May 15, 2020 - The topic of Croatian entrepreneurs and their negative public perception in a part of the public is a part of a broader history of the private sector in a transition country. Various economic, psychological, and social aspects are mixed, and partially the influence of ideologically formed stereotypes. However, it seems that the perception created over a long time, through anecdotal evidence and the actions of interest groups, is far from reality. Now, perhaps, the turn of events is such that it will clear up many misconceptions and put more accurate information in the foreground.
Of course, on one side, and a global scale, we are seeing growing inequality and differences between rich and poor, and individuals and countries. Using resources without taking into account their limitations, or the ecosystem and the effects it has on it, has rightfully homogenized various groups of people and turned them into activists. What happens in our country, which has not yet mentally left behind the communist legacy and its bad aspects? Although we nominally live in a capitalist system, socialism still runs through many segments of society. And there, perhaps, we should open the topic of Croatian micro, small and medium-sized entrepreneurs, sole proprietors, and self-employed to ask ourselves: Who are these people?
Someone who watches the newspaper headlines from the side, first associations often take them to a dark period of privatization of state-owned firms and politically connected people who have become rich. They can think of tycoons and their arrogant sons, golden youth, and ruthless teenagers who drive expensive cars and kill people in car accidents. And, of course, they do not bear any consequences due to the power and influence of their parents, which can affect the obviously corrupt Croatian judicial proceedings (we have the lowest level of confidence in the judicial system in the EU).
But who are the REAL ENTREPRENEURS, and who cares about them?
Unions protect their employees in the public sector, corporations through their PR departments and the strength of their brand, somewhat safeguard their employees, but who cares about the image of (small) entrepreneurs? It seems that no one has worked on that for many years and did not think that this is an important social issue?
Here is some analysis data. Let's start with how many of them are there. According to the aggregate data published by Fina each year, more than 98 percent of all Croatian companies are classified as micro and small enterprises. They employ more than 470,000 employees. As he cited in his 2016 article, Davor Huić—In the first five years of the first crisis (2009–2013), small companies revoked 30 thousand job posts (they sent 30,000 people to the labor exchange). The return on capital was not positive in any of the observed years, and in 2010 it was in the red a whopping 4.3 percent. At the same time, the debt index rose from 3.6 to 4.3—on each kuna of equity capital, they have almost four and a half kuna of debt (in "normal" conditions, this ratio should be 1:2). In other words, entrepreneurs during the previous crisis (2009–2013) owed everything they had—their apartments, houses, countries, cars, so that their companies would survive, and to keep their "profitable business" alive—the one that brings them losses. That and many other indicators already then showed that Croatian entrepreneurship was on its knees and in danger of complete collapse—had our bureaucratic caste continued with radical anti-signature policies (perhaps additional charges that arose with the crisis), as it was at that time.
The percentage of the number of closed companies is also significant. Over the past couple of years, there has finally been a slight recovery from the last crisis—as seen from the number of newly employed to this segment—almost 46,000 people, but the situation is far from ideal.
According to the CEPOR report, more than 34% of businesses as a reason for closing say that they cannot be profitable under these conditions, and another 15% are closing for problems with the access to financing.
We can only guess how notable this number will be after the first stage of the current crisis.
The Glas Poduzetnika Association unites more than 10,000 micro, small and medium-sized entrepreneurs and self-employed, sole proprietors, subject to lump-sum taxation, sole proprietors, and OPGs (family farms). We had a good opportunity to gather additional information about who are Croatian entrepreneurs and what state they are in, through surveys that involved thousands of participants. They gave their answers (and not anonymously, but with their first and last names). Here is a summary of some of the results:
In contrast to the imputations of some union representatives that entrepreneurs are riding in expensive cars, our members are uncomfortable admitting that they do have a minimal stock of capital in reserve.
More than 80% of companies have less than 20,000 kn, and almost 60% have less than 5,000 kn. That is directly reflected in the assessment of the survival of their companies in times of crisis or unpredictability when more than 90% of members say that they can withstand a maximum of 3 months (and for 50% of them it's only a month).
