CRCE Briefing Paper
After 20 Years of Status Quo:
The Failure of Gradualism in Slovenia’s Post-Socialist Transition
by Rok Spruk
About the Author
Rok Spruk is a graduate student of International Economics at Utrecht University, Netherlands. His fields of expertise include macroeconomics, economic growth and development, econometrics and quantitative finance. He spent the last year as a course assistant at the Faculty of Economics, University of Ljubljana, where he taught Introductory Macroeconomics. In 2010, he published Iceland's Economic Crisis: Causes, Consequences and Implications which was presented in the European Parliament on March 2, 2010.
The Constitution of the CRCE requires that its Trustees and Advisers dissociate themselves from the analysis contained in its publications, but it is hoped that readers will find this study of value and interest.
© Rok Spruk & Centre for Research into Post-Communist Economies
All Rights Reserved
After 20 Years of Status Quo: The Failure of Gradualism in Slovenia's Post-Socialist Transition
2011 year marked the twentieth anniversary of political independence in Slovenia. It was a momentous date, marking the longest period of state independence since the country ceded from the former socialist state of Yugoslavia in 1991. After twenty years of political independence, it is essential to examine the country’s economic progress in greater depth.
In the last two decades, Slovenia has often been represented in the international media as the most successful ex-communist state, having accomplished Euro-Atlantic integration as well as being the first former socialist bloc country to enter the Eurozone. The consequence of judging the country’s economic performance on a purely comparative basis has been to neglect the deeper analysis of long-term macroeconomic patterns and determinants of growth. Four decades of flawed Marxist economics have produced distorted economic assumptions, and led to a significant divergence from academic developments in the Anglo-Saxon world. This has resulted in a virtually non-existent understanding of Slovenia’s past economic development.
Macroeconomic History in a Nutshell
It is often presumed that Slovenia had a poor economic performance before joining the socialist Yugoslavia, as measured by income per capita. Yet evidence from the Habsburg Empire (Good, 1994) suggests, via quantitative indices, that differences in terms of income per capita can be noted between different Slovenian regions. These estimates suggest that in 1913 regions such as Littoral, Carinthia and Styria sustained comparatively high levels of income per capita, comparable to that of Imperial Austria, whilst Carniola continually experienced low income per capita and a low rate of growth prior to World War I. In 1913, the Littoral region (Gorizia, Gradiska, Trieste and parts of Istria) enjoyed the sixth-highest income per capita in Imperial Austria. At this time the level of nominal wages in Trieste had also converged to the Prague level.
The emergence of the first Yugoslav state, renamed the Kingdom of Yugoslavia in 1929, was accompanied by divergent levels of income per capita across the country’s different regions. Although the Kingdom of Yugoslavia established national income accounts in 1938, estimates by Broadberry & Klein (2008) suggest that by 1937 Yugoslavia experienced one of the lowest levels of GDP per capita in Europe. In terms of constant 1990 international dollars, it was one of Europe’s most underdeveloped countries in 1938. An observation by the Library of Congress (1992) described pre-war Yugoslavia as a country of stark economic divergence; between the highly-developed North and the less-developed Southern regions. In 1937 Yugoslav income per capita was 30 percent below the world average, whilst the eradication of feudalism left 75 percent of the population below the official poverty line. Slovenia however
enjoyed a substantial advantage in terms of income per capita relative to other parts of the Kingdom. Ljubo Sirc has convincingly argued that by 1939 the level of real wages in Slovenia had been steadily converging to the Austrian level. The empirical regularities of income per capita patterns suggest an unequivocal convergence to the steady state. If Slovenia enjoyed income per capita 100 percent above Yugoslav average, then in 1937 the level of income per capita in Slovenia represented 78 percent of the Austrian level in the same year. It can thus be seen that the adoption of the socialist economic model led to a disastrous economic outcome.
In 1950, the level of income per capita dropped to 34 percent of the Austrian level and remained the same thereafter. One could not describe the Yugoslav miracle (Sapir, 1986) in the late 1960s and early 1970s as a period of sustained growth, since the engine of growth did not incorporate technological change and steady productivity gains. Instead it was symptomatic of capital deepening based on foreign aid and credit-fuelled expansion amid rachitic productivity growth. From 1960 to 1975 Yugoslavia’s annual average growth rate was 5.42 percent, whilst from 1975 to 1989 the annual rate of growth declined to 1.04 percent; one of the lowest in developing countries (Rodrik, 1998). The foregone experience of hyperinflation and the consequent collapse of the Yugoslav communist economic model resulted in a significant cumulative output decline during the transition from socialism to a market economy.
 I gratefully acknowledge the assistance of the Centre for Research into Post-Communist Economies. Furthermore, I am grateful to Bernard Brščič for his support, helpful comments and inspiration to undertake research in the political economy of post-communist transition. This briefing paper is the culmination of research undertaken for the last six months.
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