Introduction: The political economy of regulation in post-war Kosovo: intended and unintended consequences of external actors' involvement

Keywords:

• Kosovo
• post-conflict economic reconstruction
• external actors
• regulation

Two decades after the conflicts that followed the collapse of the Socialist Federal Republic of Yugoslavia, scholars have produced a great deal of insightful analysis on political issues pertaining to international involvement in the region, ranging from the Dayton Accords to the various United Nations (UN) and European Union (EU) missions established in the region over the years.¹ Furthermore, the fact that the Kosovo state – as proclaimed in the 2008 unilateral declaration of independence – emerged from a decade of UN international administration and a NATO-led military intervention has made Kosovo a real-life political laboratory for scholars (and practitioners) of post-conflict peace-building and transitional authorities. Accordingly, the peace studies and democratisation literature on Kosovo has burgeoned over the past 10 years.² Yet, the study of economic development in post-conflict international protectorates has remained somewhat marginal to the mainstream research agenda, with a few noticeable exceptions.³ The aim of this edited symposium is to catalyse a shift in the focus of the scholarship on Kosovo and the Balkans: from issues of post-conflict reconstruction and peace-building to the various aspects of economic development.⁴

The research priorities of the majority of scholars of Kosovo's politics tend to reflect the institutional priorities of international agencies engaged in post-conflict reconstruction efforts. The dominant approach taken by, for example, the UN, the EU and the World Bank in post-conflict regions has been to prioritise peace and security efforts over economic development, on the assumption that the former are a necessary precondition for the latter (Krause and Jütersonke 2005, 455–456). In the eyes of its international administrators, Kosovo is a “stability/security problem” rather than a “development problem” (Schwandner-Sievers 2013, 100). Furthermore, the dominance of the neo-liberal development paradigm in post-conflict reconstruction efforts has reinforced the belief that creating a secure business environment through peace-keeping, state-building and rule-of-law interventions is a sufficient condition for promoting economic growth. Build institutional capacities – such could have been the motto of the United Nations Interim Administration Mission in Kosovo (UNMIK) – and the private sector will take care of the rest.

That the majority of scholars of Kosovo's politics may have internalised this dominant institutional focus is rather unfortunate. For one thing, it is doubtful that a focus on security alone can promote economic development in an economy hollowed out by war and a decade of inter-ethnic strife. For another, sustainable peace and security in post-conflict societies may be impossible to achieve under conditions of persisting economic underdevelopment (Krause and Jütersonke 2005). Addison and Bruck (2009) highlight that peace, participation and prosperity are mutually constitutive dimensions of successful post-conflict recoveries. By the same token, democratisation – or rather the promotion of procedural or electoral democracy – may not be a sufficient condition to achieve economic development (Khan 2005; Lemay-Hébert 2012); in fact, a substantial and generalised increase in material standards of living may be necessary for genuine democratisation to take hold and for democracy to remain socially sustainable (North et al. 2007, 17–21). In other words, both security and democratisation do not seem to automatically lead to development; rather, they presuppose development. Therefore, the marginalisation of economic development issues in both the academy and the international institutions active in Kosovo potentially jeopardises the achievement of the very goals of peace-building and democratisation that animate the work of development practitioners and scholars alike.

These contentions seem to be corroborated by the economic trajectory of post-war Kosovo. Sustained efforts by the international community directed at mitigating inter-ethnic conflict, state building and the consolidation of liberal-democratic institutions have produced rather mixed results in terms of economic development. Kosovo remains a low-middle income country eligible for support from the International Development Association (IDA) – the World Bank facility reserved for the world's poorest and least creditworthy countries. It is by far the poorest country in the region with around 35% of the population living below the poverty line and high unemployment rates at a staggering 45%. While the average gross domestic product (GDP) growth per annum during 2001–2010 has been nominally above 10%,⁵ Kosovo can hardly pose as the new “Tiger economy” of the Balkans. Where it has occurred, growth has mainly been the outcome of huge inflows of aid money (especially in the early 2000s) and labour remittances. Despite the 600-odd million euros of aid money flowing into Kosovo every year,⁶ the economic fundamentals of Kosovo's productive economy, and its resilience in the face of external shocks, stand on much shakier grounds.⁷ The perpetuation of economic vulnerability has also had negative repercussions on political transition, with the international community often struggling to entrench the model of liberal democracy into a deeply clientelistic (or even clanistic) society (see Jackson 2014).⁸

