Croatia's economy after stabilisation

Europe - Asia Studies

Volumn 49, Issue 4, 1997, Pages 669-691

  Franičević, Vojmir ^a   Kraft, Evan ^a  

^a UNIVERSITY OF ZAGREB   (Croatia)

Author keywords

[No Author keywords available]

Indexed keywords

ECONOMIC CONDITIONS; INFLATION CRISIS; NATIONAL ECONOMY; STABILISATION PROGRAMME;

CROATIA;

EID: 0031455449     PISSN: 09668136     EISSN: None     Source Type: Journal    
DOI: 10.1080/09668139708412466     Document Type: Article

References (97)

1. For a detailed examination of the effect of separation and reduced decisional complexity on macroeconomic outcomes in the former Yugoslav Republics of Slovenia, Croatia and Macedonia, see Evan Kraft, 'Stabilising Inflation in Slovenia, Croatia and Macedonia: How Independence has Affected Macroeconomic Policy Outcomes', Europe-Asia Studies, 47, 3, 1995, pp. 469-492.
2. Direct and indirect war damage had been estimated at about 20 billion dollars before the 1995 military actions.
3. As argued by Franičević, democracy vs. economic efficiency and accumulation vs. legitimation are the most critical trade-offs. Vojmir Franičević, 'The Economic vs. Political Good Tradeoff in East and Central Europe: Problems of Accumulation and Legitimation in Achieving Market Society and Economic Growth', paper presented at conference on East Europe: Between Western Europe and East Asia, Aalborg, 19-21 May 1994, mimeo, pp. 1-17.
4. A useful theoretical concept most fully developed by American radical economists, see e.g. David Gordon, Richard Edwards & Michael Reich, Segmented Work, Divided Workers: The Historical Transformation of Labor in the United States (Cambridge, Cambridge University Press, 1982).
5. An earlier version of this article was presented at the School for Policy Studies, University of Bristol, Conference on Economic Reconstruction and Development Policies in the Yugoslav Successor States, 27-28 June 1996.
6. Drago Buvač, Siom hiperinflacije ili Jugoslavije? (Ljubljana, Cankarjeva Založba, 1990); David Dyker, Yugoslavia: Socialism, Debt and Development (New York, Routledge, 1991).
7. Drago Buvač, Siom hiperinflacije ili Jugoslavije? (Ljubljana, Cankarjeva Založba, 1990); David Dyker, Yugoslavia: Socialism, Debt and Development (New York, Routledge, 1991).
8. Kraft, 'Stabilising Inflation . . . '.
9. Stanley Fischer, Ratna Sahay & Carlos Vegh, 'Stabilization and Growth in Transition Economies: The Early Experience', Journal of Economic Perspectives, 10, 2, Spring 1996, pp. 45-66.
10. The critics were mainly from the 'populist' wing of the HDZ, as opposed to the 'technocratic' wing.
11. Zoran Anušić, Velimir Šonje & Željko Rohatinski, Road to Low Inflation (Zagreb, Government of the Republic of Croatia, 1995).
12. Velimir Sonje, 'Relative Price Variability, Inflation and Stabilization in Croatia', in Željko Rohatinski (ed.), Croatian Economic Survey 1994, Ekonomski Institut-Zagreb and Narodna Banka Hrvatske, pp. 63-78.
13. An agreement with the London Club of commercial banks would be achieved in May 1996.
14. Državni Zavod za makroekonomske analize i prognoze (DZMAP), Gospodarska Kretanja u Hrvatskoj, Zagreb, October 1995, p. 18.
15. The data for 1994 are from Državni Zavod za Statistiku (DZZS). The data for 1995 are from NBC Bulletin, April 1996, p. 12. The DZZS gives 40.2% growth in 1995, but this is highly misleading. It compares the average in 1995 with the average in 1994 without taking into account (1) that hot meals were counted as part of net pay starting in late 1994, (2) that fast wage growth in 1994 means that a comparison of the average wage in 1995 to the average wage in 1994 reflects wage growth in the second half of 1994 more than wage growth in 1995. We calculated total wage and non-wage payments to workers using data from the ZAPP (Payments Bureau), and found that average compensation was 13% higher in 1995 than in 1994 in real terms.
