“The parallel economic system was not just about the export of capital, stealing of social property, theft of labour and so on; it was also a system that allowed the party to stay in power. And whenever the system started having trouble, this parallel mechanism turned on, and capital poured in. And when the system collapsed, this parallel mechanism was key for the party’s survival in the form of networks – the intersecting masses between the economy and politics – and the party was able to constitute itself in transition and then formed into transition winners. That is also why this parallel system was disguised, invisible, because it was therefore impossible to fight against it. Whatever someone did in 1991, he did not do it in the same position as the guys from the parallel mechanism, which took them where they wanted – to the very top of the management of the whole system,” economist Rado Pezdir described the operation and purpose of the parallel economic system of the State Security Administration and Communist Party structures of the former Yugoslavia, which survived a period of political disintegration of Yugoslavia in the 1990s and became the basis of the transitional deep state in independent Slovenia.
On this week’s episode of the show Beremo (Reading), the host Metod Berlec invited a renowned economist, columnist and lecturer Rado Pezdir to the studio. The latter talked about his new book on the show, called The Parallel Mechanism of the Deep State (Paralelni mehanizem globoke države in Slovenian). Berlec: “In his book, Pezdir presented the saga of the creation and transformation of a parallel system of the Communist Party and State Security Administration of Yugoslavia, from the post-war establishment of the Safti company, through the parallel banking scheme in Ljubljanska banka (Ljubljana Bank), the transfer of capital abroad and its return to Slovenia, all the way to the second rehabilitation of the Slovenian banking system and the “Iranian billions” affair.” The book is over 600 pages long.
At the beginning of their conversation, Brelc wanted to know why Pezdir decided to write such an extensive book and why he chose to write about such a demanding topic. Pezdir: “The book The Parallel Mechanism of the Deep State was created on the basis of several episodes that I have experienced both in research and in my personal life.” After reading a book on the transition, he quickly found out what it was all about. You can look at macroeconomic data, there is a lot of economic analysis, but none of the economists could explain the idea of why the situation in Slovenia is what it is, and especially the question of how the networks are formed, which were a kind of stone in the wheels of our development.
He then set about reviewing all of these famous networks: what they are, who they are made up of, how they are constituted, and how they operate. “And as I studied this in terms of ownership structures and business connections, I went further and further into the depths of Slovenia’s transition, when property rights for privatisation began to be established and when these networks within the Slovenian economy began to form.” At the same time, he found an interesting peculiarity – the fact that in each of these ownership configurations, there is a foreign company or a company that is located in a tax haven, for example, in Cyprus, Luxembourg, Liechtenstein, and so on. He then asked himself when did our businessmen, probably in connection with politics, start to export capital abroad. In doing so, he took on the pioneering work of research.
A surprisingly high number of documents have been preserved regarding the State Security Administration-Communist Party parallel economy
Some official databases regarding ownership structures of what existed before 1990 did not exist. And he was told that the activity in question started as early as the eighties. And then it occurred to him to start investigating the matter in the archives of the State Security Administration of Yugoslavia. He contacted the current mayor of the Slovenian municipality of Radenci – Roman Leljak. The first thing he came across was the fact that in 1951, Niko Kavčič founded a company in Liechtenstein in the 1950s. It was the first document of its kind and also part of a gigantic puzzle. He later found that these were not random episodes but a system that was designed in a way in which it could also move on into transition. And the more he dug into the documentation, the more his theses were confirmed, and the more he saw that the transition could be understood in the configuration of these networks.
Berlec was then interested in how much material on the disputed State Security Administration-Communist Party business conduct had been preserved at all. He was also interested in whether there was a lot of material on the former State Security Administration banker Kavčič still available. “A surprising amount of material has been preserved on the functioning of the State Security Administration – of course, written in a way the party wanted, and on the mechanisms of the parallel economy. There is also lots of material on the building of a parallel economy and parallel banking.” The eighties are relatively well covered. “In fact, it is not entirely clear to me why they did not destroy all of this, because they left the crown evidence for what actually turned out to be the planned withdrawal of capital before the collapse of a system and its return to transition, in connection with banking of the then-largest Slovenian bank NLB.” Kavčič wanted to save the second bunch of material and his work in digital form and asked people to type it all up.
Kučan directly influenced who would get the position of director of the NLB bank Management Board
And when people hear that Pezdir was researching this topic, they started reporting to him and delivered huge amounts of folders from Kavčič’s archive in digitalised form. And these documents were fantastic, as they included the “Operation Mercury,” which talks about how the former President of the Republic of Slovenia Milan Kučan directly influenced who will get the position of director of the NLB bank, which is a move that was also carried out by Kavčič. And this is the first case in which Kučan is documented as part of the parallel system, because the president of the country has no authority in appointing the director of the NLB Management Board. The document describes the entire mechanism of operation of this system in detail. It turns out that Kavčič was only an operative. And while researching this topic, Pezdir also got a broader documented picture so that he could make an overview – a summary and analysis of everything that had actually been done.
