Life After Death

October 29, 2013

Tony Verheijen, Country Manager for Serbia B92 Blog

There is a company in the heart of Sumadija with a few hundred workers, which has been lingering hardly alive for decades. It is sitting on a large plot of land that has no use. The company used to produce goods that barely have a market nowadays. Next to it is a brand new private company, with a thriving business. The young company would like to expand and needs additional land to do so. Can it buy the land which belongs to its neighbors? Well, it can’t!

The first company is kept alive thanks to government subsidies, which means that Serbian tax payers cover its costs. Do you think it is prudent to continue with this? Wouldn’t it be better to close it down – through bankruptcy – and turn its dead capital – like the land around it – to profitable use? Don’t you think that some of the workers would be able to find a job in the new, thriving private company? Social program can help the others. Maybe there will be other private entrepreneurs who would be willing to invest in other parts of this company and thus creating more jobs.

I am telling you this story because it seems to me there are very few people in Serbia who understand how bankruptcy works and why it is not the end of the world. In a way it is a new beginning.  It makes an economy more vibrant and – whether you believe it or not – in the medium run it creates more jobs.

The members of the government of Serbia are aware of this and that is why – among other things – they decided to change the law which regulates bankruptcy. They want to make the process simpler and more structured. There is a plenty of empirical evidence around the world that this is a right thing to do. In some cases even the whole cities managed to revive themselves through these processes – take the example of Pittsburg. There is life after death!

Of course, this is only a part of the government policy to put the public finances in order and to build business environment conducive to vibrant development of profitable private firms, which will create new jobs. Companies like the one from the beginning drain some 250-300 million Euros annually from public finances.

I do hope majority of Serbian citizens will support this courageous endeavor, just like we, from the World Bank, do. 

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