16. It should be mentioned that delays in paying wages were also extremely common, with many workers waiting three or even six months for their pay.
17. According to City Trust, '1993 has been considered to be economically the worst until now in Croatia. Still with some certainty it can be said that . . . 1995 has been worse than the bad 1993', City Trust, Business Review, 4, 1-2, 1996, p. 17.
18. National Bank of Croatia, Bulletin, April 1996, Table H2, p. 52.
19. Sirotković argues that disinvestment is in fact taking place. Jakov Sirotković, 'Struktura hrvatskog gospodarstva i stabilizacijska politika', in Restrukturiranje gospodarstva u tranziciji (Restructuring Transnational Economies), Ekonomski fakultet Zagreb (conference proceedings), 7-9 November 1995, Vol. 1: pp. 349-359.
20. Državni Zavod za Statistiku, Monthly Statistical Report, 1996, 5. Employees at the Ministries of Internal Affairs and Defence, as well as independent farmers, are not included.
21. According to data from ZAPP and DZS interpreted in Marija Kaštelan-Mrak & Maja Vehovec, 'Dynamics of Small Business Sector Development in the Transitional Economy of Croatia', paper presented at the conference on 'Small and Medium Sized Enterprises and Economic Development', University of Rijeka, Faculty of Economics, 17-19 November 1995 (published in Zbornik radova, 13, 2, 1996, pp. 61-79), the number of (not only registered but active) small firms (employing up to 50) grew from 14 641 in 1991 to 49 308 in 1994. The number of employed persons grew in the same period from 136 266 to 185 901 (+ 49 635). For medium firms (employing up to 250) the corresponding data are: in 1991, 1383 firms with 244 876 employed, and in 1994, 1229 firms employing 186605 (-58 271); for large firms, 480 in 1991 and employing 502 152; in 1994, 517 firms employing 405 404 (-96 748). Evidently the small business sector, dominated by private firms (private from the onset) has not been able to absorb all the workers from the troubled ex-socialist sector. More than this, 'while the rate at which small . . . businesses have been evolving may seem satisfactory, the activity structure of this new sector raises some doubts about its efficiency and impact on Croatia's long-run development' (p. 17). These doubts are especially caused by two sets of concerns: the first is constrained growth (finance and unfavourable trends in larger firms' sectors), the second is the sectoral structure (trade is the dominant activity). Their paper seems to lead to the same conclusion as ours: restructuring of large firms, especially those in manufacturing, is essential for the future of small firms in Croatia. Vojmir Franičević, 'Markets, hierarchies, networks and small firms: some policy considerations', paper presented at the conference on 'Small and Medium Sized Enterprises and Economic Development', University of Rijeka, Faculty of Economics, 17-19 November 1995. Published in Zbornik radova, 13, 2, 1996, pp. 285-301.
22. According to data from ZAPP and DZS interpreted in Marija Kaštelan-Mrak & Maja Vehovec, 'Dynamics of Small Business Sector Development in the Transitional Economy of Croatia', paper presented at the conference on 'Small and Medium Sized Enterprises and Economic Development', University of Rijeka, Faculty of Economics, 17-19 November 1995 (published in Zbornik radova, 13, 2, 1996, pp. 61-79), the number of (not only registered but active) small firms (employing up to 50) grew from 14 641 in 1991 to 49 308 in 1994. The number of employed persons grew in the same period from 136 266 to 185 901 (+ 49 635). For medium firms (employing up to 250) the corresponding data are: in 1991, 1383 firms with 244 876 employed, and in 1994, 1229 firms employing 186605 (-58 271); for large firms, 480 in 1991 and employing 502 152; in 1994, 517 firms employing 405 404 (-96 748). Evidently the small business sector, dominated by private firms (private from the onset) has not been able to absorb all the workers from the troubled ex-socialist sector. More than this, 'while the rate at which small . . . businesses have been evolving may seem satisfactory, the activity structure of this new sector raises some doubts about its efficiency and impact on Croatia's long-run development' (p. 17). These doubts are especially caused by two sets of concerns: the first is constrained growth (finance and unfavourable trends in larger firms' sectors), the second is the sectoral structure (trade is the dominant activity). Their paper seems to lead to the same conclusion as ours: restructuring of large firms, especially those in manufacturing, is essential for the future of small firms in Croatia. Vojmir Franičević, 'Markets, hierarchies, networks and small firms: some policy considerations', paper presented at the conference on 'Small and Medium Sized Enterprises and Economic Development', University of Rijeka, Faculty of Economics, 17-19 November 1995. Published in Zbornik radova, 13, 2, 1996, pp. 285-301.
