Since the fall of communism in 1989 the global order has changed dramatically. Taken as a sign
of the superiority of neoliberal ideas, this development led some theorists to argue that what the
world was witnessing was the "end of history" (Fukuyama). Partly in response to the new
strength of such arguments, many former communist nations based their future transformation
on this neoliberal logic. The experiences of the Czech Republic offer fertile ground for the
analysis of the effectiveness of neoliberal political and economic reforms. Through a broad
understanding of the historical, political, economic and international forces at work in the Czech
Republic it will be shown that the simple universalism espoused by neoliberal reformers has not
offered a successful model for the Czech people. The neoliberal transformation project does not
harmonize the relationship between the polity and the economy, and as such it is inherently
flawed. While this neoliberal model did provide impressive rates of economic growth over the
short term, in cases of post-communist transformation such as the Czech Republic an alternative
model which does not include long term contradictions would provide more stable and
prolonged growth.
Historical Background
To properly understand the Czech context a basic understanding of the nations history will be informative. Several elements of Czech history need to be highlighted here, namely the tradition of democratic pluralism, the strength of the national economy, and the ways in which these were put in jeopardy first by the Nazi occupation and then the communist regime. It is with reference to the post-communist experiences of the Czech republic that these historical factors become especially important.
The independent Czechoslovak state was established by Jan Masaryk in 1918. From the outset this multiethnic nation developed a strong parliamentary democracy which was open to a wide plurality of political viewpoints. As an illustration of this commitment to an open and democratic political system, it should be noted that Czechoslovakia was one of the only states within Eastern Europe which resisted the trends of right-wing authoritarianism which plagued the region. The Czechoslovak state did not follow the pattern of narrowing the legitimate political spectrum, and was one of the few areas in Eastern Europe where the communist party was not illegal (Rothschild). The degree to which the state and people maintained this commitment to an open, plural democracy was truly unique during the inter-war period.
Czechoslovakia was also the most economically developed nation in Eastern Europe in the years preceding the Second World War. Developments in light industry, as well as arms production and engineering fueled the growth of the national economy. Most sources agree that the economy was not only the most developed in the region, but was also the 10th strongest economy in the world (Stokes). This high degree of economic development translated into a high standard of living for the population. Within the larger regional context Czechoslovakia was a fully independent nation in all respects, free from political or economic domination from neighboring states.
The Munich agreement signed by the worlds great powers on September 30, 1938 resulted in the establishment of a German protectorate in Czechoslovakia. The era of the German occupation had several consequences for the country. Firstly, in harmony with Nazi ideology, ethnic identity claims gained in strength, resulting in the formal separation of the Czech and Slovak parts of the country. Secondly, it ruined the democratic norms of Czech politics which had been in place, as the legitimate government of Eduard Benes was forced to flee to London and political parties such as the Czech Communist Party were made illegal and forced into the underground (Benes, Mastny).
Though a communist government did win a coalition government in the first elections after the
war, the inclusion of a reunited Czechoslovakia within the Soviet bloc did not signal a return to
prior political traditions. In contrast, the direction which state socialism took in the Czech lands
has been called the harshest regime of the region (Berend). The trial of the Jewish secretary
general of the party, Rudolf Slansky in the early 1950's was a bloody purge of the party founded
on ethnic mistrust. Over a decade later in the spring of 1968 a reformist government was
removed by the might of Soviet tanks, and 'socialism with a human face' was replaced by neo-Stalinist normalization. During the era of communist rule the Czech economy had been
removed from the global economy and relied heavily on trade within the Soviet bloc.
Czechoslovakia emerged from socialism a mere shadow of its former political and economic
self.
Political Consolidation
The revolution which ended the communist regime in Czechoslovakia was neither bloody nor long. Internal mass dissent coupled with external developments in the USSR and other communist East European nations combined to empower the popular coalition known as the Civic Forum to organize the first free election in June of 1990. The political developments since 1990 have been extensive, and the independent Czech Republic appears to be on a road which will lead to a consolidated plural democracy in the near future.
The conditions for a consolidated democracy are well articulated by Juan Linz. Most importantly, there must be a strong relationship between nation and state. In 1993 differences between the political elites of the Czech and Slovak regions of Czechoslovakia led to the 'velvet divorce' which saw the creation of two independent states (Meszaros). This has created a mono-cultural state which is no longer plagued by ethnic differences; an environment within which a democratic regime can most easily be constructed and consolidated (Linz, 36). It is within this mono-cultural state of the Czech Republic that the four areas of civil society, political society, a rational state and the rule of law have began to prosper. Two examples show not only the existence of these spheres of activity, but also the emerging relationships between them which will lead to a stable democracy.
