The political economy of consolidating Kosovo : property rights, political = conflict and stability / Dana Eyre ; Andreas Wittkowsky - [Electronic ed.] - Bonn, 2002 - 24 S. = =3D 80 KB, Text . - (Frieden und Sicherheit) Electronic ed.: Bonn : FES Library, 2002 =A9 Friedrich-Ebert-Stif= tung

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=C2=A9=20Friedrich-Ebert-Stiftung?= Date: Wed, 7 May 2025 15:01:49 +0200 MIME-Version: 1.0 Content-Type: multipart/related; type="text/html"; boundary="----MultipartBoundary--Pw9p0qUoLPjoCbuqPcVibn9Enx4MddovSAj2ZCdlEu----" ------MultipartBoundary--Pw9p0qUoLPjoCbuqPcVibn9Enx4MddovSAj2ZCdlEu---- Content-Type: text/html Content-ID: Content-Transfer-Encoding: quoted-printable Content-Location: https://library.fes.de/fulltext/id/01351.htm The political economy of consolidating Kosovo : property rights, political = conflict and stability / Dana Eyre ; Andreas Wittkowsky - [Electronic ed.] - Bonn, 2002 - 24 S. = =3D 80 KB, Text . - (Frieden und Sicherheit) Electronic ed.: Bonn : FES Library, 2002 =A9 Friedrich-Ebert-Stif= tung

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The political economy of consolidating Kosovo : property rights, political = conflict and stability / Dana Eyre ; Andreas Wittkowsky - [Electronic ed.] - Bonn, 2002 - 24 S. = =3D 80 KB, Text . - (Frieden und Sicherheit)
Electronic ed.: Bonn : FES Library, 2002

=A9 Friedrich-Ebert-Stiftung

=

[Seite der = Druckausg.: Titelseite]

Dana Eyre/ Andreas Wittkowsky

The Political Economy of Consolid= ating Kosovo:
Property Rights, Political Conflict and Stability

May 2002

The political economy of long-lasting violent confli= cts is characterised by the=20
absence of effectively protected property rights. This absence induce= s illicit=20
means of economic appropriation, from looting and theft to the contro= l of black=20
markets, smuggling and money laundering. Peace-keeping and conflict-
stabilizing international interventions have to embrace the establish= ment and=20
enforcement of clear property rights, a task which normally is not ad= dressed=20
when peace-keeping missions are prepared.=20

The United Nations Interim Administration Mission i= n Kosovo (UNMIK) had=20
do deal both with a political economy distorted by violent conflict a= nd with the=20
transformation of a pre-conflict socialist regime. In doing so, UNMIK= had to=20
engage in political disputes that follow from efforts to shape the em= ergent=20
post-conflict political economy. It had to face a stark choice: Eithe= r confront=20
issues like =84pirate privatisation," mis-appropriation of public ass= ets, looting,=20
and political corruption, or tolerate the consequences.=20

Frieden und Sicherheit

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Dana Eyre/ Andreas Wittkowsky ^*

The Political Economy of Consolidating Kosovo:
Property= rights, political conflict and stability

Contents

1. The heritage of social property

2. UNMIK=92s approach to property issues

3. Increasing fights over social property

4. Rethinking property administration

5. Conclusion: The need to deal with property issues

ISBN
Kontakt: Referat Internationale Politikanalyse in der Abteilung Interna= tionaler Dialog
Friedrich-Ebert-Stiftung, D 53170 Bonn
Fax: 0228-883 625
e-mail: ehrkem@fes.de

*
Dana Eyre, Senior Policy Advisor, Office of the Deputy Sp= ecial Representative of the Secretary General, EU Pillar (Reconstruction an= d Economic Development), UNMIK.

Andreas Wittkowsky, Economic Policy Advisor, Offic= e of the Deputy Special Representative of the Secretary General, EU Pillar = (Reconstruction and Economic Development), UNMIK.

The opinions expressed are solely those of the aut= hors, and do not represent the official views of UNMIK, the United Nations,= or any other agency or organization.

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While the traditional socialist claim that property is theft may be = open to dispute in this post-Marxist world, there is no doubt that property= induces theft. Non-property, or the absence of robust institutions of pro= perty ownership, however, almost intrinsically produces theft, the more in = a post-conflict environment that is characterised by a power vacuum and wea= k political institutions. Although political thinking on conflicts has lat= ely increasingly focussed on the role of the distribution of and the fight = for resources in the roots of conflict,=20 [Cf. Paul Collier: Economic Causes of Civ= il Conflict and their Implications for Policy. Washington DC: The World Ba= nk, 15 June 2000.] the question of the role of clear property rights, and political-econom= y issues in general, in the post-conflict peace building process have littl= e been touched by this debate. Establishing clear property rights, mainly t= hrough privatisation, has been viewed primarily as a problem affecting econ= omic development and left to the =84mainstream" economists. Consequently, = the question of property rights has hardly been addressed when drawing up p= eace keeping missions like the United Nations Interim Administration Missio= n in Kosovo (UNMIK).

In the following we hold that establishing clear property rights is = of utmost importance for any strategy dealing with post-conflict stabilisat= ion, as it has direct impact on three areas, most obviously; (i) economic d= evelopment, but also (ii) establishment of the rule of law, and (iii) build= ing of genuine democratic institutions. Although in a post-socialist envir= onment this necessarily means giving a high priority to privatisation and p= roperty issues resolution mechanisms, we also feel that this issue is far m= ore central in the process of building peace generally than has heretofore = been recognized. Concentrating on experience from Kosovo, we think that so= me general conclusions can be drawn for other conflict areas. =20

In the following, we start (i) with an overview of the concept of so= cial property in Kosovo inherited when it fell under UNMIK=92s administrati= on mandate. This is followed by (ii) UNMIK=92s approaches to property issu= es and the reasons for a rather conservative approach to commercial social = property. In (iii) we line out examples and patterns of increasing conflic= t over commercial social property, which (iv) finally leads to a rethink of= the approach to property administration and the development of a privatisa= tion scheme. In (v) conclusions are drawn both with respect to tactical an= d conceptual lessons from this history. =20

1. The heritag= e of social property

Yugoslavi= a=92s Third Way Socialism

Socialist Yugoslavia, after World War II, initially embarked on a So= viet style economic model. It was based on the centrally-planned developme= nt of state property, largely gained through the expropriation of =84enemie= s" and other private owners. =20

In the 1950s, in connection with the break between Tito and Stalin, = the system took another course, developing the unique features that since t= hen were associated with Yugoslavia=92s =84Third Way" socialism. Centralis= ed state control was replaced, at least formally, by decentralised self-

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management, consisting of two elements: (i) workers collectives elec= ting their directors and controlling the enterprises, and (ii) the socio-po= litical communities (municipalities) carrying out most economic activities = of the state (although in practice this decentralisation was less straight = forward than in ideology, as the Communist party was eager to keep the grip= on key decisions).=20 [Cf. Janez =8Amidovnik: Disfunctions of t= he System of Self-Management in the Economy, in Local Territorial Communiti= es and in Public Administration. In: James Simmie/ Jo=9Eze Dekleva (eds.):= Yugoslavia in Turmoil: After Self-Management? London/ New York: Pinter Pub= lishers 1991, pp. 17-32.]
The commune (municipality) operating as a de facto arm of the state= (though formally the basic socio-political community, and the unit out of = which Republics and the Federal state were formed) intervened in the manage= ment of socially owned enterprises, especially through influence in the app= ointment of directors. This, as we shall see, served as a precedent for mu= nicipal activities after UNMIK=92s arrival and sets the stage for conflicts= that we shall discuss later.

