Business News
Ten years ago, in 1993, the Czech Republic's economic transition entered another important stage - the second round of the voucher privatization scheme, in which all citizens over 18 were able to obtain shares in state-owned companies for a symbolic fee.
The aim was to quickly offload state property. At the end of the process, property worth hundreds of billions of crowns in some 4,000 companies changed hands. However, the outcome was not exactly what many had expected. Ordinary people who became shareholders overnight, had no capital to invest, no experience and little power compared with company managements to effectively look after "their" companies. The second round of the voucher privatisation was therefore soon followed by an unofficial third round, in which real investors bought out the shares from people under more or less favourable conditions. Subsequent restructuring and consolidation of the Czech industrial sector saw a large number of exits, a substantial number of titles was phased out of the stock exchange for an absolute lack of liquidity, rendering the respective shares virtually worthless. This development, coupled with inadequate legislative framework, led to disillusionment among the general public and fierce criticism from the opposition.
Milos Zeman, leader of the main opposition Social Democratic Party before 1998 and then a prime minister, called the privatisation scheme "the con of the century". Here is what he told Radio Prague when he was prime minister:
"There were very many mistakes in the process of transformation. One of them was the situation when there were practically no functioning laws against economic crime, such as money laundering, tax evasions, corruption, etc. The second mistake was the technology of the privatisation - not the privatisation as such, but the specific Czech technology of privatisation, so-called voucher privatisation which has been completely inefficient. And the third mistake - we have relied on domestic capital. But there was no domestic capital at all and it is impossible to build capitalism without capital."
The opposition Communist Party has never had a single word of praise for the transition to free-market capitalism. Party chairman Miroslav Ransdorf:
"All energy of governments in Czech Republic in the 1990's was absorbed by only one thing: the shift in ownership relations. This privatisation in Czech style was a disaster because in privatised enterprises, the average productivity of labour is down 20 percent in comparison with the public sphere and it is a failure."
Czech President Vaclav Klaus, who was prime minister from 1992 to 1997, and whose governments carried out the privatisation process, just fended off any criticism:
"Most of the critics are simply those who failed to succeed in the privatisation and especially some foreign investors, investment funds wanted to get more - they did not get it. Sometimes they made a wrong decision and they are the main critics of our privatisation programme."
Lajos Bokros was a Hungarian finance minister in the mid 1990's and then joined the World Bank. Not being involved in the Czech transformation but having experienced a similar process in Hungary, he tends to be objective in his evaluation.
"I really feel that the specific way of privatisation which was chosen in the Czech Republic was far from being the optimal one. With the benefit of hindsight, we can say that mass privatisation schemes did not produce the best results in any of the countries which attempted to do that. There was a kind of ideological flavour attached to this mass privatisation. Vaclav Klaus, Vladimir Dlouhy, Karel Dyba and others in the first Czech governments would speak about a need to privatise very quickly for the sake of getting rid of any governmental control because there was a slight fear that there could be a reversal. People did not take it for granted that the communist system is dead forever. They felt that they have to create vested interest, that they have to create six million shareholders. It is quite unimportant right now to discuss in retrospect whether this was a good or bad decision, it was a politically conditioned decision in all countries and unfortunately, there was no alternative at that point of time because the political elites felt this was the most optimal way. Now, we really understand that this mass privatisation without creating the necessary legal, regulatory and institutional framework did not produce the intended results in terms of improving efficiency of the corporate sector."
Dusan Triska is one of the spiritual fathers of the voucher privatisation scheme. He worked as the head of the finance ministry's department for voucher privatisation and has always remained somewhat less visible than the other engineers of the reforms, although his role in designing the privatisation process was far from insignificant.
"The target and the objective of the privatisation was that the linkage between the state and the citizen must be abolished and it must be removed, this happened."
What do you mean the link has been removed?
"Until 1990 almost everything in our private lives was regulated and controlled by the government. To establish a private business for example was a crime according to the then existing legal framework, so this was removed and cancelled. Private enterprise and private ownership became a normal aspect of our everyday life."
The privatisation was carried out at a time when the Czech Republic did not have a properly functioning legal system and law enforcement which perhaps led to more fraud or left more space for fraud. Why was there such a rush in carrying out the major transformation of the Czech economy?
"The fundamental problem of transformation is that you don't have in place proper legal framework and law enforcement. This is exactly what you want to create, to build. Privatisation is a means towards this objective and can never be the outcome of it. You can never establish a functional legal framework without privatising the economy, its a hopeless idea that you would first establish a functioning legal framework and then start privatisation."
But critics say it created capitalism without rules, what do you say to this?
"Capitalism creates rules, this is exactly the opposite, its a myth. You can not establish rules without capitalism, or can you? If you could then you wouldn't need capitalism, you could do it within socialism. The problem is that in socialism, or communism, there is no way how to establish rules. Under the pressure of capitalistic private behaviour you establish the rules and the rules evolve according to the behaviour of private entrepreneurs and private ownership.
You said in one interview that the voucher privatisation was going to be a great lesson to Czech people. Taking into consideration that many people lost their money and had no protection, don't you think the lesson was too harsh?
"There are no soft solutions first of all. And second is that the people didn't lose their money, they lost their vouchers which were entitlement they were granted from the government. From the very beginning the government stressed that this will be a lesson, you all may lose everything if you don't take care of your investments. Next time, the government said, it could be your life savings so beware of what you are doing and learn from the lessons you take from the experience."
Some say that Poland and Slovenia choose selling state companies to foreign strategic investors and are doing better as a result, what do you think?
"The observation is incorrect of course. First of all, if you have as a government, as we had in 1990, 4000 state owned enterprises, its practically impossible to select a strategic investor for each of them. Margaret Thacher in Britain privatised some 60 companies and it took her almost 20 years. We needed to privatise thousands of companies, so there is no way to select strategic investors and we see it now when we still have a couple companies to privatise and how difficult it is politically and technically to find strategic investors. So there is no way to find strategic investors for thousands of companies. Comparisons between Poland, Hungary, Slovenia, Slovakia, and the Czech Republic deserve very special attention and we believe that our privatisation process was much more fundamental and much better for our future development."
