CEU eTD Collection The Political Economy of Shipbuilding in Post- Socialist Transition: A Comparative Study of Croatia and Poland By Darjan Dragicevic Submitted to Central European University Department of International Relations and European Studies In Partial fulfillment of the requirements for the degree of Master of Arts in International Relations and European Studies Supervisor: Professor Bela Greskovits Budapest, Hungary 2007 (17,203 words)
Welcome message from author
This document is posted to help you gain knowledge. Please leave a comment to let me know what you think about it! Share it to your friends and learn new things together.
Transcript
CE
UeT
DC
olle
ctio
n
The Political Economy of Shipbuilding in Post-Socialist Transition:
A Comparative Study of Croatia and Poland
By
Darjan Dragicevic
Submitted toCentral European University
Department of International Relations and European Studies
In Partial fulfillment of the requirements for the degree of Master of Arts inInternational Relations and European Studies
Supervisor: Professor Bela Greskovits
Budapest, Hungary2007
(17,203 words)
CE
UeT
DC
olle
ctio
n
ii
Abstract
Almost two decades of post-communist transition in Central and Eastern Europe
(CEE) have resulted in profound changes throughout the region. Among many tasks facing
the governments of the newly democratic states, a particularly challenging one has been the
restructuring of the industries originally developed on the principles of communist planned
economy. Surprisingly, scarce academic coverage has been given to shipbuilding, a
strategically important industrial branch considered to have been the engine of the impressive
economic development programs of South Korea and post-war Japan. By focusing on Croatia
and Poland, two countries with the longest tradition of shipbuilding in CEE and boasting
remarkable international success of the industry, the thesis looks at how this important sector
has fared in the transition process. More precisely, the aim is to provide an explanation for
the international success of the shipbuilding industry, achieved despite the absence of
transnational capital in the ownership structures of the shipyards. The main argument of the
thesis is that the reasons behind the puzzling absence of transnational capital in shipbuilding,
accounting for its unusual post-socialist trajectory, are industry-specific. Shipbuilding does
not fit the model of a typical complex industry, both in the way it operates and the manner in
which its role is perceived by the governments. Overall, the thesis offers a contribution to the
understanding of state-led industrial restructuring in transition economies by exploring a
complex industry of significant importance for economic development.
CE
UeT
DC
olle
ctio
n
iii
Table of Contents
ABSTRACT........................................................................................................................ II
TABLE OF CONTENTS ..................................................................................................III
INTRODUCTION............................................................................................................... 1Literature Review and Research Gap............................................................................. 3Methodology ................................................................................................................. 8The Puzzle of the Absent Transnational Capital........................................................... 12Thesis Structure........................................................................................................... 16
CHAPTER 1 – SHIPBUILDING AT A GLANCE .......................................................... 181.1 The Global Shipbuilding Industry – Europe vs. Asia .............................................. 181.2 State Involvement – A Necessary Evil .................................................................... 211.3 Legacies of the Past – The Shipyards of Communism............................................. 23
CHAPTER 2 – SHIPBUILDING IN CENTRAL AND EASTERN EUROPE ............... 272.1 Croatia – The Uneasy Pride .................................................................................. 272.2 Poland – The Lure of Remontowa .......................................................................... 312.3 Comparative Assessment – The Suffering Giants.................................................... 34
CHAPTER 3 – THE ROLE OF THE STATE IN INDUSTRIAL RESTRUCTURING 363.1 Croatia – Gradualism or Inertia? .......................................................................... 363.2 Poland – A Proactive Approach............................................................................. 403.3 Comparative Assessment – Regime Typology........................................................ 44
CHAPTER 4 – DETERMINANTS OF STATE MOTIVATION.................................... 464.1 Labor Relations & Trade Union Influence ............................................................. 464.2 Export Roles as Stages of Industry Development.................................................... 48
CONCLUSION ................................................................................................................. 54
BIBLIOGRAPHY ............................................................................................................. 56
CE
UeT
DC
olle
ctio
n
1
Introduction
Almost two decades of post-communist transition in Central and Eastern Europe
(CEE) have resulted in profound changes throughout the region. According to Balcerowicz,
the scope of change has been unprecedented and exceptionally large, affecting both physical
and economic systems, altering social structures and putting extreme pressure on top
decision-makers.1 Among many tasks facing the governments of the newly democratic states,
a particularly challenging one has been the restructuring of the industries originally
developed on the principles of communist planned economy. Diverse strategies have been
adopted in the region and variation can be seen in the approaches towards particular sectors,
as well as between different sectors. Nevertheless, scarce academic coverage has been given
to shipbuilding, a strategically important industrial branch considered to have been the engine
of the impressive economic development programs of South Korea and post-war Japan.
By focusing on Croatia and Poland, two countries with the longest tradition of
shipbuilding in CEE and boasting remarkable international success of the industry, the thesis
looks at how this important sector has fared in the transition process. It examines both the
actual and the perceived role shipbuilding has played in the economic recovery of both
countries, accounting for its peculiar post-socialist path. More precisely, the aim is to provide
an explanation for the international success of the shipbuilding industry, achieved despite the
absence of transnational capital in the ownership structures of the shipyards. Academic
research on the role foreign direct investment (FDI) has played in the process of post-socialist
industrial transformation, clearly indicates that such a development is somewhat of a rarity
for a complex industry, as will be shown in the following sections.
1 Leszek Balcerowicz, “Understanding Post-Communist Transitions,” in Socialism, Capitalism, Transformation,ed. Leszek Balcerowicz (London, New York, Budapest: Central European University Press, 1995).
CE
UeT
DC
olle
ctio
n
2
The main argument of the thesis is that the reasons behind the absence of
transnational capital in shipbuilding, accounting for its unusual post-socialist trajectory, are
industry-specific. Shipbuilding simply does not fit the model of a typical highly complex
industry, both in the way it operates and the manner in which its role is perceived by both
Croatian and Polish governments. It is demonstrated that the prolonged state involvement has
been a result of inefficiencies inherited from the communist system combined with a strong
belief that the rescuing, and eventually the restructuring of the industry, is of vital importance
for economic development and social cohesion. Thus, it is a consequence of particular
intrinsic characteristics of the shipbuilding industry in general and CEE shipbuilding in
particular, including its actual and perceived importance for the national economies in
question.
It follows that the driving force behind the apparent international success of the
shipyards in Croatia and Poland has been the strong commitment of the national governments
to deal with the problem of shipyards’ inability to restructure at an adequate pace. Once one
accounts for the serious difficulties facing even the highly productive West European
shipyards, created mostly by unfair competition and excess capacity endemic in the global
shipbuilding industry2 , the magnitude of the problem faced by the Croatian and Polish
governments becomes evident. Their efforts to keep the industry alive have resulted in a
paradox where predominantly insolvent and aid-dependent shipyards hold a remarkable share
of the world’s shipbuilding market.
However, it is important to make clear that the state policies towards shipbuilding
have not been identical in Croatia and Poland. This can be clearly seen in Poland’s stronger
2 Jurgen Bitzer and Christian von Hirschhausen, “The Shipbuilding Industry in East and West: IndustryDynamics, Science and Technology Policies and Emerging Patterns of Co-operation,” German Institute forEconomic Research, Discussion Paper No. 15, Berlin, September 1997.http://www.diw.de/deutsch/produkte/publikationen/diskussionspapiere/docs/papers/dp151.pdf, (accessed May 4,2007).
CE
UeT
DC
olle
ctio
n
3
resolve to privatize the shipyards soon after the collapse of communism. Nevertheless, due to
industry specificity and the shared commitment to keeping the industry alive, the situation in
both countries is very similar in 2007. Both governments have claimed that the benefits to
economic and social development of keeping the shipyards operational outweigh the funds
spent through state support mechanisms. These include preserving employment of large
numbers of people in coastal regions, promoting production linkages in the form of domestic
outsourcing and supplier networks, as well as ensuring further contributions to the countries’
export performance. Moreover, they have optimistically argued that the particular industry
characteristics attracting shipping companies to their shipyards, such as customization
expertise, create a competitive advantage that will ensure future profitability of the sector,
justifying their policies so far.
Overall, the thesis offers a contribution to the understanding of state-led industrial
restructuring in transition economies by exploring a complex industry of significant
importance for economic development. It is not the bargaining between the state and
transnational corporations, so frequently discussed in the FDI literature, that forms the core of
the discussion. Instead, the case of the shipbuilding industry examines state motivation for
taking full charge of complex post-socialist industrial transformation when transnational
capital shows little interest or is not considered to be a desirable solution. Bargaining between
the state and the shipyards, including both labor and management boards, is thus more
relevant for this study.
Literature Review and Research Gap
Shipbuilding is a complex, capital-intensive industry of high technological content.
As such, it is fairly similar to the automotive or electronics industry. However, very limited
academic attention has been given to shipbuilding, be it as an example of a state-owned post-
socialist industry, or simply a setting for studies on industrial upgrading, technology transfers,
CE
UeT
DC
olle
ctio
n
4
innovation policies or labor relations. The automotive, electronics and other complex
industries have been researched much more extensively.
To begin with, Radosevic and Rozeik show that the restructuring of the automotive
industry in CEE has been entirely foreign-led, through the strategies and actions of
transnational capital in interaction with government FDI policies.3 In addition, the study of
the Polish automotive industry undertaken by Maksymiuk stresses the importance of FDI for
successful restructuring, and puts forward arguments that highly skilled and cheap labor has
been the key in attracting transnational capital.4 Pavlinek, on the other hand, deals with the
automotive components industry in the Czech Republic, tracing the successful integration of
Czech suppliers into global production networks.5 An interesting analysis of the effects of the
process of automotive industry restructuring in CEE on industrial relations within the
European Union (EU), with a specific focus on the worsening position of Germany, has been
undertaken by Nunnenkamp. 6
As far as the electronics industry in CEE is concerned, focus has also been on the role
of FDI. Radosevic offers a comprehensive analysis of the FDI-led restructuring in the region,
demonstrating its remarkable success and warning that future development depends on
national innovation systems. 7 The positive influence of FDI inflows into the electronics
industry is also shown by Linden, who focuses on the development of local supplier networks
3 Slavo Radosevic and Andrew Rozeik, “Foreign Direct Investment and Restructuring in the AutomotiveIndustry in Central and East Europe,” Working Paper No. 53, SSEES, University College London, March 2005,http://www.ssees.ucl.ac.uk/publications/working_papers/wp53.pdf, (accessed May 15, 2007).4 Andrzej Maksymiuk, “The Attractiveness of the Automotive Industry in Poland for Foreign DirectInvestments,” MBA Poznan-Atlanta, Working Papers in Management, Finance and Economics, No. 2, July 2006,http://www.ae.poznan.pl/aemba/files/WP_2.pdf, (accessed May 15, 2007).5 Petr Pavlinek, “Transformation of the Czech Automotive Components Industry through Foreign DirectInvestment,” Eurasian Geography and Economics, Vol. 44, No. 3, 2003: 184-209.6 Peter Nunnenkamp, “The German Automobile Industry and Central Europe’s Integration into the InternationalDivision of Labor: Foreign Production, Intra-Industry Trade, and Labor Market Repercussions,” Kiel Institutefor World Economics, No. 9, 2004,http://www.ucm.es/BUCM/revistas/cee/15766500/articulos/PAPE0404220004A.PDF, (accessed May 15, 2007).7 Slavo Radosevic, “The Electronics Industry in Central and Eastern Europe: A New Global ProductionLocation,” SSEES, University College London,http://www.ucm.es/BUCM/revistas/cee/15766500/articulos/PAPE0505120009A.PDF, (accessed May 15, 2007).
CE
UeT
DC
olle
ctio
n
5
by comparing Central European and East Asian practices.8 However, the restructuring of the
shipbuilding industry without the marked influence of FDI has not attracted as much attention.
The few articles used in this thesis are country-specific and target particular areas of interest
rather then the restructuring of the industry as a whole. For example, Keat examines the
reasons for the inconsistent results of the Polish government’s attempts to restructure its
shipyards,9 while Bateman et al. put forward arguments for the promotion of small enterprise
clusters as a solution to the difficulties of Croatian shipbuilding.10
It follows that the academic literature on industrial restructuring and development
ultimately boils down to the debate over the benefits and drawbacks of FDI. Its proponents
see it as the main catalyst for industrial development and the source of economic growth in
both emerging and transition economies. Reviewing the patterns of FDI inflows into Croatia,
Harrison and Sohinger identify the various channels through which FDI works and argue that
it plays a major role in providing external finance, enabling transfers of technology and
organizational forms, and leading to spillover effects and externalities in the form of
production linkages in the host economy.11
Numerous academic works confirm the importance of these roles, especially stressing
the necessity of transfers of technology and knowledge for industrial upgrading. Damijan et
al. claim that such transfers have significant effects and are of utmost importance for the
productivity growth of local firms in transition countries.12 Examining other benefits of FDI,
8 Greg Linden, “Building Production Networks in Central Europe: The Case of the Electronics Industry,”prepared for the Kreisky Forum and BRIE Policy Conference on Foreign Direct Investment and Trade inEastern Europe: The Creation of a Unified European Economy, Vienna, June 5-6, 1997.http://brie.berkeley.edu/publications/WP126.pdf, (accessed May 15, 2007).9 Preston Keat, “Fallen heroes: explaining the failure of the Gdansk shipyard, and the successful early reformstrategies in Szczecin and Gdynia,” Communist and Post-Communist Studies, Vol. 36, 2003: 209-230.10 Bateman et al., “Industrial Restructuring and the Promotion of Small Enterprise Clusters: the Case of theShipbuilding and Repair Industry in the Republic of Croatia,” Journal of Applied Management Studies, Vol. 7,No. 1, 1998: 9-31.11 Glenn Harrison and Jasminka Sohinger, “The Implications of Foreign Direct Investment for Development inTransition Countries,” Eastern European Economics, Vol. 42, No. 1, 2004: 56–74.12 Joze Damijan et al., “Technology Transfer through FDI in Top-10 Transition Countries: How important areDirect Effects, Horizontal and Vertical Spillovers?,” William Davidson Institute, Working Paper 549, 2003,http://www.bus.umich.edu/KresgeLibrary/Collections/Workingpapers/wdi/wp549.pdf, (accessed May 5, 2007).
CE
UeT
DC
olle
ctio
n
6
Loungani and Razin argue that it also contributes to human capital development in recipient
countries, mostly through employee training.13 For the purpose of this thesis, attention is also
drawn to an important contribution made by Gereffi, who through his work on global
commodity chains develops a model of industry export roles as stages of development.
“Export-processing assembly” and “component supply” export roles are presented as two
important FDI-based stages along the global commodity chain integration, with clearly
delineated advantages, as well as drawbacks in the process of industrial development.14
Furthermore, the above outlined academic research on specific industrial sectors such as
automobiles and electronics also tends to support the positive view of FDI-led restructuring.
