The Economic Transformation of Slovenia

A Country Analysis

Term Paper, 2012

25 Pages, Grade: 1,3



List of Illustrations

1. Introduction

2. Slovenia’s History
2.1. Slovenia’s History until World War Two
2.2. Slovenian Performance in Communist Yugoslavia
2.3. Slovenia’s Independence

3. Transformation Process
3.1. Initial Conditions
3.2. Political Transformation and the Creation of Institutions
3.3. Liberalization and Market Transformation
3.4. Privatization and Development of Enterprises
3.5. Banking and Financial Markets
3.6. Evaluation of the Transformation

4. Accession of the EU and the Introduction of the EURO

5. Current Problems
5.1. Demographic Change
5.2. Slovenia and the Financial Crisis

6. Conclusion



List of Illustrations

Illustration 1: Initial Conditions

Illustration 2: Population Pyramid Slovenia 2010

Illustration 3: Population Pyramid Slovenia 2050

1. Introduction

Slovenia is one of the best examples for a successful transformation. Founded in 1990, after leaving the communist Federal Republic Yugoslavia, it was one of the first new eastern member states of the EU and the first Eastern-European country which introduced the EURO in 2007. In this paper the transformation process of Slovenia will be analyzed in detail. After a review of Slovenia’s history and its development in Yugoslavia, the initial conditions of the transformation will be described. In the following the transformation process will be dissected. Therefore the political transformation, the liberalization and the market transformation, the privatization and the developments in the financial sector will be portrayed before the entire transformation process will be evaluated. Furthermore the accession to the EU and the EURO zone will be examined, before two current problems, the demographic change and the financial crisis, will be analyzed. At the end of this paper stands a conclusion why Slovenia’s transformation was successful and which parts of it fell short.

2. Slovenia’s History

2.1. Slovenia’s History until World War Two

The Slovenian history is mainly shaped by the Austrian-Hungarian monarchy. During the Habsburg expansion in the mid of the 14th century the region Krain was integrated into the empire.[1] Consequently Slovenia’s society was shaped by western influences and lead by a German elite.[2] However in the course of time a Slovenian desire for an own state under Habsburg rule arose. The first approach was the “Program of the United Slovenia” in 1848, which requested an own Slovenian kingdom.[3] As Slovenia is a comparable small country it was seen as impossible that Slovenia could survive as an own, independent nation.[4] Therefore they favored a solution in which the dual monarchy would be transformed into a triple monarchy, which would be expanded by a third South Slav state including also Croatia and the occupied Bosnia-Hercegovina. However this solution was not realized as neither Austria wanted to release Slovenia nor Hungary Croatia from its own territory.

The situation changed during World War One.[5] After Austria-Hungary declared war against Serbia the Slovenian society remained loyal with the empire. Anyway two factors shifted the public opinion. Although the Slovenes fought fiercely for the dual monarchy they were criticized by the Austrian public for being disloyal. Furthermore Italy entered the war in 1915 and joined sides with the Allies.[6] Since an Austrian victory became more and more unlikely the Slovenes started to look for alternatives.[7] Slovenian politicians headed by Anton Korošec negotiated with Croatian leaders and founded the “Yugoslav Deputies’ Club” which pursued a state of the Slovenes, Croats and Serbs outside of Serbia under Habsburg rule.[8] Nevertheless this approach was turned down by the Austrians in 1917. In the following the “Yugoslav Deputies’ Club” started negotiations with the Serbian government. The result was to pursue the creation of an own, independent state, which should be protected by Serbia, an idea which was by then favored by the majority of the Slovenes. With the collapse of the Austrian-Hungarian Monarchy in October 1918 the State of Slovenes, Croats and Serbs outside of Serbia was founded.[9] The new state was not internationally recognized and faced an advancing Italian army. Consequently the new government sought a new protector and intensified the ties with the Serbian kingdom, which they finally joined on December, 1 1918 and founded the Kingdom of Serbs, Croats and Slovenes.

The state was founded in a rush and the constitution was not proclaimed until 1921.[10] As the Serbs were the biggest population in the new state they also had a dominant influence on the constitution. Whereas the Slovenes favored a federalist approach, the Serbs managed to realize a centralistic monarchy. Nevertheless did the Slovenes not exercise the new constitution and behaved in an autonomous way.[11] This was just natural as their western-orientated culture clashed with the orthodox values of the Serbs. The official centralistic approach changed in 1927 when Korošec became Prime Minister and tried to pursue a more federalist approach.[12] This was not successful and his governance ended in late 1928 after the assassination of two members of parliament. This resulted in unrests and King Aleksandar ordered the dissolution of parliament and declared a royal dictatorship. During this time the name was changed into Kingdom Yugoslavia and all nationalist movements were prohibited. In 1934 King Aleksandar was assassinated in Marseille by Croatian separatists. He was succeeded by his uncle Pavle. Under his reign the country was liberalized again, new elections were held and more federalist ideas were introduced. In the time between the wars Slovenia proceeded to become an industrial nation.[13] The number of farmers decreased from 66 % in 1921 to 53 % in 1940 and the production in the factories became more and more efficient.

Yugoslavia declared its support to the Nazi-regime in 1941 and signed a treaty with Hitler.[14] This created unrests in Belgrade as the majority of the Yugoslavians opposed Hitler’s politics. Feeling provoked Hitler attacked Yugoslavia not even two weeks later and occupied the country in eleven days. Slovenia was divided into three parts and was annexed by Italy, Germany and Hungary. The occupiers pursued a policy of wiping out any Slovene culture and departed the majority of the Slovenian elite. Consequently Slovenian resistance in the form of the left wing, communistic Liberation Front arose.[15] They wanted to achieve the liberalization from the occupiers, the creation of an independent, united Slovenia in a federalist Yugoslavia, and the introduction of the Soviet system. The Liberation Front was recognized by the Allies and received their support in the fight against the occupation.

