Partial Revision of Privatisation

AIM Zagreb, December 17, 2000

After a year the most important pre-election promise of the ruling coalition in Croatia turned into a complete disappointment. “When we win power, revision of privatisation will be on the agenda of the first session of our government”, was the famous declaration of Croatian prime minister Ivica Racan from the times when it all still seemed possible. But in the cabinet the problems are not so simple as they appeared to be from the standpoint of the opposition when privatisation was bluntly and without any reservation called the plunder of the century. Few are the people in Croatia who did not feel robbed and did not accuse the ruling Croat Democratic Community (HDZ) for it.

In the elections on January 3, when after ten years the regime of the by then already deceased Franjo Tudjman was overthrown, many voted for changes, guided primarily by the wish to settle accounts with that plunder and privatisation plunderers. A year later, in the final version of the Law on Revision of Privatisation, hardly anybody recognised the fulfillment of their wish.

Why have not Ivica Racan and his coalition partners fulfilled their promise and tackled this job immediately? Because of their proverbial timidity and indecisiveness? Perhaps, but it is also true that their task was completely undefined. What did the concept of plunder refer to and what was all that needed revision? The word revision in itself implies survey, inspection, checking somebody's work, but rendering accounts as well. For which actions should accounts be rendered and whose work should be inspected? Before the elections everybody knew what and who this was all about, but everybody also expected something else. Those who had fought for power did not try to clarify these differences. It was enough for the voters to know one but essential difference: that they are different from the HDZ.

Majority of the people in Croatia, economists inclusive (except a few who belonged or served the former regime) believe that the manner in which privatisation was carried out is the main cause of destruction of Croatian economy. In his new book titled “Croatia 2015”, respectable Dr. Branimir Lokin explains that Franjo Tudjman applied the known Napoleon's motto “Get rich!” as a call for exercising the “natural right of those whose consciousness, courage and blood set epoch-making changes in motion”. However, those who consciously and courageously shed their blood did not get rich, but people who were chosen by the party in power, and mafia circles that emerged from its bosom.

Those who used to be small smugglers, such as, for example, Miroslav Kutle, former lawyer employed in the Pension Insurance Fund or persons with dossiers in the police of many European countries, like Josip Gucic, became owners of hundreds of enterprises overnight. Tudjman believed that privatisation must lead to creation of 200 rich families which will be the eternal foundation of his power and the power of his HDZ. The nouveaux riches have, however, become the terminators of Croatian economy. They have destroyed enterprises, one after the other, thrown workers out into the street, and directed cash into underground channels known only to them.

All this enabled a privatisation model which was with minor changes applied by the HDZ since the year 1990. The already mentioned Lokin, the man who was by the way unrecognised at the time of communism, writes that the only natural way from workers' self-management led towards small share-holding. “The pattern was so simple that it required neither theoretical nor methodological elaboration”, he says. The same solution was suggested to former Yugoslavia in the end of the eighties by the famous American Nobel-prize winner for economy and political rightist, Milton Friedman. “Self-managers should be given shares and in this way turn their quasi-ownership into real ownership”, he said, warning that this should be done quickly because if not the new political elites would grab all the property and create capitalism of Latin-American type.

That is exactly what has happened in Croatia. Social ownership was overnight proclaimed to be state ownership, and then those who ruled the state did with it what they wanted. But they did this pursuant the laws which were passed by their deputies in the assembly, elected by the will of the people. On the eve of the elections in which he won power Ivica Racan readily accepted the assessment that the privatisation model of the HDZ was immoral. This was supposed to mean that the revision would change the cause that had enabled such immorality. And these were the HDZ laws pursuant which in the course of the years the ownership structure of Croatian economy completely changed. Is it possible to change them without causing new, severe disturbances in the economy? Is it possible to change what was done pursuant laws without it being another revolution? By carrying out privatisation in its way, the HDZ paid no attention to this fact. It was indeed a revolutionary act, just as the entire movement of the HDZ was in fact a nationalistic revolution. But Racan and his associates were abhorred by the very idea of radical social cuts.

The only radical, moreover the self-managing radical among Croatian politicians, remained only Dr. Branko Horvat, the only economist from former Yugoslavia who was once on the list of candidates for the Nobel prize. His stand was that the entire privatisation should be annulled at a single stroke and restore workers' self-management in enterprises. After that, by applying all domestic and foreign experience, experts would prepare a new way of privatisation. The only exception according to him would be the property that was in the meantime taken over by foreigners. In Croatia that means banks and mobile telephone companies, and among the factories Pliva and Podravka the shares of which are sold in the world stock exchanges, Nikola Tesla which was partly taken over by Ericsson, and Rade Koncar or what was left of it which Siemens entered

However, Horvat was supported by nobody; neither in political nor in professional circles, while ordinary people look upon him only as a respectable but a bizarre old professor. An incomparably greater support of the public, and since the elections of political parties which participate in the ruling coalition, was given to another, also radical proposal. This is distribution of property which is still state owned and the one that was to be confiscated during revision to all the citizens by the method of voucher privatisation. This variant of a former proposal of Professor Friedman was implemented by almost all former communist countries including the economically most successful Slovenia. A chance for that was seen in the fact that half of the former social ownership still had not been privatised. This refers mostly to enterprises such as the electric company, the oil industry (INA), the oil pipe-line (Naftovod), forests (Sume), the insurance company and others.

The coalition government silently refused this possibility, continuing with the practice of the HDZ to sell enterprises to foreign buyers in order to make the money for its budgetary expenditures. In this way the state cashbox was patched together for the year 2000, and that is the way in which every sixth kuna in the budget for 2001 is planned to be “earned”. That is when it became clear that there would be no distribution.

What does the law on revision of privatisation actually contain in its 20 articles and on only six pages? It prescribes punishment in cases when the existing (that of the HDZ) Law on Privatisation has been violated, but it does not question the law itself. But the possibilities for instigating proceedings are very broad. The demand for revision can be initiated by almost everybody: small share-holders, state institutions, even owners of property which was nationalised a long time ago. Eleven reasons are prescribed that justify such a demand, the usual and well known privatisation fraud inclusive. The revision will be carried out by the state office for revision which will report to the state assembly on its findings, publish them in the media and lodge appeals to the institutions in charge. The possibility of confiscation of the property is not mentioned at all.

Economists are afraid that this will open a witch-hunt, lead to legal insecurity, scare away the foreign and local investors and seriously disturb the economic trends. Will it satisfy the public? There is a saying that justice is a train that always arrives late. Many think that in this case it is too optimistic.

Milan Gavrovic

(AIM)