A note on adjustment processes in Croatian industry during the eighties

Abstract

   This paper analyses the dynamics and structural changes of Croatian industry in the late phase of socialism under the pressure of adverse external conditions of the eighties. The conclusion is drawn that the adjustment processes of the "managerial" type (change of the export/import ratios and of energy intensity) were more successful than those of the "systemic" type (changes in employment and the volume and structure of investment).

The oversupply of petrodollars on financial markets in the seventies tempted many semi-industrialised countries to try a quick jump over the threshold of development. Indiscriminate imports of investment and consumer goods were realised through massive inflow of capital, and huge debts were accumulated.

The socialist countries of Eastern Europe were especially vulnerable to the trap of overindebtness. The absence of private ownership stimulated the irresponsible behaviour of managers and bureaucrats and aggravated its consequences. The socialist credit-takers did not risk their own capital, and foreign creditors were not allowed to convert financial claims into ownership of productive assets if the debtor defaulted.

The oil-price shock and the debt crisis that followed in the early eighties had, thus, a devastating effect on the socialist economies in Eastern Europe.

Their rigid economic system and autarchic structures prevented them from adapting successfully to the new adverse circumstances. The economic calamities that followed were one of the significant factors contributing to the political upheaval in 1989-1990.

Although not typically socialist, the Yugoslav economy had some basic socialist features i.e. the absence of private entrepreneurship and capital markets. Lacking these institutions, Yugoslavia relied on a system of centrally planned investment and rationing of capital outlays. On the other hand, markets for goods and services were well developed, and only some prices were moderately distorted by governmental interventions. The enterprises were run by a mixture of political and workers' management and their economic position was largely determined by prior investment decisions they had little influence on. In the eighties, however, the government's say in investment decisions of enterprises became rather limited.

A well-known feature of the Yugoslav economy are the marked development disparities of its regions. According to developmental criteria Croatia takes second place among the six Yugoslav republics, benefiting especially from tourism and remittances of its migrant workers in Western Europe.

The study of adjustment processes in Croatian industry in the eighties pertains, then, to a case of rather moderate socialism in a comparatively well-off Eastern European region.

In this paper we shall compare the development dynamics of Croatian industry in the period before and after the economic shock of the early eighties. We shall, then, describe three aspects of the adaption process - the changes in export/import ratios, changes in the energy-intensity of industrial production and changes in the volume and structure of investments. In the final part we shall speculate on the dependence of adjustment processes on managerial abilities within systemic constraints, on the one hand, and the prevailing ownership relationships, on the other.