Serbia, Crashing the Yugo

The article is co-authored with Sara Bernard, whose profile is available underneath the Italian translation of the article https://www.inchiestaonline.it/lavoro-e-sindacato/serbia-la-fiat-compra-la-zastava/

Fiat’s Turn in the Driver’s Seat

1.The first debt crash: from import-substitution to export mania

The Zavodi Crvena Zastava [Red Flag Factory] was set up in 1951 in Kragujevac, a city located in the Šumadija district 180km from the capital Belgrade. Initially established as an arms factory, Zastava started car production in 1953 becoming rapidly the leading automobile factory in Yugoslavia and was best known for the Yugo brand abroad.

In the 1950s and 1960s, Zastava went through a period of prosperity: enjoying a sort of monopoly in the protected domestic market, its production could easily expand thanks to the growing demand of cars in the Yugoslav federation. Furthermore, the Zastava success constituted a positive factor for the economy of Yugoslavia as a whole since, according to the Yugoslav model of the production process, the fabrication of the car components were located in different republics/provinces: the batteries were produced in Kosovo, the electronics in Slovenia, the gears in Croatia[i].

Behind the rapid growth of Zastava there was also the partnership with FIAT which since 1953 provided Zastava with equipment as well as a licence on FIAT new models which were adopted and adapted to the needs of the Yugoslav market. Sponsored by the Italian provider, the Kragujevac manufacturing plants in 1961 assembled more than 10.000 cars (386 in 1953), while, from 1962, a series of investments gradually equipped Zastava for large-scale production of the Z-101 model, a variation of the FIAT-128[ii].

The assembly of the Z-101 brought Zastava to trade with Comecon. This model was created to develop an interchange market among different industrial units disseminated in Eastern Europe that produced Fiat by-products employing similar Fiat components. However this endangered domestic producers of component parts in Yugoslavia and did not generate hard currency. The latter preoccupation intensified through the 1970s. The oil crisis affected severely the Yugoslav economy which already faced stagnation and a staggering rise of hard currency debts. The response of the Zastava leadership was to take a decisive turn to the Western market. Soon, it became evident that the more recent Zastava model, the Z-101, could satisfy domestic and Comecon standards but not Western market ones and thus Zastava managers obtained a licence to produce a new version of the FIAT 128 when FIAT was still producing the old version[iii]. However, the Zastava plant’s deficiency in technological expertise and professional cadre were incompatible with the megalomaniac policy of the Yugoslav car industry leadership which, faced with free market competition, entered a new spiral of hard currency debt.

The situation deteriorated further in the early 1980s, when Zastava came to agreement with the American tycoon Malcolm Bricklin to import Yugo cars to the USA. Bricklin project was to redesign and modernize the Yugo and Florida models and to sell them in developing countries before bringing them out in the Western Market. However, the project did not work and most at the expense of the Yugoslav market. Bricklin did not obtain the required financing but did not give up his plans to create a Yugo-America company[iv]. Zastava had to manufacture new models which required high investment and hence foreign loans. At the insistence of the IMF the dinar was devalued in a frantic attempt to stabilize the debts payment[v]. The resulting low price of Zastava exports only reinforced credit addiction which continued to fuel the vicious circles of the badly built cars, the poor factory management and the low labour productivity.

In the period 1987-1988 Zastava reached its peak of production with 200.000 models which were mostly sold undercut in the home market. Only two years later, following the collapse of the country, production fell drastically to less than 10.000, the same as the number of workers employed in the factory[vi]. The war, sanctions, and bombing did the rest. This marked the end not only of the Yugoslav market but also of 50 years of Yugoslav coexistence, which, despite all the centrifugal tendencies, had represented a possible alternative to bloody dissolution. The worse and more painful road was chosen. The enormous problems facing the working class were often instrumentalised and manipulated according to the strategies of the power-hungry nationalist elites.

Hopes for the rebirth of Zastava, which was hit by NATO bombing in 1999, injuring 160 workers, had to wait for the fall of Milošević in October 2000. However, due to the extreme difficulties facing the Serbian economy, the change of regime revived the old strategy of integration in the world market at an even deeper level than simple debt-driven development: to revive car production, the new Serbian leadership sought any strategic partner who wanted integrate Zastava into an international strategy of car-production for export.

