A process taking a decade or more

1The process of restructuring of the economy or companies is extremely complex and time-consuming in well-developed market economies, let alone in those that are just embarking on the path of market economy. Studies show that it is a process that lasts a decade or more.⁵²⁵ In general, restructuring cannot be separated from the process of privatization, much less from the process of macroeconomic stabilization, which indirectly influenced both the structure of the economy and the transformation of the links between economic aggregates. Undoubtedly, a great deal of rapid structural changes was more forced than necessary for a given level of development and created unnecessary or even harmful institutions in less developed socialist economies, without contributing to the transformation of the economies into modern market economies. Restructuring frequently turned into a field for experimentation with completely unnecessary financial institutions on the one hand and with the fates of thousands of employees on the other.⁵²⁶ The restructuring of companies involved a series of measures and changes necessary for the continued successful operation of companies. Companies were restructured in terms of ownership as well as in terms of size, finance, organization, technology and personnel. Some authors distinguish between “defensive” and “strategic” restructuring according to the conceptual model of company restructuring. Defensive restructuring, as the first phase of restructuring, usually required less financial resources than strategic restructuring of companies. However, defensive restructuring was more painful for Slovenian workers, as it also brought about a reduction in employment or, in other words, unemployment. Namely, many companies reduced the number of employees because they were forced to reduce costs due to the loss of the Yugoslav market. Strategic restructuring represented a large financial burden, as this type of restructuring involved companies investing in new markets, physical capital, new products, management and human capital (remuneration, education, training) as well as investing in research and development.⁵²⁷

2The restructuring of the Slovenian economy was gradual, dispersed and mostly without state aid. Especially in the first period, a large part of it was connected with redundancies and retirement, accompanied by occasional, usually unsuccessful state interventions. Similar restructuring, but to a lesser extent, also continued later on, when Slovenia had already reached the bottom of the transformation crisis.⁵²⁸ In June 1996, Uroš Korže, the first director of the Development Fund of the Republic of Slovenia, presented the golden rules for successful restructuring of companies, as he called them, in the Agens newspaper:

• the restructuring programme should be centralized in one institution,
• excessive amount of work - simultaneous restructuring of too many companies - must be avoided,
• companies should be assisted by external professional institutions,
• a communication campaign with the general public must be prepared in advance,
• the ultimate and central goal of restructuring - privatization - must always be kept in mind,
• the institution and the people leading the restructuring process should also carry out privatization,
• managers must be empowered,
• there is no success without money,
• credibility is essential when negotiating with creditors,
• supervision is necessary in companies undergoing the process of restructuring,
• it is advisable to include unemployment-related activities in the restructuring programme.⁵²⁹

Changes in the structure of value added by activities, ownership and size structure of companies

1At the end of the 1980s and especially in the beginning of the 1990s, significant structural shifts were observed in the Slovenian economy, which indicated that the economy was gradually adapting to new market and systemic changes. Structurally, it was approaching developed economies, which were characterized by an economic structure with high shares of service activities, a more even distribution of companies by size and high dynamics of business formation and demise.⁵³⁰ The structure of value added by activities showed a decrease in the share of industry and an increase in the importance of the service sector. Within the industrial sector (mining, manufacturing, electricity, gas and water supply, and construction), which accounted for 41 percent of value added in 1990 (50 percent in 1987), construction, manufacturing and mining were in the most pronounced decline. The services sector, however, which included trade, tourism and catering as well as financial, business and government services, already had a 54% share (45% in 1987).⁵³¹ At the end of the 20^th century, service activities employed half of the active population and contributed the same share in gross domestic product as industrial activities. The industry followed the path of agriculture, which was mainly influenced by three factors: the growth in service activities, increasingly efficient production and advances in technology. The events of the 1990s can be called deindustrialization.⁵³² Deindustrialization meant the transition of employees from secondary to tertiary and quaternary activities and was a fundamental feature of the postindustrial period. Its course depended mainly on the level of socio-economic development of an individual society. The process of deindustrialization did not mean the collapse of the industrial sector or the economy in general, as is often remarked, but the fact is that deindustrialization is a natural consequence of economic development in advanced economies and is associated with a rise in the standard of living. Nevertheless, it brought a few problems, which were mainly related to employment. The service sector was not able to employ surplus workers in such a short time because the overall economic growth was not high enough, as well as due to the institutional rigidity of the labour market, regulatory barriers or low investments in service industries.⁵³³ In addition, there was a noticeable change in the ownership structure of the Slovenian economy, almost exclusively at the expense of newly established companies, as the law on the privatization of the existing socially-owned companies had not yet been adopted. Of the 13,309 active companies at the end of 1991, 75 percent were private, 19 percent socially-owned, and 5.6 percent mixed. The number of private companies increased by 90 percent in one year, but their weight in the business results of the entire economy was still relatively small. These companies employed 2.7 percent of the total number of employees, generated 7.3 percent of total revenues and their operating assets accounted for 2.8 percent of the total operating assets of the Slovenian economy. Mixed companies were gaining on importance, namely in 1991, they increased the number of employees in the structure from 8.2 to 9.4 percent, the share of revenues from 12.4 to 14.3 percent and the share of operating assets from 8.6 to 9.8 percent. In the total loss of the economy, socially-owned companies participated with a 90 percent, mixed companies with a 7 percent and private ones with a 3 percent share. Despite these shifts, overall business results were still largely dependent on socially-owned companies, which generated 78 percent of total revenue in the economy and employed 88 percent of workers. Changes in the size of the companies' structure were closely related to ownership changes. The gap of the small economy, which was competitive in some areas and complementary to large companies in others, was gradually filled in the early nineties. In 1991, the number of active small companies (employing up to 50 workers) doubled - there were already 11,582 of them and they employed 36,569 workers or 6.1 percent of all employees. Small companies generated 13.3 percent of revenue, 6.1 percent of losses and as much as 38 percent of the accumulation of the entire economy. Certain positive developments also occurred in the medium-sized companies' sector, especially in the increased share of employees and export revenues.⁵³⁴ The role and importance of small and medium-sized companies grew in the following years. In 1998, small and medium-sized companies accounted for the majority of all companies in Slovenia, namely 99.7 percent. They employed 57.6 percent of the workforce and generated SIT 4,466 billion in revenues. The majority of all Slovenian companies were companies with less than 50 employees - in 1998, there were 98.4 percent of them, employing a third of all workers and generating 35.7 percent of all revenues.⁵³⁵ In 2003, a year before the formal end of transition, the number of SMEs also accounted for 99.7% of companies, while there were only 0.3% or 297 large companies. In terms of the share of SMEs in relation to all companies, the situation in Slovenia was similar to that of the EU, where in 2003, the share of small and medium-sized companies in relation to all companies amounted to 99.8 percent. Regarding the share of employees in SMEs, the state in Slovenia differed from the EU; in 2003, 16.9 percent of people were employed in micro and small companies and 36 percent were employed in large companies. In the EU, however, in the year in question, as many as 56.7 percent of people were employed in micro and small companies and 30.3 percent in large companies. Slovenia deviated even more from the European SMEs in terms of value added per employee. In Slovenia, value added per employee in SMEs amounted to EUR 21,219, while it amounted to EUR 55,000 in the EU.⁵³⁶

