| 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. Many Slovenian companies obtained western technology through licensing agreements in the 1970s and 1980s, and by the end of the 1980s the EU was already the Slovenian republic's main export market. |