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On behalf of the Serbian Association of Economists we are pleased to invite you to the 2019 Kopaonik Business Forum (the KBF).

Kopaonik Business Forum is committed to improving the performance of Serbian economy through analytical contributions and dialogue between major relevant stakeholders. It is a high profile event organized under the conceptual patronage of the Prime Minister of the Republic of Serbia. It is no accident that the Forum has been receiving a growing number of requests for attendance from around the region. In the last couple of years, the Forum has gathered on average more than thousand participants, including heads of state and government, ministers, high representatives of regulatory bodies, representatives of international financial institutions, respectable scholars, diplomats, business practitioners, and media.

The event is organized through plenary sessions, special addresses, and peer-to-peer sessions.  Our exceptional roster of speakers comprises more than one hundred people from the academia (particularly from the fields of economics, business management, and ICT), politics, finance, and business. Key thematic studies prepared by international financial organizations are presented at the KBF every year, along with research and policy papers contributed by leading experts and luminaries from various fields. Indeed, the Forum continues to provide a unique opportunity for participants to meet and discuss relevant issues. The title of this year’s annual meeting is:
The Imperative of Robust Growth

KBF 2019 is a four-day event. Day Zero is dedicated to conversations with leaders from the world of economics, business, ICT and related fields. The following day, Day One, is devoted to highlighting major contextual specifics of doing business in Serbia, including macroeconomic policy aspects and possible limits to longer-run economic growth. Day Two focuses on the pillars of development strategy aimed at reconnecting economy, environment, and society. And finally, Day Three is dedicated to other important factors of sustainable growth, particularly health care and environment. Respecting this schedule, the Program Committee has envisaged debates within the following thematic clusters:

March 3, 2019: Insights from Dialogue with Creative Thinkers
March 4, 2019: Rethinking the Growth Model
March 5, 2019: Reshaping Inclusive Growth through Human Capital
March 6, 2019: Advancing the Position of Labor through Health Care and Environment

We yearn to understand what underpins the recent shift in the global economic and development paradigm?  How would prevailing answers impact long-run GDP growth and the well-being of citizens? What policy challenges await Serbia once fiscal consolidation is finally over? Are we ready to embrace new business normalities established after the global economic crisis? Have we made progress in creating environmentally friendly economy that can generate sustainable and inclusive growth, and ensure convergence to EU income levels?
Growth has become primarily a political issue as GDP represents a good proxy for new jobs and increasing welfare, where more is always better. In a world burdened with future consequences of past social expenditure commitments, high public debt and a dire need to respond to technological changes, it is easier and wiser to look for ways to enhance smart growth  than to resort to austerity measures.

The political need for robust growth signals government commitment to service the outstanding debt, secure social inclusion and support the idea of intergenerational equity. This is particularly relevant for countries like Serbia where current generations are expected to honor the commitments of yester turbulent years. Moreover, the benefits of economic growth have been unequally distributed across different social and skill groups due to slower dynamics of real labor incomes in older style routine and repetitive jobs caused by rapid technological change and growing global competition. Additional reason for robust growth and faster job creation is the rapid deterioration of competences after years of waiting for the first job (the lost generation). Finally, higher economic growth provides a greater cushion to address the potential post-crisis deflation threat, clean up banks from non-performing loans, and restructure debt-ridden publicly-owned companies.
The long-run response to weak economic growth requires a new strategy based on smart investment sensitive to key structural imbalances and new business normality. The strategy must account for possible external shocks, including adverse spillovers from cross-border capital flows. At the national level, smart (intelligent) investments will be able to play their paramount role only in the continued presence of sound macroeconomic (macro-prudential, monetary and fiscal) policies that unblock demand-creating transmission channels and allow rational economic decisions at all levels. Additionally, new industrial policies (related to both manufacturing and modern services) are expected to provide  businesses with clear longer-term signals where to invest and how to restructure successfully. Their primary focus is to increase the potential of tradable sectors in the fast changing global economy.
In this context, it is crucial to know where we are right now and where we are going. Hence, the remainder of this letter portrays three main issues KBF 2019 intends to address: (1) strategic assessment (audit) of the Serbian economy at the start of 2019, (2) progress report on the effectiveness of key policy measures implemented in the recent past, and (3) review bold ideas for future growth-enhancing policies.
Strategic Assessment (Audit) of the Serbian Economy