2A significant part of the small economy, which is not covered by the above data (because they only refer to legal entities), were crafts performed by craftsmen as natural persons. There were more than 35,000 economic units in crafts, most of which were crafts in the classical sense of the word (61.9 percent), followed by transport with 19.3 percent, catering with 9.3 percent, trade with 6.7 percent and business and technical services with 2.8 percent. About 13,000 “afternoon craftsmen” still worked in this area. Together with employees, crafts represented around 70,000 jobs or about 10 percent of the total number of all employees in Slovenia. The base of Slovenian small business was mainly craft industry. There were many individuals who, due to certain benefits, operated in both ways: as natural persons and as legal entities. These craftsmen accounted for the largest share of small manufacturing companies, which were otherwise in the minority among private companies. Structural changes in crafts were reflected in the transition of private crafts to entrepreneurship and “afternoon craftsmen” to regular crafts and entrepreneurship. The craft industries in Slovenia were quite developed and also technologically well equipped. One- third of the facilities had an average of one or two employees, and 7.5 percent of the facilities employed five or more workers. Small factories with 50 or even 100 employees were not uncommon. These facilities were at the top of Slovenian craft activities and were generally export-oriented, so restructuring into small business was the most pronounced. The economic crisis and the introduction of market economy elements hit large companies the hardest, which had to reduce the number of employees, while their share of revenue and exports also dropped, and together they created less accumulation than small companies. A review by activities shows that in the early 1990s, a half of the large companies was engaged in industry and a fifth in trade. These included companies with high losses, mainly in the electric power industry, coal mining, ferrous metallurgy and also in export-oriented industries - electrical industry, machinery, paper, metalworking industry, wood, textiles and production of means of transport, which accounted for half of the total loss.⁵³⁷

3The data on the number of economic operators in Slovenia in the early 1990s clearly point at a real growth of entrepreneurship. The number of economic operators increased by more than 64% in the period 1990-1994, namely from 67,598 in 1990 to 111,167 in 1994. However, such a dynamic of growth in the number of economic entities did not continue in the second half of the nineties. The reasons for the stagnation of the establishment of new companies in Slovenia could be attributed to the following factors:

• there was a depletion of initial capital,
• market niches in the limited Slovenian market had been filled,
• with the completion of privatization and restructuring, larger companies became competitive again and began to successfully meet market demands by developing differentiated products and services,
• modest inflow of foreign capital into Slovenia,
• large trade companies began to take away space from small traders by quickly covering the areas of Slovenia with shopping centres,
• the slowdown in the dynamics of establishing new companies was influenced by the legal requirement to provide more initial capital for the establishment of capital companies,
• the shortcomings in the state policy for the development of small and medium-sized companies became more and more obvious.⁵³⁸

