The political framework of industrial meltdown in Croatia, 1990-2013

Abstract

In this paper, the writer offers an analysis of a political framework of deindustrialization and seeks to explain the political factors that have shaped and determined the fate of industrial sector in Croatia over the last two decades. The first major blow to industry was disintegration of the Yugoslav state in a bloody war after a decade-long economic stagnation during the 1980s. In Croatia this process was followed by restoration of capitalist mode of production through privatization. Besides the war and privatization processes, the adoption of a stabilization program in 1993, which introduced overvalued fixed exchange rates and encouraged the development of an import-based structure in the economy was even more destructive for industry. After 2000, Croatia fully opened its economy to foreign influence. The structure of economy started to be based essentially on services, with fast-growing retail trade. Foreign-owned banks started to lend money almost exclusively for consumption and residential construction, with the consequence of rising prices of real estate. With the outbreak of global financial crisis, banks closed their credit channels. This led the Croatian economy into a deep recession, which was followed by austerity measures. Accession to the European Union produced another blow to industrial production, with the condition that shipyards must be privatized. Without industrial revitalization and strengthening of economic independence, it is hard to imagine a successful exit from the current economic crisis.