Serbia’s current economic and institutional problems can be traced back to the beginning of 1990’s and for the most part explained by its: (a) limited policy capacity to respond quickly and adequately to macroeconomic imbalances, and (b) professional and political inability to find the right answers to inherited and evolving structural challenges. At the beginning of transition, Serbian political leaders did not understand that the geopolitical map of Europe has changed dramatically and permanently with the fall of Berlin wall and the collapse of Soviet economic model. More than two decades later, Serbian transition architects misread the advice of influential international scholars and wrongly concluded that “the 2008 global financial and economic crisis was, actually, an opportunity for Serbia”. The inevitable ensued. Due to external shock the economy stalled and was unable to restart sustainable economic growth for too long. Twin deficits (fiscal and current account) led to unsustainable debt levels and increased the demographic risks. From high unemployment rates ten years before, Serbia moved to factual scarcity of human capital (in both basic and advanced skills) today.

During the last four years, a consensus among political leaders emerged that fiscal consolidation program was needed to take the economy back on a sustainable growth path.  The main results of the program were as follows.

Public revenues improved, enabling the reduction of both fiscal and external deficits. Continuous fiscal consolidation has led to budget surpluses in the last two years. Despite increased public spending in nominal terms, including upward adjustments in pensions and public sector wages following the initial reduction, the overall budget surplus was enabled by favorable revenue performance, visible decline of interest payments, and the under-execution of public investment. Lower interest payments were a direct benefit of improved country's credit rating (and a huge reduction in interest rate spreads) and fewer activated guarantees owed to stricter policies on providing financial support to utility and state-owned companies. Taken together, these savings increased over time and were 0.5 to 1.0 percent of GDP higher in 2018 than in the previous year.

Despite notable improvements in the overall budget management, recurrent expenditures on subsidies and social benefits remain high and untargeted, while current spending still represents 90% of all spending.

Leaving aside the discussion of the adequacy of long-term debt/GDP ratio, there is no doubt that the budget surplus, favorable dollar/euro exchange rate, and lower cost of capital all helped to reduce the share of public debt in GDP from 67.8% in 2016 to 57.9% in 2017 and to 55.9% in 3Q 2018.
Relatively slow growth of consumer demand combined with appreciation of the local currency contributed to lower inflation. The stability of the financial system improved as commercial banks have written off and/or sold bad loans more aggressively. The share of gross NPLs declined from 17% at the end of 2016 to a more tolerable level of 9.8% at the end of 2017 and 7.8% in 3Q 2018.

The cost of capital is decreasing.  After holding the prime rate at 4% for 13 months, the NBS lowered it successively to 3.75% in September 2017, 3.25% in March and 3.00% in April 2018. This contributed to price stability and lower interest rates, but nominal credit growth to the private sector remained sluggish, while credits to the government even decreased.

Relative increase in demand for foreign goods has come from capital goods for new investments financed by FDI. Relatively large capital inflow allowed the NBS to moderately appreciate the nominal and more the real effective exchange rate. More precisely, in December 2017 the local currency appreciated against the Euro by 4 percent in nominal terms and remained broadly stable throughout the first quarter of 2018.  In August 2018, both the nominal and real exchange rate appreciated on average by 0.8 and 1.3 percent  respectively, compared to the same month of the previous year (y-o-y).
From January to August 2018, total employment increased by 3.7 percent y-o-y driven entirely by growth of formal employment in the private sector (5.9 percent), while  public sector employment decreased by 1.4 percent. Creation of new jobs in services (particularly retail and wholesale trade, and tourism) dominated new employment in manufacturing. The average employment rate reached a record high of almost 50 percent.

Also, there were more opportunities for self-employment and the number of entrepreneurs increased by 6 percent. Consequently, unemployment continued to decline from 15.3 percent in 2016, to 13.5 in 2017, and 11.9 percent after two quarters of this year.

Between January and July 2018, average wages and salaries increased in real terms by 4.3 percent y-o-y. The increase recorded in the private sector was bigger than in the public sector.

