Croatia ranks 34th in wealth and 77th in competitiveness

This has been the case for more than ten years. I officially flew to Seoul, the capital of South Korea. As the plane began to descend, I was drawn to the roofs we were flying over. The roofs on residential houses were old and dark.

As they say, the tooth of time had taken its toll on them. At the same time, the roofs on buildings that were clearly production facilities were ‘brand’ new. A week later, I returned and flew low over the roofs around Zagreb. The image was completely opposite: most roofs on family houses were made of new tiles. A pleasure to see. Even on older family houses, it was evident that the older tiles had recently been replaced with new ones. And the roofs on the few buildings where some economic activity takes place were crying out for change.

A country of extremes

This image returned to me after reading two news items these days. According to one, Croatia ranks 34th on the list of countries by net financial assets per capita (7770 euros) (the sixth Allianz report on global wealth). At the same time, the latest report from the World Economic Forum (WEF) placed it 77th in terms of competitiveness. This raises the question of how it is possible for an underperforming competitive country to have residents who are financially above average.

The picture would probably be even stranger if a study were conducted on how wealthy the average Croatian citizen is on a global scale when non-financial assets (the value of real estate) are taken into account, not just bank savings. This would be another argument for the thesis that Croatia, when it comes to the economy, is a country of contradictions. There is hardly a comparative table or graph where it is not placed at one extreme or another.

When it comes to the disparity between the wealth of the population and the competitiveness of the economy, it is possible to find two explanations right from the start: one is the wealth of citizens transferred from socialism, and the other is the accelerated external borrowing of the country.

Croatian citizens emerged from socialism with above-average wealth in real estate. Social apartments worth around a hundred thousand then-German marks were purchased at the beginning of the transition for a tenth of the price. At the same time, families who lived in social apartments during socialism could, with favorable loans whose repayment was eaten away by inflation, build weekend houses on the Adriatic coast. These are now worth between one hundred and two hundred thousand euros. The generations that built them have retired, many owners (or heirs) have well monetized them and increased their financial assets.

A combination of socialism and borrowing

When it comes to the ever-increasing external debt, which is now at nearly three hundred billion kuna, in criticisms of borrowing, it is taken that it was spent by some imaginary state. No matter how much of the state spending financed in this way ended up in the distribution of extra cakes (corruption) among state officials who are in a position to distribute it and those who receive jobs with the state thanks to ‘greasing the state apparatus’, there is still a large part of the debt that has flowed over the years to the broad masses. No matter how much the narrow part enriched itself during the transition, inequalities in Croatia, according to global criteria, are not large.

Logic suggests that if Croatia is 77th in competitiveness, then wages, incomes, and savings should also be at 77th place on other lists. But they are not. They are at 34th place! If such logic were correct, it would be confirmed that Switzerland is first on the competitiveness list. And whose residents have the highest financial assets per capita? Of course, the Swiss. The correlation is strong here. As it is in many other countries.

When it comes to Croatia, it is hard to believe that we can resist the laws that push for balance in the long term. So, if Croatia does not move upwards on the competitiveness rankings in the short term, imbalances will push us lower on the rankings for financial and any other assets, that is, indicators of the wealth of the population. So, one should not be surprised by the further erosion of the middle class.

The extremes that Croatia exhibits on many indicators should be taken into account by the party creators of economic policy, if not before, then certainly after the parliamentary elections. The imbalances are growing and becoming increasingly unsustainable, and the stability, as much as the business community tries to maintain it, is becoming more and more fragile.