial functions. As this provoked major unrest in the workforce, the police had to protect him. The next day the situation escalated when the new candidate appeared with armed bodyguards. On 3 August, he was banned from the premises of Higjena Teknika through a SRSG Executive Order, and the situation calmed down.
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During August work continued, including a restructuring effort. No workers were let go, indeed public promises of continued employment were made by the management. However, a small group of workers at the Pristina landfill site started a protest against their reassignment to other jobs. On a Thursday they blocked access to the landfill site and began taking and holding trucks as they delivered loads to the site. The legitimate director received a death threat. Within a few days, the action escalated (through both mobilization of workers based on other grievances, propaganda, and midnight visits to workers homes inviting" them to attend the strike) to a full-fledged strike with approximately 40% of workers participating, with some outside support. UNMIK suspected that LDK internal political issues were at least partially at the root of the strike action. A major demand of the strikers was to install the Municipality appointed director, while the Municipality denied having any connection with or influence over the strikers. At the same time the Municipality was repeatedly stating in public it is their right to appoint directors to the SOEs.
After extensive internal negotiations, a joint UNMIK/KFOR/ police action succeeded in regaining control of the captured garbage trucks from the landfill, but failed to immediately end the strike. In the end, in mid September, a compromise was found through lengthy negotiations. An international interim director was appointed shortly after and workers returned to work. The situation was managed, rather than resolved, and the fundamental issues of control over the company remained contentious.
3. Trasing, Prishtina
Trasing, a socially-owned enterprise, is a road construction company based in Prishtina and employing some 250 workers. It takes part in some donor funded road rehabilitation projects throughout Kosovo. In July 2001, the 60 or so workers of the Gllogovc/ Glogovac quarry of Trasing decided to break away from their parent company, prompted by some political leadership and a former member of the Trasing management, and form a new company named Viakos. The quarry, given the high demand for rock in Kosovo, was a primary asset of the company and the key to its ability to compete for road construction contracts. The break-away workers continued operating the quarry, though not the asphalt plant located at the site, and selling the products on their own account. Several agreements mediated by DTI failed to change the status quo.
In November 2001, the SRSG gave his assent to temporary UNMIK administration, and a temporary DTI manager was installed. The dispute continued, and several negotiations between UNMIK, the workers, and the municipality, failed to resolve the issue. The Municipality declared the DTI action as illegal and claimed their right to allocate the land use rights in the quarry to Viakos. Payments for rock quarried during the Viakos period were made to separate accounts, and records were not complete. UNMIK suspected that rivalries between major political parties in part accounted for the willingness of the municipality to tolerate this action, as the workers placed at economic disadvantage by the action were primarily in LDK controlled Pristina, while the benefits accrued to workers in PDK lead Gllogovc/ Glogovac. Private security company employees who had been engaged by DTI in order to reinstall law and order were intimidated. Still the UNMIK Office of the Legal Adviser questioned if there was an urgent need to act on behalf of UNMIK. After these doubts were overcome in lengthy discussions, control of the quarry was seized by UNMIK in a joint operation with civilian police and KFOR. After another 10 days of discussions, workers returned to work at the quarry, now, with the
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entire company, under UNMIK administration.
Over half a year after the conflict emerged the quarry now operates and Trasing is able to compete for contracts. The 60 workers, and whatever backing they had from powers outside of the quarry, are not able to control this key asset of the company. As a result, the 250 workers of Trasing benefit from it, rather than the small number of individuals who were benefiting from the illicit control of the quarry prior to UNMIKs takeover.
Again, this case illustrates the reality of the situation in Kosovo: privatisation of socially owned enterprises is taking place, the only question is how, by whom, and to whom the benefits go. The case also illustrates the consequences of the lack of a clear legal framework on the property issue. Consensus for action needs to be built for each case individual, on an ad hoc basis. As a result, UNMIKs reactions are slow, and highly dependent on the personalities involved. And, if actors are smart, they remain out of sight of UNMIK and practice behind the scenes privatisation.
4. Mirusha, Klina
In December 2000, the physical assets of the construction SOE Mirusha were rented out for 10 years to an Italian investor under a commercialisation contract. The SOE remained in existence as a corporate shell company, still having its own assets such as bank accounts and receivables from the time before commercialisation. Since January 2001, considerable amounts of money accrued on the bank account, and since August 2001 considerable amounts have been withdrawn for unclear purposes.
In order to determine the amount of funds disappearing, install proper accounting, and safeguard the assets of the corporate shell, DTI asked for a SRSG Determination in early November 2001. Since then, an exchange of letters took place between OLA and DTI, in which details of the commercialisation that are not directly linked to the subject matter of the request were questioned. As result, it took six months to get the SRSG Determination necessary for UNMIK to intervene. Meanwhile, cash flows continued, and the ability of UNMIK to trace the cash flows from Mirushas account decreased further.