Despite over-performance in most macroeconomic aggregates owed to successful fiscal consolidation and the removal of some of the structural imbalances, many systemic (institutional) weaknesses and structural problems still exist. They generate fiscal risks and constrain policies to support long-term robust growth necessary to close the past output gap, reverse deindustrialization, and respond to challenges posed by the fourth industrial revolution.
To complete the strategic outlook for the Serbian economy, a paradigm change in the model of growth and economic policy also needs to be considered. Economic policy measures inspired by a neoliberal growth model burdened the global economy with many negative effects,  particularly visible in economies with sizeable output gaps. Expansion of trade and investment boosted global economic growth, but also led to the concentration of wealth and degradation of global public goods and environment. Additionally, this led to an increase in the size and importance of the financial sector (financialization), created deindustrialization pressures, generated growing income inequality and degradation of the human ecosystem. Most of all, new market fundamentalism forcefully imposed (conservative) misconceptions regarding externalities and public support for research and innovation. These choices impose visible limits on future global growth prospects. Leaving aside the problem of ‘global warming’ for a moment, by 2050 the global economy will need double amount of material inputs if present inefficient production and consumption patterns are not changed soon. The world today trashes up to US $55 billion worth of outdated (but still functional) electronic equipment, wastes over US $80 billion worth of plastic goods and packaging, and as much as one third of the annual food production.  

This raises issues of sustainability of the neoliberal growth model. The 2008 crisis has proven that global cycles and crisis are likely to happen over and over again without a smart visible hand. It has also demonstrated that the challenges faced by core developed economies (the paradigm change, secular stagnation, productivity conundrum, and growing environmental costs) are not unique and provide valuable lessons for emerging and transition economies, as well as the underdeveloped periphery of the global economy.

In the post-crisis period, global enthusiasm subsided and transformed into islands of (local) skepticism and demands for shift towards more (smart) state intervention and unconventional policy measures. Unconventional monetary policies are particularly noteworthy as central banks commit to hold interest rates at near zero levels and secure stable exchange rates through asset acquisitions and sales. If sustained for longer periods, this may distort asset prices in relation to fundamentals and lead to misallocation of funds.

Economies on the periphery intensified the search for alternative growth model and often experimented with the  “heterodox policies”. In the longer run, present trends in most developed countries transforming entrepreneurial capitalism into rent-based one are likely to be reversed soon. This will rejuvenate the role of industrial policy and, again, put growing emphasis on  alternative manufacturing technologies found at the core of the Fourth Industrial Revolution.  

The search for new solutions changed the global context dramatically. Geopolitics reemerged on multiple fronts, with major political, economic, and social consequences. The global economic order was transformed from a multilateral liberal trade framework into a deal-based system. The resulting policies aimed at diverting growth from others through geopolitical leverage, rather than through creation of value added from new sources of growth, are obviously not sustainable. Moreover, new shifting alliances of interest frequently outweigh geography and history, and generate additional instability.

The Fourth Industrial Revolution (or Industry 4.0 for short) is a major underlying force. It gives rise to considerable hope, and feeds our deepest fears. The amalgam of technological breakthroughs in key fields (ICT, physical sciences and biological sciences) considerably exceeded the transformative power of the last industrial revolution. Expanding exponential value chains, represented in ever growing number of innovative start-ups and R&D laboratories, are changing the anatomy and the functioning of many industries. Connectivity, advanced manufacturing, genomics and green energy are particularly important in this regard.

As always, big tech means big impact, particularly vis-à-vis incumbents, the existing way of work and way of life. For example, e-commerce is breaking down barriers to global presence of start-ups, giving them opportunity that was once reserved for multinationals. Powering the digital economy, from bitcoin mining to cloud computing, digital infrastructure that powers our constant connectivity consumes almost 10 percent of electricity and could rival the energy demand, particularly in small economies. This may have a lasting impact on the outlook for energy as well as all natural resources.

Despite the influx of new technologies and innovative solutions, there are signs of productivity crisis in many areas. New technologies create considerable hope, but can also feed our deepest fears due to secular productivity crisis in the developed world. We do not have a plausible explanation for some obvious paradoxes and contradictions. If we are innovating more than ever and absorbing the social costs arising from job cuts, why are industries unable to become more efficient and recover the income lost in the process?

Emerging technologies trigger new challenges. Disruptive innovations provoke important political concerns due to a deepening skills gap and massive job displacement. The trade-off between labor and machines generates impact that is not socially affordable.
Last but not least, in the new context, there is a growing gap between the character of emerging technologies and economic policy platform, tools and mechanisms for their implementation. Namely, the intensity and scope of disruptive innovations are dismantling not only the traditional institutional choices based on market mechanisms, but also governance mechanisms and institutions. In defining national standards for emerging technologies, the process of trial and error in the market is being replaced with feedback loops from emerging businesses.

