Czech Republic

Building oligarchy in the Czech Republic [interview]

Today, we know that about two thirds of the population made use of the services provided by the privatization funds. And according to the relevant statistics about their investments, about a third of them were simply robbed - documentary filmmaker Martin Kohout, whose latest film deals with the “voucher privatization” of the 1990s in the Czech Republic, talks about the Czech post-1989 economic transformation.

Director Martin Kouhout’s film Česká cesta (The Czech Way) premiered at the Jihlava Documentary Film Festival last autumn. It deals with the genesis, implementation, and consequences of “voucher privatization” in Czechoslovakia and later the Czech Republic, in which citizens were able to purchase vouchers representing shares in state-owned companies. Kohout approached the topic of the economic transformation already in his previous film, The Invisible Hand of the Market, which focused on the privatization of the Barrandov film studios in Prague. And it is the Czech post-1989 transformation that this interview is about.


Jaroslav Fiala: Why did you decide to make a film about voucher privatization?

Martin Kohout: Because it’s something the Czech Republic was missing. No one has really dealt with this topic, which shows that society is unable to sufficiently reflect upon the basis of the system in which we are living. We often hear that the post-1989 regime is something new, which stands in contradistinction to the old. That it’s simply quite the opposite. But if we look at the economic transformation more closely, we see that it’s not that simple.

is a documentary filmmaker. He studied sociology and graduated from the Film and TV Faculty of the Academy of Performing Arts in Prague (FAMU).

Your film is called The Czech Way. What were the specificities that the building of capitalism took on in the Czech Republic?

Our model of economic transformation was called the “Czech way” already in the 1990s. The reason was that state property was to be transferred into Czech rather than foreign hands. And so it was – we mostly exchanged assets amongst ourselves. Furthermore, the whole process was accompanied by radical right-wing rhetoric. There was an emphasis on the speed of the changes. This was different to the prevailing mood in Slovakia, for example. Social conditions were different there and the Slovaks imagined the economic transformation differently.

Why did a swift economic transformation gain such support in the Czech Republic after the collapse of the previous regime in November 1989?

People believed they would become rich quick. And that they would become entrepreneurs and millionaires. Everybody was so excited about the vouchers. And that they would gain assets that the propaganda of the previous regime claimed belonged to all. And then there was the already mentioned revolutionary radicalism. People thought that the best way to settle accounts with the previous regime would be to do everything in exactly the opposite manner. So if everything was state-owned, now it had to be private. The population, which had kept the regime going, wanted to exculpate itself in this way. And radicalism let people cover up their guilt.

What did that look like in practice? Well, they declared their love for Václav Havel, or they pledged allegiance to Václav Klaus. They believed that they had become “decent people” that way. We have to realize that the previous regime did not collapse because of long-term pressures from civil society. In comparison to the 1960s, this was absent. People didn’t know what exactly they wanted, and they didn’t have a concrete political programme which would show them the way. The world of their ideas was empty. And it was precisely figures like Havel or Klaus who could fill that emptiness.

People believed they would become rich quick. And that they would become entrepreneurs and millionaires.

Your film includes unique archival footage. For instance, images showing the immense popularity of Václav Klaus at the beginning of the 1990s. Why was Klaus so popular?

Klaus sensed a mood of longing for radical change in society. Moreover, he was confident and as an economist, he gave the impression that he would “sort things out” for the people. It’s said that a nation lacking in confidence requires self-confident leaders. And nobody was able to oppose Klaus. The dissidents generally weren’t politicians by nature, but intellectuals who didn’t know how or didn’t even want to fight for power. What’s more, in a stroke of genius, Klaus effectively bypassed them with anti-communism.

How exactly did that happen?

Klaus declared that there is no third way between the market and the state. That is, between free-market capitalism on one hand and central planning on the other. And he started claiming that the ex-dissidents are intellectuals, historically always leaning leftwards. And that the left, of course, means Marxism, Communism, and therefore totalitarianism… With that, he effectively threw everyone in the same bag – communists, reformist communists from ’68 and the ex-dissidents, of whom it began to be said that they were “pinkish”.