23. According to data from ZAPP and DZS interpreted in Marija Kaštelan-Mrak & Maja Vehovec, 'Dynamics of Small Business Sector Development in the Transitional Economy of Croatia', paper presented at the conference on 'Small and Medium Sized Enterprises and Economic Development', University of Rijeka, Faculty of Economics, 17-19 November 1995 (published in Zbornik radova, 13, 2, 1996, pp. 61-79), the number of (not only registered but active) small firms (employing up to 50) grew from 14 641 in 1991 to 49 308 in 1994. The number of employed persons grew in the same period from 136 266 to 185 901 (+ 49 635). For medium firms (employing up to 250) the corresponding data are: in 1991, 1383 firms with 244 876 employed, and in 1994, 1229 firms employing 186605 (-58 271); for large firms, 480 in 1991 and employing 502 152; in 1994, 517 firms employing 405 404 (-96 748). Evidently the small business sector, dominated by private firms (private from the onset) has not been able to absorb all the workers from the troubled ex-socialist sector. More than this, 'while the rate at which small . . . businesses have been evolving may seem satisfactory, the activity structure of this new sector raises some doubts about its efficiency and impact on Croatia's long-run development' (p. 17). These doubts are especially caused by two sets of concerns: the first is constrained growth (finance and unfavourable trends in larger firms' sectors), the second is the sectoral structure (trade is the dominant activity). Their paper seems to lead to the same conclusion as ours: restructuring of large firms, especially those in manufacturing, is essential for the future of small firms in Croatia. Vojmir Franičević, 'Markets, hierarchies, networks and small firms: some policy considerations', paper presented at the conference on 'Small and Medium Sized Enterprises and Economic Development', University of Rijeka, Faculty of Economics, 17-19 November 1995. Published in Zbornik radova, 13, 2, 1996, pp. 285-301.
24. According to data from ZAPP and DZS interpreted in Marija Kaštelan-Mrak & Maja Vehovec, 'Dynamics of Small Business Sector Development in the Transitional Economy of Croatia', paper presented at the conference on 'Small and Medium Sized Enterprises and Economic Development', University of Rijeka, Faculty of Economics, 17-19 November 1995 (published in Zbornik radova, 13, 2, 1996, pp. 61-79), the number of (not only registered but active) small firms (employing up to 50) grew from 14 641 in 1991 to 49 308 in 1994. The number of employed persons grew in the same period from 136 266 to 185 901 (+ 49 635). For medium firms (employing up to 250) the corresponding data are: in 1991, 1383 firms with 244 876 employed, and in 1994, 1229 firms employing 186605 (-58 271); for large firms, 480 in 1991 and employing 502 152; in 1994, 517 firms employing 405 404 (-96 748). Evidently the small business sector, dominated by private firms (private from the onset) has not been able to absorb all the workers from the troubled ex-socialist sector. More than this, 'while the rate at which small . . . businesses have been evolving may seem satisfactory, the activity structure of this new sector raises some doubts about its efficiency and impact on Croatia's long-run development' (p. 17). These doubts are especially caused by two sets of concerns: the first is constrained growth (finance and unfavourable trends in larger firms' sectors), the second is the sectoral structure (trade is the dominant activity). Their paper seems to lead to the same conclusion as ours: restructuring of large firms, especially those in manufacturing, is essential for the future of small firms in Croatia. Vojmir Franičević, 'Markets, hierarchies, networks and small firms: some policy considerations', paper presented at the conference on 'Small and Medium Sized Enterprises and Economic Development', University of Rijeka, Faculty of Economics, 17-19 November 1995. Published in Zbornik radova, 13, 2, 1996, pp. 285-301.
