SLOVAK UNIVERSITY OF AGRICULTURE IN NITRA
FACULTY OF ECONOMICS AND MANAGEMENT
2123059
THE COMPARISON OF SLOVAK ECONOMY WITH
ECONOMIC SYSTEMS OF THE VISEGRAD GROUP
COUNTRIES
2011
Ján Lazor, Bc.
SLOVAK UNIVERSITY OF AGRICULTURE IN NITRA
FACULTY OF ECONOMICS AND MANAGEMENT
THE COMPARISON OF SLOVAK ECONOMY WITH
ECONOMIC SYSTEM OF THE VISEGRAD GROUP
COUNTRIES
DIPLOMA THESIS
Study Program:
Business economics
Branch of Study:
628 4800 Business Economics and
Management
Department:
Department of Economics
Supervisor:
Daniela Hupková, Ing., PhD.
Nitra 2011
Ján Lazor, Bc.
Declaration of Originality
I, the undersigned Ján Lazor, solemnly declare that the thesis „The comparison of
Slovak economy with economic system of the Visegrad Group countries― is a result of
my own independent research and was written solely by me using the literature and
resources listed in Bibliography.
I am aware of legal consequences in case the data are not true and correct to the best of
my knowledge.
Nitra, April 15, 2011
Ján Lazor
Acknowledgements
In this way, I would like to thank my consultant Mrs Ing. Daniela Hupková,
PhD. for her help, assistance, valuable advices and support during the writing of my
thesis.
Abstrakt
V tejto diplomovej sme sa rozhodli skúmať a porovnávať ekonomickú situáciu
v krajinách Vyšehradskej štvorky a to konkrétne Českej Republiky, Maďarska, Poľska
a Slovenskej Republiky. Porovnávaním jednotlivých ekonomických ukazovateľov
medzi jednotlivými krajinami ako aj analýzou ich vývoja v čase, sme sa snaţili
identifikovať silné a slabé stránky hospodárskeho rozvoja v rámci tohto zdruţenia.
Spomedzi skúmaných ukazovateľov, sme najväčšiu pozornosť venovali hrubému
domácemu produktu, produktivite práce, zahraničnému obchodu a investíciám,
verejným financiám hlavne na strane výdavkov, podnikateľskému prostrediu
a ekonomickej slobode. Našou snahou bolo nájsť závislosti medzi týmito indikátormi,
a tak poukázať na faktory, ktoré viedli k úspešnosti jednotlivých krajín v ich
ekonomickom rozvoji, respektíve odhaliť tie faktory, ktoré viedli k zhoršeniu, alebo
stagnácii hospodárskeho a spoločenského prostredia v danej krajine. Porovnávaný
časový horizont zachytáva obdobie od roku 2000 po rok 2009 aţ 2010, v závislosti od
dostupnosti dát. Toto obdobie pokrýva dôleţité udalosti v ţivote krajín, menovite vstup
do Európskej Únie ako aj OECD, hospodársku krízu a v prípade Slovenska aj prijatie
eura za národnú menu. Keďţe kaţdá z krajín má svoje špecifiká, a v určitých
ukazovateľoch dosahuje lepšie výsledky a v iných horšie, je ťaţké povedať ktorá bola
najúspešnejšia, berúc do úvahy rozdielny vývoj v rôznych časových obdobiach. No na
základe pozorovaní, môţeme identifikovať čo najviac prispelo k dosiahnutiu
pozitívnych výsledkov. V závere práce sa teda nachádzajú odporúčania a návrhy
opatrení ako zvýšenie výdavkov na vedu, výskum a vzdelávanie, väčšia podpora
domácich podnikateľov a vyššia ekonomická sloboda, vychádzajúce z našich zistení,
ktoré by mohli výrazne prispieť k zlepšeniu ekonomickej a spoločenskej situácie
v krajine a následnému zvýšeniu ţivotnej úrovne jej obyvateľov.
Kľúčové slová: Vyšehradská štvorka, ekonomický rast, hrubý domáci produkt,
produktivita, ekonomická sloboda
Abstract
In this diploma thesis we have decided to examine and to compare the economic
situation of the Visegrad group countries, specifically the Czech Republic, Hungary,
Poland and the Slovak Republic. By comparing individual economic indicators among
particular countries, as well as their analysis in time, we have made an effort to identify
strengths and weaknesses of economic development within the Visegrad group. Among
the examined indicators, we have focused on Gross domestic product, labour
productivity, foreign trade and investments, public finances mainly on expenditures
side, business environment and economic freedom. Our aim has been to find
dependencies among the chosen indicators, and to point out the factors, which led to
successes of particular countries in their economic development, respectively to find out
those factors, which led to deterioration, or stagnation of economic and social
environment in a given country. Compared time horizon covers period from year 2000
up to 2009 or 2010 in dependency of data availability. This period involves important
events in the life of the countries, namely European Union and OECD accession,
economic crisis and in case of Slovakia even adoption of the Euro as a national
currency. As every country has its own specific features, and in certain indicators
reaches better results and in others worse, it is very difficult to say which one was the
most successful, taking into account differences in growths in various time periods. But
on the basis of our observations, we can identify which measures contributed to the
achievement of the positive results the most. In conclusions we have wrote
recommendations and proposals of measures and steps, like increase of expenditures on
research, development and education, bigger support for domestic entrepreneurs and
higher economic freedom, based on our findings, which could lead to improvement of
the economic and social situation in the country and the following increase in the
standards of living of country‘s inhabitants.
Key words: Visegrad group, economic development, gross domestic product,
productivity, economic freedom
Table of contents
Introduction ................................................................................................................... 11
1 Theoretical background.......................................................................................... 12
1.1
Economic system ................................................................................................. 12
1.1.1
Planned (command) Economy ..................................................................... 14
1.1.2
Free Market Economy - Capitalism ............................................................. 16
1.1.3
Mixed economy ........................................................................................... 17
1.2
Political Economy ............................................................................................... 19
1.3
Visegrad group .................................................................................................... 21
1.3.1
Czech Republic ............................................................................................ 24
1.3.2
Hungary........................................................................................................ 25
1.3.3
Poland .......................................................................................................... 26
1.3.4
Slovakia........................................................................................................ 27
1.4
Possible improvements of economic systems ..................................................... 28
2 Aims of the Thesis ................................................................................................... 31
3 Materials and methods ........................................................................................... 32
4 Results and Discussion ............................................................................................ 34
4.1
Gross domestic product – GDP ........................................................................... 34
4.1.1
GDP growth rate .......................................................................................... 34
4.1.2
GDP per capita ............................................................................................. 36
4.1.3
GDP relative to EU27 .................................................................................. 37
4.1.4
GDP composition by sector ......................................................................... 38
4.2
Productivity ......................................................................................................... 39
4.3
Foreign economic relations ................................................................................. 41
4.3.1
Foreign trade ................................................................................................ 41
4.3.2
Foreign direct investment intensity .............................................................. 42
4.4
Government finance ............................................................................................ 43
4.4.1
Taxation ....................................................................................................... 43
4.4.2
Government revenues and expenditures ...................................................... 45
4.4.3
Government deficit/surplus .......................................................................... 47
4.4.4
Government gross debt ................................................................................ 48
4.4.5
National expenditures composition.............................................................. 50
4.5
Business environment .......................................................................................... 53
4.5.1
Enterprises by size class............................................................................... 53
4.5.2
Share of enterprises on employment by size class ....................................... 55
4.5.3
Value added by enterprises by size class ..................................................... 56
4.5.4
Ease of doing business ................................................................................. 57
4.5.5
Index of economic freedom ......................................................................... 58
4.6
The Global Competitiveness Index ..................................................................... 59
5 Conclusions .............................................................................................................. 60
6 Resumé ..................................................................................................................... 64
7 Bibliography ............................................................................................................ 69
List of Figures
Figure 1 [GDP growth – percentage change on previous year] ...................................... 34
Figure 2 [Purchasing Power Standard per inhabitant] .................................................... 36
Figure 3 [Percentage of EU27 total (based on euro per inhabitant)] .............................. 37
Figure 4 [Sector composition of GDP] ........................................................................... 38
Figure 5 [Labour productivity annual growth rate (%)] ................................................. 40
Figure 6 [Trade as % of GDP] ........................................................................................ 41
Figure 7 [Foreign Direct Investment intensity] .............................................................. 42
Figure 8 [Total tax rate as a percentage of profit] .......................................................... 43
Figure 9 [Total tax revenue as percentage of GDP] ....................................................... 44
Figure 10 [Government Net lending (+) / net borrowing (-), (% of GDP)] .................... 47
Figure 11 [General government gross debt (% of GDP)] ............................................... 49
Figure 12 [National expenditures per budget functions (% of GDP, 2009)] .................. 50
Figure 13 [Gross domestic expenditure on Research and Development (% of
GDP)] .............................................................................................................. 52
Figure 14 [Number of enterprises by size class (percentage of all businesses)] ............ 54
Figure 15 [Employment (percentage of all businesses)] ................................................ 55
Figure 16 [Value added (percentage of all businesses)] ................................................. 56
Figure 17 [Index of Economic Freedom (overall score)] ............................................... 58
List of Tables
Table 1 [Real labour productivity per hour worked] ...................................................... 39
Table 2 [Foreign Direct Investment intensity] ................................................................ 42
Table 3 [Total general government revenue (% of GDP)] ............................................. 45
Table 4 [Total general government expenditure (% of GDP)] ....................................... 46
Table 5 [Number of enterprises by size class (percentage of all businesses, 2006)] ...... 53
Table 6 [Ease of doing business ranking, (2010)] .......................................................... 57
Table 7 [Index of Economic Freedom] ........................................................................... 58
Table 8[Global Competitiveness Index 2010-11 ranking and 2009-10 comparison] ..... 59
List of abbreviations and symbols
GDP
Gross Domestic Product
NATO
North Atlantic Treaty Organization
EU
European Union
V4
Visegrad group (Czech Republic, Hungary, Poland, Slovakia)
CEE
Central and Eastern Europe
OECD
Organization for Economic Co-operation and Development
PPP
Purchasing Power Parity
PPS
Purchasing Power Standard
FDI
Foreign Direct Investment
IMF
International Monetary Fund
R&D
Research and Development
€
EURO
SME
Small and Medium Enterprises
GCI
Global Competitiveness Index
WEF
World Economic Forum
WTO
World Trade Organization
IEF
Index of Economic Freedom
Introduction
Economic development is considered to be very important issue nowadays.
Many politicians in many countries seek for the best ways how to sustainably increase
GDP. Some of them are successful some of them are not. In recent years countries from
Central and Eastern Europe have made significant progress. After the transition from
central planning to market economy, these countries faced many problems during the
90´s. But in the new millennium they become ones of the fastest growing economies in
the world. As they are part of the European Union and other transatlantic structures, it
can be said that they are in stable environment. Crucial role in Central Europe region
play V4 countries, involving Czech Republic, Hungary, Poland and Slovakia. They can
be considered as one regional cluster with many similarities. These countries are quite
interconnected, through huge amounts of exports and imports; there are also cultural,
political, economical and social connections among these states. So it can be very useful
to measure its economic outcomes as a one group, and also it can be effective to
compare indicators with other countries or whole regions in the world.
When trying to improve economic and social indicators of development and welfare in
each country, a comparison with other successful or not successful examples can help.
One country can avoid mistakes, which were made by another country, or can take into
consideration those successful steps, which helped to improve well-being of the nation.
In this thesis we have focused on comparison of the chosen economic indicators among
V4 countries, to provide an overview on the overall economic situation in this region
and to find out the crucial differences on their way to the developed market oriented
economies. To provide this, we aimed our effort to look for the reasons, why some
countries were more successful than others, in other words what factors had a positive
impact and what factors had a deteriorating effect. Such the findings can create the
recommendations for wise economic policies, which should provide stability,
efficiency, sustainability and improvement in quality of life for every single person.
Countries of Visegrad group, are considered to be successful in their development, they
belong to the club of the rich countries in the world. Memberships in international
organizations such as OECD, EU, WTO, NATO can prove this. But there is still a long
way in front of them which must be done to reach the hypothetical top.
11
1 Theoretical background
1.1 Economic system
According to Colander, D. C. (1993) the economy is the institutional structure through
which individuals in a society coordinate their diverse wants or desires. Economics is
the study of the economy. That is, economics is the study of how human beings in a
society coordinate their wants and desires.
Like a household, a society faces many decisions. A society must find some way to
decide what jobs will be done and who will do them. It needs some people to grow
food, other people to make clothing, and still others to design computer software. Once
society has allocated people (as well as land, buildings, and machines) to various jobs, it
must also allocate the output of goods and services they produce. It must decide who
will eat caviar and who will eat potatoes. It must decide who will drive a Ferrari and
who will take the bus. Mankiw, G. N. (2008).
Based on the above mentioned assumptions Mansfield, E. (1989) formulated 4 tasks of
an economic system:

An economic system must determine the level and composition of society´s
output.

An economic system must determine how each good and service is to be
produced.

An economic system must determine how the goods and services that are
produced are to be distributed among the members of society.

An economic system must determine the rate of growth of per capita income.
Another author Conklin, D.W. (1991) defines economic system as the organizational
arrangements and processes through which a society makes its production and
consumption decisions. In creating and modifying its economic system, each society
chooses among alternative objectives and alternative decision modes. Many objectives
such as efficiency, growth, liberty and equality can be seen as desirable, but they
frequently involve inconsistencies and trade-offs. The more complete attainment of any
one objective may involve a partial sacrifice of another. The emphasis placed on various
objectives has differed among societies, and for each society the emphasis has changed
over time.
12
Pryor, F. L. (2005) comes with simple definition that economic system comprises the
totality of institutions and organizations that specify property relations within a given
society and that channel and influence the distribution of goods and services.
According to portal www.mtholyoke.edu (2011) an economic system is comprised of
the various processes of organizing and motivating labour, producing, distributing, and
circulating of the fruits of human labour, including products and services, consumer
goods, machines, tools, and other technology used as inputs to future production, and
the infrastructure within and through which production, distribution, and circulation
occurs.
These processes are overdetermined by the political, cultural, and
environmental conditions within which they come to exist. In comparative economic
systems, these economic systems are usually defined within determinate political
boundaries.
Polak, J. J. (2003) has an opinion that, the national economies of the various countries
mesh into an international economic system through the media of international trade,
international capital movements and other international transactions. Through these
same channels economic fluctuations occurring within each of the economic systems of
the various countries are transmitted from one country to another. By reference to the
economic relationships which determine the fluctuations in international trade and other
international magnitudes, the economic models which describe the economies of
individual countries may be linked together into one economic system describing the
economic fluctuations in the world as a whole.
Comparative economic systems, according to Ellis, J. (2011), present a field of study
in economics that focuses on analyzing economic systems by comparing them to other
types of economies. These comparisons may be used to examine the economic systems
of real countries, or may be used to compare the principles of different economic
theories. Analyzing economics through comparison is believed to be useful because
no system is inherently perfect; by examining what benefits each theory or economy
presents, economists can help craft and refine new theories to help improve
future economic practice and thought.
Authors Miller, T. G. and Spoolman, S. (2006) define an economic system as the
social institution through which goods and services are produced, distributed, and
consumed to satisfy people´s wants in the most efficient possible way.
13
Ayers, R. M. and Collinge, R. A. (2004) claim that every economy must answer three
basic economic questions:
1. What? What goods and services will be produced and offered for sale and in
what quantities?
2. How? How will goods and services be produced?
3. For whom? Who will consume the goods and services that are produced?
When it comes to deciding what, how, and for whom, society must choose among three
kinds of economic systems: command and control, free markets or mixed economies.
From the viewpoint of Cole, D. (1991) the multitude of economic systems is almost as
great as the number of countries. The spectrum ranges from the theoretical models of
perfect competition, with its heavy emphasis on individualism, to the pure authoritarian
systems of socialism with its state orientation. A third model is the competitive socialist
model, which attempts to merge the positive features of competitive markets and
socialist precepts. None of these models describes any particular country, but they help
to analyze economic systems. And when we want to evaluate economic system, we
have to take into consideration a set of criteria, this author suggests these ones:

Economic wealth and rate of growth

Stability

Efficiency

Security

Economic freedom

Equality

Application criteria
1.1.1 Planned (command) Economy
In opinion of Miller, F. P. – Vandome, A. F. – Mcbrewster, J. (2009) a planned
economy or directed economy is an economic system in which the state or workers'
councils manage the economy. It is an economic system in which the central
government makes all decisions on the production and consumption of goods and
services. Its most extensive form is referred to as a command economy, centrally
planned economy, or command and control economy. In such economies, central
economic planning by the state or government is so extensive that it controls all major
sectors of the economy and formulates all decisions about their use and about the
14
distribution of income. The planners decide what should be produced and direct
enterprises to produce those goods.
Boone, L. E. – Kurtz, D. L. (2010) say that in a planned economy, government
controls determine business ownership, profits, and resource allocation to accomplish
government goals rather than those set by individual firms. Two forms of planned
economies are communism and socialism. Socialism is characterized by government
ownership and operation of major industries such as health care and communications.
Socialists assert that major industries are too important to a society to be left in private
hands and that government-owned businesses can serve the public´s interest better than
private firms can.
Characteristic
features
of
Command
(planned)
Economy,
according
to
www.economywatch.com (2011):

By nature, a Command Economy is more stable, guaranteeing constant
exploitation of the existing resources. It is least affected by financial downturns
and inflations.

