PANEL DISCUSSION 2024

Roman MICHELKO:
CENTRAL EUROPEAN COUNTRIES HAVE CURRENTLY BECOME COUNTRIES WITHOUT DREAMS

Ladies and gentlemen,

I will be speaking in Slovak. I assume that most of you – though perhaps not the majority – understand Slovak. I'll take a somewhat critical stance on what's been said and try to dismantle a few myths about how Central European alliances function – or, more precisely, how they don't function. Beyond the geopolitical context, my focus will be on the middle-income trap, on economic stagnation – the situation we find ourselves in after 35 years of transformation – and a hint of what might be done about it.

So, Central Europe – what is the reality, and what are the prospects?

More than thirty years after gaining freedom, Central Europe is stagnating. To overcome this stagnation, we must first dispel some myths. The most fundamental is the belief that regional groupings function effectively and have the potential to become influential players in Europe. The V4 was originally conceived in the early 1990s as a lobbying group to speed up integration into European and transatlantic structures. But 35 years on, it's clear that national self-interest has often taken priority over shared goals – especially on major issues like the split over mandatory migrant quotas during the 2015 crisis. For instance, Poland, due to Donald Tusk's prominent role at the time, took a different path than the other three V4 members. Today, it's clear that, mentally and politically, this alliance has split into two almost opposing "V2" groups – with the Czech Republic and Poland on one side, and Slovakia and Hungary on the other. On issues of values, strategy, and policy, they often find themselves on opposite ends. Here, I am referring to political leadership, not necessarily the people. Nevertheless, let's focus on today's most significant challenges. We are fighting on several fronts. The first of these is the fight against the massive restriction of free speech through cancel culture, under the guise of so-called political correctness. The second is the push for the revision of a purely ideological construct presented under the umbrella term "Green Deal". The third front is resistance to a paradigmatic shift in the concept of human rights, which currently supports unregulated cultural diversity, as seen in liberal migration policies and efforts to transform Europe into a multicultural society. There is no doubt that the concept of multiculturalism has failed and continues to fail, particularly with the increasing emphasis on minority rights.

The rights of sexual, ethnic, and religious minorities – often at the expense of the majority – have become the defining feature of our dismal European reality. Beyond these cultural and ethical challenges, Central Europe is looking for a new model of prosperity. The economic strategy of catching up with the world's most developed countries, based on the three pillars of a highly skilled, highly disciplined, and very low-paid workforce, has failed. We have fallen into the middle-income trap, and with the near-total absence of visionaries among the political elites (used strictly as a technical term), we have no plan to escape it.

The situation of Central European countries can be poetically described as having become nations without a dream. In the early 1990s, a generation of politicians set several tangible goals and milestones, which they eventually achieved, though with significant delays. The goal was clear: a "return to Europe", a metaphor for integrating our societies with the most advanced nations, where inter-war Czechoslovakia had once belonged. It was, after all, among the ten most developed countries in the world. Gradually, we became members of the Council of Europe, the OECD, and later, in two waves, members of NATO. For many, the major milestone was joining the EU in 2004, followed by anticipation for the end of the transition period for the free movement of labour. We became part of Schengen, and for some, specifically Slovakia, part of the eurozone. But our dream of joining the ranks of the most advanced nations has collided with reality. For almost 15 years, we have been stagnating at 72–73 to 75–77% of the EU average in terms of GDP per capita. Yes, the Czech Republic and Slovenia have surpassed Portugal in GDP per capita and Greece after its severe financial crisis in 2009–2010. We're catching up with Spain – or perhaps one of these two countries has already reached its level. It's clear that the policies that once brought us closer to our goals have lost their effectiveness. The political discourse has flattened, becoming shallow. It's been reduced – almost degenerated – into debates over whether VAT on certain goods should be 3% higher or lower. What we lack is a clear vision – a strategy for the policies needed to break free from the trap we're stuck in. The entire V4 faces similar challenges. At the same time, there is a lack of vision and an inability to think beyond the typical four-year legislative horizon that political leaderships tend to focus on. More importantly, there is no clear idea of how to reintegrate Central Europe into the ranks of the world's most advanced regions, where it once belonged. Today, after thirty-five years of transformation, we must acknowledge with regret that the hopes of intellectuals at the start of this process have not been fulfilled. The convergence theory has failed. In the 1980s, Western, particularly American, Sovietologists predicted that by around 2050, the Western and Eastern systems would converge. Through their rivalry, capitalism and socialism would gradually adopt each other's positive features and eliminate the negative ones. As we now know, what happened was not convergence but annexation. The Eastern bloc disintegrated and became a semi-periphery of the West, which, in losing its competition – or more precisely, its alternative – shed all restraints and began to amplify its worst traits. The aforementioned Western intellectuals anticipated – or at least hoped – that absorbing the Eastern system into the world of pluralistic democracy and a market economy would bring fresh approaches and perspectives on governance and civilization. This included, among other things, a focus on guaranteed social security and a move away from the fixation on constant GDP growth as the sole measure of societal progress, replacing it with indicators such as a quality-of-life index. Today, we know that the path to joining the elite club isn't automatic and that we face many objective as well as subjective obstacles to getting there. Among the subjective obstacles is the absence of sophisticated elites who believe neither in the "invisible hand" of the market to solve everything nor in neoliberal economic concepts. The objective obstacles include the lack of a strong, philanthropic, sophisticated, or even visionary capital-forming class. This attempt at privatisation skewered into the formation of a few oligarchic groups. And they have proved to be extremely effective in advancing their interests. They have literally excelled in their ability to influence political decisions in their favour and now firmly control entire sectors – healthcare, energy, finance, and media. However, despite being relatively strong players locally, they're still "second-tier" within Europe – with the possible exception of PPF, which has grown large even by European standards. But let's return to the core of the problem. Our countries, specifically the Czech Republic and Slovakia, cannot compete with the capital strength of Germany or the UK. For a society to be truly advanced, it must have access to the latest technologies, which are always available first in countries where capital is concentrated. This has proven to be a significant obstacle, contributing to our lagging behind. Unless our economy achieves higher labour productivity, it is unlikely we will see improvements in the standard of living or the quality-of-life index. Since only a production structure that generates high added value can propel a society forward, it is crucial to have a critical mass of owners who will establish such production within our countries. The second crucial factor is the structure and quality of the education system. This is where another issue arises. Over the past 30 years, we have taken a very broad and inclusive approach to developing higher education. However, there is no consensus on allocating a fixed or growing share of GDP to education, nor on establishing systematic support for science and research through policies that would quickly translate research results into practice. We lack a clear plan for supporting innovative startups – and, above all, a strategy to establish them on a global scale. Many may not realize that tiny Estonia, with just 1.5 million residents, has seven unicorns – startups valued at over a billion dollars – and that companies like Skype, Bold, and Wolt originated there. Estonia boasts the highest level of digitalization, a reformed education system, and strong prospects for joining the ranks of the world's most advanced nations. We are not creating the necessary conditions for a painful yet essential reform of higher education that would align its structure with the needs of the labour market. Additionally, we lack a strategy to attract talents, particularly from Eastern Europe.

