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The Honorable Schoolboy

Following its independence in 1991, Slovenia becamean independent and successful modern state. Very successful: according to manycomparisons and rankings it comes out at the very top of all the transitionalcountries of Europe. It has the wealthiesteconomy with the highest gross domestic product per capita in that group. Atthe same time its economy is enjoying steady growth rates much faster than therest of the Europe. It is also the safestplace with the highest credit ranking in the region. Slovenia was the first new memberof European Union which adopted Euro, and it’s the world's only ex-communistcountry classified as an advanced economy by the International Monetary Fund.It is the first country in transition that became a donor partner at the WorldBank rather than recipient of its funds, and last but not least, it’s the firstnew member to serve as EU president – a challenging task requiring a maturedemocracy, not to mention excellent organizational and political skills. And,of course, a great honor.




Despite these undisputable successes, Slovenia canhardly afford to rest on its laurels. While a plethora of international comparisons and indicators clearly putthe country in the leading position among the Central and Eastern Europeannations, there are also a number of indicators which show that the task ofeconomic transition is far from being finished. In May the Swiss Institute forManagement Development issued the latest version of its study on globalcompetitiveness. Sloveniamade the biggest jump on the list, climbing eight places, from the 40th to 32nd– higher scores than a number of old EU members, including Spain and Italy. Even though there are threeother Central European countries which are considered more competitive, it'sstill a very positive result. Yet this complex study, which uses 331 differentcriteria, makes it quite clear that there's a lot of room for improvement. 

The main driver of Slovenia's competitiveness are thecountry’s companies, which operate at high levels of productivity andefficiency. The IMD's study pointed out that Slovenian managers are veryentrepreneurial – according to this criterion, ranking fifth globally, puttingthem at the very top.

If local companies perform excellently, the samecan’t be said for the institutional environment. The weak points of Slovenia'scompetitiveness are too much red tape, an inefficient labor market, a lack ofcooperation between universities and companies – again because of the complexbureaucratic procedures involved – too strong a state role in the economy andfar too low a level of foreign direct investments.


Another competitiveness study – The GlobalCompetitiveness Ranking issued by the World Economic Forum – shows a similarpicture. The last version of the report published in October 2007 put Slovenia at39th place – and again outperformed by three Central European nations. Thebasis of the WEF ranking is a combination of economic data with a thoroughexecutive opinion survey. For the last one, over 11,000 executives in 131countries were polled. The methodology and the number of the surveyed countriesdiffer from the IMD's approach, yet the warnings issued regarding Slovenia’scompetitive position are to a large degree similar.




The warnings issued by the analysts boil down toone issue: the unwillingness of two consecutive Slovenian governments to reform.This is clearly shown by the World Bank’s Doing Business study, the world’smost widely-used benchmark on reforms. In the 2008 edition of Doing BusinessSlovenia occupies one of the last places in the region – outperforming only theCzech Republic, Poland and thecountries of the Western Balkans. The World Bank’s study again pointed out toomuch red tape, especially in employing workers and starting businesses.


And excessive red tape is not the only problem. Thecountry's pension system is in a dire need of reform. Slovenia hasreceived warnings from a number of international organizations, including theEuropean Commission, that the system needs thorough reforms in order to keep upwith a rapidly ageing population. Another weak point is the fiscal system. Thepresent government did cut taxes to some extent and simplified tax procedures.Yet taxes are still too high, and the fiscal system is far from beingefficient. Sloveniastill tops the Forbes “tax misery” list, together with the Scandinavian countries.


Four years ago the present government started workwith an ambitious reform program, with the goal being to create one of the mostsuccessful and modern economies in Europe. Slovenia’s pastsuccesses offered an excellent starting point. Yet those ambitions seem to havebeen completely forgotten well before the parliamentary elections scheduled forthis fall – probably in September. The government all but abolished furtherliberalization of the economy and adopted a populist stance, giving concessionsto trade unions and starting a campaign against so-called tycoons. Theunpopular job of reform thus remain undone – a real danger when it comes toSlovenia’s future position in various regional comparisons, if not to the highstandard of living now enjoyed by most Slovenians. True, past scores were good.But school’s not over yet.


Author: Pietro Di Rocca
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