Why does cronyism thrive so well in Czechia?

Czechia is second on the crony capitalism index compiled by The Economist, after Russia and just ahead of Malaysia, Singapore and Mexico. According to the paper, the Czech share of crony capitalism wealth is over 15 percent of GDP. I asked political scientist Jiří Pehe to explain why cronyism thrives so well in this country.

Jiří Pehe | Photo: Kateřina Cibulka,  Czech Radio

“There are several reasons for the rise of crony capitalism in the Czech Republic. The first was the way that the privatization process in the 1990s took place. It was basically done by the political elite in cooperation with selected economic actors who, as a result of this political protection, became very rich, very quickly and that created the foundations of this system.

“There was a chance that this could be changed when the Social Democratic Party took over in 1998, but then the party decided to sign the so-called “opposition treaty” with the Civic Democratic Party which had presided over the privatization process in the 1990s. And so all of these new economic actors who became very rich by having political cover were cemented in their positions.

“And then in the new century, these economic actors benefitted from the fact that the legal framework was very loose and did not make it difficult for them to operate.

“That paradoxically led to the rise of Andrej Babiš, who was one of the crony capitalists of the 1990s and who managed to usurp political power by accusing his predecessors of building this crony capitalism.

“Not much has been done in the Czech Republic to change this and there is very little hope that it will change in the near future.”

Andrej Babiš | Photo: Martin Vaniš,  Radio Prague International

So is there still a lack of adequate legislation in place?

“It is more difficult for new crony capitalists to rise because there is now more innovative legislation regulating conflict of interest and some norms that were dictated to the Czech Republic by the European Union. So certainly, it is more difficult for systemic corruption –which was part of this –to work in the Czech Republic on the level that it did in the 1990s. But, on the other hand, very little is done or can be done to strip some of the people - who obviously got their wealth in an unsavory manner – of their wealth.”

We are now seeing the Pirate Party pushing hard for a law that would rule out companies owned or co-owned by government ministers from taking part in public tenders. That seems like a very basic requirement.

“Yes, the legislation proposed by the Pirate Party is of course significant. But unfortunately it has so far been blocked by Mr. Babiš and Mr. Okamura, who lead the two opposition parties, even with the help of obstructions because some of this would affect Mr. Babiš personally. So although this legislation is important, and is already in Parliament, it has not been acted on in any serious manner and the question is whether it will be any time soon.”

But the ruling coalition has a majority in both houses.

“Well, the problem in the Czech Republic is that the rules that govern the proceedings of the lower chamber are obsolete and make it very easy for a minority to obstruct if it is determined to do so. And so these two anti-system parties that currently form the Czech opposition have had it quite easy in obstructing parliamentary proceedings. So the first step –if we want to remedy the situation concerning crony capitalism – is to change the rules of procedure in the lower chamber so that obstructions are significantly reduced so that the coalition, which has a solid majority, can actually push the proposed bills through the Parliament.”

We are higher up on the index than any other central and east European post-communist country. How soon can we expect an improvement?

“I think that improvements can be expected in small doses. Additions to the law on conflict of interest, which would ban politicians from participating in public procurements or owning media, would be a significant step forward, but I think it will take some time, simply because this system has been entrenched in the Czech Republic for almost thirty years now. Some of the billionaires who are now playing significant economic and political roles in the Czech Republic have sort of been legitimized by the fact that nothing has been done against them and so it will be an uphill battle. I don’t think that much will be done given the current composition of the government in which the lead role is played by the Civic Democratic Party which actually presided over all of this in the 1990s.”