Why do most Czechs regard early 90s voucher privatisation as unfair?

The Czech president Vaclav Klaus has just signed a new law making it easier for majority owners of companies to acquire the shares of small shareholders. Ironically Mr Klaus himself is the reason why the Czech Republic has such a large number of small shareholders in the first place. In the early 1990s, when still finance minister, it was Mr Klaus who introduced an unprecedented voucher privatization scheme. Thousands of companies were privatised after four decades of communism, by virtually giving away shares to citizens. At the time the scheme seemed to many like a dream come true, but today many Czechs feel cheated and say the process was grossly misused. Ian Willoughby asked to the Czech financial analyst Jan Schiesser about the scheme and its legacy.

Photo: CTK Archive 1999

"You had the chance to buy almost all the blue chips in the Czech Republic. There were a couple of exceptions like Skoda Auto, for example, which was not privatised through the voucher privatisation, but otherwise you were able to buy banks, Czech telecom and breweries, too. People were also given the opportunity not to invest directly into a company but to give the vouchers to an investment fund, or privatisation funds as they were called, so that people could move the responsibility to professionals and just have ownership in the investment fund."

The big question for many people is: "did the system work well?"

"Well, my impression is that the system worked well. The problem is actually where you draw a line between the coupon privatisation, which was the first step, and what happened then on the equity markets and with the investment funds. I think the problem is with what happened after the coupon privatisation, with a couple of investment funds being 'tunnelled' or assets being siphoned out of these investment funds, with minority shareholders basically being squeezed out of the companies in a very non-transparent and unfair way. So, I think that the problem was actually in the lack of regulation of the equity market after the coupon privatisation."

I've read that something like three-quarters of Czechs now say that the voucher privatisation system was simply a bad thing. Do you understand their disappointment with what happened in the early 1990s?

"As a professional, I don't agree with this perception but from the human point of view I understand that some people might view it as a failure because they have not received much money from the coupon privatisation, or in the worse case were simply stripped of their assets, especially in some of the investment funds. But I think that ten or even five years from now, the perception will change and people will put much more emphasis on the speed rather than the problems that arose after the coupon privatisation."

"I think this is the key factor. Viktor Kozeny is the icon of privatisation and he actually played a very important role at the very beginning when he promised a 'tenfold value' through his investment funds and this marketing campaign actually triggered people to buy the vouchers and put the shares into investment funds. Unfortunately, at the end of the privatisation process, he turned out to be a very bad example by siphoning the money out of companies or investment funds. So, I do think that what Viktor Kozeny and others did was the biggest mistake."