2.The second debt crash: from export mania to ‘foreign partnership’

During the 1990s, whereas Serbia continued to be politically and economically paralysed under the Milošević regime, neighbouring former Communist countries’ car industries were relatively successfully reborn thanks to the acquisition by and/or partnership with giants in the sector: the Czech Skoda made agreements with Volkswagen, the Romanian Dacia with Renault (Slovenia also started to assemble models for Renault), and Hungary with Opel, Audi, Subaru and Suzuki.

Seeking to reopen the game and find a partner for Zastava, the Serbian government ratified in 2001 a new privatization law which favoured greately foreign direct investment. In fact, even if foreign investment was made possible in 1967 and was increasingly liberalised from 1989 onwards, the new law was substancially remodelled according to the neoliberal imperative of the international financial institutions[vii]. In order to receive economic aid, Serbia had to carry out internal reforms which involved the system as a whole. However, these reforms were imposed abruptly, without taking regard for the specificity and potentiality of domestic resources and necessities.

In the economic sector, for example, under the obligation of productivity and rationalization, a new labour legislation, more flexible and more pluralistic, was enacted as the necessary step Serbia had to take to generate interest among possible investors. In practice, “flexibility” meant hundreds of dismissals in the public sector and “pluralism” in the enfeeblement of the negotiating power of the principal Trade Unions[viii]. With these premises, the Serbian government prepared the ground for massive privatization of state state-owned and socially-owned enterprises[ix], whose principal attraction was low costs of labour and real estate rents.

The Kragujevac industry was parcelled out and its 12 units put on the market. However, only few of them found a buyer. This was the case for example of the “Zastava alati”(which produced mechanical instruments ) bought by a Slovenian company. The Zastava car factory, the biggest constituent part with approximately 13.000 employees, did not generate any interest: the models were 15 years old and so was its technology. The miserable conditions led Zastava managers, local politicians and Trade Unions to negotiate with Belgrade a sort of “survival strategy”. The employees were reduced to circa 4.500 and part of them placed in the ZZO programme (Zastava Zapošljavanje i Obravovanja- Zastava Education and Employment) whose principal task was in fact limited to allowance distribution (45% of the 220 Euro monthly salary). According to the expectation of the then Labour Minister Dragan Milovanović and the Economy Minister Mladjan Dinkić, the ZZO programme would last for three-four years, the time necessary to find a buyer and privatise the factory[x].

However, the temporary and extraordinary measures to keep alive Zastava and its workers ended up lasting seven years. During this time, many impracticable solutions were tried. The most remarkable looked again to the American market; firstly through a renewed collaboration with the American partner of the 1980s, Malcolm Bricklin. It soon failed for the enormous cost and low profit Zastava offered. Secondly, despite the failure of the disastrous second attempt at an American adventure, another endeavour was proposed by a new (alleged) rescuer to the same effect. Stevan Pokrajac a Serbo-Canadian investor, declared his intention to provide the 230 billion dollars necessary to pay off Zastava’s debts and re-launch the factory. However, after months of this being celebrated as the deal of the century and Pokrajac as the saviour, when the time came for signing the contract, his sure attitude vanished as did the project and the large sums advanced.

Finally in June 2005 a more realistic agreement came to the fore, with a proposal made by FIAT. Mainly the contract settled that between 5.000 and 12.000 Fiat “Punto” models, in the local version “Zastava 10”, would be produced in Italian plants and thus assembled in Kragujevac for the Serbian market. The restored technical and commercial collaboration plan was also that Zastava paid off the 11,5 million euro debts accrued towards FIAT. In addition, the Serbian government had to cover the costs, around 15 million euro, of rebuilding a paint line destroyed during the Nato bombing. A similar supplementary expense was made in acquisition and installation of the equipment provided by FIAT partner companies[xi].

With the sales of houses and other real estate Zastava owned in Serbia and other former Yugoslav republics and hoping in forthcoming privatization of Zastava units, the Serbian government started the business of the “Punto” in the domestic market. However, even if in 2006 Zastava sold 1.500 models, second only to the Rumanian “Logan”, the enormous sustained cost was not repaid by this modest outcome. The high price of the Zastava 10 (about 7.500 euro) was only partially responsible for the disappointing result. More important was an agreement of free trade between Belgrade and Bucarest,[xii] which allowed the latter to export the Dacia to Serbia duty-free and make it the top car on the market.

The low profit which the contract with FIAT did not provide any relief to the nation’s coffer. Zastava itself continued to work in spurts, without continuity, and offering only part-time work to a minority of its workers. However, talks were reportedly taking place between FIAT and Zastava to find a more substantial settlement of the question of the Serbian car industry.