Restructuring policy and the role of the state after independence

1The process of restructuring of the Slovenian economy was, as pointed out, encouraged as early as the end of the 1980s, but in reality the new economic situation did not arise until the independence of the Slovenian state in the early 1990s. The new political and economic situation in the rest of the former Yugoslavia, the collapse of socialist state systems in the countries of Eastern Europe and the general economic crisis in the world caused the loss of a large part of the markets in which Slovenian companies operated. The need for a rapid shift to Western markets, low efficiency of domestic companies and competition from the Eastern European countries that were forced into similar redirection processes led to reduced production, extremely low utilization of production capacity and labour, increased fixed costs per product and huge losses, which caused a large number of companies to go bankrupt. In order to prevent an avalanche of bankruptcies, the Government of the Republic of Slovenia adopted a decision on a moratorium on bankruptcies in 1991, which prevented the chain collapse of companies, but at the same time stopped the radical restructuring processes of companies for almost two years. It was only with the lifting of this moratorium that companies were forced to seek long-term solutions suitable for international competition and so did the economic policy. The first systematic policy of restructuring the Slovenian economy thus emerged only in 1993, when the government submitted the so-called project of rehabilitation of the Slovenian economy to the parliament, which the latter approved.⁵³⁹ The government had tried to solve this problem before, because the losses of companies represented an extremely pressing problem as they were reaching several percent of the gross domestic product. In 1991, the companies' losses amounted to 31 billion Slovenian tolars or almost 9 percent of gross domestic product. Of this, as much as 24 billion were the losses of the first hundred companies.⁵⁴⁰ The answer to the current problems was conceived in the middle of 1992, when the first government of Janez Drnovšek adopted the document Economic Policy Design, in which it announced a more active attitude towards the situation. The document also provided for the preparation of a plan for interventions in companies that received budget money from various sources, a plan for rescheduling and reducing the companies' debts, including those created in 1990-1991 by non-payment of contributions and taxes, and a plan for transferring certain obligations to the government or government debt. The delegation of the World Bank, which was visiting Slovenia at the time, proposed the division of large loss-makers into two groups: companies that would be transformed under the Ownership Transformation of Companies Act and companies that would be transformed under the Services of General Economic Interest Act. A specific strategy for each group was also proposed. The first group would include 79 companies, which accounted for almost 56 percent of the losses of the largest 100 loss-makers in 1991, and three institutions would participate in their restructuring: the Agency of the Republic of Slovenia for Restructuring and Privatization, which would approve programmes for ownership transformation and for short-term restructuring, the Development Fund of the Republic of Slovenia as the owner after the transformation and as an institution that would take care of privatization or liquidation of the companies, and the Agency of the Republic of Slovenia for the Rehabilitation of Banks and Savings Banks as the main creditor after taking over poor investments of the banking system. The second group included 21 companies with 44.3 percent of all losses of the 100 largest loss-makers. Nationalization was envisioned for these companies, while the state, together with the Agency of the Republic of Slovenia for the Rehabilitation of Banks and Savings Banks, would prepare restructuring programmes. The responsibility for loss-making companies would be shared by the state (for public companies), banks (for small companies) and the Agency of the Republic of Slovenia for the Rehabilitation of Banks and Savings Banks (for large loss-makers from the first group of companies). In the summer months of 1992, the basic idea was supplemented by a clearly defined central role of the Development Fund of the Republic of Slovenia, which became the owner of more than 200 companies employing 45,000 workers. The state took over the debts of these companies, from Elektrogospodarstvo Slovenije (Electricity Industry of Slovenia) to Železniško gospodarstvo Slovenije (Railway Industry of Slovenia), rescheduled their liabilities arising from unpaid taxes and contributions to the budget and liabilities to the Pension and Disability Insurance Institute and the Health Insurance Institute. By the end of 1993, the Fund had sold 15 companies and proposed bankruptcy for 12 companies, rescheduled the liabilities of 38 companies and established 7 companies for financing. In addition to the companies involved in the restructuring through the Fund, other measures were adopted for individual groups of companies. In this manner, the liabilities of the public company Slovenske železnice Ljubljana (Slovenian Railways Ljubljana) arising from unpaid taxes and contributions were rescheduled. In the framework of the adopted rehabilitation programme for Slovenske železarne (Slovenian Ironworks), the state provided a guarantee for loans, as well as a guarantee for 30-year bonds issued by Slovenske železarne to settle the tolar and foreign currency liabilities to banks. In 1993, the state budget covered the realization of guarantees for loans taken out by electric power companies. In the same year, the state also approved new guarantees for the purchase of nuclear fuel for the Krško Nuclear Power Plant, for the completion of the Slovenian part of the Golica Hydroelectric Power Plant, for the revitalization of the chain of power plants on the Drava River and for coal mining.

2Given the state institutions involved in the transformation, we can actually distinguish between four groups of companies. The first group included companies that became state property and were directly restructured by the state through ministries. These were economic infrastructure companies, ironworks and part of the oil industry. The second group consisted of companies - most of them from the industry - that became the property of the Development Fund of the Republic of Slovenia. The third group involved companies whose debts to banks were taken over by the Agency of the Republic of Slovenia for the Rehabilitation of Banks and Savings Banks. The fourth group consisted of companies that generally carried out the transformation independently, but with the state support and in some cases also with the active role of creditor banks. In the banking sector, three banks, which accounted for almost 70 percent of all bad bank investments, were included in individual rehabilitation programmes. These banks were Ljubljanska banka, d. d., Kreditna banka Maribor, d. d., and Kreditna banka Nova Gorica, d. d., which were thereby nationalized and rehabilitated by government debt issue. Government debt and government guarantees became the basic instruments for the restructuring of companies and banks.⁵⁴¹ Jože Mencinger was very unforgiving of the decision of the Drnovšek's government in 1992 to impose the restructuring of bad companies on the Development Fund. He commented on this decision as follows: “The government pushed 98 companies into the care of the Development Fund, washed its hands and left the Fund with an impossible task of saving 98 large companies that have been in crisis for a long time with a few beginners, at least I think the majority in the Fund were like that.”⁵⁴² Not everyone shared his opinion. “Given the state of the companies that have transferred their capital to the Development Fund, I believe that the Fund has in fact performed its social and economic function. It is focused on solving the companies' problems. It did not rehabilitate them only financially, but mostly replaced the old management teams and set up its own. The Fund pays great attention to efficiency”, were the words by Vlado Dimovski, the then State Secretary for Industry at the Ministry of Economic Affairs, in the spring of 1995 regarding the role of the Development Fund of the Republic of Slovenia.⁵⁴³ The loss of important markets during the transition to an independent market economy had a strong impact on the financial situation of the social sector in 1992. Three hundred largest loss-makers with 27 percent of all employees produced 88 percent of the total loss in the economy. In 1992, the government invited loss-making companies to apply for restructuring aid under the following conditions:

• the socially-owned capital is transferred to the Development Fund,
• the workers' council is dissolved,
• the company is transformed into a limited liability company (d. o. o.).

