Tuesday, October 21, 2008

Socialism works best where there is social homogeneity

A little country that ignored the rationalists is doing very nicely

IN THE years when Slovenia was part of communist Yugoslavia, it is estimated that up to 30,000 Slovenes - 2% of the entire population - left to settle in Australia. But these days, far more people arrive in Slovenia than leave. Go there, and you understand why.

For one thing, Slovenia and its capital, Ljubljana, have an irresistible charm. In the Financial Times the other day, travel writer Jan Morris called it "the most delightful small country in Europe … God evidently smiles on Ljubljana, as he does on all Slovenes".

But people are not migrating to Slovenia just for its scenery and cafe culture. It's a country that works, one that has chosen its own way to run an economy - a way that has little to do with economic rationalist models - and is developing at an impressive pace, in self-imposed isolation from global financial markets.

You may be struggling to place Slovenia on a map. It's a country of just over 20,000 square kilometres and 2 million people, tucked on what it calls "the sunny side of the Alps", just south of Austria and just east of Venice. It's the westernmost of the six republics that formed the old Yugoslavia. In 1991 it declared its independence, and these days it is part of the European Union and the euro zone.

Apart from its Australian connection (Housing Minister Tanya Plibersek is one of many to grow up in Slovenian migrant families), and the fact that it is one of the most beautiful countries on earth, why should it be of any interest to us? Well, because it has made up its own rules for the transition from communism to capitalism, and done well by them.

It's far from perfect. Political leaders on all sides agree that big changes are needed to secure Slovenia's future. And at a time of record prosperity, Slovenians last month voted to throw out the centre-right coalition led by Prime Minister Janez Jansa, in favour of a centre-left coalition under Social Democrat leader Borut Pahor.

But under governments of both sides, the economic record has been impressive. Since 1992, Slovenia's real income per head has doubled. In 1992, the International Monetary Fund estimated its output per head in terms of real buying power was only 60% of Australia's. By last year, that had jumped to 75%.

Of all the former communist countries, it is clearly the richest and most advanced, a land where 62% of people surf the net, infant mortality is lower than in Australia, and 70% of its output is exported, mostly to other EU countries in areas from pharmaceuticals to auto parts.

How is this possible in a country where the state still controls 40% of the economy, including most of its big companies? Where it is virtually impossible for management to sack a worker, where pensions are so generous you might wonder why anyone works?

People I spoke to agreed that Slovenia was born with a good inheritance. "It's more central Europe than eastern Europe," Andrej Vijzak, outgoing Minister for the Economy, says. "We were part of Austria for many years, and that formed our traditions." As one MP puts it, "socialism in Slovenia wasn't so bad". Yugoslavia's longtime dictator Josip Tito encouraged factories to be autonomous.

"There was self-management, there was pricing, and there were profits," says outgoing Development Minister Ziga Turk, no fan of the communists. "People could travel to the West, people could leave."

Independence, and then EU membership, saw Slovenia successfully shift its exports to the West. But unlike the rest of the ex-communist countries, it chose not to follow the free-market reforms pushed by the International Monetary Fund. With some exceptions, it has not allowed foreign investors to control existing firms, although it encourages them to start new ones. Trade unions, now free of communist control, are more powerful than ever.

In part, this reflects Slovenia's political history. After Tito's death, the local communists in the '80s under Milan Kucan led a shift towards autonomy and free elections, culminating in independence. Kucan himself was elected president until 2002, while the communist reformers, as the Liberal Democratic Party, won three elections in a row - a sharp contrast to other ex-communist lands.

In 2004, the right under Jansa finally got its chance, winning on a platform of extensive privatisations, a flat income tax and reform of the unwieldy unfair dismissals law.

But Vijzak concedes that while it made progress towards these goals, it fell well short of its aims. The reason, he says, was the Slovenian tradition of consensus.

"We are dedicated to social dialogue when we want to make changes," he says. "We don't want to adopt anything without consensus. We haven't done it in the past, and we won't in the future."

Maybe Borut Pahor, the unions' choice, could persuade them to agree to the reforms that eluded Jansa. Then maybe he can get another of his allies, the pensioners' party, to accept the need to trim back Slovenia's potentially ruinous pension benefits. And if he can do that, then truly, God smiles on Slovenia.


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