25. Nevenka Čučković, The Privatization Process in Croatia and its Impact on the Distribution of incomes and welfare', Razvoj/Development International, 9, 1-2, p. 60; Guste Santini, 'Pretvorba', Ekonomija, 1995, 1 (6-7), p. 421.
26. Nevenka Čučković, The Privatization Process in Croatia and its Impact on the Distribution of incomes and welfare', Razvoj/Development International, 9, 1-2, p. 60; Guste Santini, 'Pretvorba', Ekonomija, 1995, 1 (6-7), p. 421.
27. Dražen Kalodera, 'Preobrazba ili privatizacija', in Upotrazi za vlasnikom (Zagreb: Gospodarska komora Hrvatska and CROMA), pp. 61-80; Ivo Bićanić, 'Privatisation in Croatia', East European Politics and Society, 7, 3, pp. 422-439, Čučković, 'The Privatisation Process'; various contributions in Santini, 'Pretvorba.
28. Dražen Kalodera, 'Preobrazba ili privatizacija', in Upotrazi za vlasnikom (Zagreb: Gospodarska komora Hrvatska and CROMA), pp. 61-80; Ivo Bićanić, 'Privatisation in Croatia', East European Politics and Society, 7, 3, pp. 422-439, Čučković, 'The Privatisation Process'; various contributions in Santini, 'Pretvorba.
29. Dražen Kalodera, 'Preobrazba ili privatizacija', in Upotrazi za vlasnikom (Zagreb: Gospodarska komora Hrvatska and CROMA), pp. 61-80; Ivo Bićanić, 'Privatisation in Croatia', East European Politics and Society, 7, 3, pp. 422-439, Čučković, 'The Privatisation Process'; various contributions in Santini, 'Pretvorba.
30. Dražen Kalodera, 'Preobrazba ili privatizacija', in Upotrazi za vlasnikom (Zagreb: Gospodarska komora Hrvatska and CROMA), pp. 61-80; Ivo Bićanić, 'Privatisation in Croatia', East European Politics and Society, 7, 3, pp. 422-439, Čučković, 'The Privatisation Process'; various contributions in Santini, 'Pretvorba.
31. According to rough estimates of the Croatian Privatisation Fund (CPF), only DM 23 billion underwent the transformation process, while about DM 37 billion was excluded. Most of the excluded part consisted of public enterprises: INA, the oil company, which alone accounts for 20% of the economy's total capital and nearer to 30% of exports, Croatia Electricity, Croatia Telephone and Telegraph, Croatia Railways, Croatia Forests, Croatia Television and Croatia Roads, Santini, 'Pretvorba', p. 422.
32. Narodne Novine, 1996, 21 (March).
33. Actually, these processes had already been started in former Yugoslavia in 1989 with the federal Law on the Transformation of Social Capital. For a good critical review of the 1991-94 period see Čučković, 'The Privatization Process', pp. 51-70.
34. A few enterprises neither completed transformation nor were taken into the public sector.
35. Kalodera, 'Preobrazba ili privatizacija'; Bićanić, 'Privatisation in Croatia'; Čučković, 'The Privatization Process'; Santini, 'Pretvorba'.
36. Kalodera, 'Preobrazba ili privatizacija'; Bićanić, 'Privatisation in Croatia'; Čučković, 'The Privatization Process'; Santini, 'Pretvorba'.
37. Kalodera, 'Preobrazba ili privatizacija'; Bićanić, 'Privatisation in Croatia'; Čučković, 'The Privatization Process'; Santini, 'Pretvorba'.
38. Kalodera, 'Preobrazba ili privatizacija'; Bićanić, 'Privatisation in Croatia'; Čučković, 'The Privatization Process'; Santini, 'Pretvorba'.
39. It is interesting to note the contrast between privatisation in Slovenia and Croatia. In Slovenia, after a heated debate over a privatisation law, a balance was struck between outsider and insider control. Workers and managers were given the opportunity to buy 51% or even more of the firm, but the possibility of privatising to outsiders via investment funds was also maintained. In practice, worker-management buy-outs have been highly popular. In Croatia, however, worker-management buy-outs were seriously constrained by law, yet institutional investors were not allowed to function either until the end of 1995, resulting in a very slow privatisation process susceptible to close political control.