An example which illustrates the interaction between civil society, the state and the rule of law is the scandal in 1997 surrounding the government of Vaclav Klaus. What occurred was a Czech newspaper had discovered that Klaus' party held a secret bank account within which suspicious funds had been deposited. While the evidence was not sufficient for direct legal action, Klaus was forced to resign (Meszaros). This is a good example of an element of a free civil society acting as a check upon the workings of the state and a group within political society. Moreover, it is an example of the necessity for political society to have legitimacy in the eyes of civil society and the legal norms upon which this legitimacy is based.
In a paper dealing with the interaction of the Czech managerial elite and the state apparatus Hilary Appel and John Gould provide another example of the interaction between these different arenas of society. Early in the process of privatization, information of companies was only available to the top levels of management. But through the legislative framework of the state new laws were passed which made this information available to the public, and allowed any interested party in civil society to partake in the privatization process (Appel). Also inherent in this discussion is the relationship between civil society and political society. This is constructed using the notion of 'identity politics' which refers to the 'new' Czech identity which is based on the liberal democratic history of the nation. This vision of Czech identity was a central political force in the election of the right wing party of Vaclav Klaus (Appel). Here we have an instance of the collective identity of civil society legitimizing and forming the values of the emerging democratic political society.
The independent Czech Republic has sought to recreate the plural democratic structures of the
past through wide political reforms. To date these processes have been fruitful, and it seems that
a strong and stable democratic form of government has emerged. These reforms were all done
quickly and sharply, with no prolonged transitory period between state socialism and
institutionalized democracy. The political apparatus of the Czech Republic has entered a stage
of evolution and refinement, with the bulk of the reform work completed and successful.
Economic Reforms
Reform of the economic system within the Czech Republic was also pursued very quickly and sharply, in an attempt to minimize the long term impact of economic changes. While these reform efforts were initially hailed as the 'Czech Miracle', in contrast to the political reforms they have not seen long term success.
The question of the pace and shape of economic restructuring was an issue which split the Civic Forum in the first months of transition. Like political reforms, planning the future direction of Czech economic policy began almost the instant the velvet revolution had become successful. The most influential political actor who shaped the period of Thatcherite liberalization in the first half of the 1990's was Vaclav Klaus, and prior to even the first free elections in June of 1990 he had persuaded the revolutionary Civic Forum government to agree to a package of drastic reform (Rutland). The Klaus administration developed a plan which removed all major price controls, made Czech currency fully convertible in only four months, and began the privatization of business through auctions, restitution and a voucher program (Hazlett, Rutland). It is important to note that this quick and abrupt process enjoyed a high degree of public support in 1990.
The key to a successful transition to a capitalist economy was seen to be the transfer of capital from the state to private hands. But this was not the only dynamic taking place. The Klaus government also pursued a strict policy of macroeconomic austerity, which had the central aim of "resisting the populist pressures to inflate the economy" (Klaus, 4). This austerity was also directed at monetary policy which aimed to keep inflation at a minimum, and to defend the initial price shock wich was a product of "the inherited size of macroeconomic disequilibrium" (Klaus, 5). Moves towards trade liberalization were also viewed as necessary elements of success to increase the exchange of both goods and ideas, as well as to reduce the need for one way foreign aid (Klaus, 7). The single minded pursuit of these neoliberal goals has radically altered the shape of the Czech economy in a very short period of time. Commentators in late 1994 viewed the Czech economy as one which had overcome the initial shocks of transformation, and predicted the continuance of slow but steady economic growth as had been experienced from 1992 to 1993. Inflation had been steadily decreasing, GNP had begun to slowly grow at a rate of 2%, and the austere government budgets had begun to experience a surplus (Shirong, 18). By 1995 the economic transition from communism to capitalism had been officially completed, with all of the economic reforms in place (Burke).
While the outlook for the transition of the Czech Republic to a liberalized economy was good
during the first half of the 1990's, during the latter half of the decade problems began to arise.
Two specific areas of concern are the provision and funding provided of central social programs.