In this process of reform and the establishment of a unique Yugoslav= model of socialism, social property became the dominant form of ownership.= As defined in the Yugoslav Constitution of 1974: =84Means of production an= d other means of joint labour, the output of joint labour and the incomes r= ealised in joint labour, the means for fulfilling common and general needs,= natural resources and other assets in general use =96 are all socially-own= ed property. No person may acquire the right of possession over the social= ly-owned assets".=20 [Quoted from Adil Fetahu: Transformation = and Privatisation of Kosova Socially-Owned Assets. Prishtina, January 2002= .] =8Amidovnik notes that the =84nature and legal status of so= cial property were =85 never clearly defined =85 The question continually a= rose, in legal and economic theory, as well as in practice of social proper= ty of what social property really was; how it differed from state property = on the one hand, and from private property on the other. Whose property wa= s it?"=20 [Janez =8Amidovnik: Disfunctions of the S= ystem of Self-Management in the Economy, in Local Territorial Communities a= nd in Public Administration. In: James Simmie/ Jo=9Eze Dekleva (eds.): Yug= oslavia in Turmoil: After Self-Management? London/ New York: Pinter Publish= ers 1991, pp. 17-32.]
Socially owned property thus resembles non-property more than any f= orm of property. When the issue of privatisation came up for the first tim= e in the late 1980s, under the reforms initiated by Yugoslav Federal Prime = Minister Ante Markovi=E6, this immediately posed the need to establish crit= eria for who should have title to socially owned assets. =20

When Yugoslavia broke up, every successor republic =96 and partly su= b-entities thereof =96 dealt differently with this key question of the owne= rship of =84socially owned" property. In most republics present and past e= mployees got some share of the property for free, and more at a special dis= count rate. Moreover, another share of the socially owned property was res= erved for different state funds, reflecting the interest of the general pub= lic. In one of the Bosnia and Hercegovina entities, the Republika Srpska, = a voucher scheme for all citizens was set up.=20 [Cf. Allen Shinn: Summary of Privatizatio= n Provisions of Slovenia, Croatia, Bosnia-Herzegovina, and Macedonia. Pris= htina: UNMIK, 8 March 2001.]
The different schemes clearly reflected their individual political e= nvironments and the room for policy choices, but also the fundamental lack = of clarity in the concept of socially owned property in its original formul= ation.

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Social pr= operty in Kosovo

The abolition of Kosovo=92s autonomous status by the Milosevi=E6 reg= ime on 23 March 1989, and the following =84Provisional Measures", introduce= d a quasi-Apartheid regime, fiercely countered by social and labour unrest.= Albanian managers and workforces in public administration and socially ow= ned enterprises (SOEs) were dismissed on a large scale, and substituted by = Serbs. Subsequently, many socially owned enterprises registered in Kosovo = courts were merged into Serb companies, and privatisation procedures, in fo= rm if not in spirit, as foreseen under the Markovi=E6 laws were initiated. = However, the general decline of the Yugoslav economy, accelerated by the s= uccessor wars and the international sanctions regime, seriously affected th= e Kosovo SOE sector, too. Meanwhile, the Kosovo-Albanians were increasingl= y running a parallel economy of private enterprises, mainly in trade. =20

As a result, a strange symbiosis between Serb and Albanian business = emerged. The Serbs were desperately looking for cash and started to rent o= ut the idle assets of SOEs to the Albanian entrepreneurs who had the cash. = Some Albanian businessmen were well connected with Serbs and had an influe= ntial role in providing sanction breaking services for the Yugoslav economy= .=20 [Cf. Lessons Learned and Analysis Unit of= the EU Pillar: De-industrialisation and the Collapse of Social Property. = A Case Study of Peja. Prishtina/ Berlin: February 2002.]
(This also explains why any attempts to explain the emergence of th= e increasing secessionist activities in Kosovo solely or mainly out of econ= omic motives falls short of reality, it might explain, however, why a large= part of the Kosovo-Albanian elite stuck to peaceful resistance for so long= .)

Following the 1999 air campaign against Yugoslavia and the establish= ment of an international mandate through UN Security Council Resolution 124= 4, the Yugoslav Forces and state institutions withdrew from Kosovo, KFOR tr= oops moved in and the UN Interim Administration Mission (UNMIK) was set up.= In the power vacuum in between, a large portion of the Serb population fle= d or were forced out of Kosovo. Kosovo Albanians were taking over most soc= ially owned property, either promoted by local leaders of the Kosovo Libera= tion Army (UCK), or the self-styled =84Provisional Government of Kosovo" of= Hashim Tha=E7i, and partly by KFOR or UNMIK. =20

2. UNMIK=92s a= pproach to property issues

UN Security Council Resolution 1244 established an international mil= itary presence (KFOR) and an international civil presence (UNMIK) in Kosovo= . UNMIK received a unique structure, consisting of four so-called Pillars,= managed and funded by different international organisations:

Pillar I, set up by UNHCR, dealt with humanitarian aid. After the emer= gency phase, this Pillar was abolished and later revived under the direct a= uspices of the UN, now dealing with police and justice;
Pillar II, under direct guidance of the UN, has been dealing with = civil administration;
Pillar III, under the auspices of the OSCE, has been dealing with = institution building,; and=20

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Pillar IV, the so-called European Union Pillar, has been dealing with r= econstruction and economic development.
The functions of the international civil functions were defined in rath= er general terms, inter alia, as=20
performing basic civilian administrative functions where and as lo= ng as required;=20
organizing and overseeing the development of provisional instituti= ons for democratic and autonomous self-government ...;=20
... overseeing and supporting the consolidation of Kosovo's local= provisional institutions and other peace-building activities;=20
supporting the reconstruction of key infrastructure and other econ= omic reconstruction; and maintaining civil law and order ....=20 [United Nations Security Council Resoluti= on 1244, 10 June 1999, Section 11. http://www.un.org/Docs/scres/ 1= 999/ 99sc1244.htm.] =20

Based on these principles, the concrete authorities of UNMIK had to be e= stablished through the Regulations promulgated by the Special Representativ= e of the Secretary General (SRSG), the senior UN official leading the missi= on. Therefore the first UNMIK Regulation, Reg. 1999/1 of 25 July 1999, de= fined the authorities of the SRSG. One basic principle established that th= e law applicable in Kosovo prior to 24 March 1999 continues to apply when i= t does not conflict with international human rights standards, the fulfilme= nt of UNMIK=92s mandate, or the UNMIK Regulations issued.=20 [UNMIK/REG/1999/1, 25 July 1999, Section= 3, http://www.unmikonline.org/regulations/1999/reg01-99.htm.]<= /font>
The 24 March 1989 line is of importance insofar as it established = the abolition of Kosovo=92s autonomy as the dividing line after which legis= lation is considered to be most likely discriminatory.

