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Self-starter is falling behind

Slovenia was in economic pole position in eastern Europe when communism collapsed in 1990. But it has now fallen behind its neighbours, held back by lack of investment and political uncertainty in the former Yugoslavia. Many companies are 60% owned by management and employees, and often do not welcome outside investors. The investment companies formed to buy into privatization have disappointed, with few taking a positive approach. This could be starving Slovenia of much-needed funds. Gavin Gray reports

Slovenia is the most developed economy in eastern Europe, and provides perhaps the most interesting test of whether the region's industry can reorganize to survive the rigours of the free market. Unlike the rest of eastern Europe, Slovenia rejected the notion that multinational investment was a prerequisite for restructuring. Instead, employees and management were allowed to decide how their companies were privatized, and were allocated shares at big discounts. The government believed that restructuring and recapitalization should take place in the secondary market ­ with the employees and other domestic shareholders playing the leading role.

Yet the scheme remains incomplete, two and a half years after its formal launch. Evidence is growing that it was over-ambitious and that the after-effects could stifle growth, which fell from 5% in 1994 to 3.5% in 1995.

The decision to put employees at the centre of privatization reflects Slovenia's inheritance. The 1,500 factories being sold were not state-owned under communism; they operated instead under the Yugoslav system of self-management, which gave employees and management free rein in deciding how they were run.

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