Exploring the Impact of The Kosovo Crisis

Introduction

It is quite apparent to observers of the Balkans that the Kosovo War has had a significant humanitarian, political, and economic impact on the state of Serbia. And although overt hostilities ended in 1999, the cost of the crisis continues to be felt well into the second decade of the twenty first century.

Therefore, many are keen to quantify the financial and economic repercussions of the Kosovo War in order to guide long-term recovery efforts. However, estimating the long-term economic costs of the Kosovo crisis presents a complex challenge to social scientists.

One approach to this problem, which is essentially Keynesian in nature, is presented in a 1999 paper entitled “The Costs of the Kosovo Crisis” written by Vladimir Gligorov, a Research Economist at the Vienna Institute for International Economic Studies, and his research partner Niclas Sundstrӧm. Presented in Gligorov’s 2012 book “Neoclassicism in the Balkans and Other Essays”, the authors explicitly assert in their paper’s abstract that the best way to go about the project of trying to isolate the costs of the Kosovo crisis is to treat the entire crisis simply as if it were an external shock to the region’s economies, similar to a change in the preferences foreign consumers or a decrease in the price of an input good.

In traditional Keynesian macroeconomic theory, assuming that governments hold the supply of money constant, and that the interest rate and net exports effects apply, then, ceteris paribus, when such external shocks are transmitted throughout an economy the results can be represented graphically by a leftward shift of the country’s downward-sloping aggregate demand curve. This curve represents the total quantity of all goods and services demanded by an economy at different price levels.

Unfortunately, while this analytical approach as developed by Gligorov and Sundstrӧm is indeed powerful, it necessarily presents an incomplete picture of the costs of the Kosovo crisis because it can only take into account factors which have the ability to shift Serbia’s aggregate demand curve. While it is clearly true that the Kosovo crisis affected the demand for goods and services produced within Serbia, the Keynesian aggregate demand/aggregate supply (AD-AS) framework divides economies into two interdependent parts which must both be analysed in order to understand equilibrium conditions.

Gligorov and Sundstrӧm’s analytical approach will fail to take into account any costs which were incurred as a result of leftward shifts in the aggregate supply curve in an affected economy. In other words, if one only looks at an armed conflict as potentially causing demand-side shifts, one will likely have a lower estimate of the true costs of the crisis than if one takes both demand and supply side shifts into one’s analysis.

Therefore, the rest of this paper is devoted towards advancing the argument that there is evidence that the crisis in Kosovo was responsible for a leftward shift the Serbian aggregate supply curve. As a preliminary introduction to Keynesian analysis of the costs of violent conflict, the first part of the paper presents a thorough description of Gligorov and Sundstrӧm’s model. Then, one potential transfer mechanism through which the Kosovo War could have had a supply-side impact on the Serbian economy is presented using the work of Wendy Bracewell, a Professor of South-Eastern European History at the University College London and Nadia Youssef, a sociologist trained at the Institute of International Studies at the University of California at Berkeley.

Bracewell's research describes how the crisis in Kosovo led to a change in the role of women in Serbian society while Youssef’s draws a link between women’s role in society and their ability to be productive in the labor force. Together, the work of these two academic researchers combines to support the hypothesis that the Kosovo crisis engendered a leftward shift in Serbia’s aggregate supply curve.

Gligorov and Sundstrӧm’s Demand Side Analysis of the Costs of the Kosovo Crisis

According to Gligorov and Sundstrӧm, there are three ways in which such a leftward shift was caused by the external shock represented by the Kosovo crisis. First, the crisis lowered demand for the region’s exports as they become relatively more expensive due to increases in transaction and transportation costs on exported goods.

Conflicts make it more expensive for potential importers to do market research to determine if goods are available on the market and more expensive for them to determine the appropriate price for those goods. Transportation costs also increase during armed conflicts due to delays, the need for private security, or the need to take detours around hot spots.

The second way in which the Kosovo crisis caused a leftward shift in the aggregate demand curve of countries in the region according to Gligorov and Sundstrӧm is by provoking a decline in both domestic and foreign direct investment in regional economies.

The vast majority of investors are inherently risk-averse, which leads them to prefer to mitigate their potential downside losses. This means that they are less likely to be willing to invest in the kinds of long-term projects which require substantial new capital allocation in a region during an armed conflict.

