Abstract
Slovakia has become a success story about a country that has transformed itself from a totalitarian, stagnating country into a modern, prosperous one.
In 2005 Tony Blair, then, Prime Minister, was trying to justify the need for a so-called globalisation fund in the European Parliament. Rover, the car manufacturer, had gone bankrupt and Blair said that the people who lost their jobs needed to be helped. And that is why—in Blair's opinion—we needed to establish a new fund in the EU: the Globalisation Fund.
Reading these words, I felt sadness. A film flashed before my eyes, the Slovak story of the years from the Velvet Revolution in 1989 to our independence.
My childhood and two-thirds of my adult life were lived under a system called socialism. Nevertheless, faith and responsibility dominated the education that was given to me by my family, as well as something called common sense. Later, all this helped me understand and fully accept what Friedrich Hayek described with facts and scientific terms. My upbringing has also helped me to believe in the power of democracy, personality, action and diligence as the basis of hope and prosperity for nations and people at large. The road Slovakia took after the 1989 Velvet Revolution was very difficult but also very meaningful. Until only 15 years ago, we manufactured tanks and weapons for the whole Warsaw Pact: we did not manufacture any passenger cars. Today we no longer manufacture tanks, but we manufacture almost one million passenger cars a year. German, French and Korean cars have replaced Russian weapons. And thousands of Slovak small- and medium-sized enterprises have emerged. So essential changes have taken place in Slovakia. And there was no European globalisation fund. We had to help ourselves even though the unemployment rate in certain regions reached 30%.
This shows how much Slovakia has changed. The road Slovakia took during the period of transformation was neither smooth nor direct. There were times of hesitation as well as times of failure.
The final breakthrough to our present success happened nine years ago, when the citizens entrusted us with the governance of our state. The time of economic stabilisation, price deregulation, bank restructuring and privatisation arrived. The years that followed our re-election in 2002 were a time of profound reforms. The result is the excellent health of Slovakia's economy: high rates of economic growth, unemployment levels that are half of what they used to be and joining the Euro Zone within our reach.
The story of my country is the best proof of the statement that ‘socialists are wrong about the facts’. The result of socialism was severe pain in the transition period, unrealistic expectations by the people and a considerable decline in real wages during the first two years after the start of the reforms.
Slovakia has become a success story about a country that has transformed itself from a totalitarian, stagnating country into a modern, prosperous country. It has happened mainly because we have believed in what Friedrich Hayek wrote in his work The Fatal Conceit: The Errors of Socialism (1988): ‘The dispute between the market order and socialism is no less than a matter of survival. To follow socialist morality would destroy much of present humankind and impoverish much of the rest’.
Hayek's words are still valid, and they hold true not only for Slovakia. Reforms are needed in countries that want to break away from totalitarianism and set out in search of freedom, but they are also needed in heavily indebted countries that fail to finance their pension systems or that have succumbed to the illusion of the so-called welfare state. To some extent, it seems to me that we Europeans tend to succumb to the desire to be comfortable. And we succumb even more willingly to the illusion that we can work less and be better off at the same time, and that even if fewer children are born and the population is ageing, we should retire earlier than ever. We want to succumb to the illusion that controlled immigration is a solution to poor demographic development.
Reforms are needed in the oldest European democracies that have given in to the tendency to be comfortable, that have yielded to the illusion that there is no competition that could jeopardise their position. Today, reforms are needed in the whole EU, in order to succeed in global competition and to be able to respond to new, global challenges—economic, security and environmental challenges. I believe that we need more honesty, fairness and responsibility in European politics. We require more openness and less pretence. We should not use experience with reforms to scare people; we should rather share this experience in order to apply good practices and avoid the mistakes of the past. We need more cooperation, more integration, as well as more internal competition. We need new, effective rules but less bureaucracy. We do understand the call of German Chancellor Angela Merkel that the EU should aim to create common armed forces. However, I am concerned about the pressure from some politicians to harmonise taxes.
The flat-rate tax in Slovakia is not a case of tax dumping. When I became Prime Minister, the corporate income tax rate was 40%; for individuals and for small businesses it was as much as 42%. Today it is 19% for all. The system is simple, transparent and, most importantly, experience has shown that it works. The flat-rate tax in Slovakia has clearly been proven to be a good thing. People and companies pay taxes and do not cheat, nor do they speculate. Instead, they think about how to improve their business or their company. And this is what we need. I do not like hearing complaints about us being unable to maintain the European social model. I like to see activity, I like to see a drive towards the goal. And I like to support primarily the active and courageous. The flat-rate tax was a means to reach the goal. We introduced it beginning on 1 January 2004; thus we do have experience, and that experience has been entirely positive. I have noticed that in most European countries, corporate income tax rates are substantially higher, roughly double that of Slovakia's, but that corporate income tax revenues are lower than 1% of the GDP. Our corporate income tax is 19%, but corporate income tax revenues are higher than 2% of the GDP.
After the introduction of the flat-rate tax, state budget revenues from corporate taxes have not declined; on the contrary, they have increased. Taxes, in combination with the social system, are not only a tool for catching up with the best. They are also the tool for promoting the internal competition that will drive the whole EU forward.
Thus, the response to the Slovakian flat-rate tax should not be administrative measures. The answer should rather be reform efforts in today's leading countries of Europe as well. The answer should rather be reforms with an emphasis on education, reforms that will focus on science, research, innovation and information technology.
When I visited the Volkswagon headquarters in Wolfsburg in the summer of 2004, the leading representatives of the company asked me, ‘What does the Slovak government expect from VW?’ I replied: ‘That you will entrust to us not only the assembly of the Touareg, the manufacture of its components, but—after some time—also the manufacture of the engines’. In the meantime, we succeeded in opening an engine production plant, even if not for German vehicles, but for Korean ones. We still want more science and research. We want more high technology. That is why we support education with all our strength. Education should be our national priority, education in the broadest meaning of the word. I wish very much for Slovaks to be knowledgeable and skilful. But equally strongly, I wish Slovaks to be polite and friendly, to have good hearts, and also to have courage: courage to ask honest questions and strength to find honest answers.
I believe that investments in education are the most effective ones. Such investments will help us to succeed in a globalising world and also to distinguish between right and wrong, between what is moral and decent on the one hand, and what is immoral and harmful on the other. This investment will enable us to differentiate between what is valuable and promising on the one hand, and what is merely populist and aimed at quick profits on the other. Or, in other words, between what is ‘social’ and what is ‘socialist’.
A Europe that is effective, modern and competitive as well as cultured, tolerant and educated is a vision worth pursuing.
Footnotes