37 MARTINDALE CENTER FOR THE STUDY OF PRIVATE ENTERPRISE the move away from socialism unfavorably, lacking trust in the method that led the transformation. This distrust has fomented “a negative perception of the concept of private property and a generally negative connotation to privatization in Croatian society” (Horaček & Nikolić, 2021). As a result, many challenges traceable to Croatia’s economic transitions persist and should be addressed if the country is to achieve the standard of living and economic prosperity seen in other EU member states. These attitudes have stunted the country’s innovation ecosystem and entrepreneurial endeavors. Croatia’s innovation gap and its roots Innovation drives the competitiveness and development of SMEs and is central to Croatia closing the gap with its EU peers. The EU gave Croatia access to European Structural and Investment Funds (ESIF), a source of support specifically targeted toward economic advancement (Švarc & Dabić, 2019). Around €9 billion have been granted to Croatia through ESIF for 2021–2027 via the EU Cohesion Policy. The ESIF fuel important grant schemes and technology transfer activities in Croatia. They also provide SMEs with key programs to stimulate technological development (European Commission, 2022a). However, Croatia’s full absorption of the funds has been limited due to “insufficient administrative capacity, burdensome procedures, and a limited number of ready-to-implement projects” (Švarc & Dabić, 2019). Poor use of the funds, combined with ineffective programs, has left Croatia’s innovation system underperforming relative to other EU countries. Croatia’s total innovation performance is 71.6% of the EU average, according to the European Innovation Scoreboard in 2025. The scoreboard uses 32 indicators to measure performance across areas such as investment and impacts on society and the economy. A lack of R&D spending is a significant limiting factor in Croatia, amounting to just 0.97% of GDP as opposed to the EU average of 2.27%. This shortfall has led to less commercialization and fewer profitable product outcomes from Croatian innovation activities versus elsewhere in the EU. Croatia produces 3.1 patents per 1 million inhabitants; the EU average of is 36.5 (Kostanjevečki, 2024). Croatia ranks twenty-first among EU member states and twenty-fifth when including neighboring countries in innovation performance SMEs still face barriers, as reflected in the decline between 2018 and 2025 in the number of SMEs introducing product innovations. Croatia also ranks twenty-sixth in intellectual asset performance, or how well the country manages its knowledge-based resources, such as technology, patents, and human expertise. The country has yet to show significant progress in technological and entrepreneurial improvement (European Commission, Directorate-General…, 2025). One of the reasons for Croatia’s lag is that administrative obstacles have hindered the country’s ability to absorb EU funds. From 2001 to 2010, several programs were enacted to promote innovation, including the Croatian Innovation Technology Development Program, aimed at developing commercially promising products from research organizations. However, HITRA (the program’s Croatian acronym) fell short, largely because of weak intellectual property protections, lack of venture and risk capital, and limited absorption capacities of companies (Švarc & Dabić, 2019). When the country was admitted to the EU, all former programs that attempted to promote innovation were eliminated in favor of enacting programs aligned with EU policies, and the Ministry of the Economy took over technology transfer programs from the Ministry of Science and Technology. By 2013, the Croatian government began to initiate major R&D reforms primarily dictated by the EU’s common strategies to promote research and innovation (Švarc & Dabić, 2019). Since the start of the country’s journey to EU membership, successive policies have created an unstable business environment. Much of this instability traces to the post–Homeland War transition economy, which has kept Croatia in a continual state of rebuilding. Among the obstacles are a lack of clear guidance on how to best use EU funds and frequent shifts in which ministry oversees what. A shortage of entrepreneurial expertise and resources limits business owners’ available funding. Additionally, EU funds are narrowly targeted for specific investments, such as purchasing machinery and individual business operations, rather than improving the overall competitive environment for SMEs. Although funds and resources are available, Croatian businesses have yet to fully utilize them, suggesting an aversion to entrepreneurial risk rooted in a lingering socialist era mindset (Kostanjevečki, 2024). Current policies and programs Current policies in Croatia target various areas to support innovation and entrepreneurship, including start-ups and venture capital programs, but National Innovation System indicators suggest considerable room for improvement relative to EU averages. For example, 33.7% of total product exports in Croatia
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