Commentary

Winds of Change in the Heart of Europe: Slovakia

Karen Henderson, the British academic specializing in Slovak affairs, entitled her book on Slovakia “The Escape from Invisibility.” The title refers to the attempts that the past Slovak governments took to achieve greater international recognition for a country younger than a decade. Unfortunately, many of these attempts have been to Slovakia’s detriment. But in recent years things, put simply, are looking up for Slovakia.

The “velvet divorce” — as the breakup of the former Czechoslovakia came to be known — was followed by a period of strongman politics, economic malaise and, finally, international ostracism. Prime Minister Vladimir Meciar, who governed Slovakia from its birth in 1993 until he was voted out of power in 1998, is generally seen as the man responsible for producing those dour effects.

The government of Mikulas Dzurinda, which replaced Meciar’s, can be credited with improving the country’s image to the point where Slovakia is now a favored candidate for accession to the European Union. What the government cannot be congratulated on is the state of the Slovak economy. That may have been out of its control. The government was comprised of anti-Meciar forces from across the political spectrum, including liberals, Christian Democrats, and former communists, making consensus difficult.

Fortunately for Slovakia, the general elections of September 2002 saw the emergence of an ideologically coherent majority in Parliament and the swearing in of a cabinet, led once again by Mikulas Dzurinda, which appears set on a program of far-reaching reform.

At the top of the government’s agenda is privatization of the pension system. The government has recognized that the current system is unable to continue. Even if some incremental changes were undertaken immediately, such as raising the retirement age and increasing the level of pension contributions, government pension liabilities would still amount to 150 percent of the GDP.

Yet settling for such temporary measures would be damaging to the economy. As things stand, the 28 percent payroll tax for pensions is one of the highest in Europe. The privatization plan, on the other hand, envisages lowering that tax to 20 percent, with 10 percent going to private savings accounts. The government intends to use the other 10 percent to cover its current social security obligations. Newcomers to the labor force will be required to join the private pension scheme, while current workers will be given a choice of either staying in the public system or going private. In this way, the plan would progressively eliminate the public pension contributions until the entire system is completely private.

The second proposal for reform concerns provision of healthcare. According to the Slovak health minister, the public will be asked to pay for the use of various medical facilities, including issuance of prescriptions, usage of ambulances and overnight stay in the hospitals. Although these reforms may not seem very radical, they may succeed in limiting frivolous use or misuse of the healthcare system. The reform should also go some way towards alleviating two lasting legacies of communist healthcare: corruption and an appalling lack of concern for the welfare of patients. As direct payers, the patients will now have a right to demand better service.

Lastly, the government is considering introduction of vouchers in high school education and tuition fees for the college level. The government hopes that the first measure will improve the quality of high schools, while the second measure will rationalize access to universities in a country with tens of thousands of unemployed university graduates.

In the past, reform of the Slovak public sector was half-hearted. Not surprisingly, the Slovak economy performed worse than economies of other Central European countries. But Slovaks may now have a singular opportunity to emerge as leaders in social and economic reform. The pension reform, for example, will be the most comprehensive in Europe. Its full privatization will eliminate one avenue that the state historically used to indebt future generations of its people. It will free the population from political demagoguery typical of all public pension systems and transform ordinary citizens into capital owners with a stake in the economy.

The capital that Slovaks will now invest will rejuvenate the economy and provide security for the retired. That will be the best way for Slovakia to escape invisibility.

Marian L. Tupy is assistant director of the Project on Global Economic Liberty at the Cato Institute.