With respect to property Regulation 1999/1 determined that UNMIK sha= ll administer property of the Federal Republic of Yugoslavia or the Republi= c of Serbia in Kosovo.=20 [UNMIK/REG/1999/1, 25 July 1999, Section= 6. http://www.unmikonline.org/regulations/1999/reg01-99.htm.]=
In a later amendment socially owned property was explicitly added, = as well as a clause protecting potential claimants to that property:=20

"UNMIK shall administer movable or immovable property which is in th= e territory of Kosovo, including monies, bank accounts and other assets, wh= ere UNMIK has reasonable and objective grounds to conclude that such proper= ty is: (a) property of, or registered in the name of, the Federal Republic = of Yugoslavia or the Republic of Serbia or any of their organs; or (b) soci= ally owned property. =85

Administration by UNMIK of property =85 shall be without prejudice t= o the right of any person or entity to assert ownership or other rights in = the property in a competent court in Kosovo, or in a judicial mechanism to = be established by regulation."=20 [UNMIK/REG/2000/54, 27 September 2000, S= ection 6.1 and 6.2. http://www.unmikonline.org/regulations/2000 /r= eg54-00.htm.] =20

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Recently, the Constitutional Framework for Provisional Self-Governme= nt in Kosovo defined the powers and responsibilities that =84will remain ex= clusively in the hands of the SRSG", even after the Provisional Institution= s of Self-Government (PISG) have been established. They include:

"Authority to administer public, state and socially-owned property i= n accordance with the relevant UNMIK legislation in force, in cooperation w= ith the Provisional Institutions of Self-Government;

Regulation of public and socially-owned enterprises after having con= sulted the Economic and Fiscal Council and the Provisional Institutions of = Self-Government"=20 [UNMIK/REG/2001/9, 15 May 2001, Chapter = 8.1(q) and 8.1(r). http://www.unmikonline.org/regulations/2001/ reg09-01.h= tm.] =20

This requirement for administration, without greater specification o= f the bounds of administration, reflects the underlying compromises that sh= aped Security Council Resolution 1244. The =84final status" of Kosovo was = deliberately left open, reflecting splits within the Security Council, inde= ed even the means and timing of final status resolution was left unclear as= a result of these differences. Because of this, and as the mission was an= =84interim administrative," only general tasks for economic reconstruction= were formulated, but no detailed powers were explicitly given to UNMIK suc= h as the formal resolution of issues such as the ownership of =84socially o= wned" property. Thus, the administration of social property has been and w= ill remain in the hands of UNMIK, but UNMIK=92s ability to resolve issues o= f ownership has not been explicitly established. =20

As a result, two different routes have been taken by UNMIK in dealin= g with property issues. Building on the precedent of Bosnia-Hercegovina, f= or residential property, UNMIK has a Housing and Property Directorate desig= ned to administer, and resolve, disputes over property ownership. This syst= em, though inadequately funded, at least has the formal responsibility of a= djudicating and resolving ownership claims. In the area of industrial and = commercial property, however, lacking a legal framework or a clear preceden= t to follow, UNMIK has moved far less robustly toward resolving fundamental= issues. With this paper, we wish to point out the consequences of this ap= proach to property issues, and to highlight some of the consequences that h= ave grown out of it.

Residenti= al property

After 23 March 1989, socially owned residential property in Kosovo w= as largely transformed into private property, although mostly in a discrimi= natory way. As in the other parts of former Yugoslavia, the large part of = Kosovo apartments was initially socially owned property, allocated to the e= mployees through their employers. In the follow-up of the discriminatory m= ass dismissals in the early 1990s, many (although not all) Albanians fired = lost their apartments and Serbs moved in. In 1992 a large scale privatisat= ion of socially owned apartments took place, and both Serb and Albanian occ= upants bought their apartments. Later, many Serbs sold their apartments on= to Albanians, although this was forbidden under the applicable Yugoslav la= w. In the course of the 1999 conflict a large number of private Albanian h= ouses were destroyed by Serb civilians, paramilitaries and Yugoslav state o= rgans. In the following Serb exodus many flats were simply taken over by A= lbanians (and in the emerging Serb enclaves the other way round).

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UNMIK addressed the issue of residential property as early as Novemb= er 1999 by establishing the Housing and Property Directorate and Claims Com= mission (HPD). HPD consists of an administrative branch (the Directorate) = and a judicial branch (the Commission). While the Directorate has the task= to supervise the utilisation of abandoned residential property, and to col= lect claims of potential owners, the Commission is to settle any dispute ov= er residential property.=20 [UNMIK/REG/1999/23, 15 November 1999. h= ttp://www.unmikonline.org/regulations/1999/reg23-99.htm.]
In subsequent legislation, the following principles underlying the H= PD activities were set out:=20 [UNMIK/REG/2000/60, 15 November 1999. h= ttp://www.unmikonline.org/regulations/2000/reg60-00.htm; cf. also Housing a= nd Property Directorate and Claims Commission: Resolving Disputes on Reside= ntial Property. Principles of Law, Evidence and Procedure for the Housing = and Property Directorate and Claims Commission. Prishtina, April 2000.] =20

1. In general, if someone legally acquired property under the law ap= plicable at the time of the acquisition, the property title remains valid. = This reflects the general imperative of the international law governing UN= MIK=92s mandate to protect private property rights, although in the followi= ng some important qualifications to the general principle are made. =20

2. Anybody who lost property between 23 March 1989 and 24 March 1999= , as a result of discriminatory laws or procedures, has a right to restitut= ion of the property. This reflects the recognition of the post-autonomy pe= riod as clearly contradicting international law, and thus puts a question m= ark to property transactions that benefited from the discriminatory regime.= As the beneficiaries knew the political background very well it can be as= sumed that they have not necessarily acquired property under good faith. = =20

3. Any refugee or displaced person who lost possession of property h= as the right to return to the property or to sell it. On request of the ow= ner, the HPD can issue and execute eviction orders against the current occu= pant. This reflects the violation of international law in the course of vi= olent evictions in the power vacuum, but also takes into account political = realities by establishing disposal of the property as an alternative to ret= urn. =20

In dealing with the issue of residential property, UNMIK broadly fol= lowed the precedent established in Bosnia. There, residential property iss= ues were recognized as a key part of the peace building process. Indeed, a= s noted in the Property Law Implementation Program inter-agency framework d= ocument, =84the right of all the citizens of Bosnia and Herzegovina, displa= ced during the war, to return to their homes ... (is a) fundamental provisi= on of the Peace Agreement (that) can only be met if the property issue is f= ully solved.=84=20 [Property Law Implementation Program, Int= er-Agency Framework Document. October 15,2000. Office of the High Represen= tative, Sarajevo. http://www.ohr.int/plip/key-doc/]
Property was a locus of continuing conflict, and property was recog= nized by the international community as an issue that needed to be dealt wi= th enroute to ensuring the larger aims of the Dayton peace process. This e= ffort has been reasonably successful, though slow moving, and although prop= erty issues remain they are not of a magnitude that threatens the fundament= al goals of Dayton as long as current processes continue. =20

UNMIK followed, indirectly, this precedent and established a Housing= and Property Directorate early on in its administration. Although there a= re both legal and political issues associated with

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the residential property issue, UNMIK, through HPD embarked early o= n an effort to build mechanisms to resolve property issues. This effort re= cognizes the reality of discriminatory property transfers before the confli= ct and bases its efforts to achieve justice mainly based on compensation (r= ather than on restitution in kind). However, in the area of industrial and= commercial property, lacking a clear legal framework in SCR 1244, and lack= ing a precedent, UNMIK was less able to address equally complex issues, wit= h potentially negative consequences for the larger peace process.=20

Commercia= l property and public utilities

In the commercial sphere, there are about 350 socially-owned enterpr= ises (SOEs) registered in Kosovo, ranging from small and medium size enterp= rises to a few large industrial complexes such as the Ramiz Sadiku factory = in Peja/ Pec and the Trepca industrial complex (subject of a disputed priva= tisation). Employment estimates vary between 30,000 and 60,000 currently e= mployed, although many workers are only formally on the payroll. Moreover,= there are about 60 utilities in the power, transport, telecommunications, = waste, water, and sewage sectors whose status is similarly unclear. Commer= cial SOEs and most of the public utilities have been placed under the autho= rity of UNMIK=92s European Union Pillar, which has lead responsibility in t= he area of reconstruction and economic development. Its Department of Trad= e and Industry (DTI) was charged with the SOEs, and the Public Utilities De= partment (PUD) with the power, water, waste, and sewage utilities.