2.2. Slovenian Performance in Communist Yugoslavia

After the end of the Second World War the Liberation Front pursued the goal of joining a federative, communistic Yugoslavia.[16] On November, 29 1945 the constitution of the Federal Peoples Republic Yugoslavia was proclaimed and Slovenia joined it as one of six republics. Being, due to their Habsburg-history, the economical most developed country before the Second World War Slovenia achieved to maintain its leading position also after the war.[17] The first economic reforms were carried out as soon as Yugoslavia was founded.[18] Private ownership and landownership were limited in the end of 1945 and private companies were nationalized in three waves in 1946, 1948 and 1958. In 1949 Slovenian politicians decided to modernize the whole industrial sector in two years, outperforming the other Yugoslavian republics where the process lasted for several years.[19] However the Yugoslavian economy was transformed in a different way than the Soviet economy.[20] While the Soviets applied a centralistic approach the Yugoslavian government introduced workers’ self-management, in which the economic power was shifted from the government to the workers. This policy proved to be quite successful as the GDP grew yearly by 8 % from 1952 until 1964 in Yugoslavia and respectively by 10 % in Slovenia. Also the agriculture sector was reformed in 1953 as the production became inefficient. The collectivization was partly withdrawn and farmers were allowed to extend their private farmland again. Nevertheless these reforms had not the desired long term effect. While the private incomes grew by 23 %, the industrial productivity was just increased by 3.4 %. Further reforms were needed and were carried out in the course of the early 1960’s where the workers received more power to restructure the industry and the federal system was more decentralized. However this reform also increased already existing problems in Yugoslavia. Most of the growth was financed by an increasing foreign debt which also triggered a rising inflation. Furthermore the differences between the northern states Slovenia and Croatia and southern states as Serbia and Kosovo increased and the northern states had to pay for the modernization of the southern states.[21] While in 1947 the GDP per capita was three times higher in Slovenia than in Kosovo it was seven times higher in 1980. The 1960’s reforms were continued by the constitutional amendment in 1974 when most of the power was shifted from Belgrade to the federal states, which is considered to be a trigger event in the downfall of the Yugoslavian federal state. With this reform Belgrade lost most of its influence on the federal states and the system became ungovernable.

Slovenia continued to be the most productive state of Yugoslavia.[22] While just accounting for 8 % of the population, Slovenia contributed to 17 % of the Yugoslavian GDP and to 23 % of the exports. This was mainly due to the infrastructure, modern plants and a well-trained and disciplined workforce.[23] During the communist era industrialization of Slovenia continued. While 1945 50% of the population worked on farms, the number decreased to 20 % in 1971 and to only 8 % in 1991.[24] However the Slovenian plants could not offer enough jobs for their own workers and therefore many Slovenes started working in western countries as Germany, Austria and Italy.[25] Over 200.000 Slovenes left the country in the time from 1955 to 1990. This development was important for Yugoslavia as their incomes were the most important source for gaining hard currencies. Overall it can be summarized that Slovenia developed quite well in the communist era and due to its history, its geographical position and its increasing political autonomy it drifted away from its southern fellow federal states and started looking westward.


[1] cf. Hösler, J. (2006), p. 28.

[2] cf. Prunk, J. (1997), p. 22.

[3] cf. Hösler, J. (2006), p. 91.

[4] cf. Gow, J. / Carmichael, C. (2000), p. 26.

[5] cf. Hösler, J. (2006), p. 128.

[6] cf. Gow, J. / Carmichael, C. (2000), p. 27.

[7] cf. Hösler, J. (2006), p. 128.

[8] cf. Hösler, J. (2006), p. 145.

[9] cf. Prunk, J. (1997), p. 23.

[10] cf. Gow, J. / Carmichael, C. (2000), p. 36.

[11] cf. Prunk, J. (1997), p. 24.

[12] cf. Hösler, J. (2006), p. 155-159.

[13] cf. Prunk, J. (1997), p. 24.

[14] cf. Hösler, J. (2007), p. 164-166.

[15] cf. Prunk, J. (1997), p. 26.

[16] cf. Hösler, J. (2007), p. 181.

[17] cf. Gow, J. / Carmichael, C. (2000), p. 107-108.

[18] cf. Hösler, J. (2007), p. 184.

[19] cf. Gow, J. / Carmichael, C. (2000), p. 108.

[20] cf. Hösler, J. (2007), p. 190-192.

[21] cf. Veres, A. (2008), p. 124-127.

[22] cf. Hösler, J. (2007), p. 203.

[23] cf. Veres, A. (2008), p. 124-125.

[24] cf. Gow, J. / Carmichael, C. (2000), p. 108.

[25] cf. Hösler, J. (2007), p. 194.

Excerpt out of 25 pages


The Economic Transformation of Slovenia
A Country Analysis
European University Viadrina Frankfurt (Oder)
Economic Transformation in Central and Eastern Europe
Catalog Number
ISBN (eBook)
ISBN (Book)
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1068 KB
Slovenia, Economic Transformation, Initial Conditions, Gradualist Approach, Gradualist Transformation, Communsim, EURO, Country Analysis
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Sven Bähre (Author), 2012, The Economic Transformation of Slovenia, Munich, GRIN Verlag,


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