Six Secrets Behind Our Failure to Fix State-Owned Companiesčić

Foto: Milan Račić, Linkedin

In the space of a quarter-century spanning 14 governments we have consistently failed to fix our state-owned enterprises (SOEs). Despite all the efficiency talk, the counsel of top Croatian economists and pressure from the outside to sell off chunks of our non-core companies, our government continues to play a supersized role in our economy. 

SOEs control 30% of the total assets, contribute 18% of the total revenue and employ 12% of all employees in the country. The numbers are even bigger in certain industries, 79% of those employed in utilities and 45% of those employed in the transportation sector are employed by SOEs (EU Commission estimates).

Aid was generously offered to improve SOE management by the international community. That aid was happily accepted. However, the resultant activity amounted to little more than a checking-the-box exercise with nothing to show for it – we basically pretended to be doing something. Attempts to improve the situation ran into several major obstacles.

#1: Lack of commitment from politicians and Directors of SOEs stalled efforts to improve transparency and efficiency. I’m being generous here – as, let’s face it, many engaged in clear and energetic obstruction of reforms to protect their political and economic vested interests.

#2: Our brand of Croatian exceptionalism promoted by our political and union leaders served to delay reforms until we could formulate our ˝own special solutions˝ to common post-communist problems. While we stared at our navels and pondered our specialness, our neighbors cleaned up their acts.

#3: Approaching reform as an academic exercise, we turned to the experts from our universities to study and make recommendations. However, very few of our professors have any kind of real world experience in managing companies, let alone managing them through change, so these attempts at change ended up rewarding favored academics and delaying change further. What we really needed were men and women adept at managing companies through change.

#4: As if the list of people capable to pull this off wasn’t small enough in Croatia, our governments turned to the same people for advice over and over again. Same advisors, same advice … same results. 

#5: Previous attempts at reform were not lead by people who had an ability to engage and motivate participants in change within the administration, ministries and SOEs. You can’t bore people into changing.

#6: Finally, lack of public support for implementing change put the last nail in the coffin of reforms. And who can blame the voters? There was never an effective strategy for transforming SOEs and its benefits were never clearly communicated, so people supported the devil they knew.

Croatia’s many state-owned companies today sit at the intersection of a variety of demands – a new world economy that massively intensified competition, technological advances which drive efficiency and the demands of a society accustomed to heavy state involvement in the provision of goods and services. Croatia’s problems are not unique and can be solved if we address the obstacles above. Change comes from laying the right foundations – human, business and administrative – not by waving a magic wand. There is no better time to start than today.

Source: Milan Račić, Linkedin


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