In the sphere of these enterprises, two contradictory positions evol= ved within UNMIK, and as a consequence policies came off the ground only sl= owly: The European Union Pillar, and the large donors behind it, favoured a= n overall and quick privatisation of socially owned and public enterprises.= In contrast to that, staff in the UN Civil Administration Pillar cautione= d of such a radical intervention that had been alien to former UN missions,= and aimed at preserving the status quo of property rights. A change in pr= operty rights, it was argued, goes far beyond an =84administration" mandate= as laid out under Resolution 1244 and should not be part of UNMIK=92s acti= vities. =20

As a result of these, and other related disagreements, UNMIK found i= tself in a very strange position. In particular in the socially owned ente= rprises, UNMIK had to formally maintain socialist self-management =96 and s= ubsequently did not only experience the economic shortcomings of that syste= m so well known in Yugoslavia already, but increasingly also learning of th= e political deficits of supporting a system that formally looked like worke= rs=92 self-management but in the end always relied upon the existence (and = through the state, funding allocations) of the Communist Party as the =84fi= nal regulator". It turned out that there is only one thing worse than a so= cialist economy under the guidance of a communist party, and that was a soc= ialist economy without a communist party.

Conceptual work on the privatisation of commercial property started = as early as the strategy dealing with housing property. Papers noting the = need to address the privatisation issue were circulated in UNMIK as early a= s January 2000. Over the course of 2000, the DTI initiated a process of dr= afting a white paper on enterprise development that was supposed to be a co= nsensus policy document for the whole of UNMIK. A draft paper presented in= August 2000 stressed the=20

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importance of defining property rights and to attract private capita= l into state and socially owned enterprises. Focussing on privatisation, t= wo options were lined out:

=84Kosovo is confronted with two broad choices for the longer term. = Existing public or socially-owned enterprises could simply be left as they= are, while encouraging new enterprises to grow to take their place. Such = a policy would preserve the fiction that existing ownership was undisturbed= , while actually abandoning enterprises to uncertainty and decay, and in ma= ny cases leaving assets to be taken over by self-appointed management who l= ack both the skills and the mandate to reform them. That would not deal wi= th the enterprises properly, and it would not treat workers fairly. The al= ternative would be to positively choose to follow a policy of privatisation= . This would entail dealing directly with issues of ownership, management,= the interests of workers, and those of the wider community. Such an appro= ach would place existing enterprises in the same position as new companies,= with the best chance to attract new investment and to be able to compete i= n future." [UNMIK Department of Trade and Industry: = White Paper: Enterprise Development Strategy. Prishtina, August 2000, p. 1= 3.] =20

Clearly favouring privatisation, the paper suggested to establish tw= o institutions dealing with non-private commercial property:=20

1. An Ownership Adjudication Commission, built along the lines of th= e Housing and Property Directorate. The aim was to enable the Commission t= o adjudicate all ownership disputes over enterprises and non-residential as= sets. Claims were to be brought forward on a case-by-case basis, and after= widespread public notice of the case under consideration through the Commi= ssion, any submission of further claims would have been limited to 60 days.= As in the case of residential property, a restitution scheme in cash was = foreseen. The aim was to have clearly adjudicated ownership rights within = a clearly limited timeframe if necessary. This was seen as a precondition = to get into outright privatisation of the case considered.

2. A Kosovo Enterprise Agency as privatisation agency for non-privat= e enterprises. The agency was supposed to be a part of the DTI, but report= ing to an independent steering board representing all parts of Kosovar soci= ety. It would have had the mandate to restructure non-private enterprises,= transfer them into joint stock companies, and privatise enterprises the ti= tles of which had been adjudicated before, and to liquidate or to bankrupt = non-viable enterprises. Following the model of other parts of former Yugos= lavia, a part of the privatised shares would have been allocated to the wor= kers, and the proceeds from privatisation would have been transferred into = a special fund of the Kosovo budget, serving as the basis to build up pensi= on, social security and human capital building schemes.

The white paper, however, was never finalised as it could not gain i= nternal consensus in the political process. Though periodic efforts to mov= e the privatisation issue forward occasionally emerged, UNMIK basically pla= ced the privatisation issue in the =84too hard box" until the middle of 200= 1, nearly 2 years into the mission. Internal disagreements (within relevan= t Pillars, and between Pillars) meant that UNMIK was unable to forge a posi= tion strong enough to overcome external resistance to confronting the priva= tisation problem. Ironically, disputes between key donor countries over th= e approach to privatisation in 2001, aligned with internal disagreements,= =20

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helped ensure that no movement toward resolution of ownership questi= ons would take place in 2001. Finally, ambiguities in SCR 1244 and politic= al disputes between nations played out at the UN, meant that building polit= ical support for a regulation at the UN level (necessary, since all UNMIK r= egulations are vetted by the UN headquarters in New York), was exceptionall= y difficult until the arrival of the current SRSG, Michael Steiner. =20

When the existence and the mandate of the DTI was formalised through= Regulation in December 2000,=20 [UNMIK/REG/2000/63, 7 December 2000, Sec= tion 2.2. http://www.unmikonline.org/regulations/2000/reg63-00.htm= .] it received the authority to administer the socially owned enterprises = that were industrial or commercial in nature. However, because of the poli= tical deadlock within UNMIK it lacked an overall mandate to privatise. But= from the very beginning it was also clear that the DTI would not have the = resources to administer the about 350 SOEs directly. Thus, the status quo = found in the enterprises was basically accepted, and the procedures of self= -management, as foreseen in Yugoslav law, were applied. For instance, regu= lar elections of workers=92 councils were initiated in 2001, which in turn = were supposed to legitimate the enterprise managements. =20

The only way to get private sector involvement into SOEs was through= so-called commercialisation, i.e. to lease the enterprises to outsiders. = In the field of public utilities, basic restructuring efforts were encourag= ed in order to enable private sector participation at a later stage. At th= e end of 2001, 13 leasing contracts for SOEs (mainly in food processing and= construction) were successfully concluded. It turned out, however, that s= ome of these contracts fell short of investment promises, as investors did = not develop a sufficient long-term interest in temporarily rented assets. = Moreover, the speed of the process, or lack thereof, made it very clear tha= t commercialisation could not be considered as a viable strategy to deal wi= th all SOEs in an acceptable time frame. Thus, although during late 2000 a= nd most of 2001 commercialisation was seen by some parties as an acceptable= and functional alternative to privatisation it failed to either serve as a= sound basis for economic investment, or to resolve fundamental issues. =20

