Slovakia's Neoliberal Turn

Abstract

Slovakia distinguished itself in the first half of this decade by launching a coherent set of economic reforms that limited government and transferred social and economic risk to individuals. We examine reforms in fiscal policy, pensions, the labour code, health care, investment, education and justice. While the surprise formation of a centre – right governing coalition in 2002 enabled Slovakia's ‘neoliberal’ turn, a close network of neoliberal policy makers and advisors from civil society organisations used the opportunity to push forward a compelling explanation of Slovak economic problems and promote a clear institutional design for fixing them.

Acknowledgments

Financial assistance accorded to Tim Haughton to carry out research on Slovakia as a new EU member state under the Fellowship scheme of the University Association of Contemporary European Studies (UACES) is gratefully acknowledged. Thanks are also due to Hilary Appel, Julian Cooper, Simona Gould, Phil Hanson, Conor O'Dwyer, Darina Malová, Nicola Smith, Kieran Williams and this journal's anonymous reviewers for their constructive comments.

Notes

This article grew out of a paper delivered at a workshop at Birmingham University in May 2005 as part of a series of seminars funded by the Leverhulme Trust (F/00 094/AK)

¹By ‘regulatory state’ we refer to the state type advocated by Milton Friedman (1962, pp. 1 – 22) as a state that maximises economic freedom providing only those public goods necessary to its function, e.g. defence, protection of property rights, enforcement of contracts, control of money and dealing with significant externalities (neighbourhood effects).

²See also Fischer and Gelb (1991).

³Ultimately, the major precursor of economic success was a complete political transition which enabled an open society to prevent political insiders from hijacking reforms at their expense (Hellman 1998; Fish 1998; Vachudova 2005).

⁴Indeed, liberals broadly acknowledge that they mistakenly overestimated markets' ability to regulate themselves (IMF Staff 2000, p. 93; World Bank 2002; Schwartz 2006).

⁵The criteria laid down in the Treaty on European Union requires a state to have a budget deficit no more than 3% of GDP, public debt of no more than 60% of GDP, membership in the Exchange Rate Mechanism for two years prior to euro adoption, a level of inflation no greater than 1.5 percentage points above the average of the three best performers in the EU and long-term interest rates no more than 2 points above the average of the lowest three (European Union 1997, p. 93).

⁶SDL’ was split on the magnitude of economic reforms needed. Some representatives such as Finance Minister Brigita Schmögnerová, were in favour of more radical reform (see Haughton 2004).

⁷In purchasing power parity terms, Slovakia's per capita GDP reached only 51% of the EU-25 average in 2002 (Eurostat 2005).

⁸Martin Bruncko, interview with Tim Haughton, Bratislava, 26 April 2007.

⁹Slovakia's approach toward taxation corresponded with previous examples of neoliberal reform packages, as they often involve at least initially a rebalancing between direct and indirect taxation in favour of the latter. Margaret Thatcher, for example, raised VAT rates substantially in her first term. However, social democrats often deride raising VAT rates because of the negative impact such hikes have on poor and middle-income citizens. Regardless, higher taxes of any variety go against the grain of neoliberalism. Even fans of the Slovak government's policies such as Steve Forbes criticised the 2002 – 06 government for raising VAT (TASR 2003).

¹⁰Ministry of Finance, ‘Správa o napĺňaní Stratégie konkurencieschopnosti Slovenska do roku 2010, jej akčných plánov a Národného programu reforiem SR—nové znenie’, paper prepared for cabinet meeting, 8 March 2006, available at: http://www.rokovania.sk/appl/material.nsf/0/CC597604E08AC189C125712B003121F3?OpenDocument, accessed 15 September 2006.

¹¹World Bank, ‘Doing Business—Economy Rankings: Europe & Central Asia, Private Sector Resources’, World Bank, Washington, DC, 2006, available at: http://www.doingbusiness.org/EconomyRankings/?regionid=425, accessed 25 October 2006.

¹²World Bank, ‘Doing Business—Economy Rankings, World Bank, Washington, DC, 2006, available at: http://www.doingbusiness.org/EconomyRankings/?regionid=425, accessed 25 October 2006.

¹³Indeed, even some supporters of a neoliberal direction in other areas of reform split on this question. For example, Martin Bruncko, a close Mikloš aide who was an architect of the Minerva Programme (see below), was opposed to charging fees for university education.

¹⁴TA3 (Slovak TV), 21 January 2005.

¹⁵For example Ministry of Finance, ‘Správa o napĺňaní Stratégie konkurencieschopnosti Slovenska do roku 2010, jej akčných plánov a Národného programu reforiem SR—nové znenie’, paper prepared for cabinet meeting, 8 March 2006, available at: http://www.rokovania.sk/appl/material.nsf/0/CC597604E08AC189C125712B003121F3?OpenDocument, accessed 15 September 2006.

¹⁶For a good overview and critique of institutional literature, see Blyth (1997).

¹⁷In the waning months of the 1994 – 98 Mečiar administration, Mikloš briefly took a position on the Board of the National Property Fund.

¹⁸Ivan Mikloš, interview with Tim Haughton, Bratislava, 13 December 2006; Martin Bruncko, interview with Tim Haughton, Bratislava, 26 April 2007.

¹⁹Martin Bruncko, interview with Tim Haughton, Bratislava, 26 April 2007.

²⁰Ivan Mikloš, interview with Tim Haughton, Bratislava, 13 December 2006; Martin Bruncko, interview with Tim Haughton, Bratislava, 26 April 2007.

²¹Although Kaník was an SDKÚ appointee, he remained head of the DS until the party merged with the SDKÚ in January 2006. Kanik was given the ministerial post because the DS pulled out of the race during the 2002 election campaign, urging its supporters to back SDKÚ.

²²Peter Pažitný, interview with Tim Haughton, Bratislava, 23 April 2007.

²³Martin Bruncko, interview with Tim Haughton, Bratislava, 26 April 2007.

²⁴K. Henderson, ‘Europe and the Slovak Parliamentary Election of June 2006’, EPERN Election Briefing no. 26, 2006, available at: http://www.sussex.ac.uk/sei/documents/epern.pdf, accessed 25 October 2006.