In recent years, Slovakia has been engaged in a debate about being “stuck in the middle-income trap,” about having “exhausted our growth model,” and about the need to move “from assembly line to brain gain.” This debate matters. The trouble is that its vocabulary tempts us into a far too mechanical view of prosperity. Let me explain what I mean.
Cargo Cult
Every economist will tell you that a country’s prosperity depends on investment – and especially on investment in innovation. We also know that Slovakia has long spent a below-average share of GDP on research and development, not only compared to the EU average but even within the Visegrád Group. From these two facts, a simple conclusion is often drawn: the state must increase spending on research and development.
But this kind of logic can easily end up building a cargo cult. A cargo cult describes a phenomenon in which people imitate the outward signs of success without understanding the principles that produced it. The term comes from the Pacific islands, where after the Second World War local inhabitants built bamboo runways, control towers, and mock-ups of military equipment, hoping that the planes full of supplies would return.
The economic version of the cargo cult looks much the same. We look at wealthy countries, see high R&D spending, and conclude that all we need is more public money for science. It’s then all too easy for state-funded research and development investment to end up as nothing more than wooden props. The money lands in small shell companies with unknown beneficial owners, or in large, established enterprises that use it to renovate factories or buy new machinery – without creating anything genuinely innovative.
The share of spending on science and research goes up, but it does not bring us any closer to a high-value-added economy – much as a bamboo control tower never brought the Pacific islanders any closer to planes full of cargo.
Spirit of the Times
To be clear, none of this means we do not need investment and innovation. We need them desperately. But they must grow out of organic cooperation among people with real skin in the game – entrepreneurs, investors, scientists – whose ideas then pass the toughest market test there is: profitability. It is not the politician’s job to pick future winners and plan a new growth model from behind a desk, as if by creationist design. Their job is “merely” to create an environment in which it pays to search, to experiment, and above all, to invest for the long term.
At this point, the usual political reflex kicks in, and talk turns to improving the business environment, cutting red tape, pro-growth measures, or perhaps lowering the tax and levy burden on labor or corporate tax rates. All of that matters. The problem is that today it is no longer enough to turn Slovakia back into a Tatra tiger.
Major investors do not decide based solely on tax rates, labor costs, and macroeconomic indicators. Investment in innovation is a long game. The planning horizon is not months, or even years, but decades. That’s why large companies also weigh political and social risk. They assess a country’s stability, the predictability of its rules, its geopolitical anchoring, the quality of its institutions, and the overall direction in which it is heading. Not all of this can be neatly captured in a spreadsheet, but all of it eventually feeds into the calculation of risk. And this is precisely where Slovakia has deteriorated significantly in recent years.
From Black Hole to Tiger, and Back
At the turn of the millennium, Slovakia was a land of opportunity – a country that had chosen to climb out of a black hole and anchor itself in the West. To draw closer to a world governed by universal rules and the rule of law, where success is decided not by connections at the right ministry, but by the ability to withstand the impersonal test of the market.
That gradually began to change. From a country that wanted to be “at the core of the EU,” we became a country that looks around confusedly in every direction. A country whose most senior political figures travel east to kiss the ring. For a prospective investor, this is not mere political folklore – it is important information. Information that this is a place flirting with a world where personal relationships and connections matter, where the rule of law does not have the final word but specific people in power do, and where outcomes are decided not by an impersonal mechanism but by the arbitrary decisions of “our people.”
Since Russia’s invasion of Ukraine, these risks have only grown. This is no longer an abstract geopolitical uncertainty confined to an analyst’s report – it is a real problem made of iron and gunpowder, right on our border. On top of that comes the dramatic deterioration in the long-term sustainability of public finances: every entrepreneur and investor knows perfectly well that today’s high debt means tomorrow’s high taxes.
The result is that Slovakia now has to offer investors a higher expected return to compensate for higher risk. We carry a higher risk premium. When an investor has Slovakia, Czechia, Poland, or Austria on the table, they are not just comparing wages, taxes, and subsidies. They are also comparing trust, stability, and predictability. And if Slovakia looks politically and institutionally riskier, the investor will demand a higher return from us – or simply go elsewhere.
It is quite possible that if Volvo were deciding today on its EUR 1.2 billion investment in eastern Slovakia, the numbers would come out differently, and the plant would end up in Hungary or Poland instead. Nor is this only a matter of foreign investment. Domestic innovative companies that need foreign capital to keep growing feel the same problem today. One example is GymBeam, an internationally successful company from eastern Slovakia that moved its headquarters to Vienna. Its owner cited Austria’s greater jurisdictional stability, more predictable environment, and easier access to international capital as the reasons. This company’s departure from Slovakia is the risk premium we carry in investors’ eyes, made concrete.
What Now?
The question is how to reverse this trend. How do we get back on the map for foreign – and domestic – investors in innovation? Small parametric changes are no longer enough to do this. A lower tax rate, fewer forms, or another package of pro-growth measures are useful, but on their own they will not dramatically improve the country’s image and reputation.
We need a paradigmatic change in how Slovakia functions, one that sends a credible signal. One option is a major decentralization reform that reduces the risk that a small group of politicians in Bratislava can sink the whole country through bad decisions. Another option could be establishing a special economic zone, anchored in the constitution, that brings radical improvement to the business environment – for instance, in the Gemer region.
Only changes of this paradigmatic scale can move us forward – not another strategy on paper, another government council for innovation, or another scheme in which officials pick the future winners of the Slovak economy. Slovakia does not need more bamboo control towers. It needs a country where it pays to take risks, to plan, and above all, to invest for decades to come.