These cases are only the tip of the iceberg. In Prishtina, shortly after the Higjena Teknika conflict, the Municipal Assembly appointed directors to other SOEs on their territory, and PUD and DTI had to intervene in the cases under their administration mandate. The CEO of Prishtina repeatedly encouraged other Municipalities in public to follow his example, and this was happening. In Prizren, for instance, the Municipality was seizing land from SOEs, against the clear advice of DTI. Other cases were reported from other Municipalities.
We note that these efforts spring from a variety of motives. Some efforts to seize control are no doubt motivated by a genuine desire to resolve these questions and serve the public interest of the citizens of Kosovo. Other actions are no doubt, motivated by desires for political control or
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individual greed. However, the consequences of the uncertain legal environment mean that no one, neither UNMIK nor the elected representatives of the people of Kosovo, are effectively able to address the problem and separate the well-intended from the criminal.
In every single conflict it turned out that a narrow legal interpretation in an environment characterised by general legal uncertainty put additional brakes on effective reaction. This has been monitored carefully by the conflict parties, so that it is likely to serve as a bad precedents for other cases. Lately, officials of Municipalities who were most active in challenging UNMIKs powers publicly encouraged others to follow their example, accusing UNMIK of inactivity when dealing with the decline of SOEs.
Analysis of conflict features
When analysing the root causes and the impact of the conflicts on the fulfilment of UNMIKs mandate, we warned that they pose a threat to three tasks lined out in Resolution 1244, namely (i) economic reconstruction, (ii) maintaining civil law and order, and (iii) organizing and overseeing the development of democratic institutions. All conflicts over socially owned and public enterprises bore common features:
Besides the law and order problem, we considered the Municipality involvement as particularly worrying. Kosovo has a relatively immature democracy and democratic accountabililty is relatively weak, given the still nascent understanding of citizens of the processes of democracy and the weak development of counter-balancing interest groups. Given this, the attitudes and activities of Municipality leaderships, as demonstrated above, are likely to result in the assembly of what is known in American political history as a machine." The use of patronage, and the use of revenue streams from public services in the support of a machine" political system are well established mechanisms of political control throughout the world.
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A political machine" ensures re-election in a nominally democratic polity through bending to its service independent" elements, including the civil service, and parts of civil society. Such an outcome is both anti-democratic, and potentially very troubling given the central role of corruption and graft in such machines. Given the current public lack of understanding of the limits of municipal power, the mass public is unlikely to act as a check on the accumulation of power by municipalities. If unchecked, this effort has the potential to hinder efforts to develop the core structures of an independent, apolitical Civil Service, and a financially stable and independent meadia.
It should be noted, however, that in most of the cases discussed above, although the disputes became public and political, the public did not uniformly take sides against UNMIK. In particular, in the case of the Hijgiena Teknika strike, the public in Pristina was exceptionally skeptical of the political motives behind the strike, and their support was ultimately key in resolving the issue. This public political aspect means that UNMIKs ability to govern meaningfully is challenged by cases of the sort noted above.
In summary, we note two points. First, it is clear that the enterprise administration regime established by UNMIK has in large areas allowed the emergence of a pirate economy, in which managements, municipalities and other individual actors use their power to get control over state, public and socially-owned property, stripping and renting out these assets. Second, this has contributed to a decline in the assets value and the neglect of the rule of law in an environment that is characterised by weak legal institutions. This is both threatening the medium term prospects for economic growth and the development of genuine democratic institutions. The public dissatisfaction created by this is also a severe threat for UNMIKs further acceptance. [Cf. Andreas Wittkowsky: Political Liabilities of Non-Privatisation in Kosovo. Memorandum. Prishtina: UNMIK, 10 March 2002.]
4. Rethinking property administration
How to deal with property under UNMIK-trusteeship?
The threat of mission failure" in the three areas outlined above, and intense political lobbying to raise attention on this matter, led to a rethink of the scope and limits of UNMIKs administration mandate in late 2001 and early 2002. As a result of an alignment of factors, including a greater understanding of the situation on the ground in the New York UN headquarters, refined legal arguments by UNMIK, increased donor intervention, and the politics associated with a newly appointed SRSG, a privatisation regulation was approved by the UN headquarters in late winter 2002.
The legal arguments focussed on what role a trustee has to fulfil when dealing with the property under his trusteeship. A classical lawyers textbook argument says that a trustee has to dispose of perishable goods (such as fruit or vegetables) before they are rotten, otherwise he would have fulfilled his trusteeship functions in a grossly unsatisfactorily manner. In UNMIKs case, the
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analogy that was drawn pointed out that through asset stripping and under-investment the public and socially owned enterprises also are about to rot to zero value. Thus, in order to protect the value of the public and socially owned assets for their owners, a trustee necessarily would need to be able to exchange them for other forms of titles, like shares or monetary proceeds.