On the other hand, there is a wide spectrum of those warning against taking FDI as
the panacea for industrial development and economic growth, advocating instead
domestically managed industrial development. Analyzing the condition and perspectives of
the Croatian economy, Druzic argues that FDI inflows in the 15 years since the dissolution of
the former Yugoslavia have played an irrelevant role in the country’s economic growth.15
Looking at the role of transnational corporations (TNCs) and FDI in the transformation of the
Polish economy, Zorska argues that despite numerous benefits, dynamic effects resulting in
the upgrading of technological and competitive capabilities of domestic firms and industries
have not emerged. 16 In a more comprehensive analysis of FDI in transition countries,
Mencinger points to various limitations of economic growth based on FDI, including the
13 Prakash Loungani and Assaf Razin, “How Beneficial is Foreign Direct Investment for DevelopingCountries?,” Finance and Development ,International Monetary Fund, Vol. 38, No. 2, 2001.14 Gary Gereffi, “Global Production Systems and Third World Development,” in Global Change, RegionalResponse, ed. Barbara Stallings (Cambridge M.A.: Cambridge University Press, 1995).15 Gordan Druzic, Hrvatska obratnica: stanje i perspektive hrvatskoga gospodarstva [Croatian Tropic:Condition and Perspectives of the Croatian Economy] (Zagreb: Golden Marketing – Tehnicka knjiga, 2004).16 Anna Zorska, “Foreign Direct Investment and Transformation: Evolution and Impacts in the PolishEconomy,” Eastern European Economics, Vol. 43, No. 4, 2005: 52-78.
CE
UeT
DC
olle
ctio
n
7
countries’ small size, inadequate linkages with local companies and FDI concentration in
sectors such as finance and trade.17
Nevertheless, despite the growing academic field characterized by FDI skepticism,
the CEE countries have been proactive in devising ways to attract as much FDI as possible.
Both countries studied in this paper serve as good examples. Poland offers income tax
exemptions for investment in special economic zones18, while Croatia allows for the use of
real estate and infrastructure owned by the state under favorable conditions, including free of
charge.19 In addition, in its economic program for 2005, the Polish government set the goal of
achieving the position of the regional leader in terms of FDI inflows.20 In the case of Croatia,
there is almost no mention of FDI in the government’s plans for future economic growth.
However, its levels of FDI are not small. Croatia’s FDI stock by end-2005, as well as FDI per
capita, put the country in fifth position when compared to new EU member states and other
Southeast European countries.21
It follows that the absence of transnational capital in the shipbuilding industry in
Croatia and Poland cannot be attributed to a general political climate or a particular stance
taken up by governments that would be more attuned to the claims of those advocating a
domestically run process of industrial restructuring. In addition, the theoretical framework
used to establish the hypothesis stating that complex industries in CEE attract transnational
capital lends no validity to arguments pointing towards the lack of interest on the part of
17 Joze Mencinger, “Does Direct Investment Always Enhance Economic Growth?,” KYKLOS: InternationalReview for Social Sciences, Vol. 56, No. 1, 2000: 67-92.18 Polish Foreign Investment Agency, Special Economic Zones, http://www.paiz.gov.pl/index/?lang_id=1,(accessed May 6, 2007).19 Croatian Chamber of Economy, Economic Profile, http://www2.hgk.hr/en/pdf/Partner_06_en.pdf (accessedApril 25, 2007).20 Information portal of the Ministry of Foreign Affairs of the Republic of Poland, Foreign Investment,http://www.poland.gov.pl/?document=468 (accessed May 6, 2007).21 Gabor Hunya and Alen Skudar, “The Role of Foreign Direct Investment in the Croatian Economy,” studyprepared for the Investment Compact project: Investment and Trade Liberalization, Strengthening Developmentand Implementation of Investment and Trade Policy in the Western Balkans, Vienna, September 2006,http://www.investcroatia.org/docs/apiuEN/documents/109/1.0/Original.pdf, (accessed May 9, 2007).
CE
UeT
DC
olle
ctio
n
8
transnational actors for an industry of this type. The specific nature of the shipbuilding
production process, market conditions and supplier networks, as well the strategic importance
of the industry for post-socialist economic development, account for its unique post-socialist
trajectory.
Overall, the FDI literature does not adequately explore the reasons behind the
different approaches to the restructuring of CEE industries with fairly similar characteristics.
There are no available systematic studies of shipbuilding in the field of political economy of
post-socialist transition. As a result, the aim of this thesis is to fill the gap between the fairly
extensive body of work on FDI-led restructuring, where the state plays the role of the
bargaining partner, and the more limited knowledge on the state as the sole engine of
industrial restructuring in post-socialist transition. However, even without this theoretical
goal, the analysis of the shipbuilding industry offers a useful insight into the intricacies of an
academically often neglected, but still economically important sector.
Methodology
Before outlining the method by which the empirical data will be presented and the
arguments put forward in the introduction substantiated, it is necessary to define the most
important terms and concepts. Firstly, the term “shipbuilding” refers to the industry of both
building and repair of ships, despite the occasional tendency of various business and industry
reports to treat these types of activity separately. Furthermore, in terms of the scope of
business, capacity and the size of vessels they build, shipyards can be classified into three
groups: large, medium-sized and small. 22 However, it is the largest, mostly state-owned
shipyards that are the primary focus of the thesis. Other two categories are dealt with when
22 Croatian Chamber of Economy, Industry and Technology Department – Shipbuilding,http://www2.hgk.hr/en/depts/industry/Brodogradnja_2006.pdf (accessed January 4, 2007).
CE
UeT
DC
olle
ctio
n
9
export roles and future prospects of the industry are discussed, as they are still not significant
exporters and their effect on the overall economy is not as marked. They are also
predominantly privately owned and do not suffer from the inefficiencies caused by the legacy
of communist production in large and strategically important shipyards. Consequently, they
receive less state attention and fall outside the puzzle of the predominantly state-owned,
internationally competitive shipbuilding industry. In addition, the term includes the marine
equipment industry supplying essential technology for ship production. To focus solely on
the assembly activities taking place in the shipyards would be to ignore the high levels of
outsourcing and the role of supplier networks in creating the ship’s added value.
Secondly, the use of the concept of industry “success” in the above puzzle requires
careful explanation, as it is fairly removed from the common definition. Instead of being
associated with industrial enterprises making profit under market conditions, it refers to the
industry’s ability to attract international clients and hold a significant share of the world
shipbuilding market. It basically stands for the industry’s “international success”. Full order-
books and high market share are considered to be a success precisely because they have been
achieved and maintained in a situation where heavy losses are being made by the majority of
the shipyards. It is this accomplishment, contributing to the countries’ export structures, that
plays a vital role in ensuring consistent state support.
The choice of Croatia and Poland as country cases for the purposes of the present
study has been based on several factors. First, both countries are post-socialist transition
economies that have embarked on the path of industrial restructuring soon after the collapse
of communism in the early 90’s. Second, both have long enjoyed the reputation of important
shipbuilding nations both in Europe and on the global scale. In 2005, Poland and Croatia
were positioned only behind Germany, taking second and third place respectively in terms of
CE
UeT
DC
olle
ctio
n
10
completions in Europe.23 Furthermore, according to Lloyd’s 2006 World Order Book, Croatia
took sixth place in the world in terms of order deadweight, while Poland followed in seventh
position.24
Third, the shipbuilding sector plays a significant role in the economy of both countries,
and a crucial role in Croatia specifically, both in terms of export performance and
manufacturing employment. It accounted for 12 percent of Croatia’s total exports in 2005,
and employed close to 12,000 people or 11 percent of all employed in the manufacturing
sector.25 On the other hand, the share of Polish shipbuilding in the country’s export structure
amounted to 3.8 percent in the same year, 26 employing around 20,000 people and accounting
for 1.5 percent of the employment in manufacturing. 27 It should also be noted that the
importance of shipbuilding in Poland is more marked in regional terms.
The final significant factor is that despite the current similarities in industry
performance and ownership structure, Polish and Croatian governments adopted dissimilar
initial approaches to the restructuring of the industry. While the largest Polish shipyards were
privatized during the nineties, albeit with the help of domestic capital only,28 the Croatian
government took a more cautious, gradualist approach. Despite often voicing the plans for the
privatization of its shipyards in the near future, it has refused to do so before a comprehensive
23 Community of European Shipyards’ Associations (CESA), Annual Report 2005/06,http://www.cesa-shipbuilding.org/public_documents_site.phtml?sid=&doctype=pub, (accessed January 4, 2007).24 Fairplay Newbuildings, Lloyd’s Register, March 2006,http://www.fairplay.co.uk/newbuildings/, (accessed January 4, 2007).25 Croatian Chamber of Economy, Industry and Technology Department – Shipbuilding.26 Ministry of Economy, Republic of Poland, Selected data on Poland’s exports and imports in 9 months of2005, http://www.mgip.gov.pl/NR/rdonlyres/20CA3FA0-8027-45D0-AB9A-1EE7F410AC63/16338/p_hz_9_2005_ang.xls, (accessed May 11, 2007).27 NOBE Independent Center for Economic Studies, The Shipbuilding and Ship Repair Sectors in the candidatecountries: Poland, Estonia, the Czech republic, Hungary and Slovenia, report prepared for the ENTERPRISEDG Unit A3 of the European Commission,http://ec.europa.eu/enterprise/maritime/maritime_industrial/doc/cand_country_study.pdf (accessed May 15,2007).28 Keat, “Fallen heroes: explaining the failure of the Gdansk shipyard, and the successful early reform strategiesin Szczecin and Gdynia.”
CE
UeT
DC
olle
ctio
n
11
restructuring program has been agreed upon and implemented on its own terms.29 It has so far
privatized only the Viktor Lenac repair and conversions shipyard, which importantly led to
the only instance of transnational capital having ownership of a large shipyard in either
country. However, the shipyard is currently owned by domestic private capital after going
into bankruptcy.30 The divergence in approaches taken allows for a thorough examination of
different policies that have ultimately led to almost identical outcomes, improving our
understanding of the peculiar role shipbuilding has played in post-socialist transition.
Since the shipbuilding industry has been given scant scholarly attention, the main
body of data presented in the thesis comes from articles in the daily and weekly press, various
business and industry reports, including those by the European Commission (EC), as well as
documents published by professional bodies such as the Community of European Shipyards’
Association (CESA), trade unions, shipyards’ management boards and relevant government
departments and agencies. Press articles are mostly used to sketch the trajectory of the
relevant events in Croatia, both for the reason that there is no language barrier and because
they offer the most detailed account of important decisions made by all the involved actors. It
may be remarked that the potential disadvantage of this method could be the partiality of
reporting. However, this is checked against by using an array of reputable papers. On the
other hand, Poland’s European Union (EU) membership has allowed for the relatively easy
access to international news reports and in-depth industry analyses undertaken mainly by the
EC. The remaining sources offer an interesting look into the reasoning of the various interest
groups that have a stake in ensuring the industry’s long term health.
The empirical data presented will hopefully prove useful for future academic
research as well. Other theories of post-socialist industrial restructuring, as well as
29 Orjana Antesic, “Da bi zaradila osam, država škverovima mora dati 10 milijardi kuna [In order to earn eight,the state has to give the shipyards ten billion kunas]” Glas Istre, October 30, 2006.30 Ana Kirin, “Potpisan ugovor o prodaji Viktora Lenca [The contract confirming the sale of Viktor Lenac hasbeen signed],” Nacional, March 6, 2007.
CE
UeT
DC
olle
ctio
n
12
improvements on the one presented here, can perhaps be developed by using the data
collected in the process of writing this thesis.
The Puzzle of the Absent Transnational Capital
It has already been mentioned that the core discussion of the thesis does not revolve
around the frequently discussed bargaining relations between the state and transnational
capital. Instead, it focuses on the relations between the state and the shipyards it purports to
save. Such lack of attention given to transnational capital as the relevant factor in the process
of industrial restructuring calls for a satisfactory explanation. After all, it may well be argued
that the most crucial factor in solving the puzzle of the absent transnational capital is
transnational capital itself. However, although this is indeed a logical proposition, the main
purpose of the thesis is not simply to answer why shipbuilding has not attracted FDI, but find
reasons for the industry’s survival and success despite its puzzling absence. Still, a theory of
state-led restructuring of the shipbuilding industry would benefit from some consideration of
the role of transnational capital, absent or present, in determining state motivation and
influencing initial and more recent state choices.
The main obstacle to undertaking this task is the lack of publicly available data
indicating interest for the shipyards expressed by transnational corporations (TNCs) or other
actors outside Croatia and Poland. Moreover, neither government has passed any legislation,
made a decision or issued a statement that would undoubtedly point to a particularly negative
predisposition towards foreign ownership of shipyards. This makes it difficult to determine
the level of bargaining between the national governments and transnational capital, as well as
the dynamics of the process. However, having in mind that the state-led privatization of
Polish shipyards involved only domestic capital, and considering the recent Croatian transfer
of Viktor Lenac from foreign to domestic ownership following its bankruptcy, a less than
positive stance towards FDI in the specific case of the shipbuilding industry can arguably be
CE
UeT
DC
olle
ctio
n
13
discerned in both countries. Still, this cannot fully explain why the governments might have
taken such a position and why transnational capital has not assumed a more assertive role in
bargaining with the government and a more proactive approach towards presenting itself as a
satisfactory solution to the industry’s troubles.
Plausible answers can be arrived at if the theoretical framework leading to the
formulation of the puzzle of absent FDI in shipbuilding is examined. Bohle and Greskovits
argue that differences in the share of complex exports within the CEE reflect comparable
variation in the structure of FDI inflows.31 They argue that countries which had specialized in
technologically sophisticated and skill-intensive industries such as machinery, automobiles
and electronics, already in late socialism, have attracted significant FDI to those sectors.
Furthermore, according to the matrix of “transnational capitalisms” in CEE, developed by
Greskovits on the basis of countries’ export features and using the criterion of factor intensity,
production in “heavy-complex” industries intensive in physical and human capital is highly
transnationalised and controlled by TNCs32.
Thus, if a hypothesis is drawn stating that complex industries in CEE are
predominantly controlled by transnational capital, the internationally competitive but
predominantly state-owned Croatian and Polish shipbuilding industries pose an interesting
puzzle. Although shipbuilding used to be regarded as a “heavy-basic” industry, characterized
by high physical and lower human capital intensity, it has undergone a drastic change over
the last few decades and turned into a high-technology and information dominated industry,
where labor skills play an increasingly important role33. In addition, shipbuilding in Croatia
31 Dorothee Bohle and Bela Greskovits, “Neoliberalism, Embedded Neoliberalism, and Neocorporatism: PathsTowards Transnational Capitalism in Central-Eastern Europe,” West European Politics, May 2007.32 Bela Greskovits, as quoted in Magdalena Bernaciak, “Labor transnationalism: cross-border cooperationbetween Polish and German trade unions,” MA Thesis, Central European University, 2005.33 Bitzer and von Hirschhausen, “The Shipbuilding Industry in East and West: Industry Dynamics, Science andTechnology Policies and Emerging Patterns of Co-operation.”
CE
UeT
DC
olle
ctio
n
14
and Poland developed in the early, post-war years of Communism. As such, it should have
been an attractive destination for transnational capital.
However, it is the underlying framework of Vernon’s product cycle theory that
provides an insight into the possible reasons for TNC and state attitudes presented above.
