Hannes H. Gissurarson: It Usually Starts with Hayek

The Austrian Economics Center in Vienna has been giving out the annual Hayek Lifetime Achievement Award for more than a decade. Past recipients include scholars such as Niall Ferguson, Deirdre McCloskey and Arthur B. Laffer, public intellectuals such as Mario Vargas Llosa and entrepreneurs such as Peter Thiel and Richard J. Stephenson. This year the recipient of the Award is remarkable in that he is not only a scholar, but also a public intellectual and entrepreneur.

Veselin Vukotic was born on 5 August 1949 in Piperi in Northeastern Montenegro, the son of Napoleon Vukotic and his wife Ljubica, born Ivanovic. His country is small by European standards, 14,000 square kilometres, with 620,000 inhabitants. Montenegro had been an independent principality and later kingdom, until she became a part of the Kingdom of Yugoslavia after the First World War. In 1945, the communists seized power in Yugoslavia and established a one-party state. Vukotic grew up under communism which divided many families. Indeed, both his father and his uncle were for a while in labour camps on islands in the Adriatic Sea.

As a young man, Vukotic was an avid and accomplished football player, and he faced the choice between becoming an economist or a professional football player. Fortunately for Montenegro, he chose economics. When Vukotic was in his first year at university, he joined a student newspaper which dared to introduce new ideas instead of towing the party line. But he and his friends were threatened with trial and imprisonment simply for speaking their mind. Nevertheless, Vukotic maintained his intellectual independence. He completed his master’s degree in economics at the State University of Montenegro in 1977 and his doctorate at the University of Belgrade in 1980. He is married to Ljiljana, born Kovacevic. They have three daughters, Milica, Milena and Marija. It is interesting how Vukotic encountered Austrian economics. When he was writing his doctoral dissertation, he spent some time in Moscow where one of the teachers attacked an ‘Austrian reactionary’ by the name of Friedrich Hayek. Vukotic decided to find out for himself what this notorious reactionary was teaching. He started reading Hayek’s work and soon became convinced by his arguments. I must add that this was also my road to freedom, discovering Hayek’s profound defence of the free society.

After graduating, Vukotic became assistant professor at the State University of Montenegro. There he started a roundtable, the University Tribune, where distinguished speakers were invited to discuss the many and complicated problems of Yugoslavia with his students. Vukotic taught his students about the explanatory power of Austrian economics, as presented by Carl Menger and his disciples such as Hayek. They emphasised that economic activities and processes had to be explained by reference to individuals making choices and that mathematical models and statistical aggregates could not act on their own, however interesting they might be.  

Meanwhile, Yugoslavia was undergoing great political changes. Since the end of the war, Josip Broz Tito had ruled the country with an iron hand, although he had allowed more economic freedom than other communist leaders, but after Tito’s death in 1980 his successors found it difficult to cope with the tensions between the country’s many nationalities. The collapse of the communist regimes in other Central and Eastern European countries in 1989 also had a great impact in Yugoslavia.  

By now, socialism as an economic system was totally discredited all around world, and economic liberalism had suddenly found an audience. Ideas were conspiring with circumstances, in John Stuart Mill’s happy phrase. Vukotic was a member of the Montenegro government between 1986 and 1989, and a member of the last federal government of Yugoslavia in 1989–1992 where he was in charge of privatisation and entrepreneurship. But the centrifugal forces in the country were too strong for Yugoslavia to survive. Both Slovenia and Croatia declared their independence in June 1991, and by the next year Yugoslavia had ceased to exist, as Macedonia and Bosnia-Hercegovina also broke away. Montenegro was in a union with Serbia until 2006 when a majority voted for independence. It was a turbulent and indeed traumatic time for Montenegro, and it was difficult to keep a level head, but Vukoti? managed to do so.