He summed up the phrase “parallel economy” after Kavčič, because it actually best describes what they were doing. He also mentioned that there was a special service for closing down and shooting entrepreneurs who thought in a capitalistic manner. On the other hand, these same people who ordered the executions had evening sessions to discuss how to act like capitalists and store their wealth in tax havens. The State Security Administration, on the one hand, persecuted capitalists, and on the other, it was actively involved in capitalism. “The minutes of their conferences are the minutes of the capitalist administrations of multinational corporations.” In addition, this is an interesting psychological aspect of the people who had no problem shooting an entrepreneur and then start thinking about the operation of the business on the same mental scheme two minutes after that. After all, Kavčič simply pulled the former Mayor of Bohinj, entrepreneur and banker Pav, out of a concentration camp, out of prison, and used him as a slave, first for writing a textbook on economics, and then to establish the company initially called Vrtnarija, which later became Droga Portorož, as a functioning company. But Kavčič used him as a slave.
The parallel economic system helped keep the regime alive
“The parallel economic system was not just about the export of capital, stealing of social property, theft of labour and so on; it was also a system that allowed the party to stay in power. And whenever the system started having trouble, this parallel mechanism turned on, and capital poured in. And when the system collapsed, this parallel mechanism was key for the party’s survival in the form of networks – the intersecting masses between the economy and politics – and the party was able to constitute itself in transition and then formed into transition winners. That is also why this parallel system was disguised, invisible, why it was such a monster – because it was therefore impossible to fight against it. Whatever someone did in 1991, he did not do it in the same position as the guys from the parallel mechanism, who were taken where they wanted by this “monster” – to the very top of the management of the whole system.”
In his book, Pezdir also touched on the prehistory of the Safti company. He was also interested in the role of the long-time first man of the Department for People’s Protection of Yugoslavia (which was the security agency of Communist Yugoslavia), Ivan Maček Matija. According to Pezdir, the latter has always been interesting in economic terms. And Pezdir’s big challenge was to find out what role Maček Matija actually played in the financial field. The point is that in 1948, the State Security Administration took over the operation of Trieste companies, which had previously been managed by the party, as the Trieste Slovenians constantly “tried to fool the party.” That is why the party tasked the State Security Administration in this area with having strict control over the situation. This worked up until about the year 1952, when the London Agreement came into force, complicating certain matters, including smuggling. The Trieste Credit Bank became part of this parallel system, and ownership was transferred directly to the Communist Party.
The State Security Administration-Communist Party business operations took place between Ljubljana, Trieste, Switzerland, and Liechtenstein
Pezdir also mentioned how the parallel system was supplied through one of the companies in the 1990s and that the party members had many of their accounts in Switzerland. Party money is still safely stored in accounts abroad. The Germans had a similar problem with the State Security Service – the Stasi, which exported money to Austria, Switzerland, and so on, but the money was then brought back to Germany about a decade ago, which proves that the matter can be resolved and settled. It is also known that the top of the party decided on all matters, and the State Security Administration only played an operational role. And there are documents proving that the top of the party agreed to the smuggling in writing or that there was at least an oral agreement. What we need to keep in mind, however, is that the Italian pressures on Slovenian entrepreneurship at that time were enormous.
And the party realised that this could not continue, so they transferred all ownership to Liechtenstein. “This gave them anonymity, favourable taxes and special partners in the company. And that was the only way for the party to have actual control over a company through the State Security Administration.” This configuration then ran in a circle: Trieste-Switzerland (the banking system)-Liechtenstein (the hidden owners) and finally back to Slovenia, where they were officially hidden in the company, and where the economic department of the State Security Administration was located, which operated following the instructions of the party. “And this was all able to run fine and very difficult to compromise.” Pezdir also mentioned the cause of the infamous company Adit.
Danilo Türk, who later became President of the Republic of Slovenia, played an important role in the Adit company, as he also defended the practice of smuggling. The main point of all of this is that the parallel economy lasted until the time of the rehabilitation of Slovenian banking. And with all of this, we can understand why the transition in Slovenia, despite the formal break-up with the old system, failed. During the transition, money could be brought back to Slovenia through several channels – to the media, to banking, to healthcare. Pezdir also revealed in detail the activities of Janez Zemljarič and Dragan Isajlović. “A parallel mechanism exists. It is absolutely fascinating that it is so stable, strong, long-lasting, enduring, and that it has generated such great stories as the stories of the Slovenian transition and the networks, and that it has now finally been exposed.”
Domen Mezeg
