• Analysis
  • Croatia’s Political and Economic Situation – The Periphery of Europe Today

  • By Katarina Peović | 08 Nov 18 | Posted under: Croatia
  • The purpose of this overview is to provide a glimpse of the political and economic situation in Croatia, and to stress the importance of the European left – a powerful political force that could detect existing problems in light of the political and economic asymmetry between the centre and the periphery of Europe.

    28 years since the beginning of the transition from socialism to capitalism and Croatia finds itself at the front end of Europe. To a great extent, the country has been deindustrialised, with high numbers of unemployed people and even more with precarious jobs. 10% of the population (approximately 176,000 people) are unemployed (but even more were artificially “deleted” in the 2017 reform which started to count all temporary forms of working contracts as “employed”). To this, we can add the vast number of people who entered early retirement (either as collateral victims during the process of privatisation that eliminated certain companies or within the population segment of war veterans), which consequently led to unsustainable numbers of pensioners and workers.

    At the moment, the Croatian shipyards Uljanik and 3. Maj are facing possible layoffs as a result of huge debts and unwillingness of the government to protect shipbuilding as one of its last export industries. More than 4,500 workers have been on strike since last Monday because of unpaid wages. It is the second strike at Uljanik and 3. Maj since August.

    Croatia is seeing huge emigration of the working population (about 300,000 people). Since the beginning of the 2007/08 crisis, every 11th working position has been lost.

    The probation period for new employees has been extended to a more or less steady definition of job position in Croatia. Atypical contracts (usually 3-month contracts) account for 8.4% of contracts in Croatia (the European average is 2.3%). France, with the second highest average, has temporary/atypical contracts standing at 4.8%. At the beginning of the crisis in Croatia, only 12.3% were temporarily employed. Today that number has doubled. 22.2% of Croatian workers work in precarious job positions (which puts Croatia in 4th place within the EU).

    Salaries in Croatia are among the lowest in Europe. The average salary in Croatia is 6,190 kuna (approximately 836 euros). Croatia is among the countries in the EU with the lowest remuneration per hour (according to Eurostat). Croatia’s position is typical among eastern members of the EU. In 2017, the European Trade Union Confederation stated that, in 10 Eastern European countries, the wages were almost half those of Western European countries. Although wages in all Eastern European countries decreased, Croatia experienced the most dramatic fall – from 43% to 37% of the average Western European wage (during the period from 2008 to 2016). Independent trade unions are demanding an increase in the minimal wage to 50% of the average gross wage. The Governor of the Croatian national bank bitterly commented: “By lowering the price of labour, we have become competitive – but there are no workers anymore”. Of course, there are no workers that would work and sell their working force under such poor conditions.

    For example, there are no workers interested in picking fruits during the harvest season. Capitalists (“entrepreneurs”) openly criticise workers, calling them “lazy” – although fruit picking is among the most difficult jobs. The wage is brutally exploitative; picking fruits pays 20 kuna per hour (2.7 euros per hour), which would be 3,000 kuna per month (around 400 euros per month).

    Such poor working conditions are due to several “reforms” of labour laws, but the most radical is the one from 2014 (proposed by the now opposition party SDP), which increased and legitimised precarious jobs.

    Above all, the ruling majority and neoliberal opposition are claiming that there is “no conflict between labour and capital” (the SDP recently published its new programme stating this).

    All governments promote the “race to the bottom” strategy (by promoting the need for increasing “competitiveness” through a decrease in salaries and labour rights), although the results of such manoeuvres did not prove to be successful in similar cases (the most radical example being Macedonia).

    Tourism is the most important branch in Croatia’s economy. However, it cannot be the bearer of the entire economy, since one poor season can damage an entire country.

    Both political and economic horizons, on a national and local level, are limited by what is called “progressive” or reformist policy, which can easily be recognised for its worshipping and mythologising of the transformational power of society through foreign investments and EU funds. This political horizon is accompanied by the appeal of austerity measures in the public sector. Deregulation, flexibilisation in work and neoliberalisation of the global economy are legitimised through the common refrain that states there is no conflict between capital and labour. Neoliberal policies claim that capital produces new jobs and that trickle-down economy will produce benefits for society as a whole. However, structural conditions of production in capitalism are not focused on the production of new jobs but on surplus value. Therefore, capital evidently does not create new jobs in Croatia. 