Let's be specific. We could take inspiration from countries that successfully escaped the middle-income trap, like Finland and South Korea. In 1960, South Korea's GDP per capita was on par with Ghana's – and look where it is today. Finland, as an associate member of COMECON, lost access to Soviet markets in 1990, leading to a national consensus that education must be a top priority. Regardless of the government in power, a high percentage of GDP was devoted to education, schooling, and support for science. This commitment became a shared priority across the political spectrum. Of course, direct comparisons are difficult – South Korea has a vastly different cultural and historical context – but Finland offers a compelling example. In Finland, they understood that, in the 21st century, a society's prosperity would rely not on industrial production, but on knowledge and services. As a result, they completely overhauled their education system, making it, along with research, an absolute priority. Today, Finland ranks among the most advanced countries, with one of the highest levels of GDP per capita and a top quality of life index.

So what is the path forward for Central European countries? Like Finland, we need to move away from the extensive expansion of public higher education. It's unsustainable to have a faculty or satellite campus in every district town. The massification of university education is a path to decline. We must shift from extensive to intensive development. We need to build a research-oriented university model with significantly higher per-student funding, strong connections to practical applications, and maximum support for innovation, alongside renewed investment in science. Consider Israel – a country in a near-constant state of conflict, yet a startup powerhouse, dedicating 4% of its GDP to science, even under wartime conditions. Dozens of companies that started in Israel's "valleys" are now global players, often without people realising their origins, but the added value flows back to Israel. In Slovakia, however, only a tiny fraction of GDP – well below 1% – is allocated to science and higher education.

But even that may not be enough. Forward-thinking governments in the region are implementing similar measures. If we want to be truly successful, we must attract the brightest minds from across Eastern Europe. Paradoxically, the current geopolitical situation works to our advantage. We can offer opportunities for self-realization to students, scientists, innovators, and startup founders from Eastern Europe – including Belarus, Ukraine, Russia, Moldova, and Russian-speaking Kazakhs. In 1990, Russian-speaking minorities made up over 50% of the population in some areas, but today they are more or less merely tolerated. These individuals share similar cultural backgrounds, integrate well, and are unlikely to form isolated cultural enclaves that might lead to conflict. Let's create research hubs and startup "valleys" around our universities to support the most innovative minds. By giving them a chance to contribute to the region's growth, we can become a different and far more advanced society.

Slovakia, together with the Czech Republic, is one of the most industrialized countries in Europe. However, this has increasingly become a handicap, particularly as Slovak industry is largely reliant on a single sector – car manufacturing. Unless we capture and effectively harness the intellectual potential of our region, our stagnation will continue. Citizens' frustration will keep growing, and we will gradually fall further in the rankings, eventually landing at the bottom of the list of countries where living offers little benefit.

The road to recovery will be long and difficult, but every vision must start by identifying the causes of failure and developing a plan to address them. This is what we need to strive for. It is also essential to remove the political pseudo-elites who are objectively dragging Slovakia down and to present a realistic vision that can gain public support for implementation. And this is indeed a difficult mission. But we have to start from somewhere. Thank you!