In a carefully planned Command Economic system, both surplus production and
unemployment rates remain at a reasonable level.

The steady nature of Planned Economy encourages investments in long-standing
project-related infrastructures without any possibility of financial recessions.

Command Economy emphasizes more on collective benefits, rather than the
requirements of a single individual. Under such circumstances, rewards, wages
and other monetary benefits like bonus are distributed on the basis of the joint
rendering of services.

Command Economy is just opposite to the concept of Market Economy, with
respect to the basic money-making approaches. While Market Economy tends to
multiply the wealth of a nation through the gradual process of evolution,
Command Economic system prefers deliberate planning of the entire moneymaking process for better results. In fact, such sincere economic planning in the
long run proves beneficial to improve the economic conditions of a country.
Yohe G. W. (1989) has an opinion that, a command economy, by way of extreme
contrast, is one in which these questions of resource allocation are solved by the
government and by individuals doing exactly what they are told to do. A command
economy forbids, for the most part, the very private ownership that is the cornerstone of
15
the market system. Why? Perhaps on the claim that private ownerhsip leads to unfair
distributions of income. Perhaps on the grounds that an individual´s control over
economic resources can never lead to the production of precisely the output mix that the
government feels is best. For whatever reason, a pure command economy is the polar
opposite of a market economy.
1.1.2 Free Market Economy - Capitalism
…by directing industry in such a manner as its produce may be of the greatest value, he
intends only his own gain, and he is in this, as in many other cases led by an invisible
hand to promote an end which was no part of his intention. Nor is it always worse for
society that it was no part of it. By pursuing his own interest he frequently promotes that
of society more effectually than when he really intends to promote it. Smith, A. (1776).
Market is a mechanism through which buyers and sellers are brought together for the
purpose of exchanging some good or resource, authors Ragan, J. F. – Thomas, L. B.
(1990) claim, they add that pure capitalism is characterized by private ownership of
resources and by reliance on markets, in which buyers and sellers come together and
determine what quantities of goods and resources are sold and at what price. Here no
central authority oversees production and consumption. Rather, economic decisions are
coordinated by the actions of large numbers of consumers and producers, each operating
in his or her own self-interest. Because property is privately owned, it can be used in
whatever manner its owner chooses.
In a pure market economy, Hyman, D. N. (2010) says, virtually all goods and services
would be supplied by private firms for profit and all exchanges of goods and services
would take place through markets, with prices determined by free interplay of supply
and demand. Individuals would be able to purchase goods and services freely, according
to their tastes and economic capacity (their income and wealth), given the marketdetermined prices.
McConnell C. R. and Brue S. L. (1999) have the opinion that, the primary driving
force of capitalism is self-interest. Each economic unit attempts to do what is best for
itself. Entrepreneurs aim to maximize their firm´s profit or, in adverse circumstances,
minimize losses. Property owners attempt to get the highest price for the sale or rent of
their resources. Workers attempt to maximize their utility (satisfaction) by finding jobs
which offer the best combination of wages, fringe benefits, and working conditions.
16
Consumers, in purchasing a specific product, seek to obtain it at the lowest possible
price. The motive of self interest gives direction and consistency to what might
otherwise be an extremely chaotic economy.
Mansfield, E. (1989) says that Capitalism is one of those terms that is frequently used
but seldom defined, and even less frequently understood. Its operation is complex, but
its principal characteristics can be lumped into four major categories:
1. Private ownership of capital
2. Freedom of choice and enterprise
3. Competition
4. Reliance upon markets
A pure free-market economic system is a theoretical ideal or model in which buyers
(demanders) and sellers (suppliers) interact in markets without any government or other
interference. All parties have full access to the market and enough information about the
beneficial and harmful aspects of economic goods and services to make informed
decisions. Miller, T. G. – Spoolman, S. (2006).
According to Baghatur, M. T. (2005) a market economy also known as Capitalism is
an economic system in which the means of production and distribution are privately or
corporately owned and development is proportionate to the accumulation and
reinvestment of profits gained in a free market.
Samuelson, P. A. – Nordhaus, W. D. (1995) describe another market oriented system,
which is called laissez-faire (let it be) economy as the extreme case of market economy,
where the government has almost no economic role.
1.1.3 Mixed economy
The categories between the private-enterprise systems and the authoritarian socialism
are described as ―mixed systems‖. These systems have both private and state control of
the economic processes, Cole, D. (1991) explains.
Ayers, R. M. and Collinge, R. A. (2004) explain that from various reasons, markets
sometimes fail to achieve efficiency. And when it comes to equity, markets seem
amoral – sometimes fair and sometimes not. Markets seem fair in rewarding those who
work instead of lying on the beach all day, but can seem unfair in the opportunities
presented to one person relative to another. So government steps in to correct the
17
inefficiencies and remedy the inequities that would arise in the laissez-faire
marketplace.
The market does not work equally well in all situations. In fact, in some circumstances,
the market mechanism might actually fail to produce the goods and services society
desires. National defence is an example. Most people want to feel that their nation´s
borders are secure and that law and order will prevail in their communities. But few
people can afford to buy an army or maintain a legal system. Even if someone were rich
enough to pay for such security, he or she might decline to do so, according to Schiller,
B. R. (1999) these are the reasons, why we have nowadays mixed economies – the
economies that uses both market and non-market signals to allocate goods and
resources.
Samuelson, P. A. – Nordhaus, W. D. (1995) claim that no contemporary society falls
completely into either of these polar categories, with elements of market and command.
There has never been a 100 percent market economy. Today most decisions are made in
the marketplace. But the government plays an important role in modifying the
functioning of the market; government sets laws and rules that regulate economic life,
produces educational and police services, and regulates pollution and business
According to Baumol, W. J. – Blinder, A. S. (2009), all nations at all times blend
public and private ownership of property in some proportions. All rely on markets for
some purposes, but all also assign some role to government. Hence, people speak of the
ubiquity of mixed economies. But mixing is not homogenization; different countries can
and do blend the state and market sectors in different ways. In addition to raising taxes
and making expenditures, the government in a market economy serves as referee and
enforcer of the rules, regulates business in a variety of ways, and redistributes income
through taxes and transfer payments. For all these reasons, we say that we have a mixed
economy, which blends private and public elements.
Hyman, D. N. (2010) has an opinion that a mixed economy is one in which government
supplies a considerable amount of goods and services and regulates private economic
activity. In such an economy, government expenditures typically amount to between
one-quarter and one-half of GDP. Taxes absorb at least one-quarter of national income
in the typical mixed economy, and governments usually regulate private economic
activities and use taxes and subsidies to affect incentives to use resources. In mixed
economies, provision of a significant amount of goods and services takes place through
18
political institutions. This involves interaction among all individuals of the community,
rather than just buyers and sellers – as is the case when goods and services are provided
by markets.
Ragan, J. F. – Thomas, L. B. (1990) identify several reasons why societies deem it
appropriate for governments to intervene in the economy. First, people benefit when
markets are highly competitive. Governments seek to promote competition by enacting
and enforcing antitrust laws, by prohibiting discrimination, and by other measures.
Where competition is inherently impractical for technical reasons, governments impose
regulations on producers in order to protect the public. Second, governments implement
stabilization policies in an attempt to avoid the extremes of rampant inflation and
economic depression. Third, governments deliberately intervene to modify the
distribution of national income and wealth. This intervention is intended to moderate the
extremes of poverty and affluence in society. Other important reasons for governmental
economic activity include correcting for misallocation of the nation‘s resources
resulting from external (or spillover) effects and stepping in to provide public goods.
1.2 Political Economy
When political economy emerged in the eighteenth century, it did so to help people
understand and cope with a dramatic change in the system of want satisfaction, both in
the nature of wants and in the manner of production and distribution of goods for
satisfying them. The emergence of political economy brought with it a debate over the
responsibilities of the state (or statesman) with regard to the economy. This debate still
goes on. It continues to occupy a central place in political economy. Is the state
responsible for determining which wants will be satisfied, and for mobilizing resources
to ensure their satisfaction? Or will wants be better satisfied if the mobilization of
resources is left in the hands of individuals acting as private agents, motivated by their
private interest?, Authors Caporaso, J. A. – Levine, D. P. (1992) ask.
Mankiw, G. N. (2008) explains that markets left on their own do not always reach a
desirable allocation of resources. When we judge the market‘s outcome to be either
inefficient or inequitable, there may be a role for the government to step in and improve
the situation. Yet before we embrace an activist government, we need to consider one
more fact: Government is also an imperfect institution. The field of political economy
19
(sometimes called the field of public choice) applies the methods of economics study
how government works.
Pokrivčák, J. – Ruppel, F. (2010) say that, politicians often follow other goals rather
than welfare maximization in their conduct of trade policy. Modern political economy
literature agrees basically that politicians maximize therir chance of reelection. They try
to stay in government because a government position brings income, reputation, power,
and other benefits that are valuable. The chances of being reelected increase with the
redistribution of incomes through trade policy. So the main motivation for trade policy
lies in political markets rather than in economics.
If economics is the study of the optimal use of scarce resources, political economy
begins with the political nature of decision making and is concerned with how politics
will affect economic choices in a society. Society should be defined broadly to include
not only countries or other such jurisdictions, but also firms, social groups, or other
organizations, Hanappi, G. (2011) explains, and he adds that the ‗‗new political
economy‘‘ is not, however, just a resurrection of an earlier approach to economics.
Though characterized by a strong interest in the question of how politics affects
economic outcomes, the new political economy is defined more by its way of
approaching this question. Specifically, it is defined in large part by its use of the formal
and technical tools of modern economic analysis to look at the importance of politics
for economics. Modern economic analysis is used not just in the formal sense of a
mathematical approach; it is also conceptual, viewing political phenomena in terms of
optimization, incentives, constraints, etc. Hence, what really distinguishes the new
political economy is not so much the volume, but the sort of research being done.
Schiller, B. (1999) claim there are always political choices to be made. The choice of
more consumer goods or military hardware, for example, is not an economic decision.
Rather it is a socio-political decision based in part on economic tradeoffs (opportunity
costs). Political forces are a necessary ingredient in economic policy decisions.
Economists can contribute to those policy decisions by offering measures of economic
impact and predictions of economic behaviour. Enduring controversy about markets
versus government reflects diverse political, rather than strictly economic, views. Some
people think a big public sector is undesirable, even if it improves economic
performance. They see government intervention as a threat not only to economic
performance but to individual liberties as well. Some people advocate for government
20
intervention feel that the market mechanism is inherently corrupting of human values
and call on the government to limit greed, to guarantee economic security, and to
protect the environment.
Opinion of Clark, B. S. (1998) is that, analysis of the market and government as
political and economic institutions suggests that neither is solely capable of organizing
society to secure prosperity and justice. Both institutions are sufficiently flawed to
require a balancing of political and economic processes to sustain a healthy society. In a
positive sense, each institution serves to complement weaknesses of the other. However,
the market and government also generate powerful forces reverberating against each
other with potentially damaging consequences. As the domains of politics and
economics vie for dominance, the interdisciplinary approach of political economy offers
great potential for analyzing and responding to the problems confronting modern
societies.
1.3 Visegrad group
The four countries in the central Europe – Czech Republic, Hungary, Poland and
Slovakia, known as Visegrad group countries, had always close relationships. Basis for
the cooperation and mutual understanding were laid in the 14th century, in the city of
Visegrad, at the meeting of that times´ kings. This meeting, common economic and
political interests were the central motives for signing the new agreement between
Czechoslovakia, Hungary and Poland. It was signed by the highest representatives of
the states in the same city, on 15th of February 1991. After disintegration of
Czechoslovakia, both successors – Czech Republic and Slovak Republic became full
members of Visegrad group, nowadays also known as V4 countries. Some governments
didn‘t provide needed reforms, what led to slowdown or staying behind country´s
potential. Differences between particular V4 countries are obvious from various
reasons, but mostly economic structure and system how country allocate and
redistribute its resources, whether it is more market oriented or command economy.
According to portal www.visegradgroup.eu (2011) the V4 cooperation can currently
be referred to as the most clearly profiled initiative in Central Europe. The backbone of
this cooperation consists of mutual contacts at all levels - from the highest-level
political summits to expert and diplomatic meetings, to activities of the non-
21
governmental associations in the region, think-tanks and research bodies, cultural
institutions or numerous networks of individuals.
It is true, especially for Slovakia that its road to Euro-Atlantic structures led through
Visegrad cooperation. Slovakia is the only country that shares its borders with the other
three Visegrad countries and thus has the unique potential to be the ―glue‖ for this group
of nations. At the same time Visegrad represents for Slovakia an important concept
because, of the four countries, it is the smallest country, and for this reason the most
vulnerable. By joining forces with its neighbours, Slovakia gains in international
recognition and importance. It takes on a role of ―unifier‖ of Central Europe. Similarly,
Slovakia‘s three neighbours, by participating in this cooperation project the image of
solid partners, thus improving their international standing. Figeľ, J. (2002).
Réti, T. (2002) says, that during the twentieth century, economic co-operation between
Visegrad countries has gone through several radical changes. Mutual economic relations
were established on a bilateral basis and regional trade developed within this
framework. Despite geographical proximity, mutual historical experiences and potential
economic benefits stemming from regional co-operation, intra regional trade tended to
decrease. Political considerations were given priority, and comparative advantages
remained under-utilised. The declining and limited scope of intra-regional trade has
strengthened the conviction that small economies could not become natural partners and
their relations could only be guaranteed through the intermediation of major economies
in the region.
Novák, T. (2010) has an opinion that when entering the European Union in 2004, the