In this context, the definition of competitive advantage must go beyond the traditional focus on industrialization based on natural resources, technology transfer, and low-cost labor. In the new context, we observe the growing importance of infrastructure, particularly digital infrastructure (such as, for example, public cloud), as a democratizer of benefits embodied in the Fourth Industrial Revolution. This is particularly important in closing the skills gap by connecting education and science. A need for new governance protocols connecting human capital development and education is visible through mergers of ministries responsible for ICT and the youth seen in some quite prosperous economies.

The UN Sustainable Development Goals represent a widely accepted set of multidimensional results against which the effectiveness of the new policy platform can be evaluated achieving long-run sustainable growth.
With so many factors and relevant dimension, it is critical that the new growth model for Serbia earns full public trust needed to create a shared future in a sustainable welfare economy.
Progress Report on the Effectiveness of Recent Policies

On top of challenges posed by the Fourth Industrial Revolution and disruptions in the global economy, Serbia additionally faces the transitional output gap which may continue to be a source of substantial risks to securing financial sector stability and sustainable inclusive growth. On balance, this gives greater weight to internal stress factors over external ones typically faced by the majority of emerging and transition economies. The design of a smart growth model that can address such structural imbalances and resolve major systemic flaws and institutional gaps faced by Serbia gains paramount importance.

In the last three years, Serbia has been experiencing moderate economic recovery, with notable acceleration of GDP growth in 2018. Albeit positive and accelerating, the growth path is not yet sustainable nor sufficiently vibrant to close the gap with the EU countries.

Based on the World Bank estimates, Serbian GDP growth accelerated from 1.9 percent  in 2017 to 3.0 percent in 2018, which is still below the average for the Western Balkans (3.2 percent). Government latest forecast for 2018 GDP growth is more optimistic (4.5 percent) due to significantly stronger growth in agriculture than originally expected, as well as the larger volume of construction works than projected. Despite substantially exceeding the original growth forecast, the present economic recovery is not strong enough to yield long-run robust growth rates needed to secure the desired income convergence with the EU.

To succeed, Serbia needs a smart growth strategy that would enable it to grow faster and outperform its neighbors and other competitors. Simply put, the question is how can Serbia gain the competitive edge beyond the traditional industrialization based on its location, (natural) resources, innovations (technology transfer) and productive labor?

It is obvious that the current speed of growth is highly dependent on the structure of the economy. As shown during the 2000-2008 period, externally financed consumption led growth is not sustainable without strong investments and exports.

On the supply side, all of the production sectors have continued to make positive contribution to growth I  2018. Services remain the main growth driver, with a contribution of 1.9 percentage points followed by agriculture with 0.8 percentage points. The construction sector and industry  contributed  0.6 percentage points each.

Within services, the highest contributions to overall GDP growth came from trade, logistics, and tourism-led exports. Construction sector owed its leading role among real economy sectors to a sharp (double digit) real increase in the value of completed works. In the last three years agriculture experienced pronounced cyclical movements due to the effects of weather and climate change in the absence of irrigation and flood protection systems.
Investment activity and private consumption are the most important sources of growth on the expenditure side, contributing 2.3 percentage points each. As the result of improved foreign trade, the usual negative impact of net exports on economic growth has been weaker than expected, while government consumption had a positive contribution of 0.9 percentage points. Net taxes also made a positive contribution to growth due to higher personal consumption.

Albeit welcome, the recovery from recession to moderate growth recorded in the past three years still does not guarantee the sustainable growth dynamics necessary to eliminate the output gap, comfortably service the accumulated debt, secure convergence to EU income levels and quell rising social tensions and expectations built during a long period of economic stagnation.

If anything, it gave rise to improbable political and social desires of doubling the level of GDP per capita in a short period of time. To reach the level of GDP per capita Croatia had when it joined the EU, Serbian economy would need a 5 percent real average annual growth over the next 15 years or a 7 percent real growth over the next 10 years. To achieve 5-7 percent average sustainable long run growth, the sources of growth and the structure of economy would need to change dramatically, while continuously controlling the risks of the potential reemergence of twin deficits often associated with expansionary fiscal and pro-growth policies.

In the recent period, Serbian exports have increased significantly, partly owed to stronger global commodity prices (such as base metals, minerals and agricultural goods which constitute an important share of exports). Unfortunately, imports grew even faster and current account deficits widened. The growth of imports was driven by both capital goods and higher consumer demand.