3. Increasing = fights over social property

The law enforcement vacuum directly after the conflict, an easy enab= ling framework for enterprise activity laid by UNMIK (including simple busi= ness registration procedures, and a very favourable tax regime in particula= r for small enterprises), and a high purchasing power within Kosovo through= the internationally financed reconstruction effort and remittances of Koso= vars living abroad led to a further mushrooming of private enterprises. By= end 2001, more than 40,000 private enterprises were registered, of which m= ore than 36,700 worked with four employees or less. About 50 % of those we= re active in trade, and only 10 % in manufacturing.=20 [Fact Sheet Kosovo (December 2001). Comp= iled from various UNMIK sources. Pristina, December 2001.] =20

The economic recovery positively affected socially owned enterprises= as well. A follow-up survey of 192 SOEs, conducted by the Prishtina based= think tank =84Riinvest" in March 2001, found that 86% of the enterprises h= ad been economically active in 2000 (compared to 55-66% in 1999),

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and capacity utilisation had increased to 35% (compared to 28% in 1= 999). The sales reported increased by the factor 2.57, profits by the fact= or 3.5, and the number of active employees from 18,171 to 24,662. Above av= erage capacity utilisation was observed in services (58%), transport (54%),= construction materials (51%), trade (44%), and construction (41%).=20 [Riinvest: Socially Owned Enterprises and= their Transformation/ Privatisation. Prishtina, 8 March 2001] =20

Although little investment has been done to secure the long-term sur= vival of these SOEs, their increased activity generated a positive cash flo= w in many areas of the socially-owned sector of the economy, either through= the revival of production, or through simply renting out shops, lands and = other enterprises to private entrepreneurs who could use these idle assets = for their purposes. In Peja, for instance, the old retail enterprises tran= sformed themselves into intermediaries by solely making money through renti= ng out their centrally located shops. [ Cf. Lessons Learned and Analysis Un= it of the EU Pillar: De-industrialisation and the Collapse of Social Proper= ty. A Case Study of Peja. Prishtina/ Berlin: February 2002.]=20

To the astonishment to the advocates of the status quo, this grassro= ots commercialisation of assets did not happen in an orderly way. On the c= ontrary, what evolved were all features of a =84pirate" economy, where asse= ts of SOEs where stripped for short term benefit, and monies disappeared in= an opaque way into both private pockets (at least some with dubious legiti= macy and shady connections) and political party coffers. Sometimes, orderl= y procedures were negotiated between entrepreneurs involved and UNMIK repre= sentatives, but there are many cases where this did not happen at all. As = a result, issues of ownership and control become further muddied, as entrep= reneurs of both legitimate and illegitimate motives sought opportunity in t= he shadows of a less than clear legal regime. UNMIK=92s failure to regulat= e privatisation did not mean that it did not happen, only that it did not h= appen in a transparent and regulated way, and that benefits seldom reached = the workers, or the larger population, at least in spirit the nominal =84ow= ners" of socially owned enterprises.

The first Municipal elections in Kosovo in October 2000, and the vic= tory of Ibrahim Rugova=92s LDK in the majority of the constituencies, led t= o a major shift in the balance of power. Now municipalities were establish= ed and legitimated, though with narrower and more circumscribed roles than = under previous Yugoslav law. This added a new political dimension to the = =84socially owned" sector of the economy (both SOEs and public utility serv= ice providers), as the new municipal leadership in many cases tried to get = their representatives into the managements of the enterprises, often enough= using dubious methods. As a result, conflicts over cash generating SOEs b= roke more and more to the open. In the following, we want to line out some= examples of these activities, and UNMIK=92s responses. In the conclusion = of the paper, we shall draw both tactical and conceptual lessons from these= cases.

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Case Stud= ies

1.IBG and Jugoterm, Gjilane

In April 2001, the Gjilane Municipality appointed new directors in f= our SOEs, over which the DTI had the administration authority. Local UNMIK= officials objected to that procedure and informed the existing directors t= o stay in their job. In the following, a serious conflict evolved in two o= f the companies: The Battery Factory IBG and the radiator factory Jugoterm.= =20

In a first step, the Gjilane Municipality and the trade union tried = to force the legitimate (based on selection by the extant workers council) = IBG director out of office. After receiving threats concerning his persona= l safety, he removed his family from his home. In late May, the Municipali= ty appointed director broke into several offices, tried to dismiss a part o= f the staff. At the same time the manager of the bank where the IBG accoun= t is held received threats because of refusing to have the new director acc= ess to it.

In Jugoterm, the director appointed by the Municipality immediately = started to pay out =84holiday bonuses" out of the SOE=92s cash reserves to = please the workers, and began diverting business orders for Jugoterm produc= ts to his own private company. (Such actions, part of the process of =91pi= rate privatisation=92 have been noted in many circumstances. They reflect = de facto privatisation of formally social assets, including, as in this cas= e, corporate good will.)

As the conflict escalated, showing concrete signs of asset stripping= and personal intimidation, the DTI, in consultation with KFOR, decided tha= t both enterprises should be temporarily put under direct UNMIK administrat= ion. UNMIK=92s Office of the Legal Advisor (OLA), however, feared serious = liabilities from an action of this type and advised to refer to local Court= s for resolving this issue. However, as local commercial courts are not pr= operly working it makes hardly sense to load the responsibility to restore = public order on them. An SRSG Determination finally put the SOEs under UNM= IK administration in July 2001, three months after the conflict escalated, = and an international interim director was appointed by DTI.

2. Higjena Teknika, Prishtina

Higjena Teknika is Prishtina=92s public waste company, which fell un= der the administrative authority of UNMIK=92s Public Utilities department (= PUD). UNMIK regulations gave responsibility for management oversight of Pu= blic Utility Service Providers (PUSPs) to PUD in order to ensure accountabi= lity of donor money, and to develop up-to-date technical capabilities in th= e sector. This meant that municipalities had only a partnership role in th= e management of these enterprises. In June 2001, the Prishtina Municipalit= y Assembly, after failing to name participants to a joint supervisory board= , appointed a new director to the company. PUD objected, informed the exis= ting director to stay in his job and informed the Municipality accordingly.

On 1 August 2001, the Municipality candidate physically occupied the= office of the legitimate director and started to carry out managerial func= tions. As this provoked major unrest in the workforce, the police had to pr= otect him. The next day the situation escalated when the new candidate appe= ared with armed bodyguards. On 3 August, he was banned from the premises o= f Higjena Teknika through a SRSG Executive Order, and the situation calmed = down.

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During August work continued, including a restructuring effort. No = workers were let go, indeed public promises of continued employment were ma= de by the management. However, a small group of workers at the Pristina la= ndfill site started a protest against their reassignment to other jobs. On= a Thursday they blocked access to the landfill site and began taking and h= olding trucks as they delivered loads to the site. The legitimate director= received a death threat. Within a few days, the action escalated (through= both mobilization of workers based on other grievances, propaganda, and mi= dnight visits to workers homes =84inviting" them to attend the strike) to a= full-fledged strike with approximately 40% of workers participating, with = some outside support. UNMIK suspected that LDK internal political issues w= ere at least partially at the root of the strike action. A major demand of= the strikers was to install the Municipality appointed director, while the= Municipality denied having any connection with or influence over the strik= ers. At the same time the Municipality was repeatedly stating in public it= is their right to appoint directors to the SOEs.

