Slovaks can afford much more than they could 30 years ago

While there are still people in Slovakia who fondly recall life during the communist regime, hard data indicates that Slovaks are now, on average, much better off. Not only is the range of goods available in the shops incomparably wider than in the 1980s, but people can also afford to buy more on their current wages.

This was not the case from the very beginning of Slovakia’s life as an independent state. It got off to a bumpy start in 1993, with independence preceded by three years of disorientating post-communist economic transformation. Following the fall of the totalitarian regime in 1989, market forces replaced central planning as the guiding principle of the country’s economic model.

“The beginnings of Slovak independence were very difficult, as people, companies, but also the government were learning to operate in a new environment – an environment of global competition, to which we were not accustomed,” Matej Horňák, an analyst with Slovenská Sporiteľňa bank, told The Slovak Spectator.

Slovakia experienced a period of rapid economic growth as it prepared to join, and was then admitted to, the European Union in 2004. This process was accompanied by a wave of economic liberalisation and reforms implemented by the governments of Mikuláš Dzurinda between 1998 and 2006. The country also resolved to join the single European currency, which it did in 2009.

Economic uncertainty

The changes that accompanied the fall of the communist regime were enormous and touched almost all aspects of life.

“These changes ranged from the emergence of a pluralist political system – free elections, political competition – to changes in family behaviour – the postponement of marriages and parenthood, and an increase in divorce rates,” sociologist Miloslav Bahna, from the Sociological Institute of the Slovak Academy of Sciences, told The Slovak Spectator.

The fall of the regime and the consequent economic transformation brought severe disruption to established patterns of trade, corporate bankruptcies, price increases and economic decline.

“In the first years after the fall of the communist regime, we were going through a socalled transformational depression, when real GDP growth fell by more than 15 percent year-on-year,” said Horňák.

Those years also witnessed price liberalisation, in which prices that had long been set artificially in the domestic market were allowed to adjust to world prices. This resulted in inflation that exceeded 60 percent in 1991. By independence in 1993, inflation was still at more than 20 percent, noted Horňák.

“A new tax system and our own currency, the Slovak crown, were introduced,” said Horňák, adding that one of the effects was the devaluation of the currency.

Another novel and unwelcome phenomenon during the same period was unemployment. This was more-or-less unheard of during the previous regime: being employed was compulsory and those without a job were accused of sponging off the state.

During the first three years after the Velvet Revolution the jobless rate grew to 15 percent. It rose further in subsequent years and by the turn of the millennium every fifth Slovak was unemployed. This trend was accompanied by a drop in real wages.

The two breakthrough events that significantly helped the economic development of Slovakia were its admission to the EU on May 1, 2004, and the replacement of the Slovak crown by the euro on January 1, 2009. The latter brought much-needed simplification of exports, said Horňák.

“This period was accompanied by huge reforms and an influx of new investments, for which Slovakia was dubbed the ‘Tatra Tiger’,” said Horňák.

Today, citizens of Slovakia can afford more than they could before 1993.
Between the 1st quarter of 1993 and the 3rd quarter of 2022, i.e. a period of just under 30 years, the average salary in Slovakia increased by 689 percent, while consumer prices during the same period grew by 316 percent.

Consequently real wages have almost doubled, rising by 90 percent compared to their level at the beginning of 1993, Michal Lehuta, macroeconomist at VÚB Banka noted.

“Despite this, Slovaks are naturally not satisfied with their incomes, as they have been waiting for their standard of living to catch up with countries in western Europe, which has not happened even after 30 years,” said Lehuta, adding that people’s purchasing power is now being eroded by record-breaking inflation.

A closer look at the statistics shows that Slovaks began earning more than in 1989, in real terms, from 2007, Eva Sadovská, an analyst with Wood & Company, noted in an analysis.

“Today, on average, we need to work less time to buy more types of food,” wrote Sadovská. “This is especially true for meat products and eggs, but also sugar. It takes a comparable amount of working time to buy dairy products. However, to buy bread today we have to work a few minutes more than we used to.”

Clothing and shoes are also more affordable today. People need to work for a significantly shorter time to buy durable consumer goods too.

“For example, in 1989, to buy a colour TV, we had to work about eight times longer than today, if we want to buy a [comparable] LCD TV,” wrote Sadovská. “If more than 30 years ago we wanted to buy a new refrigerator, it cost us five times more hours spent at work than it does today. In the case of buying a car, it was once necessary to work for more than twice as long.”

Nostalgia is justified for some groups

Nevertheless, the fall of communism did not mean better times for all citizens of Slovakia. The situation worsened for Roma people, who have faced growing difficulty finding work, as have people living in the eastern part of the country in the socalled “hungry valleys”.

“Life in parts of southern and eastern Slovakia is incomparable with life in Bratislava or economically developed western Slovakia,” Vladimír Baláž, from the Institute for Forecasting of the Slovak Academy of Sciences, told The Slovak Spectator.

On the other hand, pensioners have maintained their purchasing power: old-age pensions still account for roughly 40 percent of the average working wage.

“Of course, this is again an average figure that hides fine details – for example, before 1989 all medical drugs were free of charge. Today people need to pay for many of them even though there is a compensation scheme for pensioners,” said Baláž.

Bahna regards some of the nostalgic comparison with pre-1989 conditions – sometimes called “remembrance optimism” in Slovak – as being partly justified.

“On the one hand, the period of the previous regime in Slovakia coincided with processes such as urbanisation and industrialisation,” said Bahna.

These macro-social processes typically guaranteed an increase in the standard of living, as well as social mobility as people transferred from manual labour in agriculture to jobs in industry and services.

“These processes took place in Slovakia just after the Second World War and it is therefore possible that, thanks to them, the period of the previous regime is perceived significantly more positively in Slovakia than in the Czech Republic, where these processes had taken place earlier,” said Bahna. “Between 1948 and 1989, Slovakia grew economically faster than the Czech parts of Czechoslovakia.”

On the other hand, if those with nostalgia perceive the period before November 1989 as a period of certainty and satisfaction, then this is a distorted perception, he added.

The first post-November 1989 opinion polls, show that in December 1989, when it was already possible to freely conduct an opinion poll, but the economic shocks associated with the economic transformation had yet to occur, significantly more people expressed dissatisfaction with the state of the economy, and with the health and education systems in Slovakia, than they do today.

“Yet today – primarily for internal political reasons and because of high inflation – discontent is at historically high post-1989 levels,” said Bahna.

In spite of this, the 30-year economic story of Slovakia is a relatively successful one, noted Lehuta of VÚB Banka, especially when compared with post-communist countries that have not entered the EU.

“From the total economic morass and uncompetitive economy of the early 1990s, we have gradually managed to catch up with at least the poorer countries of the original EU15, such as Greece and Portugal, in terms of living standards,” said Lehuta.

Not catching up any more

Nevertheless, the latest statistics suggest that Slovakia’s convergence with the EU average has not only halted – it may even have begun to diverge again.

“This does not mean that we will be worse off than we are today, rather that neighbouring countries will grow faster and will be better off than us,” said Baláž.

Analysts attribute this to the fact that unlike neighbouring countries Slovakia has not invested in a knowledge-based economy and innovation.

“The catching-up model based on cheap labour and copying the West that we have been using for the last 30 years is gradually being exhausted,” said Horňák. “If Slovakia does not want to find itself in the middle-income trap, this model needs to be upgraded – based on greater involvement of domestic research and development, education and innovation.”