After the dissolution of Yugoslavia, Vukotic returned to the university and founded a postgraduate programme in entrepreneurial economics. It was the first programme at the university financed by students’ fees, and also the first one to be conducted in English. Among the foreign scholars involved in the programme were the prominent economists Steve Pejovich and Enrico Colombatto. Needless to say, entrepreneurs play a crucial role under capitalism, as Hayek had stressed. Capitalism without entrepreneurs is like the Cheshire cat: no cat, only a mischievous grin. Vukotic also established the Institute for Strategic Studies and Prognoses, ISSP, which became very influential in Montenegro. In 1998, Vukotic published a book, The Conceptual Basis of the New Economic System in Montenegro, where he explained and defended economic freedom. Many of the reforms subsequently implemented in Montenegro can be attributed to his influence. For example, tariffs were lowered from around 30 per cent to 2.9 per cent, and in a few years, around 80 per cent of Montenegro’s economy was privatised.

One of the greatest challenges for Montenegro was how to prepare for independence and how to integrate herself into Europe. Vukotic  taught that the only way to meet this challenge was to abolish the Yugoslav dinar and adopt the Deutsche Mark. This was done in 1999, and when the euro replaced the Deutsche Mark, Montenegro adopted the euro, in 2002. People may disagree on which monetary system is most convenient for a small, open economy, but in the circumstances this was a sensible choice and paved the way for Montenegrin independence. This also meant that any discretionary power of the domestic monetary authority was essentially abolished, as had been the case before the First World War where the monetary system was based on the gold standard.

Here I would like to add an observation about small states. They are sometimes dismissed as irrelevant fantasies. But the fact is that economic integration facilitates the emergence of small states because economic integration enables them to benefit from the international division of labour. The larger the economic unit is, the smaller the political unit can be. This is of course what Adam Smith had observed: the division of labour is limited by the extent of the market. The more extensive the market, the more possibilities would there be for self-governing communities. Indeed, in themselves they are desirable. As Hayek wrote in The Road to Serfdom: ‘In a small community common views on the relative importance of the main tasks, agreed standards of value, will exist on a great many subjects. But their number will become less and less the wider we throw the net: and as there is less community of views, the necessity to rely on force and coercion increases.’ Hayek added: ‘It is no accident that on the whole there was more beauty and decency to be found in the life of the small peoples, and that among the large ones there was more happiness and content in proportion as they had avoided the deadly blight of centralisation.’

The economic reforms in Montenegro were largely implemented by Vukotic’s students, including Milo Djukanovic, who has long been the dominant political leader in the country and who is now Montenegro’s president. Early on, Vukotic had realised the great potential Djukanovic had as a political reformer. Indeed, once on a train ride with his students, he told one of his colleagues: Look carefully at this young man. He is going to make a difference. The reforms in Montenegro greatly strengthened the economy and enabled the country to emerge as an independent state in 2006. Vukotic’s institute, the ISSP, played an important role in this process, and it is still the most important research institute in Montenegro. But Vukotic did not rest on his laurels. He wanted more opportunities to pursue his scholarly interests, especially about entrepreneurship. In 2007, Vukotic, with an old colleague, Dragan Vukcevic, started a private university, the University of Donja Gorica, UDG, located near the capital, in a business district. One after another the faculties were founded, and in 2010 they were integrated into a university. Today, UDG has 3,500 students, and it is a modern, dynamic, vibrant place, with extensive international connections.

Vukoti? was one of the first individuals from the former communist countries in Central and Eastern Europe to join the Mont Pelerin Society, an international academy of conservative and classical liberal scholars and men of public affairs, and for a while he served on its board. The Mont Pelerin Society was founded in 1947 by Friedrich von Hayek, Karl R. Popper, Ludwig von Mises, Milton Friedman, Bertrand de Jouvenel and other writers and scholars. I served as a Board member between 1998 and 2004 and it was with great interest and sympathy that we observed how a few courageous political and intellectual leaders in Central and Eastern Europe fought for freedom, both economic and personal. Coming like Vukotic from a tiny outpost of Europe, in my case Iceland, I think I can more than most appreciate his efforts to build a free society in his country. He is both an educator and an entrepreneur. This award is richly deserved.

Hannes H. Gissurarson är professor i Statsvetenskap vid Islands Universitet. Han har skrivit mer än 15 böcker på engelska och isländska, tjänstgjort i styrelsen för Mont Pelerin Society och Islands centralbank, och har varit visiting scholar vid ett flertal universitet, däribland Stanford och UCLA

Read Veselin Vukotic acceptance speach here.