Croatian economy: will nationalisation bring home the bacon?

Unemployment across districts of Croatia August 2012 Photo: screen shot from Croatian Employment Bureau website

Whether Croatia’s current government’s dramatic moves to turn the economy around and create jobs that will bring home the bacon for multitudes of unemployed (at 301, 583 or 17.6% unemployed at end of August 2012/ the figure of 20% unemployed in April 2012 has been reduced due to temporary seasonal employment in tourism) is a matter of wait and see.

After minister of finances, Slavko Linic, published in July the “Pillar of Shame”, naming those owing the State coughers significant tax debts only around 7.4 Million EURO of this debt, out of about 5 Billion EURO has made its way into the tax office by end of August 2012, hence removing about 126 out of some 130,000 tax debtors from the “Pillar of Shame”.

This dramatic move to publish the names of tax debtors does not seem to have had the effect Linic was hoping for, at least not yet.  It’s unlikely it will in the longer run if due to nothing else then due to the fact that capacity to honour tax debts for most debtors has hit through the bottom of the barrel a long time ago and little seems to have been done in reviving failing small to medium businesses (or helping create new ones), which usually form a significant part of the backbone in a thriving economy.

Instead of supporting domestic business where it counts (including the development, training, motivation of people in business arena, creating conducive financial assistance including purpose credit lines and/or subsidies, building a healthy competitive economic market within Croatia, etc.) Linic is now looking into massive abandonment of homegrown business leadership potential and extending his neck beyond Croatia’s borders.

Another dramatic move, which unlike the tax debt “Pillar of Shame” has far-reaching negative implications in the areas of domestic participation in and ownership of the country’s economy and work force optimism.

It’s a sad commentary indeed on Croatia’s political system under the current government that a major move is afoot where the government plans to nationalise (take into government ownership, just as it used to be under Communist Yugoslavia) an overwhelming number of struggling companies and sell them to foreign investors. Of course, foreign investment is the buzz word of the day for every economy but rules for associated domestic employment seem somewhat relaxed in Croatia. I.e., it’s not unusual to see a foreign investor bringing into Croatia a foreign work force, particularly in business administration and market penetration; leaving the domestic hopefuls without of a chance. portal reports that “in the manner of old Communist potentates minister of finances Slavko Linic has announced that some 200 public servants will nationalise 20,000 out of 38,533 of domestic companies whose accounts have been under a blockade for several months. Three-member committees comprising of ministry of finances employees will be deciding on whether the State or the banks will recoup their dues from the struggling companies by entering into the companies’ ownership structure. After the companies are raised to their feet again, the State will sell its ownership share, mainly to foreign investors…”

Croatian government’s engagement in saving so many companies can only be seen as stifling the development of healthy domestic business and competition. A similar plan was attempted by the former HDZ (Croatian Democratic Union) government but failed as unworkable.

Privatisation of Government owned companies and other assets, such as property, in Croatia during 1990’s was a nest of obscene corruption and thievery – for private gain of individuals. Furthermore, it did not have as its essential component the development of the work force and foreign and domestic capital into an entrepreneurial platform that would revive and grow the economy. It was pure personal greed in those who managed to purchase government owned assets at a ridiculously low price that was often far below actual value. Hence, Croatia had created tycoons out of paupers, almost overnight.

It would seem that minister Linic is creating a repeat of the effects of the widely suspect privatisation that went on in Croatia before. I.e., in the name of debt private ownership will slip into government ownership so that it can be pushed back into private ownership – this time though, into private ownership of foreigners.

Analyst Damir Novotny has been quoted as saying that “he considers Croatia to be in a specific situation that doesn’t exist anywhere else in the EU. The practice of lasting account blockades of companies owing money, from which accounts creditors and banks can draw whenever they wish and for which the Government calculates penalty interest rates is completely unknown in the EU”.

The Croatian business entrepreneurs who might need some help in developing and kick-starting production and competition or individuals deserving support in developing business administration and operation support (as it should be the practice in all ex-Communist countries that severely lacked private participation in country’s economy) are losers once again. Their future prospects have been harshly circumvented by Linic’s privatisation plan that counts on foreign money and fails miserably at providing opportunities for the relatively impoverished domestic individuals who from no fault of their own, but from fault of having lived under Socialism for decades, are simply not in the position to compete with foreigners even though their potential is great. The earning potential and opportunity to earn the daily bread for home-grown unemployed in this new Linic scheme seems quite low indeed. Ina Vukic, Prof. (Zgb); B.A., M.A.Ps. (Syd)

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