After extensive internal negotiations, a joint UNMIK/KFOR/ police ac= tion succeeded in regaining control of the captured garbage trucks from the= landfill, but failed to immediately end the strike. In the end, in mid Se= ptember, a compromise was found through lengthy negotiations. An internati= onal interim director was appointed shortly after and workers returned to w= ork. The situation was managed, rather than resolved, and the fundamental = issues of control over the company remained contentious.

3. Trasing, Prishtina

Trasing, a socially-owned enterprise, is a road construction company= based in Prishtina and employing some 250 workers. It takes part in some = donor funded road rehabilitation projects throughout Kosovo. In July 2001,= the 60 or so workers of the Gllogovc/ Glogovac quarry of Trasing decided t= o break away from their parent company, prompted by some political leadersh= ip and a former member of the Trasing management, and form a new company na= med Viakos. The quarry, given the high demand for rock in Kosovo, was a pr= imary asset of the company and the key to its ability to compete for road c= onstruction contracts. The break-away workers continued operating the quar= ry, though not the asphalt plant located at the site, and selling the produ= cts on their own account. Several agreements mediated by DTI failed to cha= nge the status quo.

In November 2001, the SRSG gave his assent to temporary UNMIK admini= stration, and a temporary DTI manager was installed. The dispute continued= , and several negotiations between UNMIK, the workers, and the municipality= , failed to resolve the issue. The Municipality declared the DTI action as= illegal and claimed their right to allocate the land use rights in the qua= rry to Viakos. Payments for rock quarried during the Viakos period were ma= de to separate accounts, and records were not complete. UNMIK suspected th= at rivalries between major political parties in part accounted for the will= ingness of the municipality to tolerate this action, as the workers placed = at economic disadvantage by the action were primarily in LDK controlled Pri= stina, while the benefits accrued to workers in PDK lead Gllogovc/ Glogovac= . Private security company employees who had been engaged by DTI in order = to reinstall law and order were intimidated. Still the UNMIK Office of the= Legal Adviser questioned if there was an urgent need to act on behalf of U= NMIK. After these doubts were overcome in lengthy discussions, control of = the quarry was seized by UNMIK in a joint operation with civilian police an= d KFOR. After another 10 days of discussions, workers returned to work at = the quarry, now, with the=20

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entire company, under UNMIK administration.

Over half a year after the conflict emerged the quarry now operates = and Trasing is able to compete for contracts. The 60 workers, and whatever= backing they had from powers outside of the quarry, are not able to contro= l this key asset of the company. As a result, the 250 workers of Trasing b= enefit from it, rather than the small number of individuals who were benefi= ting from the illicit control of the quarry prior to UNMIK=92s takeover. = =20

Again, this case illustrates the reality of the situation in Kosovo:= privatisation of socially owned enterprises is taking place, the only que= stion is how, by whom, and to whom the benefits go. The case also illustra= tes the consequences of the lack of a clear legal framework on the property= issue. Consensus for action needs to be built for each case individual, o= n an ad hoc basis. As a result, UNMIK=92s reactions are slow, and highly d= ependent on the personalities involved. And, if actors are smart, they rem= ain out of sight of UNMIK and practice behind the scenes privatisation.

4. Mirusha, Klina

In December 2000, the physical assets of the construction SOE Mirush= a were rented out for 10 years to an Italian investor under a commercialisa= tion contract. The SOE remained in existence as a corporate shell company,= still having its own assets such as bank accounts and receivables from the= time before commercialisation. Since January 2001, considerable amounts o= f money accrued on the bank account, and since August 2001 considerable amo= unts have been withdrawn for unclear purposes.

In order to determine the amount of funds disappearing, install prop= er accounting, and safeguard the assets of the corporate shell, DTI asked f= or a SRSG Determination in early November 2001. Since then, an exchange of= letters took place between OLA and DTI, in which details of the commercial= isation that are not directly linked to the subject matter of the request w= ere questioned. As result, it took six months to get the SRSG Determinatio= n necessary for UNMIK to intervene. Meanwhile, cash flows continued, and t= he ability of UNMIK to trace the cash flows from Mirusha=92s account decrea= sed further. =20

5. Others

These cases are only the tip of the iceberg. In Prishtina, shortly = after the Higjena Teknika conflict, the Municipal Assembly appointed direct= ors to other SOEs on their territory, and PUD and DTI had to intervene in t= he cases under their administration mandate. The CEO of Prishtina repeated= ly encouraged other Municipalities in public to follow his example, and thi= s was happening. In Prizren, for instance, the Municipality was seizing la= nd from SOEs, against the clear advice of DTI. Other cases were reported f= rom other Municipalities. =20

We note that these efforts spring from a variety of motives. Some e= fforts to seize control are no doubt motivated by a genuine desire to resol= ve these questions and serve the public interest of the citizens of Kosovo.= Other actions are no doubt, motivated by desires for political control or= =20

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individual greed. However, the consequences of the uncertain legal = environment mean that no one, neither UNMIK nor the elected representatives= of the people of Kosovo, are effectively able to address the problem and s= eparate the well-intended from the criminal. =20

In every single conflict it turned out that a narrow legal interpret= ation in an environment characterised by general legal uncertainty put addi= tional brakes on effective reaction. This has been monitored carefully by = the conflict parties, so that it is likely to serve as a bad precedents for= other cases. Lately, officials of Municipalities who were most active in = challenging UNMIK=92s powers publicly encouraged others to follow their exa= mple, accusing UNMIK of inactivity when dealing with the decline of SOEs.

Analysis = of conflict features

When analysing the root causes and the impact of the conflicts on th= e fulfilment of UNMIK=92s mandate, we warned that they pose a threat to thr= ee tasks lined out in Resolution 1244, namely (i) economic reconstruction, = (ii) maintaining civil law and order, and (iii) organizing and overseeing t= he development of democratic institutions. All conflicts over socially own= ed and public enterprises bore common features:

Asset stripping: In most cases asset stripping started immediately, div= erting resources (including cash, equipment, and fuel, as well as buildings= ) of the enterprises into private pockets. This feature is well known from= other transition countries that started late with privatisation. It can d= irectly be attributed to lacking clarity over ownership rights and the resu= lting short-term interest in exploiting assets.
Intimidation and the threat of violence: Wherever new managements = tried to secure their position this went hand in hand with intimidation of = the old managers, a part of the workforce, or external people dealing with = the SOEs =96 some of them even received death threats. While international= personnel have thus far been safe, and can be relatively cavalier about su= ch threats, the local population cannot. Local civil servants have been ki= lled, though not recently, and the threat of the loss of a job is significa= nt enough in the uncertain economy of Kosovo today. =20
Municipality, and mass public, involvement: The main conflicting p= arties of UNMIK have been Municipalities trying to get control over SOEs, g= enerally by trying to exchange existing managements through political allie= s. This can be directly attributed to the change in the balance of power a= fter the LDK had won most of the Municipalities, while many managements had= been placed by or with the consent of the UCK (later PDK) dominated Provis= ional Government in 1999.

