Belgrade

Louise: you want to go back where?
Kevin: Serbia. I think you'll like it.
Louise: Didn't we bomb Serbia? like, a lot?

Looking back on it all, Belgrade was my favorite city. But man, it is not pretty, cause as you may infer, communists didn't have inspirational architectural design. But it's getting much better and the new planning is wonderful and is a great example of what Europe does so well: great modern architecture blended with the beautiful and old. The countryside we visited is primarily agricultural. With mules. And handtools. But it was still the best, the most visceral and the most...real. I want you to keep this in mind as I try to relate the stories about the people, the places and the experiences we had there. So why not start with a bit of history...

Here's what most people remember: NATO bombed the hell out of Belgrade and a lot of Serbia during the 90's as part of the NATO effort to prevent the ethnic cleansing that was happening after the breakup of Yugoslavia. Belgrade is the capital of Serbia, so we punished it the most. Just so you know,  it happened pretty much every night at 2am and we didn't miss our targets very often, unless you count the Chinese embassy. And man, I hope we did that on purpose.

Now some details. Slobodan Milosevic was a war criminal. He was a communist that rose under Marshall Tito's regime that ultimately found power as a nationalist and fascist. He allowed criminals to make a lot of money and support his regime. The people around him were organized crime figures and he played to TV audiences as a man of the people and most of the people were hoodwinked by him --remember that their experiences were with Tito and they missed Tito's steady hand in the region. The Bosnian Serbs are part of a different country (currently Bosnia-Herzegovina) and to say they just received "aid and military support" from the Milosovic government would be an understatement. That a lot of people that weren't Serbian or Serbian Orthodox Christians were murdered (genocide is more like it) during this time is well documented; what isn't well-documented is that the white hat/black hat mentality of that era has changed.

A good parallel would be the disfavor the German people had towards the Nazi's after WWII. It's similar here, most everyone were glad to see Americans, none held grudges and all spoke harshly of Milosovic and his regime and cronies. Some did want to point out the effects clinical bombing has on a city, none of which were positive. The point I'm clumsily trying to make is that I was expecting some pushback during my visit but what was most striking were the similarities and familiarities I saw rather than the differences.

Enough history, let's talk schnapps. The Serbs love their alcohol (actually, another similarity with the US), which they drink before meals (rather than after) and schnapps or the Serb equivalent is high on the list. Check out the pictures for the unlabeled green bottle, because we think it was, in fact, made in a bathtub. Labor Day was a particularly good day for hooch and we are lucky with this partiuclar vintage because we could still just taste the terpentine. I say 'could' in that Josh is the lucky recipient of the US Customs strip search cause he was the one that took it home.

The problems that face Serbia now are still political and somewhat economic. The EU had voted *unanimously* to include Serbia on the path to EU membership, but against all recommendations, Holland voted against. Much like the better fraternities at school had the '1 blackball' rule, the EU has decided that before Serbia is allowed to say, "thank you sir, may I have another", they need to buy some drinks for Holland, show 'em a good time, maybe even get a little crazy in the Red Light District until Holland says OK. The reason for the blackball, as far as I can tell, was to save face: the Dutch had control of a sector of Serbia that allowed General Ratko Mladić to escape. He is the only significant Serbian war criminal not brought to The Hague for trial. And because of that embarrassment, Serbs are not yet on the path to EU membership, but the toilet of the Balkans, Albania and Bulgaria, are.

Because of this restriction, young Serbians are still required to get visas to travel in Europe. A process that, though complicated, is not terrible, but is enough to keep a whole generation from understanding what is outside their borders. For those of you that have traveled, try talking to someone that hasn't, that hasn't gone to college, and hasn't left a 1000 square mile area and see what their thoughts on the world are. Add to that the barrage of American TV (mostly MTV and the fashion channels) and you'll see that their perspective is a bit ...flawed.

But everyone spoke English. Much better than being in Greece, btw. And not only did they speak English, they knew American politics and policy pretty well. I had a Serb explain some of the complexities of our health care debate to me (which I still don't understand, but he did). These people seriously follow our news. And the universities are doing a better than adequate job of turning out good thinkers, good IT professionals and good engineers. Juxtapose that generalization with the generalization of an uneducated and untraveled mass in the countryside and you begin to understand the complexities of Serbia a bit. And you begin to understand the Opportunity (note capital O) that is available here.

