INESS founder and CEO Richard Durana, second from left, speaks on a panel during Atlas Network’s 2016 Europe Liberty Forum, held on June 8–9 in London and co-sponsored by the Institute of Economic Affairs. Linda Whetstone, Atlas Network’s board chair, is seated at center.
Robert Miskuf, CEO and founder of Pedal Consulting, a business development consultancy based in the Slovak Republic, started working in European public procurement eight years ago — and his job was mired in paperwork.
“Every morning, I had to visit 27 websites and look for newly published calls for tenders,” he said. For any given bid, Miskuf explains, the stack of paperwork could weigh as much as 6.5 kilograms — about 14 pounds. “I was always wondering if this could be somehow automated.”
In the years since then, Miskuf’s Pedal Consulting has pioneered a worldwide database of public procurement notices, and a system of electronic document provision and submission — matching demand to supply with an efficiency that would have been unimaginable only a few years earlier.
During that time, public tender bidding portals have cropped up throughout Europe. Slovakia has also brought its procurement process online, which makes automation easier — but the country continues to lag far behind the rest of Europe, and the world, in terms of burdensome red tape. Bureaucracy is choking off Slovakia’s full potential.
The INESS “Bureaucracy Index” press conference, held on Sept. 29, 2016.
The “Bureaucracy Index,” developed by the Bratislava-based Institute of Economic and Social Studies (INESS), found that small entrepreneurs spend 140 hours annually — about 17.5 full working days — navigating the country’s complex regulatory red tape. That includes an average of 75 administrative tasks that cost each business an average of €1,472 (US$1,565) per year.
INESS’s founder and CEO, Richard Durana, has spent the last several years pushing for change. “These kinds of costs are not always so obvious, but they can really slow progress.”
Did you know that the average business spent 140 hours on paperwork in 2016? (translated from Slovak).
Durana, along with his brother Radovan Durana and Juraj Karpis, both economists, created INESS in 2006 when they realized that public discussion about Slovakia joining the European Union included precious little rigorous analysis.
“In Slovakia, discussions were led solely on an emotional basis, and any economic arguments were missing,” Durana said emphasizing how the prevailing legacy of communism led most to favor redistribution and government regulation. “We saw a gap in the market so we decided to start a think tank.”
They had their work cut out for them. Slovakia has one of the worst regulatory regimes in the world, placing 150th out of 159 economies for its burdensome business regulations in the Fraser Institute’s 2016 “Economic Freedom of the World” report. Slovakia’s Ministry of Economy has estimated that entrepreneurs have 4,000 separate responsibilities to supply information to the government, with an overall administrative cost of €2.67 billion (US$2.88 billion) or about 3 percent of GDP.
“This proliferation of regulations creates a hostile climate for small businesses and entrepreneurs who don’t have the resources to navigate a maze of red tape before earning a profit,” explains Durana.
Durana has explained this often, to anyone who will listen. He and his team appear in the media more than 800 times a year selling the benefits of simplified and limited government. The message is starting to get through.
In May 2015, INESS was honored by Nadácia Orange (the Orange Foundation) as an exceptional non-governmental organization that had contributed to addressing current needs in education, community development and social inclusion.
In the past two years, Slovakia has bolstered the government’s one-stop shop for trade licensing by introducing an electronic filing and payment system for value-added taxes (VAT) and audit statements, as well as simplifying the process of starting a business by adding electronic court registration. VAT filing previously had one of the most laborious filing processes of all taxes in Slovakia, so the new electronic system has reduced compliance time by 30 to 50 percent.
The changes are already having a practical impact for businesses in Slovakia. Electronic filing may be a marginal change to government practice, but it saves a tremendous amount of administrative work for businesses.
“Since our consultants do a lot of traveling around Europe, it required a very punctual (and costly) timing or even outsourcing to personally deliver documents,” Miskuf said. “Now some tasks can be done online. It is a small but welcomed step towards a better business environment.”
Miskuf isn’t the only one seeing the benefits.
Jaroslava Lukacovicova, CEO of SAUNO, a Slovak economic and tax consultancy for non-profit organizations, pointed out that the electronic filing system also includes error-checking, which can save days of time and effort that used to be lost to manual document checking, returning, corrections, and resubmission. She can also submit online documents on her own schedule.
“It saves me a lot of time and material, as I do not have to keep track of the opening hours of the post office, and there is no need to print out the documents,” Lukacovicova said. “I can also submit these wherever there is an Internet connection available, and whenever — up until the deadline, which is usually at midnight.”
The INESS 2016 “Universe of Public Expenditures” infographic.
Durana and his colleagues at INESS have made tax and government spending priority issues as well. Through its “Price of the State” (Cena Statu) website and its annual “Universe of Public Expenditures” infographics they have inspired widespread demand for fiscal discipline.
The results are encouraging. Slovakia has decreased health insurance expenses for low-income earners, and the corporate income tax has been reduced twice — from 23 percent to 22 percent in 2014, and by another 1 percent in 2017. Although it’s still one of the highest rates in the region, every percentage drop results in a lower tax burden for entrepreneurs. This brings INESS one step closer to its goal of making Slovakia one of the most competitive economies in Europe.
