The open veins of the Czech Republic

In her latest book, economist Ilona Švihlíková provides a detailed analysis of the Czech transformation, which she identifies as the root of a host of today’s issues. She points out that there were alternatives to the failed privatization, just as there are alternatives to the current bleak state of affairs.

As we are now aware, in the early 1990s, there were alternative plans for the economic transformation.

In 2013, Jan Stráský, a former colleague of Václav Klaus, came up with a remarkable evaluation of the Czech economic transformation. In answer to the question whether it was intentional that select people were allowed to “embezzle” assests, he stated that “it certainly was not the intent, but everyone subconsciously felt it that way. There was a saying in those days that it would be best to switch off the lights so that the smarter ones could grab it.” The economist Ilona Švihlíková’s book Jak jsme se stali kolonií (How We Became a Colony) offers a detailed analysis of the ways in which these assets were embezzled.

The birth of the cheap assembly line

As early as 1990, the unfairly ignored economist Miloš Pick wrote that the post-1989 adaptation of the Czech economy can be “with a degree of inaccuracy described as a neocolonial model”. Somewhat later, Pick pointed out that the Czech Republic entered the post-1989 transformation as a moderately-developed industrial country and ranked somewhat better than some countries of the European Union, for example Portugal or Greece. As far as economic productivity was concerned, the Czech Republic surpassed other states of the Central-Eastern Europe; it had a low level of debt, and a relatively educated and skilled population. These advantageous starting conditions were, according to Pick, wasted. In her book, Švihlíková follows the reasons for the transformation’s failure. According to her, the international context and ideological atmosphere of the first part of 1990s played a key role. The so-called Washington consensus of the late 1980s became a sort of manual of neoliberal politics. Its main pillars were privatization on the broadest scale possible, deregulation, and liberalization, which had have key influence on the transformation of economies of the former Soviet-block countries. Czechoslovakia entered world economics, at that time heavily influenced by right-wing ideology and institutions such as the International Monetary Fund and World Bank. One of the manifestations of this setting of economic and political structures was an emphasis on “láce” (low wages). The Czech political representation decided that the country’s major competitive advantage lies in low labour costs. And thus the Czech Republic became the notorious cheap assembly line. This was further fueled by a massive devaluation of the Czech currency at the very beginning of the transformation process, which Švihlíková considers to be one of the causes of the continuing differences between the level of Czech and Western salaries and prices.

The outflow economy

As we are now aware, in the early 1990s, there were alternative plans for the economic transformation – the first one from the vice prime minister of the Czech government, František Vlasák, and a second from economist Jan Vrba. Both proposals envisioned a gradual privatization, in contrast to the “shock therapy” proposed by Václav Klaus. Companies were to be gradually privatized and only sold at a later point, even though the objection was raised that if privatization had moved at a slower pace, people would have embezzled the companies in the meantime. But this is not so clear. There was also the Vrba proposal, suggesting that approximately thirty-five of the largest companies were to be sold abroad. In the first instance, this was to be about forty percent of a company, and if the new owner was to buy a larger percentage, they were to invest in the company first.

However, the minister of finance at the time, Václav Klaus, sensed an atmosphere in society that desired radical change and stated that there was no third way between the market and the state. The supporters of alternative transformation paths were labeled as defenders of the old system. This is how Klaus’s path was consolidated, which led to the birth of our current “financial underground”. The then minister, Tomáš Ježek, another colleague of Klaus, admitted a while ago in the magazine Ekonom that the problem was in the ruined Investment Fund Act of 1992, which “accidentally” left out an article that strictly separated fund possession and management. Privatization funds were to only manage shares, but thanks to this Act, they could also directly own them. The people who entrusted these funds with their shares thus lost influence over their assets. The ideological context played an important role. To question the “market without attributes” meant to be ostracized. This was despite the fact that toward the late 1990s, the Czech economy experienced a downturn and showed record deficits. Since then, right-wing politicians have repeated ad nauseum that it is the overgrown social state that is to blame for debts.

Even though the comparison to a colony may seem exaggerated, there are a number of disturbing issues at play. Public space is politically empty, fixated on the past, filled with hysterical debates about marginal issues and non-existent threats.

Švihlíková also draws attention to another cause of the peripheral position of the Czech Republic. A new approach was enforced with Miloš Zeman government in 1998 – politicians lured foreign investors to create jobs. The truth is that the economy was in poor shape, the unemployment rate was on the rise, and the maneuvering space for critics of the transformation was limited. But the entrance of foreign companies only underscored the position of the Czech Republic as a modern colony. Foreign investors were attracted to the low cost of labour and the country remained in the position of a cheap assembly line, as still evidenced by the unprecedented extent of the outflow of profits. As the chairman of the All Trade Union, Josef Středula, recently noted, the Czech Republic is an outflow economy – in the first three quarters of last year only, approximately 285 bn. CZK were siphoned off abroad. Important decisions about research, development, and creation of prices take place abroad. According to Švihlíková, the Czech Republic is a “reserve space” for the German economy.

The marginalized position of the Czech Republic is not limited to the economy. Even though the comparison to a colony may seem exaggerated, there are a number of disturbing issues at play. Public space is politically empty, fixated on the past, filled with hysterical debates about marginal issues and non-existent threats. Due to the brutal form of neoliberal capitalism, society is devastated and it is only an exception if it gives birth to something inspiring.

Missing collectivities

In the past, slaves in colonies also lacked their own voice and nobody took them seriously. Their identity was severely disturbed and they existed in a sort of vacuum – somewhat like present-day East-Central European countries. Thanks to Ilona Švihlíková’s book, we at least have the opportunity to realize this. The question is what to do about it. The position of the Czech Republic as a source of cheap labour has a number of consequences. In the Czech regions, there is a feeling that citizens do not receive any support and nobody is concerned with their problems. The frequent arrogance displayed by politicians, the impossibility of obtaining justice, fear of evictions, and problems not dealt with in the long term only strengthen fear and a feeling of powerlessness. In this situation, are we to defend a dying post-political consensus, side by side with those who have been spreading neoliberal dogma and promoting it as democracy? A great problem is that the Left lacks a sense of collectivity and thus has difficulties in addressing the wider public. Talking about class has little relevance today and the Left is sometimes too afraid of the category of the nation. There are, indeed, valid reasons not to be nationalist. But at the same time, it is important to admit that in such a situation the extreme Right is claiming the defence of collective interests for itself.

In his renowned book Las venas abiertas de America Latina (The Open Veins of Latin America, 1971), the Uruguayan writer Eduardo Galeano criticized the exploitation of Latin American countries. He described how others profited from the work and resources of Latin American people. The book How We Became a Colony shares many similarities, including a call for a national liberation. Are we capable of giving such a call the right content?

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This article was originally published in A2 no.10/2016. Translated by Marta Svobodová.