Since the 'Velvet Revolution' of 1989 the economic structure of society in the Czech Republic has undergone a series of fast and profound changes. What began as one of the most centrally planned and controlled economies in the Eastern Bloc has become the most drastically reformed country of the area. The fast pace of rapid reform did come with costs however, many of which have only recently become felt.
Planning for economic restructuring, like political restructuring, began almost the instant the velvet revolution had been 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 question of the pace and shape of economic restructuring was a key issue upon which the Civic forum government was divided. Many argued that the immediate introduction of a market economy would create instability and chaos, while other followed the arguments of Klaus. This initial victory of Klaus would result in the formal split of the Civic Forum into two distinct parties after the June elections. Vaclav Havel's soft reformist Civic Forum won the June election, with the breakaway Civic Democratic Party of Vaclav Klaus a strong force among the alliance government (Hazlett). This government introduced several early reforms, embodied in a reform strategy adopted on September of 1990. This plan called for the removal of all major price controls, set a goal of 4 months to establish the full convertibility of Czechoslovak currency, and initiated the mandate to privatize essentially all small and large scale industries. By the beginning of November this mandate was enacted into formal law, requiring the privatization of the ownership structures of large scale industry (Rutland). These measures were made successful with the support of Vaclav Klaus and his followers who affirmed that there was no 'third way' between a market and command economy, at least not for the Czech Republic. The public support for such a sudden shift into the unknown waters of free markets was quite high, with only 23% of those polled in 1990 expressing opposition (Rutland). The mandate for a sharp transition to capitalism was given a further boost in 1992, with Klaus' right wing party the victor of the elections (Hazlett).
Capitalism requires the private ownership of the means of production, and at the end of 1989 the Czech Republic had one of the smallest private sectors in Central Europe. To speed the process of mass privatization the diverse approaches of restitution, auctions and a voucher program were used. Restitution laws which extended back to 1948 were passed in late 1990 and early 1991. The divided Civic Forum alliance government agreed to these only after drawn out parliamentary confrontations, but in the end over 100 000 units of property were returned to citizens (Rutland). It should be noted that the effects of restitution are really only apply to housing and small businesses, as most large scale and industrial assets had been nationalized prior to 1948. Moreover, restitution was only meant as an initial phase of the process. The laws set very stringent deadlines for claims. The cutoff for a claim to be filed was September 30, 1991; just six months after the laws had been finalized (Hazlett). Other means of privatization had to be relied on to change the ownership of operations which operated on a larger scale.
Restitution was accompanied by the auction of businesses such as small retail stores, small workshops and restaurants. This phase of privatization was not as rushed as the restitution process, as these properties were only leased for a period of 3 to 5 years initially. By the beginning of 1993 however, once many of these leases had expired, over 65% of the designated properties had been sold to emerging entrepreneurs (Rutland). To compliment the moves to privatize small scale enterprise, a new and untested method was applied to the large industrial sector. This extensive program was what has become known as the 'voucher method'.
The voucher method was used to privatize the large scale industries which had been created out of the monolithic state enterprises of the communist era, and to do this as quickly as possible. The Czech voucher method differs from those undertaken in neighboring countries in two easily identifiable respects. Most importantly, plans for each enterprise were initially drawn up by the existing management of each firm to overcome the problem of information gathering. Shortly after the programs inception this was expanded to allow any interested party, even foreign ones, to submit a plan in order to increase the availability and accuracy of information. Secondly, the vouchers themselves were made available to every adult citizen at a very affordable price. The problem of excessive dispersal of ownership and ineffective control was overcome with the allowance of Investment Privatization Funds which could compete for the purchase of citizens vouchers (Rutland, Hazlett). The vouchers were used within a computerized stock market style system which allowed for the depreciation or appreciation of a companies value through successive rounds of controlled bidding. By 1993 effectively all of the vouchers which had been sold were used within the system, and the bulk of Czech industry had been privatized. Hazlett notes that both the fears of excessive ownership dispersal and of too much foreign ownership had both been avoided within the Czech version of the voucher program.
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 neoliberal 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).
