Croatia Faces New Wave of Lagging Due to Ignoring Education

The Croatian economy, despite optimistic trends this year, remains convincingly the weakest in the EU. Croatian GDP has stagnated for years at around 10,000 euros per capita. Although the GDP of the capital city at 14,000 euros per capita may seem incredibly high from the perspective of the economically devastated east of Croatia, Zagreb is actually the least economically developed metropolis in the EU. Together with Sofia, it ranks at the bottom among major European cities measured by the level of economic activity and value creation. How is it possible that, despite its natural potential and geographical position, wealthy Croatia lags so far behind other countries in Central and Eastern Europe today? Looking back a hundred years, during the penetration of the industrial revolution into the northern parts of present-day Croatia and the southern parts of the Austro-Hungarian Empire – one of the most economically developed countries of the time – the astonishment could be even greater.

War is not to blame for the lagging

At that time, at the turn of the century, central Croatia and Slavonia were undergoing accelerated industrialization, and cities were becoming important industrial centers. Slavonian estates were transforming into agricultural-processing conglomerates, and the application of the latest industrial technologies and knowledge in the processing of natural raw materials enabled companies like SH Gutmann (now Belišće) to successfully position themselves in the European market. At the beginning of the last century, Slavonia and central Croatia (Dalmatia was at the level of development of Bosnia and Serbia at that time) had only half the GDP per capita of Austria. A hundred years later, the differences in development have become significantly larger: Austria today has four times the national income per capita compared to Croatia. How is it possible that a country with ‘natural wealth’ and a solid industrial tradition, located near the largest and richest European markets, lags so far behind in economic and social development compared to its immediate European neighbors? Numerous theoretical and empirical evidence can easily argue the answers to this question. The reasons for Croatia’s developmental lag, namely, should not be persistently sought in the devastating effects of the Homeland War, as is often heard. Croatia is developing more slowly due to numerous, very complex structural problems and significant mistakes and incompetence in public policy management.

Inefficient State Sector

Most European transition countries thus underwent a comprehensive political and economic transition towards market democracy in the early 1990s and created economic systems in which private enterprises are the main drivers of economic development. Croatia has not – and after a quarter of a century of transition, inefficient state and quasi-state sectors dominate in creating new value. Major European industrial cities have, more or less successfully, undergone a post-industrial transition from mass industrial production to Industry 4.0 (based on new technologies), creative activities, and new services. Even the largest Croatian cities have not undergone a creative transition – the disappearance of numerous jobs in large Ford industrial plants has not been compensated by valuable jobs in the ‘new economy’, but rather have opened wide to the real estate and retail sectors, which, along with financial services, could not nearly amortize the transitional losses. Classical industrial production, as we know it from the second half of the 20th century, simply could not survive in the global environment, and the structure of the new industry has not been created. Most European countries have undergone deep changes in the social sector. Croatia has not – outdated and inefficient models of the welfare state, as a sort of clone of the Bismarck and socialist social systems, largely distance individuals from the market economy and entrepreneurship. In the education sector, especially higher and specialized education, significant changes have occurred in Europe over the past two decades. Croatia has preserved its educational system, which today produces, with a few exceptions, unemployable human potentials. And right before our eyes, a paradigm shift in economic development is taking place that no longer relies on the traditional combination of factors (natural resources + capital + labor). The main drivers of economic development at the beginning of the 21st century are becoming intellectual, creative, and social capital, which, along with technologies, talents, and tolerance, strongly drive the development of successful national economies. Croatia does not rely on these factors in its development – insufficient investment in education, only 3.3 percent of GDP (lower than in Bulgaria and Romania!), and talents are leaving to create national wealth for other countries.