Visegrad Group countries were more or less homogeneous in their development paths.
This cannot be considered true any longer as each of the economies in the central
European region are now formulating different economic strategies under the changed
domestic and international conditions and the deep economic crisis over the past two
years has required significant adjustments by all four countries.
Apte, S. (2006) thinks that against the backdrop of the collapse of communism and the
disintegration of established regional structures, the Visegrad Agreement created a
regional alliance to promote political stability, economic growth and prosperity by
strengthening social and economic cooperation between the Czech Republic, Hungary,
Poland and Slovakia. Fifteen years later, in 2006, the alliance has successfully
supported the establishment of democratic government, and entrenched political
22
stability and economic growth in all four countries, symbolically culminating in
accession to the European Union in 2004. This process of transformation has not only
brought prosperity to their people and enhanced the countries' international political
profiles, but it has also opened up significant strategic opportunities for international
financial markets and investors worldwide.
According to Liptáková, J. (2009) THE VISEGRAD Group represents a consistent
geographical region on the eastern border of the European Union. This makes the region
strategically important and also creates opportunities for the group's member states - the
Czech Republic, Hungary, Poland and Slovakia--to utilise their partnership at the
regional level as well as within the European Union, though they often regard each
other as competitors rather than friends, even after 20 years of systemic changes.
Bielik P. – Hupková, D. (2010) explain, that the important difference between the
individual Visegrad countries is connected with their pre-socialist economic
development. Hungary, Slovakia and Poland economy was mostly oriented on the
economic integration with the former Soviet Union. contrariwise Czech Republic was
traditionally oriented towards economic relations with Western Europe. The Visegrad
countries were among the most developed transition economies and also had a rather
favourable starting position in terms of human capital (education and health care).
These countries are relatively open economies. The openness of the Visegrad countries
and the re-orientation of their trade towards the EU underline the benefits that they can
gain from European integration and EU membership.
Smutka, L. – Maitah, M. (2011) say, that V4 countries came through many changes in
last two decades which very significantly influenced their political and especially
economic character. The events connected with the transition from a centrally planned
economy to a market economy, and the subsequent period of preparations for accession
to the EU very greatly influenced the economic structure of these particular countries.
Together with these changes, there were also important changes in the development of
foreign trade territorial and commodity structure off their foreign trade. These countries
reoriented their production capacities such that consumer goods and services took up a
dominant position, whilst at the same time they initiated very intensive business
connections with the countries of today´s EU.
Réti, T. (2002) thinks, that the V4 have made remarkable progress in the process of
trade liberalization that has led to greater international openness and an increased level
23
of integration into the global economy. A more liberal trade regime allowed for a rapid
development of exports and a greater outward orientation. Liberal trade regimes
encouraged economic development in the region and contributed to economic growth.
Exposure to world market prices helped in de-monopolising the economy, supported
competition and improved allocation of resources.
1.3.1 Czech Republic
The Czech Republic counts to the one of the most stable and prosperous of the postCommunist states of Central and Eastern Europe. Keeping an open investment climate
from the pre-transition period has been a key element of the Czech Republic‘s transition
from a communist, centrally planned economy to a functioning market economy. As a
member of the European Union since 2004, with an advantageous location in the center
of Europe, a relatively low cost structure, and a well-qualified labour force, the Czech
Republic is an attractive destination for foreign investment. The small, open, export
driven Czech economy grew by over 6 % annually from 2005-2007 and by 2.5 % in
2008. Nevertheless, the real economy growth declined by 4.8 % in 2009, mainly due to
a significant drop in external demand as the Czech Republic‘s main export markets fell
into recession connected with the global economic crisis, Bielik P. – Hupková, D.
(2010).
National Bank of Poland (2010) says that economy of the Czech Republic, similarly to
most economies in Central and Eastern Europe, suffered in 2009 from the global crisis.
However, GDP contraction (by 4.1% in year-on-year terms) was one of the lowest in
the region. The most important factors affecting GDP contraction in 2009 included a
decline in fixed capital formation and a fall in the level of inventories. Almost all
sectors of the economy suffered from declining investment. Due to uncertainty as to the
future demand, a decline in production capacity utilization and tightening of the banks‘
lending policy, the largest decline in investments was observed in expenditure on
machinery and equipment and means of transport. In 2009 private consumption also
fell. The decline in private consumption, similarly to most countries in the region,
resulted from diminishing household income driven by deteriorating labour market
(decline in employment and wage growth rate).
According to OECD (2010) The Czech economy was severely affected by the global
downturn, owing to its high degree of openness and integration in global production
chains. The fiscal position was also hit hard, prompting a rapid shift in policy from
24
stimulus to consolidation. The medium-term challenges facing the country are
principally concerned with creating conditions for rapid convergence with advanced
OECD economies by restoring the sustainability of public finances and improving the
business environment. The tax and benefit systems have both undergone significant
reforms in recent years. While many of these changes are to be welcomed, some policy
challenges remain:
1.3.2 Hungary
Hungary, from the view of Bielik, P. – Hupková, D. (2010), has made the transition
from a centrally planned to a market economy, with a per capita income nearly twothirds that of the EU-25 average. The private sector accounts for more than 80 % of
GDP. Foreign ownership of and investment in Hungarian firms is widespread. The
budget deficit has reduced from over 9 % of GDP in 2006 to 3.3 % in 2008. Hungary‘s
threatening inability to manage its short-term debt – created by the global financial
crisis in late 2008 – led Budapest to seek and received in October 2008 an IMFarranged financial assistance package worth over $ 25 billion. The global economic
downturn, declining exports, and low domestic consumption and fixed asset
accumulation negatively affected the Hungarian economy.
Novák T. (2010) thinks that the development of the Hungarian economy has diverged
from the other Visegrad countries in the last few years. This principally manifested
itself in a substantial slowdown in economic growth even as early as 2006-2007, well
before the global financial and economic crisis unfolded. Hungary´s lag in growth is
most evident and is well-documented when compared to the development of the other
states that joined the EU in 2004. The impacts of Hungary´s adverse developments have
been clearly visible in international comparisons and they increasingly point towards a
long-term trend that could be difficult to reverse. This also means that the homogeneity
that existed among Visegrad group countries in their development paths upon entering
the EU has, in many respects, ceased.
National Bank of Poland (2010) presents, that in 2009, the gross domestic product in
Hungary decreased by 6.3 % after an increase of 0.6 % in 2008. A strong GDP
contraction was primarily the effect of a declining domestic demand. Private
consumption went down by 7.6 %, and the investment expenditure of enterprises fell by
6.5 %. The limited consumer demand resulted mainly from the declining households
disposable and uncertainties as to the recovery of the Hungarian economy from the
25
recession in a foreseeable future. In contrast, the fact that banks introduced more
stringent terms and conditions to be met in order to receive consumer and housing loans
played only a minor role.
Hungarian Ministry of National Economy (2011) shows, that the size of the Hungarian
national budget relative to the size of our economy is almost 6 percent bigger than that
of the countries with economies at a similar stage of development or that of the average
of the other Visegrád group members. Almost half of the difference is the result of the
significantly higher Hungarian interest liabilities due to our bigger public debt, but our
primary expenditures are also higher than those of our competitors in the region. The
current structure of expenditures in the national budget is not pro-growth: the proportion
of expenditures on investments is low, the proportion of running expenditures is high –
especially, within this, the amount spent on social benefits.
1.3.3 Poland
Bielik P. – Hupková, D. (2010) show that, Poland has before 2009 GDP growth about
5 % annually, based on rising private consumption, a jump in corporate investment, and
EU funds inflows. GDP per capita is still much below the EU average. Since 2004, EU
membership and access to EU structural funds have provided a mjor increase of the
economy. Unemployment fell rapidly to 7.1 % in 2008, climbed back to about 9 % by
January 2010, but remains below the EU average.
Smutka, L. – Maitah, M. (2010) think, that Poland‘s economic performance could
improve over the longer term if the country addresses some of the remaining
deficiencies in its road and rail infrastructure and its business environment. An
inefficient commercial court system, a rigid labour code, bureaucratic red tape,
burdensome tax system, and persistent low-level corruption keep the private sector from
performing up to its full potential.
According to National Bank of Poland (2010), despite a considerable decline in the
GDP growth rate in 2009(from 5 % to 1.8 %), Poland was the country in Central and
Eastern Europe, and also in the European Union, which continued its economic growth.
A smaller significance of exports in the economy and bank loans in financing household
expenditure and enterprises activity, as compared with other countries in CEE,
mitigated the impact of the crisis on domestic demand. Among the region‘s countries,
26
Poland reported both the largest rise – even if lower than in the previous year – in
private consumption and the smallest decline in fixed capital formation.
Accelerated economic growth contributes to Poland being perceived as a successful and
economically and politically stable country with good development prospects. Attention
is being brought to the size of the Polish market and its location in the very centre of
Europe as well as to a good condition of the financial system in Poland and its
resistance to crises. Structural reforms, in particular introduction of a new pension
system, and advancement of the transformation process are much appreciated,
according to Institute for Market, Consumption and Business Cycles Research
(2008), and they add that, a huge challenge for Poland‘s economic policy, especially in
the context of its preparation for membership in the Euro zone in the future, is to
improve the situation in the public finance sector. It will require reduction of pressures
on excessive increase in social expenses and implementation of a comprehensive public
finance reform, even if the overall economic situation becomes worse.
1.3.4 Slovakia
Oravec, J. (2004) says, that if we compare the current ownership structure of the
Slovak economy with the situation at the beginning of the nineties, it is easy to notice
the tremendous change has taken place. During that time the economy was nearly fully
nationalized, as opposed to today, where close to 90 % of the gross domestic product is
generated by the private sector. This ration is high, even in comparison with developed
economies that perform much better than the Slovak economy. Thus, both economic
theory and practice sufficiently proved that the private sector is more efficient and
productive than the public sector. The high private sector share in Slovakia‘s GDP is
good news for citizens, as it creates a base that will allow Slovakia to reach the
economic and social level of the more developed countries in a shorter time.
Bielik P. – Hupková, D. (2010) say, that slovakia has made significant economic
reforms since its separation from the Czech Republic in 1993. Reforms in the field of
the taxation, pension, healthcare and social welfare systems helped Slovakia to
consolidate its budget and to become the EU member in 2004 and to adopt the Euro in
January 2009. Foreign investment mostly in the automotive and electronic sectors has
been strong. Unemployment, at an unacceptable 19 % in 2003-04, dropped to 9.5 % in
2008 but remains the problematic macroeconomic indicator. GDP fell more than 5 % in
27
2009 and unemployment rose above 11 %, as the global recession impacted many
segments of the Slovak economy.
Liptáková, J. (2010) explains that Slovakia, as an extremely open economy dependent
on external demand, could not escape the consequences of a sharp decline in export
orders at the turn of 2008 and 2009. It was the sharp decline in exports, by 16.5 % yearon-year in 2009 that pulled Slovakia into recession last year. The international
comparison of real GDP performance during the recession is inevitably skewed by the
extent to which a particular country is dependent on external demand.
Juríčková, V. et al. (2003) says, that in view of other enterprise sphere development
prospects the business environment is the decisive factor for increasing its
competitiveness. It includes economic conditions and those prerequisites for
enterprising that depend on the economic-political measures taken by the state and its
specialised institutions. Creating of business environment is mainly the task of the
government policy. This, however, does not mean that the enterprises themselves
cannot or should not participate in its improvement. On the contrary, their participation
is necessary in particular with respect to the communication with governmental
institutions, their feedback and communication among the business.
1.4 Possible improvements of economic systems
The main attribute of the process of creating a functioning market economy is change.
The success of a concrete enterprise depends on how it manages to cope with the
changes. Here, the main role is played by the management. Managing the enterprise is
the key to success. Effective utilisation of enterprise competitive advantages and
minimisation of competitive disadvantages depends on its quality. Currently,
investments in technologies innovation and human potential quality should become the
main growth factors. At the same time, these also become the main factors of
productivity growth, thinks Juríčková, V. et al. (2003) and she adds, that the corporate
sphere is a highly structured and highly differentiated entity. The category of small and
medium sized enterprises is gaining an important position in it. They are becoming the
basic element of effective economy functioning and they are also called the backbone of
the EU economy. There they also need special attention to be paid by the governmental
policy.
28
Mankiw, G. N. (2008) claims that the standard of living in an economy depends on the
economy‘s ability to produce goods and services. Productivity, in turn, depends on the
physical capital, human capital, natural resources, and technological knowledge
available to workers. Government policies can try to influence the economy‘s growth
rate in many ways: by encouraging saving and investment, encouraging investment
from abroad, fostering education, promoting good health, maintaining property rights
and political stability, allowing free trade, and promoting the research and development
of new technologies.
Similar opinion has author Schiller, B. R. (1999), who says if we want GDP per capita
to keep going up, productivity will have to continue rising. Productivity gains can
originate in a variety of ways. These sources include better labour quality, increased
capital investment, research and development, and improved management. The policy
levers for increasing growth rates include education and training, immigration,
investment and saving incentives and deregulation. All of these levers may increase the
quantity or quality of resources.
There are four key priorities for reform in Europe, according to Trichet, J. C. (2006):

Well-functioning labour markets - Necessary labour supply-side measures
include the reform of tax and benefit systems to increase incentives to work. To
stimulate labour demand, there is a need to promote wage flexibility and address
labour market rigidities.

Increasing competition - Europe should step up measures to boost services
market competition in order to support a higher level and growth rate of labour
productivity and promote a more dynamic economy.

Unlocking of business potential - by creating an entrepreneurial-friendly
economic environment and lowering administrative costs imposed by the public
sector.