While Bohle and Greskovits adapted Vernon’s theory to account for export-oriented complex
FDI, needing complex initial supply structures34 , its original premise referred to TNCs’
market-seeking strategies. To be more precise, the product cycle theory states that the first
overseas production usually takes place in markets similar to the company’s domestic market,
often in its previous export destinations. 35 Eventually, the production cost advantages of the
new location lead the firm to export its products to new markets. It follows that both market-
oriented and asset-oriented TNC motivation need to be given due attention.
Taking the CEE automotive industry as an example of FDI-led restructuring, we see
that market-seeking provided initial motivation for the global car manufacturers. Initial
optimism was based on the outdated car park, growing purchasing power and middle-class
formation. However, as the transformation recession engulfed the region, the cost advantages
of car production were offset by lower than expected purchasing power, and export became
the strategy of choice.36 However, in the case of shipbuilding, export is almost always the
only available strategy. The shipbuilding market is normally seen as global, with the
geographical separation of supply and demand having little influence.37 Since there is no CEE
shipbuilding market as such, and buyers regularly buy ships made all around the globe,
34 Bohle and Greskovits, “Neoliberalism, Embedded Neoliberalism, and Neocorporatism: Paths TowardsTransnational Capitalism in Central-Eastern Europe.”35 Peter Dicken, “Transnational Corporations: The Primary Movers and Shapers of the Global Economy”, inGlobal Shift. Reshaping the Global Economic Map in the 21st Century, ed. Peter Dicken (London, ThousandOaks, New Delhi: Sage Publications, 2003).36 Radosevic and Rozeik, “Foreign Direct Investment and Restructuring in the Automotive Industry in Centraland East Europe.37 First Marine International Limited, Overview of the international commercial shipbuilding industry,background report prepared for the European Community, May 2003,http://ec.europa.eu/enterprise/maritime/maritime_industrial/doc/commercial_shipbuilding_industry.pdf,(accessed May 16, 2007).
CE
UeT
DC
olle
ctio
n
15
market-seeking can be ruled out as a motivating factor for TNCs to invest in Croatian and
Polish shipyards. This is despite the widely accepted hypothesis that market-seeking has been
the primary motivation for TNC investment in CEE, confirmed by studies such as Manea and
Pierce’s examination of TNC strategies with the help of survey evidence.38
On the other hand, Dunning’s eclectic paradigm identifies resources and production
costs as location-specific factors important in the context of international production,39 seen
as asset or efficiency-based advantages by export-oriented FDI. Since shipyards compete
both on price and quality, their most valuable resource, as well as potential cost advantage, is
human capital. Having in mind that the prices of steel follow world industry trends, and
acknowledging the importance of high technology and innovation in the shipbuilding
industry, low labor costs are often seen as a crucial competitive advantage. Croatian and
Polish shipyards boast skilled labor working for a wage significantly below European average,
although still above the Asian levels. However, the problems of insolvency, the need for
technological upgrading and labor unionization offset the advantages of the relatively cheap
labor force. Moreover, the popular strategy of drastically reducing the number of employees
in order to increase labor productivity and cut unnecessary costs, as in the case of the
restructuring of East German shipyards, is likely to lead to social unrest, explaining the
reluctance of both governments to attract FDI to their shipyards.
Overall, it can be argued that due to the specific characteristics of the shipbuilding
industry, TNCs have lacked motivation to invest in the struggling shipyards. Also, the
governments have not considered them as the most preferable solution for the shipyards,
despite positive state attitudes towards FDI in general. Thus, having offered a plausible
explanation for the apparent lack of interest for CEE shipbuilding on the part of transnational
38 Julia Manea and Robert Pearce, “Industrial Restructuring in Economies in Transition and TNCs’ InvestmentMotivations,” Transnational Corporations, Vol. 13, No. 2, 2004.39 Dicken, “Transnational Corporations: The Primary Movers and Shapers of the Global Economy.”
CE
UeT
DC
olle
ctio
n
16
capital, a thorough examination of state involvement in the restructuring of the shipbuilding
industry in Croatia and Poland is now possible.
Thesis Structure
The thesis is structured in the following way. To begin with, Chapter 1 presents a
general overview of the main characteristics of the global shipbuilding industry, as well as an
insight into the issues facing European shipyards, since it is within this context that the puzzle
of the Croatian and Polish shipbuilding must be addressed. A strong emphasis is put on
exploring the levels of state involvement outside the CEE. In addition, a brief outline of
shipbuilding during the communist rule is presented, as legacies of the past affect the
challenges of today. This is followed by a detailed study of Croatian and Polish shipbuilding,
with Chapter 2 presenting basic comparative economic data relevant for further discussion. In
Chapter 3, the state is presented as the crucial factor in the shipyards’ struggle to adapt to the
changing political and economic environment. Government policies are examined,
illustrating similarities as well as differences between approaches, with specific reference to
regime types.
Chapter 4 examines the factors influencing state motivation, thereby shedding some
light on the reasons behind the state’s decision to take the lead role in the process of
restructuring of the shipbuilding industry. The section on labor relations within the industry
provides a succinct account of the influence trade unions have had in bargaining with the
governments. However, limited publicly available data on trade unions active in shipbuilding
specifically, as well as the limited scope of the thesis, allow merely for a basic overview. The
following section uses Gereffi’s model of export roles in order to evaluate the competitive
advantages of the shipbuilding in CEE, as well as its future challenges.
Finally, the concluding chapter draws general lessons about the role of shipbuilding in
post-socialist transition. It summarizes the specific characteristics of the industry that have
CE
UeT
DC
olle
ctio
n
17
led to the state-run restructuring process and evaluates this process by looking both at the
effectiveness of state policies in meeting the economic and social imperatives so far, as well
as the foundations they have laid for the challenges ahead.
CE
UeT
DC
olle
ctio
n
18
Chapter 1 – Shipbuilding at a Glance
1.1 The Global Shipbuilding Industry – Europe vs. Asia
Shipbuilding is a technologically sophisticated and predominantly highly skilled
industry of a cyclical nature, characterized by short peaks and long depressions. As a result of
the fluctuating demand for ships and the lack of flexibility in supply of shipbuilding capacity,
it often suffers from over-capacity, depressed prices and low profit margins. Since the early
1990s, the shipbuilding industry had been faced with a crisis lasting until 2002. It is only
since 2003 that the demand for ships has gone up, parallel with the increasing levels of world
trade and the need to replace the ageing world fleet.40 Nevertheless, despite recent historical
records of production and order-book volumes, shipyards around the world have had weak
results in 2005 due to unfavorable exchange rates, delivery of low-priced vessels and rising
costs of raw materials such as steel.41 Moreover, with the recent increases in shipbuilding
capacity in Asia and Eastern Europe, the shipyards have often been forced to offer lower
prices just to keep their equipment and labor fully utilized. This only serves to illustrate the
difficulties facing the shipbuilding industry in general, as even the current peak period has
not managed to bring about stronger financial results.
As it was already mentioned, shipbuilding has gone through a radical change in the
last few decades. It went from being a typical heavy, engineering-based industry, to a more
sophisticated, information-dominated industry with over 70 percent of value added generated
through outsourcing in supplier networks. As such, it has become a key industry for coastal
industrial countries, offering a wide range of technologies, employing significant amounts of
workers and generating foreign currency income. The latter is a result of the global nature of
40 European Commission, Sectoral Issues – Shipbuilding Sector,http://ec.europa.eu/trade/issues/sectoral/industry/shipbuilding/index_en.htm (accessed January 3, 2007).41 CESA, Annual Report 2005/06.
CE
UeT
DC
olle
ctio
n
19
the dollar-based market. The production of a ship is an extremely complicated process, with
several sub-systems, which in turn are combinations of electronics, information technology
and engineering, having to work smoothly. Moreover, it is difficult to define an optimal mode
of production, since ship types are mostly produced as single units or in small numbers.
Consequently, production is highly dependant on upstream research and development (R&D)
and innovation linkages.42
Almost all shipbuilding industry is located in four areas: South Korea, China, Japan
and Europe. The market shares between these areas have changed significantly in recent
years, with Europe (18%) lagging behind Japan (22%) and South Korea (35%) in terms of
total order-book development.43 In 2004, Asian shipyards accounted for more than 85 percent
of total word production, demonstrating overwhelming supremacy, especially in the field of
“standard ship” construction. In addition, they have been building additional capacity that has
offset the benefits of increased global demand.44 However, Europe has traditionally been the
leader in terms of turnover, despite the temporary loss of this status in 2005 due to the
appreciation of the Euro against the dollar. Such a position is a direct result of the value
added through technological leadership, achieved by investing on average 10 percent of
turnover into R&D and innovation. For example, the South Korean level of similar
investment is below 1%. This remains to be seen as the main platform for building the
competitive advantage in the long-term, as the construction of products of highest
technological content is encouraged.
In addition, a more prudent and sustainable approach to financing and capacity
increase is encouraged. 45 The goal is to maintain Europe’s leading position in the
42 Bitzer and von Hirschhausen, “The Shipbuilding Industry in East and West: Industry Dynamics, Science andTechnology Policies and Emerging Patterns of Co-operation.”43 European Commission, Sectoral Issues – Shipbuilding Sector.44 Europe of the Sea, Final Report - Strategic Evaluation of Maritime Activities, September 2006,http://www.europeofthesea.org/pdf/rapport_final_vol1_09_2006.pdf (accessed May 22, 2007).45 CESA, Annual Report 2005/06.
CE
UeT
DC
olle
ctio
n
20
construction of complex ships such as ferries, cruise ships, dredgers and mega-yachts.46 This
is especially significant considering the fears of the possible South Korean attempt to
increase its market share in these market niches. Chinese advances in the area of less complex,
standardized production, including tankers and container ships, have threatened South Korean
supremacy in this sector. The consistent striving for productivity improvements and
innovative technologies has also led to major labor cost discrepancies. They have become the
major competitive advantage for the Asian shipyards, while losing importance as a cost-
saving strategy in Europe. The number of staff in the European shipyards has decreased from
460,000 in 1975 to less than 120,000 in 2004, clearly indicating the trend of cutting
unnecessary capacity and focusing on labor-saving technology and innovative solutions as
the primary competitive advantage.47
Still, concerns have arisen with regards to the number of shipyards in Europe. Unlike
in China or South Korea, where the industry is highly concentrated, the geographical
dispersion of the European shipyards runs the risk of too little capital being invested per
shipyard at a time when investments are crucial. This is because, in most European countries,
the sector is characterized by one or two major players and a number of small and medium-
sized shipyards. 48 Mergers, co-operation and increased concentration of the industry are
being put forward as preferable strategies by industry experts.49 Finally, a short note on Japan
is useful. Once a leading shipbuilding nation, it has slipped down the market share rankings.
Despite specializing in the production of higher complexity than China and South Korea, a
sizeable chunk of its production serves domestic rather than global demand. Hence, it is less
frequently mentioned as a serious threat to European shipbuilding.
46 European Commission, Maritime Industrial Policies,http://ec.europa.eu/enterprise/maritime/maritime_industrial/maritime_industrial_policies.htm (accessed May 12,2007).47 Europe of the Sea, Final Report - Strategic Evaluation of Maritime Activities.48 NOBE Independent Center for Economic Studies, The Shipbuilding and Ship Repair Sectors in the candidatecountries: Poland, Estonia, the Czech republic, Hungary and Slovenia.49 Europe of the Sea, Final Report - Strategic Evaluation of Maritime Activities.
CE
UeT
DC
olle
ctio
n
21
1.2 State Involvement – A Necessary Evil
Although the question of what motivates governments to subsidize their industries has
received a lot of public attention, the scholarly work has focused more on macroeconomic
policy. The primary reason for this, according to Blais, is the dearth of data that can be
compared cross-nationally.50 Nevertheless, some general conclusions can be drawn, as it is
widely accepted that subsidies have a considerable effect on the efficient functioning of
markets and national economies. First, both domestic and foreign competitors suffer grave
consequences as their production costs are markedly higher than those of the subsidized firms.
Second, they are important politically, especially as they are often aimed at sustaining high
levels of employment, which in turn can lead to increased government support at election
time. Finally, subsidies are often fraught with controversy as they inevitably create winners
and losers.51
Shipbuilding has been an attractive industry for developing nations. Both Japan and
South Korea used it as a strategic industry in order to boost economic development in mid
and late 20th century, while China is repeating the process with its largely state-owned
industry. 52 It is important to emphasize that regardless of the ownership structure or
geographical location, state involvement is a widespread and accepted feature of the
shipbuilding industry; due to its strategic importance for national economies in terms of
export performance, contribution to the Gross Domestic Product (GDP) and levels of
employment. As Bitzer and von Hirschhausen put it: “There is no country that does not
subsidize its shipbuilding industry, leading to severely distorted markets.” 53 Hence, the
shipbuilding industry has suffered from the absence of a globally accepted set of rules and
50 Andre Blais, “The Political Economy of Public Subsidies,” Comparative Political Studies, Vol. 9, No. 2, 1986:201-216.51 Nikolaos Zahariadis, “The Political Economy of State Subsidies in Europe,” Policy Studies Journal, June,2002.52 European Commission, Sectoral Issues – Shipbuilding Sector.
CE
UeT
DC
olle
ctio
n
22
overinvestment on the part of governments keen to keep the industry operating to full
capacity.
Although steps have been taken to tackle the problem of market distortions, there is
fundamental divergence over the exact nature and extent of state involvement. Disagreements
between the EU and South Korea starting in 2000 serve as a good example. In this case, the
EU brought overwhelming evidence before the World Trade Organization (WTO), showing
that South Korean state-controlled banks had forgiven large debts held by the country’s three
most important shipyards. While WTO confirmed this course of action had taken place, it
could not establish the link to the harmful distortions caused by the depressed prices. This
was mainly due to the specific characteristics of the shipbuilding market, including the fact
that ships are usually produced in small series and do not really enter the trade of importing
nations in way other products do.54 Negotiations aimed at minimizing unfair practices and
market distortions in the world shipbuilding industry have also been held under the auspices
of the Organization for the Economic Co-operation and Development (OECD), but with little
success.55
The failure to reach an agreement underscores the inadequacy of trade rules with
regard to the shipbuilding industry. The industry’s global nature enables ship owners to buy
ships all over the world without technical or legal restrictions, resulting in a situation where
the concept of import and export is not clearly defined or effectively does not even exist, and
where subsidization is usually related to producers rather than products. As a result, the
problems of subsidies and unsustainably low prices offered by Asian shipyards are also being
dealt with through bilateral talks, the most recent being a comprehensive dialogue between
53 Bitzer and von Hirschhausen, “The Shipbuilding Industry in East and West: Industry Dynamics, Science andTechnology Policies and Emerging Patterns of Co-operation.”54 CESA, Annual Report 2005/06..55 LeaderSHIP 2015, Defining the Future of the European Shipbuilding and Shiprepair Industry,http://ec.europa.eu/enterprise/maritime/shipbuilding_market/doc/leadership2015_en.pdf (accessed May 9, 2007).
