After the fall of the Iron Curtain and the Soviet Union in the early 1990’s, Slovakia was given a particularly difficult and unique challenge in comparison to its fellow central eastern european counties. In general, CEEC’s (central eastern european counties) were tasked with preparing their former Communist and planned economies for a reform to competitive market systems. The general sentiment among CEEC’s as well as Western economists were to induce shock therapy among the communist economic systems. This meant that previous economic institutions and structures (in communist economies) would be subject to rapid and thorough demise, while capitalist and market institutions would quickly replace them. The success of these transitions were mainly determined by the level of privatization that took place in each respective economy. Hungary, Poland, and the Czech Republic fully embraced shock therapy in their early stages of independence, however Slovakia took a different approach. Prime Minister Vladimir Meciar deviated from shock therapy in Slovakia by slowly transition from communism to capitalism.
In the years of 1993 to 1998, Slovakia “registered one of the best macroeconomic performances in Central Europe, meeting and surpassing some of its fellow CEEC’s in economic indicators such as GDP, unemployment, and inflation.” (The World Bank, Slovak Republic: A Strategy for Growth and European Integration (Washington, D.C.: The World Bank, 1998)) This was all remarkable given the context of the Slovakian economy in the early 1990’s. In 1993 when Czechoslovakia split, Slovakia was left without many state institutions and administrations necessary in order to run an independent economy. This combined with the lack of tax dollars, trade revenues, and foreign investment/aid ($366 million out of $8.98 billion given to Visegrad countries in 1991-1994) slingshotted Slovakia into an economic crisis leading to 15%+ unemployment (1992), inflation, and most social welfare budgets being cut. Another factor against the Slovakian economy was their reliance on the chemicals and weaponry industry. The disadvantage to the Slovakian economy of being reliant on these industries was that their main trading partners were the Soviet Union and East Germany. Issue being, that the Soviet Union technically did not exist anymore and Germany was not interested in continuing to purchase Slovakian weapons. (Gettysburg.edu) So, given the economic disadvantages that Slovakia was dealt, its economic transition and actions under the control of Meciar should be deemed as a success.
The Slovakian economic transition should be deemed as a success because the data, rather than the interpretation shows Slovakia succeeding, even under relatively unequal conditions. From 1993 to 1998 Slovakia experienced especially great macroeconomic prosperity in comparison to other CEEC’s. Following the split of Czechoslovakia in 1993, “Slovakian GDP registered a growth rate of 4.9% in 1994, 6.8% in 1995, and 6.9% in 1996. All three of these years showed higher growth rates of GDP than that of Czech’s and in 1996, Slovakia’s GDP growth was the best among all CEEC’s.” (Goldman, Slovakia Since Independence) In addition to remarkable growth in GDP, Slovakia’s unemployment rate fell from 15% in 1994 to roughly 12% in 1996. This decrease and stabilization in unemployment was due to the gradual approach to privatization in the Slovakian economy. By resorting to a slower privatization process rather than shock therapy, the Slovakian government was able to retain control over volatile industries such as the chemical and weapons industries, such that they were not to be the cause of colossal economic loss. The goal was not to keep these industries alive through government intervention and soft budget constraints, but to simply keep unemployment stabilized which was made possible by slowly privatizing these industries. In contrast to other CEEC’s, Slovakia would have been subject to sharp increases in unemployment if shock therapy was instituted.
Similarly, privatization was slowly adjusted in the banking and financial service sectors of the economy in Slovakia. Since the process of privatization was much slower than other CEEC’s the Slovakian government had more control over the banking system which lead to a drastic decrease in inflation. In 1993, inflation was at 23% and fell to 12% in 1994, then to 6.2% in 1995. (Kolodko, From Shock to Therapy) This was among the lowest of inflation rates throughout CEEC’s. This also had a hand in keeping Slovakia’s wage growth consistent, leading to a very low level of income inequality. The Organization for Economic Cooperation and Development argues that “the combination of high GDP growth rates and relatively low, stable inflation has ranked Slovakia amongst the most successful transition countries as regards macroeconomic stabilization.” (OECD, Slovak Republic 1999)
Although these macroeconomic statistics point to the successes of Slovakia’s transition to a market economy, the main critique is that the Slovakian government under Meciar held back the privatization process which threatened the future growth of the Slovakian economy. Although this is somewhat correct in that the government did intentionally slow down the process of privatization rather than implementing shock therapy, the decision to slowly implement privatization considerably lessened the impact of unemployment within the transition period of Slovakia. Also, the government did not put the Slovakian economies future at risk, as the government continually advocated for free market reform and the statistics for privatization support these claims. In 1994 only 5 percent of Slovakia’s state run firms were privatized, yet at the end of 1995 roughly 74% became private. This was a larger share of privatized firms that both Slovenia and Poland. (gettysburg.edu) The World Bank even reported that Slovakia marked the highest ratio of gross and net profits to GDP of any CEEC during the transition process. This was quite a substantial achievement, which resulted in only 3 percent of firms/enterprises in Slovakia remaining in public control.
The slow process of privatization in Slovakia should not be viewed as a failure to provide the country with a capitalist economy. By using an alternative to shock therapy, Slovakia was able to avoid complete economic depreciation. This allowed the nation time to accept Capitalism as the new system of economy, which was especially important as Slovakia had to create a fully new state administration following the split with the Czech’s. The government under Meciar had many political faults which lead public opinion to have negative views on the administrations economic policies, however that is not the perspective that should be used when evaluating the success of Slovakia’s economic transition. The decision to give Slovakia time (1993-1998) in order to adjust to capitalism not only gave the country cushion to economic hardship, but true success. By 1998 serious reform was needed as its growth was relatively unsustainable, but by this time Slovakia was ready for these reforms. So in conclusion, when evaluating the success of Slovakia’s transition to a free market economy, it must be viewed as as success.