Why growth without institutional reform risks becoming fragile progress
Montenegro’s deepest structural problem is what could be described as a form of state-political capitalism — a system in which politics functions as a marketplace of privileges. In such an order, the state is not merely a regulator, but the largest employer, investor and distributor of opportunity. The economic consequence is the gradual replacement of an entrepreneurial spirit with a rent-seeking one.
When access to budgets, permits and monopolies becomes more attractive than innovation and competition, energy shifts away from value creation toward proximity to power. The result is not only slower productivity growth, but an erosion of human, social and even emotional capital — foundations of long-term development.
With nearly 80,000 employees across public administration and state-owned enterprises — roughly every third employed person — Montenegro has moved far from the idea of a lean, efficient “micro-state” and toward a bureaucratic structure that absorbs rather than generates dynamism.
At the same time, visibility increasingly substitutes substance. Branding campaigns, ribbon-cuttings and promotional narratives often displace the more difficult and less visible reforms: efficient courts, stable rules of the game, depoliticised regulators and genuine market competition. As Eduardo Galeano once noted, packaging can overtake content. Yet visibility only buys time; competitiveness builds the future. Echoing Friedrich Hayek, what ultimately matters are the rules that structure the order, not the intentions of decision-makers.
GDP growth alone offers limited insight into resilience, particularly in a small, import-dependent and undiversified economy. More telling indicators include productivity levels, the share of investment in GDP, fiscal stability, debt sustainability and the health of the financial system. Public debt as a percentage of GDP may appear stable, but debt per capita reveals the actual burden carried by citizens — a figure that has risen significantly in recent years. Even international projections point to widening deficits and rising debt levels by the end of the decade, underscoring the need to assess vulnerability beyond headline growth rates.
In a world marked by deglobalisation, regionalisation and more cautious capital flows, Montenegro’s development limits are not predetermined — but they can narrow if domestic risks persist. Unpredictability, institutional weakness and reliance on consumption-driven fiscal expansion undermine credibility. Development boundaries expand when internal risks shrink: clear rules, rule of law, transparent public investment management and genuine space for private capital.
If Montenegro seeks long-term relevance rather than short-term expansion, it must abandon pro-cyclical populism in which wages and consumption grow faster than productivity, financed by debt or ad hoc tax measures.
It must also move beyond nostalgic industrial narratives. The coming decade will be shaped less by the return of large factories and more by automation and artificial intelligence. Ignoring that shift risks preparing for a past that will not return.
The first priorities of any serious ten-year strategy would therefore include establishing a fiscal anchor, rationalising public-sector wage growth, redirecting expenditure from current consumption toward productive capital projects, and strengthening institutions that lower the cost of capital by increasing trust. These are reforms that do not generate immediate applause — but they determine whether growth is sustainable or merely cyclical.