Finally, in April 2008, an agreement memorandum was signed. The FIAT vice-president Altavilla and the Economy minister Dinkić agreed terms whereby FIAT take over Zastava. FIAT offered a 700 million euro investment in the Kragujevac plants and the manufacture of two new models. On its part, the Serbian government advanced particularly advantageous conditions such as a customs-duty exemption on imports and the free of charge utilisation of 400.000 square meters of Kragujevac plants[xiii]. In fact, rumors said that the agreement with FIAT was the magic bullet which permitted the Democratic Party to win the election of 11 May and to defeat the most likely winner, the ultranationalist Serbian Radical party[xiv].

After the election passed, and after several public meetings prominently reported in the media and newspapers, the enactment of the memorandum continued to be postponed. Production did finally start with a reduced workforce of just over one thousand workers but union reports suggested that of the 8500 pieces produced in 2010, 4500 remained unsold despite state-subsidised rates for domestic consumers. The subsequent pause in production, allegedly for infrastructure renovation, led to rumors that the company was thinking of leaving Serbia[xv].

FIAT, which holds a 67 percent share, and government, which owns the rest, denied these rumors. Instead, it was announced that even more money would be pumped in (800 instead of 700 million Euros by FIAT, and 300 instead of 100 million by the Serbian government) and the European Investment Bank said that it would lend 500 million to the joint venture, which is projected to move from production of the FIAT Punto to manufacturing two new minivan models, building a capacity of 200,000 annually by 2013. This would generate an additional 1,500 workplaces, up to 2,500 from to the current 1,000, while the entire project, including parts production, would employ between 4,500 and 5,000. This is in line with automation of work and international production standards but, as the union suggests, is far from certain and does not solve the problem of employment in Kragujevac[xvi].

Continued public pressure questioning the wisdom of the deal with FIAT, particularly because of such massive state subsidy and growing indebtedness on account of maintaining the venture when its profit for the population is not clear, led the Anti-Corruption Council to request a copy of the terms agreed by the government with FIAT. The response in November 2011, several months ahead of the rescheduled opening of the factory in early 2012, was the release of a one-hundred page book with all the text censored[xvii]. Ironically, Palairet[xviii] estimated that the Yugoslav taxpayer had lost 1 billion dollars on subsidising Zastava’s export-mania over several decades before 1992. The danger of history repeating itself, with dire consequences for not just the country’s finances but on future employment and growth, appears once again on the horizon with the government’s even deeper commitment to ‘foreign partnership’ in the 2000s.

3. From Zastava to FIAT: the union battle for the right to work

The long-term collapse of Zastava, and its recent transferral to FIAT, was therefore not a painless process and it in fact led to fierce but ultimately unsuccessful worker resistance. Since workers have a major stake in the continuation of production, crucial for both the country’s external balance of payments and its domestic consumption, understanding the causes of worker defeat may hold the key to understanding whether alternative futures guaranteeing jobs and growth exist and how they can come about.

To begin with, it is important to understand that the pattern of worker struggle at Zastava has been typical for the labour movement in post-Milošević Serbia. Collaboration with management at the top of the union movement and industrial guerrilla warfare and defeat at the bottom has been the rule. It is the result of a complex interplay of ideological and structural factors. The former include union co-optation into a clientelist relationship with the state, tailing of existing parliamentary parties and ideological acceptance of neo-liberalism. These have worked in tandem with the latter, among which the decentralisation of collective bargaining after 2001 and the deindustrialisation of the country produce local, isolated and defensive worker battles. Sometimes, these defensive battles have taken on an offensive form like occupations, blocking of transport routes and social protests to prevent asset stripping and catch the public eye. Nevertheless, with the exception of the struggle in the public sector, the weakness of the union movement in the private sector continues to the detriment not only of the workers themselves but of the welfare of the majority of the country’s citizens.