Besides the law and order problem, we considered the Municipality involv= ement as particularly worrying. Kosovo has a relatively immature democracy= and democratic accountabililty is relatively weak, given the still nascent= understanding of citizens of the processes of democracy and the weak devel= opment of counter-balancing interest groups. Given this, the attitudes and= activities of Municipality leaderships, as demonstrated above, are likely = to result in the assembly of what is known in American political history as= a =84machine." The use of patronage, and the use of revenue streams from = public services in the support of a =84machine" political system are well e= stablished mechanisms of political control throughout the world. =20
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A =84political machine" ensures re-election in a nominally democrati= c polity through bending to its service =84independent" elements, including= the civil service, and parts of civil society. Such an outcome is both an= ti-democratic, and potentially very troubling given the central role of cor= ruption and graft in such machines. Given the current public lack of under= standing of the limits of municipal power, the mass public is unlikely to a= ct as a check on the accumulation of power by municipalities. If unchecked= , this effort has the potential to hinder efforts to develop the core struc= tures of an independent, apolitical Civil Service, and a financially stable= and independent meadia.
It should be noted, however, that in most of the cases discussed abo= ve, although the disputes became public and political, the public did not u= niformly take sides against UNMIK. In particular, in the case of the Hijgi= ena Teknika strike, the public in Pristina was exceptionally skeptical of t= he political motives behind the strike, and their support was ultimately ke= y in resolving the issue. This public political aspect means that UNMIK=92= s ability to govern meaningfully is challenged by cases of the sort noted a= bove. =20
In summary, we note two points. First, it is clear that the enterpr= ise administration regime established by UNMIK has in large areas allowed t= he emergence of a pirate economy, in which managements, municipalities and = other individual actors use their power to get control over state, public a= nd socially-owned property, stripping and renting out these assets. Second= , this has contributed to a decline in the assets=92 value and the neglect = of the rule of law in an environment that is characterised by weak legal in= stitutions. This is both threatening the medium term prospects for economi= c growth and the development of genuine democratic institutions. The publi= c dissatisfaction created by this is also a severe threat for UNMIK=92s fur= ther acceptance.=20 [Cf. Andreas Wittkowsky: Political Liabil= ities of Non-Privatisation in Kosovo. Memorandum. Prishtina: UNMIK, 10 Ma= rch 2002.] =20

4. Rethinking = property administration

How to de= al with property under UNMIK-trusteeship?

The threat of =84mission failure" in the three areas outlined above,= and intense political lobbying to raise attention on this matter, led to a= rethink of the scope and limits of UNMIK=92s administration mandate in lat= e 2001 and early 2002. As a result of an alignment of factors, including a= greater understanding of the situation on the ground in the New York UN he= adquarters, refined legal arguments by UNMIK, increased donor intervention,= and the politics associated with a newly appointed SRSG, a privatisation r= egulation was approved by the UN headquarters in late winter 2002.
The legal arguments focussed on what role a trustee has to fulfil wh= en dealing with the property under his trusteeship. A classical lawyers=92 = textbook argument says that a trustee has to dispose of perishable goods (s= uch as fruit or vegetables) before they are rotten, otherwise he would have= fulfilled his trusteeship functions in a grossly unsatisfactorily manner. = In UNMIK=92s case, the=20
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analogy that was drawn pointed out that through asset stripping and = under-investment the public and socially owned enterprises also are about t= o rot to zero value. Thus, in order to protect the value of the public and= socially owned assets for their owners, a trustee necessarily would need t= o be able to exchange them for other forms of titles, like shares or moneta= ry proceeds.
The big problem, however, is that privatisation affects the rights o= f (potential) owners. In the case of state property the question is which = territorial entity is the carrier of the property title. In the case of so= cially owned enterprises the question is even further reaching, as it might= not be a territorial entity at all =96 most legal opinions consider social= property as clearly distinguishable from state property, more similar to p= rivate property if at all similar to another category of property, and most= (but not all) Yugoslav successor republics dealt with social property by f= ormally nationalising it first and privatising it afterwards. =20
Public international law, however, provides only for relative proper= ty protection. A state, and UNMIK as the carrier of state functions in Ko= sovo, can in principle expropriate property if this (i) serves a public int= erest, (ii) there is effective and adequate compensation granted, (iii) the= re is no breach of treaty obligations, and (iv) there is no discrimination.= =20
Moreover, the rationale lying behind UNMIK=92s mandate, namely the c= reation of lasting peace in a post-conflict environment, had to be weighed = against individual rights. Mission failure and a possible re-ignition of v= iolent conflict would most likely lead to a situation, in which public inte= rnational law principles and ownership rights are violated much more than a= ny action necessary to UNMIK=92s success.=20 [Cf. Stephan Hobe: Certain Legal Problems= with Regard to the Draft Regulation on the 'Kosovo Trust Agency' (KTA). E= xpert opinion, University of Cologne, 8 February 2002.]
While such an outcome is unlikely as a direct result of the issue = in question, the toleration of pirate privatisation does have direct and ne= gative consequences for the process of democratisation and the growth of th= e rule of law. Political machines, and a culture of impunity clearly contr= ibute to organized crime, with significant consequences for the stability o= f Kosovo=92s developing democracy and indirect, but real strategic conseque= nces. =20

The Kosov= o Trust Agency (KTA): A trusteeship privatisation model

Taking these arguments into account, a compromise model was develope= d in the European Union Pillar, bringing together different known privatisa= tion elements with a particular trusteeship concept. At its centre lies th= e establishment of a Kosovo Trust Agency (KTA), which is able to initiate s= pin offs and liquidations of enterprises. The model was hotly debated but = will finally come into force in mid 2002. =20
The KTA is established as an independent body administering public a= nd socially-owned property falling under the SRSG=92s Reserved Powers. The= se include the public and social enterprises in trade and industry, agricul= ture and forestry, post and telecommunications, transport and infrastructur= e, and public utilities such as power, waste and water service providers.
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The Agency is to be jointly governed by a Board of four internationa= l and four Kosovar directors. The Kosovar directors are appointed by the S= RSG and shall include three Ministers of the Government, including the Serb= Minister, and the president of the Trade Union Federation. The internatio= nal directors are three high ranking UNMIK representatives and the Managing= Director of KTA.
The KTA acts as a trustee for the beneficial owners of the property.= KTA administration includes general management oversight, as well as gran= ting concessions and leases, initiating bankruptcy procedures, and direct c= ontrol if need be (as in the past this is anticipated only for problem case= s). For reorganisation purposes, the KTA can also initiate the first step = of a spin-off procedure by establishing new subsidiary companies of old ent= erprises and transferring their assets to them. In exchange, the old enter= prise receives shares in the new company which are held in trust by the KTA= . =20
Privatisation is limited to socially owned enterprises (SOEs), where= the KTA will also have the right to full spin-offs and voluntary liquidati= ons. Full spin-off is achieved through a second step, in which shares of S= OEs are sold to investors in the new company. Under voluntary liquidation = procedures, the SOE will cease to exist, and its assets can be sold to inve= stors. Thus, valuable assets are put into productive use, and clear owners= hip titles are established over them. Any proceeds from privatisation will= be held in trust by the KTA until a final decision on creditors=92 claims = against the SOEs can be made and the ownership questions can be addressed.
In addition, a Special Chamber within the Kosovo Supreme Court is to= deal with potential disputes resulting from KTA decisions. The Chamber is= to consist of five judges appointed by the SRSG, three of which are intern= ationals.
The aim of these activities is to preserve or enhance the value, via= bility and governance of the enterprises while allowing for involvement of = distinct private owners as much as possible. In the latter, following a gen= eral experience with restitution schemes in transition countries, it establ= ishes the principle of monetary compensation rather than restitution in kin= d.=20

5. Conclusion:= The need to deal with property issues

Two sets of lessons can be drawn from UNMIK=92s experience. The fir= st set of lessons are tactical, focused on improving the mission=92s abilit= y to engage in administration of enterprises, and the political disputes wh= ich inevitably follow. The second, and most important, are conceptual, and= reflect the need to refine our understanding of the activities undertaken = in peace building missions. These lessons stem from our increased awarenes= s that, although SCR 1244 doesn=92t explicitly address the structure of the= political economy, the mission cannot afford to ignore it.