During the first seven months of 2018, the current account deficit amounted to EUR 1.17 billion (almost 3 percent of GDP) which is lower than in the same period last year. The trade deficit worsened by 28.3% (EUR 0.59 billion), while the surplus in services balance increased by 22.3%. Factor income deficit decreased by EUR 201.4 million (i.e. 13.8 percent y-o-y) due mainly to lower interest payments. FDI amounted to EUR 1.42 billion, an increase of 0.3% compared to the same period in 2017. Foreign exchange reserves fell from 6.2 months of imports of goods and services in 2016, to 5.3 months in 2017, and returned to 6.0 months this year indicating sufficient stability and resilience of the external account despite some appreciation tendencies.
During the last four years both public and private investment are playing an increasingly important role both as the sources of current GDP and as means of expanding the productive capacity and competitiveness of the Serbian economy that would define its ability to address the challenges of the global economy and secure sustainable long run growth.

There are four possible long-run growth scenarios.

The first scenario assumes that the growth rate achieved in 2018 (4.5-5 percent) can be sustained over the long-term based on the existing set of policies and partial structural reforms coupled with sustained effort aimed at attracting FDIs and promoting investments and exports.

The second scenario assumes significantly faster long-run growth rates (5-7 percent) based on much more robust investment growth without much change in the policies or the speed of structural reforms. This scenario assumes that additional financing will be attracted from both domestic and external (bilateral) sources through extraordinary investment promotion and political commitment to faster development.  Securing  fiscal space for debt-financed robust investment growth will be the main challenge under this scenario as large borrowing commitments may lead to unsustainable debt levels in case of implementation delays or unfavorable external developments.

The third scenario also assumes faster GDP growth rates (5-7 percent annually) enabled by greater investment from large western investors attracted by faster and effective implementation of the necessary structural and institutional reforms aligned with the EU standards and regulations. Its main risk is the unpredictability of the speed of the EU integration process and the response of western investors.
The fourth scenario aims to achieve higher growth rates (again 5-7 percent or more) by attracting significant levels of foreign investment based on the elimination of all structural imbalances and the full implementation of institutional reforms. These reforms will be supplemented by smart industrial policy that would enable transformations necessitated by the ensuing global changes and disruptions triggered by the fourth industrial revolution. These include the changes in the way industrial processes are organized and connected with educational and social systems in a digital economy of the future.

Albeit the most demanding and ambitious, the fourth scenario offers a framework to address present institutional and structural weaknesses and promote smart growth that would enable Serbia not only to survive, but to actively address the coming global challenges and prosper in the long run.
Bold Ideas for Future Growth-Enhancing Policies

Future growth enhancing policies will have to take place in an increasingly complex world characterized by continued globalization and the overpowering impact of the changes brought about by the Fourth Industrial Revolution.

Although post-crisis globalization has slowed down in its initial domain (trade of physical goods and services), it has triggered deep structural changes in companies and industries. It changed the behavior of firms in the areas of R&D and innovations. Rational behavior prevailed over competition and generated cooperation among fierce competitors in searching new solutions. This is particularly obvious in the areas where digital technologies enable not only new forms of market interactions (continuous / online contact with consumers), and efficient search for market equilibria, but also allow better design of market regulation and government interventions in general.

The fourth industrial revolution is in full swing now. It brings the following major developments and challenges:

