Makedonsko Sonce - Interview (April 7, 2000)
By: Sam Vaknin, Ph.D.
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The views presented in this article represent only the personal opinions and judgements of the author.
MS: Mr. Vaknin, You are well acquainted with the economic conditions of the Balkan Peninsula as well as of countries in Eastern Europe. Where is the RM situated, with regards to its economic development, in the Balkan, in Eastern Europe as well as in European and Global terms. In the same vein, how close or far is Macedonia to the EU?
Sam: Macedonia is very far from becoming a full member of the European Union. Its annual GDP per capita is 10% that of the EU, its infrastructure is in disrepair, 40% of its workforce are unemployed, its industry is obsolete and its agriculture primitive. It is difficult even for Hungary and Slovenia to become members of this exclusive club.
Having said that, it is important to realize that the EU has been transformed lately from a purely economic grouping of nations - to a political-economic alliance. Association is now linked to stability, stability to growth, growth to peace and peace to prosperity and markets. The European hinterland (CEE) and periphery (NIS, SEE) are the natural future markets of the EU. It is a prime interest of Europe to have peace and prosperity at its doorstep, if only to prevent massive waves of crime and immigration.
Hence the invitations extended by the EU to basket cases like Romania, Bulgaria and Cyprus. Compared to these - and compared to Albania, Bosnia Herzegovina, Yugoslavia and even Croatia - Macedonia is more advanced. It is more democratic, its institutions are more functional, less murderous and chaotic. The Macedonian economy is undergoing now painful structural changes which should have taken place years ago.
MS: What steps should the Macedonian government adopt in its economic plan to finally sign the arrangement with the IMF and with the World Bank, with which credits for Macedonia should be approved?
Sam: Macedonia knows what it has to do and it has known what it has to do in the last ten years. What was lacking was not the knowledge - but the political will and a modicum of courage and leadership. Whatever one thinks about this government - it is confronting difficult issues head on. We have to fire people in loss making factories. We have to reform the banking system by opening it up to foreign investment. We have to collect more taxes by any means necessary - many of these means disagreeable. We have to privatize by selling directly to investors, if there is no other choice. This is a very partial list. And we have to absorb the public's ire and wrath. It is part of the price we have to pay for finally doing what needed to have been done long ago. The delay in the implementation of crucial reforms has cost us dearly. Multilateral financial institutions no longer trust us. The citizens don't trust the state or the banks. The economy is in shambles. There is no capital stock left. the unemployed paid a horrendous and irreversible psychological toll. The very social fabric has been tattered.
MS: The representatives of the government of RM claim that the state is currently on an upward trend of economic development. The opposition claims the opposite and we can hear others saying that we, as a country, are facing economic collapse. According to you, who is right and who is saying the truth - the coalition or the opposition?
Sam: Both. We have to collapse first in order to grow later. This is what the previous governments refused to accept. Decades of socialism left in their wake such devastation that the only sensible thing to have done is to erase everything and to start anew. Instead, previous governments tried to patch things up, to insert a finger in the bursting dike.
The next two years will be horrible. People will lose their jobs. Factories will be closed. The state administration will be cut. The tax burden will increase. It won't be easy. But, if everyone will lend a hand and understand that we have no choice - this too shall pass. A new dawn will rise. The remaining factories will be lean, mean and efficient. The remaining workers will be industrious and conscientious. The remaining businesses will pay taxes. The country will seem much more appealing: modern, streamlined, efficacious, functioning. One has to go on a severe diet to look good later.
MS: Did the RM adopt the most satisfactory model of privatization and what will happen, according to you, with the published revision (review) of the past privatization in Macedonia?
Sam: I haven't followed this subject in almost two years now. I don't think I am in the intellectual position to say anything meaningful about it.
MS: It is a fact that Macedonia has not been blessed by many foreign investors in its economy. Why is it like that and is there a way for our country to attract foreign capital?
