Ex-Communist Nations Suffer from Central-Planning Woes, Still

By John Fund

Sunday, April 14, 2018

Bratislava, Slovakia — Thirty years ago, I traveled throughout Europe reporting on the fall of Communism for the Wall Street Journal.

So this year I looked forward to retracing my steps in the countries that kicked central planning to the curb. Most are now full members of the European Union and will elect members to its parliament next month. I wanted to see how things had worked out.

For my first leg of travel this year, I accompanied the Free Market Road Show, a merry rotating group of economists, journalists, and business leaders who for the last dozen years have traveled through up to 45 cities a year holding public forums and attracting media coverage. Their message is simple: The path to prosperity is to enhance the rule of law, lower taxes, respect individual freedom, decentralize government, and limit burdensome regulations. The show’s sponsor, the Austrian Economics Center, believes that the road show has helped shift public opinion toward that view. Certainly the center’s director, free-market economist Barbara Kolm, has prospered. Last year, she was named vice president of the Austrian Central Bank.

Our first stop on the Road Show was a mere 40 miles from the Road Show’s headquarters in Vienna, which evoked a warm memory for me. On New Year’s Eve in 1991, I stood in front of the castle in Bratislava and witnessed the birth of a new nation: Slovakia, which was peacefully separating from Czechoslovakia with a show of fireworks and a 21-gun salute.

Slovakia has made real strides since independence. It has become a center for European auto manufacturing, hosting plants from Volkswagen to Jaguar Land Rover. In 2017, it had an all-time low in unemployment.

But the problems I encountered and heard about also demonstrate just how long a journey the nation of 5.4 million people still has to make.

The Heritage Foundation’s annual Index of Economic Freedom found that the country has the lowest results in Central Europe. The Czech Republic is the 23rd in the world in economic freedom, Austria is the 31st, Poland the 46th, and Hungary the 64th. Slovakia brings up the rear, at 65th. (Nations that top the Heritage list are Hong Kong, Singapore, New Zealand, and Switzerland.)

“Slovakia has been a below-average performer for a long time,” Jan Oravec, president of the Entrepreneurs Association of Slovakia, told the Free Market Road Show. Richard Durana, the director of the local Institute of Economic and Social Studies, documented the challenges that businesses face. It found that small entrepreneurs spend 17.5 full working days every year navigating the country’s baffling red tape. “People in business struggle to not break a law every day,” says Matus Posvanc of the F. A. Hayek Foundation.

But while honest business owners struggle with compliance issues, organized crime too often has the ear of government. Robert Fico, a populist leftist, was forced to resign last year amid allegations that his socialist regime was linked to Italy’s ’Ndrangheta mafia. The mafia is suspected of having a role in last year’s assassination of Jan Kuciak, an investigative journalist who was gunned down with his 27-year-old girlfriend at their home near Bratislava.

Indeed, evidence that Slovakia needs to clean up its act confronted me when I arrived in Bratislava’s train station late one night before my speech to the Road Show. I exited the station and soon discovered that Uber had been banned from the country last year for “unfairly” competing with the local taxi cartel. I then saw that the recommended local taxi companies were nowhere to be seen in the taxi ranks. Only companies with strange names were present.

I thought I was a veteran in avoiding taxi scams around the world, but Bratislava got me. The taxi driver took my bags and turned on the meter, which registered a starting fare of three euros. He then took me to my hotel, a mere half-mile from the train station. The fare read seven euros. But he then suddenly pressed a button and the fare jumped to 15 euros. He explained that was the “minimum” fare for a journey of any length.

I calmly refused to pay that amount but handed him a ten-euro note, which I thought fair. He grabbed it and then threatened to call the police on me to force me to pay. I got the hotel’s clerk to come out and argue with him, insisting that the fare was outrageous, but the driver wouldn’t budge. Finally, after a long Slovakian standoff during which I told him that I welcomed the arrival of the police, he relented and gave me three euros back if I returned the incriminating printed receipt showing he had charged me 15 euros. Alex, the hotel clerk, cheered me on but privately told me that the driver’s meter fiddling was “probably legal.”

After I recounted this story to my audience in Bratislava the next day, I got an earful. I learned that the Slovak Transport Ministry had been promising since the 1990s to crack down on taxi pirates, but they’d done nothing. Indeed, when it comes to taxi competition, things have gotten worse in the city. Since April 1 of this year, the taxi app Bolt Taxify has seen 80 percent of it drivers leave the service — after regulations started requiring their drivers to meet stiffer standards.

First impressions in visiting a country are important, so you can imagine the reaction of a foreign investor or tourist arriving in Bratislava. As a Slovak commentator on TripAdvisor warns: “You might end up paying 50 euros for a 2 to 3 mile trip. These ‘so called’ taxi drivers have very bad reputation, work as a cartel, and don’t even let regular honest taxi drivers pick up the customers” at the airport or train stations. He concluded that travelers should “just simply try local public transport.” That advice would not go over well with a potential investor.

Lucia Rakayova, a local Slovakian businesswoman, tells me she has railed for years at the taxi cartel. “I am embarrassed to have to tell my visiting friends and relatives never to take taxis,” she told me. “I have written to the mayor and been told that nothing can be done.”

But there may be a glimmer of hope. Matus Vallo, a local architect who ran and won the job of Bratislava mayor last November as an independent candidate, considers himself a transport expert. He ran on a 300-page plan for civic improvement called the Bratislava Plan. I couldn’t find an English translation, but perhaps he has some ideas for needed reforms of the taxi cartel.

Time is short, as Bratislava is about to play host to hundreds of thousands of visitors next month. They will all be attending the International Ice Hockey Championships. It would be nice if they came away with a good experience traveling around the city, rather than the feeling that any ride could be a rip-off.

After all, Bratislava’s transit problems could be a real embarrassment. The next International Ice Hockey Championships will be held in 2021 in Minsk, the capital of Belarus. That nation is universally scorned as a transgressor of human rights and often called “the last dictatorship in Europe.” But although it shares with Bratislava the problem of overcharging pirate taxis, it appears to have more functioning taxi apps from reputable companies — and with a shorter waiting time. Regardless, any comparisons between Slovakia and Belarus do not favor the former’s reputation.

All of this isn’t to ignore or downplay the progress these countries have made since Communism’s fall. But a central-planning mentality, a tendency toward a weak rule of law, and restrictions on freedom linger on in too many countries. As I continue through my tour of Central Europe three decades after the fall of the Berlin Wall, I’ll report again on what I find along the way.