A news report from Hina a few days ago began as follows: ‘Prime Minister Andrej Plenković expressed satisfaction with the report from Moody’s, one of the leading global rating agencies, which in its latest report confirms Croatia’s credit rating of Baa2, and changes the outlook for further rating movement from stable to positive. – Moody’s confirms the economic and financial stability of Croatia, as well as the effectiveness of institutions and governance, particularly regarding the fulfillment of criteria for entry into the euro area and the implementation of the National Recovery and Resilience Plan (NPOO) – emphasized the Prime Minister.’
Raising the credit rating is certainly positive news. But it also raises some questions. If the progress is so significant, how is it that Croatia, even with unprecedented support from EU funds and dividends from entering the Schengen and euro areas, still fails to achieve GDP growth rates of more than three percent per year?
The Traps of Foreign Recipes
One possible answer is that we have all fallen into the trap of growth according to the franchise model. Copying ready-made solutions from others has lulled governments, economists, and society as a whole. For the past forty years, since the last phase of socialism, and continuing into the independent transitional economy, growth and attempts at development in Croatia have been reduced to meeting the conditions set by various macro-franchise providers.
—
And in international political economy, as in business, franchisers still want to earn more than franchisees. And here the franchise fee is paid, although it is not as clearly visible as in business relationships. Moreover, domestic economists and politicians easily become complacent. They have an alibi that everything is predetermined by the franchise. That is why GDP fails to grow more than three percent per year.
—
Initially, these were the IMF and the World Bank. Then, during the candidacy phase for EU membership, Brussels became the main franchiser. The franchise continued, with minor modifications, even after formal accession to the European Union. Then the euro franchise became relevant, provided by the European Central Bank. There is also the franchise for entering the Schengen area. And the latest franchise that the current government wants to ‘purchase’ is the one provided by the OECD.
Franchises are a concept from the business world of companies. But their logic can also be applied to states. Here is a randomly selected explanation of what franchise business is: ‘When you decide to buy a franchise, both parties (the franchisor and you as the franchisee) sign a franchise agreement that defines mutual rights and obligations. The franchisor’s primary obligation is not only to provide you with a license (rights) and thereby enable the legality of doing business under its brand but also to continuously transfer knowledge about running the business during the term of the franchise agreement. On the other hand, your primary obligation as a franchisee is to adhere to the transferred rules of conduct and – pay the franchise fee.’
Applied to Croatia’s membership in the EU, or the likely membership in the OECD, everything mentioned in the previous paragraph regarding the rights and obligations of franchisors and franchisees in business also applies to the relationships between international institutions on one side and a state like Croatia on the other. But the limitations are identical.
Just as companies lacking the will and strength to establish their own business procedures, design their own products or services, and develop independently, so too do states that lack vision and fail to implement modern management practices apply the recipes of global brands (IMF, EU, ECB, OECD) to convince domestic actors to behave more decently and accept the rules. From that perspective, the franchises that Croatia has ‘purchased’ over the last forty years have been useful. Many rules have been accepted. Indeed, many only at a formal level. Franchisors often take for granted that when a reform law is accepted in Croatia, it will also be applied. And perhaps they also count on this: let it be applied partially, and that is progress.
Awakening Economists
The negative side of dependence on franchises, as in business, is the danger of falling into a phase of alibis. Although the rules, for example, of the European Union, leave room for independently designing part of the economic policies, especially for long-term development planning of a country, domestic actors surrender to the path of least resistance. Brussels prescribes everything; there is no point in struggling with reflections. This is, for example, evident in the production of economic papers. With some honorable exceptions, a large part of economists today writes about ephemeral topics. Or they are self-limited by the fact that the framework is given, so why struggle? After the 31st consultation of the Society of Economists in Opatija last week and indications that the new leadership intends to stimulate the profession out of lethargy, perhaps at least at that level, a withdrawal from the lull of franchises will begin.
And finally, it should not be forgotten that, just as in business, in international political economy, franchisers still want to earn more than franchisees. And here the franchise fee is paid, although it is not as clearly visible as in business relationships. There is no free lunch in the case of state franchises.