40. Voucher-based plans were not seriously considered in Croatia. Such plans would have had the 'defect' of offering little opportunity to control into whose hands ownership would go. Only recently, faced with failure to privatise a major part of the economy, has the government changed its position: a modest voucher plan for about 300 000 eligible citizens has been introduced, and a major one is under consideration. Of course, voucher plans have important weaknesses, such as failing to bring fresh capital into firms, and, usually, dispersing ownership quite broadly. Nonetheless, in a situation with extremely low domestic saving, and lagging privatisation, the speed and cheapness of vouchers could have been useful.
41. For a thorough study of managerial behaviour in privatisation see Drago Čengić, Manageri i privatizacija: Sociološki aspekti preuzirnanja poduzeća (Zagreb, Alinea, 1995). Some managers were successful in their bids to buy shares even after the amendments to the privatisation laws, using various methods.
42. 'Recapitalisation' dilutes existing shareholders' stake without their consent. It has been done by turning bank credits into additional equity and by securing additional outside investment. Recapitalisation has proved especially effective as a method to disenfranchise workers and managers, since it can be done in virtual secrecy.
43. Managers were especially adroit at procuring credits. They used these to buy shares. So-called 'managers credits' were then pronounced illegal, as part of the struggle to keep managers from gaining control, but this has not produced a lot of legal activity; it seems that such campaigns primarily served political purposes. On the other hand, as the privatisation minister recently explained, the government has selected 30 key enterprises for which it will seek strategic owners. Some of these owners may be foreign, but it is most likely that the majority will be from the ranks of the ruling party. Ivan Penić, 'Stradalnicima devet milijardi kuna' (interview), Poslovni svijet, Večernji list, 8 March 1996.
44. Distinguished by the close interrelation and penetration between fairly narrow national economic and political elites showing highly paternalistic attitudes towards citizens. Liberalism is therefore, politically, strongly opposed by the leadership's superior knowledge of collective/national priorities.
45. Some of the most outspoken critics of privatisation were high-ranking members of the HDZ itself. Their characteristic complaint is that ex-socialist managers are benefiting from privatisation.
46. Čengić, Manageri i privatizacija.
47. Potentially more dangerous (economically and politically) is their strong reliance on state and ruling party both in acquiring wealth and protecting it.
48. To them we must add a large group of citizens whose property rights had not been adequately respected, as they hoped for, through the process of denationalisation. One of the major shortcomings of Croatia's model is that privatisation has proceeded without previously dealing with denationalisation - this produced a lot of dissatisfaction.
49. In this regard, it is interesting to note that the employers' association and the trade unions have recently come together to denounce both the government's failure to implement tripartite arrangements, and high taxes on wages. The joint employer-union statement is analysed in Mirjana Popović, 'Ekonomija-duet pod državnim prozorima', Privredni Vjesnik, 15 July 1996, p. 4.
50. Manuel Hinds, 'Issues in the Introduction of Market Forces in the East European Socialist Economies', World Bank Report IDP-0057, 1990.
51. Ekonomski Institut Zagreb, 'Oblikovanje politike restrukturiranja' (June, 1995). The industries studied are the confectionery industry, trade, footwear, road and air transport, telecommunications and industrial processing equipment.
52. Kaštelan-Mrak & Vehovec, 'Dynamics of Small Business Development'.
53. The supervisory boards of state companies were often filled with political people who had little knowledge of or interest in business matters.
54. In his recent interview Prime Minister Zlatko Mateša pointed to restructuring as the area of government action he was least satisfied with (excepting the results in shipbuilding - but note that this is the only area where more systematic efforts have been made by the government). 'Za administrativnu kontrolu plaća nema više razloga' (interview), Poslovni svijet, Večernji list, 29-30 May 1996.
55. John Vickers & George Yarrow, Privatization: an Economic Analysis (Cambridge, MA, MIT Press, 1988).
56. While the absolute political domination of the HDZ and its leaders in fact stimulated it.
57. Zoran Anušić made a similar point in an interview. Zoran Anušić, 'nflacija ne dolazi u obzir' (interview), Poslovni svijet, Večernji list, 8 May 1996. It is interesting to note that a part of the liquidity crisis is due to a tendency of some firms to finance buy-outs by non-repayment of debts to their suppliers (as claimed in Ljubica Gatarić, 'Epidemija nelikvidnosti ubire nove žrtve', Poslovni svijet, Večemji list, 8 May 1996.
