Transition in Crisis - The Impact of Interaction between Informal Institutions and Political and Economic Elite on Transition- The Case of Dalmatia and Croatia

Abstract: Croatia is among countries that are still in process of institutional restructuring. Recent global economic crisis in Croatia is still very much present. Many country reports on Croatia are witnessing of the slow reform process in the country. Major reforms have been omitted. Research, in the area of transition is recognizing importance of informal institutions (behavioral norms) over transition process whose importance, according to researchers (Acemoglu, Helmke, Rodrik, etc), has been ignored. North (1993) states that informal institutions are rooted in culture and as such imbued to slow change. In line with that, the thesis work is to analyse features of Croatian transition in regard to informal institutions and thereafter investigate the impact of interaction between informal institutions and political power over reform process. Case- study is divided into two parts: institutional and structural analysis of Croatian transition based on country and cross-country analyses; and historic economic development of the Dalmatia region. The result have shown existence of two informal modes of behaviour, distinguished as town respective hinterland culture, enforced primarily by the colonial nature of political administration, frequency of change in political powers and impact of dominant religious organisation. It is evident that informal institutions in the Croatian transition process have a dominant role. These conflicting modes of behavior are infiltrated into the mindset of the power structures in the society (one inclined to divergent-, and the other inclined to convergent outcome in relation to post-industrial types of formal institutions). The challenge for Croatia is how to reach political equilibrium that is supportive of faster reforms towards institutions present in the developed countries. It is to assume that de jure power of the hinterland culture is declining while de facto could be traced in the cases of corruption, which makes difficult to identify the current power position of the de facto power on national level. On the regional level, de facto power has infiltrated de jure power. The sensitiveness of the current political instability is due to the unstable political consensus on national level (conflict between two cultures within de jure power). Instability´s persistency have slowed reforms down and underrated credibility of the formal institutions. The additional reinforcement mechanism, such as Haag Tribunal’s proclamation of the homeland war as being a product of the criminal organisation has created a new space for competing modes of behavior to persist despite de jure affords to combat corruption. Thesis came to conclusion that, addressing reforms from top-down might not create an effect as local political powers are inclined to the competing modes of behavior, enforcing it over majority, majority that lacks trust in the state´s de jure power. Future research is needed to understand how these two levels can be coordinated towards the same political equilibrium that is in favor of convergence type of informal institution.