Introduction: MBA Croatia and Economy Competitiveness
MBA Croatia is an organization of civil society that engages in gathering alumni of all MBA Schools as well as all those who support values association promotes. MBA Croatia promotes education in
business, but also ethics, integrity and responsibility.
Two pillars, through which we want to measure our impact in making a better society, both through our organization as well as our daily efforts as individuals, are:
1) how we can increase competitiveness and
2) how we can increase transparency of our society.
IMD World Competitiveness Rankings is exactly a measure we want to track and impact. Hence, we were honored to have Professor Arturo Bris present us this year’s results and debate it for Croatian specifics together with Mr. Zdravko Marić, Minister of Finance in Government of Republic of Croatia and Mihael Furjan President of Croatian Employers’ Association.
The purpose of this presentation and panel was an effort on MBA Croatia’s side to raise awareness of what we can all do to increase competitiveness of our society.
What IMD Competitiveness Rankings Measure
IMD global competitiveness rankings compare 64 world economies (countries) in 4 major areas:
- Economic Performance
- Government Efficiency
- Business Efficiency
How Croatia Faired
Croatia was positioned worst in the areas of Business Efficiency, particularly being ranked last in Labor Market, Management Practices, and second to last in Attitudes and Values. These points have one more dimension which can be seen on Picture 3.
Across points on this level, Croatia ranked last for quality of Corporate Boards, Flexibility and Adaptability, Credibility of Managers, Attracting and Retaining Talents, Finance Skills, Competent Senior Managers and Employee Training (see Picture 4).
Croatia ranked best in the areas of Economic Performance and Infrastructure.
In the area of Economic Performance, it ranked first in Tourism Receipts and Export Concentration by Product. It also ranked in top 10 in Long-term Employment Growth and Office Rent (see Picture 5).
In the area of Infrastructure, it ranked top 10 in Pupil-teacher Ratio (in primary and secondary education) as well as in Investments in Telecommunications.
Strong State and Strong Civil Society … a “Narrow Corridor”
Every society needs to have strong state and strong civil society. In their latest book “The Narrow Corridor: States, Societies, and the Fate of Liberty” Daron Acemoglu and James Robinson argue that states can only prosper if they have the right mix of strong state and institutions on one side and corrective factor of strong civil society on the other side. It is illustrated as a “narrow corridor” in which that stability is achieved where countries prosper (see Picture 7). Private sector of the economy would fall under the umbrella of civil society. Croatia lacks strong private business sector and that is the main reason why it ranks poorly on that factor (see picture 2).
MBA Croatia and Civil Society
MBA Croatia represents civil society and pushes its influence through promotion of education in business, and through promotion of ethics and integrity among its members as well as in a wider society.
That is why at MBA Croatia we are especially concerned with such low rankings in Management Education, Credibility of Managers and Competence of Senior Management. Large percentage of MBA Croatia members are managers and we as an association promote management education, that is why rankings of these factors are of such concern for us.
On our side, we will continue to influence society on importance of management education as well as integrity of managers but also of ethics, integrity and transparency in general. But as we are ranked so low, this is a clear indicator that we need to do more. And that more organizations of civil society are needed in Croatia.
Points From Professor Arturo Bris Presentation
In his presentation professor Bris explained that competitiveness means the ability of society to develop its institution and create a better life. For that to be accomplished multiple areas need to be developed and looked at. Professor compared that to a bicycle ride. In order to ride bicycle well, one must have good roads (Infrastructure), good bicycle (Government) and good cyclist (Private Sector). All of those must be in accordance in order to have a good and smooth ride.
Countries that are top ranked are mostly European countries and that is mainly due to strong and good institutions and society framework that exist in Europe (see Picture 8)
As already mentioned before, professor Bris also points out that Croatia fairs rather good in infrastructure, and especially in healthcare and societal framework. Due to its history, we all know that people in Croatia value their healthcare and ability for a broad society to have access to high quality of healthcare.
However, Croatia ranked only 59, out of 64 overall.
Professor asked a question that how come Croatia being a European democracy, with a long history and tradition of governance, having seemingly good executives and government ranks last in the area of private business sector. This is due to high level of pessimism in that sector. Executives, managers, alumni and others who are participating in the survey that collects data for ranking, exhibit a large amount of pessimism.
At MBA Croatia we believe that this is changing. Our experience (through lectures and guests we host, through our membership base and our contacts) is that more and more companies and “new generation” of their managers and owners that are positioned globally and are competing on global scale see our private sector as much more optimistic than the survey shows. That however remains to be seen, future will tell. But this is also one of our (MBA Croatia’s) activities: expose general public to more and more success stories and raise belief and optimism in private sector and civil society in Croatia in general.
In the panel led by Ivan Kurtović, member of presidency of MBA Croatia and being MBA alumni from IMD himself, Mr. Kurtović asked various questions to our guests and later on audience participated as well.
More Educated Managers Are Needed
Mr. Mihael Furjan made a point that more educated managers are needed. He was also rather skeptical of the statistics that are outlined in the report. From his own experience, working for multinational, he concluded that, at least in his surroundings in Croatia, practices and people are very competitive.
He believes that strong public sector and quasi private sector (e.g., big telecoms and other large utilities) are too dominant so that private sector is not even really represented in the rankings, being overshadowed by large public and government sector. He emphasized that there is too much dependence on local demand as well as government.
Minister Marić said that there is no “magic stick” to resolve it all, he emphasized cooperation of private and public sector, as well as pointed out that it is the combination of measures that needs to be implemented in order to be more competitive.
Taxation Policy Not Aligned Towards Competitiveness
Mr. Bris said that countries cannot be role models to one another. Each country has to focus on its own strengths and weaknesses in order to find its way to being more competitive. However, most of the countries that are ranked good are the ones with good institutions.
As one of the important pillars of competitiveness is a taxation policy, it was mentioned that although some work has been done on tax system in Croatia, there are still taxes that are not driving competitiveness. Croatia practically does not have a tax on wealth and low paid labor, but taxes on skilled labor are rather high. This drives economy from being competitive to being a „rent economy”. Small businesses and low paid jobs are not taxed, but companies with skilled labor are.
Croatian tax burden on labor is so high due to unfavorable retired population in comparison to working population, and age of retirement is rather low in Croatia. Big burden on tax system is also financially inefficient healthcare system. Hence even though health system gained high scores, it is financially inefficient and hence causing tax systems to be inefficient as well.
MBA Croatia organized this presentation and panel in order to raise the awareness of the importance of being competitive. The importance in being competitive along all the pillars emphasized in these rankings: economic performance, government efficiency, business efficiency as well as infrastructure.
There was a broad consensus among everyone participating (presenter, panel participants, moderator as well as audience) that education, creating, keeping and attracting talent is something that is most important in order to increase all of the competitiveness rankings. We concluded that we have a good base (good infrastructure, good educational system and healthcare) and that we need to work more to implement regulatory measures that will empower private sector.
For MBA Croatia
Krešimir Profaca, president of MBA Croatia