16 November 2007

Getting a grip in Croatia

The rhetoric of economic freedom has entered Croatian politics in a new way, just in time for parliamentary elections - but what does it mean?

By Eric Jansson
Published by BIRN's Balkan Insight

See if you can guess which leading Croatian prime ministerial candidate made the following statements.

Is it Ivo Sanader, the incumbent whose crowning achievement has been to re-brand his Croatian Democratic Union, HDZ as an internationally-minded, market-friendly party of the European centre-right? Or is it Ljubo Jurcic, prime ministerial candidate of the Social Democratic Party, SDP, comradeship of ex-communists, party of the red rose?

On Croatia’s response to globalisation: “We need to remember, we are 12 hours from Silicon Valley, and we are 12 hours from Tokyo.”

On taxes: “We have to prepare the atmosphere for tax cuts.”

On labour policy: “Croatia should have a freer, more flexible labour market including free movement of workers… and this also means importing labour.”

On work ethic: “In Croatia now there is a cult of idleness. We cannot be better off if we do not start to work harder. The government should create an atmosphere for this. It is a psychological, sociological problem.”

On industrial policy: “Yesterday I visited a state-owned company that dries fruit. The capacity of the company is enough for all of Europe, but its amortisation is too high. It cannot cover administrative costs. I asked them if they had a business plan. No business plan. Basically, they had been lazy. In my approach there is no money for a company like this, because there is no future. It’s a sunk cost – finito.”

On how to boost long-term economic stability: “We need to create conditions for a free market, for competition. Competition is the key.”

On whom he would bring into his cabinet, if given the choice of any economist in the world: “It would be Maurice McTigue. He was minister in seven ministries in New Zealand. He is a man who reformed New Zealand from a situation like Croatia’s today, with a high external debt. He is the most acknowledged expert worldwide in this area today."

McTigue, a former businessman and pragmatic anti-socialist, became a hero of free-market economists when he entered government, made huge cuts to New Zealand’s state workforce, slashed agricultural subsidies to zero, shredded the rulebook of big government and put New Zealand to work, sending productivity and profitability heavenward.

If you guessed that these quotes come from Sanader, you were wrong.

Jurcic, the Social Democrat, made the first six statements in a lengthy sit-down interview with the Financial Times, during which he looked ahead to economic reforms he would embrace if his party prevails in closely-fought parliamentary elections on November 25. His praise of McTigue came later, in an interview with Vecernji List, the Croatian daily.

What do we make of this?

The idealist’s hope is that Jurcic means what he says – that he actually wants to rattle Croatia’s status quo by “levelling the playing field”, empowering individuals and the private sector, discarding disincentives to competitiveness and disrupting official corruption.

The cynic’s presumption is that Jurcic, like every politician, wants to be all things to all people. To anti-socialists who believe that individual liberty extends into the economic sphere, he offers soundbites like those above. To anti-HDZers, he is equally happy to challenge the status quo. Yet to others including SDP lefties and undecided voters – many of whom want jobs and stability above all – he offers contradictory ideas, promising not to rock the boat too much.

Who is right about this economist who, to so many people’s surprise, is within striking distance of becoming Croatia’s next prime minister?

One senses that the average voter is perplexed, for who in Croatia isn’t both hopeful and cynical? There is so much to gain in a country that underperforms economically as conspicuously as Croatia does. Yet there is so much to lose in a country that is, after all, growing economically and that, with Sanader’s help, has succeeded in getting itself on course for EU accession just in the nick of time.

In Zagreb, one hears people mumbling about “the lesser of two evils” and “the devil you know”. Such despair sounds unexceptional, but it is the bane of the democracy for which so many Croatians and people of other nations in central and eastern Europe risked so much within recent memory. For voters, election day of all days is not a time to feign ignorance and powerlessness.

One must make some kind of educated choice, and voters are not without reference points. They should be aware of at least two.

First, whatever one thinks of the HDZ, there is little disputing that its economic policy agenda, during its past four years in government, has been overwhelmed by the daunting task of preparing for EU accession. Grilled on economic policy, Damir Polancec, deputy prime minister under Sanader, almost unvaryingly answers back with reference to the EU.

Yes, relations with the EU are hugely important, but Croatia must heed a lesson already grasped retrospectively by the EU’s newest member states: national interest must define the way to accession, not the other way around. To do otherwise is to accept inertia.

Almost nothing could be worse for the political and economic health of a once-daring transition country such as Croatia, which has the potential to be better than “like the EU”, but which must challenge its cozy, top-heavy power structure in order to compete more effectively worldwide.

Second, whatever Jurcic might do as a prime minister in an SDP-led coalition government, what he has already accomplished as a candidate is extremely important.

He has shown sufficient intellectually agility and honesty to acknowledge that Croatia has real policy choices to make within the broad EU accession track. After all, the EU now contains not just Germanic, French, British and Nordic economic models but the comparatively radical economic models of countries like Estonia and Ireland.

Indeed, Jurcic may be too agile intellectually for his own practical political good. He does contradict himself. He criticises industries that under-perform in this unforgiving age of global competition, and yet he says that the former Yugoslavia had “quite good industry”. He aims to empower small and medium sized enterprises, yet one of his policy suggestions is the creation, by the government, of advisory “project teams” – an idea that carries a whiff of central planning, though the candidate strongly denies it.

However, there is some strength in this approach. If Jurcic is of two minds, it is because Croatia is of two minds, too. There is a strong popular sense that the country can do better, and yet the electorate has a certain aversion to risk.

Perhaps Jurcic’s embrace of this contradiction makes him appealing to voters who are likewise flummoxed. Would it make him a good prime minister? It might give him a strong starting point, from which to introduce reforms, or it might render him ineffective. If the latter is true, the most likely result would be that the SDP and its coalition partners would be overwhelmed politically, much as the HDZ has been, by the immense job of preparing for EU accession.

It would be a pity to be left wondering after November 25, as one still wonders today, what Croatia would be like if it really dared to ditch the status quo, scrapping the legacy of its half-discarded socialist economy once and for all.

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