Professionals such as teachers, professors, doctors and nurses were in some cases not earning
enough per month to satisfy housing needs, forcing many of the most talented to seek
supplementary employment or leave their field altogether (Sebastian). Regulatory mechanisms
have not kept pace with liberalization, leading to a crisis in the insurance and banking sectors in
particular.
International Considerations
At first glance the position of the Czech Republic seems to be very promising indeed. Not only is it very close in geographical terms to both past foreign partners of the old Soviet Bloc, but it also borders on the rich markets of what has traditionally been called Western Europe. In addition, the austere policies aimed at creation of a liberal capitalist democracy of the Klaus government follows a similar logic to those of its closest neighbors such as Germany, Poland, and Hungary. Political and economic reforms outlined by Peter Rutland have attempted to create an atmosphere which would make the global and regional integration Czech Republic as smooth as possible within the prevailing neoliberal paradigm. However, the prospects for regional integration have steadily declined during the latter half of the 1990's.
The European Union has begun to publicly question the success of the preparations towards regional integration which the Czech Republic has made. A commission of the EU produced a report which criticized the lack of progress towards building a streamlined state bureaucracy and improving the judiciary to levels which meet EU standards (Rhodes). Austria is attempting to block entrance based on the completion of controversial nuclear power plants, arguing that these are unsafe methods of energy production. In addition, Germany has begun to demand annulment of the post war declaration which expelled the ethnic German population from the Sudetenland (Rhodes). These factors have combined to place the Czech Republic behind nations such as Poland, Estonia and Hungary in EU candidacy ratings.
Internally the support for integration within the European Union has also declined since the early years of transformation. Matthew Rhodes outlines how the perception of the EU within the Czech Republic has been altered for the worse. The mass resignation of the EU Commission in 1999 has created an image of the EU as a corrupt institution, and trade disputes have made the EU seem hypocritical and protectionist in the eyes of many Czech politicians as well as the general population. Internal dissatisfaction has also grown with NATO, over the institutions actions in the former Yugoslavia. Though the official stance of the government has been one of support, many Czech politicians have severely criticized the NATO air strikes. Members of the government have publicly denounced NATO 'aggression' and used the term 'primitive troglodytes' to describe the NATO supporters of the air strikes (Rhodes). These criticisms and the image of a less than enthusiastic economic contribution to NATO efforts have strained the Czech Republics relations with this regional institution.
The integration of non-state actors has been more successful. A paper by Klaus Meyer outlines the role of large multinational firms in the Czech Economy through the example of the automotive industry. The integration of the domestic auto manufacturer Skoda with German based Volkswagon creates both opportunities and obstacles for the Republic. VW-Skoda has become part of the global production network of Volkswagon, bringing foreign investment in the Czech economy as well as linking domestic and foreign firms in close business networks. Meyer accents he importance of these networks as a source of practical and technological training, as well as providing personal business contacts with Czech and foreign businessmen which will lead to future opportunities.
While the integration of the automotive industry has allowed for the movement of this sector of
the Czech economy into the global environment, it has created strains on domestic firms. With
this global integration also comes global competition, as domestic automotive components
suppliers compete with not only each other, but similar suppliers in every area of the
Volkswagon productive network. The small size of many Czech firms, and the lack of an
established reputation within the networks of Volkswagon make the situation an "uphill
struggle" for many domestic Czech firms (Meyer). A problem which is linked to the integration
of the Czech economy to the global order is the increase in opposition to what many feel is the
Americanization of Czech culture. This is identified by Rhodes and others, and has been used to
partially explain the sudden shift of politics away from right-of-centre neoliberal models towards
social democracy in the past three years. Czech history is filled with periods of subordination,
and it is doubtful that the Czech people will sacrifice their new found freedoms to any perceived
form of cultural imperialism.
The Basis of the Neo-Liberal Project
Both the economic and political reforms which have occurred in the Czech Republic since the fall of communism have taken place within the ideological context of neo-liberalism. It is not a coincidence that this ideological paradigm is also the most pressing intellectual force in the global order as well. Before discussing the success or failure of the Czech transformation process, an outline of the goals of neo-liberal project will be presented.
As already mentioned, the government of Vaclav Klaus was central in forming the early policies of the reformation project within the Czech Republic. As it was being hailed as the most successful Eastern European nation, Mr. Klaus became a vocal proponent of the neo-liberal transition project. There are several key ideas which recur in the rhetoric of the Klaus administration. Namely, the universal nature of neoliberal reform, the need to make quick and drastic changes, and the idea that short term austerity will lead to long term and wide social gains. This was both a political and economic project.