Policies that help to diffuse innovation – in order to fully exploit productivity
potential, labour and product market reforms. Including measures to support
higher investment in research and development.
OECD (2008) suggests supporting services sector, in order to improve country
economy, because the service sector is an important component of any country‘s
economy. It makes a direct and significant contribution to GDP and job creation, and
provides crucial inputs for the rest of the economy, thus having a significant effect on
29
the overall investment climate, which is an essential determinant of growth and
development. Some service sectors such as the health, education, water and sanitation
sectors, are also directly relevant to achieving social development objectives. These
service sectors are thus a key part of the investment climate, and can have a much wider
impact on overall business performance and the level of investment, and hence growth
and productivity in the economy.
Knowledge is often thought of in economic terms as a key strategic resource. What
underpins this view is a recognition of the evaluative, interrogative and future-oriented
nature of knowledge. This is an important observation and together with the publicgood nature of knowledge leads us to the recognition of the need for knowledge to be
factored into policy and strategy, claim Rooney, D. – Hearn, G. – Ninan, A. (2005),
and they add, that governments are now attempting to advance knowledge-based
economy policy models and there is a renewed sense of urgency in policy circles for
such things as innovation, R&D-driven industries, science, and education and training.
Clearly, if we are right, the role of government in the development of a successful
knowledge-based economy needs to be much more than this. Governments need to be
coordinators (mediators, organizers, transformers), and provide intellectual leadership
and vision, as well as the social and cultural resources for communities so that they are
knowledge and communication rich.
The book of Kelemen, J. et al. (2010) shows the significant impact of investment into
information technology both on labour productivity and economic growth, mainly in
advanced and emerging economies. The results also indicate that investment into IT per
se may not generate desired results without accompanied investments into critical
determinants of IT (namely, human capital and IT infrastructures) that are
complementary to production and effective use of IT products and services. The global
competition is determined to a large extent by competitive advantage rather than by
comparative advantage and that innovation will remain the sole source of sustaining
competitiveness. Therefore, countries or economies lagging behind investments in R&D
and information and communications technologies are condemned to lag behind in
everything else. High quality and globally competent education system will remain at
the heart of innovation and efficiency.
30
2 Aims of the Thesis
As the various countries are at different stages of economic development and
have different standards of living, it can be very helpful to look for such differences and
to find out the reasons and consequences. Such an analysis can contribute to performing
better economic policies, which should lead to improvement in many economic and
social areas within a country. Based on that, we have stated the main objective of the
diploma thesis as a comparison of economies of Visegrad group countries and their
economic systems and subsequent identification of ways how to foster economic
performance of a country or its competitiveness. Comparison has been based on specific
economic indicators and its development and trends from year 2000 up to 2009 or 2010
if such data were available. To fulfill the main goal, we need to compare particular
indicators in a given period and to analyze its development, after that we are required to
analyze other indicators, which could influence the overall economic outcomes.
Identification of the most influential variables on economy‘s positive or negative
growth, let us formulates the recommendations for economic policies, which should
secure the stability, efficiency and sustainable growth.
Among partial and supportive aims we have analysis of situation in individual countries,
and identification why some of them were successful more and some less. This provide
solid basis for identification the drivers of economic success, which could with a high
certainty work also in other ones. Another partial goal is to compare countries in
international rankings, which shows the economic and political environment and
business climate. It is necessary to define the level of economic development and to
show whether the economic system of the country is closer to planned economy or to
market oriented economy. The very important issue is to take a deeper look into
question of liberalization, meaning if the more liberalized economies have a better
economic results and whether they reach higher standards of living for their inhabitants.
So finally, we can say that that our goal is to find out which countries were
economically the most successful and why. Identification the reasons of better results of
one economy comparing to another, can lead to recommendations, what kind of steps
should be taken to boost the economic growth, to secure the stability and to provide the
sustainable improvement of living conditions.
31
3 Materials and methods
According to the previously set objectives, we have used mostly comparative
methods to fulfil them. Except of comparison we used as well methods of analysis,
synthesis and simple statistical evaluation. In the thesis we have focused on comparing
macroeconomic data, data considering government finances, data evaluating business
environment and international rankings data. As we have compared various indicators,
we have had to use different sources to obtain these data. The basic source of data has
been statistical portal of European Commission – Eurostat, because V4 countries are in
European Union and Eurostat is the central statistical institution providing data about all
of the EU members in various areas of human activities, in our case economics. But
Eurostat doesn‘t cover everything what we have decided to use in the thesis, so we have
used other, mostly international, institutions to get these data. The very important source
has been Organization for Economic Cooperation and Development (OECD), an
organization associating 34 richest countries in the world. Another indispensable source
has been World Bank statistical database, where are the data about every country in the
world located. World Bank also provides the Doing Business Initiative, where are data
evaluating business environment in particular countries, as well as their rankings,
available. International Monetary Fund (IMF), has been valuable source in the case of
public finances comparison. The Heritage Foundation provides Index of Economic
Freedom score, which we have used to analyse economic liberty in V4 region. The
Hungarian ministry of national economy has provided data for one, but very important
topic. The last but not least source has been World Economic Forum (WEF), with its
Global Competitiveness Index (GCI), showing current overall economic situation, as
well as future economic potential in the country comparing to the world. In the thesis
we have decided to use comparing period from year 2000 up to the latest available data,
mostly from 2009, but in some cases 2010. This time series has covered all the
important economic events in the last decade, which influenced Visegrad region,
namely EU accession in 2004 and world economic crisis starting at the end of 2008. To
be able to easily compare the data and indices across the countries, we have in majority
used relatively expressed data, usually as a percentage share on Gross Domestic Product
(GDP), some indicators expressing growth rate have required using percentage change
on previous year. In a few special topics we have used international rankings and
globally standardized scores. Euro per hour method has been used in one case, too.
32
The compared data has been transformed into the graphs and tables. The graphs have
been used mostly for the comparison of development in time and to provide the
visibility of trends. Graphical analysis also helps to create a better picture about overall
situation in a given topic and make a comparison easier. Additionally, the graphs
provide a space for interesting findings, like changes in trends and with the partial
graphs allow us to look for the causes of the changes and correlation between them. The
tables have been used because of better visibility of differences, which were sometimes
small but significant. The other reason for using the tables has been inability to see the
exact values in the graphs, because of the lack of space on pages and thus smaller scales
used. The graphs and tables are analysed and subsequently commented, with the help of
the literature studied. To better understand a situation and to find the reasons for
observed values and growth rates, we have studied various sources connected with a
given topic and Visegrad group countries, mostly from the internet sources, magazines
and books.
In the first section we have analyzed GDP and its development from 2000 up to 2010.
From the partial GDP indicators we have focused on GDP growth rate (% change on
previous year); GDP per capita in Purchasing Power Standard (PPS); GDP relatively to
EU 27 (%); GDP composition by sector – agriculture, industry, services, (% share).
The second section shows Labour productivity, expressed in Euros per hour worked,
and its annual growth rate in percentage change. In this section we have tried to explain
the correlation between GDP growth and productivity growth.
The third section has been dedicated to foreign economic relations, where we have
decided to use easily comparable indicators: Foreign trade as a % of GDP, calculated
like (exports + imports/GDP)*100; and foreign direct investment (FDI) intensity,
calculated in the same way, but instead of imports and exports, have been used inward
and outward FDIs.
The next section discuss about government finances. First of all is total tax rate then tax
revenues, then government revenues and expenditures, after that is government deficit,
later is public debt, followed by government expenditures composition with emphasis
on R & D spending.
The fifth section analyses the business environment, stressing the position of SMEs.
The last section examines the competitiveness of Visegrad economies and their
neighbours in worldwide comparison in 2010 and its change from 2009.
33
4 Results and Discussion
4.1 Gross domestic product – GDP
Gross domestic product (GDP) is the most common indicator, expressing the
wealth of a country, in other words country‘s standard of living. GDP can be defined as
total market value of all final goods and services produced within a country, in a given
period of time, typically one year. It can be calculated by various methods, but the most
usual is that GDP equals to total value of private consumption (C), investments (I),
government spending (G) and exports (X) minus imports (M) - (net exports).
Mathematically written as GDP = C + I + G + (X-M). Although the GDP has many
limitations like wealth distribution inequality, it is still the best comparable economic
indicator worldwide, used by many economists. Gross domestic product can be
expressed in different ways such as GDP per capita, GDP growth or composition by
sector and each of them has some pros and cons, but together these indicators can
provide a reliable overview of national economies or background for further comparison
between particular states or groups of the states.
4.1.1 GDP growth rate
GDP growth rate in our case presents a percentage change of GDP from previous year.
It simply means how much has national GDP relatively increased, or decreased.
GDP growth (market prices)
% change on previous year
15,0
10,0
5,0
Czech
Republic
Hungary
0,0
Poland
Slovakia
-5,0
-10,0
Years
Figure 1[GDP growth – percentage change on previous year]
Source: Eurostat
34
From the Figure 1, is clearly visible year by year GDP growth. The graph shows how
GDP grew from year 2000 up to year 2010 in Visegrad group countries. From these
time series, we can say which economy had better performance and outcomes, and
which worse. After the fall of communism, the change of economic system from
centrally planned to market oriented economy was unavoidable. In the beginnings of the
turbulence 1990s the GDP of these countries significantly declined, because of radical
and immediate changes. This decline was even accompanied by high inflation,
unemployment and deteriorating standard of living. But then the Visegrad economies
started to stabilize and grow, thanks to systematic reforms, foreign investments and
developing entrepreneurship sector. In spite of political instability and high level of
corruption, the countries were able to find their way to become modern market
economies. From year 2000 as is shown in the graph, the GDP growth varied between 2
% in Slovakia up to 5 % in Hungary, which was at that time an aim of high number of
foreign direct investments. The quite moderate growth continued till 2004, when V4
countries successfully joined the EU, this accession has contributed to the growth even
more. The most visible is the case of Slovak Republic which became the leader among
these countries. This growth was mostly driven, except of EU accession, by economic
and social reforms made by government. Reforms such as tax reform, undoubtedly
contributed to higher economic activity and massive foreign direct investments inflow,
mostly in automotive industry. These circumstances led to the one of the highest GDP
growth in the whole Europe in 2007 and the biggest in Slovak history, at the level of
10.7 %. Other V4 countries noted a relatively high growth as well, except of Hungary,
which because of irresponsible and inappropriate economic policy didn‘t reach even 2
% growth. Positive development in the other 3 countries was influenced by global
economic growth, rising domestic consumption and opening new market for exports.
Things changed in year 2008, when US financial crisis broke out. This crisis spread up
globally and influenced almost all the economies in the world. Financial crisis
consequences caused a global economic crisis, which had crashing impacts on some
world economies, such as Hungary, which was forced to get the huge loan from
International Monetary Fund. Economic crisis hit the markets mostly in 2009, when
GDP in Czech Republic, Hungary and Slovakia felt down about 5 %. It caused many
problems in national economies, in social indicators, as well as in government spending.
The exception was Poland, the only country with positive GDP growth in the whole
Europe, what was caused mainly by strong domestic market demand.
35
4.1.2 GDP per capita
GDP per capita is relative indicator, which shows the value of GDP per one inhabitant.
It is simply GDP divided by number of inhabitants, usually expressed in Purchasing
Power Parities, so it can be widely comparable across the countries.
Purchasing power parities (PPPs) tell us how many currency units a given quantity of
goods and services costs in different countries. Using PPPs to convert expenditure
expressed in national currencies into an artificial common currency, the purchasing
power standard (PPS), eliminates the effect of price level differences across countries
created by fluctuations in currency exchange rates. (Eurostat).
GDP per capita (PPS; market prices)
22000
PPS per capita
20000
Czech
Republic
Hungary
18000
16000
14000
Poland
12000
Slovakia
10000
8000
2000 2001 2002 2003 2004 2005 2006 2007 2008 2009
Years
Figure 2 [Purchasing Power Standard per inhabitant]
Source: Eurostat
In case of GDP per capita, the Czech Republic has always been a leader among V4
countries. This primacy has roots in the communist era, when Czech economy was
export oriented and later could benefit from its close position to Western Europe.
Indicator in whole Visegrad region had an increasing tendency, until year 2008, when
financial crisis hit the markets. But as in the previous case, Poland was the only country
which could sustain a positive development. But in general, all the countries were able
to improve the standard of living expressed by this indicator, comparing to year 2000.
Data from the graph also show the significant improvement in case of Slovakia, which
managed to overcome Hungary between years 2005 and 2007 and still can maintain a
certain distance before Poland. But Poland seems to have a sustainable growth, based on
responsible economic policy and increasing domestic consumption.
36
4.1.3 GDP relative to EU27
This indicator shows what percentage level of EU 27 GDP, countries reach. In our case,
the comparison is based on Euro per inhabitant, what means, GDP of entire European
Union expressed in Euros, divided by number of its inhabitants. Then we divide GDP
per capita (euros) in selected country, by GDP per capita in EU27, multiplied by 100
and we get the percentage level of the country. In other words, how particular countries
lag, or advance in comparison to European average.
% of EU 27 average
GDP at market prices
60
55
50
45
40
35
30
25
20
Czech
Republic
Hungary
Poland
Slovakia
2000
2001
2002
2003
2004
2005
2006
2007
2008
2009
Years
Figure 3 [Percentage of EU27 total (based on euro per inhabitant)]
Source: Eurostat
Data transformed to graph - Figure 3, show similar development as in the previous GDP
indicators, mostly rising tendencies. The graph shows development from year 2000 up