New efficient technologies which increasingly enable a reversal of recent massive off-shoring of production and related services to China, India, and other emerging economies. To continue to attract FDI, emerging economies will have to be more efficient overall rather than just offer cheap labor. Successful countries will need to provide competitive infrastructure and logistical services, top quality management, and efficient institutional and administrative environment. This will create space for shared prosperity through higher real wages and job security and, thus, reverse past trends of compensating inefficient government and institutional setup through lower wages.
Hyper connectivity which allows different organization of production, research and marketing functions, and substantially lowers the volumes of shipment requirements (ranging from printed documents to spare parts). The financial crisis stopped the exponential growth of global trade due to global recession. Post crisis revival is increasingly based on data flows: digital globalization proceeds at an extremely rapid pace utilizing the evolution of ICTs into hyper-connected systems. Internet has become omnipresent in work, leisure and social relations on billions of people.
Profound impact on the structure and dynamics of industries. The term industry has acquired a broader meaning. It indicates a capacity to organize production of goods and services to respond to market needs irrespective of the sector, from agricultural to manufacturing and services. Primary sectors (such as agriculture) are now seamlessly integrated with processing industry and saturated with innovation and knowledge. Likewise, high value added manufacturing goods are intersecting with and often bundled with services.
Need for new industrial policy. Predictably, this will trigger deep transformations which, based on experience, require a new type of comprehensive industrial strategy and policy. The depth and complexity of ensuing structural changes will require the inclusion of institutions (rules and regulation), social and education policies, and broader citizen participation at the regional and national level. Consistent with the broader definition of industry, industrial policy represents a set of actions aimed at enabling and facilitating structural changes, and steering industrial development in desired directions. Industrial policy looks at innovations, trade, intellectual property rights and antitrust laws, as well as human capital. Human capital in turn requires consideration of social policies, education and training.
Digital globalization which entails a complex transformation of the economy, the society and culture, has been based on major science and technological developments in high power computing, artificial intelligence, robotics, new materials, genomics and nanotechnologies. In addition to having a profound impact in single scientific fields, it allows developments across multiple fields that can converge to create completely new products and production processes.
Changing roles of training and education, as well as geography and governance. The entire education, training and learning systems will need to be rethought and adapted to changing circumstances brought about by the ensuing technological revolution. Comprehensive treatment of geography and the linkages to global ecosystem must gain primary importance in order to secure comprehensive competitiveness and long run sustainability.

In this context, the main challenge will be to create sufficient internal capacity to design and implement appropriate new industrial policy that would enable timely institutional and policy changes to keep the Serbian economy competitive. Breakthroughs in science and technology, which rest at the core of the fourth industrial revolution, have introduced disruptive changes across practically all industries.

The accelerated creation of new solutions, new products and new processes albeit impressive, does not represent a distinctive feature of the fourth industrial revolution compared to previous revolutions. Many leading authors in the field have identify similar periods of sustained technological changes, as well as convergence of different fields in the production process, as seen, for example, in the automobile industry. Likewise, each of the previous industrial revolutions introduced new technologies with a profound impact on the manufacturing regimes. The progression goes from the factory system brought by the first revolution, over mass production systems (assembly lines) introduced by the second, and flexible production systems enabled by the third, to mass customization to meet the demand which will dominate the world of the fourth industrial revolution. They also created unique interactions between economic, social and political conditions.

For example, the mass production system of the second industrial revolution was based on the division of production process into elementary tasks performed by well-trained relatively low-skilled workers under time constraint. This had predictable consequences on the educational requirements, income levels, social structure, organization of the labor force (unions), the structure and style of management, as well as the main characteristics of the urban rural divide and the nature of the polity.

The third industrial revolution in tandem with globalization introduced massive changes in the global division of labor towards emerging market economies. Starting from 1990’s, globalization promoted unprecedented growth of world trade and foreign direct investments in a world characterized by trade liberalization, massive transition from plan to market and the birth of emerging market economies. Industrial policy played a major role in facilitating deep structural transformation of the economy. Good examples include China, Slovakia, Czech Republic, and Slovenia. By contrast, lack of appropriate industrial policy and the dominance of chaotic and ill-conceived privatizations has been apparent in countries that experienced chronic difficulties during the transition process.
In addition to posing substantial challenges, the fourth industrial revolution offers a great opportunity to resolve the current global societal issues, such as demographic trends of population growth and population ageing, rapid and wide urbanization, as well as preservation of ecosystems and climate change.  This opportunity will be realized only if scientific, technical, and economic changes are accompanied by appropriate ethical, cultural, and social changes. To succeed it is critical to develop awareness, build resilience and promote sustainability in policymaking at the national and global level. In doing that, it is essential to respect and properly address the complexity of deeply related (intertwined) issues. To be successful facing in the sweeping changes likely to come with the Fourth Industrial Revolution, societies will need to enable true ethical, cultural and social metamorphosis.

Therefore, the new industrial policy must be comprehensive, and favor adaptation and adaptability, by promoting innovation and adoption of new technologies, adjustment in human capital, and provision of appropriate infrastructure.  Information has become the main raw material (input) and output. New technologies allow hyper-connection on a global scale between people, people and machine, and between machines (the so called IoT – Internet of Things). Global data flows are growing exponentially giving a small number of firms huge market power based on enormous amounts of data. This raises serious privacy and antitrust issues that require new legal solutions and enforcement mechanisms.

