Posted on 07/29/2003 10:34:30 PM PDT by bruinbirdman
The Slovak Republic is set to become the world's next Hong Kong or Ireland, i.e., a small place that's an economic powerhouse. Foreign investors are already taking note: Foreign direct investment in this country of 5.4 million people has grown from $2 billion to $10 billion since 1999. The ingredients are there for takeoff.
Slovakia is about to enact a 19% flat tax, for both individuals and corporations. The death tax is being consigned to the graveyard and the tax on dividends, abolished. The government plans to chip away at the high payroll tax that funds various social programs such as health care. It is also considering ways to fundamentally reform its social security pension system, perhaps privatizing a portion of it.
The work force is skilled, well-educated and stable. When people join a company in Slovakia, they want to stay until retirement. Students there have achieved some of the highest test scores in the world in math and science. And the government has recently passed new labor laws for overtime and seasonal help that are among the most flexible in Europe. Wage rates are a true bargain, about $3 to $4 an hour--only 15% of the European Union average and 11% of Germany's. Unemployment is still high, around 15%. There are plenty of well-trained, educated workers available for jobs. Living costs are also cheap--41% of the EU average.
The country's central location is a major plus: 350 million people live within a day's truck drive of Slovakia. It formally joins the EU next spring, which will not only vastly encourage commercial relations with that immense market but also provide a springboard for those wishing to do business with Russia, Ukraine and other markets to the east and south.
Companies are beginning to wake up to this gem's advantages. IBM, Kimberly-Clark and a number of other multinationals are already there. Volkswagen produces some 300,000 autos in Slovakia. Peugeot is putting in a $750 million facility to produce 300,000 cars by 2006. Other automakers are sniffing around. Auto parts suppliers, such as Dura, Johnson Controls, Delphi and Molex, are already manufacturing there, with others ready to follow suit. It's no surprise that a number of companies with facilities in western Europe are contemplating expanding into Slovakia. Whirlpool has done just that, transferring a high-end washing machine production facility from France. An astonishing 91% of current foreign investors in Slovakia intend to increase their stakes.
One area ripe for expansion in this beautiful but relatively unknown region is tourism. The pro-business government is already mulling over ideas for major promotional efforts.
Slovakia is now a firm friend of the U.S. It supported our war in Iraq and sent over a military contingent to help us out. Its upcoming admission to the EU and NATO firmly anchor it to the democratic West.
Slovakia's transformation is remarkable given its ugly-duckling history. As part of Czechoslovakia, the region was considered something of an economic and political stepchild; it had never been a genuinely independent state. When Czechoslovakia split a decade ago, Slovakia fell under the rule of a former Communist, Vladimir Meciar, who harbored authoritarian am-bitions. The new nation stagnated until Meciar's government was tossed out in elections five year ago. The country then got serious and pro-market reforms began.
No nation is perfect. There is still a lot of corruption, although the government is making serious efforts to curb it. Retrograde government-should-dominate-the-economy political forces haven't given up yet. They may get a second wind because of tactical mistakes the current regime has made in its tax reforms: It raised excise taxes and various VAT levies because it felt obliged to match the revenues that would allegedly be lost by moving to a flat tax. But the economic growth generated by the flat tax would have rapidly made up for any anticipated budget shortfall.
If Slovakia remains on its reform path, it could become the domino that pushes the rest of the EU, particularly "Old Europe" nations Germany and France, toward a more free-enterprise, entrepreneurial era. That would be good news for everyone.
Tocqueville Would Have Understood
I visited Slovakia recently at the invitation of the F.A. Hayek Foundation and one of its offshoots, the Slovak Taxpayers Association. The foundation was founded in 1991 to promote free-market ideas and political principles in a country where such traditions had never existed before.
That Slovakia is emerging as a beacon of democratic capitalism is in no small part because of the foundation's work. For example, it persistently and effectively pushed the flat tax idea, which should become effective Jan. 1, 2004. All of us, including savvy investors, should be grateful that such civic institutions as the Hayek Foundation are taking root in former Communist countries. They are providing the real push, the impetus for Western-style reforms and ideas.
We have said the same here since Clinton sent the Harvard economists to Russia to ensure they never had a chance at western free enterprise capitalism under the rule of law.
After the fall of the Berlin Wall, east europeans begged for American free enterprise.
They got Clinton and Blair. What a sad, sad, waste. I am afraid the EU will engulf them.
yitbos
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