CE
UeT
DC
olle
ctio
n
23
EU and China.56 While the international rules on fair trade in the shipbuilding market have
not been established and state involvement seems to be arbitrary, the EU rules on state aid to
shipbuilding leave less space for interpretation. The 2003 “Framework on State Aid to
Shipbuilding” has been designed to remove the differences between the rules that applied to
shipbuilding and other industries, while taking account of the specifics affecting the industry,
such as the nature of the world market and the nature of ships as very large capital goods in
terms of credit options. It puts down the specific conditions under which the various forms of
aid can be seen as compatible with the common market and includes R&D and innovation aid,
closure aid, employment and development aid, regional aid and export credits.57While the
scope of the thesis does not allow for delving into the details of the specific requirements, it is
clear that the framework is aimed at carefully defined projects compatible with the common
market. It follows that operating aid, aimed simply at keeping shipyards alive by, for example,
covering their losses, forgiving debts or providing money for workers’ wages is not allowed.
The approach taken up by Brussels clearly illustrates the European stance characterized by
the belief that a sustainable European and global shipbuilding industry cannot be based on
protectionism and overcapacity.58
1.3 Legacies of the Past – The Shipyards of Communism
Having provided an insight into the issues facing both the global and European
shipbuilding industry, a short overview of the development of shipbuilding in CEE and
newly-independent countries (NICs) is needed in order to gain a thorough understanding of
the current situation in the region. To begin with, it should be noted that shipbuilding activity
commenced soon after the establishment of the communist rule, first and foremost for
56 European Commission, LeaderSHIP 2015 Progress Report, Commission Working Document, April 25, 2007,http://ec.europa.eu/enterprise/maritime/maritime_industrial/leadership_07/report_en.pdf (accessed May 9, 2007).57 Europa, State aid to shipbuilding (II), http://europa.eu/scadplus/leg/en/lvb/l26105.htm (accessed January 10,2007).58 European Commission, LeaderSHIP 2015 Progress Report.
CE
UeT
DC
olle
ctio
n
24
military purposes. The shipyards of the time were multifunctional units, where ship
production was only one of the objectives, also including the provision of social services such
as housing and education to employees, as well as the maintenance of political activity and
control.59
In terms of production characteristics, the communist shipyards boasted enormous
depth, achieved through in-house integration of the majority of activities necessary in ship
production, ranging from the fabrication of ship outfits to the development of all kinds of
machinery. However, the levels of productivity were extremely low. Firstly, the level of
direct employment was sometimes up to four times higher than in West European shipyards.
Secondly, the shipyards had no capacity for product differentiation and innovation, as the
planning and design was carried out by external agencies, reducing the shipyards to the role
of assemblers. As a result, the fall of communism led to numerous problems. The end of non-
monetary production was followed by the loss of the Soviet market, increased international
competition and capital constraints. Thus, none of the communist shipyards were ready to
operate as economically viable units. 60 After the collapse of the Council for Mutual
Economic Assistance (COMECON) in 1990-91, a sharp recession ensued in the regional
shipbuilding industry, with the tackling of the grave financial and production problems
becoming a paramount task for the shipyards. 61
The main goal of the governments was the “enterprisation” of the shipyards, meaning
the transformation of the communist industrial complexes into capitalist enterprises. 62
However, the strategies adopted by the new states differed significantly. The most successful,
and also the most radical model of restructuring the post-communist shipbuilding industry
59 Bitzer and von Hirschhausen, “The Shipbuilding Industry in East and West: Industry Dynamics, Science andTechnology Policies and Emerging Patterns of Co-operation.”60 Bitzer and von Hirschhausen, “The Shipbuilding Industry in East and West: Industry Dynamics, Science andTechnology Policies and Emerging Patterns of Co-operation.”61 NOBE Independent Center for Economic Studies, The Shipbuilding and Ship Repair Sectors in the candidatecountries: Poland, Estonia, the Czech republic, Hungary and Slovenia.
CE
UeT
DC
olle
ctio
n
25
under EU rules is considered to be that of East Germany. Knowing the main characteristics of
the process gives the ability to use it as a benchmark for evaluation of restructuring in other
post-socialist countries. To start with, the German government decided to immediately
privatize the inherited shipyards but still financed the restructuring. The only limit was the
cap placed on the shipyards’ capacity by the EU authorities in exchange for approval, which
meant refusing contracts and laying off workers. 63 Direct employment in the five largest
yards dropped from 21,000 to approximately 6,000 with almost no reduction in output. Due
to the shipyards’ complete inability to function in the new environment, massive capital
injections were needed in order to effectively create new shipyards from scratch. All the
yards were taken over by West German or Western European companies, facilitating quick
integration into existing production and sales networks.64 When the cap placed by Brussels
was recently removed, the shipyards could hardly keep up with demand.65
The opposite example is that of Russian, and to a certain extent Ukrainian
shipbuilding, where the governments have attempted to preserve the socialist industrial
structures. For example, Russian shipyards are still considered strategically important in
security terms. Hence, little effort has been aimed at privatization or at least enterprisation by
the way of diversification and reorienting towards more commercial production. The
conversion of the shipyards still characterized by significant production depth into truly
capitalist enterprises has not taken place. Similarly, Ukraine still fully owns its entire
shipbuilding industry. Overall, despite the technological deficiencies, the problems
experienced by the shipyards in NICs are mostly of commercial and organizational nature.66
62 Bitzer and von Hirschhausen, “The Shipbuilding Industry in East and West: Industry Dynamics, Science andTechnology Policies and Emerging Patterns of Co-operation.”63 Benoit and Cienski, “Poland at sea as German shipyards sail into profit.”64 Bitzer and von Hirschhausen, “The Shipbuilding Industry in East and West: Industry Dynamics, Science andTechnology Policies and Emerging Patterns of Co-operation.”64 Benoit and Cienski, “Poland at sea as German shipyards sail into profit.”65 Bitzer and von Hirschhausen, “The Shipbuilding Industry in East and West: Industry Dynamics, Science andTechnology Policies and Emerging Patterns of Co-operation.”
CE
UeT
DC
olle
ctio
n
26
On the other hand, the CEE countries have treaded the middle ground. Further examination of
Croatia and Poland, main CEE shipbuilding nations, takes place in the following chapters.
CE
UeT
DC
olle
ctio
n
27
Chapter 2 – Shipbuilding in Central and Eastern Europe
2.1 Croatia – The Uneasy Pride
The forgoing discussion provides the background necessary for understanding the
particularities of the Croatian shipbuilding industry, as it is only within the wider context of
the trends in the global and European shipbuilding industry that the puzzling success of the
state-owned Croatian shipbuilding can be addressed. Since the country became independent
in 1991, the industry has had to cope with conditions of war and the ensuing period of post-
socialist transition, characterized among other things by a stagnating economy, cancellations
of contracted projects and cross-border labor migration.67 The situation was made worse by
the global crisis faced by the industry as a whole.
Nevertheless, Croatian shipbuilding has succeeded in remaining competitive
throughout the period and today has the third largest shipbuilding industry in Europe and
sixth in the world with 1.6 percent of global market share.68 In 2005, as it was already
mentioned, it was positioned behind only Germany and Poland in terms of completions in
Europe,69 while it took sixth place in the world according to the most recent Lloyd’s World
Order Book in terms of order deadweight. Moreover, shipbuilding is considered to be a
strategically vital industry for Croatia as it accounts for around 12 percent of the country’s
total exports.70 Also, the shipyards employ close to 12,000 people or 11 percent of all
employed in the Croatian manufacturing sector, 71 while another 35,000 jobs in small and
medium-sized companies are directly or indirectly connected to the industry.72
67 International Organization for Migration (IOM), Cross-border Labor Migration Flows Croatia-Italy: Focuson Shipbuilding, http://www.iom.hr/pdf/labor/IOM_Shipbuilding.pdf, (accessed January 6, 2007).68 European Business News Online, Croatian shipbuilders hope EU reform won’t rock boat,http://www.eubusiness.com/archive/East_Europe/051113031023.nmzjndc3, (accessed January 6, 2007).69 CESA, Annual Report 2005/06. .70 Croatian Chamber of Economy, Industry and Technology Department – Shipbuilding.71 Antesic, “In order to earn eight, the state has to give the shipyards ten billion kunas.”72 European Business News Online, Croatian shipbuilders hope EU reform won’t rock boat.
CE
UeT
DC
olle
ctio
n
28
A study undertaken by The Croatian Shipbuilding Corporation – Jadranbrod Ltd,
stresses the importance of the economic multiplier effect of the industry, demonstrated by the
positive effects of employment, domestic outsourcing and supplier networks on exports and
economic development.73 The need to source materials, equipment and knowledge has led to
significant backward linkages to the domestic economy and an increased role for domestic
entrepreneurs. At the moment, the share of domestic input into the production of a ship,
including equipment and labor, amounts to around 65 percent and is increasing.74 The figure
can be considered as fairly high, especially since it amounted to around 30 percent at the end
of the last decade. 75 Furthermore, it is argued that the complex shipbuilding production
processes have developed advanced technologies with considerable spin-offs to other sectors,
mainly the production of chemical substances and metals, as well as machinery.76
Having in mind the harsh conditions faced by the industry during the 1990s, the
results achieved and the positive effects on the economy seem staggering. Thus, a closer look
at the industry is needed in order to obtain a clearer picture of the reasons behind its success.
Croatian shipyards produce high-quality ocean-going ships, floating docks and offshore
structures almost entirely oriented towards export, and their capacities are currently sold until
the 2010. Moreover, they have earned high references in the fields of ship reconstruction and
remodeling. For example, the Viktor Lenac Shipyard had en enviable reputation of high-
quality repair and conversions performance before bankruptcy in 2003. Types of vessels built
in other shipyards include tankers, container ships, car carriers, special-purpose ships,
passenger ships etc.77 Tankers, for which there is tough competition from Asia, represent 68
73 Antesic, “In order to earn eight, the state has to give the shipyards ten billion kunas.74 Damir Herceg, “Brodogradilista za dvije godine bez gubitaka [Shipyards without losses in two years],”Vjesnik, June 28, 2006.75 Igor Caktas, “Afera Skver: Kako se sklapaju ugovori o izgradnji brodova u hrvatskim brodogradilistima [TheDock Affair: How contracts for shipbuilding are negotiated in the Croatian shipyards],” Slobodna Dalmacija,September 30, 2006.76 Ines Kersan-Skabic, “Comparative Advantages of Croatian Export and the Role of Shipbuilding in CroatianEconomy” Ekonomska Istrazivanja, Vol. 14, No. 2, 2001: 61-76.77 Croatian Chamber of Economy, Industry and Technology Department – Shipbuilding.
CE
UeT
DC
olle
ctio
n
29
percent of the output, while car carriers have recently accounted for further 20 percent,
indicating a strategic shift towards more complex ships of higher added value, which in turn
generates higher profits. Such a shift is made easier by the years of experience and expertise
gained through customized production techniques employed in making tailor-made vessels as
defined by the contractors. The ability to meet the specific requirements of foreign shipping
companies, a feature not common in other complex industries or even in East Asian shipyards,
where ships are often produced on the ‘off the shelf’ basis, is considered to be the industry’s
core competency and its main competitive advantage.78 This goes in line with the already
discussed European focus on value rather than quantity, a standpoint clearly expressed by the
Community of European Shipyards’ Associations (CESA), of which Croatia is a member.
A case in point is the Uljanik Shipyard in Pula, the most successful Croatian shipyard,
which has become aware of the disadvantages of relying on tanker production and focused on
more complex and customized car carriers. Although it is a relatively small shipyard in global
terms, with less than 3000 workers, it holds about 15 percent of this market. Moreover, its
major car carrier contractor is the Grimaldi Group, one of the world’s largest privately owned
shipping companies, which has recently won an award form General Motors as the company
that causes the least damage in the transport of their vehicles.79
It is necessary to note the preconditions required for the continuing success of high-
quality customized production, and these consist of a highly skilled workforce and
investments in new technology and design solutions. Highly skilled Croatian experts are
educated in institutions of higher education, such as the Faculty of Mechanical Engineering
and Naval Architecture in Zagreb, and numerous vocational schools geared towards
shipbuilding, while leading establishments such as the Institute of Naval Engineering play a
78 European Business News Online, Croatian shipbuilders hope EU reform won’t rock boat.79 Ante Tomic, “Brodograditelji, nisam bio u pravu [Shipbuilders, I was mistaken],” Jutarnji list, October 17,2006.
CE
UeT
DC
olle
ctio
n
30
significant role in creating a ship through scientific involvement on theoretical and
experimental levels.80
Nonetheless, it is important not to get carried away painting such a rosy picture of the
Croatian shipbuilding industry. The first and foremost issue that needs to be addressed is the
fact that according to the current balance sheet, the shipyards have accumulated losses of 1.2
billion dollars, while the only solvent one is Uljanik.81 Different arguments are put forward
attempting to explain such poor performance, notwithstanding the general difficulties
experienced by the industry on the global level. These include inefficiency, caused among
other things by corruption and observed through recurrent late deliveries, as well as
unsatisfactory technological levels, holding back the production of more complex and
therefore more expensive and profitable ships. Furthermore, there is an interesting situation
where the shipyards simultaneously complain about excess unionized workforce on the one
hand, and the lack of qualified workers in deficient, often lower-skilled jobs such as welding,
on the other hand. 82 A lack of managerial expertise is also often pointed out, and the
optimistic calculations of the domestic input into the production contested. Most importantly,
however, it is the extent and nature of the interventions on the part of the shipyards’ owner,
the Croatian state, that causes the most controversy and through the analysis of which a
complete picture of the industry in the past 15 years can be sketched. After all, outlining the
assets and the liabilities of a certain business or industry does little to explain its position in
the market unless one examines how they are managed by those in charge. The role of the
state is examined in the next chapter.
80 Croatian Chamber of Economy, Industry and Technology Department – Shipbuilding.81 Tanja Corak, “Navozi ostaju isti, ali radit e se druk ije? [Shipyards stay the same, but the nature work isgoing to change?],” Poslovni dnevnik, October 2, 2006.82 Nevenka Horvat, “Jedini je od navoza konkurentan Uljanik [The only competitive shipyard is Uljanik],”Jutarnji List, May 24, 2006.
CE
UeT
DC
olle
ctio
n
31
2.2 Poland – The Lure of Remontowa
Just like its Croatian counterpart, the Polish shipbuilding industry suffered a great
deal following the shift to the capitalist system of production. Having abruptly lost the trade
linkages it had developed with the Soviet Union, the shipyards swiftly reoriented to the
Western markets and restructured the production process via outsourcing and product
specialization. As a result, Poland has managed to maintain its role as an important and
respected player on the world shipbuilding market. To be precise, it took second place in
terms of completions in Europe in 2005,83 while according to Lloyd’s 2006 World Order
Book, it was in seventh position in the world in terms of order deadweight.84 With regard to
its strategic relevance for the country’s economic performance and social stability, data
shows that the share of Polish shipbuilding in the country’s export structure amounted to 3.8
percent in 2005, 85 employing close to 20 thousand people and accounting for 1.5 percent of
the employment in manufacturing.86
It should be stressed that the importance of shipbuilding in Poland is especially
marked in regional terms, as almost all shipbuilding activity is concentrated in the Gdansk
and Szczecin coastal regions. Importantly, its role goes beyond direct employment in the
shipyards, as the industry also indirectly employs about 80,000 more people in the marine
equipment, steel and other related industries.87 The extensive supplier network has ensured
high content of locally produced equipment and material in ship construction. Actually, when
considering Poland’s high trade deficit, it is interesting to note that the shipbuilding industry
reports consistently positive results in terms of the balance of trade. Imported materials and
83 CESA, Annual Report 2005/06.84 Fairplay Newbuildings, Lloyd’s Register.85 Ministry of Economy, Selected data on Poland’s exports and imports in 9 months of 2005.86 NOBE Independent Center for Economic Studies, The Shipbuilding and Ship Repair Sectors in the candidatecountries: Poland, Estonia, the Czech republic, Hungary and Slovenia.87 Cienski and Parker, “Brussels gets tough on Polish shipyards.”