The volume of exports and imports in the world has not changed much since 2007, but the share of Asia has increased. China became the leader in global manufacturing value added, both in terms of levels and dynamics.  Furthermore, Asian countries are well positioned to respond to the challenges of the fourth industrial revolution. Based on their strong investment in R&D and in skills they are likely to further strengthen their position in global trade and manufacturing value-added.

New globalization is likely to generate exponentially growing data flows and stagnant trade of goods. Leading private companies (CISCO) estimate that mobile data traffic has increased 18-fold during the 2011-2016 period and is likely to expand another 7-fold increase in the future to 49 exa-bytes per month.  Again, the fastest growth is expected in Asia which will account for half of global data traffic by 2021.

Expectedly, smartphones are projected to be the main source of data traffic (43 percent) in 2021 followed by Machine-to-Machine data exchange (over 30 percent) without the involvement of humans. M-to-M data traffic is in fact the Internet-of-Things (IoT) is at the core of the fourth industrial revolution. Examples include GPS systems in cars, medical applications, patient health records and citizen data records, home and office security and automation systems, as well as the industrial Internet. In short, while the flows of physical goods and capital have come to a halt in the last decade following the global crisis, globalization has not stopped but has become digital, including substantial portion of huge financial flows which have become digital too.
More detailed view reveals the supply side changes as well as deep transformation of the demand side of markets. The revolution in the interaction between consumers and producers has already happened and will continue to evolve based on online platforms. Obvious examples are new businesses such as Uber and Airbnb which have deep implications for the operation of the markets and position of incumbent firms in existing industries. Interaction between producers and consumers is also changing, as well as the nature of products and services. Many manufacturers and companies in general claim that they now sell solutions rather than products. Competition intensifies due to low cost of entry through new platforms and ability to customize products and services to specific needs. This also raises issues of competition policy.

New data platforms are able to create enormous bases of personal information without consumers consent or awareness, especially information revealed through the use of online markets and applications. This raises issues of product and services regulation, as well as privacy, market and political power. Firms such as Google, Amazon, Facebook and Apple have acquired monopolistic dominance that dwarfs the historical examples of Standard Oil.

In short, the fourth industrial revolution has already had a deep and lasting impact on all industries, on both the supply and the demand side of goods and services. To enable the economy to efficiently and effectively respond to past and forthcoming challenges adequate macroeconomic and industrial policy will have to be accompanied with a significantly improved public and private investment effort. Presently, the size is too small, the structure is not aligned with likely infrastructure and human capital (knowledge) gaps, the efficiency is too low, and the efficacy in achieving stated objectives is inadequate.

Major improvements are needed in public investment planning, from identification to preparation, appraisal and implementation. Obvious areas for plausible interventions include building capacity for critical stages of selecting investment priorities, doing quality project preparation, competitive financing and implementation. In terms of structure, public investment will be expected to devote an increasing share to human capital development, ICT and connectivity, science, R&D and innovations, while meeting the highest international standards. Finally, public investment must be smart and focused on enabling and crowding in private investment aligned with the demands of the global economy.

In addition, a strong effort will be needed to design and implement a transparent incentive system for efficient private investment that would successfully apply the most recent technological changes and respond to challenges posed by the Fourth Industrial Revolution.

In conclusion, we would like to stress that the true spirit and tradition of KBF is to promote bold ideas that can help us better understand the challenges and potential of the so called Industry 4.0  and the paradigm change it will bring to the fields of economics and business management. The aim of KBF 2019 is to motivate all participants to understand and actively shape the emerging  economic and business ecosystem striving to embark on an innovation-driven global economy based on universal mobility. The intention is to promote the idea of exponential value chains, particularly in the context of ongoing scientific and technological transformations, by engaging business leaders from different industries, along with their peers from government and regulatory bodies in an effort to define sustainable and inclusive development trajectories. In these interactions under new rules of the game, scholars are expected to play the role of a catalyst, while politicians will act as integrators and visionaries defining the scope of relevant impact.

As organizers of the Forum, we strive to sustain a network of influential stakeholders from all the relevant fields and structure regular interactions through debates, dialogue, and knowledge sharing. Our vision is to become a true force for a better Serbia by creating consensus on fertile and feasible ideas that could help overcome persistent economic problems and form a foundation of a sustainable economy converging to European Union income levels and social welfare. Again, the choice to participate in the Forum is up to you!