Working class weakness is somewhat surprising given that workers played a central role in the 5^th October Revolution that inaugurated the era of democratic change since 2000. Indeed, the central turning point for the opposition in its protest against Milošević’s attempts to steal the previous month’s election was the “combination of strike and civil protest” at the Kolubara mines just outside Belgrade.[xix] Taking on their management, the “regime” union and Milošević’s top general, the miners gave confidence to all of Serbia that victory was possible. The collapse of authoritarianism and the advent of multiparty democracy therefore appeared to signal the end of labour subordination to state-dominated institutions that had suffocated any real worker autonomy for decades.[xx]

But the terrain on which union activity was to occur after Serbia’s October Revolution did not so much undergo a step forward as much as a step sideways, primarily in that the main union federations voluntarily accepted to continue to subordinate worker autonomy to government imperatives in exchange for benefits and a seat at the negotiating table. This included the former “regime” union Savez Sindikata Srbije (the Confederation of Trade Unions of Serbia) as well as the opposition UGS Nezavisnost (Independence) and the Asocijacija slobodnih i nezavisnih sindikata (Association of Free and Independent Trade Unions). The new situation presented a shift for both sides. The opposition unions had always exhibited the dual imprint of the times in which they were born: on the one hand they expressed the militant desires of the rank-and-file workers, who were breaking from the SSS amid economic crisis, and on the other hand, they looked to privatisation as the basis for a new economic order modelled on the West.[xxi] Their move into the mainstream, symbolised by the head of the ASNS entering Djindić’s liberal government as labour minister, locked the former opposition unions into a logic whereby resistance to the effects of privatisation clashed with their programmatic ambitions. By contrast, the transformed and later renamed SSSS (Confederation of Independent Trade Unions, formerly SSS) remained the biggest union and took part in a major rally against privatisation and for early elections in autumn 2003 that was addressed by nationalist political parties opposing the government. That proved to be its only major mobilisation, as it returned to relative quiescence, with two thirds of the population having no confidence in the unions, according to a poll conducted in 2006.[xxii]

The reason behind the relative lull of the mid-2000s was the combination of carrot and stick measures offered by the nationalist Koštunica governments that succeeded the liberal governments of the early 2000s. On the one hand, real wages rose amid credit-driven growth and the inflow of FDI. On the other hand, new labour legislation, while introducing some protections for unionists, also restricted the right to strike for workers in essential services. According to the ICFTU annual survey of violations of trade union rights, this in practice affected 60 percent of workers. Employers at JAT reportedly used the new law to break a strike arising out of the company’s restructuring that included the dismissal of two thirds of the employees.

Foreign-led growth did not stop but appeared to deepen deindustrialisation in Serbia at this time. A study by the Institute of Economic Sciences in Belgrade led by Dr Ivan Stošić suggested that Serbian industrial production had fallen to less than two thirds of its 1989 level by 2009. Media in 2010 were even more pessimistic, claiming that the figure of two fifths was closer to the truth. Indeed, up to a quarter of privatisations failed according to the Agency for Privatisation. For some time, the media- and politician-backed campaign to reinforce a crude form of social Darwinism as the ruling ideology in society was enough to reinforce quiescence or division in these tough times, as each individual or collective concentrated on his, her or its own plight.

Yet, it was the former industrial powerhouse of Kragujevac which raised its voice against this state of affairs in the second half of 2007, when several Zastava factories, alongside other local enterprises, brought out 7,000 workers on the streets in an event they nicknamed “the worker uprising in Kragujevac”.[xxiii] The issue at hand was the state’s decision to stop financing the Zastava Education and Employment programme, which had been founded to provide training for around 4,500 laid-off workers but which was generally recognised as a form of social welfare. The protest failed, leaving some 2,500 workers in Zastava. But anger was building in society.

The sense of frustration from below concentrated the minds of the elites. It was in this context that the deal with FIAT in 2008 took on major significance in the electoral campaign which saw the first decisive victory of the pro-European block since the fall of Milošević. The apparent promise that integration into foreign production networks would finally rebuild Serbia proved illusory once again, however. Foreign credit contracted severely after the 2008 crash in the West. Growth in 2009 in Serbia collapsed, by 4 percent. FIAT kept postponing the start of production but conceded a temporary social programme for roughly the three fifths of workers it was planning to lay off.