58. Zoran Anušić made a similar point in an interview. Zoran Anušić, 'nflacija ne dolazi u obzir' (interview), Poslovni svijet, Večernji list, 8 May 1996. It is interesting to note that a part of the liquidity crisis is due to a tendency of some firms to finance buy-outs by non-repayment of debts to their suppliers (as claimed in Ljubica Gatarić, 'Epidemija nelikvidnosti ubire nove žrtve', Poslovni svijet, Večemji list, 8 May 1996.
59. See a number of statements (parties, unions, opposition leaders . . .) in Santini, 'Pretvorba', 1995.
60. It is interesting to notice how workers from Pliva, who did not buy shares (arguing that conditions for five-year repayment in a situation of dramatically reduced real wages were too harsh), have publicly asked for them now. Conditions have changed radically: Pliva was the first Croatian company to float shares on the London stock exchange. Share prices have risen dramatically. Can we expect similar requests from hundreds of thousands of others who did not participate in the first round of privatisation either?
61. Mato Arlović, Drago Čengić, Nevenka Čučković et al., 'Susret mišljenja-Dodjela vaučera' (roundtable discussion), Privatizacija, 2, 14, 1996, pp. 17-31.
62. Čučković, in Arlović et al., pp. 25 and 28.
63. For analyses of the role of industrial policy in transition countries, see Alice Amsden, 'Beyond Shock Therapy: The Path to East European Recovery', The American Prospect, Spring 1993 (reprinted in Economic Reform, USIA Regional Program Office, Vienna, 1994) and Will Bartlett, 'Industrial Policy in Slovenia: Pioneering the Transition to a Market Economy', in Restrukturiranje gospodarstva u tranziciji, Vol. I, pp. 43-71, who are favourably disposed, and Marina Kesner-Škreb et al., 'Intervencija države u poticanju gospodarske aktivnosti u tržišnim privredama', Financijska praksa, 1995, 19, 5, pp. 385-570, who are sceptical.
64. For analyses of the role of industrial policy in transition countries, see Alice Amsden, 'Beyond Shock Therapy: The Path to East European Recovery', The American Prospect, Spring 1993 (reprinted in Economic Reform, USIA Regional Program Office, Vienna, 1994) and Will Bartlett, 'Industrial Policy in Slovenia: Pioneering the Transition to a Market Economy', in Restrukturiranje gospodarstva u tranziciji, Vol. I, pp. 43-71, who are favourably disposed, and Marina Kesner-Škreb et al., 'Intervencija države u poticanju gospodarske aktivnosti u tržišnim privredama', Financijska praksa, 1995, 19, 5, pp. 385-570, who are sceptical.
65. For analyses of the role of industrial policy in transition countries, see Alice Amsden, 'Beyond Shock Therapy: The Path to East European Recovery', The American Prospect, Spring 1993 (reprinted in Economic Reform, USIA Regional Program Office, Vienna, 1994) and Will Bartlett, 'Industrial Policy in Slovenia: Pioneering the Transition to a Market Economy', in Restrukturiranje gospodarstva u tranziciji, Vol. I, pp. 43-71, who are favourably disposed, and Marina Kesner-Škreb et al., 'Intervencija države u poticanju gospodarske aktivnosti u tržišnim privredama', Financijska praksa, 1995, 19, 5, pp. 385-570, who are sceptical.
66. For analyses of the role of industrial policy in transition countries, see Alice Amsden, 'Beyond Shock Therapy: The Path to East European Recovery', The American Prospect, Spring 1993 (reprinted in Economic Reform, USIA Regional Program Office, Vienna, 1994) and Will Bartlett, 'Industrial Policy in Slovenia: Pioneering the Transition to a Market Economy', in Restrukturiranje gospodarstva u tranziciji, Vol. I, pp. 43-71, who are favourably disposed, and Marina Kesner-Škreb et al., 'Intervencija države u poticanju gospodarske aktivnosti u tržišnim privredama', Financijska praksa, 1995, 19, 5, pp. 385-570, who are sceptical.