Focusing on the economic dimensions of international actors' involvement in post-conflict societies, this collection of research articles aims to fill a significant gap in the existing literature. All contributors to this symposium investigate various ways in which international actors have influenced the construction of the space of economic interaction in post-conflict Kosovo, focusing on regulatory institutions, the aid industry, industrial policy, the energy system and the international economic environment in which Kosovo (and the wider region) has become embedded – not least due to the extensive trade and investment liberalisations promoted by the donor community. Firstly, the authors examine the effectiveness of external policy interventions in establishing the desired regulatory mechanisms. Secondly, they examine the outcomes (economic and political) produced by various patterns of regulatory and economic intervention, in a context dominated by rules and institutions established by international actors.

Each contribution debates the assertion that post-conflict peace-building efforts “rest upon an assumption that a sophisticated [ … ] ‘social engineering’ approach could replace, or accelerate, a process of state formation that occurs rather more organically” (Krause and Jütersonke 2005, 448). Perhaps with the exception of Halterman and Irvine's contribution, all articles collated in this symposium seem to suggest an altogether different conclusion. It is argued here that the involvement of international actors in “socially engineered” state-building efforts results in unpredicted and unintended consequences, whether for good or bad. In each of the four contributions, international actors seek to control economic (or political) outcomes by establishing market-regulating institutions. However, the circumstantial conditions of a post-conflict, contested state set limits upon the extent to which market-regulating institutions can function as planned and achieve the results that their “engineers” expect of them. The limits that confront international administrators and development agencies are thoroughly documented in the contributions to the symposium.

Dodds, Badran, and Obradović-Wochnik take issue with the conventional wisdom of institution-building in contested states. Drawing on the “new-institutionalist” tradition in political economy (e.g. Streeck and Thelen 2005), they argue that it is naive to think that the “‘right’ set of rules can be unproblematically designed and implemented, resulting in intended outcomes” (Dodds, Obradović-Wochnik, and Badran 2014, 441). Rather, the environment of intense contestation that characterises post-conflict states leads different local actors to use regulatory institutions as “enablers” to advance their interests and policy preferences, rather than merely acquiesce to them as externally given “constraints”. The authors use a case study of Kosovo's electricity sector to illustrate how independent institutions set up by international actors can be “displaced” or eviscerated to cater to vested interests. They also demonstrate how Kosovo's integration into regional mechanisms (in this case, the Energy Community Treaty) has been effectively “converted” by neighbouring Serbia into a tool to hinder the recognition of Kosovo's statehood.

Halterman and Irvine illustrate the impact of international actors/donors upon the behaviour of NGOs. They investigate what leads NGOs to act autonomously in the design and implementation of development projects, and conclude that NGOs' “altruism” is inexorably “bounded” by the “market” conditions in which they operate. Developing a comparative empirical study of NGO behaviour in Kosovo and Bosnia-Herzegovina, and contrasting outcomes during violent conflicts with the immediate aftermath of war, they validate a theoretical model that views differential levels of autonomy as a function of supply of and demand for aid money, “market” structure (levels of competition in the allocation of aid) and the donors' own regulatory culture. Crucially, donor agencies determine not only the regulatory environment in which NGOs are forced to operate, but also (by controlling the volume of aid inflows) the number of NGOs that enter the aid “market” and, based on their geopolitical interests, the demand for NGO goods and services. Hence, the authors conclude, the ability of NGOs to act autonomously, meaning “altruistically”, is fundamentally bounded by the interests of powerful international actors.

