Magazine article The New Presence: The Prague Journal of Central European Affairs

Economic Transformation in the Czech Republic: A Relatively Painless Experience: Is the Czech Republic, Twenty Years after Having Discarded Central Planning, a Normal Developed Country with a Fully Working Market Economy, Just as for Instance Neighbouring Austria? in Some Aspects Yes, in Others No, Say the Country's Three Leading Economists

Magazine article The New Presence: The Prague Journal of Central European Affairs

Economic Transformation in the Czech Republic: A Relatively Painless Experience: Is the Czech Republic, Twenty Years after Having Discarded Central Planning, a Normal Developed Country with a Fully Working Market Economy, Just as for Instance Neighbouring Austria? in Some Aspects Yes, in Others No, Say the Country's Three Leading Economists

Article excerpt

"Traditional things such as inflation, currency or the stock exchange are indeed now okay, and the same goes for the labour market or public finance because a state budget deficit of hundred and seventy billion crowns isn't anything tragic," says Pavel Kohout, head of strategy at a local consultancy called Partners. What the Czech Republic is still lagging behind in, however, are the legal aspects of the economy, be it a weak judicial system or the presence of widespread corruption.

Michal Mejstrik, director of the Institute of Economic Studies (IES) at Prague's Charles University, agrees. "In certain ways, this country has in fact a more open market economy than Austria since there aren't, for instance, so many companies owned by the state or banks," he notes. "If, on the other hand, I was also to make some criticisms, I would definitely mention the Czech population's low rate of mobility; it should not only be more willing to move around the country on account of job opportunities, but Czech people should also be more open to changing their professions according to the situation on the labour market."

A partner at the financial firm Boston Ventures, Miroslav Zamecnik thinks, however, that the Czech Republic has more catching up to do in political culture than in the economic sphere. "The truth is, though, that countries such as Italy with its premier Berlusconi are not much better off in this aspect than we are," he quickly adds.

The other two analysts approached by The New Presence share this opinion because, for example, corruption is more related to the Czech political system than to the economy. "We have a kind of oligarchy made up of political parties under which various friends pull strings to help each other into various positions; but unlike the mafia, for instance, our politicians are protected by immunity," says Kohout with remarkable outspokenness. Zamecnik, on the other hand, is convinced that in the past two decades, the Czech Republic has simply underestimated the importance of institutions (which are for modern capitalism an absolute must).

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Mistakes and Misdemeanours

This brings us to the biggest mistakes and misdemeanours made after the groundbreaking year 1989. Professor Mejstrik for instance believes that Czech society did not fully grasp the importance of a modern public sector; to this day an ineffective bureaucracy exists because significant problems weren't addressed in the nineties. "While seemingly marginal, rent regulation is also a problem because it slows down the mobility of the country's inhabitants, not to mention the fact that some of the tenants in such flats are illegally subletting them," he points out. He adds that those who cannot afford a higher rent should of course receive some form of subsidy (but from the state, not from owners of the respective apartment houses).

One of Czech Republic's greatest errors in its transition from a centrally-planned economy to a market one appears to be the insufficient regulation of the country's capital market. "If I had been--quite hypothetically--the country's prime minister during that time, I would have insisted that the Securities Commission [whose task was to control everything related to shares, bonds, etc.] begin working before the voucher privatisation process [under which state property was equally divided among the local population] began; the match, therefore, would have been justly refereed," notes Kohout.

Misdemeanours continued even after privatisation had finished, though, he adds. This involved, in particular, the robbing of small shareholders (above all by a financial group called Motoinvest). This behaviour should never have been allowed.

Present day capitalism works on the basis of having respect for ownership rights as well as for observing contracts. While such things were already known in the nineties, there was simply no will to push them through, says Zamecnik. …

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