3The Development Fund thus became a state-owned holding with 98 companies employing 56,000 workers. It started operating with limited financial assistance and money from previously sold companies in the amount of about 100 million Deutschmarks. In most companies, it fired previous managements. In addition to that, it negotiated debt repayments with creditors and supported companies in resolving liquidity problems by giving them access to the necessary funds. Debts to the state administration and parastatal institutions were repaid by compensation. Of the original 98 companies, almost all of which were eligible for liquidation, at the end of 1996, the Development Fund was the majority owner in only 27 companies with a total of 15,000 employees. In 1996, 11 companies improved their financial performance, the situation remained unchanged in 13 of them, while it deteriorated in 3 companies. The total loss in the first half of 1996 was 24 million Deutschmarks, while it amounted to 240 million Deutschmarks in 1993. The restructuring of these companies initially involved the reorganization of companies into smaller units and the elimination of nonessential assets and activities. These companies would then be sold to private investors who would carry out a long-term restructuring. Most sales were made in 1993 and 1994. Of the 65 companies sold, 30 were holding companies and 35 were subsidiaries. Bankruptcy was filed in 24 companies. Under a new law passed in 1996, companies owned by the Development Fund could be sold to employees in exchange for certificates and unpaid portions of wages (promissory note). By the end of 1996, the Development Fund had invested DEM 289 million in the development of these companies.⁵⁴⁴

4In a developed market economy, the state intervenes in companies it owns and in companies of the so-called public sector, which are under its direct and indirect control. The state is also present in companies that could otherwise operate entirely on market principles, but are not able to restructure without its help. Through its active policy, the state also indirectly promotes the creation of new, private, fast-growing companies. In this manner, its activity alleviates the sharpness of business cycles, which is especially important in times of crisis. In Slovenia, for instance, the state had a fairly transparent presence in the economy in 1994, owning more than 140 public utilities, 28 companies of Slovenske železarne (Slovenian Ironworks), more than 280 companies in the Development Fund and over 25 companies in the Agency for the Rehabilitation of Banks and Savings Banks. After successful privatization of companies and part of the public sector and the rehabilitation of the economy, the role of the state should have been significantly reduced, namely it should have remained the owner of only parts of public utilities and those companies in which it owned capital shares. The state influenced the operations of companies and enterprises by creating the revenue and expenditure sides of its treasury. As the share of general government revenue in gross domestic product decreased, its role in resource allocation also fell. The policy of a balanced general government account had the same effect. On the expenditure side of the state treasury, the share of interventions in the economy (subsidies, transfers, investments, etc.) decreased, and amounted to 17.5 percent in 1994 (22.1 percent in 1992). Only interventions with the character of investments grew faster than the growth of budget expenditures, while interventions with the character of subsidies and transfers, as well as payments of guarantees, grew much slower. The state used subsidies and transfers mainly to subsidize price differences, maintain existing ones and promote the creation of new jobs, as well as to subsidize interest rates for investments in fixed assets. The data for municipal budgets also showed that subsidies declined slightly in 1994. A great deal of funds was earmarked for measures in the small economy and agriculture, but the absolute largest number of interventions were carried out in utilities, which were entirely under municipal jurisdiction. During this period, the state was increasing its influence on the economy indirectly, through a number of newly established state funds and companies. In 1994, the following institutions played an important role in managing the economy: the Development Fund of the Republic of Slovenia, the Agency for the Rehabilitation of Banks and Savings Banks, the Fund of the Republic of Slovenia for the Promotion of Small Economy Development, the National Farm Land and Forest Fund, the Slovenian Export Corporation, the Motorway Construction Company and the Housing Fund of the Republic of Slovenia. The role of the state in the economy was also associated with ownership transformation and privatization, which were relatively slow. By 7 November 1994, 700 companies had submitted transformation programmes to the Agency of the Republic of Slovenia for Restructuring and Privatization, i.e. 52% of all entities liable for transformation under the law. The share capital of these companies represented 57 percent of the total share capital of entities liable under the law. Unfinished privatization meant postponing important business and development decisions in companies and increased the role of the state in socially-owned companies above the desired and necessary lev- el.⁵⁴⁵ The state authorities, which in the first years of Slovenia's independence relatively quickly and adequately provided the most necessary systemic and institutional conditions for the transition to a market economy with a thoughtful gradualness, continued their reforms in the second half of the 1990s in a slower manner. They were more hesitant and less effective in their decisions and in conducting economic policy. They diligently led negotiations only on Slovenia's membership in the EU. The sober judgment of the state in systemic regulations and economic policy action was frequently weakened by stalling and delays due to the inability to make effective decisions. The insufficiently unified, not convincing enough, vulnerable and changing governing coalitions were not able to pursue sufficiently consistent economic policies (especially fiscal and income) and to effectively ensure the implementation of important transition changes. Due to constant political suspicions and accusations of causing damage to socially-owned property, activist operations of various parliamentary commissions of inquiry and long-term audits of ownership procedures in companies, the privatization process remained unfinished in many cases. Various irregularities in the privatization process were identified, including those based on the criteria set by the retroactive amendment of the legislation. For the most part, they were quickly remedied with appropriate corrections and adjustments. “The mass distributive privatization of socially-owned companies through the mechanism of authorized investment companies and the property hole have, on the one hand, caused damage to a part of the population in the role of property beneficiaries in authorized investment companies. Above all, along with them and with the participation of state funds, such an ownership structure was formed in companies, which could not ensure the expected positive role in the economic development. The restructuring of companies with inadequate ownership structures was thus too slow. Complicated denationalization procedures frequently harmed companies as well. In some cases, it was prudent and useful to act in this manner, while in other instances the privatization of extensive state property was unnecessarily delayed. All this made it impossible to use part of the development potential of the Slovenian economy for a more penetrating progress”, Tone Krašovec wrote. One of the problems was also the fact that political parties were not able to follow professionally substantiated strategic orientations and were not capable of reaching an agreement at least regarding the essential strategic goals of the development of the Slovenian economy. The politics did not provide adequate support for the strategic orientations of companies and enterprises. “Too little emphasis has been placed on sound structural and development policies and on encouraging economic operators to identify and take advantage of their specific competitive advantages in the global environment. There was also a lack of incentives for the growth of human capital, the dynamics of technological development and innovation”, Krašovec believed. Slovenia's accession to the EU was the only common strategic goal that the governing and opposition structures were able to reach. Slovenia's entry was also a tendency of the majority of the Slovenian economy.⁵⁴⁶