The third way in which the Kosovo crisis created a leftward shift in the aggregate demand curve of economies in the region according to Gligorov and Sundstrӧm is by giving rise to a switch from private sector to public sector consumption. Governments often find it necessary to change their fiscal policy during an armed conflict, as the state finds it increasingly necessary to spend its tax revenue on security services and on services for refugees.

Unfortunately, each additional dollar spent in these arenas contributes less to GDP than dollars spent on education, healthcare, or social security programs because there return on investment when one buys guns, bombs, and emergency relief is virtually zero.

The magnitude of the leftward shift in the aggregate demand curve caused by the external shock of the Kosovo crisis depends on how vulnerable a particular country’s economy is to these kinds of shocks. Therefore, Gligorov and Sundstrӧm create a “vulnerability ranking” to determine which countries in the region are most likely to suffer long-term consequences as a result of a prolonged battle over the fate of Kosovo.

They base a country in the Balkans’ vulnerability to an external shock in the form of the Kosovo crisis to be based on the relative health six indicators: budget, trade, debt, migration, stability, and security. Some countries in the region, such as Bulgaria, are much acutely vulnerable to external shocks in one arena while others, such as Albania, face vulnerabilities across the board.

A Note on The Application of Keynesian Aggregate Supply Side Analysis

In traditional Keynesian macroeconomic theory, there are several mechanisms that one can imagine causing a leftward shift in a country’s aggregate supply curve, just as there are several mechanisms that one can imagine causing a leftward shift in a country’s aggregate demand curve. This research focuses on one mechanism in particular- a decrease in the labor participation rate of women. Measured as the ratio between the size of the labor force and the total population of women in a country, the female labor participation rate is a key determinant of how much real GDP can be produced at each price level on the aggregate supply curve.

A decrease in this economic indicator can shift the aggregate supply curve to the left because it decreases the total quantity of labor available for production within an economy. This would occur in situations where a decrease in the female labor participation rate is not offset by an increase in the male labor participation rate.

However, unlike when one is performing aggregate demand-side analysis, it is not sufficient to simply understand how and why an aggregate supply curve shifts to the left. Indeed, it is crucial to be able to distinguish between shifts in the short-term aggregate supply curve and shifts in the long-term aggregate supply curve at the outset of any attempt to perform aggregate supply-side analysis. This is because the construction of the upward sloping short-term aggregate supply curve assumes that suppliers cannot immediately pass on increases in the price of inputs to final consumers. Therefore, it is only considered a valid description of an economy’s supply schedule during the period after a change in the price level but before the prices of input goods have adjusted accordingly. The long-run aggregate supply curve is not similarly constrained since, in the long run, changes in the prices charged by sellers are offset by changes in the prices of input goods. This analysis focuses on how changes in the role of women in Serbian society due to the Kosovo crisis and a subsequent decrease in female labor participation shifted the long-term aggregate supply curve leftward.

The Kosovo Crisis’ Impact on Role of Women in Society in Serbia

The foundation for the hypothesis that the Kosovo crisis caused a leftward shift in Serbia’s long-term aggregate supply curve is developed by Wendy Bracewell in a 1996 paper entitled “Women, Motherhood, and Contemporary Serbian Nationalism” published in the Women’s Studies International Forum. In this paper, Bracewell contrasts the holistic view of women’s social role which existed in Socialist Yugoslavia under Josip Broz Tito with the more atomistic attitude which characterized anti-Titoist authoritarian nationalism of Slobodan Milosević.

She claims that under Tito’s rule, gender equality was the official policy of the Yugoslav state for two reasons. Firstly, the Yugoslav state under Tito was committed to a Marxist ideology which held women’s equality to be an a priori fact about the human condition. Women therefore enjoyed universal suffrage and rights to education and employment. And secondly, during the Second World War, Tito’s Partisan resistance movement drew a link between women’s emancipation and national liberation which he was able to enshrine as a “symbol of Yugoslav modernity and socialism” after the conclusion of hostilities (Bracewell 25).

According to Bracewell’s research, this progressive view of women’s role in society began to be challenged in the late 1980’s by the anti-Titoist authoritarian nationalism of Slobodan Milosević. The concept of patriotic womanhood was redefined- “a woman’s task is no longer to build socialism through work, but to regenerate the nation through her role as a mother” (25). Rather than being engaged in building up the country through activity in the public sphere, this new nationalistic concept of patriotic womanhood emphasizes the need for women to focus on activity in the private sphere, primarily childbearing and mothering. Bracewell contends that this new social role rises to prominence due to the ethnic nature of the rhetoric employed by some Serbs to paint the Kosovo conflict as a mainly demographic battle between a Serbian majority with a low birthrate and an Albanian minority with a high birthrate.