CE
UeT
DC
olle
ctio
n
32
equipment account for only 25 percent of the ship’s value.88 Finally, since many of the
suppliers are entirely dependent on shipbuilding, the success of the industry is a matter of
wide concern. For example, the negative repercussions of the Szczecin Shipyard’s
bankruptcy, to be discussed further in the next chapter, affected enterprises such as the ship
engine producer Zaklady H. Cegielskiego, which was forced to temporarily stop production.89
In terms of product specialization, Polish shipyards have only recently started to
venture into the more complex market niches, following the general European trend. Once
all-rounder, they weathered the difficult times of early post-socialist transition and slump in
the world market by specializing in vessels of lower complexity, mostly general cargo and
container ships, as well as oil tankers. For example, Szczecin’s successful early restructuring
is often put down to the strategic choice to specialize in building container ships. Having
secured a series of contracts, it was able to develop efficient production structures, reduce
building times and cut costs, eventually becoming a major international player in container
ship building.90 However, after a period of crisis in the early 2000s, production of ships of
higher added value began to be seen as a way forward for the industry. The Szczecin
Shipyard began producing chemical tankers, multi-purpose carriers and innovative con-ro
vessels, which carry both wheel and container cargo; while the Gdynia Shipyard is
increasingly specializing in car carriers.91 Overall, there is a significant growth in the number
and value of non-cargo vessels ordered, 92 testifying to the shipyards’ technical and
organizational abilities, as well as their capacity to offer improved solutions through good
88 Andrzej Ratajczyk, “In Need of Aid,” Warsaw Voice Online, June 21, 2002,http://www.warsawvoice.pl/archiwum.phtml/5378/ (accessed May 17, 2007).89 Ibid.90 Bitzer and von Hirschhausen, “The Shipbuilding Industry in East and West: Industry Dynamics, Science andTechnology Policies and Emerging Patterns of Co-operation.”91 Grzegorz Landowski, “The European Shipbuilding Industry: Bright present, anticipating uncertain future –Actual situation of Polish Shipyards,” presentation prepared for the European Economic and Social Committee(EESC), http://www.eesc.europa.eu/sections/ccmi/docs/documents/TURKUPRESENTATIONS/11-Situation-in-Poland-LANDOWSKI.pdf (accessed May 17, 2007).92 Forum Okretowe – Association of Polish Maritime Industries, Polish Shipbuilding and Ship Repair in 2005,http://www.forumokretowe.org.pl/eng/info.php?id=3c (accessed May 17, 2007).
CE
UeT
DC
olle
ctio
n
33
quality R&D. Still, the levels of innovation are significantly lower than in Western Europe, as
the shipyards’ main concern remains debt consolidation and financial stabilization.93
The most competitive and currently the only fully privatized large shipyard is the
Gdansk Shiprepair Yard Remontowa (not to be confused with the Gdansk Shipyard). Since
its privatization in 2001, Remontowa has been achieving remarkable results and is the only
industrial-scale profitable shipyard in the country. It predominantly specializes in ship repair
and conversions, which cover 68 percent of its turnover, and has been ranked as first in
Europe by Drydock magazine.94 However, as well as repair and conversion, the Shipyard also
engages in shipbuilding, concentrating on highly complex and specialized niches, such as
ferries and multi-purpose carriers. By diversifying its activities, Remontowa has made its
financial stability more resistant to market fluctuations.95 Thus, it serves as a benchmark for
other shipyards hoping to make better use of their skilled labor, educated experts and
technological capabilities in the attempts to deal with the burning financial difficulties and
fierce global competition. It should be stressed that despite early specialization, Polish
shipyards have not attempted building “off the shelf” vessels. Their customization expertise
is considerable and presents a competitive advantage to be further exploited. It follows that
the leading motivating factor should be to offer the customer a full scope of services required,
as in the case of Remontowa.
However, regardless of the industry’s international success, shipbuilding has been
struggling to survive throughout the process of restructuring, and weaknesses still seem to
outweigh the strengths. Among the main causes of the shipyards’ continuing struggle have
been the continual over-manning, outdated construction facilities and the departure of skilled
93 NOBE Independent Center for Economic Studies, The Shipbuilding and Ship Repair Sectors in the candidatecountries: Poland, Estonia, the Czech republic, Hungary and Slovenia.94 Forum Okretowe, Polish Shipbuilding and Ship Repair in 2005.95 Landowski, “The European Shipbuilding Industry: Bright present, anticipating uncertain future – Actualsituation of Polish Shipyards.”
CE
UeT
DC
olle
ctio
n
34
workers.96 The latter problem is exacerbated by the lack of interest among the young to look
for engineering, design, R&D and managerial positions in the shipbuilding industry, due to its
negative image. Many vocational schools geared towards shipbuilding have closed down due
to decreasing numbers of applicants. 97 On the whole, a combination of factors led to a
situation best characterized as fraught with uncertainty. On the one hand, the Szczecin
Shipyard is profitable after re-nationalization but only as a result of the sale of assets, while
on the other hand, the situation in the state-controlled Gdansk and Gdynia shipyards is far
from normal.
In order to develop a deeper understanding of the underlying problems faced by the
Polish shipyards, it is of utmost importance to examine the trajectory of events affecting the
shipbuilding industry during the period of post-socialist transition. Furthermore, the role
played by the state in influencing and responding to these events, provides a vital insight into
the nature of restructuring and sheds light on the peculiar post-socialist path of the
shipbuilding industry. This task is undertaken in the next chapter.
2.3 Comparative Assessment – The Suffering Giants
Before proceeding to examine the role of the state, a few final comparisons of the
general characteristics of shipbuilding in Croatia and Poland should be drawn. The main
finding is that there are many basic similarities between the two countries, both with regard to
the industry’s international success and the problems it faces. The initial divergence in the
paths taken was based on the particular post-communist experience. While Poland suffered
form the loss of the Soviet market, Croatia had developed strong links with global ship-
owners already during the communist rule. However, its industry was badly hit and neglected
96 MarineTalk, Polish Shipyards are Struggling to Survive, January 18, 2006,http://www.marinetalk.com/articles-marine-companies/art/Polish-Shipyards-are-Struggling-to-Survive-xxx000121002OT.html (accessed May 18, 2007).97 NOBE Independent Center for Economic Studies, The Shipbuilding and Ship Repair Sectors in the candidatecountries: Poland, Estonia, the Czech republic, Hungary and Slovenia.
CE
UeT
DC
olle
ctio
n
35
during the ensuing war. Today, both nations are globally significant players on the
shipbuilding market and regard shipbuilding as being vital for economic development and
social cohesion, despite potential contradiction inherent in this double goal. Further
similarities include a recent push towards the construction of more complex ships, despite the
lack of investment needed for high quality R&D facilities that would promote innovation.
Moreover, shortage of skilled workforce in manual, design and managerial areas, is also a
shared experience. More importantly, the shipyards in both countries have been coping with
financial difficulties, resulting in the inability to invest in more efficient equipment and
innovative practices. Successes such as the building of innovative con-ro ships in Szczecin
are merely exceptions that confirm the rule.
Nevertheless, there are important differences. Accounting for at least 12 percent of
exports, shipbuilding occupies the position of the strategically most important and valuable
industrial branch in Croatia. In Poland, it is simply one of the important ones, albeit crucial in
the coastal regions. It is also important to emphasize the higher level of local content in
Polish shipbuilding. The most optimistic and contested studies show Croatia lagging by 10
percent, indicating a need for further upstream integration. Moreover, there is so far no
Croatian success story equivalent to that of the Remontowa Group, as it cannot be argued
with certainty that Uljanik would be capable of consistent profit-generating performance on
its own, and Viktor Lenac clearly failed as a private company. Finally, it can be deduced that
the individual Polish shipyards have experienced fairly different post-socialist trajectories,
while the Croatian shipyards, with the exception Viktor Lenac, have shared a fairly uniform
experience. This claim is explored in the next chapter.
CE
UeT
DC
olle
ctio
n
36
Chapter 3 – The Role of the State in Industrial Restructuring
3.1 Croatia – Gradualism or Inertia?
The first chapter offered an insight into the broad issues concerning state involvement
in shipbuilding and thereby provided a context within which the Croatian case can be studied.
It is fairly clear that Croatia is at a juncture, situated between two different environments,
moving form the one characterized by mostly unregulated world shipbuilding market and
towards the EU environment characterized by clearly set rules that are rapidly becoming
stricter and more pertinent. This is why the pressure on Croatian authorities with regard to the
restructuring of the industry has increased dramatically in recent years and why the industry
has once again become the focal point of public debate. This section analyzes the state’s role
in maintaining the puzzle of the Croatian shipbuilding up to this point, while the following
chapter elaborates on its role in determining the industry’s future prospects as well as the
longer-term continuation of the puzzle of the absent transnational capital.
As already argued, when examining the particular characteristics of the Croatian
shipbuilding industry in order to find reasons behind its arguably unexpected success, the
issue of state ownership must be paramount for a couple of reasons. Firstly, the state fully
owns the five biggest shipyards (Uljanik, 3. Maj, Brodosplit, Brodotrogir and Kraljevica),
which are the backbone of the industry, through holding the majority of shares in The
Croatian Shipbuilding Corporation – Jadranbrod Ltd., a joint company of these shipyards.98
The only privatized shipyard is Viktor Lenac, specializing in repair and conversions and
employing around 650 workers.
Secondly, it is often argued by both industry experts and government officials that the
shipyards have remained solvent solely due to heavy government support. State aid
CE
UeT
DC
olle
ctio
n
37
instruments represented in the shipbuilding sector include subsidies, soft loans and financial
guarantees. For example, direct state aid in 2005 amounted to $90 million, actually showing a
steady decrease in recent years, and amounts to around 10 percent of the ship’s contract value.
However, if end-financing and construction-financing guarantees are also included in the
calculation, according to EU rules, the total amount climbs up to $800 million99 or from 0.2
percent to 1.7 percent share of GDP.100 Such a high percentage demonstrates the Croatian
resolve to keep the industry alive at any cost. However, state aid has not so far been
accompanied by a coherent restructuring plan and most of the money has gone into covering
operating costs. It has been estimated that more than $3.5 billion have been spent on helping
the shipyards in the last 15 years.101 Steps are therefore being taken so as to avoid the current
Polish situation, where the state’s support practices are being investigated by the EU, and the
government is soon due to publish its final plan for the restructuring of the industry.
It follows that while the relative international success of the Croatian shipbuilding
industry can be partly explained by its reliance on state aid, the question of state motivation,
and long-term viability of such practice remains to be resolved. If Shafer’s concept of
insulation102 is adapted, it could be argued that a privatized shipbuilding industry would
protect the government and its citizens’ welfare from the whims of both domestic and
international pressures associated with such a cyclical industry. However, while the Croatian
government has on numerous occasions explicitly voiced plans for the privatization of its
shipyards in the near future, it refuses to do so until a program of comprehensive
98 Croatian Shipbuilding Corporation, Introduction, http://www.hb.hr/introduction.htm (accessed January 6,2007).99 Croatian Competition Agency, Annual Report on State Aid for 2005,http://www.aztn.hr/eng/pdf/izvjesca/ANNUAL_REPORT_SA_2005.pdf (accessed January 6, 2007).100 World Bank - Total GDP of Croatia = $37.412 millionhttp://siteresources.worldbank.org/DATASTATISTICS/Resources/GDP.pdf (accessed January 6, 2007).101 Jagoda Maric, “Spasavajuci posrnule svaki gradjanin platio 22.000 kuna [Saving the strugglers, each citizenhas paid 22,000 kunas],” Novi list, March 12, 2006.102 Michael D. Shafer. “Capturing the Mineral Multinationals: Advantage or Disadvantage?,” in MultinationalCorporations – the Political Economy of Foreign Direct Investment, ed. Theodore H. Moran, (Lexington:Lexington Books, 1985).
CE
UeT
DC
olle
ctio
n
38
restructuring of the industry has been agreed upon and implemented.103 Such an attitude
reflects fears of the potential effects of premature privatization, undertaken without prior
financial consolidation, technological upgrading and productivity improvements, for a
strategically crucial industrial branch.
Consequently, a brief description of the post-socialist path of the Viktor Lenac
Shipyard, the only private industrial-scale shipyard in Croatia, is helpful when trying to fully
appreciate the role played by the state and its motivations in the restructuring of the industry.
To begin with, the shipyard’s global reputation of excellence, smaller size, less acute need for
large-scale restructuring, and positive business forecasts, led to privatization in 1993. During
the decade of grave hardship for the industry as a whole, and especially for the remaining
Croatian shipyards, Lenac was hailed as an example of a successful private business run
purely on market principles. In 1999, a report by the International Finance Corporation (IFC),
the private sector arm of the World Bank, showed that the majority of the shipyard’s shares
were held by investors from Netherlands, USA and Liberia, as well as the IFC’s investment
plans in the shipyard with the purpose of increasing efficiency and revitalizing the local
economy.104 This remains the only example of foreign capital having ownership of a large
shipyard in either Croatia or Poland.
However, the following few years showed that the shipyard had accumulated
enormous debts. Charges of fraud were leveled at the CEO and co-owner Damir Vrhovnik,
contracts were cancelled and the state stepped in by providing loans through the Croatian
Bank for Reconstruction and Development (HBOR).105 After the state decided it could no
longer shoulder the burden, Viktor Lenac went into bankruptcy in 2003, with a $265 million
103 Antesic, “In order to earn eight, the state has to give the shipyards ten billion kunas”.104 International Financial Corporation, Viktor Lenac d.d; Summary of Project Information, September 30, 1999,http://www.ifc.org/ifcext/eca.nsf/Content/SelectedProjectCroatia?OpenDocument&UNID=A4AF2D042F10C89E8525688E0074F318 (accessed May 21, 2007).105 Geoff Garfield, “Viktor Lenac Sells Dock,” Trade Winds, April 30, 2004,http://www.demospetropoulos.com/Arthra_Omilies/20041813.pdf (accessed May 21, 2007).