to the latest available data, in this case year 2009. It is needed to say, that this indicator
doesn‘t take into account regional disparities and distribution inequality of GDP,
because some areas like capital cities have higher GDP level than EU 27 average.
Starting point varied between 20 % in Slovakia and 30 % in Czech Republic, which
keeps its economic leadership even in this indicator. Poland and Hungary reached in
year 2000 one quarter of EU‘s GDP. Year by year differences between V4 and EU
started to diminish slowly, due to positive GDP growth in these countries. In the case of
Czech Republic is clearly evident, that EU accession in 2004 strongly contributed to
further progress and this country was able to cross 50 % line in 2007, and is on the best
way to reach EU level in next decades. The Slovak economy showed the best
performance and from very bottom it became the second successful economy among
Visegrad group states.
37
4.1.4 GDP composition by sector
The last of the GDP indicators shows how GDP is created by economic sectors, in other
words what share has the particular sector on national economy. We recognize 3
economic sectors: Agriculture (including forestry), Industry and Services sector. Each
of them contributes to GDP creation by different share. This share is typically expressed
by percentage and total sum of percentage shares should be 100 %. So this indicator is
very helpful in deeper analysis of national economies and economic systems, because it
shows composition of nation‘s wealth. We can even say whether country is rich, or not,
only by look at GDP composition, specifically to services sector share, because general
rule says that the higher service sector share, the richer country is.
GDP composition by sector (2009)
70,00
65,90
60,50
62,86
65,88
60,00
% of GDP
50,00
40,00
37,22
30,80
30,00
30,49
34,53
20,00
10,00
2,28
3,30
3,64
Agriculture
Industry
Services
2,61
0,00
Czech Republic Hungary
Poland
Slovakia
Figure 4 [Sector composition of GDP]
Source: World Bank
The graph above provides an overview on national economy composition in Visegrad
group countries in year 2009. It is obvious that, the smallest share has the agriculture
sector which doesn‘t exceed 4 %, but it can have higher share on total population
employed by sector. This is the case of Poland, which has the biggest share of
agriculture among V4 and percent of people employed in agriculture is even higher, and
reaches about 10 % or more. Such a situation arises from governmental policy, which
favours farmers and strong agricultural lobby. Farmers in Poland have lower taxes and
contributions than others entrepreneurs. The lowest share of agriculture is in the Czech
Republic and Slovak Republic, what according to theory proves the better economic
performance of these countries. Approximately one third of economy is created by
industrial sector. The most important is services sector, which share in Hungary and
Poland is almost 2/3 of GDP and about 60 % in Slovakia and Czech Republic.
38
4.2 Productivity
Gross domestic product strongly depends on economy‘s productivity. Because the
higher productivity is, the better can an economy use its resources and thus reach higher
economic outcomes. Productivity depends on labour quality, technological level, capital
investment, natural resources, research and development and management quality, so all
these areas have an indirect influence on GDP. As for example technological level
increases productivity, and increased productivity raise the value of production, in fact
GDP. Productivity is often expressed in terms of labour productivity, because human
capital is the most valuable resource almost in every economy in the world nowadays.
Labour productivity can be expressed in a few different ways, but the one commonly
used is labour productivity per hour worked in a certain currency, in our case in Euro.
This indicator is easily comparable across the countries in the European area.
Table 1 [Real labour productivity per hour worked]
Year
2000
2001
2002
2003
Country
2004
2005
2006
2007
2008
2009
2010
Euro per hour worked
Czech
Republic
6,1
6,5
6,6
6,9
7,2
7,5
7,9
8,2
8,3
8,3
-
Hungary
5,9
6,3
6,6
6,9
7,3
7,5
7,8
7,9
8,0
7,8
7,9
Poland
6,1
6,4
6,7
7,0
7,3
7,4
7,6
7,8
7,9
8,2
8,3
Slovakia
6,0
6,3
6,7
7,2
7,4
7,6
8,2
8,6
9,0
9,1
9,3
EU27
25,6
26,0
26,4
26,8
27,2
27,5
28,0
28,3
28,3
28,0
28,4
Source: Eurostat
In the Table 1 we can see the development in real labour productivity per hour worked
expressed in Euro, from 2000 up to latest available data – year 2010. Except of
Visegrad group countries, there is also European Union average. The rising tendency is
visible in all the countries as well as in EU27. We can say that starting line in 2000 was
the same for every country and it was 6 Euros. But the levels in 2009/2010 already
show not minor differences, what means that productivity evolved alternatively from
country to country. Slovakia is the most successful example, as it was able to increase
its productivity by more than 50 %, to the level 9.3 euro/hour in year 2010. The worst
situation was in Hungary, as it was able to increase its productivity in ten years only by
33 % to 7.9 euro/hour. Development in the Czech Republic and Poland was very similar
again, but not very bright because increase was 1/3 in 2009 comparing to 2000. The
very interesting is comparison with EU as V4 reach only about 30 % of EU level.
39
The situation from the Table 1 is graphically explained in the Figure 5, where the
percentage growth of labour productivity is shown. Growth rate is calculated as a
percentage change on previous year level. But in this graph we replaced EU27 data for
OECD data, as they were available. From this indicator we can better understand the
contribution of labour productivity to GDP growth and analyse situation in the countries
and in Organization for economic cooperation and development, which consists of 34
richest countries in the world.
Labour productivity growth rate
10,00
Czech
Republic
Hungary
8,00
% growth
6,00
4,00
Poland
2,00
Slovakia
0,00
2000
-2,00
2001
2002
2003
2004
2005
2006
2007
2008
2009
OECD
-4,00
Years
Figure 5 [Labour productivity annual growth rate (%)]
Source: OECD
If we compare data from the graph above and data in the Figure 1 we can see a strong
correlation between productivity growth and GDP growth, what proves the theoretical
assumption that increasing productivity improves economy‘s GDP. Such a situation is
best visible in the case of Slovakia, where the productivity growth was relatively high
comparing to other countries, except of year 2004, when it was 2 %. The highest growth
was observed in 2007, when Slovakia reached one of the highest GDP growths in the
whole Europe. But in 2008 the annual growth rate fell down rapidly to 2 %, mainly
because of economic crisis. Other countries weren‘t so successful; probably the worst
situation was in Poland, when in 2005 the labour productivity hardly achieved positive
growth. Hungary‘s productivity had a declining tendency, as the growth was lower and
lower year by year and it was the only country which observed a negative growth, at
level –3 % in 2009. When comparing V4 countries with OECD group, it is obvious that
V4 rates were highly above OECD average, it can be explained by significantly higher
level of productivity in OECD countries, and thus small space to move it up.
40
4.3 Foreign economic relations
4.3.1 Foreign trade
Nowadays there is almost no economy without external relations in the world. Every
country is somehow interconnected with the rest of the world, and thus expressions like
autarky almost lost their meaning and importance, and are used mostly in theory, rather
than in practice. Some countries are politically and economically dependent on the
outside world, due to lack of resources, social conditions or other reasons. In economic
terms the openness of economy to the outside world, can be expressed by foreign trade,
membership in international economic organizations, balance of payments or by foreign
investments. Foreign trade shows how much a country imports or exports goods and
services with other states. Exports and imports can create a huge part in certain
economies, and thus shows the level of dependency on external business environment.
The best way how to express this dependency or we can say openness is the relative
indicator, which shows foreign trade as a percentage of GDP. It can be easily calculated
by summing up exports and imports divided by GDP, then multiplied by 100, to provide
% of GDP
it in percents. This indicator allows easy comparison of economy openness.
Exports and Imports/GDP
225
200
175
150
125
100
75
50
2000
Czech
Republic
Hungary
Poland
Slovakia
2001
2002
2003
2004
2005
Years
2006
2007
2008
2009
Figure 6 [Trade as % of GDP]
Source: World Bank
Figure 6 shows trade as a percentage share on GDP in the V4 countries. The highest
share is in the Slovak Republic, where in 2009 the sum of foreign trade was twice as
high as GDP, mainly because pro export orientation of economy based on automotive
and electronic industry. Hungary and the Czech Republic were relatively close to
Slovakia at level between 125 and 150 % of GDP, with slightly rising tendencies. The
opposite situation was in Poland, around 75 %, because of big domestic market.
41
4.3.2 Foreign direct investment intensity
Another indicator showing international economic relations is Foreign Direct
Investment (FDI) intensity. FDIs occur when a company from one country invest
money in another country, for example when it builds a new factory in host country.
FDIs can be either inward or outward, depending on investment direction. Nowadays,
FDIs play an important role in globalized world, and can provide new technologies,
capital, new products, management skills and impulse to economic development.
Comparison the levels of FDIs can be easily done via FDI intensity indicator, as it is
expressed as a percentage share of inward/outward FDIs on GDP, the table below.
Table 2 [Foreign Direct Investment intensity]
Year
Country
Czech
Republic
2000
2001
2002
2003
2004
2005
2006
2007
2008
2009
Inward + Outward FDIs as a percentage of GDP (%)
4,5
4,7
5,8
1,3
2,7
4,7
2,4
3,5
2,9
1,1
Hungary
2,3
4,0
2,4
2,3
2,7
4,5
5,0
3,4
1,7
1,7
Poland
2,7
1,5
1,1
1,2
2,7
2,3
4,2
3,4
1,6
2,2
Slovakia
5,3
3,7
7,8
3,6
3,6
2,7
4,6
2,8
1,9
0,2
Source: Eurostat
From the Table 2 we can compare FDI development from 2000. In average the share in
all the countries was about 3 %, but it differed from year to year. The best and the worst
situation was in Slovakia, when in 2002 FDIs reached almost 8 %, while in 2009 poor
0.2 %. In spite of the absolute high number of FDI in Poland, the relative values were
the lowest in Visegrad region. From the graph below we can find tendencies in the past
years, but future development is hard to predict as it will depend political stability,
economic policies and reforms, as well as on economic situation in developed countries.
FDI intesity - average value of inward and outward FDI
flows divided by GDP, multiplied by 100
9,0
%
7,0
5,0
Czech
Republic
Hungary
3,0
Poland
1,0
Slovakia
-1,0
2000
2001
2002
2003
2004
2005
2006
2007
2008
Years
Figure 7 [Foreign Direct Investment intensity]
Source: Eurostat
42
2009
4.4
Government finance
4.4.1 Taxation
In developed economies taxes create about 90 % of total government revenues, so it is
very important to take them into consideration and compare across the countries. Taxes
are commonly divided into various types, such as personal/corporate income taxes;
value added tax, property tax, fuel taxes and mandatory social contributions. All these
and some others bring money to national or municipal budgets. On the level of taxes
and contributions depends how big the government revenues will be. General principle
is that the higher the taxes, the bigger the government revenues and thus larger space for
expenditures. But taxes and contributions create a burden on individual persons, private
businesses and whole entrepreneurship sector. High tax burden can discourage
entrepreneurs from doing their economic activities, what can have a negative impact on
whole economy, like a decreasing of GDP. Tax rates are usually expressed in percents
and can be fixed, proportional, regressive or progressive. Every country has its own tax
system, which involves different types of taxes as well as different levels, what is
difficult to use for comparison. But there are already some indicators, which allow us to
compare total tax burden in whole economy or on the business sector. We decided to
use Total tax rate indicator calculated by World Bank, which measures the amount of
taxes and mandatory contributions borne by the business in the second year of
operation, expressed as a share of commercial profit.
Total Tax Rate (2009)
% of profit
60
40
48,8
53,3
42,3
48,7
Czech
Republic
Hungary
Poland
20
Slovakia
0
Czech Republic
Hungary
Poland
Slovakia
Figure 8 [Total tax rate as a percentage of profit]
Source: World Bank Group
So the Figure 8 shows the total tax burden on enterprise or business unit, in V4
countries in 2009. The highest tax rate is in Hungary, at level of 53 %, what proves the
43
Figure 9, where Hungary has the highest total tax revenues. The reason can be found in
higher demand from the government side, as it has to cover its huge and inadequate
expenditures. But the effect of higher tax burden is questionable, because in spite of the
highest total tax rate among V4, the GDP growth as well as other GDP related
indicators hasn‘t reached the levels of the rest of Visegrad group. On the other hand, the
lowest tax rate is in Poland – 42 %, but total tax revenues were higher than in Slovakia,
what can be explained higher tax efficiency and by assumption that lower taxes foster
economic activity within the country. The Czech Republic and Slovakia have almost
identical rate and it is 48.8 respectively 48.7 %, what is somewhere in the middle in
Visegrad group. What differs between those two countries is total tax revenue as shown
in the Figure 9, where the Czech Republic reaches 35 % of GDP while Slovakia only 29
% of GDP. We should look for the reason probably in different structure of taxes and
also in more developed business sector in the Czech Republic. So from the total tax rate
we skip into another tax indicator – total tax revenue, which shows total amount of
% of GDP
government revenues from taxes expressed as a percentage share on GDP.
Total Tax Revenue
41
40
39
38
37
36
35
34
33
32
31
30
29
28
2000
Czech
Republic
Hungary
Poland
Slovakia
2001
2002
2003
2004
2005
2006
2007
2008
2009
Years
OECD
total
Figure 9 [Total tax revenue as percentage of GDP]
Source: OECD
From the graph above we can observe tendencies in tax revenues in V4 countries and
OECD average. Generally applies that higher taxes produce higher revenues, but there
are many other factors, which influence this phenomenon, like economic activity, tax
structure and tax efficiency. Slovakia with its flat tax rate at 19 % has the lowest
revenues while Hungary with the highest total tax rate has the biggest revenues. Poland
and Slovakia had very similar level of revenues, until 2004 when trends took different
directions, falling in Slovakia, rising in Poland. OECD average lies exactly in the
middle with its 35 %, and shows golden mean to which Poland is the closest.
44
4.4.2 Government revenues and expenditures
Government revenues consist of taxes, social contributions, grants receivables and other
revenues, which are later redistributed among society and governmental institutions or
for other purposes. Government can spend collected money – national budget in a way,
which it thinks is the best. So it is mainly up to the government, how will the national
wealth be spent. But the spending depends on revenues; it means that, the more the
government get, the more it can spend. The chosen indicator shows, the total
government revenues as a % of Gross domestic product in a given period, so it can be
more easily comparable among different countries, Visegrad group in our case. Total
general government revenue indicator, shows the percentage level of national Gdp from
year 2000 up to year 2009. This relative indicator is dependent on level of GDP as well
as its percentage growth. Because if the GDP grows, and the revenues will stay the
same as in the previous year, it means that share of revenues will decrease, and vice
versa. But if we want to know overall situation in public finances and redistribution of
national wealth, we have to first know the revenues and its tendencies.
Table 3 [Total general government revenue (% of GDP)]
Country/Year
2000
2001
2002
2003
2004
2005
2006
2007
2008
2009
Czech
Republic
38,1
38,7
39,5
40,7
42,2
41,4
41,1
41,8
40,2
40,2
Hungary
43,7
43,1
42,2
42,2
42,3
42,3
42,6
45,0
45,1
46,1
Poland
38,1
38,5
39,3
38,5
37,2
39,4
40,2
40,3
39,5
37,2
Slovakia
39,9
38,0
36,8
37,4
35,3
35,2
33,4
32,5
32,9
33,6
Source: Eurostat
So in table 1 we can see that revenues vary among countries. But the range of data is not
very much dispersed, and keeps in the boundaries between 30 up to 50 % of GDP. The
Czech Republic keeps quite stable level throughout the years, closely to 40 %. The
Hungary has the significantly higher level than the other countries, what can be caused
by higher tax rates, which bring more money to government budget. Although Poland
has the lowest total tax rate, it reaches the similar level as the Czech Republic, because
of structure of taxes and bigger domestic market. The Slovak Republic is the country
with the lowest percentage level, what can be matched to the reform aimed to lowering
and simplifying of the taxes, as well as to effort for public finance consolidation.
45
Opposite to the revenues we have government expenditures, what means all the money
spent by government. Government has the various obligations, like paying of loans,