It is said that the state is sustained by the ideas on which it was founded. Do you think that it was Klaus who predominantly defined the post-November system?

The American historian James Krapfl studied the revolutionary slogans that people chanted on the squares. In general, these were quite general terms like “decency”, “non-violence” or “freedom”. It was as if society had suddenly woken up to a fairy-tale land and remembered that good must triumph over evil. Who would give these empty terms meaning – that was crucial. And Klaus did.

He said the state is the source of evil and everyone should fend for themselves. He proclaimed that each individual is to have the largest possible amount of freedom, to run a business and, ultimately, to steal, because nobody is to put their nose in their affairs. Incidentally, there is an interesting point to be made. The people saw ODS (Klaus’s Civic Democratic Party) members stealing, the scandals of Macek and the book distributors, for example. But they forgave them, almost nobody demanded a rectification. And why? Because most people were the same – they were also used to the black markets and petty theft of the normalization period. After all, it was Klaus who later said that theft during normalization was a subversion of the regime.

[easy-tweet tweet=”The property was pocketed predominantly by a few of the biggest oligarchs.”]

Voucher privatization was called the flagship of the economic reforms at the time. What do you think about the result?

The result was the opposite of how it was originally presented. The presentation of voucher privatization was that everyone would get a chance. And that state-owned property would be distributed among the people in the form of investment vouchers. But that’s not how it went. The property was pocketed predominantly by a few of the biggest oligarchs. Of course, I’m not saying no one else made any money on it. But it could have been handled much better.

What do you think the biggest problem of voucher privatization was?

There were a number of problems. First, the people were given millions of shares in state-owned concerns. But when a common citizen suddenly gets given some shares, we can’t expect him to behave like a responsible shareholder. He will simply want to monetize the shares. And so people tried to sell their shares and get rich from the dividends. But because they had no information about the market, they turned to privatization funds and their “experts”, who were supposed to manage the shares for them. And that was the catch. By chance, the law on privatization funds had missed out a paragraph that would clearly demarcate ownership and management of the funds. The fund was supposed to manage the shares, but thanks to this law, it could also automatically own them. The people who had entrusted the fund with their shares later lost control of their property.

Today, voucher privatization is critiqued even by one of its authors, Tomáš Ježek. The former minister Jan Stránský said that “one way of letting people get rich is letting them steal”. Was the result, then, stolen property?

Today, we know that about two thirds of the population made use of the services provided by the privatization funds. And according to the relevant statistics about their investments, about a third of them were simply robbed. Businessmen Pavel Tykač or Petr Kellner made their fortunes in exactly this way – they appropriated something that didn’t belong to them. Nevertheless, there were many other tricks to get rich quick. The example of privatization funds, where the manager became the owner of someone else’s property is just the most obvious.

We haven’t managed to create a system of values, the emptiness of the slogans of ’89 continues. And without values, we are left only with the ego, individualism, and, ultimately, theft.

So profit was privatized and loss socialized – transferred onto ordinary citizens…

It was said that private owners are more responsible than the state, and that they will carry out a restructuring of dysfunctional companies. They’ll just find the problem and raise the ex-state firms up from the ground. But the private owners had no money for this. Then, they essentially had two options: they could plunder the concern, take everything and go to the Bahamas, or borrow money. And many of them chose the second option. They borrowed, again, from the state – hence the famous term “bank socialism”. State banks frantically handed out loans to private owners, even though they often knew they would not be returned. The banks were full of people with ties to the ruling parties, and, for various reasons, they rarely said no. The banks’ debt then rose to a degree that threatened with a collapse of the entire banking sector. The state then stepped in again, taking over the banks’ debt through the so-called Consolidation Agency. It was then all transferred to state debt, which we still have today. In the ironic words of journalist Václav Žák in my film: tax payers are surely delighted to contribute to the creation of Czech capitalism…

You’ve said the economic transformation could have been done better. Your film shows there were alternatives, and not only Klaus’ way. Could you talk about them?

