The massive privatization programs are bringing about a profound and rapid restructuring of the Czech Republic. The reassignment of business property rights from the state to individual owners has proceeded smoothly and quickly for smaller enterprises and has produced the intended improvements in accountability and incentives. In the more complex task of privatizing large enterprises, accomplished, in part, through a mammoth distribution of vouchers, much remains to be done. Privatization should be instrumental in sharply boosting the Czech GDP by 2000 through its strongly beneficial effect on productivity. Although these changes will improve morale overall, the gains will be accompanied by substantial increases in income inequality as rising unemployment brings significant hardship to people over age fifty and to the many who lack essential job skills.
The conditions in the Czech Republic were unusually favorable for rapid privatization, partly because of auspicious macroeconomic conditions: the unemployment rate stayed low, inflation never got out of hand, governmental budgets were roughly balanced, and consumer goods markets did not experience severe shortages or surpluses ( OECD, 1991). These advantages overshadowed the burdens associated with the slow pace of legal reforms (such as laws on bankruptcy and investors' rights) that make up the institutional infrastructure-- the rules of the game. On balance, prospects for successful privatization depend heavily on the establishment of clear and firmly assigned property rights; reliance on competitive market prices to ration and guide the use of most resources; a social safety net, along with an opportunity for broad participation in the privatization process; and the absence of high inflation rates. The Czech experience rates well along these dimensions. Its privatization process is by no means complete, and its long-term prospects remain uncertain. But its progress has certainly been substantial.
The author is indebted to Rochester Institute of Technology students Sven Schiller and Steven Wilber and to students of the U.S. Business School in Prague for their valuable research assistance.
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