The big problem, however, is that privatisation affects the rights of (potential) owners. In the case of state property the question is which territorial entity is the carrier of the property title. In the case of socially owned enterprises the question is even further reaching, as it might not be a territorial entity at all most legal opinions consider social property as clearly distinguishable from state property, more similar to private property if at all similar to another category of property, and most (but not all) Yugoslav successor republics dealt with social property by formally nationalising it first and privatising it afterwards.
Public international law, however, provides only for relative property protection. A state, and UNMIK as the carrier of state functions in Kosovo, can in principle expropriate property if this (i) serves a public interest, (ii) there is effective and adequate compensation granted, (iii) there is no breach of treaty obligations, and (iv) there is no discrimination.
Moreover, the rationale lying behind UNMIKs mandate, namely the creation of lasting peace in a post-conflict environment, had to be weighed against individual rights. Mission failure and a possible re-ignition of violent conflict would most likely lead to a situation, in which public international law principles and ownership rights are violated much more than any action necessary to UNMIKs success.
[Cf. Stephan Hobe: Certain Legal Problems with Regard to the Draft Regulation on the 'Kosovo Trust Agency' (KTA). Expert opinion, University of Cologne, 8 February 2002.]
The Kosovo Trust Agency (KTA): A trusteeship privatisation model
Taking these arguments into account, a compromise model was developed in the European Union Pillar, bringing together different known privatisation elements with a particular trusteeship concept. At its centre lies the establishment of a Kosovo Trust Agency (KTA), which is able to initiate spin offs and liquidations of enterprises. The model was hotly debated but will finally come into force in mid 2002.
The KTA is established as an independent body administering public and socially-owned property falling under the SRSGs Reserved Powers. These include the public and social enterprises in trade and industry, agriculture and forestry, post and telecommunications, transport and infrastructure, and public utilities such as power, waste and water service providers.
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The Agency is to be jointly governed by a Board of four international and four Kosovar directors. The Kosovar directors are appointed by the SRSG and shall include three Ministers of the Government, including the Serb Minister, and the president of the Trade Union Federation. The international directors are three high ranking UNMIK representatives and the Managing Director of KTA.
The KTA acts as a trustee for the beneficial owners of the property. KTA administration includes general management oversight, as well as granting concessions and leases, initiating bankruptcy procedures, and direct control if need be (as in the past this is anticipated only for problem cases). For reorganisation purposes, the KTA can also initiate the first step of a spin-off procedure by establishing new subsidiary companies of old enterprises and transferring their assets to them. In exchange, the old enterprise receives shares in the new company which are held in trust by the KTA.
Privatisation is limited to socially owned enterprises (SOEs), where the KTA will also have the right to full spin-offs and voluntary liquidations. Full spin-off is achieved through a second step, in which shares of SOEs are sold to investors in the new company. Under voluntary liquidation procedures, the SOE will cease to exist, and its assets can be sold to investors. Thus, valuable assets are put into productive use, and clear ownership titles are established over them. Any proceeds from privatisation will be held in trust by the KTA until a final decision on creditors claims against the SOEs can be made and the ownership questions can be addressed.
In addition, a Special Chamber within the Kosovo Supreme Court is to deal with potential disputes resulting from KTA decisions. The Chamber is to consist of five judges appointed by the SRSG, three of which are internationals.
The aim of these activities is to preserve or enhance the value, viability and governance of the enterprises while allowing for involvement of distinct private owners as much as possible. In the latter, following a general experience with restitution schemes in transition countries, it establishes the principle of monetary compensation rather than restitution in kind.
5. Conclusion: The need to deal with property issues
Two sets of lessons can be drawn from UNMIKs experience. The first set of lessons are tactical, focused on improving the missions ability to engage in administration of enterprises, and the political disputes which inevitably follow. The second, and most important, are conceptual, and reflect the need to refine our understanding of the activities undertaken in peace building missions. These lessons stem from our increased awareness that, although SCR 1244 doesnt explicitly address the structure of the political economy, the mission cannot afford to ignore it.
The tactical lessons learned from UNMIKs experience reflect the need to temporarily administer enterprises, and to engage in the political activity which results from this engagement. While the particular needs of UNMIK are clearly shaped by the pre-conflict socialist economic struc-
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tures, any mission engaging in comprehensive peace-building efforts may need the capability to engage in corporate governance. When necessary, missions need to be able to manage corporations, engage in audits and inventories, supervise local management personnel, communicate with workforces, and develop ad hoc procedures for corporate governance able to engage and balance the many contending interests found in such situations. Basic business management capabilities need to be considered early in the planning of any mission. However, while missions may need to temporarily administer enterprises, they cannot run them for long. There is no way around clear private ownership and the associated responsibilities.