The universalization of neoliberal reforms was a recurrent theme. In his book Renaissance Klaus makes mention of the attention which must be paid to common political and economic factors. Though he stresses the spontaneous and planned nature of the transformation process, this language is somewhat deceiving. Planned aspects include political democratization and regulatory reform, as well as the initial need to privatize the whole of the economy. Spontaneity comes from the interactions between individuals within the marketplace. This project is presented as a "common", "simple" and "old-fashioned" solution to the problem of post-communist transformation (134).
The conception that the transformation process must be drastic and done as fast as possible is a second recurring theme. The drastic nature comes from the fact that the neoliberal reform project is not open to debate; the project itself cannot become an object of reform. As Klaus states, alluding to the unique mix of hyper-capitalism and social democracy in the UK, the post-communist reform project "must explicitly reject all 'third ways'" (9). It is presented as a vision which lies in opposition to the old communist regime, and which does not have room for the inclusion of any of the values from the old system. An attempt to make a sharp break with the old order is crucial within this context. "Reform must be bold, courageous, determined and therefore painful .... the costs the people have to bear must be widely shared" (Klaus, 11). The short time span given for a successful transformation is small, and the radical and uncompromising nature of the neoliberal reform ideology is therefore strengthened.
This leads into the final aspect of the reform agenda, which is closely connected to the pace and
nature of reform. It is that reform will be difficult, that policy must lead to economic austerity
and spending by governments must be greatly reduced. This is the pain which Klaus speaks of.
This pain is made bearable because it is seen to affect the whole of society, with both the short
term negative effects and the long term benefits of stability and wealth being shared throughout
society as well. It is important to note that there is no mention of equality in this dispersal of
costs and benefits; distribution is left to the mechanism of the free market.
The Reality of the "Czech Miracle"
The consequences of the aggressive reforms of the Klaus government have not lived up to the promises which his neoliberal vision presented. Though there were large economic gains in the early years, and the Czech Republic does have a stable and in many respects fair plural democracy, the economic gains have waned and the democratic system is taking unforseen directions. Moreover, hard times still exist in the Czech Republic, and the promises of a quick but difficult period of transformation have not been realized.
As outlined above, the political climate in the Czech Republic has opened up considerably. It does follow a western model of representative democracy, but it should be noted that this was not imported, but has historical roots from before the communist period. Even while a communist regime was in place, the leaders and people of the Czech lands sought to create an open civil and political society in the form of increased transparency, accountability and freedom of expression and organization. The events of the Prague spring exemplify this, and it was through the exterior involvement of the Soviet Union which that these trends were suppressed. The end of the communist period removed this external force, and the first initiatives of the Civic Forum and consecutive governments since then, have been to strengthen and build a free and open civil space and political society.
The early economic gains have not been maintained in a similar manner however. Though the neoliberal efforts of the Klaus administration stressed the need to consecutively reform politics, the economy, and the laws which regulate the new economy, the regulatory framework has not kept pace with other developments. This has created a crisis within investment sectors such as banking, where deposits are in some cases not automatically insured. The population was not accustomed to these new realities, and as some private banks have failed savings have been lost (Sebastian).
The reformation of regulatory laws can be considered a misnomer within the neoliberal project. In many ways it was a removal of regulatory mechanisms, which were seen as a barrier to the natural operation of the free market. Two traditionally protected industries, the health and education sectors, were opened to private investment to increase FDI and market efficiency. Unfortunately, willing investors were difficult to find, and with the austere fiscal policies of the neoliberal agenda, little money was available. This is seen as a central cause in the reduction of wages in these sectors, and has also created massive debts within institutions in these sectors. As such, costs of these social services has increased dramatically, with the burden being borne by individuals (Sebastian).
Macro indicators of both the economy and the provision of social services have been declining since the declaration of the "Czech Miracle" in the mid 1990's. These factors, as well as questions of the level of development of the state bureaucracy have led the EU to not allow the Czech Republic to enter in the latest round of new admissions to the union. This must be seen as a major failing of recent neoliberal reforms, as one of the central features was the opening up of the domestic economy to attract both international integration and cooperation, as well as foreign capital. The effects of such a fast process have adversely affected many domestic businesses, as they have been forced to compete with established and experienced capitalist firms in an unprotected domestic market and a very competitive global market.
