Key lessons we can learn from Slovaks

Latest article by John Blundell in The Scotsman

THE parallels are far from perfect, but consider the economic story of the Slovak Republic, whose experiences offer us a glimpse of Scotland’s alternatives.

The Slovaks voted to secede from Czechoslovakia. Its population of five million is almost identical to Scotland. Its self-image seems to be akin to the Scottish mirage. They think of themselves as warrior highlanders. In fact they live in their urban sprawl with Greater Bratislava dominant, just as Glasgow is.

Like Scotland, it has long had a near one-party state. If rivals emerged they were co-opted by the Stalinist apparatus. The Slovaks had a fixation about heavy industry, subsidising it as much as Scotland did Ravenscraig and others.

The first ten years of independence were a fiasco. Tighter regulation followed higher tax. Further levies invited further controls. The Bratislava method was a model of how to ruin an economy already frail after the generation of Soviet influence.

Yet now the Slovaks have performed a highly successful U-turn. They voted out their old-fashioned leadership and have swung towards low taxation and light regulation. The result is a dynamic economy so successful it is alarming the European Commission. The men in Brussels are demanding controls be reimposed.

It has a flat rate tax of no more than 19 per cent. That will be lowered to 18 per cent by 2006. That is still 8 per cent too high for my taste, but I’m happy to report that revenues rose with the lower taxes. The notion that very simple uniform taxes raise more than our draconian ones seems a lesson every Scots minister and MSP must learn. Think what a transformation if we lopped 3p off our income tax, as the devolution legislation permits. The Slovaks have also scrapped inheritance taxes.

They are excited by the experience of success. Having been told steel mills were the high point of economic achievement, they suddenly looked foolish - hungry only for subsidies. Slovakia has flourished in tourism and services. It can sell the world its beauty, as can Scotland. Its borders are open, its tariff barriers have tumbled.

It seems to me there are two foolproof and simple measures of an economy’s success. Is it forcing its talent to migrate abroad and will foreigners invest? One measures the optimism of the local people, the other the optimism of strangers. Most East Europeans are trying to escape their homelands. Slovaks are staying and past emigrants returning. In the past three years foreign investment has risen from US$2 billion (£1.27 billion) to $10bn (£6.3bn). Now it is surging.

I think I could arrange to take some MSPs over to Bratislava to talk through the extraordinary transformation - or perhaps the next generation of political leaders, the special advisers, researchers and other apprentice politicians could see how easy it is to create prosperity.

As I understand it, the Slovak Taxpayer’s Association performed a service by lobbying for the notion of single rate taxation. The establishment all agreed it was impossible. Now they are enjoying the liberation of their own population.

I can think of no better destination for Scottish policy makers than a week immersed in the success of Slovakia.

•John Blundell is director general of the Institute of Economic Affairs.

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