Also, about 60% of them live as tenants or pay off loans on the property they live in or live with their parents/in the family property. Only 23% own an official company-owned car, and 57% must use their private vehicle.
Unfortunately, some of them will, if they can't keep their companies alive, consider leaving the country and finding happiness elsewhere (about 20%). It would be interesting to see how many employees from the public sector with secure salaries have left the country or are planning to leave (given that they are reportedly treated very poorly). The situation is generally not very good when they cannot expect support and loans from banks, those in the tourism industry have already reported considerable changes in bookings, and about 80% of them cannot work from home or can only partially.
Another picture that is continually being sent out is that entrepreneurs are using their workers and that they live of unfair exploitation of their work. If we take individual cases, each thesis is easy to prove, but let's look again at some statistics on which we can make a better generalization and conclusions.
About 40% of entrepreneurs in their small businesses employ family members or relatives. A certain number also hire their friends. It is hard to imagine that such social relationships would survive if employees were deceived and exploited.
Only about a quarter of these entrepreneurs is not in debt, and 30% of them are in the average or significant debts. Another 43% of them risked for the business and invested all their personal assets. This is also explained by the data showing that entrepreneurs work the most because they have to fight not to lose everything they have. Only 6% of them work 8 hours per day, which is usual for the public sector and according to the law. The majority of them, 44%, works 10 to 12 hours per day, and an additional 29% except working overtime during the week, they also work weekends. Alarming 14% has to work over 12 h a day.
What position does all this put Croatian entrepreneurs in? They risk everything they have, work a lot, are under constant pressure from the repressive inspection, the Croatian justice system will practically not help them because of their slowness and inefficiency. They are almost stigmatized by part of the public, and if they manage to survive all the administrative and other obstacles set by the state, and finally, if they get into the right business model and stay alive after fighting competition and ultimately succeed, what exactly have they achieved? The companies that do not perish, but continue to do business, get a completely different level of profit—from moderate to medium, depending on the industry. It is clear that the vast majority survive and do not accumulate great wealth with their work (which would be fine and is in Western countries). Instead, they survive and work to replenish the state Treasury. Perhaps the best word for Croatian entrepreneurs would be—workingmen, the real working class, not some caste that is put in opposition to the workers.
In this situation, who would even want to look for work in the private sector and as an entrepreneur? The chances of success are insignificant compared to the risk. Feeding off the state offers safety, comfortable and predictive job, insured for years to come. Because of this, the increasing numbers of surveys showing that young people, instead of wanting to be creative, innovate and create new business ideas thus creating additional value, and thrive in a fierce market struggle, are increasingly choosing and wanting peaceful and safe but often meaningless positions in the state administration, even though they will lose opportunities for personal advancement and growth, are not surprising. Where does this put us as a country that will, despite its good potential (Croatia is, say, no. 37 on the WEF Global Human Capital Report), find it increasingly difficult to compete in the global market, and continue to lag behind all relevant factors (Doing Business Report, WEF Global Competitiveness Report), is not difficult to predict. Borrowing is not indefinitely possible, and the public sector is financed from a budget that is filled mainly by the private sector. When it collapses, the only question is which of the black scenarios awaits us. As told in an interview with the Financial Times, a member of the wealthiest Swedish family—Jacob Wallenberg, who himself is "deathly" afraid of the consequences for society if the unemployment rate gets close to 30% (and employees of the private sector are out of work in a swoop), and the economy itself will contract accordingly. He believes that in this case, "There will be no recovery. There will be social unrest. There will be violence. There will be socioeconomic consequences—dramatic unemployment."—Why? Because the private sector will collapse. It is crucial to think carefully before one starts throwing dirt on entrepreneurs, and short-sightedly protect only their own short-term interests.
Aco Momcilovic
UGP
For the Croatian version of the article, click here.
For the latest from the Glas Poduzetnika initiative, follow the dedicated TCN section.
You can also join the 55,000+ people in the Glas Poduzetnika Facebook group.