interests, social spending, national defence expenditures, health expenditures,
expenditures on education and many others. Government also has to fulfil the financial
obligations arising from membership in international organizations such as IMF, OECD
and others. If we sum up all these expenditures in a given year, and divide it by national
GDP, we get Total general government expenditures expressed as a percentage share of
GDP, as shown in the table below.
Table 4 [Total general government expenditure (% of GDP)]
Country/Year 2000
2001
2002
2003
2004
2005
2006
2007
2008
2009
Czech
Republic
41,8
44,4
46,3
47,3
45,1
45,0
43,7
42,5
42,9
45,9
Hungary
46,8
47,2
51,2
49,4
48,7
50,2
52,0
50,0
48,8
50,5
Poland
41,1
43,8
44,3
44,7
42,6
43,4
43,9
42,2
43,2
44,4
Slovakia
52,1
44,5
45,1
40,1
37,7
38,0
36,6
34,3
35,0
41,5
Source: Eurostat
In this table, we can see year by year development in all the Visegrad group countries.
This indicator is not so dependent on taxes and contributions, because government can
spend much more than it earns, but it has to take the loans and pay interests later and
accumulation of the loans creates government debt, which can have crucial impact on
the entire economy. But there is still some correlation between expenditures and taxes,
which is that the higher taxes produce higher revenues, and with the higher revenues,
the government can afford bigger spending. In many cases the government spending is a
question of political issues, because political parties can keep the voters via the
fulfilling of their wishes, mostly of financial character, like higher retirement pension.
In case of Visegrad group countries, situation is many times like this, when politicians
do not accept economists‘ advices. It is most visible in case of Hungary, where
expenditures were much higher than revenues, despite not high GDP growth, and was
forced to take a huge loan from IMF to avoid state bankrupt. When comparing Poland
and Czech Republic, the situation was similar as in the previous case, and they could
maintain quite stable level, somewhere about 44 %. At the beginning the worst situation
was in the Slovakia, where expenditures were very high, but the country was able to
reduce its expenditures to the lowest value among V4 countries. Such a situation was
caused by strong GDP growth and quite stable government spending.
46
4.4.3 Government deficit/surplus
We can simply say, that revenues are what government gets, and expenditures what
governments gives, and the difference is deficit or surplus. Government deficit occurs,
when government spends more money, than it earns and to cover this budget gap a
government needs to borrow money from external sources. The other situation happens,
when government spends less money, than has revenues, and it allows it to lend this
surplus on financial markets. Government has to pay interests when borrowing money,
and opposite, it earns interests when lending money. The best situation is when state
budget produces surpluses and gets interests, but it is very rare in countries like
Visegrad. The most common way to express government deficit or surplus is to
calculate it like a percentage share of GDP in a given period, typically one year. This
indicator allows a better understanding of relations and consequences in the economy
and easier comparison among particular countries.
Government deficit/surplus
0,0
-2,0
Czech
Republic
Hungary
% of GDP
-4,0
-6,0
-8,0
Poland
-10,0
Slovakia
-12,0
-14,0
Years
Figure 10 [Government Net lending (+) / net borrowing (-), (% of GDP)]
Source: Eurostat
As visible in the graph above, none of the countries was able to reach a surplus in
period between year 2000 and 2009. The closest to reach the balanced budget (zero
deficit) was the Czech Republic in 2007, but then it fell down again mostly because of
financial crisis. The country had to support domestic market and provide other
necessary steps to stop the impact of economic crisis. This situation was almost the
same in all other V4 countries. Poland had a very similar development of this indicator
comparing to Czech Republic, but the final deficit in 2009 was about 1 % higher.
47
Different situation was in Slovakia, which in year 2000 reached deficit at level 12 % of
GDP, what was very inconvenient situation. But pro-reform government managed to
reduce this inadequate figure to almost -2 % in four years. The next four years the
deficit was quite stable around -3 %, until 2009 when economic crisis had its strongest
impact on economy. The reason for a relatively low deficit in 2007, 2008 in Slovakia
was the goal to adopt Euro currency in 1.1.2009. One of the convergence criteria was to
maintain stable deficit below 3 % of GDP, and as Slovakia was in ERM II mechanism,
it was crucially important to keep the set conditions. In the end, this effort was
successful and Slovakia has converted from Slovak crowns to EUROs in 2009, but in
the same year the deficit drop to unacceptable 8 %. But the prognoses show a
decreasing development in next year, to reach the level below 3 % again. Hungarian
deficit in 2000 was 3 %, but late the government started to spend much more, than it
could earn, and in 2003 it reached 7 % and in 2006 more than 9 %. Improvements were
made in next 2 years, when deficit returned on 4 % level. This situation reflected in
growing gross debt, and caused many problems in Hungarian economy. European
Union recommendations say, that deficit should be below 3 % to secure stability in
public finances. When speaking about EU, the convergence to Euro currency arises. All
the new members have to adopt euro, but there is no fixed time when exactly. One of
the conditions is a sustainability of public finances, what means to reduce deficit as
much as possible. The only Visegrad group country was the Slovak Republic, in 2009.
Other countries after crisis plan to adopt euro after 2015.
4.4.4 Government gross debt
When deficit is accumulated year by year and the country doesn‘t pay it back
immediately, than general government gross debt or public debt is created. Because
government spends more money than it can afford, it is needed to borrow the money
from other sources. The more money a state borrows, the higher the public debt is, and
the higher interests it has to pay. So when a state has bigger expenditures than revenues,
it leads to deficit, and if the deficit appears frequently it leads to gross government debt.
So all the government finances are correlated, and even more they influence whole
national economy. So it is very important to study and analyse them. As all the previous
indicators were expressed as a percentage of GDP, the general government gross debt is
not an exception. It shows the value of debt relative to the given year GDP. This
indicator is widely used around the world and took into account by investors.
48
% of GDP
80,00
70,00
60,00
50,00
40,00
30,00
20,00
Public debt
Czech
Republic
Hungary
Poland
Slovakia
10,00
2000 2001 2002 2003 2004 2005 2006 2007 2008 2009
Years
Figure 11 [General government gross debt (% of GDP)]
Source: IMF
When comparing the level of government debt we need to say, that the lower level is
desired. High indebtedness produces high interests and don‘t allow to use economy‘s
finances efficiently, because big part of revenues must be paid for these interests. In
Figure 6 we can find a public debt development, what provides for us a deeper look into
public finances of V4 countries. The Czech Republic with the lowest level proves its
economic superiority among these countries. Debt on average level around 30 % is a
mark of responsible economic policy and there is no doubt that, the country will
maintain sufficient number in the future. On the other hand the case of Hungary shows,
how bad is its situation with public finances. In 2009 Hungary reached 80 %
indebtedness, what caused another loan from International Monetary Fund, to provide
ability to pay back all the others obligations. Such high debt has roots in 2002, when it
started to grow rapidly, mostly for politically driven expenditures. Hungary was forced
to raise taxes and to cut the expenditures in 2010, what has had naturally not positive
impact on economy. Current government aim is to reduce gross debt below the 60 % of
GDP, what is recommended level by European Union. Poland manages to keep its debt
below this level, what is a positive sign, but slightly increasing tendency, from 35 % in
2000 to 50 % in 2009, call for the doubts and the further development cannot be clearly
predicted. But if the country wants to adopt euro, it has to change tax system or to cut
expenditures to secure public finance stability and sustainability. The Slovak Republic
is an admirable example, because it succeeded to reduce public debt from 50 % in 2000
to 30 % in 2008. Nevertheless, there are still some threats, which can cause the
problems like in year 2009, when debt increased by almost 10 %.
49
4.4.5 National expenditures composition
Government can spend its budget in various ways; the simplest division is based on
assumption, that state can consume money immediately or invest in long term horizon,
what brings more future benefits than current. Government consumption is mostly
connected with social transfers, spending on government institutions, state services and
buying goods and services and others. On the other hand, government investment
expenditures, are spent on infrastructure, housing, technological facilities and research
and development. Investment expenditures are more capital demanding, but bring more
benefits and provide future development. Immediate consumption creates bigger
pressure on inflation, and has distorting impact on some economy sectors. Further
division of government expenditures is by budget function, like social protection,
economic affairs, health, defence, culture, education, public services, environmental
protection and others as shown in Figure 12. The national expenditures are expressed as
% of GDP per function. These percentage shares together create the sum of government
expenditures as % of GDP, what we can find in Table 4.
Figure 12 [National expenditures per budget functions (% of GDP, 2009)]
Source: Hungarian Ministry of National Economy
From the graph above we can see how particular V4 countries spend its budgets. It
shows, which national areas consume the biggest share of totally spent money. In case
of Hungary we can see that, the biggest share is created by social protection – 18.3 % of
GDP. In the second place are general public services with its share 10 %. Around 5 % is
50
taken by economic affairs, education and health. Hungary has the highest expenditure
on social protection among all V4 countries as well as the highest expenditures on
public services. It shows, that the country support economically less active citizens,
what creates big pressure on the budget and is a possible reason of high public debt. Big
share of public services also shows the inefficiency in this area, what causes other
problems in public finances. Slovakia is the country with the lowest share of social
protection. So from this comparison we can see correlation between social spending and
public debt, as Hungary has high social expenditures and enormous public debt, while
Slovakia‘s situation is totally opposite. It proves an assumption that the expenditures
should be directed into other national areas, like R & D or infrastructure, rather than
into social issues. Slovakia has the lowest level also in expenditures to education, what
is not very satisfying as underestimated education can lead to future problems.
Uneducated or not appropriately educated people have the lowest chance to get a job,
what causes long term unemployment, what is actually the most acute economic
problem in Slovakia nowadays. Slovak unemployment rate was about 12 % in 2009,
what is high and unacceptable value, but most of this value is created by people, who
didn‘t work for more than one year, and they lost working habits. This is a huge barrier
to reach higher GDP growth and economy potential stays unused. Slovakia has also
high expenditures on health, what is caused by situation that people and government
institutions pay more attention on healing health problems than prevent them. The
highest level – 2.57 % of public order and safety expenditures in Slovakia, is probably
caused by inefficiency and low productivity in public sector. Poland‘s expenditures are
somewhere on the average level among V4 countries, but spending on education
reaches 5.59 %, what is the highest number in Visegrad group. It provides a good base
for the future development, because countries with good education system can be
competitive and can secure the sustainable economic growth. But the high expenditures
don‘t necessarily mean that the quality of education system is excellent. Poland is in the
second place, in question of social protection expenditures. The reason can be find in
social mechanism in the country, which supports certain groups of people more than
others, for instance farmers. In the case of Czech Republic the social expenditures are
quite low 14 % of GDP, what, as was mentioned before is visible in the low level of
public debt. General public services are also the lowest in the Czech Republic, what
also influences good situation in public finance. The only worrying thing is, spending
on health at 7.5 % (highest in V4), but it can mean good quality of health system.
51
Research and development (R & D) is an area which brings innovations and
technological progress into economy or whole world. R & D provides the necessary
knowledge for efficiency and productivity improving almost in all economic areas. R &
D as a budget function has its share on GDP, but it can be created by government as
well as business sector. It varies among countries, but usually between 0 and 5 %.
Percentage share is used because of easy comparison among countries and groups of
states. Government expenditures on research and development, as the investment
expenditures, have a significant impact on economy outcomes, because it employs a lot
of people and brings future benefits. R & D expenditure can be directed into many
areas such as agriculture, biotechnologies, medicine, environment, economics, social
sciences and nowadays the most progressive area – information and communication
technologies (ICT).
R & D expenditures
2,50
% of GDP
2,00
1,50
2006
2007
2008
1,00
0,50
0,00
Czech Hungary Poland Slovakia OECD
Republic
EU27
Figure 13 [Gross domestic expenditure on Research and Development (% of GDP)]
Source: OECD
The level of percentage share of GDP on R & D can be explained by various reasons. R
& D spending consists of government, business sector and higher education sector.
Each of these can contribute in a certain share. So if the business sector is not developed
enough, and doesn‘t have much money to invest, the R & D expenditures will be low. In
the graph above is shown the situation in V4 countries, European Union and OECD
countries. The worst situation is in Slovakia, mainly because underdeveloped private
business sector and low government money transfer to this sector. The similar situation
is in Poland, caused by the same reasons as in Slovakia. The Czech Republic as a leader
in this field reached 1.5 % what shows overall economic situation in this country.
Business sector contribute to this level by 2/3 and by 1/2 in Hungary.
52
4.5 Business environment
Business environment is very important issue in every market economy. In the central
planned economies, where the almost every company was owned by the state, business
environment or entrepreneurship climate had hardly any meaning. But in present mixed
economic systems mostly based on capitalistic principles, the privately owned
companies and institutions play a crucial role in almost every economic aspect.
Enterprises whether small or big companies create jobs, pay taxes, satisfy consumers‘
needs, invest money into research and development or provide sponsorship in many
areas of social life, like sport and culture. Actually, they create most of the nation‘s
wealth and thus it is important to analyze its activities and to look for relations and
consequences between business sector and the rest of the society.
4.5.1 Enterprises by size class
Every economy consists of different types of enterprises; we can divide them into
groups, based on the sector in which they operate, on what products or services they
produce, or simply on their size. The basic division is by the size of the business, what
can be expressed in annual turnover, production capacity or by the number of
employees. And currently a number of employees is the commonly used principle, in
order to divide enterprises by their size. In EU we recognize 5 size classes of
enterprises: Micro enterprises – less than 10 employees; Small enterprises – 10 to 49
employees; Medium - sized enterprises 50 to 249 employees and large enterprises over
250 employees, whereby micro, small and medium enterprises are collectively called
Small and Medium Enterprises (SME). Entrepreneurship climate in economy can be
analyzed according to share of particular size classes in all businesses in a certain year.
Table 5 [Number of enterprises by size class (percentage of all businesses, 2006)]
Country/Size
Czech Republic
Hungary
Poland
Slovakia
Source: OECD
1-9
95,09 %
94,39 %
95,99 %
54,11 %
10-19
2,48 %
3,09 %
1,49 %
20,12 %
20-49
1,45 %
1,62 %
1,36 %
9,66 %
50-249
0,80 %
0,76 %
0,97 %
12,24 %
250+
0,17 %
0,14 %
0,20 %
3,88 %
In the Table 5 we can see the number of enterprises by size class as a percentage of all
businesses in V4 countries in 2006. The latest, but not available data shouldn‘t be
53
different to those in 2006, so we can work with them as with the actual ones. When we