Sam: There is very little a state can do to attract foreign investment if there is nothing to invest in, or if foreign investors are not welcome, or if no real transition to a market economy took place.
Macedonia is in a rough neighbourhood. It is a crossroad. It has no industry to speak of and its agriculture is very basic. So - with the exception of close neighbours like Greece, Yugoslavia and Bulgaria - there is very little to attract foreign investors to come here. There is very little to invest in.
But, then, this was the case in Japan, Hong Kong, Taiwan and Israel - and they became Meccas of foreign investment. How come?
What is common to these "economic miracles" is that they all offered unique opportunities to invest in brains and services (including manufacturing-related services, like assembly). Not in industry and agriculture (where anyhow Macedonia cannot compete with the likes of Vietnam) - but in services and brains. Look at the miraculous transformation of India into a high tech giant.
There are great brains in Macedonia. Its inventors often gain world acclaim. Its young are incredibly computer literate. But this natural resource - Macedonia's brains - is not tapped, it is not mined properly. Instead, the money goes on mineral mines, heavy soot-intensive industries and inefficient agriculture.
So, the first problem is a wrong investment orientation.
The second problem is that Macedonians are xenophobic. You do not like foreigners and you are paranoid and envious. You are constantly engaged in inventing conspiracy theories and propagating them. This is the legacy of the Turkish centuries and Tito's "Brotherhood and Unity", I guess.
The third problem is the poor infrastructure. I am not talking only about phones and roads (and both are lacking). I am referring to proper institutions (non existent here), to functioning and honest courts (science fiction), to impartial and decent media (fantasy), to protected property rights (in Macedonia the concepts of contract and obligation are way too elastic and the only effective enforcement is "private").
The government can do something about the first and third elements. And it is trying to. Closing smokestack industry and opening free trade zones is a step in the right direction. Improving the bankruptcy and competition laws is another. The introduction of VAT is important and so is the encouragement of exporters. The population's resistance to these highly beneficial and correct steps is strong. Here, if you ask me, is one of the two great faults of this regime. We do the right things. But our public relations suck. We don't know how to "spin doctor", to put the right spin on our actions. We did not dedicate enough resources to "selling" ourselves, to "marketing" our activities and to making our image. We are too busy doing things instead of talking about things that we do...
MS: In the period preceding the parliamentary elections in 1998, Mr. Vasil Tupurkovski promised that 1 billion dollars of foreign capital will be invested in Macedonia. Yet, until now, Mr. Tupurkovski did not fulfil this promise. In your view, how well-founded was such a promise made to the Macedonian electorate?
Sam: In the last ten years, from its independence until the end of 1999, the total net foreign investment in Macedonia, according to the National Bank, was less than 26% of 1 billion US dollars.
MS: Is it right to sacrifice political aims of a country to its economic interests? In this context, do you think that the Macedonian government has erred in recognizing The ROC-Taiwan?
Sam: The economic interests of a country are as legitimate as its political ones. A country cannot be strong and safeguard its political interests while its economy is collapsing.
My views about the agreement with Taiwan were published at the time. They were not positive.
MS: The Jewish lobby played a large role in the development of Israel into a powerful and economically stable country. As someone who is well acquainted with the Macedonian situation, what steps should the government of RM adopt to provoke the Macedonians in throughout the world to invest in the country?
Sam: I recently gave a speech in the Canada-Macedonia Chamber of Commerce at the invitation of Mr. William (Bill) Dimitroff precisely regarding this issue.
On the surface, the two situations look identical:
A big, relatively affluent, diaspora situated in critical countries in the West. A small, impoverished country fighting for its survival. Close emotional links between families, communities and friends all over the world.