67. It should be noted that one of the two largest banks has been substantially privatised: more than 50% of its shares are held by majority-private entities. The comments above are less applicable to this bank than to the others mentioned.
68. Evan Kraft, 'Toward a market-oriented banking system in Croatia: the roles of entry, competition and rehabilitation', paper presented at the 4th Conference of the European Association of Comparative Economic Studies, Grenoble, September 1996, mimeo.
69. Velimir Šonje, Evan Kraft & Tom Dorsey, 'Monetary and Exchange Rate Policies, Capital Inflows and the Structure of the Banking System in Croatia', paper prepared for the 2nd Dubrovnik Conference on Transition Economies, 25-27 June 1996.
70. This is an example of Ivo Bićanié's thesis that Croatia's 'democracy deficit' has hurt economic growth. Ivo Bićanić, 'Čekajući drugo čudo', Banka, June 1996, pp. 33-40.
71. In 1990 the ratio of pensioners to employees was 0.38. By 1993 it was 0.63. and by 1995 it was 0.75. The number of pensioners increased from 595 000 to 864 000 in this period, while the employed decreased from 1 572 000 to 1 149 000. Data are from DZZS, Statistički Ljetopis 1995 and Mjesečno Izvješće 1996, 5.
72. In 1990 the ratio of pensioners to employees was 0.38. By 1993 it was 0.63. and by 1995 it was 0.75. The number of pensioners increased from 595 000 to 864 000 in this period, while the employed decreased from 1 572 000 to 1 149 000. Data are from DZZS, Statistički Ljetopis 1995 and Mjesečno Izvješće 1996, 5.
73. James O'Connor, The Fiscal Crisis of the State (New York, St Martin's Press, 1973).
74. National Bank of Croatia, Bulletin, April 1996, Table H2, p. 52.
75. Frequently, people registered car imports as being for business purposes. This secured better tariff and tax treatment. However, it is likely that most of such cars were for personal use, or had little impact on business productivity.
76. Ekonomski Institut, Oblikovanje'.
77. There are two reasons for this. First, current producers have specific knowledge and human capital that cannot be costlessly reproduced. Second, foreign producers will take advantage of the 'beachhead effect' to establish themselves in the market, winning customer loyalty and securing long-term market share. (For an explanation of the beachhead effect see Richard Baldwin, 'Hysteresis in Import Prices: the Beachhead Effect', American Economic Review, September 1988, pp. 773-785.)
78. Mia Mikić & Tomislav Presečan, 'Croatian Trade Policies: Should the Rose Tinted Glasses be Taken off?, in Restrukturiranje gospodarstva u tranziciji, Vol. I, pp. 201-219.
79. Stjepan Zdunić & Mato Grgić, 'Intervalutni Tečaj i Ekonomska Politika' (Zagreb, Institute for Economics, 1995).
80. There actually had been a modest real depreciation between May and August. This was mainly due to the strengthening of the US dollar against the mark.
81. In fact, Nuti blames initial undervaluation for much of the subsequent inflation in transition countries. Mario Nuti, 'Inflation, Interests and Exchange Rates in Transition', CIS-Middle Europe Centre and London Business School Discussion Paper Series, Number 22, 1995.
82. Egon Žižmond, 'Cene in Plaće - Slovenija in Hrvaška', Bilten EDP, Maribor, 1996, calculates that the price level in Slovenia was only 8.8% higher than in Croatia in 1995. Combining this with calculations of the OECD that the exchange rate of the Slovene tolar with the US dollar was 73.2% of PPP, we get a rough estimate that the Croatian rate is about 64.4% of PPP. This is similar, for example, to Hungary's 60.6%, but far above the Czech Republic's 40.0%. OECD, Short-Term Indicators: Transition Economies, 1996, 2, p. 141 and author's calculations.