Held on Feb. 24 in Bratislava, the INESS forum “When Will Slovaks Be Rich?” drew more than 70 participants.
In 2016, INESS launched a new set of reform proposals, “Top20,” aimed at moving the World Bank’s “Doing Business” ranking for Slovakia up into the top 20 economies in the world. At the project’s inception, Slovakia ranked 29th out of 189 measured global economies. Since then, that 2016 ranking was revised to 30th after incorporating new data, and the newly released 2017 ranking, which uses data from midway through 2016, has fallen to 33rd.
The Top20 website that INESS built contains a wealth of information about specific reforms that need to be passed in order to enable robust new market activity in Slovakia. The country is especially lagging in crucial economic activities like starting a business, enforcing contracts, protecting minority investors, connecting businesses to the electric grid, and dealing with construction permits.
“We can be among the best!”
The goals are concrete, politically feasible targets that would each bring a greater level of freedom and flexibility to the Slovakian economy. The INESS Top20 proposals to reduce bureaucracy in Slovakia include establishing a three-year sunset clause for any new regulation that impacts the business environment, passing a requirement for any new business regulation to be paired with the cancellation of an existing regulation, reducing the number of professions that are protected by restrictive licenses, and eliminating restrictions on which activities entrepreneurs are allowed to pursue.
Top20 is already yielding practical results.
“As part of the efforts, we have countered the government initiative to change rules for setting public broadcasting fees,” Durana said. “After attracting almost 700 signatures on a public petition, INESS was invited to take part in the legislative process and managed to have a minor amendment passed into the law.”
A new bill, sponsored by 19 members of Parliament, demands changes to Slovakia’s mandatory scheme of food vouchers, which requires employers to provide meals to employees who work a shift of four hours or more. This burdens employers and cuts into other forms of compensation that employees could receive instead.
“The initiative to swap the expensive vouchers for cash was voted down in 2015,” Durana added. “But the public pressure became so intensive that the proposal is coming back one year later.”
Additional proposals include several practical tax reforms, modifications to levies of health insurance and other social service contributions, streamlining of required accounting procedures, and adding new flexibility to labor code regulations.
Even think tank entrepreneurs have to be resourceful and Durana is a strong example of how to make the most of the freedom network.
Top20 is funded, in part, by Atlas Network’s $100,000 Leveraging Indices for Free Enterprise Policy Reform (LIFE) grant opportunity, generously supported by the John Templeton Foundation. In 2016, Durana joined think tank CEOs from Europe and the United States gathered at Runnymede to develop a strategy for creating the next “Magna Carta moment” — a widespread shift in power away from centralized political leadership and toward the individual.
Richard Durana participated in the Unconference session during Atlas Network’s 2015 Liberty Forum in New York City.
Durana also participated in Atlas Network’s Unconference session during the 2015 Liberty Forum in New York City. The workshop-like format of Unconference helped him harness the wisdom of crowds to develop fundraising strategies for the INESS Political Academy, an intensive three-day nonpartisan workshop that educates aspiring Slovak politicians in the fundamentals of reform strategy, economic policy, government finance and more.
There are still many obstacles to overcome, however. INESS and its policy advocacy work often hit a silent wall of either indifference or hostility. Slovakia’s populist Social Democratic Party, which has held power for 11 years with only a brief interruption, was the country’s only political party that refused to discuss including INESS proposals in its election program, Durana reports.
Rising populism and nationalism have also had an impact on Slovak politics and society. The prevalence of populist rhetoric makes it more difficult to persuade leaders to adopt sound economic policies.
“Fragmented opposition mired in mutual quarrels does not make the situation more digestible,” Durana said. “Advocating a certain measure usually requires years and use of multiple leverages through media, public, and business, to put down roots in the public sector.”
In the face of popular calls for economic protectionism and autocratic leadership, Durana pointed out, preserving elements of the status quo can also be considered a form of success — especially when compared to the worsening situations of neighboring countries.
More than 70 students attended a Feb. 15 lecture on economic myths by Radovan Durana, held at the University of Economics in Bratislava.
“Liberty, property rights, markets, and rule of law are key to everything,” Durana said. “There cannot be wealth creation, technological progress, justice, freedom, and dignity without these preconditions. This is not only a job. It is a passion. It is an intellectual challenge and part of life.”
INESS is committed to serving as a catalyst for reform, advancing its vision of a freer, more prosperous Slovak Republic at every opportunity.
Modern Slovakia is like night and day compared to its years under communist rule, before the 1989 Velvet Revolution hastened the end of communist control, ultimately dissolving the Soviet Union in 1991. The nation has forged its own path since its Velvet Divorce separated Slovakia from the Czech Republic only two years after that.
Today, more and more Slovakia is embracing market exchange and international trade, and has achieved a stable currency, all of which contribute to the country’s economic growth.
Slovakia has the potential to take a position among the world’s 20 best-performing economies if it scales back the country’s heavy bureaucratic burden. Although there’s a long way to go, thanks, in part, to Durana and his team, things are really beginning to change.