    Three myths of the economy at the periphery of the EU

    Capital on the periphery of EU functions is precisely the opposite of what hegemonic dogma claims. The leading economists advocate:

    - firing of workers in the public sector

    - austerity measures

    - intensifying foreign investments and withdrawal of EU funds.

    Even from a capital point of view, the austerity measures are irrational. Leaving aside the fact that such measures allow for exploitation (decreasing the cost of labour is an example of class politics), such policies are not rational because they lead to a decline in purchasing power and credit abilities. As global consumption falls, employment falls. Social Darwinist measures are perceived as the “freeing of the real sector from the burden of the public sector”. However, although 130,000 jobs were lost in Croatia due to the global crises from 2008 onwards, austerity measures did not produce expansive fiscal consolidation. On the contrary, they buried and cemented undeveloped states on the periphery of Europe with low rates of economic growth and high rates of unemployment.

    The second myth is that of foreign investments which will push the domestic economy. According to that narrative, Croatia only needs to welcome foreign investors and provide them with a “positive climate” for entrepreneurship. However, foreign investors mainly invest in sectors that are already fairly settled with well-developed infrastructures – like the telecommunications or market sector – while they have no interest in financing production capacities. Great fixed costs (buildings, infrastructure, etc.) present risky investments because there is no guarantee that the investment will pay off. Foreign investors take over public companies and spread to natural resources; they are taking over cost and forest resources, while buying the right to rent. For example, monetisation of motorways will not lead to new technologies and profit, but will bring profit to investors.

    Shipbuilding is a typical example of such blindness towards politics in foreign and domestic investments – investors seek only to ruin shipbuilding in order to open tourist resorts and luxurious marinas. Brodotrogir (Trogir) was ruined in this way, and now the same investor (Danko Končar) is heading for Uljanik shipbuilding in Pula.

    The third myth is the myth of EU funds. Croatians believe that EU funds can strengthen the Croatian economy. However, such material resources are not powerful enough to produce positive effects on the economy, so long as Croatia must match 10-50% of every resource found. Poland is usually taken as an example of benefitting from EU funds. However, during the first years of its ascent, EU money took less than 5% of investments. The funds that are available to Croatia today are significantly smaller than Croatia’s investments in the private and public sector only one year before the crisis[1]

    Asymmetry between East and West Europe

    Leftist international politics should be focused on the prohibiting influence of capital and building new economic policy and international relations based on equality and solidarity. Poverty in the East is caused by wealth in the West! Rights equality is not possible – inequalities are the result of international capital relations. Eastern Europe functions as a source of low-paid workforce and a pool for consumption of German, French, Italian and Swedish products. 

    There is an asymmetry between the countries on the periphery and those in the centre of Europe. Greek economists warned of such an asymmetry after the Greeks fell into an even greater recession following austerity measures.  

    An example can back up the theory that there is a limitation in terms of initiation of social regulation for workers’ benefits. The Workers Front within the left block in the City of Zagreb initiated an amendment to a municipal act intended to assist the workers of bankrupt companies with debt. The act would have allowed the City of Zagreb to postpone a payment of public utility charges to those companies with a debt toward workers. This would have enabled workers to move up higher on the list of creditors in the bankruptcy procedures. We failed to pass the act because the ruling majority voted against it. They stated, among other things, that such an act would be against the Treaty on European Union and the Treaty on the Functioning of the European Union, article 107, indent 1, which states that any aid from member states that threatens to distort competition by favouring a certain entrepreneur is seen as a threat to the market. (“Any aid granted by a Member State or through State resources in any form whatsoever which distorts or threatens to distort competition by favouring certain undertakings or the production of certain goods shall, in so far as it affects trade between Member States, be incompatible with the internal market.”)