Serbia is an export economy: steel and agriculture are 1-2. The industries that exist are no longer state-owned but are multi-nationals now. And the Serbian government had the foresight to require 5 years of payments to the Serbian government for the right to buy them. Like $1mm a year in one case, smaller in others. Plus the price of the company. For a country trying to keep deficit spending at 3% of GDP to qualify for EuroZone admission, this was a great idea. As an example US Steel got in early and did not have this requirement of payments, but US Steel was not allowed to have mass layoffs for a certain period of time. The largest industry in Serbia was bought for just ~$1mm. I think the Serbs learned their lesson.

Yugoslavia's brand of communism was great at keeping people employed, but not so great at creating much of anything else. The companies that were set up produced goods that fed another state-owned company and another. A company that may need only 10,000 workers had 100,000. All got vacations on the Black Sea and all kept people occupied and relatively content. Communism in Yugoslavia was 'tweener': Yugoslavia wasn't part of the iron curtain, but rather a totalitarian regime dipping it's toe into capitalism. These are the companies that multi-nationals are buying. To say that they are struggling at creating a modern corporate culture with transparency and effective processes is an understatement.

To demonstrate, the company that produced the venerable Yugo went out of business last year. There was both a national celebration and a national cause to drown your sorrows. Drive your Yugo to the bar and get free drinks (um, what?). Tell your best Yugo story and get free drinks. Tell your worst Yugo story and get free drinks. We started playing punch-Yugo but there were so many, Josh ended up with a bruise the size of my fist on his shoulder. Every Yugo can be opened with a 1 Serbian Dinar coin --no really, no keys are needed for access. It was the best chance the country had to have a car company, but it couldn't keep up. Now VW is moving in with new processes and automation. That's the reality. Check the boxes for other industries: beer, sugar production, etc.

As an aside while I think about it, Serbia might be a great casestudy as a transitioning captialist/autocatic government model. Should rising wages and a burgeoning middle class in China encourage democracy, we might look to the break up of Yugoslavia as a possible 'model': ethnic tensions boil over, state agencies that are semi-private get more outside investment and struggle with democracy in a land that isn't used to the freedoms. Could be an interesting choice for a blog, but most people don't want to read this much less read my thoughts about the future of democacy in China.

But to further link the two countries, Serbia is trying to position itself as a manufacturing alternative to China, and I think it can have some success. Here are the parts of the puzzle: cheap transportation via rail/water into Europe. Educated workforce that all speak English. Cheap labor (median Serb income is ~$400/mth). No government mistrust of the US. Transparent court system for B2B issues. Little to no environmental constraints on manufactureres. And the US Government is putting a lot of time and money into this country. It could be said that for all the problems USAID has world wide, they are absolutely succeeding in Serbia. Yeah, I was surprised, too.

So why hasn't it worked yet? I'm convinced it's perception verses reality. We were able to get out into the countryside to a large college town about an hour and a half northwest of Belgrade, Novi Sad. First of all the architecture is gorgeous, the town is absolutely cute and has the benefit of income from college students and industry moving in to create a tax base. There is a 5-Star hotel in a medieval fortress. The Serbian Dr. Seuss is from there. It's fantastic. This is not a place full of fascists and folks hellbent on genocide.

It is in fact, an area full of burgeoning SME's (small to medium sized enterprises) and folks trying to carve a niche in the Serbian economy out for themselves. Not quite an entrepreneurial spirit, mind you, but folks with bigger plans than their parents the shoemaker or butcher had. The banks are professional and understand how to develop Return on Equity and Return on Assets. And the countryside looks a lot like North Carolina did in the 70's. Rural, agricultural. 2 lane roads. Slow paced. Are you sensing a pattern for these compliments? I liked this place.

Speaking of banking, there are some conservative rules here. Banks are forced to keep 40% reserve in the national bank. 40%! That means that they must make their profits on 60% of the funds they have to lend, verses, say with the US about 85%. That also means that interest rates on loans are in the low teens and multi-nationals are trying to swoop in and undercut Serbian banks on big lending projects. But the exchange rate keeps the locals with the edge.

Now for the realism: there is some crime and thuggery in Belgrade. The medium and large businesses have a tough time adopting modern principles of ownership and management. It's a patriarchal society. And it's a country that still loves the worst car ever imported into the US (did anyone even know there was a 4 door version?). And, yes, I remember Le Car by Renault.

But my sense is it's better than it was last year and will be better again next year. For those looking for Opportunities, put this one on your radar. I hear the black market for Yugos will be big.