She cites as an example of this kind rhetoric writings of Milan Vojnovic: “It is no wonder then that [Serbian] women as a rule do not wish to bear children, since in their rush to satisfy modish and narcissistic ambitions they disregard motherhood” (27). Once the conflict was successfully framed this way by the intellectual elite, Serbian women became easy scapegoats for the conflict, since it was seen as their choice to not reproduce which had allowed the Albanian “white plague” (bela kuga) to spread in the first place, placing Serbian ownership of the Kosovo region at risk (27).

Women’s Social Status and Female Labor Participation

Nadia Youssef’s research provides a framework within which one can begin to understand the economic implications of the change in women’s role in Serbian society which is discussed by Bracewell. In a 1972 paper entitled “Differential Labor Force Participation of Women in Latin American and Middle Eastern Countries: The Influence of Family Characteristics”, Youssef claims that the one factor that most influences women's ability to join the labor force and achieve high-status occupations is the role that the family unit plays in the system of social control.

In societies where the family unit is the basis of social control, women are more likely to be forced to depend on men's economic activity in adherence to traditional gender norms which make men legally and morally responsible for women. However, in societies where traditional gender norms have been eroded and women are not restricted to the home by their social role, they have many opportunities to be economically active throughout their lifetimes, increasing the productivity of their country’s workforce.

To substantiate this claim, Youssef compares the case of female labor participation in the Middle East with that of Latin America. She finds that in Latin America, two features have led to the weakening of the kinship system as a system of control over women’s lives. Firstly, the emotional and psychological legacy of centuries of reprehensible sexual behavior by Spanish colonizers means that in many Latin American countries, “male family members have not regained the power to exercise control over their womenfolk with the result that sexual freedom prevails, marital instability is frequent, and illegitimacy rates are very high” (144).

Secondly, influence exercised over women in Latin America by the clergy of the Catholic Church has allowed priests to “evolve for themselves a competitive role vis-a-vis the male members of the kinship group (145). Through their support of female involvement in religious education and social welfare, the clergy provided women with a societally sanctioned role outside of the private sphere.

However, Youssef’s research finds that in the Middle East, “kinship institutions provide that there is always a male member (father, brother, cousin, or uncle) who is economically, legally, and morally responsible for the woman, whatever her marital status” (145). There are strict sanctions invoked against women working in that region since the kinship unit is socially required to provide economic support for all women, regardless of age or marital status, with the full backing of the relevant religious and judicial institutions.

Youssef concludes that “it is only when family responsibilities for the economic support of female relatives begin to be questioned that the prerogatives of male members to impose restrictions and censure on women will stand on more shaky grounds” (146).

Conclusion

Although demand-side analysis of the costs of the Kosovo crisis explains some of the negative economic impact which has been felt in the region, only by furthering the development of a supply-side analysis can a full picture of the crisis’ impact come to light. This is because the Kosovo crisis, in addition to being responsible for lowering the demand for imports, reducing investment in economies, and switching consumption from the private sector to the public sector, also affected the productivity of the Serbian workforce.

Evidence to support the claim that the productivity of the Serbian workforce has decreased due to a decrease in female labor participation is presented in the research of Anna Reva, a researcher at the World Bank’s Poverty Reduction and Economic Management Unit. In her 2012 paper entitled “Gender Inequality in the Labor Market in Serbia”, Reva reports that today, Serbia companies do not take full advantage of the country’s existing female labor force: working age women in Serbia are employed at a rate which is 26% lower than men’s; women comprise only 28% of the self-employed, 29% of company owners, and less than 20% of ministerial positions within the government; there exists a significant wage gap between men and women in Serbia; (Reva 1). The economic impact of such underutilization of the female workforce is potentially quite serious.

Multiple contemporary studies point to the existence of a significant relationship between the female labor participation rate, equal pay for work of equal value, and a wide variety of economic indicators such as improved company performance, better corporate governance and ethics, and enhanced quality of decision-making. Therefore, one can safely claim that the research of Wendy Bracewell and Nadia Youssef provides substantial evidence that there exist supply-side implications of the Kosovo crisis which were not captured by Gligorov and Sundstrӧm’s demand-side analysis.

© Joseph Damiba 2019