compare all these data, we can find out that the share was very similar in all the
countries, except of one – Slovakia. In Slovakia the proportion of SMEs is totally
different than in neighboring countries and it even differs to the most of the OECD and
EU countries. The share of large enterprises in all businesses is 3.88 %, what can be
considered as a very high number, because rests of V4 countries reach maximum 0.2 %.
Large enterprises are mostly multinational corporations, which operate in global scale
and are typically pro export oriented. This statement proves the Figure 6 [Trade as % of
GDP], where is shown that Slovakia has very high share of exports and imports on
GDP. Such figures say that the country is very dependent on external environment, and
can be markedly affected by world market turbulences, as we could see in 2009, when
global economic crisis hit the markets. Another threat is that these big multinational
companies, in case of Slovakia automotive, electronics and machinery manufacturing,
can move their production facilities to other countries with lower labour costs, after
exploitation of government incentives. The low share of micro enterprises 54.11 %
points out the underdeveloped business sector, because these firms create about 95 % of
all business in the most of the developed economies, as well as in the Czech Republic,
Poland and Hungary. This small share can be one of the reasons for low R & D
expenditures in Slovakia. In the Figure 14, is for better understanding visually shown
the situation in entrepreneurship sector. The SMEs are, or should be the crucial part of
every market oriented economic system.
Enterprises by size class (% share, 2006)
100%
250+
80%
50-249
60%
95,09
40%
20-49
95,99
94,39
54,11
20%
10-19
1-9
0%
Czech Republic
Hungary
Poland
Slovakia
Figure 14 [Number of enterprises by size class (percentage of all businesses)]
Source: OECD
The graph above also shows the composition of business sector. An insufficient number
of micro enterprises in Slovakia has its reasons in weak economic policy in this
direction, which prefers a huge foreign investments, rather than domestic entrepreneurs.
54
4.5.2 Share of enterprises on employment by size class
The importance of enterprises in economy as well as their structure can be expressed in
a few ways, in dependency on some macroeconomic indicators. The very important
issue is in this case employment, because of the negative impact of unemployed people
on the whole economy. Private businesses as providers of jobs deserve higher attention
by economic policy makers and entire society. It is very crucial to maintain economic
activity of enterprises high, causes it reduces the unemployment and generates the
government revenues from the taxes they pay. When comparing entrepreneurship
structure in the field of employment, we should find an appropriate indicator. This can
be the composition of private business sector expressed as a percentage share of
enterprises on employment by size class. It is obvious that this indicator differs from the
previous one, and that particular size classes reach different values.
Employment by size class (% share, 2006)
100%
80%
32,46
60%
19,80
27,84
250+
31,10
55,48
16,30
18,69
20-49
40%
27,52
20%
29,02
38,62
36,20
5,08
0%
Czech Republic
50-249
Hungary
Poland
10-19
1-9
Slovakia
Figure 15 [Employment (percentage of all businesses)]
Source: OECD
Employment by size class reaches different values as the number of enterprises, because
the small total number of large companies can reach higher share thanks to their high
number of employees, what can be thousands or even ten thousands in Central Europe
conditions. So in the Czech Republic the large companies and micro enterprises reach
similar share at around 30 % of all employed people. In Hungary the micro enterprises
are the dominant size class with its 35 % share followed by large companies with 25 %
share. In both countries the small and medium enterprises create around 40 %. The
biggest share of micro enterprises is in Poland, where they employ 39 % of people,
probably due to high number of small farmers, who usually employ only family
members. In Slovakia the situation is again totally different, and micro enterprises
employ only 5 %, while large companies 55 %, what can cause future problems.
55
4.5.3
Value added by enterprises by size class
Enterprises bring the added value to the economy; actually the private business sector
creates the biggest part of GDP in every market economy. The brought value depends
on the number of employees, on the products produced, on the size of the production,
on the economic sector in which the company operates and of course on its productivity.
To provide value added by particular enterprise size class more comparable, the
percentage share of all business can be used. So we can see how much an individual
size class contributed to the total value added by private businesses. In other words,
how they participated on the GDP creation.
Value added (% share, 2006)
100%
80%
45,28
46,53
48,29
60%
19,91
40%
18,46
250+
65,40
20-49
21,57
21,33
20%
50-249
10-19
1-9
0%
Czech Republic
Hungary
Poland
Slovakia
Figure 16 [Value added (percentage of all businesses)]
Source: OECD
In the Figure 16 we can observe similar situation as in the previous graphs. The
difference, among particular size classes, is mainly caused, by the sector in which
companies operate. Micro and small enterprises usually perform their activities in
service and agricultural sector, which are the sectors with lower added value. On the
contrary, medium and large companies are mostly situated in industry sector, such as
engineering, automotive, electronics, IT and machinery equipment, which create the
most significant added value in economy. So the large and medium enterprises have the
biggest share on the value added by businesses, about 65 % in the Czech Republic and
Hungary, 70 % in Poland. The Slovak Republic is again an exception with its 87 %,
what once again proves a dominant position of large, mostly multinational corporations.
The share of micro firms is about 20 % in all the countries besides Slovakia, where its
share reaches poor 5 %. The countries with higher share of micro and small businesses
have higher flexibility and can adapt on new circumstances faster, what in nowadays
turbulent world can be an advantage, while one way orientation can be a threat.
56
4.5.4 Ease of doing business
Governments committed to the economic health of their country and opportunities for
its citizens focus on more than macro economic conditions. They should also pay
attention to the laws, regulations and institutional arrangements that shape daily
economic activity. Quantitative data and benchmarking can be useful in stimulating
debate about policy, both by exposing potential challenges and by identifying where
policy makers might look for lessons and good practices. These data also provide a
basis for analyzing how different policy approaches—and different policy reforms—
contribute to desired outcomes such as competitiveness, growth and greater
employment and incomes. Doing Business provides a quantitative measure of
regulations for starting a business, dealing with construction permits, registering
property, getting credit, protecting investors, paying taxes, trading across borders,
enforcing contracts and closing a business—as they apply to domestic small and
medium-size enterprises. Economies are ranked on their ease of doing business, from 1
– 183. A high ranking on the ease of doing business index means the regulatory
environment is more conducive to the starting and operation of a local firm. This index
averages the country's percentile rankings on 9 topics, made up of a variety of
indicators, giving equal weight to each topic.
Table 6 [Ease of doing business ranking, (2010)]
Country/Indicator
Ease of doing
business rank
Starting a
business
Getting
credit
Paying
taxes
Enforcing
contracts
Singapore
United Kingdom
Norway
Austria
Slovakia
Hungary
Czech Republic
Poland
Ukraine
1.
4.
8.
32.
41.
46.
63.
70.
145.
4.
17.
33.
125.
68.
35.
130.
113.
118.
6.
2.
46.
15.
15.
32.
46.
15.
32.
4.
16.
18.
104.
122.
109.
128.
121.
181.
13.
23.
4.
9.
71.
22.
78.
77.
43.
Source: Doing Business Project 2011
In the Table 6 we can see ranking of V4 countries and some other examples, as well is
the closest neighbor – Austria and Ukraine. Doing business in V4 is easiest in Slovakia,
followed by Hungary, then ii Czech Republic and the last is Poland. Indicator doesn‘t
reflect the situation in society, if the people know how to start own business and why.
57
4.5.5 Index of economic freedom
Economic freedom is the fundamental right of every human to control his or her own
labour and property. In an economically free society, individuals are free to work,
produce, consume, and invest in any way they please, with that freedom both protected
by the state and unconstrained by the state. In economically free societies, governments
allow labour, capital and goods to move freely, and refrain from coercion or constraint
of liberty beyond the extent necessary to protect and maintain liberty itself. We measure
ten components of economic freedom, assigning a grade in each using a scale from 0 to
100, where 100 represent the maximum freedom. The ten component scores are then
averaged to give an overall economic freedom score for each country. In our
comparison we used only 4 out of 10 components, because some were used before.
Table 7 [Index of Economic Freedom]
Indicator
Country
Czech
Republic 1.
Ranking
28.
Business
Score
Freedom
Property
rights
Freedom
Labour
from
freedom
corruption
70,4
69,8
65,0
49,0
64,5
51.
66,6
Poland 4.
68.
61,4
Slovakia 2.
37.
69,5
Source: The Heritage Foundation
76,5
61,4
73,4
65,0
70,0
50,0
51,0
50,0
45,0
61,2
67,7
77,0
Hungary 3.
Overall score
73,0
Index of economic freedom
63,0
Czech
Republic
Hungary
58,0
Poland
53,0
Slovakia
68,0
2000 2001 2002 2003 2004 2005 2006 2007 2008 2009 2010 2011
Years
Figure 17 [Index of Economic Freedom (overall score)]
Source: The Heritage Foundation
From the table and the graph above we can define the level of economic freedom in V4
countries, as well as its development. Worth of note is the Slovak case, where overall
score got from 53 in 2000 to almost 70 in 2011, what creates an assumption that higher
economic freedom leads to higher economic outcomes, meaning GDP growth in 2007.
58
4.6 The Global Competitiveness Index
The Global Competitiveness Index (GCI) is based on 12 pillars of competitiveness,
providing a comprehensive picture of the competitiveness landscape in countries around
the world at all stages of development. The pillars are: institutions, infrastructure,
macroeconomic environment, health and primary education, higher education and
training, goods market efficiency, labour market efficiency, financial market
development, technological readiness, market size, business sophistication, and
innovation. The GCI is made up of over 111 variables, of which approximately two
thirds of the qualitative data come from the Executive Opinion Survey and one third
from published sources. The report assesses the ability of countries to provide high
levels of prosperity to their citizens. This in turn depends on how productively a country
uses available resources. Therefore, the GCI measures the set of institutions, policies,
and factors that set the sustainable current and medium-term levels of economic
prosperity.
Table 8 [Global Competitiveness Index 2010-11 ranking and 2009-10 comparison]
Country /
Economy
GCI 2010
GCI 2009
Rank
Score
Rank
Change 20092010
Austria
1
18
5,63
5,09
1
17
0
-1
Czech Republic
36
4,57
31
-5
4,51
4,33
4,25
3,90
46
58
47
82
7
6
-13
-7
Switzerland
39
Hungary
52
Slovakia
60
Ukraine
89
Source: World Economic Forum
Poland
The rankings displayed in the Table 8 show the relative competitiveness of economies
of V4 group, Switzerland, Austria and Ukraine. Switzerland as the most competitive
economy in the world presents the point where all the other countries should head.
Austria and Ukraine as the V4 closest neighbors are involved for better comparison.
The best position among V4 countries in 2010 is held by the Czech Republic, closely
followed by Poland. Third place belongs to Hungary and last is Slovakia, which fell
down by 13 places, what was one of the biggest drops in GCI. Such a huge drop could
be caused by incompetent economic policies from the government side, lack of
innovations and inflexible one way oriented economic system.
59
5 Conclusions
In this thesis we have examined the economic systems of the Visegrad group
countries and the development level of their economies. These countries experienced 40
years of command economy, where every economic activity was centrally planned 5
years ahead. After the fall of communism in 1990, the countries went through very
difficult times. All the 1990‘s were marked by transition from command to market
oriented economic system. In the communist era everything was owned by the state, and
3 basic economic questions what?, how?, and for who? to produce were answered only
by the government, the private sector almost didn‘t exist, only some farmers were
allowed to farm on their own, but in limited scale. Hungary could be considered as a
small exception at those times, because it had a bit liberalized market comparing to
Czechoslovakia or Poland. So as everything was in the state ownership, the
transformation from centrally planned economy to capitalistic system had to bring
changes in ownership. These changes were defined by privatization, what means selling
state owned companies to private hands. It was performed in different ways in every
country, with its own specific problems. Another sign of transformation was the price
liberalization, what led to high inflation rates in the beginnings of 1990‘s. High
unemployment rates accompanied transition a long time after; even today this
problematic area in Visegrad region is not properly solved. Corruption was the routine,
and hindered potential economic development, and still remains a barrier. So all these
and many others issues influenced economic situation in the Visegrad group.
Economic policies done in the second half of the 1990‘s started to boost the economic
growth. Foreign direct investments started to rise progressively in all the countries year
by year, and this foreign capital contributed to higher economic outcomes. Business
environment stabilised and entrepreneurs were able to perform their activities and to
fulfil its basic functions. Government finances were consolidated, in order not to fall
into huge deficits and consequent public debts. So at the end of the millennium V4
group, could be considered as market economies, but still with some command
elements.
All these mentioned issues set the basis and affected later economic development after
the year 2000, where starts our comparison. The period between 2000 and 2010, was
marked by closer cooperation, EU accession, massive foreign investments, high
economic growth rates and by the one of the biggest economic crisis in the last few
60
decades. These and many others factors had direct or indirect impact on overall
development as well as on particular indicators.
In terms of Gross domestic product the best situation is held by the Czech Republic,
which maintains a safe distance from other countries in the GDP per capita indicator. It
is primarily caused by higher stage of economic development already from the
communist times. The GDP growth was sufficient, but the best was between year 2005
and 2007, about 6 – 7 %. A huge 5 % decline in 2009 was caused by economic crisis,
which affected other countries as well, with the exception of Poland, which was the
only country with the positive GDP growth rate in whole European Union. Poland
actually, reached similar growth rates as the Czech Republic, but in GDP per capita is
the last country. The highest GDP growth was in the Slovak Republic, highlighting the
year 2007, when country got over 10 % rate, one of the highest in the world. Such a
growth rates allowed Slovakia to become second richest country in GDP per capita
among the Visegrad group. The worst situation was in Hungary, where mainly because
of bad government economic policies. While other countries were rising rapidly,
Hungary stagnated reaching hardly 1 % GDP growth in 2007, 2008. Economic crisis
only worsened Hungarian situation, when GDP dropped by 7 %, the biggest drop
among V4. Hungary is actually the negative example for other countries, because it had
high government expenditures and low national economic outcomes, what proves
irrational, probably politically motivated, government economic policies.
GDP is often driven by the productivity; this statement proves the comparison of labour
productivity growth rate, which shows that, years where the productivity growth was
the highest, were the years where GDP growth rate was the highest as well. It certainly
applies to case of Slovakia in 2007, and stagnation of Hungary in 2005 and 2006. So
improving the productivity in the country, contribute to the higher efficiency and
consequent GDP growth. Fostering the productivity can be done via higher employment
of effective technologies, skilled labour force, sophisticated managerial methods and
innovations. So higher government expenditures into areas like research and
development or human capital can bring better outcomes and can secure the future
development of GDP and others standard of living indicators.
Foreign direct investments bring needed capital and provide workplace. In many cases
productivity can be improved by new investors in economy, which bring the know-how,
technologies, innovations and managerial skills. But benefits from investments can be
61