5After the turn of the millennium and after more than ten years of transition, reform lags remained, especially in the restructuring of the financial sector, restructuring of the business sector and in the reform of public administration or the functioning of the public sector. Although the total profits of companies exceeded the total losses in the economy, about a third of companies were still operating at a loss. The state still had quite a strong direct presence in the economy - the share of the private sector in gross domestic product increased from 30 percent in 1992 to 65 percent in 2000 with the privatization of socially- owned property, but still lagged behind other transition countries. In 2000, the processes of ownership transformation and privatization also began in the financial sector, where, after a long debate on the national interest, the state sold a 39% share in Nova Ljubljanska banka bank to foreigners. Public administration reform was slow, with public sector operating costs rising mainly due to rapid wage and employment growth in the public sector.⁵⁴⁷

Economic crime in the period 1990-2004

1Economic crime causes enormous financial damage to individuals, companies and the state. Such crimes cause an increase in insurance premiums and taxes, and, above all, increase distrust in the state and the economy. Edwin Hardin Sutherland defined economic crime as follows: “Economic crime is a criminal act committed by a person from a higher social class who enjoys a high reputation in society in the course of performing his or her duties in the workplace.”⁵⁴⁸ The Criminal Code (KZ),⁵⁴⁹ adopted in 1994, also defined the following acts as criminal offences (CO) against the economy: creation of a monopoly position, false bankruptcy, causing bankruptcy by unconscientious operations, commercial fraud, embezzlement, abuse of position, unjustified accepting and giving of gifts, counterfeiting money, money laundering, tax evasion and more. Rado Bohinc, the Minister of the Interior of Slovenia in the period 2000-2004, described economic crime as “the dark side of the cultural and technological development of mankind”. In his opinion, economic crime is also “a reflection of the stability and instability of the current political and economic structure of society”. The forms of criminal conduct against the economy were evolving relatively rapidly and adapted to social development, from the prevailing abuses during the period of transition and restructuring of socially-owned property to the rise of all types of commercial fraud after the end of privatization. Transition triggered a number of processes (ownership transformation, privatization, restructuring, the launch of an integrated and global market) and brought to the fore new areas for the proliferation of economic crime. The latter included commercial fraud, abuse of position, fraud in securities trading, abuse of insider information and economic offences against company assets.⁵⁵⁰ During the period of transition or after the transition from the socialist to the capitalist system, the character of entrepreneurship also changed. The renowned legal expert Šime Ivanjko believes that “transitional entrepreneurship is characterized by the fact that it is usually based on the concept of ownership, i.e. the desire of entrepreneurs to try to ‘take away' as much property from other players through the entrepreneurial game. The so-called ownership concept of entrepreneurship is present, but the method of acquiring primary property, with which entrepreneurs enter the entrepreneurial game, is not clearly defined and transparent”.⁵⁵¹

2In 1991, there were some changes in the collection of data for economic and general crime. The criminal offences of counterfeiting money, trafficking gold money and gold, illicit trade and the criminal offences under the Customs Act thus no longer fell under economic, but under general crime from that year onwards. Economic crime, however, did not yet include commercial fraud and those general criminal offences (forgery of documents, evasion), which were dealt with in connection with commercial fraud and had been classified as economic crimes since 1991. From 1994 onwards, commercial fraud has been classified as an economic crime. Crimes of an economic nature were on the rise all the time, as can be seen from the table.