Tactical = lessons

The tactical lessons learned from UNMIK=92s experience reflect the n= eed to temporarily administer enterprises, and to engage in the political a= ctivity which results from this engagement. While the particular needs of = UNMIK are clearly shaped by the pre-conflict socialist economic struc-
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tures, any mission engaging in comprehensive peace-building efforts = may need the capability to engage in corporate governance. When necessary,= missions need to be able to manage corporations, engage in audits and inve= ntories, supervise local management personnel, communicate with workforces,= and develop ad hoc procedures for corporate governance able to engage and = balance the many contending interests found in such situations. Basic busi= ness management capabilities need to be considered early in the planning of= any mission. However, while missions may need to temporarily administer e= nterprises, they cannot run them for long. There is no way around clear pr= ivate ownership and the associated responsibilities. =20
Second, these efforts, while made necessary by the structure of post= -conflict political economies, and the impact of the political economy on t= he stability of democratisation efforts, are controversial. Missions need = to be able to engage in political disputes that follow from efforts to shap= e the emergent post-conflict political economy. The more a mission underta= kes genuine efforts to build a more open and participatory political econom= y, the greater the resistance of those whose privileged positions are threa= tened. This kind of robust public information campaign is far more like tr= aditional political campaigns than the usual general and vaguely positive p= ublic information campaigns that are normally featured in peace building mi= ssions.
Greater attention needs to be given to developing and generalizing t= he KTA model (including the creation of spin off corporations, trusteeships= , and liquidation, with mechanisms for setting compensation for owners from= the proceeds) for dealing with the problem of restructuring ownership in p= ost conflict situations. Such problems, while most obvious in post-sociali= st settings, are also likely to be features in any setting where former own= ers cannot exercise or enforce their ownership rights without contributing = to a significant loss of stability in the post-conflict setting.

Conceptu= al lessons

It is important to note that missions in post-conflict situations fa= ce a stark choice. Either confront the issues, including =84pirate privati= sation," mis-appropriation of public assets, looting, and the political cor= ruption that is associated, or tolerate the consequences. Post-conflict ec= onomies feature a wide variety of entrepreneurial actors, some legitimate, = at least in motives, and others criminal. Those willing to appropriate ass= ets are not without allies, and actions by the mission to oppose them will = be controversial. However, failing to confront these actions contributes t= o a general atmosphere of lawlessness, the creation of anti-democratic poli= tical machines, and makes the creation of a =84rule of law" based system mo= re difficult.
This awareness highlights the key conceptual lesson that flows from = UNMIK=92s experience. Transition and development both imply conflict of in= terests, as they imply changes in patterns of entitlement and resource flow= s. This has been elaborated by both transition and development economists,= as well as by conflict researchers.=20 [Cf. for instance Suzanne Verstegen: Pove= rty and Conflict: An Entitlement perspective. CPN Briefing Paper. Berlin/= Brussels: Stiftung f=FCr Wissenschaft und Politik =96 Conflict Prevention = Network, September 2001.]
Conflict can arise over changes in property titles, political stru= cturation and regulation of markets, the hardening of budget constraints an= d other issues where a change in entitlements takes place. The internation= al community in a post-
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conflict environment is faced with the same areas of conflict as pos= t-socialist reform governments, and has less stable conditions, as the acti= ons of a peace-building mission are not embedded in an existing structure o= f interests, culture, and political discourse. This implies a need to be r= eady to carry on over a longer period of time than many mission calendars f= oresee.=20
Such a long term approach to both economic revitalization and post-c= onflict democratisation and stabilisation can only be grounded in a thoroug= h conceptual understanding of the linkages between core issues in the polit= ical-economy, such as property ownership, and the more visible and uncontro= versial aspects of the mission such as elections and =84democratisation." = While such an understanding may be common among specialists in appropriate = topics, it is not the stuff of common discussion in either the halls where = missions are planned or the classrooms where peace building is taught. Issu= es such as property ownership aren=92t just economic issues, but are core i= ssues in the stabilisation of a democracy. =20
More generally, greater attention needs to be paid to the general is= sue of the political-economy in peace building missions. The political eco= nomy of a region in conflict evolves during the course of the conflict in w= ays that are understandable, if not always predictable: =20

The pre-conflict economy is re-shaped in response to the evolution of t= he conflict. If the conflict lasts long enough, pre-conflict economic patt= erns may be completely destroyed. During the conflict, economic and politi= cal leadership changes, and economic and political power become increasingl= y linked through illicit means, including control of black markets, smuggli= ng, money laundering or exchange, and other similar activities. Honest pol= iticians, and honest business people are put at a competitive disadvantage.= =20
After the conflict, the pre-conflict economy does not emerge from = hibernation. Rather, a new economy evolves from the structure of the confl= ict economy: it is the patterns and processes of the conflict economy which= critically shape the post-war political-economy. Advantages gained by act= ors during the conflict are not easily forgone, and those most successful, = by licit or illicit means, are advantaged in the post-conflict economy. Th= e consequences of this, and of failing to robustly engage in the reform of = the post-conflict economy, for the realization and stability of democratisa= tion efforts should be clear.=20

Further work needs to be done to ensure the understanding, and recogniti= on, of the linkage between the structure of the economy and the operation o= f the political system. Property and the regulation of its ownership is A = core activity of the political system, and the distribution of property in = society profoundly affects the distribution of power in it. Such truisms m= ight seem obvious, but that does not mean they are central in the thinking = of mission planners or the political actors who shape mission mandates. =20
The deep interconnections between the structure and regulation of pr= operty ownership, and the nature and success of civil society, needs to be = highlighted, conceptually, in the peace building literature. Creating a po= pulation of local NGOs alone will not produce civil society, if at the same= time we tolerate those who exploit advantages gained in the conflict to fu= rther their accumulation of economic power in the post conflict situation. = If, in post-conflict situations, peace-building missions are not able to e= ngage in efforts to produce a legitimate and regulated political economy, t= he field is left open to the most advantaged, aggressive and the most audac= ious. That=20
[Seite = der Druckausg.: 22]
these are not necessarily the most economically or managerially comp= etent, or democratic, elements in a society is reasonably likely. =20
We should note that our call to deal more robustly with this issue i= s not necessarily a call for an international dictate as the solution. Whi= le UNMIK has made the decision that the privatisation process remain firmly= in its hands, although with Kosovar participation, other missions in other= circumstances may make other decisions. However, fundamental questions ab= out the structure of the political economy, (in UNMIK=92s case, the resolut= ion of property rights issues), and the institutional structure of the post= -conflict economy, cannot be avoided. Failure to confront these problems m= eans failure to deal with the social consequences of pirate privatisation, = and failure to preserve the rights and interests of the average citizen. U= nderstanding the evolution of an economic system in conflict, and its conse= quences for post-conflict political and peace-building aims, remains a subj= ect requiring substantial conceptual, and practical work. In the end, stab= ilisation is about making theft the exception, not the rule.
[Seite = der Druckausg.: 23]

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