There were two main alternatives. The first under the leadership of the deputy prime minister František Vlasák and another by the economist Jan Vrba. Both plans involved gradual privatization and stood in opposition to Klaus’ shock therapy option. The concerns were to be slowly privatized and only sold later. Of course, one can argue that if privatization were gradual, the concerns would quickly be pilfered, and there is some truth in that. But that still leaves Vrba’s proposal, which would have the largest 35 concerns sold abroad. But intelligently, not like Aero Vodochody, which was sold to Boeing who let it go bankrupt. The process should have been like with Škoda. First, about 40% of the given concern is sold abroad, and if the new owner wants to buy more, he has to invest in the company first. A number of smaller concerns would then be tied to these 35, and would thereby get wider distribution and sales.

Why didn’t it go through?

Reformist communists were active in these economic teams – the so-called “sixty-eighters”. Klaus simply labeled Vlasák a crypto-Bolshevik and Vrba of wanting to sell our country out to foreigners. He pulled the nationalist card on him.

And how did the Slovaks see these steps? Did shock therapy privatization not contribute to the division of Czechoslovakia?

Slovak society really began speaking out against the application of the reforms. Unemployment was much higher in Slovakia, and people weren’t all that excited about Klaus. Almost no Slovak economists had a hand in the transformation, either. The Klaus gang was all about its own glory, and disregarded the protestations coming from Slovakia. The feeling in Slovakia soon turned against the transformation. Then, Mečiar comes in, sensing that the change in public opinion can lead him to power. Of course, the economic transformation was not the only cause of the division of Czechoslovakia. But it was certainly an important factor that accelerated the process.

We should realize that ideologies claiming that everyone has a chance just don’t hold up. And that, quite the opposite, it is the richest who profit from them.

Currently, we are witnessing a wave of xenophobia and hatred against refugees. Do you think there are any connections with the economic transformation and its consequences?

People’s thinking is still very shallow. Just like the Czechs were easily convinced on the shock therapy transformation, they easily succumb to xenophobic feeling today. They don’t think it through. It’s still fashionable to think we’re all here for ourselves. Democracy serves only the articulation of my ego. People talk about politics, but they only confirm their own private lives – they complain about the Roma, but they can’t understand the functioning of the system. We haven’t managed to create a system of values, the emptiness of the slogans of ’89 continues. And without values, we are left only with the ego, individualism, and, ultimately, theft. No solidarity. People believe that if you can’t fend for yourself, you’re weak, and if you help others, you’re stupid. And then there’s something else. The preceding governments made cuts to social security, all in the name of higher goals. They forced people to make sacrifices. And the people finally understood that the elites couldn’t care less. And then, when part of those same elites around Karel Schwarzenberg appeals to them for solidarity with refugees, the people don’t believe them.

Have you had any audience reactions?

Not yet. But I made a film about the privatization of the Barrandov Studios in a similar vein. I screened it at the Municipal Library in Prague, for example, and the audience was quite angry. It was clear that people were missing a culprit in the film. They asked: why should we listen to general talk? All we care about is who stole it… But what I’m trying to show is that, in a way, everyone carries the blame. Klaus and financier Viktor Kožený didn’t suddenly come, manipulate everyone and steal everything. The atmosphere at the time contributed to certain figures coming to the fore. The historical situation played into the hands of certain individuals. And ordinary people refuse to accept that they also wanted it and supported, and refuse to take responsibility.

Is there a way out?

We should realize that ideologies claiming that everyone has a chance just don’t hold up. And that, quite the opposite, it is the richest who profit from them. If equal opportunity is to be given, then everyone should have free healthcare and education, and knowledge that if they fail to pay rent twice, they will not end up homeless. That should be a matter of course.


Jaroslav Fiala
Political scientist and editor-in-chief of the Czech progressive daily website A2larm ( He publishes essays and articles on Czech and world politics and lectures in history and political science at Charles University, Prague. He is a Fulbright alumnus and deals with the modern history of Latin America, United States and Europe.