3The data show that there were significantly fewer criminal offences of economic crime than criminal offences of general crime. However, the damage caused by such offences was much higher than the damage caused by other criminal offences. This was the practice at least throughout the 1990s. Changes occurred at the turn of the millennium. In 2000, non-economic crimes caused more damage than economic ones, after which, with regards to the damage, a balance was established between economic and non-economic crimes in the first years of the new millennium.⁵⁵² The following crimes were considered criminal offences of economic crime: abuse of position or rights, abuse of power, conclusion of harmful contracts, tax evasion, embezzlement, falsification or destruction of business documents, unconscientious operations, unlawful use, abuse of official position or rights, forgery or destruction of an official document, giving or accepting bribes, commercial fraud, counterfeiting, criminal association, money laundering and issuing an uncovered check. Of all the crimes, commercial fraud predominated throughout the 1990s. There were also a lot of cases of counterfeiting, as well as abuses of position and embezzlement.⁵⁵³

4The bankruptcies of companies, which were numerous in the early 1990s, could be understood as one type of criminal offences. Namely, some characteristics of these bankruptcies pointed at a reasonable suspicion that they could be forms of economic crime, in at least three respects: bankruptcy as a form of economic crime, bankruptcy (or illiquidity of a company) as a result of economic crime and bankruptcy as a form of concealment of economic crime.⁵⁵⁴ The criminal offences against the economy contained in the 1994 Criminal Code also included false bankruptcy (Article 232) and causing bankruptcy by unconscientious operations (Article 233). False bankruptcy was when someone, in order to avoid paying his or her obligations, apparently or actually worsened their financial situation or the financial situation of another debtor, thus causing bankruptcy by:

• apparent sale, disposal free of charge or at an extremely low price, or destruction of the property or a part thereof that belongs to the bankruptcy estate,
• the conclusion of a false debt agreement or the acknowledgement of a false claim,
• concealing, destroying, altering or keeping books of account or documents in such a manner so as to render the identification of the actual financial situation or solvency impossible.

5Such conduct was punishable by six months to five years in prison. Causing bankruptcy by unconscientious operations was punishable by up to five years in prison. The cases of causing bankruptcy by unconscientious operations were instances when someone who knew that he or she or a third person was unable to pay his or her obligations was irrationally spending money or disposed of it at an extremely low price, engaged in excessive borrowing, took over disproportionate obligations, entered into or renewed contracts with persons whom he or she knew were incapable of payment, omitted the timely enforcement of claims or otherwise manifestly violated his or her duties in the management of assets or carrying out an economic activity, causing bankruptcy and major damage to the creditors' property.⁵⁵⁵ In the early nineties, a huge number of companies thus met the conditions for bankruptcy, with the decisive role played by the political elite through the Compensation and Capital Funds as the main organized factors in the capital market. Certain companies, which were strong enough to continue their existence, emerged as buyers of cheap shares of those companies that were unable to survive. In this manner, speculators emerged, buying cheap shares in bulk well below their true value. In parallel with these developments, another planned process was taking place, which we have already touched on in the chapter on privatization of the economy, namely the process of establishing the so-called by-pass companies, which mainly involved the directors of companies that were in trouble but still able to survive. Such companies were artificially put in an impossible position in order to reduce their nominal value to the lowest possible level, after which the company was bought by the future owner, mostly the current director, who then undertook the company's rehabilitation. He or she did this by “establishing his or her own parallel or by-pass company, to which he or she transferred the assets and business connections of the old company, leaving all the liabilities to the latter and thus sinking it financially. The solving of the social problems of the sunken company became the burden of the state”.⁵⁵⁶

6Numerous economic scandals reverberated in Slovenia, and the cases of HIT, Šuštar, Rdeči križ, SIB banka, Dadas, Zbiljski gaj, Orion and Čista lopata certainly remained in memory. Among others, the directors of SCT, Vegrad, Primorje, Pivovarna Laško and Istrabenz were also sentenced to prison for various malfeasances.

‘National interest' or fear of foreign investment

1Iztok Simoniti, a diplomat and professor of diplomacy, believes that “the national interest in our country is defined by the Constitution, not politicians” and that “our primary national interest is a free society and state”. In addition to the above, the national interest of the state must be ensuring human rights and democracy, the preservation of natural and cultural heritage and the provision of a dignified life for citizens, which primarily depends on a successful economic picture. In the first place, it should be in the interest of the state to have a successful and healthy economy, while the companies should be managed by the owners whose main interest is a successful company and employee satisfaction. If all this were to materialize, the question of domestic or foreign owners would also lose weight. If the state tries to keep a certain company in domestic hands at any cost due to the national interest, it does not mean that the company's operation will be more successful, especially if the interests of individuals are hidden under the pretext of national interest, which was frequently shown in practice.

2In little more than a quarter of a century of independence, Slovenia has seen the emergence of numerous new wealthy people who have obtained their assets in different ways. Some of them in a fair and legitimate way, with an original business idea and hard work, and some also through malfeasance and abuse in the process of ownership transformation and privatization, which was also enabled by inadequate and deficient legislation.