CE
UeT
DC
olle
ctio
n
39
debt and over 1,700 creditors.106 During the bankruptcy procedures, an interesting dialogue
between the state, creditors, potential investors and trade unions took place. First, the World
Bank suggested the sale of facilities and equipment, some of which took place, but was
vehemently opposed by the trade unions. Second, the foreign bidders from the US, Russia
and Germany were looked at with suspicion, not allowing for an agreement between all the
creditors, of which the state was the biggest, to be reached. Finally, in 2007 the government
sold its 328 million kuna of debt claims to the Uljanik Shipyard, itself expected to be
privatized in the near future, and Tankerska plovidba, a Croatian shipping company. The deal
includes a clearly defined obligation to invest in the modernization of the yard over the next
decade.107
What can be deduced from this is the state’s crucial role in dealing with the crises,
regardless of the fact that the shipyard was privatized. First it helped with granting loans and
then brokered a deal leading to domestic private ownership with insurances of keeping the
present levels of employment. The role of labor is further explored in the next chapter.
Overall, it can be argued that the fate of Viktor Lenac reaffirmed the fears of transnational
capital harbored by the trade unions and perhaps even the state, and confirmed the image of
the state as the “savior” of shipbuilding. However, despite the protracted delays, further
restructuring and privatization is inevitable. The only question is the approach to be chosen.
While one might argue that the example of the East German restructuring process
points towards a successful route, a more plausible course of action for Croatia would be to
draw lessons from the fate of Viktor Lenac and the Polish experience, as two countries have
more in common, including unionized workforces that would fight against lay-offs and a
slowly changing post-socialist institutional set-up. The important point to make here is that
106 Ed Holt and Hugh O’Mahony, “Russians move in for Croatia’s bankrupt Viktor Lenac yard,” Gateway toRussia, June 14, 2006,http://www.gateway2russia.com/art.php?artid=242462&rubid=303&parent=Expenditure&grandparent=Economic+News (accessed May 22, 2007).
CE
UeT
DC
olle
ctio
n
40
two of the three largest Polish shipyards, Szczecin and Gdansk, were privatized earlier in the
transition period but renationalized after going bankrupt.108 This certainly sends a warning
against any hasty decisions and justifies the current government’s careful approach.
Nevertheless, it is rather difficult not to notice that 15 years of waiting and a number of
seemingly half-hearted restructuring attempts have led to a situation where quick action is
required as part of the EU accession talks, while not much has been done to prepare the
industry for the new rules of the game. The year 2007 is therefore the year for an overdue
attempt to put the industry on its own feet.
3.2 Poland – A Proactive Approach
Being a new EU member, Poland is exposed to stronger pressure from Brussels than
Croatia at this point. The EU Competition Commission has been investigating $490 million
worth of state aid given to the three largest Polish shipyards since the country’s accession to
the EU in 2004, as well as the additional $1.7 billion in export guarantees. If the Commission
rules that the aid should be repaid, Polish shipbuilding could be destroyed.109 As a result,
fervent negotiations have been taking place; but the government’s only way out is to come up
with a sound restructuring plan for making the industry profitable in order to justify the
expenditure.110 Using the above numbers, a calculation can be made showing that the average
yearly amount of state aid to shipbuilding as share of GDP in the last three years comes to
roughly 0.25 percent.111 While this is significantly lower than in the Croatian example, it
certainly indicates a significant level of state involvement motivated by the desire to keep the
shipyards running.
107 Kirin, “The contract confirming the sale of Viktor Lenac has been signed.”108 Bertrand Benoit and Jan Cienski, “Poland at sea as German shipyards sail into profit,” Financial TimesDeutschland, October 17, 2006.109 Ibid.110 Jan Cienski and George Parker, “Brussels gets tough on Polish shipyards,” The Financial Times, August 28,2006.111 World Bank - Total GDP of Poland = $299,151 million.
CE
UeT
DC
olle
ctio
n
41
Accordingly, Poland’s international success as a shipbuilding nation has also been
built on the basis of state intervention. While this is certainly not surprising considering the
levels of state involvement in shipbuilding globally, the Polish case is particularly interesting.
At the moment, the state fully owns the Szczecin New Shipyard, while the other two large
shipyards, Gdansk and Gdynia, are mostly state-controlled through the shares held by the
Industrial Development Agency (IDA).112 The only industrial-scale privatized shipyard is the
remarkably successful Gdansk Shiprepair Yard Remontowa. Interestingly, the privatization
process of the remaining three large repair yards has been suspended and they are fully state-
owned.113 The variety of ownership structures has been a result of mixed approaches adopted
by the state in its attempts to assist the restructuring of the industry. Consequently, as was
already suggested, the trajectory of the post-socialist transformation of shipbuilding in Poland
was not as straightforward as in Croatia. Having this in mind, the most appropriate manner of
presenting the story of the restructuring of Polish shipyards, is to tell their stories separately
and draw conclusions at the end. The paths of the Gdansk and Szczecin shipyards are most
suitable for this undertaking, as they outline two dramatically different approaches.
The famous Gdansk Shipyard was once a flagship of the Polish industry and a
communist industrialization icon, eventually becoming a birthplace of the Solidarity
movement and thereby a symbol of the fall of communism. As such, it is a fairly
representative example of post-socialist industrial transformation.114 The shock of the free
market caught the company unprepared and its political heritage, together with the Solidarity
movement’s leader Lech Walesa becoming President, proved to be more of a liability than an
asset. For one thing, attracting foreign capital form potential investors was hampered by the
112 Landowski, “The European Shipbuilding Industry: Bright present, anticipating uncertain future – Actualsituation of Polish Shipyards.”113 Forum Okretowe, Polish Shipbuilding and Ship Repair in 2005114 Mariusz Czepczynski, “Old Industrial Regions (I) – Gdansk, Poland,” Regions Magazine, Vol. 259, No. 1,2005: 6-11.
CE
UeT
DC
olle
ctio
n
42
seemingly militant and stubborn union activity.115 The shipyard was eventually taken over by
domestic capital116, but remained dependent on state aid until its bankruptcy in 1998. In
general, the state’s approach to the restructuring of the shipyard was fairly peculiar. The first
transition government, strongly affiliated to the Solidarity movement, proved reluctant to
push for radical changes in the politically charged shipyard. The threat of social unrest in
response to any change that could jeopardize jobs and wages seemed credible.
As a result, the Shipyard’s main goal was to continue securing state aid and preserve
stability. The continuing stalemate led to low productivity, extremely late deliveries and a
rapid decrease in the number of ship orders. With the former Communists next in power,
bankruptcy became the only viable solution, facilitated by the Solidarity union’s inability to
destabilize the new non-affiliated government. 117 Nevertheless, it was the following
government, again full of officials affiliated to the Union in one way or another that finalized
the bankruptcy proceedings. Gdansk Shipyard was stripped of most of its assets and sold to
the Gdynia Shipyard with very limited levels of labor shedding.118 Due to increased social
tensions between the two shipyards, as well as financial difficulties, plans are currently being
made to separate and privatize the two companies.119
The story of the Szczecin Shipyard has been markedly different. To begin with, it was
the least developed large shipyard and on the verge of bankruptcy in 1991. Its future
prospects seemed bleak but the fact that it was a major employer in the region secured state
support. 120 However, unlike in Gdansk, the state’s support was conditional upon the
cooperation of both management and labor in developing and implementing a restructuring
115 Ibid.116 Benoit and Cienski, “Poland at sea as German shipyards sail into profit.”117 Keat, “Fallen heroes: explaining the failure of the Gdansk shipyard, and the successful early reform strategiesin Szczecin and Gdynia.”118 Ibid.119 Forum Okretowe, Polish Shipbuilding and Ship Repair in 2005120 Bitzer and von Hirschhausen, “The Shipbuilding Industry in East and West: Industry Dynamics, Science andTechnology Policies and Emerging Patterns of Co-operation.”
CE
UeT
DC
olle
ctio
n
43
program. Negotiations between the three parties regularly took place and the longer-term
structural aims took priority over the short-term job and wage security. In Szczecin, the state
did not fear the trade union, as it lacked supporters in top government positions and the
occasional threats were not considered credible. 121 The Shipyard was quickly privatized,
again without foreign capital participation, and successfully continued its restructuring
program, which included the already discussed specialization on ships of low added value, in
addition to outsourcing, development of new supplier networks, investments in automation
and increasing technical and production capabilities.122
However, the Shipyard’s good fortune lasted only until 2001, when it lost financial
liquidity. As a result, production was stopped and management filed for bankruptcy in early
2002. The situation was generated by the company’s enormous indebtedness, which was in
turn a result of the combined effect of the misuse of bank credits, the excessive appreciation
of the zloty, South Korean price dumping strategies and a general downturn in the world
shipbuilding market.123 The state responded with a firm resolve to save ship production,
renationalizing the Shipyard and developing rescue and restructuring programs implemented
under the control of IDA. It was argued that the plan did not pertain solely to the Szczecin
Shipyard, but the entire sector, as the closure of such an important yard would have caused a
chain reaction.124 Today, the restructuring program has been completed. The Shipyard is fully
state-owned and achieving profit, albeit with the help of asset sales.125
The path of the Gdynia Shipyard resembled that of Szczecin. The various forms of
state support were conditional on progress in restructuring, which in turn was gradual as there
was no initial danger of bankruptcy. The yard was never fully privatized and began
121 Keat, “Fallen heroes: explaining the failure of the Gdansk shipyard, and the successful early reform strategiesin Szczecin and Gdynia.”122 Bitzer and von Hirschhausen, “The Shipbuilding Industry in East and West: Industry Dynamics, Science andTechnology Policies and Emerging Patterns of Co-operation.”123 European Industrial Relations Observatory on-line (EIROnline), Bankruptcy of the Szczecin Shipyard, July2002, http://www.eurofound.europa.eu/eiro/2002/07/inbrief/pl0207101n.html (accessed May 24, 2007).124 Ratajczyk, “In Need of Aid.”
CE
UeT
DC
olle
ctio
n
44
experiencing serious financial difficulties at the same time as the Szczecin Shipyard, mostly
due to negative external effects discussed above and is today being prepared for privatization.
This only goes to show that the state has adopted a proactive approach towards the industrial
restructuring of shipbuilding, using different strategies according to the needs and obstacles
characteristic of particular shipyards. Moreover, its determination to keep the industry alive is
clear. Still, while the enterprisation of the shipyards did proceed at a rapid pace, the state
continues to play too important a role. Since the financial injections and other forms of aid
have usually not been accompanied by large cuts in the labor force or adequate investments
in physical capital, the modern shipyards have not transformed to an extent that would allow
for their independent operation.
3.3 Comparative Assessment – The Regime Typology
It is easy to see that there are striking differences in the way the restructuring of the
shipyards has been handled in Croatia and Poland. While the former regularly provided
support in the form of operating aid and state guarantees with little serious emphasis on aid
conditionality, the latter pushed reform wherever it was possible. The privatization of Viktor
Lenac seems to have only further entrenched the Croatian faith in a gradual approach, or
perhaps even condoned continuing inertia. On the other hand, a less focused and overly
cautions initial approach to the Gdansk Shipyard, and as such very similar to the general
Croatian approach, was an exception in Poland; the drawbacks were observed and lessons
learned.
Nevertheless, while the initial enterprisation of Szczecin and Gdynia proved a success,
their recent difficulties and the current industry ownership structure, almost identical to the
one in Croatia, raises difficult questions. Both states have been guiding their shipyards
through the post-socialist transition; Croatia through regular aid but with little direct
125 Forum Okretowe, Polish Shipbuilding and Ship Repair in 2005.
CE
UeT
DC
olle
ctio
n
45
influence, Poland through aid conditionality and direct guidelines. It is difficult to say
whether the approach adopted by Croatia allowed the shipyards to restructure on their own
terms or whether it simply avoided responsibility. Once the comprehensive restructuring plan
is published, it will indicate whether the years of delay have caused more benefits or
problems. The situation of the Polish shipbuilding industry will also be clearer once the
restructuring plan demanded by the EU Competition Commission is agreed upon and
implemented. It seems that the EU is pressuring both countries to finish what they started
almost two decades to go. The results remain to be seen.
Still, an argument can be made that the Polish proactive approach fits the behavior of
the “embedded neoliberal” capitalist economy, the type prevalent in Visegrad countries.
Defined by Bohle and Greskovits, it stands for an economy that is driven by the goal of
enhancing competitiveness but also protects society to a higher level than a pure neoliberal
economy. On the contrary, the Croatian approach fits the “neocorporatist” type characteristic
of Slovenia, where business, labor and other social groups are considered as negotiating
partners of equal standing. 126 It is important to note that not enough research has been
conducted in order to determine the general type of the Croatian political economy. The
above classification refers solely to the shipbuilding industry.
126 Bohle and Greskovits, “Neoliberalism, Embedded Neoliberalism, and Neocorporatism: Paths TowardsTransnational Capitalism in Central-Eastern Europe.”
CE
UeT
DC
olle
ctio
n
46
Chapter 4 – Determinants of State Motivation
4.1 Labor Relations & Trade Union Influence
There have already been a few scattered references in the thesis to the role played by
labor in the process of industrial transformation of shipbuilding. Considering the information
on trade union influence provided so far and the crucial employment function performed by
the industry, it is safe to assume that they have played an important part in the process of
restructuring. A short section reiterating and formulating what has been said and presenting
an overview of other collected data is therefore necessary in order to provide additional
knowledge on what motivated the state to engage in the restructuring of the shipyards, and
the manner in which it did so.
In Croatia, the most vivid instance of trade union activity took place during the crises
period in the Viktor Lenac Shipyard. In the months before the shipyard’s bankruptcy, the
workers were given two options. One was to work without claiming wages currently due or
owed to them for a period of one month, and the other was to seek employment elsewhere.
To begin with, the Shipyard’s trade union refused to select the first option, resulting in
hundreds of workers being denied entry to the yard. However, after it had become obvious
that the management was intent on laying off those skipping work, the union advised its
members to work without claiming their wages. 127 While it could not go against the
management directly, the union’s actions raised the attention of the media and eventually the
government, which became increasingly interested in the proceedings taking place in the only
shipyard it had privatized.
In addition, the trade union’s passionate protests against the sale of Viktor Lenac’s
assets during the period of bankruptcy, where they threatened to seize the shipyard if
127 Croatian Radiotelevision (HRT), Some 100 Workers Denied Entrance to Shipyard, Morning News, July 6,2003, http://vijesti.hrt.hr/arhiv/2003/07/07/ENG.html (accessed May 16, 2007).
CE
UeT
DC
olle
ctio
n
47
necessary,128 as well as their lobbying for the re-nationalization of the shipyards, ultimately
gathered enough public support to influence the government to compromise and opt for
domestic private ownership with a degree of control through the Uljanik Shipyard, one of the
new owners.129 The union even received the backing of the largest opposition party in its bid
for re-nationalization. 130 Another good example of trade union influence in Croatian
shipbuilding concerns the Uljanik Shipyard, where the workers threatened an all-out strike in
2006, if the management went ahead with the plan to cancel the collective agreement
protecting a number of workers’ right and privileges, and switched to individual contracts.
The Uljanik union was supported by the unions of all the other shipyards, threatening to go
on a sectoral strike unless the Uljanik conflict was resolved in their favor.131 At the time of
writing, the collective contract is still valid at Uljanik.
