35 MARTINDALE CENTER FOR THE STUDY OF PRIVATE ENTERPRISE Layered bureaucracy and the stifling of innovation in Croatia Natalie R. Javitt Croatia’s many economic transitions have left the country laden with administrative obstacles. Each reform designed to help the economy through its changes has instead layered on preceding ones, creating numerous bureaucratic barriers to prospering entrepreneurship and innovation. This article details Croatia’s economy through phases of transition, from Yugoslav socialism to EU accession, and outlines present-day inefficiencies. It concludes with policy recommendations that could help the country develop a more effective innovation ecosystem. Introduction Croatia’s economy has undergone numerous transitions—from decades under Yugoslavia, through a war for independence in the 1990s, to reconstruction and EU accession in the 2000s—each leaving its mark on the present-day economy. Although Croatia established administrative regulations and government structures to support the free market, every era’s new requirements were layered on top of old ones, producing a cumulative bureaucratic complexity that now hinders innovation and entrepreneurship. The consequences have left innovation ecosystems underdeveloped, slowing economic growth relative to other EU member states. The lingering influence of a socialist framework, compounded by a turbulent transformation disrupted by war and the country’s accession to the EU, has left many reluctant to fully embrace a free market economic structure. Background Croatia’s economic systems have a dynamic history, having been reshaped repeatedly, but the administrative layers put in place during each period were rarely dismantled despite proving ill suited for the next stage. From privatization laws ending Yugoslav socialism to the adoption of EU policies after the Homeland War, an overlapping legacy of bureaucratic policies now impedes a well-functioning, innovative economy. Yugoslav socialism Under the Yugoslav regime, led by President Josip Broz Tito, Croatia followed an economic system known as “socialist self-management,” an approach more closely aligned with free market principles than those of other socialist countries (Stojčić, 2012). Also referred to as market socialism, socialist self-management meant the government selectively intervened in the economy, regulating and controlling certain industries and large investments, while most companies could independently decide how to invest their resources (Kunnamas, 2017). Tito also introduced a “workplace to the workers” policy that incentivized workers by allowing them to receive benefits based on their company’s performance in addition to their wages. Workers’ councils—groups of workers that were intended to be superior to managers—were appointed to contribute to management decisions. However, managers retained most of the power regarding company decisions, and members of the councils received lower wages in comparison (Kunnamas, 2017). After Tito’s death in 1980, the country experienced an economic decline due to rising raw materials prices, especially the global oil shocks (Stojčić, 2012). Throughout the following decade, Croatia held to its socialist self-management system despite some neighboring countries experiencing higher levels of state intervention (Kunnamas, 2017). Although this framework allowed more agency for Croatian business owners than in other countries, it also created unclear lines regarding the extent of individual ownership. By 1989, Yugoslavia adopted the Enterprise Law, a reform that formally authorized the privatization of social property. This law led firms that had been owned collectively by workers’ councils to revise their ownership to more private structures (Bičanić & Franičević, 2003). The administrative structures built to manage socialist self-management, however, were not dismantled. They became the first layer of a regulatory bureaucracy that successive transitions would build on rather than replace. doi:10.18275/pbe-v044-006
RkJQdWJsaXNoZXIy MTA0OTQ5OA==