3The transition to a democratic system had a particularly positive impact on foreign investment policy. With independence, Slovenia adopted federal legislation on foreign capital investments, which was liberalized at the beginning of 1989, as well as adjusted to international standards in content and technology. Until then, Slovenia had only known contractual investments, but not direct investments with the establishment of joint ventures and companies wholly owned by foreigners. Under this legislation, foreigners had a recognized ‘national treatment', which made them equal in all respects to domestic legal entities. Already in 1989, the number and value of foreign investments increased sharply, more than tripled in 1990, and in 1991 increased by about 40 percent compared to the previous year. These were smaller investments (according to the registered contracts, more than 1 million Deutschmarks at the time accounted for a good 10 percent of investments). The motivation of foreign investors (except those who had been present in Slovenia for many years) was to be engaged in the Slovenian market “just in case”, with the lowest possible risk of invested capital. From 1992 onwards, Slovenia's attractiveness to foreign investors was increasing mainly due to international recognition, growing foreign exchange reserves, timely repayment of international debts and lower inflation rates than in the former Yugoslavia's neighbours. After initial mistrust, foreign direct investments gradually began to flow more strongly into the young Slovenian economy. The total balance of inward direct investments in Slovenia almost doubled between 1993 and 1995 (an increase from 954 to 1,763 million dollars). In this transitional stage, Slovenia could have been a bit more open to such capital development injections, which would have given encouraging development effects, but there was no political agreement on this. Many opportunities for a turnaround from the transition crisis with the help of foreign investments in new economic potentials were missed as well as the opportunities for the recovery of the withering companies with foreign capital injections. On the other hand, some essential national economic interests were not clearly defined. The behaviour “between the extreme Slovenian patriotism and the liberal openness to foreign investors - more often in the service of individual political parties than in favour of economic development” could thus be observed depending on the individual case. The main foreign investors were Austrians and Germans. Although foreign direct investments in Slovenia were relatively modest in terms of their share in total investments and GDP compared to several other Central European transition countries, foreign direct investments per capita were quite high, as only Hungary surpassed us in this respect. “Apart from that, for a certain period of time, part of the politics, so to speak, criminalized the development investments of Slovenian companies abroad, claiming that these were attempts at wild appropriation through the export of socially-owned capital. That is why we spent some time in a period of one-way traffic with regards to foreign direct investments”, Tone Krašovec wrote. In any case, fear prevailed in relation to foreign capital, as evidenced by the following statements: “How much interest foreigners will have in Slovenian securities depends mainly on the legislation that the government is still preparing. I must say, however, that some foreign investors are already coming to the stock market and are interested in our market. A foreign legal entity can become a member of the stock exchange today, but of course only if it is a bank based in Slovenia. A foreign brokerage house, however, can only have a 24% ownership share in its branch opened in Slovenia. Foreigners will also try to acquire shares in Slovenian companies indirectly if the restrictions in the legislation are too strict, for instance, through a Slovenian citizen with whom they will conclude a contract (for a certain commission, of course). A Slovenian citizen will thus only be an apparent owner, while the real one will be a foreigner”, the then director of the Ljubljana Stock Exchange, Draško Veselinovič, said in the autumn of 1994 about the interest of foreigners in Slovenian securities. “We will in no way support foreign investments, through which the assets of Slovenian capital would be sold off during the transition and uncontrolled takeovers of Slovenian companies by foreigners would take place. Protection against unwanted foreign investments must and will take place on the basis of legislation that will be internationally comparable and will ensure adequate transparency and control by the Slovenian state. For this purpose, two important legislative projects are being prepared, namely the law on foreign financial operations and the law on the takeover of companies”, the then Prime Minister Janez Drnovšek said at the beginning of 1995. There were also cases where the interest of foreigners existed, but due to the slowness of the privatization process, they did not enter the companies. “We have always been convinced that the state share must be privatized as soon as possible, because the interest of foreign and domestic partners was large enough already in the beginning to be able to privatize everything in the first phase”, the director of Luka Koper Bruno Korelič said about privatization at the end of 1994. At the end of 1993, the Czech economist Dušan Triska said the following about the attitude of foreigners: “There are simply no foreigners. In a way, we are actually humiliated because of this. I therefore think it is best if we first privatize and stabilize the companies with the help of domestic investors and only then expect foreign capital to start to take an interest in us. Foreigners are very conservative. Slovenia and the Czech Republic are therefore a real jungle to them.” In any case, the fear of foreign capital was in many cases superfluous, while the managements of companies as well as politicians were not truly aware of its importance. This is confirmed by the case of two textile companies that were entered by foreign capital. “I am convinced that Slovenian companies need fresh capital and that they will be privatized when they receive this money. This can occur either with new foreign partners or with a greater development of your capital market. The mere sale or distribution of majority shares to employees and directors does not mean that the company has found an owner. Ownership means capital”, Giullio Bonazzi, director of Julona, said in 1995. After independence, this northern Italian company from Verona became the majority owner of two Slovenian textile companies: Tekstilindus from Kranj and Julon from Ljubljana, which employed almost 1,000 workers.

4In the second half of the 1990s, foreign direct investments in the Slovenian economy were rising in a fluctuating manner from year to year and could have contributed even more to the development than they actually did. Foreign direct investments rose from about $ 2 billion in 1996 to almost $ 2.8 billion in 2000. At the end of the nineties, these investments increased very modestly, but came to life again in 2001. With regards to direct investments in Slovenia, at the turn of the millennium, Austrian capital had a 45% share, followed by German and French capital with 12.5 and 10.7% shares, respectively. Investors from the EU area controlled more than eight tenths of foreign direct investments. The outward direct investments of Slovenian companies abroad, which were highly important for the successful internationalization of our economy, increased in the second half of the 1990s and reached a total of almost $ 800 million in 2000, focusing mainly on less developed countries. However, they accounted for only a good third of inward foreign direct investments in Slovenia. On the positive side, economic contacts with Yugoslavia and some other countries of the former Yugoslav federation improved. The outlook for outward investments was also good in CEFTA member states.