83. Egon Žižmond, 'Cene in Plaće - Slovenija in Hrvaška', Bilten EDP, Maribor, 1996, calculates that the price level in Slovenia was only 8.8% higher than in Croatia in 1995. Combining this with calculations of the OECD that the exchange rate of the Slovene tolar with the US dollar was 73.2% of PPP, we get a rough estimate that the Croatian rate is about 64.4% of PPP. This is similar, for example, to Hungary's 60.6%, but far above the Czech Republic's 40.0%. OECD, Short-Term Indicators: Transition Economies, 1996, 2, p. 141 and author's calculations.
84. The only long-lasting real devaluation under such circumstances would be one achieved by frequent revisions of the exchange rate, perhaps through a crawling peg, and this could easily lead to an inflationary spiral. We remain sceptical that the loss of credibility in stabilisation would be repaid by gains in the tradable sector.
85. National Bank of Croatia, Bulletin, 1996, 3 (April), Table 12.
86. National Bank of Croatia, Main Statistical Indicators, 15 April 1996, Tables 17-19.
87. We think that leading firms, of all sizes, should be stimulated to employ equity financing (both on the home and foreign capital market) - the case of Pliva might be a signal not only for the best privatised firms to follow, but for a number of medium entrepreneurial firms, whose owners seem to be too dependent on the markets for credits and, characteristically, too reluctant to raise capital on equity markets.
88. Narodna Banka Hrvatska, Godišnje Izvješće, 1995, p. 20.
89. Schonfelder argues that capital inflows already have caused excessive appreciation due to excessively loose fiscal policy. Bruno Schonfelder, 'The Doubtful Blessing of Capital Imports: Reflections on the Fragility of Croatian Stabilisation', Communist Economies & Economic Transformation, 8, 1, March 1996, pp. 67-78.
90. Crkvenac estimates that the total use of capacity and economic resources has declined to less than 55%. Mato Crkvenac, 'Stabilisation Policy and Restructuring of Croatian Economy', in Restrukturiranje gospodarstva . . . vol. I, pp. 111-125.
91. Šonje is right in our opinion when he argues that this growth cannot be prevented by the otherwise enormous structural problems of the economy. Velimir Sonje, 'Nema garancije dugoročnog razvoja', Poslovni svijet, Večernji list, 17 April 1996.
92. Oliver Williamson, 'The Institutions and Governance of Development and Economic Reform', Proceedings of the World Bank Conference on Development Economics 1994, pp. 171-197. Baumol's point is worth considering in this context: while the state cannot really do very much to change the supply of entrepreneurship, it can, by carefully designing the 'rules of the game', influence entrepreneurs' behaviour - from socially unproductive to productive and innovative. Of course, this is closely connected to the structure of rewards society offers to entrepreneurs. William Baumol, 'Entrepreneurship: Productive, Unproductive, and Destructive', Journal of Political Economy, 98, 5, 1990, pp. 893-921.
93. Oliver Williamson, 'The Institutions and Governance of Development and Economic Reform', Proceedings of the World Bank Conference on Development Economics 1994, pp. 171-197. Baumol's point is worth considering in this context: while the state cannot really do very much to change the supply of entrepreneurship, it can, by carefully designing the 'rules of the game', influence entrepreneurs' behaviour - from socially unproductive to productive and innovative. Of course, this is closely connected to the structure of rewards society offers to entrepreneurs. William Baumol, 'Entrepreneurship: Productive, Unproductive, and Destructive', Journal of Political Economy, 98, 5, 1990, pp. 893-921.
94. Social structures of accumulation in the sense of Gordon et al., Segmented Labor.
95. Andrew Glyn, Alan Hughes, Alan Lipietz & Ajit Singh, 'The Rise and Fall of the Golden Age', WIDER Working Papers, 43, April 1988.
96. Concerning both economic and political processes. Ivo Bićanić argues that Croatia is not on the path of fast growth and successful transition. Only stability of prices and exchange rates has been achieved. Two preconditions are lacking: (1) privatisation is lagging, and (2) a more difficult problem to overcome is that there is a 'democratic deficit' - in such a context the necessary social consensus might be difficult to reach. Bićanić, 'Čekajući Drugi Čudo'.
97. Despite the fact that many people share a high degree of enthusiasm for the newly bom state, this fact is not enough to produce legitimacy for a political and economic order in which neither political goods nor economic goods are produced/distributed in adequate quantity or quality.