The role of the Solidarity union at the Gdansk Shipyard in the early faze of its
transformation has already been explained. To reiterate, the union’s political clout and its
short-term objectives hindered efficient restructuring and ultimately led to bankruptcy in
1998. During that time, the union’s influence on government decisions was critical, albeit
negative. In 2005, the situation was entirely reversed. On the 25th anniversary of the
Solidarity movement, 200 union members were protesting against the celebration of the event,
diverting attention to their dismal situation 25 years later.132 Another example of the waning
trade union influence is the plight of the workers at the Gdynia Shipyard. Since the crises of
the early 2000s, the Shipyard has been suffering grave financial difficulties. Promises of fast
track privatization and restructuring have not been met and even the expected separation of
Gdynia and Gdansk shipyard has been delayed without explanation. The union has been
128 Ivanka Rade, “Sindikalci Viktor Lenca najavili sprijecavanje prodaje imovine [Viktor Lenac unionistsannounce actions to prevent the sale of assets],” Nacional, March 7, 2005.129 Kirin, “The contract confirming the sale of Viktor Lenac has been signed.”130 Rade, “Viktor Lenac unionists announce actions to prevent the sale of assets.”131 Croatian Radiotelevision (HRT), Shipyards Against “Uljanik”, Evening News, November 6, 2006,http://vijesti.hrt.hr/ShowArticles.aspx?ArticleId=17256 (accessed May 16, 2007).132 Wojciech Kosc, “Gdansk: Birthplace of Today,” Transitions Online, September 6, 2005.
CE
UeT
DC
olle
ctio
n
48
calling for quick action so as to preserve employment and even took to the streets of Warsaw
in June 2006. Still, their demands were largely ignored by the state.133
Overall, it can be seen that the trade unions in Croatian shipyards still exert significant
influence on the state, while their role is minimal in Polish shipbuilding industrial relations.
This goes in line with the general power of trade unions in both countries. Croatia boasts a
higher percentage of unionized workforce, and its bargaining position is considered to be
stronger.134 It can be argued that the stronger influence of labor in Croatia is to some extent
responsible for a more cautions general approach to restructuring, while the Polish state has
had more freedom to try different approaches and set longer-term objectives.
4.2 Export Roles as Stages of Industry Development
Since the shipbuilding industry enjoys some level of state support all over the world,
it is important to identify other factors that have contributed to its international success and
motivated continuous government involvement. Also, even though it is clear that the state has
played a crucial role in the success of Croatian and Polish shipbuilding so far, the changing
environment and the new rules brought about by the reality or the prospect of EU
membership necessitate an analysis of the challenges ahead in terms of further improving
export competitiveness and maintaining the position of the countries’ strategically important
industry. This section examines the future potential of shipbuilding, based on the competitive
advantages outlined in Chapter 2 and crucial in motivating the state to continually try to
successfully transform the industry.
Gereffi’s theory of different industry export roles can be used here, as it offers a
useful framework for the export-oriented shipbuilding industry. Through his work on global
commodity chains (GCC), Gereffi develops a model of industry export roles as stages of
133 Solidarnosc [Solidarity], Immediate Decisions Demanded, June 29, 2006,http://www.solidarnosc.org.pl/english/newsletter/news/2006/jun/jun_29.htm (accessed May 25, 2007).
CE
UeT
DC
olle
ctio
n
49
development. A commodity chain is defined as: “a network of labor and production processes
whose end result is a finished commodity”.135 Countries are connected to GCCs through the
products and services they supply in the global economy and these links can be presented as a
set of export roles. These include: “primary commodity exports, export-processing (or in-
bond) assembly operations, component-supply subcontracting, original equipment
manufacturing (OEM); and original brand-name manufacturing (OBM)”.136 The roles are not
mutually exclusive within a particular country, but are progressively more difficult to develop
due to the higher degree of local entrepreneurship and integration.137
As is well known, the shipbuilding industry’s main function can be defined as the
building and repair of finished ships for foreign shipping companies, according to
specification contracts that determine the unique features of particular vessels. Gereffi refers
to this process as OEM, main demands of which include the ability to produce and interpret
designs, source the necessary equipment, oversee a complex production process and
guarantee on-time delivery. Due to the changing demands of buyers, OEM is considered a
demanding and unstable export niche and the continuing inability of almost all major
Croatian and Polish shipyards to independently achieve profits clearly illustrates this.
Nevertheless, it has helped the industry to achieve its current status primarily by developing
customization expertise.
Two different paths towards increased competitiveness of the industry can arguably
be identified based on the discussion above. One is to upgrade the export role of the industry
according to Gereffi’s model and focus on OBM, a final stage in the development of export
activity, referring to a move towards establishing national brand names rather than producing
134 EIROnline, Problems Facing the Trade Union Movement Analyzed, September 8, 2003,http://www.eurofound.europa.eu/eiro/2003/08/feature/pl0308106f.html (accessed May 25, 2007).135 Terence K. Hopkins and Immanuel Wallerstein, “Commodity Chains: Construct and Research,” inCommodity Chains and Global Capitalism, ed. Gary Gereffi and Miguel Korzeniewicz (Wesport, Connecticut,London: Praeger Publishers, 1994).136 Gereffi, “Global Production Systems and Third World Development.”137 Ibid.
CE
UeT
DC
olle
ctio
n
50
for foreign buyers. This step has already been accomplished by South Korea and China, with
the help of sufficient capacity, generous state support and global demand for standardized
ships of lower complexity. On the other hand, further industrial upgrading and backward
linkages within the OEM process might seem more suitable for shipbuilding in CEE and
could lead to higher profitability. Such import-substituting strategy would further energize
local entrepreneurship and tackle the common problem of shipyards having to accept the
ship-owners’ requests for using the equipment produced elsewhere. Due to global
overcapacity, the ship-owners have the upper hand in bargaining with the shipyards, both
with regard to the process and price of building a ship.138 Moreover, competitors from the
neighboring markets of Italy and Germany often offer reasonably priced equipment of good
quality.
When looking at the large Croatian and Polish shipyards and their contractual
obligations, the inadequacy of the OBM model seems obvious. The pull approach to
exporting is evident here; shipyards produce what buyers order and each ship or series is
tailor-made. Building brand-name ships independent of orders would be extremely difficult
primarily due to insufficient capacity and already established relationships with buyers.
However, OBM is not without its merits. Only in Croatia there are around 20 middle-sized,
privately owned shipyards that build and repair coasting vessels such as small ferries and
fishing ships. 139 Moreover, around 70 companies have developed as a result of rapid
development of nautical tourism, specializing in building, repair and maintenance of sports
and leisure boats and ships. This sub-sector is usually referred to as small shipbuilding and
has recently focused on the construction and promotion of domestic-brand, high quality
138 Jadranka Jurcic, “Hrvatski dobavljaci u nemilosti brodovlasnika [Croatian suppliers disregarded by the ship-owners],” Lider, December 30, 2005.139 Croatian Chamber of Economy, Industry and Technology Department – Shipbuilding.
CE
UeT
DC
olle
ctio
n
51
products aimed at domestic and European markets.140 While the export share of domestic
boat production in Croatia is still insignificant overall, it is in constant growth and
cartelization of the sector is often suggested in order to strengthen its competitiveness.141
Encouragingly, an increasing number of small companies specializing in building pleasure
boats and yachts have also been developing in Poland.142
Still, the question of large shipbuilding remains. The OEM process has to be
improved in order to preserve competitiveness in the long run; profitability must become a
rule rather than exception. According to Gereffi, industrial upgrading is an intrinsic part of
the OEM process, and a lot can be done in Croatia and Poland in this respect. First of all,
technological improvements are needed in order to boost productivity, further reduce delivery
times, or focus on niche markets. The issue of state aid is crucial here, as it should in the
future be aimed towards the implementation of new technologies and R&D. Furthermore,
despite the existence of elaborate horizontal networks of suppliers and buyers, there is still
space for further organizational upgrading and innovation.
With the impending privatization, more effort needs to be put in minimizing all kinds
of waste in order to increase profitability. One way of achieving this goal might be the
introduction of better supply chain management (SCM) techniques, a practice in which
shipbuilding considerably lags behind automobile or aerospace industries in general,143 and
which could lead to shorter delivery times. In addition, further support of the small enterprise
clusters is likely to decrease the need for imported equipment, which currently amounts to 35
percent and 25 percent in Croatia and Poland respectively, and foster development of small
140 Josip Rosso, “Gradimo jahte, financijera ni za lijek [We are building yachts, but investors are hard to find]”Privredni vjesnik, September 25, 2006.141 Agneza Urosevic, “Golja: Bez klastera proizvo i malih plovila ne e preživjeti [Golja: Without clusters,small shipbuilding will not survive],” Poslovni dnevnik, October 24, 2006.142 Landowski, “The European Shipbuilding Industry: Bright present, anticipating uncertain future – Actualsituation of Polish Shipyards.”143 Mitchell Fleischer et al., “Shipbuilding Supply Chain Integration Project,” Environmental Research Instituteof Michigan, http://www.altarum.org/publications/pdfs/esd_shipbuilding.pdf (accessed January 7, 2007).
CE
UeT
DC
olle
ctio
n
52
and medium enterprise (SME) sectors that could provide a viable alternative for those made
redundant by the further restructuring of the shipyards.144
Finally, institutional networks are no less important. For example, a sharp decrease in
the number of students in vocational technical schools traditionally oriented towards
shipbuilding has been noted in both countries. 145 While the negative effects of this
phenomenon might be offset by investment in more capital-intensive production processes,
education still remains a problem, especially with regard to the engineering, managerial and
other highly-skilled positions. More cooperation between the state and educational
institutions could increase the attractiveness of the industry to the young population. A good
example has been set by the Kraljevica Shipyard in Croatia, which offers scholarships and
ensures employment for high school and university graduates studying for the qualifications
required by the company.146Furthermore, both countries have suffered form labor migration
to the West European shipyards in pursuit of higher wages. Croatian workers have tended to
migrate to Italy and be replaced by cheaper labor from Bosnia and Herzegovina,147 while the
Polish workers have mostly migrated to Germany and been replaced by Ukrainian workers.148
These developments have led to an interesting situation. It is common understanding that
increased labor productivity requires investments in efficient equipment and fewer but well
paid workers. Higher wage would in turn encourage skilled school and university graduates
to apply for jobs in shipbuilding. However, the inflow of cheap replacement workforce
combined with the lack of courage to firmly deal with over-manning result in a downward,
rather than upward pressure on wages, making the situation even worse.
144 Bateman, “Industrial Restructuring and the Promotion of Small Enterprise Clusters: the Case of theShipbuilding and Repair Industry in the Republic of Croatia.”145 IOM, Cross-border Labor Migration Flows Croatia-Italy: Focus on Shipbuilding,
146 Kraljevica Shipyard, Scholarships, 2006/07, http://www.kraljevica.hb.hr/scolarships.htm (accessed May 14,2007).147 IOM, Cross-border Labor Migration Flows Croatia-Italy: Focus on Shipbuilding,148 Jan Repa, “Gdansk Appeal for Ukraine Workers,” BBC News, January 13, 2006,http://news.bbc.co.uk/2/hi/europe/4605534.stm (accessed May 22, 2007).
CE
UeT
DC
olle
ctio
n
53
Overall, the above analysis of future challenges indicates the need for the
diversification of government interventions, away from simple financial injections into more
elaborate involvement in the creation of a healthy industrial environment, until actors such as
domestic or foreign companies reach a level where they can arrange their environment
efficiently on their own.
CE
UeT
DC
olle
ctio
n
54
Conclusion
The peculiarities of the global shipbuilding market, combined with the inherent
difficulties of running a shipyard, with or without the communist legacy, as well as the
industry’s perceived economic and social importance, count among the main characteristics
of shipbuilding. In CEE, these characteristics have led to a difficult and protracted, but
nevertheless committed and determined state-run restructuring process of the post-socialist
shipbuilding industry. Based on the information put forward so far, it can clearly be argued
that the state’s commitment to helping the shipyards utilize their competitive strengths in the
best way possible regardless of their continuous inability to achieve profits has been the main
engine behind the international success of shipbuilding in CEE. The numerous weaknesses
outlined earlier, which have contributed to the predominantly poor financial performance of
the shipyards, have in that manner been neutralized. Thus, the success has been premised on
an idea inconceivable to transnational or any other corporations for that matter, that there is
something more worthy than profit, in this case the state’s belief that it was ensuring social
cohesion and long-term economic development
Having all this in mind, it will be interesting to monitor the progression of the
restructuring programs currently being drafted as part of the governments’ attempts to
adequately respond to EU pressures. Most importantly, the structure of the eventual private
ownership will ultimately shed more light on the puzzle of currently absent transnational
capital. It will demonstrate whether it has been only a result of prolonged state-ownership
necessitated by inefficiencies inherited from the communist system and the need to rescue the
industry, or otherwise a consequence of particular intrinsic characteristics of the shipbuilding
industry in general and CEE shipbuilding in particular. Inflows of complex FDI would foster
the first claim, supporting the established hypothesis, while continuing state involvement in
the form of support for domestic capital would go in favor of the latter, with transnational
CE
UeT
DC
olle
ctio
n
55
capital facing considerable barriers to entry. The role played by the Croatian government in
ensuring domestic ownership of the Viktor Lenac Shipyard, and the fact that none of the
privatization attempts in Poland involved foreign investors (even the Remontowa Group was
privatized by way of management buy-out) have important implications. Taking into
consideration these two examples, one could make a careful argument that certain bias
towards domestic capital might be expected.
CE
UeT
DC
olle
ctio
n
56
Bibliography
Antesic, Orjana. “Da bi zaradila osam, država škverovima mora dati 10 milijardi kuna [Inorder to earn eight, the state has to give the shipyards ten billion kunas]” Glas Istre, October30, 2006.
Balcerowicz, Leszek. “Understanding Post-Communist Transitions”. In Socialism,Capitalism, Transformation, edited by Leszek Balcerowicz. London, New York, Budapest:Central European University Press, 1995.
Bateman et al., “Industrial Restructuring and the Promotion of Small Enterprise Clusters: theCase of the Shipbuilding and Repair Industry in the Republic of Croatia”. Journal of AppliedManagement Studies, Vol. 7, No. 1, 1998.
Benoit, Bertrand and Cienski, Jan. “Poland at sea as German shipyards sail into profit”.Financial Times Deutschland, October 17, 2006.
Bitzer, Jurgen and von Hirschhausen, Christian. “The Shipbuilding Industry in East and West:Industry Dynamics, Science and Technology Policies and Emerging Patterns of Co-operation”. German Institute for Economic Research, Discussion Paper No. 15, Berlin,September 1997.http://www.diw.de/deutsch/produkte/publikationen/diskussionspapiere/docs/papers/dp151.pdf, (accessed May 4, 2007).
Blais, Andre. “The Political Economy of Public Subsidies”. Comparative Political Studies,Vol. 9, No. 2, 1986.
Bohle, Dorothee and Greskovits, Bela. “Neoliberalism, Embedded Neoliberalism, andNeocorporatism: Paths Towards Transnational Capitalism in Central-Eastern Europe”. WestEuropean Politics, May 2007.
Caktas, Igor. “Afera Skver: Kako se sklapaju ugovori o izgradnji brodova u hrvatskimbrodogradilistima [The Dock Affair: How contracts for shipbuilding are negotiated in theCroatian shipyards]”. Slobodna Dalmacija, September 30, 2006.