The vision of the neoliberal reform agenda have not been realized. The political, economic and
social transformation of the Czech Republic is not complete. The drastic and sudden shift to
austere policies and de-regulation have in many ways exacerbated latent problems inherent in
the shift to a capitalist economy. The promise that the vision of the Klaus administration sold to
the people of the Czech Republic has turned out to be an empty one.
Non-Viability of a Universal Neo-Liberalism
The experience of the Czech Republic highlights several factors of neoliberal reform which are problematic. Firstly, short term sacrifices in the form of national economic austerity have not produced the requisite long term benefits. Additionally, a disjuncture has emerged between the political re-entrenchment of democracy and the radical liberalization of the Czech market. Lastly, this disjuncture has become exaggerated by the existence of international economic and political forces to which the Czech public has reacted negatively to. All three of these factors contain historical, political and economic elements.
The most glaring problem with the neoliberal reform strategy as it was introduced in the Czech Republic is that it simply did not fulfill its promise of a brighter future. This is not to say that life has not improved, it has. But the short term pain of austerity was supposed to translate into long term economic and political stability. In reality, what has happened is that the short term has become extended, and the consequences of the pace of neoliberal reform have been negative in many respects. The burden of de-regulation has fallen on many, such as domestic business, health care and education professionals, as well as the bulk of citizens who interact in the stagnating Czech Economy. The return to a system of plural democracy has seen a larger degree of success, and the population voiced their disillusionment with the neoliberal promise in the elections of 1998 which saw the Klaus government replaced by that of Milos Zeman's social democrats who have a distinct 'third way' approach to political and economic reform.
This change in Czech politics is representative of the larger disjuncture between neoliberalism and democracy. Though the rhetoric claims to uphold freedom in politics as well as the market, the reality of how this is accomplished is often more reliant on market mechanisms than governmental involvement or regulation. There is a line drawn between the political and the economic within the neoliberal framework, and in most cases this involves the removal of government interference to create a more efficient environment. But there is nothing inherently democratic about the market. Market relations are grounded on profit and competition, and these are not intrinsic elements of democracy by any definition. When this is applied to areas such as social services and opening an inexperienced domestic market to foreign competition, as it was in the Czech Republic, negative consequences seem to be the rule. The democratic demand for a supportive social system lies in direct opposition to neoliberal efforts to eliminate state involvement.
This disjuncture has been magnified by external relationships, such as the dealings with the EU and the involvement of foreign capital in the Czech economy. Despite sweeping political and economic changes, prospects for membership in the EU are not good. Only small portions of the domestic business community is benefitting from their exposure to international markets. A growing sentiment within the Czech Republic is a reactionary one against these forces, expressed in anti-EU speeches within government and dissatisfaction with the importation of 'American' values and products (Rhodes). The neoliberal project of integrating the Czech Republic into the larger global environment is backfiring in relation to the fears of external domination of the Czech people. These fears are well grounded historically, as the Czech lands have only been truly independent for the brief inter-war years.
The universalistic solution to the problem of post-communist transformation has not solved the
problems of political and economic reform in the Czech Republic. Instead, it has created new
problems, such as the crisis which exists in the social service network of the country, and
increased reactionary forces which had been ignored within the universalistic model. The area
where reform efforts have had a considerable degree of success, in building an open plural
democracy, can be argued to be a result of larger historical and cultural forces, and as such
would have taken place with or without neoliberal theory.
Conclusions
The Czech Republic is one of the better examples of the consequences of a fast and radical
implementation of neoliberal policy. Understood in conjunction with other east European states,
it seems that the fervor of fast tracking the reform process did not pay off in the long run. Other
states, such as Poland, which pursued market liberalization with less fervor have quickly
outpaced the early gains which the Czech Republic enjoyed. The universal nature of early
reforms did not account for the historical and cultural trends which have proven to be significant
in the transformation process. In addition, the strong separation made between polity and
economy has had negative consequences, and has hit specific sectors especially hard. The
model of international integration sold by the neoliberal thesis has also failed to yield beneficial
results in the long term. In response to these forces, there has been a recent shift in the
ideological model which lies behind Czech politics which embraces market liberalization, but
also hold itself accountable for the social and political effects of policy. This new attempt to
harmonize the social, political and economic will hopefully create the bright future which
Czechs have sacrificed the past 10 years to achieve. One lesson seems certain: That radical, fast
reform based on neoliberal free-marketeerism has not worked for the Czech Republic, and as
such its validity as a universal model must come into question.
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