5At the time of gaining independence, Slovenia had indisputable advantages not only over other countries that emerged on the territory of the former Yugoslavia, but also over the former countries of the Eastern bloc. It had a developed, relatively flexible economy that was open to Europe and a developed banking system, which was successfully modernized and rehabilitated by the central bank after Slovenia gained independence. Thus, for quite some time, there existed a rather complacent illusion about the Slovenian success story, but we did not define the role of the state in the economy. “The state must, if it is a careful master, separate politics from asset management. Managing the state and managing the companies are not one and the same”, the economist Davorin Kračun believes. One of the Slovenian peculiarities was that the state kept most of the production capacities in its hands. In the early nineties, Slovenia carried out a system of privatization, which transferred a significant part of the ownership of companies to state funds - Kad (Pension Fund Management) and Sod (Slovenian Compensation Company). Indirectly, the state retained a significant part of ownership in the largest Slovenian companies through capital shares and actively exercised its ownership role. In addition, the 1992 Ownership Transformation of Companies Act did not cover the type of companies that were transformed into companies with state property or became the property of local communities. Therefore, in the group of former transition countries, Slovenia was the one with the highest share of state ownership. Even twenty years after the official start of transition, in 2010, 24.6 percent of the capital of Slovenian companies was directly or indirectly state-owned. Polona Domadenik and Janez Prašnikar, experts from the Faculty of Economics in Ljubljana, wrote the following in 2012: “At a time of recession, when the number of bankruptcies and compulsory settlements is growing in Slovenia, many are wondering where to look for reasons for the bad position of Slovenian companies. It is easiest to look for them outside: in the global crisis and in the problems of capitalism. However, it is difficult to look inwards and into one's own mistakes. In the Transition Report 2011, the European Bank for Reconstruction and Development wrote that the business sector in Slovenia suffers from direct and indirect state interference.” According to research conducted by Domadenik and Prašnikar, 3,668 persons acted as supervisors in the period between 2000 and 2010. A little over 25 percent of them were appointed to the supervisory boards of the analysed companies at least twice. On the basis of publicly available data on political engagement, as many as 46 percent of these individuals could indisputably be connected with the activities of political parties. The two mentioned experts called them politically “infected” supervisors. If in 2000 there were a good fifth of politically “infected” supervisors, there were almost a quarter of them in 2010 in an average supervisory board of the sampled companies. “The highest proportion of ‘infected' supervisors was witnessed in 2007, when 27 percent of all supervisors were affiliated with political parties”, the economists determined. A survey conducted by Domadenik and Prašnikar confirms that supervisors who are not politically neutral reduce a company's productivity when compared to the industry average. It is also highly important to note the finding of the aforementioned experts that if we compare two companies that displayed similar productivity in the second half of the 1990s and operated in the same industry, the company with a higher share of supervisors who are not politically neutral in the first decade of that century showed lower productivity compared to a similar company with fewer such supervisors. In the opinion of said experts, lower productivity could be explained by the fact that supervisors who are not politically neutral do not recruit on a professional basis. Another explanation could be that these supervisors allow more drawing of economic rents. More and more information is emerging in the public that this activity may be significantly related to the financing of controversial projects of companies that serve the ruling groups at the local and state level.

6Due to the indecision and unclear strategy of those who are pulling the strings - in this case politics - there is also a growing distrust, confusion and division among the population. In this regard, the opinion of Peter Kraljič, who emphasizes that the war against tycoons was invented by Janez Janša, seems highly significant. “Three or four managers were really guilty, but let them be convicted! Although they do not always work well, all legal channels are open, just look at the case of Vegrad. But most of our managers were good at their jobs, and if they are all condemned, even out of envy, as an entrepreneur you hide or even move out”, Kraljič believes. “From the point of view of foreign financial markets, Slovenia has become a very unreliable partner. Here, no one knows who drinks and who pays. When the government changes, the supervisory boards and managements of state-owned companies suddenly change as well. All this is very unsatisfactory. Even those investors who came to us experienced a highly strange treatment. Just remember NLB and KBC. Rop's government promised KBC that it could raise ownership above 50 percent, while Janša and Bajuk wanted to oust it from the NLB. Then Pahor needed the help of KBC again, but in the meantime, the latter was already in trouble itself. Now Janša and Šušteršič stand in front of the ruins, for which they are co-responsible. This is not how you treat your partners”, Kraljič was critical. Slovenia is not attractive for foreign capital, for which, according to many experts, we have no one else to blame but ourselves. Not only did we not provide a favourable environment for investments, we also frequently behaved rather irresponsibly towards potential foreign partners. “Of course, there are numerous examples, starting with Mercator - one day, we would sell it, another day, we would not. We even drove some investors away from the country, such as the American Harrahs, which wanted to build a gambling centre in Nova Gorica with 3,000 new jobs. If we play around with foreign investors, it is clear, of course, that there will be no more foreign investors and that the economy will not be stabilized. In general, Slovenia lacks a clear concept that will be sustainable and will not change with every government. The economy needs continuity and competences, which the previous governments have not provided, especially not in state-owned companies. All the previous governments, left and right, have sinned in the same way. The end result is that our competitiveness and creditworthiness are declining”, Peter Kraljič says about the issue of foreign capital.

7In 2015, the media reported extensively on how Croatian capital had been rapidly taking over Slovenian companies in the past years. Slovenian food industry, which was most recognizable in Yugoslavia with brands such as Droga, Kolinska, Radenska, Fructal, Alpsko mleko and the Mercator retail chain, is no longer in Slovenian hands. Agrokor's takeover of Mercator resonated the most with the public. In 2010, the sale of Droga Kolinska to the Atlantic group took place. In the meantime, Dukat, which is owned by the French Lactalis, bought Ljubljanske mlekarne, and in the spring of 2015, Žito was bought by Podravka from Koprivnica. Time will tell what the takeovers will bring in the long run.⁵⁵⁷ One such case is that of Adria Airways, which was the largest Slovenian airline and a member of the Star Alliance, providing scheduled and charter flights to 31 destinations in 23 (mostly European) countries. The airline ended up in bankruptcy in 2019, which was the result of a clearly unwise decision to sell it to a German financial fund a few years ago.