REVIEW #10: When Bureaucrats Cut Bureaucracy (A Slovak Example)

Nowadays, it is rather complicated to find a country where the role of an entrepreneur in the economy is explicitly contested. Thanks to media outreach, these exceptional occasions are pretty well known, and recent humanitarian catastrophe in Venezuela is a cautionary example of what may happen when a government (or an army) takes over the burden of entrepreneurial planning and decision making. Therefore, not surprisingly, most of the countries officially declare efforts to improve the entrepreneurial environment. This is true even for countries where governments prefer market interventions, price regulations, or building state-owned national business champions.

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Besides the pressure from international organizations like the International Monetary Fund, or World Bank, governments have their own purely pragmatic reasons for such commitments. According to available data, a 25% decrease of the administrative burden should lead to a 1.6% GDP increase in European Union (EU) member states1. At the level of 40–50% in tax burden, this represents a significant increment for the state budget. In addition, politicians who are familiar with the mathematics of compound interest and the relevance of economic growth emphasize the fact that, in the EU, administrative costs represent up to 4% of GDP. These are wasted resources which are worthy of decreasing even if the private sector should produce just one-third of GDP of any country.

Therefore, expert committees are being established in each country. They conduct analyses of the entrepreneurial environment and publish long-term strategies with ambitious goals. Governments propose radical reforms, with shifts in international business rankings having been observed.

However, real economic convergence has been slower than its participants wish. Despite the identification of best practices, described measures, and strategies of these practices, many countries do not see the improvements.

It is a rather complex process to enhance the entrepreneurial environment. Red tape is not composed only by the number of forms to be filled out by the entrepreneur; it is also a scope of power applied by the omnipresent government over entrepreneurs, which must be given up. It is also unfair advantages of various interest groups, or even hidden interests of regulatory bodies.

But why do policies for the improvement in the entrepreneurial environment often fail? And how difficult is it to reach the goals? Let us take a look at Slovakia as an example of an attempt to improve the entrepreneurial environment.

How Slovakia…

The new Slovak government was elected in the spring of 20162. Fundamental commitments regarding improvements of the business environment appeared also in Government Manifesto announced in April 2016. The document listed in this area two ultimate goals:

1. The government will continue to take complex measures to decrease the bureaucracy burden for businesses and entrepreneurs.

2. The government will create room for systemic improvements of Slovakia’s position towards OECD and EU countries in international business rankings (e.g. its ranking in Doing Business).

These commitments were further specified by more detailed descriptions:

1. The government will decrease the bureaucracy burden related to social insurance.

2. The government will improve the compliances for businesses by abolishing the unjustified regulatory barriers and bureaucracy, which represent additional financial and time costs for entrepreneurs.

3. A simplification and time reduction of construction permits, improvement of an information system on realized constructions by introducing the unified forms for construction permits and final building approvals.

After that, still in 2016, the quantified and very ambitious goal to improve Slovakia’s ranking to the 15th position in Doing Business by 2020 was approved. This was challenging for two reasons: first, there are either very developed or very reformist countries in the TOP 10; and, second, Slovakia was ranked 33rd in 2016. This goal even made it to the National Reform Plan3, which describes structural measures to be implemented by the government during the upcoming years.

The program was based on Country Report issued annually by the European Commission. Every member state is required to submit a reform program to the Commission rooted in report findings.


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1 Gelauf, G. and A. Lejour (2006) Five Lisbon Highlights: The Economic Impact of Reaching These Targets, CPB Netherlands Bureau for Economic Policy Analysis.

2 The government coalition included the winner of the election – SMER-SD (a Slovak national party), Most – HÍD (a party mostly representing the Hungarian minority), and #SIEŤ, a party which had dissolved soon after the election. In 2006, Prime Minister Robert Fico started already his third term. The coalition considers itself to be left-leaning, favoring socio-democratic values.