Modern Skoda Captures Mood of Revival as Czech Republic Rises from Rubble

Article excerpt

When Czechoslovakia rose from the rubble of the Soviet empire ten years ago, industrial group Skoda held a prominent place in the new democracy's economic vanguard.

For 140 years, Skoda had a reputation for high-quality steel products. But in the 1990s, stripped of protected markets in formerly Communist Eastern Europe, it could not compete.

The company was close to collapse when a Czech investor stepped in and embarked on a course of aggressive expansion. That worked for a while but by 1999 it was staggering towards bankruptcy again.

Skoda's travails are emblematic of the dashed hopes and disappointments in the economy of the Czech Republic, the larger of Czechoslovakia's two successor countries.

Few of Europe's ex-Communist states had seemed at first to offer as much economic promise as Czechoslovakia. The country's reform-minded leaders, high level of industrialisation and favourable geography in the heart of Europe all contributed to expectations that its so-called "Velvet Revolution" augured a speedy transformation to Western-style capitalism.

Instead, Czechoslovakia sank into an economic morass.

"If you look at the way the Czech economy was run, its insulation from the world economy and its rigidity, there was absolutely no reason to be optimistic about it," said Mr Richard Jackman, of the London School of Economics.

Czechs, to be sure, have made great strides since the grim days of central economic planning.

The Czech Republic parted peacefully from more backward Slovakia in 1993 and is one of the leading candidates for membership in the European Union.

Foreign investors, led by German, Dutch and American companies, have piled in. The garish lights of Western fast-food chains and fashion shops now glitter along the medieval streets and public squares of capital Prague.

Under Communism, however, Czechoslovakia was more isolated from Western influences than Poland and Hungary. Its lack of experience with the free market, together with a stubborn nationalism, gave rise to a dubious programme for restructuring the creaking economy.

To convert state-owned companies into private enterprises, the government distributed ownership vouchers to the public. But Czechs had no experience as shareholders and many sold their vouchers to investors, who in turn peddled their holdings to state-owned banks.

One result was a conflict of interest for the banks, which ended up owning the same companies to whom they were lending money. …