In his study on industrial policy in Kosovo's mining and metals sectors, Uberti canvasses another dimension of external actors' involvement in regulating and controlling the domestic political economy. Drawing on the infant-industry argument of statist political economy, Uberti suggests that economic growth in successful late developers is due to the role of the state in not only regulating, but also actively guiding the economy (Wade 1990). Patterns of state interventionism in the economy are used to explain the fortunes and misfortunes of the mining and metals industry in post-war Kosovo, with the apparent successes being the product of what he calls “unwitting” or “covert” industrial policies – that is, instances of state interventionism that occurred despite the staunchly anti-statist regulatory environment promoted by UNMIK, the EU and the World Bank. Uberti argues that the documented cases of unwitting firm-level subsidisation and accidental nurturing of industrial champions attest to the power of unintended consequences. They also demonstrate the constraints that external actors face when they seek to engineer and install market-regulating institutions in post-conflict settings. Paradoxically, these constraints served to mitigate the most anti-developmental aspects of the policies and institutions promoted by Kosovo's international administrators.

A similar perspective, although one that focuses on the external dimensions of Kosovo's political economy, is advanced by Pula (2014) in his comparative analysis of economic crisis in Kosovo and the wider Western Balkan region. Despite the common refrain that “the Balkan super-periphery⁹ was spared the worst of the global financial and economic crisis [ … ] because banks in the Balkans remained solvent” (521), the crisis has loomed large on the political economies of the region,¹⁰ albeit to very different extents in individual countries. For Pula, “crisis in the Balkans is not due to problems of domestic fiscal management or regulatory incapacities” (522); rather, it is the direct (although unintended) consequence of longer trends of globalization and dependency, “including policy pressures emanating from Brussels” (522).

Taking a perspective redolent of the work of Fernando Cardoso, Pula studies how different modes of integration linking individual Balkan states to the European “core” can explain the multifarious impacts of crisis. While the export-oriented globalisers suffered most during the crisis (just as they benefited most from integration in times of plenty), the more import- and remittance-dependent economies were the least affected. As a highly dependent economy, Kosovo did not experience negative growth when external integration receded as a result of crisis.¹¹ It remains to be seen whether Kosovo's post-crisis trajectory will also vindicate another important prediction of dependency theory, namely that satellite states are bound to experience development, rather than just show resilience, when their ties of dependency are weakened as a result of depression in the metropolis¹² (Frank 2007 [1969], 80).

This collection is relevant for scholars interested in the political economy of post-conflict reconstruction, as well as for those interested, more generally, in analysing the role of external actors and forces in development. Its core contention is that the economic dimensions of external actors' involvement in post-conflict settings such as Kosovo must be placed at the centre of analyses of international administration in post-conflict or contested territories. The actions of transitional authorities, which are often directed at promoting security rather than economic growth, have important implications for the economies of the territories they administer; and these implications merit scholarly attention.

The articles in this symposium suggest that, due to the persistence of unintended consequences, the “technologies” of market regulation that transitional authorities deploy in post-conflict, contested states may prove ineffective in implanting and stabilising the (typically liberal-democratic) regulatory institutions favoured by international actors. Although external actors do sometimes achieve significant levels of control over the domestic space of economic interaction (as Halterman and Irvine document to be the case in the NGO “market”), foreign-imposed regulatory institutions may be bent to logics of rent-seeking; they may lead to unintended (but paradoxically developmental) economic “distortions”; or they might cause variable patterns of economic crisis.