    The same Treaty on the Functioning of the European Union is called upon in the case of Croatian shipyards. Allegedly, article 107 protects the “free market”. However, nobody challenges the inequality that is already present between the rich states of Western Europe and poor countries on the periphery or semi-periphery of Europe. Nobody mentions the primary accumulation of capital, the role of international lobbies or favourable loans by local banks that provide support for the local, rich German, Austrian, Danish, Swedish or French industries. Those countries protected their economies from the “free market” long ago. Unconditional consent to the rules of the European Commission and unfavourable terms in pre-accession negotiations brought Croatia to its knees.   

    Overall lack of imagination and political ambition

    The contemporary left is focused, at best, on a return to the social and economic provisions of the welfare states after WWII: social rights, better paid jobs, social security, public schooling, etc. Organisational and structural questions (“the need to unite”) often dominate over questions concerning the content of leftist politics. The asymmetry between the centre and the periphery of the EU is one of the fundamental issues that has to be addressed by the contemporary EU left.

    New economic policy has to be framed within national economies. In order to move towards production based on the systematic economic planning of sustainable development and production that would be under the direct management and supervision of workers, the left should start out from existing common problems such as national debts, austerity measures, and matters that are all summed up in the asymmetry between the centre and the periphery. Comrades from Western Europe should back up easterners.

    Also, the economic development in Croatia should not be focused on consumption, import, the accumulation of new debts and the accumulation of wealth for the elite. Rather, it should be counteracted by the model of economic development that aims at reindustrialisation, full employment of workers, systematic planning of economically sustainable development and stimulating companies which would be under the direct management and supervision of workers.

     

    There is an interesting narrative about the car industry in Croatia that illustrates the problems of contemporary Croatian attitude towards its economic and political situation, and the blindness of the perspective on Croatia’s peripheral position within the EU. Croatia is hardly competitive in terms of producing cars as complete products, cars that can be sold on the international market for a profit. However, young Croatian businessman Mate Rimac started to produce fast and highly designed cars. Images of the young entrepreneur circulated in the media, making Mate Rimac a poster child for the market economy. However, Rimac only produced few cars, which are jet prototypes for further production. He practically sold very few vehicles. The car industry is a European “wet dream”. If Polish people want to live like Germans, if Croatians want to live like Germans, they dream of cars as highly designed, industrial and technologically powerful products. This Eastern European dream is underlined by the image of Germany as the ideal country. (In 2016 alone, approximately 55,000 people migrated from Croatia to Germany.) How come? The German car industry presents an undisputed market model that cannot be challenged by “inventive young minds” on a national level: it can only be challenged by national state protectionism.

    Researches have already shown (the most recent one, for example, being that of Ha-Joon Chang[2]) that there is practically no historical example of a country which would have developed in an entirely free market untainted by protectionism (protection of domestic industry from the much stronger foreign competition) in its initial phases. However, shipyards in Croatia are facing difficulties because of the contracts with the European Commission and restrictions imposed by those contracts that limit state interventionism. (On 3rd May, the Croatian shipyard located in Rijeka experienced severe problems due to such restrictions, although the orders for new ships had been submitted.)

    There is no easy way out. However, in order to design new economic models, we certainly need to step outside existing ones. In order for the left to overcome the existing economic model, it needs to challenge existing narratives and myths.

    A profit economy that privileges private benefit should be replaced with an entirely different economy. Economic growth and capitalists’ private profits are not the most important elements of social stability and prosperity. An economic model that meets overall social needs and allows for full employment should be imposed. An economy that grows while 10% of the working population is unemployed cannot be considered a successful economy. Each person should have the right to work and meet their basic living needs by using that right.

    Croatia’s current economic system, as well as the world system, is focused on the material interests of the (capitalist) elite that emerged through the privatisation process, and not towards the realisation of the interests of the (working) majority.

    Successful economy can hardly be instituted only on tourism and services. Croatia, therefore, needs reindustrialisation, but with this kind of economic policy and access exposure to the European Union market that is practically impossible as result of much stronger competition from developed Western European countries.


    [1]     Podgornik, Branko: Iluzije o fondovima EU, Novi list, 5. 7. 2014. (http://novilist.hr/Komentari/Kolumne/Iza-pozornice-Branka-Podgornika/Iluzije-o-fondovima-EU)

    [2]     www.wider.unu.edu/publication/poverty-entrepreneurship-and-development.


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