Perhaps surprisingly, signs of generalisation first began to appear in the labour movement at this very juncture, suggesting the possibility that FIAT and the Serbian government may come under more sustained pressure to invest and provide employment, or grow and create demand, as the way out of the crisis. For this to succeed, the local branch of the SSSS at Zastava would have had to develop international linkages to pressure FIAT and national linkages to pressure the Serbian government. Conditions for both began to emerge. Union representatives from Zastava attended an international gathering of workers from all FIAT’s plants in September 2008 to discuss ways of international collective bargaining. In Serbia, meanwhile, workers appeared also to be taking steps at linking struggles together. In summer of 2009, over 40 enterprises were on strike and several began an inter-strike committee that later turned into a coordinating committee of worker protests.[xxiv] Serbia would also witness several strikes in the public sector over wage freezes that winter,[xxv] and another more coordinated and sustained wave in the public sector again in 2011 with 15,000 taking to the streets in Belgrade in March.[xxvi]

Yet unlike the public sector, the private sector worker movement did not progress. Rather, it went up like a rocket and fell like a stick. This all the more striking given that both times that the public sector strike activity followed private sector strikes closely. All the same, after a hot summer in industry and a hot winter in the public sector, a mild spring followed with the Metal Workers’ Union trumpeting a national series of protests. They wanted a national programme of state and private sector cooperation to lift the once mighty industry. Yet instead of the announced tens of thousands, only one thousand turned out for the first protest in the provinces, and the campaign dwindled soon thereafter. The May Day protests, which had been signalled as the point of culmination, attracted only a couple of hundred workers and left wing activists.[xxvii]

And just as they had inaugurated the upward trajectory of worker struggle, the Kragujevac industrial workers appear to have inaugurated the collapse of the battle in the private sector by winter time. Their strike reached the news at the end of December 2010, as around 100 workers occupied the local municipal government headquarters in the name of the right to work. They promised to continue and escalate their action until their demands were met. Overnight, however, the union signed a slightly amended welfare deal and the union leader was reported to be in hospital, having suffered a heart attack.

In truth, the strike and protest spoke more for the lack of direction on the part of the unions in the industrial belt of Serbia than for the anger and desperation of the rank-and-file. Despite the knowledge that a solution was not pending over several years, the union had done little to forge links with wider communities on a platform wider than the welfare questions of its own members. The most tragic aspect of the December 2010 strike that accompanied the disappearance of Zastava was the apparent repetition of all the past mistakes of the worker movement in previous decades. Its apolitical character, its appeal to the local government for help at the last minute, and its characteristically bombastic rhetoric, smacking of desperation as it reached a pitch with threats of hunger strikes, had all been seen before in 2007 with the exception of the threat of self-harm.[xxviii]

Nothing tangible appears to have come of the union’s international links. As the remaining workers continue production and hope to accelerate it, if economic conditions permit amid the Eurozone crisis and the unpredictable political environment that accompanies it in Serbia, their counterparts elsewhere in the car industry face similarly uncertain futures. The shutting down of one of FIAT’s plants in Italy shows that the company is serious about its threats of a race to the bottom internationally as defeat for one group of workers leads to the lowering of the standards of all. Unfortunately, existing trade union strategies and institutions have not yet proven adequate under conditions of prolonged economic crisis on a world scale.[xxix]

The permanent debt economy, which succeeded the Keynesian ‘Golden Years’ of the post-war period from the 1970s onwards, was in fact always based on an offensive against organised labour. Yet it is precisely its attack on demand to reverse falling profit rates that has hampered real growth and intensified financialisation, with all its instability.[xxx] This crisis clearly gripped not only the developed world but countries of the periphery like the former Yugoslavia and present-day South East-Europe.[xxxi] The crisis of the car industry has represented a specific refraction of that crisis, with several cycles of opening to the world market, first as import substitution, then as export-driven development, and then finally as full integration in international production networks. The crisis of that path has enveloped the state as well, much as in the West, as the state has attempted to socialise private debt and provide a floor below which the economic fall will not collapse. The increasing linkages between production lines across borders, which followed the internationalisation of finance capital, and the resurgence of the nation-state during the crisis-period, made the crisis both a crisis of the nation-state and a crisis of globalisation.

The belief that ‘there is no alternative’ to neoliberalism has only now begun to be eroded but it is still the major block to the development of new labour movements, since it has prevented the major unions from generalising from really existing struggles, locally, nationally and internationally. This idea has allowed governments to sell the line of ‘we are all in it together’, leaving lower echelons of unions to their own devices at the local level where the effects of austerity and market fundamentalism have the most immediate impact. The coming onslaught on the public sector in all countries in particular will be easier to justify if resistance does not include the private sector and all those who stand to lose from attacks on the welfare state. As long as the unions concentrate on narrow industrial strategies and refuse to help initiate nation-wide and world-wide political movements that place an alternative to neoliberalism at their heart – growth and jobs will remain victims of the drive for profit and ruling class power.

Category: Economia, Lavoro e Sindacato, Osservatorio internazionale