Still in the primary school, I have learnt that each equation has the left and the right side. So if we want the sums of the left and the right sides to be equal (and in equations this is the main thing actually), one should respect this simple fact. This is the principle that I always tried to honor, while facing any equation in my life. And when I forgot this simple fact, it usually ended with failure and regret.

Lately, I have increasingly witnessing people around me trying to ignore this simple fact of life. People spend more than they earn and think that, somehow, miraculously, things will even out themselves. States continuously borrow on account of populism and expect that this to last forever. People who are employed in companies that constantly lose money insist for this companies to continue working and strike out on the streets if necessary (in order to keep their jobs), without any awareness or understanding that the bill has to be eventually settled by somebody else. And at the same time, nobody is speaking about the other side of equation. The side of creation (and not only distribution).

It is in fact creation that makes individuals, companies and economies successful in the long run. Even the growth of GDP that Croatia is lacking for the 6 consecutive years, to which we are so much aspiring in order to get out of recession, should come as a consequence of creation of new value. Although I haven’t heard from any politician serious statement or discussion on creation of new value or what pre conditions are needed in order this to happen. It is always easier and more popular to discuss distribution of wealth. Political elites in numerous European countries (especially in those Mediterranean ones, where Croatia belongs too) continue to defend over-employment in the public sector – which represents too heavy of a burden for the overall economy. Thus the companies in the private sector are taxed too much to be competitive on the modern ultra-competitive market. Because of this many of them go bust or are forced to cut their expenses via laying of people (in order not to go bust). Result is that the total unemployment goes up and the total value of the economy declines. As a consequence also there are less and less of those companies that create value for the economy and so there are less taxes to be collected in order to finance the public administration. Although employment in public administration increases, the overall employment decreases in total.

Greece have recently elected Syriza to lead the country. Because of the promise they would persuade banks and other EU countries they should not pay back their debt, after this money was already spent. And it was unfortunately not spent to create a competitive economy, since Greece is not overwhelmed with regionally and globally competitive companies that operate on numerous European and world-wide markets. Just like Croatia isn’t either. All of it went into personal consumption above realistic possibilities, for sustaining inefficient companies and massive employment in the public sector and was also partly lost due to wide spread corruption in the country. And now Syriza want the debt to be written off, to employ even more people in the public administration and to make pressure on banks and the rich to redistribute their profit towards those one in need. And there is indeed a those ones in need due to the long and painful economic crisis. But what Syriza seams forgetting is the fact that today capital is very mobile. It is far more mobile than socially endangered citizens. And if capital feels threatened, it will simply move towards the area where risk is lower and yields are higher. Some countries at certain occasions (such as Argentina) have already tried to enforce certain populist moves and nationalize certain companies under the well-known story of returning the people what is rightfully theirs. The result was catastrophic in every single case, without exception. European Bank and Germany cannot afford themselves to negotiate softly with Greece because this would most probably immediately produce a domino effect and Spain, Italy and Portugal would right away line up behind Greece with similar demands. And Croatia too, of course. Syriza eventually accepted after all the extension of the debt bailout plan for a certain period. Now they need to figure out how to explain to the Greek people that they failed in negotiating what they had promised within the decisive pre-election rhetoric (and based on which they won the elections). As if small countries such as Greece or Croatia have any choice but to follow the rules of the global capitalistic system set by significantly more powerful and larger players and to play the game per those rules the best they can. The only probable alternative is to isolate oneself and to live in poverty. Perhaps with a sense of proud, but still in poverty.

There are more and more voices such as the Syriza, appearing in Croatia lately. No wonder when one takes into account how long the crisis lasts and growing poverty. But these voices, regardless whether they come from political parties, syndicates or civil organizations, are also forgetting elementary math. And they are also forgetting somebody must create the new value, so it could be distributed afterwards. The values they proclaim lead anywhere but towards the creation of new value. On the contrary. Their values will contribute to emigration of those highly qualified and entrepreneurial from Croatia, since such individuals, just like the capital, are highly mobile and globally competitive. And if such individuals leave the country (and we are lately witnessing exodus of highly qualified workforce), then the whole economy has far slimmer chances to be success. Because, who will then create the new value so it could be distributed? So they are therefore, once again forgetting another side of the equation – creation.