But there are three major differences which render a repetition of the Israeli-Jewish model impossible unless successfully tackled first:
The state should recognize the Macedonians abroad as equal partners. It should accord them a privileged status and privileged treatment as foreign investors. It should establish special liaison offices with Macedonian communities abroad. They should have an institutionalized say in any decision that affects them or their interests directly. They should be encouraged to participate in the cultural life of the country. Their children should be brought over here to get acquainted with Macedonia. There are many more steps. But the first step is to recognize that where a Macedonian is - doesn't matter, it is a mere accident of history. That all Macedonians are equal in the eyes of time.
MS: What is the safest way to compensate the savers of the pyramid savings houses in RM, especially the TAT savings house of Bitola?
Sam: Education. When something is too good to be true - it is not true. When an offer or a product deviate from logic, reason and market principles - walk away.
But Macedonians are easy prey. They fall for crooks and quacks and soothsayers and superstitions and conspiracy theories. They fall for it not because they are stupid. Macedonians are sharp and entrepreneurial folk. No, they fall for it because it is often better to live in a false paradise than in a true hell. People escape into telenovellas and games of luck and gambling and "get rich quick" pyramid schemes. As long as people prefer an imagined future to a real present - such events will recur and there is nothing the state should or can do about it.
MS: Will the Macedonian economy and its standard of living be affected by inflation in the near future?
Sam: Inflation is a situation when there is a lot of money chasing few goods and services.
Macedonia is an illiquid and demonetized country. People used up all their savings. Purchasing power has been depleted to the maximum. Inter-company debt is gigantic. Wages are in outlandish arrears.
In Macedonia there is almost no money confronted with numerous small businesses and their offerings.
This is called DEflation - not INflation.
Macedonia is in risk of deflation - when prices spiral down, factories lose money and fire workers who then - devoid of income - drive prices further down.
In this year of the introduction of VAT, I cannot see inflation exceeding 5-6%.
I won't be at all surprised if, at the end of the year, we will discover that prices almost did not budge.
MS: As I believe that you know, there are questions on the internet, staining your doctorate with the claim that it was not obtained in the regular manner but through correspondence. Your comment?
Sam: On the internet - and not only on the internet but in real life Macedonia - there are many nagging questions. An I a spy? Am I a criminal? Am I "operating" alone or is some mysteriously conspiratorial organization backing me? What is the purpose of my stay here? Am I working in favour of Macedonia - or really against it at the service of its enemies? Am I a real Ph.D.?
Start with the last question:
I acquired my Ph.D. using credits from the "Technion - Israeli Institute of Technology" in Haifa, Israel (8 semesters) and "Pacific Western University". The latter was a real, accredited, university in California. I obtained my doctorate in 1982 (major: Physics). My doctoral dissertation can be obtained here:
(the UMI microfiche service):
or, by phone: 1-800-521-3042
It is titled "Time Asymmetry Revisited"
(by Sam Vaknin, 1983 or 1982, I am not sure in which year they accepted it)
A few years ago, my alma mater merged with others (I don't quite know the details, I have been a bad alumnus). The source of the confusion is that there is an outfit in HAWAII called "Pacific Western University" which, I believe, is, indeed, a distance learning university. About 50% of all students in the world obtain their degrees through distance learning programs, by the way. The very question raised indicates pettiness and ignorance of modern education.
Moreover, most financial experts in the world come from a background in physics and mathematics. I am often attacked by certain ex-socialist, current-capitalist sunflower (soncogled) "professors" of "economics" as a non-professional (being a physicist and not an economist). I encourage them to study English and read professional economic literature. It is full with ex-physicists and ex-mathematicians turned financial experts.
Let me dispel a few myths:
I never heard of a spy who constantly exposes himself to the local media and who comes back to the same country after he left it.
I never heard of a criminal who doesn't charge a denar for the hundreds of articles he wrote and published or for the dozens of seminars he gave all over the country.
I never heard of a person who has anything to hide, a reason to be afraid - and writes so freely and, I might add, courageously, in all the papers of his host country.
I contributed a lot to this country and I am proud of it.
Wherever I live is my home and wherever I see injustice - it is my business. These are good principles to adopt. They might bring about the changes we are all waiting for.
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