transformed into economic outcomes with some delay, because it takes a long time to
build the production facility, train the people and start the production. In case of
Slovakia the highest FDI intensity was in 2002 and in 2006, when mainly automotive
and electro technical companies made their investments. FDIs can contribute to GDP
growth, but are not the long term solution and can make country dependent on some
industrial sectors, what leads to higher sensitivity to market turbulences.
Government finances play a significant role in economy development, as they have its
own share on GDP creation and can stimulate demand. Government revenues are
mostly gained from taxes, what makes a burden on business sector. So government
should look for optimal tax system, which stimulates entrepreneurs to conduct their
businesses and to pay taxes. High taxes can discourage entrepreneurs, and state will get
even less, than with low taxes. Government can spend collected money by various
ways; it can consume them immediately or invest them in a long term horizon.
Governments should be aware of falling into debt, because it discourages investors and
can have negative impact on well functioning of government institutions. The best way
how the government should spend money is to invest them into the human capital via R
& D or on education. R & D spending bring immediate and future results. R & D leads
to innovation, and innovation leads to higher productivity what leads to GDP growth.
The highest R&D expenditures among V4 countries had the Czech Republic at 1.5 % of
GDP, followed by Hungary at 1 %. The aim of the European Union is to have R & D
spending at 3 % of GDP, by 2/3 funded from business sector, but there are only few
countries, which are about to reach this goal. Slovakia reaches only poor 0.5 %,
probably because underdeveloped business sector, mainly in the case of SMEs. The
increasing of R & D spending should be highlighted in public discussions.
The situation of SMEs in Slovakia is very weak, comparing to other V4 countries,
SMEs reach much smaller share on entire business sector in total number, employment
and in added value. It means that in our economy dominates large companies, what
makes the economy rigid and vulnerable on external influences. One way orientation on
big multinational companies is considered as threat and we should reorient on SMEs.
Index of economic freedom (IEF) shows an interesting correlation. Ranking in GDP per
capita is the same as the ranking in IEF, meaning that the Czech Republic is the country
with the highest GDP per capita and the freest economy. Slovakia on the second place
in GDP per capita, has the second rank in the IEF. In the case of Slovakia another
62
correlation is obvious, it is that this country overcome in IEF Poland and Hungary in
last 7 years, and this was the time when Slovakia observed unusually high GDP growth
rate, what allowed to get on the second place in GDP per capita comparison, while
outran Hungary. Hungary with is on the 3 place, the same like in GDP per capita
comparison. Poland is the last country in both indicators. These findings create a very
strong assumption that the welfare of the country can be caused by its economic
freedom.
Global competitiveness index provides the international comparison. In this ranking
Slovakia is the last, but it has the reason in fall by 13 places from year 2009, when it
was at the same level as Poland. Such a big drop could be caused by economic policies
of government, which led to deteriorating of national competitiveness. The Czech
Republic on the first place proves its economic superiority in Visegrad group. Poland on
the second place, confirms its stability and sustainable development with future
potential. Hungary was forced to provide steps to improve efficiency within the country,
what set it on the 3rd place.
Recommendations and proposals
Based on our findings, we can formulate some policies which could be beneficial for
economies in the Visegrad group countries. It is obvious, that GDP was rising, when
labour productivity was rising, too. This means that the improving the productivity will
lead to better economic outcomes. Productivity can be improved by innovations, skilled
workforce and technologies, so government should pay more attention to spending on
the education, R & D and human capital. Redirection of government expenditures in
favour of these areas will definitely bring its fruits. Supporting of Small and medium
enterprises is another possible way how to strengthen economic and social
development, especially in case of Slovakia. SMEs should create a skeleton of each
developed economy so they deserve more attention, better incentives, fewer restrictions
and less administrative burden. Here the economic freedom should be promoted, as it
allows entrepreneurs easily perform their business activities, what helps to create jobs
and thus reduce unemployment. Moreover, the higher number of enterprises in the
economy brings the higher government revenues from taxes. If the reallocation of these
revenues is done appropriately, it contributes to further economic development again.
63
6 Resumé
Hospodársky rozvoj je povaţovaný za veľmi dôleţitý aspekt súčasnosti. Veľa
politikov v mnohých krajinách hľadá najlepšie spôsoby, ako natrvalo udrţateľne
zvyšovať HDP. Niektoré krajiny sú úspešné, no niektoré z nich nie. V posledných
rokoch krajiny strednej a východnej Európy dosiahli významný pokrok. Pri prechode od
centrálneho plánovania k trhovej ekonomike, tieto krajiny čelili mnohým problémom v
priebehu 90tych rokov. Ale v novom tisícročí sa stávajú jednými z najrýchlejšie
rastúcich ekonomík na svete. Keďţe sú súčasťou Európskej únie a ďalších
transatlantických štruktúr, tak moţno povedať, ţe sa nachádzajú v stabilnom prostredí.
Kľúčovú úlohu v regióne strednej Európy hrajú krajiny V4, zahŕňajúce Českú
republiku, Maďarsko, Poľsko a Slovensko. Tieto krajiny sú navzájom prepojené, cez
obrovské mnoţstvo vývozov a dovozov, medzi týmito štátmi sú aj silné kultúrne,
politické, ekonomické a spoločenské väzby. Teda môţe byť veľmi prospešné zmerať
hospodárske výsledky za celú skupinu, a taktieţ účinné môţe byť porovnanie
ukazovateľov s inými krajinami alebo s inými regiónmi v rámci celého sveta.
Pri pokuse o zlepšenie ekonomických a sociálnych ukazovateľov rozvoja ako aj
ţivotných podmienok v kaţdej krajine, porovnanie s inými úspešnými alebo
neúspešnými príkladmi vo svete, môţe pomôcť. Jeden štát sa môţe vyvarovať chýb,
ktoré boli spravené v inej krajine, alebo si môţe prisvojiť tie úspešné kroky, ktoré
pomohli zlepšiť ţivotný štandard národa. Krajiny by sa mali porovnávať proti
rozvinutým krajinám, pretoţe jedine potom môţu urobiť pokrok.
V tejto práci sme sa zamerali na porovnanie vybraných ekonomických ukazovateľov
medzi krajinami V4, za účelom vytvorenia prehľadu o celkovej ekonomickej situácii v
tomto regióne a zistenia zásadných rozdielov v ich ceste k rozvinutej trhovo
orientovanej ekonomike. Pre dosiahnutie tohto cieľa sme zamerali našu snahu na
hľadanie dôvodov, prečo niektoré krajiny boli úspešnejšie neţ iné, inými slovami, aké
faktory mali pozitívny vplyv, a aké faktory mali naopak zhoršujúci účinok. Takéto
zistenia môţu vytvoriť odporúčania pre chytrú hospodársku politiku, ktorá by mala
zabezpečiť stabilitu, efektívnosť, udrţateľnosť a zlepšenie kvality ţivota pre kaţdého
človeka.
Krajiny Vyšehradskej skupiny, sú povaţované za úspešné príklady na ceste ich
rozvoja. Ale pred nimi, je ešte stále dlhá cesta, ktorú musia prekonať, aby dosiahli
pomyselný vrchol.
64
Keďţe rôzne krajiny sa nachádzajú v rôznych fázach ekonomického rozvoja a majú
rôznu ţivotnú úroveň, môţe byť veľmi uţitočné pozrieť sa na tieto rozdiely a zistiť ich
príčiny a dôsledky. Takáto analýza môţe prispieť k lepšej implementácii hospodárskych
politík, ktoré by mali viesť k zlepšeniu mnohých hospodárskych a sociálnych oblastí v
krajine. Na základe tohto sme si stanovili, ţe hlavným cieľom diplomovej práce je
porovnanie ekonomík krajín Vyšehradskej skupiny a ich ekonomických systémov a
následná identifikácia spôsobov, ako podporiť ekonomickú výkonnosť krajiny alebo jej
konkurencieschopnosť. Porovnávanie je zaloţené na konkrétnych ekonomických
ukazovateľoch a ich vývoji a trendoch od roku 2000 aţ po rok 2009 alebo 2010, ak tieto
údaje boli k dispozícii. Pre splnenie hlavného cieľa, musíme porovnávať jednotlivé
ukazovatele v danom období a analyzovať ich vývoj, po tom analyzujeme ďalšie
ukazovatele, ktoré by mohli mať vplyv na celkové ekonomické výsledky. Identifikácia
najvýznamnejších premenných vplývajúcich na pozitívny alebo negatívny rast
ekonomiky, nám poskytuje priestor pre formuláciu odporúčaní pre hospodársku
politiku, ktorá by mala zabezpečiť stabilitu, efektívnosť a udrţateľný rast. Medzi
čiastkovými a pomocnými cieľmi máme rozbor situácie v jednotlivých krajinách,
a identifikáciu príčin, prečo niektoré z nich boli úspešné viac a niektoré menej. To
poskytuje solídny základ pre identifikáciu faktorov ekonomického úspechu, ktoré by
mohli s veľkou pravdepodobnosťou fungovať aj v iných krajinách. Ďalším čiastkovým
cieľom je porovnanie krajín v medzinárodných rebríčkoch, ktoré poukazujú na
hospodárske, politické a podnikateľské prostredie v danej krajine. Tieţ je potrebné
definovať úroveň hospodárskeho rozvoja a ukázať, či je ekonomický systém krajiny
bliţšie k plánovanej ekonomike alebo trhovo orientovanej ekonomiky. Veľmi dôleţité
je pokúsiť sa o hlbší pohľad do otázky liberalizácie, čo znamená, či viac liberalizované
ekonomiky majú lepšie hospodárske výsledky a či dosahujú vyššiu ţivotnú úroveň
svojich obyvateľov.
Nakoniec môţeme povedať, ţe naším cieľom je zistiť, ktoré krajiny boli ekonomicky
najúspešnejšie a prečo. Identifikácia príčin lepších výsledkov jednej ekonomiky v
porovnaní s inou, môţe viesť k odporúčaniam, aké kroky by mali byť prijaté na podporu
hospodárskeho rastu, a k zabezpečeniu stability a udrţateľnému zlepšeniu ţivotných
podmienok.
Podľa vopred stanovených cieľov, sme pouţili predovšetkým porovnávacie metódy.
Okrem porovnania sme pouţili aj metódy analýzy, syntézy a jednoduché štatistické
65
vyhodnotenie. V práci sme sa zamerali na porovnanie prevaţne makroekonomických
dát,
verejných
financií,
hodnotenie
podnikateľského
prostredia
a porovnanie
umiestnenia v medzinárodných rebríčkoch. Keďţe v práci boli porovnávané rôzne
ukazovatele, tak sme museli pouţiť viaceré zdroje na získanie potrebných dát.
Z hľadiska hrubého domáceho produktu je najlepšia situácia v Českej republike, ktorá si
udrţuje bezpečnú vzdialenosť od ostatných krajín v HDP na obyvateľa. To je primárne
spôsobené vyšším stupňom ekonomického rozvoja uţ od komunistických čias. Rast
HDP bol uspokojivý, ale najlepší bol medzi rokmi 2005 a 2007, asi 6 - 7%. Obrovský
5%-ný pokles v roku 2009 bol spôsobený hospodárskou krízou, ktorá postihla aj ďalšie
krajiny, s výnimkou Poľska, ktoré bolo jedinou krajinou s kladným tempom rastu HDP
v celej Európskej únii. Poľsko dosahovalo podobné miery rastu ako Česká republika,
ale v HDP na obyvateľa je na poslednom mieste vo V4. Najvyšší rast HDP bol v
Slovenskej republike hlavne v roku 2007, kedy krajina získala viac neţ 10 % rast, jeden
z najvyšších na svete. Takéto tempo rastu priviedlo Slovensko na druhé miesto v rámci
HDP na obyvateľa medzi krajinami Vyšehradskej skupiny. Najhoršia situácia bola v
Maďarsku, najmä v dôsledku zlej ekonomickej politiky vlády. Kým ostatné krajiny
prudko rástli, Maďarsko stagnovalo a dosiahlo sotva 1% rast HDP v rokoch 2007,
2008. Ekonomická kríza len zhoršila maďarskú situáciu, kedy sa HDP zníţil o 7%, čo
bol najväčší pokles medzi V4. Maďarsko je vlastne negatívny príklad pre ostatné
krajiny, pretoţe pri vysokých vládnych výdavkoch dosiahlo nízke hospodárske
výsledky, čo dokazuje iracionálnu, pravdepodobne politicky motivovanú, vládnu
hospodársku politiku.
HDP je často ovplyvnená produktivitou; toto tvrdenie dokazuje porovnanie miery rastu
produktivity práce, keď v rokoch, keď rast produktivity bol najvyšší, boli roky, keď rast
HDP bol najvyšší tieţ. Určite to platí pre prípad Slovenska v roku 2007 a stagnáciu v
Maďarsku v rokoch 2005 a 2006. Takţe zlepšenie produktivity v krajine, prispieva k
vyššej efektívnosti a následnému rastu HDP. Podporu produktivity moţno vykonať
prostredníctvom vyššieho vyuţitia efektívnych technológií, kvalifikovanej pracovnej
sily, prepracovaných manaţérskych metód a inovácií. Takţe vyššie vládne výdavky do
oblastí, ako je výskum a vývoj alebo ľudský kapitál môţu priniesť lepšie výsledky a
môţu zabezpečiť budúci vývoj HDP a ďalších ukazovateľov ţivotnej úrovne.
Priame zahraničné investície prinášajú potrebný kapitál a poskytujú pracovné miesta. V
mnohých prípadoch môţe byť produktivita zlepšená príchodom nových investorov do
66
ekonomiky, pretoţe prinášajú know-how, technológie, inovácie a manaţérske
zručnosti. V prípade, Slovenska bola najvyššia intenzita priamych zahraničných
investícií v roku 2002 a v roku 2006, hlavne vďaka investíciám automobilových a
elektrotechnických firiem. PZI môţu prispieť k rastu HDP, ale nie sú dlhodobé riešenie
a krajina sa môţe stať závislou na niektorých priemyselných odvetviach, čo vedie k
vyššej citlivosti voči turbulenciám na svetovom trhu.
Verejné financie, hrajú významnú úlohu v ekonomickom vývoji, pretoţe majú svoj
vlastný podiel na tvorbe HDP a môţu stimulovať dopyt. Vládne príjmy sú prevaţne
získané z daní, čo spôsobuje zaťaţenie podnikateľskej sféry. Takţe vláda by mala
hľadať optimálny daňový systém, ktorý stimuluje podnikateľov vykonávať svoje
aktivity a teda aj platiť dane. Vysoké dane môţe odradiť podnikateľov a štát dostane
ešte menej, neţ s nízkymi daňami. Vláda môţe utrácať získané peniaze rôznymi
spôsobmi. Vlády si musia byť vedomé, ţe môţu upadnúť do dlhov, čo odrádza
investorov. Najlepší spôsob, ako by vláda mala míňať peniaze, je investovať do
ľudského kapitálu prostredníctvom výskumu a vývoja alebo na vzdelávanie. Výdavky
na vedu a výskum prinášajú okamţité ako aj budúce výsledky. Výskum a vývoj vedie
k inováciám , a inovácie vedú k vyššej produktivite, čo vedie k rastu HDP. Najvyššie
výdavky na vedu a výskum medzi krajinami V4 má Česká republika vo výške 1,5%
HDP, nasleduje Maďarsko s 1%. Cieľom Európskej únie je, aby výdavky na vedu
a výskum boli vo výške 3% HDP, z dvoch tretín financovaná z podnikateľského
sektora, ale je len málo krajín, ktoré sú dosahujú tento cieľ. Slovensko dosahuje len
slabých 0,5%, pravdepodobne kvôli slabo rozvinutému podnikateľskému sektoru, najmä
v prípade malých a stredných podnikov. Zvýšenie výdavkov na VV by malo byť
zdôraznené vo verejných diskusiách.
Situácia malých a stredných podnikov na Slovensku je veľmi slabá, v porovnaní s
ostatnými krajinami V4, malým a stredným podnikom dosahujú oveľa menší podiel na
celom podnikateľskom sektore, na zamestnanosti a pridanej hodnote. To znamená, ţe v
našej ekonomike dominuje veľké firmy, čo robí ekonomiku nepruţnú a citlivú na
vonkajšie vplyvy. Orientácia na veľké nadnárodné spoločnosti je povaţovaná za
hrozbu, mali by sme sa preorientovať na podporu malých a stredných podnikov.
Index ekonomickej slobody (IES) poukazuje na zaujímavý vzťah. Poradie v HDP na
obyvateľa je rovnaké ako poradie v IES, čo znamená, ţe Česká republika je krajinou s
najvyšším HDP na obyvateľa a najslobodnejším ekonomickým systémom. Slovensko je
67
na druhom mieste v HDP na hlavu, a taktieţ na druhej pozícii v IEF. V prípade
Slovenska je zrejmé to, ţe táto krajina prekonala v IEF Poľsko a Maďarsko za
posledných 7 rokov, a to bolo v čase, keď Slovensko zaznamenalo nezvyčajne vysoké
tempo rastu HDP, čo umoţnilo krajine dostať sa na druhé miesto v HDP na jedného
obyvateľa, keď predbehlo Maďarsko. Maďarsko je na 3. mieste v IEF, rovnako ako v
HDP na obyvateľa. Poľsko je poslednou krajinou v oboch ukazovateľoch. Tieto zistenia
vytvárajú veľmi silný predpoklad, ţe ţivotné podmienky v krajine môţu byť
zapríčinené úrovňou ekonomickej slobody.
Index globálnej konkurencieschopnosti poskytuje medzinárodné porovnanie. V tomto
rebríčku je Slovensko je posledné, ale to má dôvod v poklese o 13 miest oproti roku
2009, kedy bolo na rovnakej priečke ako Poľsko. Takýto veľký pokles mohol byť
spôsobený
hospodársku
politiku
vlády,
ktorá
viedla
k
zhoršeniu
národnej
konkurencieschopnosti. Česká republika na prvom mieste dokazuje svoju ekonomickú
prevahu vo Vyšehradskej skupine. Poľsko na druhom mieste, potvrdzuje jeho stabilitu a
trvalo udrţateľný rozvoj s budúcim potenciálom. Maďarsko bolo nútené vykonať kroky
na zlepšenie efektívnosti v krajine, čo ho umiestnilo na 3. miesto.
Na základe našich zistení môţeme formulovať niektoré opatrenia, ktoré by mohli byť
prínosom pre ekonomiky v skupine krajín Vyšehradu. Je zrejmé, ţe HDP rastie, keď
rastie produktivita práce. To znamená, ţe zvýšenie produktivity bude viesť k lepším
ekonomickým
výsledkom. Produktivita
môţe
byť
zlepšená
inováciami,
kvalifikovanejšou pracovnou silou a technológiami, takţe vláda by mala venovať viac
pozornosti
výdavkom
na
vzdelávanie,
vedu,
výskum
a
vývoj
a ľudský
kapitál. Presmerovanie verejných výdavkov v prospech týchto oblastí určite prinesie
svoje ovocie. Podpora malých a stredných podnikov je ďalší moţný spôsob, ako
posilniť hospodársky a sociálny rozvoj, najmä v prípade, Slovenska. Malé a stredné
podniky by mali tvoriť kostru kaţdej vyspelej ekonomiky, takţe si zaslúţia viac
pozornosti, lepšie stimuly, menej obmedzení a menšiu administratívnu záťaţ. Zvýšenie
ekonomickej slobody by malo byť podporované, pretoţe umoţňuje podnikateľom ľahko
vykonávať ich podnikateľské činnosti, čo prispieva k vytváraniu pracovných miest a
tým zníţeniu nezamestnanosti a okrem toho, vyšší počet podnikov v ekonomike prináša
vyšší príjem štátu z daní. Ak sa prerozdelenie týchto príjmov sa vykonáva primerane,
prispieva znova k ďalšiemu hospodárskemu rozvoju.
68
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