In this respect, this collection makes a contribution to the critique of international involvement in state- and peace-building processes, adding a much-needed economic dimension to this literature. In assessing the variable efficaciousness of external actors' interventions in the face of domestic constraints, the collection also contributes to the long-standing debate in political science between defenders of agency in institutional design and those that view institutional evolution as irreducibly path-dependent (e.g. Johnson 2001; Streeck and Thelen 2005). Whatever stance one takes in these debates, it is clear that controlling and regulating newly created markets in post-conflict societies is likely to turn out a far cry from the ideal of effective “social engineering”.

Funding

The research for this edited collection was partly supported by USAID-BEEP and the Balkan Trust for Democracy (German Marshall Fund).

Notes on contributors

Luca J. Uberti is a PhD candidate in the Department of Politics, University of Otago New Zealand. His research interests are in the political economy of development. During 2011–2013, Luca was a Research Fellow at the American University in Kosovo/Rochester Institute of Technology, based in Pristina, Kosovo.

Nicolas Lemay-Hébert is a Senior Lecturer in the International Development Department, University of Birmingham, UK. He is the co-editor of the Journal of Intervention and Statebuilding (with Florian Kühn). His most recent book is Semantics of Statebuilding: Language, Meanings and Sovereignty (Routledge, 2014; co-edited with N. Onuf, V. Rakic, and P. Bojanic).

Venera Demukaj is an Economics lecturer and head of the Economics Department at the American University in Kosovo (A.U.K.). She received her Ph.D. from the School of International Studies, University of Trento (Italy), with a dissertation on ‘Aid Effectiveness in Post-Conflict Countries’. She also holds a Master's degree in International and Development Economics from HTW in Berlin and Bachelor's degree in Banking and Finance from the University of Prishtina. Her main research interests are post-conflict transitions, foreign aid, poverty reduction, and the Western Balkans.

Notes

1. UNMIK, UNTAES, EULEX, EUPM, KFOR, SFOR, UNPROFOR, UNMIBH, UNCRO, UNPREDEP, as well as the Basic Agreement on the Region of Eastern Slavonia, Baranja and Western Sirmium (see Belloni 2007; Bojicic-Dzelilovic, Kostovicova, and Ker-Lindsay 2013; Boothby 2004; Caplan 2005; Chandler 2000; Kappler and Richmond 2011).

2. See, for instance, Hehir (2006), Ker-Lindsay (2012), King and Mason (2006), Kostovicova (2008), Lemay-Hébert (2012, 2013), Mulaj (2011), Pula (2003) and Visoka (2011).

3. See, for instance, Berdal and Zaum (2012), Bliesemann de Guevara and Kühn (2013), Carnahan, Gilmore, and Durch (2009), del Castillo (2008), Pugh (2005) and Pugh, Cooper, and Turner (2008).

4. This edited symposium originates from a conference on “Economic Development and Political Transition in Kosovo” held at the American University in Kosovo (Pristina) on 12–13 October 2012 (podcasts available at http://www.aukonline.org/conference.html). The authors would like to thank USAID-BEEP and the Balkan Trust for Democracy (German Marshall Fund) for supporting this event and making possible this collection of articles.

5. Authors' calculations are based on data from Statistical Agency of Kosovo. This growth rate has been rather erratic with great fluctuations. Starting from a very low base and driven by donor-supported reconstruction spending, Kosovo's GDP grew at impressive rates of more than 20% in the first two years, but decelerated to moderate rates of 3–4% annually after 2001. As is specified in most economics reports on Kosovo, these numbers are based on estimates and educated guesses.

6. Of these funds, well over 100 million euros go into financing the EU rule-of-law mission (EULEX).

7. See Uberti's and Pula's contributions in this collection (Uberti 2014, 482–506; Pula 2014, 507–525).

8. See also Dodds et al.'s contribution in this collection (Dodds, Obradović-Wochnik, and Badran 2014, 436–457).

9. The term is from Bartlett (2009).

10. See also Bideleux (2011).

11. Yet many (especially rural) households suffered due to inflation and reduced consumption.

12. This is precisely what happened in many Latin American countries during the Great Depression.