Czechs enjoying higher living standards 25 years after overnight transition to market economy

Photo: Tomáš Adamec

Twenty-five years ago, on New Years Day, Czechs experienced a shock transition from communist planning to a market economy. The post-communist government of prime minister Petr Pithart launched a price deregulation sending the price of goods up several fold overnight. Since then prices have increased on average 5 times but a faster growth in wages means that Czechs are enjoying a much higher living standard than before the fall of communism. The daily Mladá fronta Dnes recalls this economic milestone in its Wednesday edition.

Photo: Tomáš Adamec
“Beer is the Czech nation’s bread and the government that increases the price of beer will not last a day” communist party apparatchik Vasil Bilak was fond of saying in the party’s heyday. In 1991 the post-communist government of Petr Pithart did just that and Czechs took it in their stride.

The economic reformers around then finance minister Vaclav Klaus faced the difficult task of transforming the centrally planned system into a traditional market economy governed by demand. A price-deregulation was launched overnight sending the price of goods up several fold. “We were shaking in our boots about how the public would take it and I consider it something of a miracle that people took it in their stride” Tomáš Ježek, one of the economic experts who prepared the transition told Mladá fronta Dnes. He said the team briefly considered phasing out the process but the idea was soon abandoned. To be on the safe side the government promised to regulate the price of several basic products such as meat milk, flour and sugar for a while longer and paid out compensation to people at risk who were threatened with poverty as a result of the change.

People stocked up on basic products anyway and in the first days of the New Year they went out on fact-finding missions to see what the deregulation had done to food prices and for the first time they started comparing prices in different stores. The price of a pint of beer, which then cost two and a half crowns – tripled and some pub regulars gave up their favourite haunts in exchange for slightly cheaper beer elsewhere.

Gradually things fell into place and the rise in wages made up for the extra expense. According to figures released by the Czech Statistics Office prices have gone up five fold since, while wages increased almost eight times. Even pensions which have been growing at a slower pace grew faster than price rises. The average monthly old age pension has increased 6.4 times to the present 11, 300 crowns.

What has also changed is the proportion of their income that people spend on food, rent and services. While before the fall of communism the bulk of people’’ income was spent on food, with rent second in line, now the situation is reversed with rent being the greater expense. The price of services have also significantly increased with a men’s haircut now 24 times more expensive than it was in 1990.