Cienski, Jan and Parker, George. “Brussels gets tough on Polish shipyards”. The FinancialTimes, August 28, 2006.
Community of European Shipyards’ Associations (CESA), Annual Report 2005/06,
Corak, Tanja. “Navozi ostaju isti, ali radit e se druk ije? [Shipyards stay the same, but thenature work is going to change?]”. Poslovni dnevnik, October 2, 2006.
Croatian Chamber of Economy, Economic Profile,http://www2.hgk.hr/en/pdf/Partner_06_en.pdf (accessed April 25, 2007).
Croatian Chamber of Economy, Industry and Technology Department – Shipbuilding,http://www2.hgk.hr/en/depts/industry/Brodogradnja_2006.pdf (accessed January 4, 2007).
CE
UeT
DC
olle
ctio
n
57
Croatian Competition Agency, Annual Report on State Aid for 2005,http://www.aztn.hr/eng/pdf/izvjesca/ANNUAL_REPORT_SA_2005.pdf (accessed January 6,2007).
Croatian Radiotelevision (HRT), Shipyards Against “Uljanik”, Evening News, November 6,2006, http://vijesti.hrt.hr/ShowArticles.aspx?ArticleId=17256 (accessed May 16, 2007).
Croatian Radiotelevision (HRT), Some 100 Workers Denied Entrance to Shipyard, MorningNews, July 6, 2003, http://vijesti.hrt.hr/arhiv/2003/07/07/ENG.html (accessed May 16, 2007).
Croatian Shipbuilding Corporation, Introduction, http://www.hb.hr/introduction.htm(accessed January 6, 2007).
Czepczynski, Mariusz. “Old Industrial Regions (I) – Gdansk, Poland”. Regions Magazine,Vol. 259, No. 1, 2005.
Damijan, Joze et al. “Technology Transfer through FDI in Top-10 Transition Countries: Howimportant are Direct Effects, Horizontal and Vertical Spillovers?”. William Davidson Institute,Working Paper 549, 2003,http://www.bus.umich.edu/KresgeLibrary/Collections/Workingpapers/wdi/wp549.pdf,(accessed May 5, 2007).
Dicken, Peter. “Transnational Corporations: The Primary Movers and Shapers of the GlobalEconomy”. In Global Shift. Reshaping the Global Economic Map in the 21st Century, editedby Peter Dicken. London, Thousand Oaks, New Delhi: Sage Publications, 2003.
Druzic, Gordan. Hrvatska obratnica: stanje i perspektive hrvatskoga gospodarstva [CroatianTropic: Condition and Perspectives of the Croatian Economy]. Zagreb: Golden Marketing –Tehnicka knjiga, 2004.
EIROnline, Problems Facing the Trade Union Movement Analyzed, September 8, 2003,http://www.eurofound.europa.eu/eiro/2003/08/feature/pl0308106f.html (accessed May 25,2007).
Europa, State aid to shipbuilding (II), http://europa.eu/scadplus/leg/en/lvb/l26105.htm(accessed January 10, 2007).
Europe of the Sea, Final Report - Strategic Evaluation of Maritime Activities, September2006, http://www.europeofthesea.org/pdf/rapport_final_vol1_09_2006.pdf (accessed May 22,2007).
European Business News Online, Croatian shipbuilders hope EU reform won’t rock boat,http://www.eubusiness.com/archive/East_Europe/051113031023.nmzjndc3, (accessedJanuary 6, 2007).
European Commission, LeaderSHIP 2015 Progress Report, Commission Working Document,April 25, 2007,http://ec.europa.eu/enterprise/maritime/maritime_industrial/leadership_07/report_en.pdf(accessed May 9, 2007).
CE
UeT
DC
olle
ctio
n
58
European Commission, Maritime Industrial Policies,http://ec.europa.eu/enterprise/maritime/maritime_industrial/maritime_industrial_policies.htm(accessed May 12, 2007).
European Commission, Sectoral Issues – Shipbuilding Sector,http://ec.europa.eu/trade/issues/sectoral/industry/shipbuilding/index_en.htm (accessedJanuary 3, 2007).
European Industrial Relations Observatory on-line (EIROnline), Bankruptcy of the SzczecinShipyard, July 2002, http://www.eurofound.europa.eu/eiro/2002/07/inbrief/pl0207101n.html(accessed May 24, 2007).
Fairplay Newbuildings, Lloyd’s Register, March 2006,
First Marine International Limited, Overview of the international commercial shipbuildingindustry, background report prepared for the European Community, May 2003.
Fleischer, Mitchell et al. “Shipbuilding Supply Chain Integration Project”. EnvironmentalResearch Institute of Michigan,http://www.altarum.org/publications/pdfs/esd_shipbuilding.pdf (accessed January 7, 2007).
Forum Okretowe – Association of Polish Maritime Industries, Polish Shipbuilding and ShipRepair in 2005.
Garfield, Geoff. “Viktor Lenac Sells Dock”. Trade Winds, April 30, 2004,http://www.demospetropoulos.com/Arthra_Omilies/20041813.pdf (accessed May 21, 2007).
Gereffi, Gary. “Global Production Systems and Third World Development”. In GlobalChange, Regional Response, edited by Barbara Stallings. Cambridge M.A.: CambridgeUniversity Press, 1995.
Greskovits. Bela. Quoted in Bernaciak, Magdalena. “Labor transnationalism: cross-bordercooperation between Polish and German trade unions” MA Thesis, Central EuropeanUniversity, 2005.
Harrison, Glenn and Sohinger, Jasminka. “The Implications of Foreign Direct Investment forDevelopment in Transition Countries”. Eastern European Economics, Vol. 42, No. 1, 2004.
Herceg, Damir. “Brodogradilista za dvije godine bez gubitaka [Shipyards without losses intwo years]”. Vjesnik, June 28, 2006.
Holt, Ed and O’Mahony, Hugh. “Russians move in for Croatia’s bankrupt Viktor Lenac yard”.Gateway to Russia, June 14, 2006,http://www.gateway2russia.com/art.php?artid=242462&rubid=303&parent=Expenditure&grandparent=Economic+News (accessed May 22, 2007).
Hopkins, Terence K. and Wallerstein, Immanuel. “Commodity Chains: Construct andResearch”. In Commodity Chains and Global Capitalism, edited by Gary Gereffi and MiguelKorzeniewicz. Wesport, Connecticut, London: Praeger Publishers, 1994.
CE
UeT
DC
olle
ctio
n
59
Horvat, Nevenka. “Jedini je od navoza konkurentan Uljanik [The only competitive shipyardis Uljanik]”. Jutarnji List, May 24, 2006.
Hunya, Gabor and Skudar, Alen. “The Role of Foreign Direct Investment in the CroatianEconomy”. Study prepared for the Investment Compact project: Investment and TradeLiberalization, Strengthening Development and Implementation of Investment and TradePolicy in the Western Balkans, Vienna, September 2006,http://www.investcroatia.org/docs/apiuEN/documents/109/1.0/Original.pdf, (accessed May 9,2007).
Information portal of the Ministry of Foreign Affairs of the Republic of Poland, ForeignInvestment, http://www.poland.gov.pl/?document=468 (accessed May 6, 2007).
International Financial Corporation, Viktor Lenac d.d; Summary of Project Information,September 30, 1999,http://www.ifc.org/ifcext/eca.nsf/Content/SelectedProjectCroatia?OpenDocument&UNID=A4AF2D042F10C89E8525688E0074F318 (accessed May 21, 2007).
International Organization for Migration (IOM). Cross-border Labor Migration FlowsCroatia-Italy: Focus on Shipbuilding, http://www.iom.hr/pdf/labor/IOM_Shipbuilding.pdf,(accessed January 6, 2007).
Jurcic, Jadranka. “Hrvatski dobavljaci u nemilosti brodovlasnika [Croatian suppliersdisregarded by the ship-owners]”. Lider, December 30, 2005.
Keat, Preston. “Fallen heroes: explaining the failure of the Gdansk shipyard, and thesuccessful early reform strategies in Szczecin and Gdynia”. Communist and Post-CommunistStudies, Vol. 36, 2003.
Kersan-Skabic, Ines. “Comparative Advantages of Croatian Export and the Role ofShipbuilding in Croatian Economy” Ekonomska Istrazivanja, Vol. 14, No. 2, 2001.
Kirin, Ana. “Potpisan ugovor o prodaji Viktora Lenca [The contract confirming the sale ofViktor Lenac has been signed]”. Nacional, March 6, 2007.
Kosc, Wojciech. “Gdansk: Birthplace of Today”. Transitions Online, September 6, 2005.
Landowski, Grzegorz. “The European Shipbuilding Industry: Bright present, anticipatinguncertain future – Actual situation of Polish Shipyards”. Presentation prepared for theEuropean Economic and Social Committee (EESC),http://www.eesc.europa.eu/sections/ccmi/docs/documents/TURKUPRESENTATIONS/11-Situation-in-Poland-LANDOWSKI.pdf (accessed May 17, 2007).
LeaderSHIP 2015, Defining the Future of the European Shipbuilding and Shiprepair Industry,http://ec.europa.eu/enterprise/maritime/shipbuilding_market/doc/leadership2015_en.pdf(accessed May 9, 2007).
Linden, Greg. “Building Production Networks in Central Europe: The Case of the ElectronicsIndustry”. Prepared for the Kreisky Forum and BRIE Policy Conference on Foreign DirectInvestment and Trade in Eastern Europe: The Creation of a Unified European Economy,
CE
UeT
DC
olle
ctio
n
60
Vienna, June 5-6, 1997. http://brie.berkeley.edu/publications/WP126.pdf, (accessed May 15,2007).
Loungani, Prakash and Razin, Assaf. “How Beneficial is Foreign Direct Investment forDeveloping Countries?”. Finance and Development ,International Monetary Fund, Vol. 38,No. 2, 2001.
Maksymiuk, Andrzej. “The Attractiveness of the Automotive Industry in Poland for ForeignDirect Investments”. MBA Poznan-Atlanta, Working Papers in Management, Finance andEconomics, No. 2, July 2006, http://www.ae.poznan.pl/aemba/files/WP_2.pdf, (accessedMay 15, 2007).
Manea, Julia and Pearce, Robert. “Industrial Restructuring in Economies in Transition andTNCs’ Investment Motivations”. Transnational Corporations, Vol. 13, No. 2, 2004.
Maric, Jagoda. “Spasavajuci posrnule svaki gradjanin platio 22.000 kuna [Saving thestrugglers, each citizen has paid 22,000 kunas]”. Novi list, March 12, 2006.
MarineTalk, Polish Shipyards are Struggling to Survive, January 18, 2006,http://www.marinetalk.com/articles-marine-companies/art/Polish-Shipyards-are-Struggling-to-Survive-xxx000121002OT.html (accessed May 18, 2007).
Mencinger, Joze. “Does Direct Investment Always Enhance Economic Growth?” KYKLOS:International Review for Social Sciences, Vol. 56, No. 1, 2000.
Ministry of Economy, Republic of Poland, Selected data on Poland’s exports and imports in9 months of 2005, http://www.mgip.gov.pl/NR/rdonlyres/20CA3FA0-8027-45D0-AB9A-1EE7F410AC63/16338/p_hz_9_2005_ang.xls, (accessed May 11, 2007).
NOBE Independent Center for Economic Studies, The Shipbuilding and Ship Repair Sectorsin the candidate countries: Poland, Estonia, the Czech republic, Hungary and Slovenia,report prepared for the ENTERPRISE DG Unit A3 of the European Commission,http://ec.europa.eu/enterprise/maritime/maritime_industrial/doc/cand_country_study.pdf(accessed May 15, 2007).
Nunnenkamp, Peter. “The German Automobile Industry and Central Europe’s Integrationinto the International Division of Labor: Foreign Production, Intra-Industry Trade, and LaborMarket Repercussions”. Kiel Institute for World Economics, No. 9, 2004,http://www.ucm.es/BUCM/revistas/cee/15766500/articulos/PAPE0404220004A.PDF,(accessed May 15, 2007).
Pavlinek, Petr. “Transformation of the Czech Automotive Components Industry throughForeign Direct Investment”. Eurasian Geography and Economics, Vol. 44, No. 3, 2003.
Polish Foreign Investment Agency, Special Economic Zones,http://www.paiz.gov.pl/index/?lang_id=1, (accessed May 6, 2007).
Rade, Ivanka. “Sindikalci Viktor Lenca najavili sprijecavanje prodaje imovine [Viktor Lenacunionists announce actions to prevent the sale of assets]”. Nacional, March 7, 2005.
CE
UeT
DC
olle
ctio
n
61
Radosevic, Slavo and Rozeik, Andrew. “Foreign Direct Investment and Restructuring in theAutomotive Industry in Central and East Europe”. Working Paper No. 53, SSEES, UniversityCollege London, March 2005,http://www.ssees.ucl.ac.uk/publications/working_papers/wp53.pdf, (accessed May 15, 2007).
Radosevic, Slavo. “The Electronics Industry in Central and Eastern Europe: A New GlobalProduction Location,” SSEES, University College London,http://www.ucm.es/BUCM/revistas/cee/15766500/articulos/PAPE0505120009A.PDF,(accessed May 15, 2007).
Ratajczyk, Andrzej. “In Need of Aid”. Warsaw Voice Online, June 21, 2002,http://www.warsawvoice.pl/archiwum.phtml/5378/ (accessed May 17, 2007).
Repa, Jan. “Gdansk Appeal for Ukraine Workers”. BBC News, January 13, 2006,http://news.bbc.co.uk/2/hi/europe/4605534.stm (accessed May 22, 2007).
Rosso, Josip. “Gradimo jahte, financijera ni za lijek [We are building yachts, but investors arehard to find]” Privredni vjesnik, September 25, 2006.
Shafer, Michael D. “Capturing the Mineral Multinationals: Advantage or Disadvantage?”. InMultinational Corporations – the Political Economy of Foreign Direct Investment, edited byTheodore H. Moran. Lexington: Lexington Books, 1985.
Shipyard Kraljevica. Scholarships, 2006/07, http://www.kraljevica.hb.hr/scolarships.htm(accessed May 14, 2007).
Solidarnosc [Solidarity], Immediate Decisions Demanded, June 29, 2006,http://www.solidarnosc.org.pl/english/newsletter/news/2006/jun/jun_29.htm (accessed May25, 2007).
Tomic, Ante. “Brodograditelji, nisam bio u pravu [Shipbuilders, I was mistaken]”. Jutarnjilist, October 17, 2006.
Urosevic, Agneza. “Golja: Bez klastera proizvo i malih plovila ne e preživjeti [Golja:Without clusters, small shipbuilding will not survive]”. Poslovni dnevnik, October 24, 2006.
Zahariadis, Nikolaos. “The Political Economy of State Subsidies in Europe”. Policy StudiesJournal, June, 2002.
Zorska, Anna. “Foreign Direct Investment and Transformation: Evolution and Impacts in thePolish Economy”. Eastern European Economics, Vol. 43, No. 4, 2005.
Related Documents