The success of the economic reforms in the Czech Republic were not translated into social gains as quickly as the Klaus government had hoped. While many service sector employees and private entrepreneurs are earning higher wages, the effects of the radical market transition have negatively affected areas of the economy which provide public goods. Beginning in 1996 the problem of low wages was identified as an area of concern in the health care and education sectors. 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). While the Klaus government had initially planned to privatize many hospitals and education centres, willing investors could not be found. As such the tight fiscal policy of the Klaus government played a role in the drop in professional wages.
Another serious problem arises from the fact that regulation did not keep pace with the rapid move towards privatization. Insurance firms in particular did not have to prove their financial strength, resulting in a large proportion of unpaid insurance bills. This problem has directly affected the budgetary stability of hospitals, who are amassing large debts to the suppliers of medicines and other health care goods. This has resulted in the downloading of costs from hospitals directly to citizens, as many insurance polices are not accepted. If patients wish treatment they must pay from their own pockets (Sebastian). Lack of effective regulation has also seriously affected Czech banking, as deposits are not insured unless the customer pays additional bank fees. Many Czechs who were accustomed to the state provided banking of the communist era did not pay these fees, losing their deposits as some of the new private banks failed (Sebastian).
While many wage levels have increased, the burden of social costs and risk has also drastically increased, eroding much of the initial public optimism towards radical liberalization which had existed in 1990. The political effects were directly felt in the national election of 1998, which saw the replacement of Klaus' right wing government with the Czech Social Democratic Party. This new government, with Milos Zeman as Prime Minister is characterized as a socially conscious left wing party which has developed a program of long term, sustainable development (Czech, web). The new government in the Czech republic is an alternative to the Czech Communist Party, and seeks to maintain economic liberalization while increasing government support for social services and industry. As already implied, this shift to the left reflects the dissatisfaction of the public with the social performance of a radically liberal economy.
While the economic transformation strategy of the Czech republic does have identifiable weaknesses, the consensus is that it has become one of the most successful reformers in the post communist world. While the initial trend was one which resembled the policies of Margaret Thatcher, the mandate of the new government seems to be steering the Czech economy along the road of socially responsible, European style capitalism. Under the Zeman government the macroeconomic benefits of the Klaus era are hoped to translate into more substantive benefits for the bulk of Czech society. It remains to be seen whether this attempt to a more social form of capitalism will be successful.
Throughout the economic reform process the role of the government has been one guided by public demand. In 1990 the bulk of Czechs sought a sharp break with the communist era, and the free election of the Klaus administration reflected this. As the negative effects of mass deregulation and neoliberal privatization began to affect more and more Czechs, politics responded. This culminated in the elections of 1998 which saw the first left wing government since 1989 come to power in the Czech Republic. Throughout the economic transformation process the role of the democratic government has been beneficial and responsive to public demands.
Works Cited
Burke, Justin. "Hills Ahead for Czech Engine that Could." Christian Science Monitor. Volume 87.164 (July 1995), 6-7*.
Czech Republic Homepage. Available [Online]. <http//www.czech.cz/> Published by the Ministry of Foreign Affairs of the Czech Republic
Hazlett, Thomas W. "The Czech Miracle." Reason. Volume 26.11 (Apr. 1995), 28-36*.
Klaus, Vaclav. Ten Commandments of Systemic Reform. Washington: Group of 30, 1993.
Mateju, Petr. "Winners and Losers in the Post Communist Transformation: The Czech Republic in Comparative Perspective." Innovation: The European Journal of Social Sciences. Volume 9.3 (Sept. 1996), 371-391*.
Rutland, Peter. "Thatcherism, Czech-style: Transition to capitalism in the Czech Republic." Telos. Issue 94 (Winter 1992/93), 103-130*.
Sebastian, Byron. "The Czech Miracle: Impressive numbers, unhappy idealists." Contemporary Review. Volume 268.1564 (May 1996), 253-258*.
Shirong, Wan. "Economic Rehabilitation in Czech." Beijing Review. (Sept. 26 1994), 18-19.
*note: The above journal articles were made available through the online database EBSCO Host, and as such exact page references could not be made. EBSCO can be accessed through the Trent University Library at <www.trentu.ca>.