Slovenia, a tiny picturesque country located south of Austria, has been described for many years as a role-model for how to transition from a planned to a market economy. Slovenia was the first Eastern European country to join the Eurozone, had until recently a healthy public-debt-to-GDP ratio, and its location between Austria, Italy, and the Balkans promised a bright future.
Nearly a decade after joining the EU, Slovenia marches towards a collapse of its economy with an all-but-nationalized financial sector, and growth numbers which seem to point towards joining the PIIGS club rather than prolonging its membership with vibrant European economies such as Estonia, Austria, or Germany.
When looking into the causes for the loss of competitiveness of Slovenia one can analyze various fields of fiscal and economic policies, which led to sclerotic structural problems of an economy of two million people.
Labour regulations are rigid and extremely risky for employers. Strong labour unions hold virtually all stakeholders of the economy captive and de facto rule the country in this respect. Minimum wage laws reduce hiring possibilities for young and unskilled labor. Thus students and recent graduates have problems finding a job and often head for opportunities in neighboring countries.
Government spending as a share of GDP amounted to 49% in 2012. These are levels which can usually only be observed in rich Nordic welfare states. A VAT raise to 22% in 2013 crippled the already weak domestic demand even more and its negative long term effects are still unknown. Even as far back as 2007 Forbes Magazine was reporting that Slovene workers were some of the most taxed in the world.
Slovenian politicians never actually really seriously attempted to privatize the economy, and thus they retain a large influence on the domestic industry. Many of the largest corporations are still in outright government ownership. According to the former Slovene Minister of Economic Development, as much as 30% of our economy consists of state-owned enterprises. That brings us to a staggering number: 80% of our economy is, in one way or another, centrally planned and directed by politicians and bureaucrats.
Two-thirds of Slovene banks ran deficits in 2012. Most of the 17 largest banks’ assets are either outright state-owned or largely state-owned through other state-owned enterprises or holdings. These banks lent millions of Euros for Management Buy Outs and other non-viable investments during the boom years in Slovenia and are now dumping the cost on taxpayers. Due to the strong role of government and public ownership in the Slovene economy, perpetrated as some kind of mystical “national interest,” many larger foreign firms were not very successful in entering the market and bringing additional foreign capital to Slovenia.
Given the uncertainty concerning future tax hikes and even more regulations, some of Slovenia’s best and most successful entrepreneurs have stopped their investments here and moved their activities abroad.
After countless and widespread corruption scandals, which caught even the highest officials in our political sphere, and a few government swings from left to right and back, there is widespread disbelief, especially among the youth, that politicians are willing or able to solve the structural problems we are facing. Politicians and their friends are often moving directly from public office to C-level executive jobs in state-controlled enterprises in broad daylight and with everyone watching.
The structural problems of Slovenia and the apathy of politicians when it comes to solving them can only lead us to the same path Greece is on, which is one that left more than half of young people without jobs.
I don’t want Slovenia to become the new Greece. In order to prevent this and allow young people to prosper in our home country, politicians have to wake up and smell the coffee. They need to understand that the way back to prosperity requires that they step out of the way and facilitate a private sector which is private not only by name, but actually run by entrepreneurs and managers instead of politicians and cronies.