It seems to be regularly forgotten as well, that in the end somebody always must pick the bill for what is spent. In the case of the loans in Swiss francs, this can be citizens who had taken the loans in Swiss francs (that I had myself but had it converted into Euro in time – along with penalties for my mistake of course), or this could be done by the other citizens. Banks will surely not pick up the bill eventually. Why am I so sure of this? Because banks have their business goals that they have to meet in order to satisfy their shareholders and to achieve the profit targets they set (just like any other company). And if they lose on loans in Swiss francs (because of the pressure from the governments), they will raise the prices for their services or they will lay off certain number of their employees in order to compensate this loss. One should therefore have empathy towards the people who had taken loans in Swiss francs, but not towards bank staff that would be fired so that somebody would not have to deal with their error of judgment? Is this perhaps a double standard? Or not?

How exactly is new value created in economy? By creation of new products or services that had not existed earlier and which in a new way satisfy certain market need – whether we are talking about local or global market. How is this happening? What helps a lot is existence of developed entrepreneurial climate in which such entrepreneurs that create the new value represent heroes. Just like in the case of Steve Jobs in USA, who was a role model entrepreneur and manager, but first and foremost, a visionary and a leader. Good quality infrastructure also helps entrepreneurs to realize their ideas more easily. So in short all the things that are exactly missing in Croatia. And to be honest, numerous European countries are significantly lagging behind USA on this matter.

According to Michael Porter, the competitive advantage could be achieved through differentiation and creation of new value or through having low costs. If in this context we look at USA, EU and Asia, for example, then we can clearly see why Europe has structural issues. While USA leads clearly in innovation, technology, entrepreneurship and the creation of new value, most of the Asia has clear cost advantage providing decent quality at the same time. The old dame Europe is we can say stuck in the middle. We are neither cheapest nor most innovative. And there is no third way. If we do not want to be cheapest (which simultaneously means lower wages for all), it is then necessary to sparkle innovation and entrepreneurship. This is the only way one can create the prosperous society. Therefore I believe that if we want to find a way how to make a better living for people in general, we must take in to consideration both the left and the right side of equation – the creation of value and its distribution.

From global perspective, Croatia is a marginal country if we look at the share and impact on the world economy. Therefore we are not in a position to set the rules of the game. We can merely try to play the game better than the others and focus on how to create the added value for the economy that can afterwards be distributed towards the whole of society. If we are aware of the fact that, according to some estimates, more than 50% of jobs which exist today will cease to exist in less than thirty years, it is then clear that the focus on the preservation of existing workplaces is totally wrong and that one should focus on the creation of the new value and new workplaces that would ensure the increase of overall employment. And that we must first create something before starting the endless debate on what is fair distribution, as it is much easier to debate how to distribute something when you have something to distribute.

All that is spent somebody must eventually pay for. And in order to distribute something, you first must create that something in order to be able to distribute it. If one does not create before spending, then it is necessary to go into debt – which somebody must pay for in the end, with interest. This could be done via creation of additional new value for the economy or through always unpopular savings on the total country level. Whatever you try to do, one must eventually balance the left and the right side - which is something we learnt still in primary school. Some people have obviously forgotten this. Or had not been attentive in the school enough and are now trying to convince people that this must not be so. There is a name for the society where this is not valid. This is not even communism - this is Utopia. We would all like to live in utopia from time to time, but reality is not going to go away and it is making us to daily face difficult situations and to find solutions for balancing the left and the right side, both in business and in life.

This fact and responsibility as a consequence, we cannot avoid. We can postpone it, but only for some time. We can try to ignore it and while doing so transfer it onto our children and the future generations, but this is an irresponsible and unsustainable pattern of behavior in the long run. The only right answer is to find the ways to better solve the equations that are ahead of us, maximizing our results within this process and while doing so, making our lives as good as possible. We should never forget that left and the right side must not stay unbalanced for a long time, because this is a certain road to agony. The agony Croatia is experiencing already for a long number of years and the question still lies when we are finally going to get out of it. Probably when the left and the right side will finally start to balance. The moment I am sincerely hoping for and impatiently waiting to happen.

Josip Muller