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A Star Pupil Flunks Out

Slovenia’s status as a post-communist standout was built on a shaky foundation.

by Martin Ehl 7 May 2013

When I was studying in the 1990s, trips to visit friends in Ljubljana were among my favorite pastimes. Slovenia was, after all, a star economic pupil, a cultural and culinary beacon, and great place to be a student. It was a small country offering both high mountains and a little sea, stalactite caves with excellent wine-grapes ripening overhead, excellent pastry shops, and some choice meat delicacies. And as students we were impressed by the local system, which afforded Slovenian youth unbelievable possibilities to hold on to their student status for years (even up to age 40), with the corresponding advantages, such as low or almost no taxes and discount coupons for many of Ljubljana's restaurants.


As long as Slovenian state capitalism, founded on the remains of Yugoslav socialism, worked, the country was the model of a communist state transformed – and, moreover, a sharp contrast to the neighboring, warring, post-Yugoslavia nations. However, as the lingering financial crisis and recession have shown, Slovenians don't only have bad loans in their banks from that period worth a one-fifth of GDP. They also have hidden debts, which now, even with membership in the euro zone, are pulling the country into the abyss where Cyprus and Greece have ended up. These are, in addition, debts that are difficult to quantify.


Slovenians got used to being something special. They had undoubted commercial success in the former Yugoslavia, as well as in Western markets. But at home, rigidity dominated and the powerful influence of interest groups such as pensioners with their own parliamentary party or the trade unions stymied thinking about things such as the reform of the pension system and labor law.


After the declaration of independence in 1991, various formations composed of former communists who were careful about words such as privatization and foreign investment took turns governing the country. Yugoslavia's socialist legacy had a lot to do with that, but so did the concerns of a small nation, which had, for the first time, its own country and feared that outsiders would again steamroll over its history, culture, and economy – this time not militarily, but economically. Sometime in 1998, for example, I first heard the story of how the Slovenians were preventing foreign speculation by requiring that money into and out of the country could legally be transferred through only one state-controlled account.


A right-wing government took power only in 2000, with its banner wielded mainly by former dissident Janez Jansa, who is known for seeing plots everywhere. He himself was accused of secret arms purchases during the dissolution of Yugoslavia. This year, his government fell not because of economic problems, although they played a role, but because of suspicions of corruption among ministers and the prime minister.


Slovenia's shining image shows up in rankings of countries’ living standards and development. When we dig deeper into these indices, however, we can see the residue of the state-directed approach to the economy and the socialist attitude to the state as the hand that distributes full handfuls. For example, the Prosperity Index, compiled by London's Legatum Institute, puts Slovenia at 24th of 142 countries. But the worst evaluated of the eight categories is the economy, while the best is the educational system.


It's similar with the Catch-up Index, compiled by the Open Society Institute in Sofia, which judges whether and how quickly the former Eastern bloc countries are catching up with Western Europe. Of the four categories assessed Slovenia fared a shade better in quality of life than in democracy, governance, or the economy. It looks as if the Slovenians live well but have relied too much on their economic model working forever and even being able to grumble about their government, which, however, still controls most of the economy through state-owned banks and companies.


Just as Slovenians have a problem with privatization and opening up their economy to foreign investors, so it is in other areas. For example, a history-related time bomb has been ticking in Slovenian society, considered taboo all the way up until Jansa's governments that ruled after 2000. During World War II, certainly not all Slovenes stood on the side of Tito's partisans. Slovenia was divided during the war among the three occupying powers, and only much later Jansa and others began to talk about the massacres of tens of thousands of people from the so-called Slovene Home Guard – namely the units on the side of the Italians, Germans, and Hungarians, whom the allies in 1945 handed over to Tito's units along with the remnants of the Croatian Ustasha and Serb forces loyal to the exiled Western governments.


Last week Slovenia succeeded at selling bonds on international markets. The immediate implosion of the economy is, therefore, not a threat. But the move has only bought time. Slovenians need to radically transform their economic model – as many analysts of investment banks are recommending – but also to change their view of the world. They became too accustomed to playing the role of that star pupil for whom some things can be overlooked and a lot forgiven.


Martin Ehl is the foreign editor of the Czech daily Hospodarske noviny, where this column originally appeared. He tweets at @MartinCZV4EU. He recently won the prestigious Writing for Central Europe journalism prize, awarded by the APA – Austria Press Agency in cooperation with Bank Austria.
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