Second, these efforts, while made necessary by the structure of post-conflict political economies, and the impact of the political economy on the stability of democratisation efforts, are controversial. Missions need to be able to engage in political disputes that follow from efforts to shape the emergent post-conflict political economy. The more a mission undertakes genuine efforts to build a more open and participatory political economy, the greater the resistance of those whose privileged positions are threatened. This kind of robust public information campaign is far more like traditional political campaigns than the usual general and vaguely positive public information campaigns that are normally featured in peace building missions.
Greater attention needs to be given to developing and generalizing the KTA model (including the creation of spin off corporations, trusteeships, and liquidation, with mechanisms for setting compensation for owners from the proceeds) for dealing with the problem of restructuring ownership in post conflict situations. Such problems, while most obvious in post-socialist settings, are also likely to be features in any setting where former owners cannot exercise or enforce their ownership rights without contributing to a significant loss of stability in the post-conflict setting.
It is important to note that missions in post-conflict situations face a stark choice. Either confront the issues, including pirate privatisation," mis-appropriation of public assets, looting, and the political corruption that is associated, or tolerate the consequences. Post-conflict economies feature a wide variety of entrepreneurial actors, some legitimate, at least in motives, and others criminal. Those willing to appropriate assets are not without allies, and actions by the mission to oppose them will be controversial. However, failing to confront these actions contributes to a general atmosphere of lawlessness, the creation of anti-democratic political machines, and makes the creation of a rule of law" based system more difficult.
This awareness highlights the key conceptual lesson that flows from UNMIKs experience. Transition and development both imply conflict of interests, as they imply changes in patterns of entitlement and resource flows. This has been elaborated by both transition and development economists, as well as by conflict researchers.
[Cf. for instance Suzanne Verstegen: Poverty and Conflict: An Entitlement perspective. CPN Briefing Paper. Berlin/ Brussels: Stiftung fŘr Wissenschaft und Politik ľ Conflict Prevention Network, September 2001.]
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conflict environment is faced with the same areas of conflict as post-socialist reform governments, and has less stable conditions, as the actions of a peace-building mission are not embedded in an existing structure of interests, culture, and political discourse. This implies a need to be ready to carry on over a longer period of time than many mission calendars foresee.
Such a long term approach to both economic revitalization and post-conflict democratisation and stabilisation can only be grounded in a thorough conceptual understanding of the linkages between core issues in the political-economy, such as property ownership, and the more visible and uncontroversial aspects of the mission such as elections and democratisation." While such an understanding may be common among specialists in appropriate topics, it is not the stuff of common discussion in either the halls where missions are planned or the classrooms where peace building is taught. Issues such as property ownership arent just economic issues, but are core issues in the stabilisation of a democracy.
More generally, greater attention needs to be paid to the general issue of the political-economy in peace building missions. The political economy of a region in conflict evolves during the course of the conflict in ways that are understandable, if not always predictable:
Further work needs to be done to ensure the understanding, and recognition, of the linkage between the structure of the economy and the operation of the political system. Property and the regulation of its ownership is A core activity of the political system, and the distribution of property in society profoundly affects the distribution of power in it. Such truisms might seem obvious, but that does not mean they are central in the thinking of mission planners or the political actors who shape mission mandates.
The deep interconnections between the structure and regulation of property ownership, and the nature and success of civil society, needs to be highlighted, conceptually, in the peace building literature. Creating a population of local NGOs alone will not produce civil society, if at the same time we tolerate those who exploit advantages gained in the conflict to further their accumulation of economic power in the post conflict situation. If, in post-conflict situations, peace-building missions are not able to engage in efforts to produce a legitimate and regulated political economy, the field is left open to the most advantaged, aggressive and the most audacious. That
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these are not necessarily the most economically or managerially competent, or democratic, elements in a society is reasonably likely.
We should note that our call to deal more robustly with this issue is not necessarily a call for an international dictate as the solution. While UNMIK has made the decision that the privatisation process remain firmly in its hands, although with Kosovar participation, other missions in other circumstances may make other decisions. However, fundamental questions about the structure of the political economy, (in UNMIKs case, the resolution of property rights issues), and the institutional structure of the post-conflict economy, cannot be avoided. Failure to confront these problems means failure to deal with the social consequences of pirate privatisation, and failure to preserve the rights and interests of the average citizen. Understanding the evolution of an economic system in conflict, and its consequences for post-conflict political and peace-building aims, remains a subject requiring substantial conceptual, and practical work. In the end, stabilisation is about making theft the exception, not the rule.
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Reihe Frieden und Sicherheit
Reihe Globalisierung und Gerechtigkeit
Michael Ehrke/Lothar Witte
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Papiere der Arbeitsgruppe Europäische Integration
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