Show for Prime Minister Sanader and 19 Directors of State Companies

In state companies, ‘unproductive costs’ must be reduced, but at the same time, excess employees must not be laid off. For the populist Government, they are exclusively a productive cost

Prime Minister Ivo Sanader found a free slot and on Tuesday gathered the presidents of the management boards and supervisory boards of 19 companies that are predominantly or completely state-owned in Banski Dvori. He gave them 24 hours to submit ‘savings measures that will then be included in anti-recession measures, which the Government will present at its meeting on Thursday.’

This was, in fact, yet another example of improvisation that the Government has resorted to since it became clear that the recession could not be avoided and that the authorities, whether they wanted to or not, would have to cobble together some kind of stabilization-anti-recession program. The meeting with the leaders of ‘public companies’ also demonstrated the amateurism with which the state, as an owner, controls and directs the companies in which it has ownership stakes. The overall ‘confusion’ that has reigned for years in the relationship between the Government and the management of state companies is evident. In times of crisis and panic, chaos only becomes more pronounced. If anyone understands what was agreed upon at the meeting on Tuesday – hats off to them.

24 hours for homework

First, there was talk about the need for savings in state companies. The ambitious part of the directors, or rather the more experienced ones, who know that once every few years, prime ministers pay attention to their operations and then need to present themselves in a good light (10 of them), came to the Prime Minister with savings plans ‘worth’ 1.5 billion kuna. Of course, some of them reckon that the Prime Minister and ministers will forget their promises in a few weeks, as is usually the case. The others were given 24 hours to write their homework so that the Prime Minister could announce savings of three billion kuna on Thursday.

It was allegedly discussed about ‘reducing unproductive costs.’ Now, it would be interesting to hear from the members of the Government the definition of those costs. If at the same meeting, directors of public and state companies were asked to reduce their salaries, the question arises whether these managers are unproductive, thus being counted among the costs that need to be cut. If they are unproductive, they should not have their salaries reduced, but rather be dismissed. Wouldn’t it be logical to tie their earnings to achieved results or to the fulfillment of set goals?

Uniformity without criteria, and only because the Prime Minister and ministers have lower salaries, cannot be a serious argument. Except in yet another act of a populist show. It is forgotten that the managers of public companies are in a position to decide on contracts worth hundreds of millions of kuna. With a commission of only one percent, they don’t even need a salary. Another illogicality regarding unproductive costs relates to the Government’s demand that directors must not lay off people. And what if part of the people is an unproductive surplus? It is very likely that at least 10 percent of employees in the aforementioned 19 companies are surplus. But that cannot be touched. The Government protects jobs.

How to achieve liquidity

However, the Prime Minister and ministers forget that by reducing orders by 1.5 or three billion kuna, they will cause the bankruptcy of hundreds of companies that supply public enterprises. And with them, tens of thousands of employees. Well, then those will be second-class employees. These will be fragmented layoffs, less dangerous for the Government than, say, a thousand unionized people from Hrvatske Šume, Ina, or HAC. Well, perhaps it really makes no sense to expect the Prime Minister and his ministers, whose priority is how to resolve the conflict with Slovenia and enter NATO and the EU at all costs, to think economically multilayered, but it is clear that such an approach cannot lead to quality solutions.

And a little more about illogicalities. What is the connection between reducing costs for the vehicle fleet, intellectual services, promotion and marketing, and telephone costs (!) with increasing liquidity? Perhaps state companies will be able to pay some bills with those savings, but illiquidity will appear on the other side – in the companies where savings were decided.

All in all, it was yet another show for the public. A state that lacks a development strategy cannot have criteria for what it wants from each company in state ownership. And the Government often drives the directors of public and state companies to actions contrary to the economic logic of that trading company with its moves. Then it patches the holes with additional borrowing or guarantees for them.

The announcement that the Government will take three loans for HEP, HAC, and Hrvatske ceste to solve 80 percent of liquidity problems contradicts the commitment to stop the growth of external debt. And if this is money that the Croatian National Bank has freed for domestic companies – it will be yet another example of squeezing non-state companies out of the newly created credit potential.