Review
[1] What is the Czech thought? If we would like to speak about the roots of the Czech economic thought, we must mention that originally the Czech economic thought was not isolated as a specific Czech phenomenon, it was an integral part of the international thought namely of German speaking countries and especially Austria. Of course, Czech kingdom was only a part of the Austrian (Austro-Hungarian) monarchy. The center of all sciences was naturally at the Charles University, 1 (Note1: Charles University is the oldest university in Central and eastern Europe, it was founded in 1348 by Charles IV. Czech king and Roman Emperor. The name of the university was Charles-Ferdinand University in nineteenth century.) and of course some economic subjects were taught there. But the real history of specifically Czech economic thought started in 1882, when Charles (Charles-Ferdinand) university was divided into the German and Czech parts. 2 (Note2: The German part of Charles university was abolished in 1945.)
[2] From this time the center of economic thought was at the faculty of law, where the first in Czech regularly teaching professors like Albín Bráf (1851-1912) and Josef Kaizl (1853-1901) were active. Their economic theory was influenced by German historical school and finally by Austrian school. It is not any surprise, because all of the stars of Austrian School (Vienna Trinity) were somehow connected with the Czech lands: C. Menger studied several months in Prague, F. von Wieser was a teacher of Charles University (German part) for about twenty years and E. von Böhm-Bawerk was born in Brno. We can add that the most important economist who was ever born in our country was Joseph Schumpeter (Třešť in Moravia).
[3] From the very beginning the Czech economic thought was focused more on practical issues of economic policy then to the pure theory. Just after the founding of independent Czechoslovak state the most complicated issues like isolation of Czech currency were solved. Than Mr. A. Rašín (1867-1923) as a minister of finance implemented the original deflationary policy to strengthen the Czech crown. Nevertheless this policy was criticized later from the Keynesian positions, in twenties it was seen as an example of a successful policy and later on it was also positively quoted by some members of Chicago school.
[4] The most popular Czech economist of that time was Karel Engliš (1880-1961), six times minister of finance and the governor of the Czechoslovak National Bank. He developed an original teleologic economic theory, which influenced many other Czech economists. If Engliš can be labeled as a liberal economist, his permanent opponent Josef Macek (1888-1972) was oriented to social democratic political ideas, and in economics he can be evaluated as a Czech Keynesian. Macek was a professor of Prague School of Commerce (founded in 1919, and abolished in 1953, because it was a “bourgeois type” institution).
[5] After the World war II. in 1948 communists came to the power and a new period for the Czech economics started. Orthodox Marxian political economy replaced standard theory for a long time and the elder generation of economists lost their jobs and some of them spent many years in prison. Many people emigrated. New institutions were founded, among them Prague School of Economics (1953) and the Economic Institute of Academy of Sciences (in 1953 it was enlarged from the Cabinet for Political Economy, which functioned a bit sooner).
[6] But just in the beginning of sixties many of newly educated economists were in serious doubts, because orthodox Marxism did not answer to many practical and new questions as well it did not provide adequate recipes for the economic policy. The most serious argument was found in a distortion of the third five-year plan (1961-5). In this time J. Goldmann published his famous article about the cyclical development of socialist economy. 3 (Note3: J. Goldmann was the most popular Czech economist abroad. Goldmann was a co-worker of famous Polish economist Michal Kalecki in the war time. After the war he planned the successful two-year plan. Than in fifties he was arrested for a long time. In sixties he was rehabilitated and started his work in the Economic Institute of the Czech Academy of Sciences. Here he educated a circle of younger economists which are sometimes called as a Goldman’s School. See Čihák (1997) or Havel, J., Klacek, J., Kosta, J. and Šulc, Z. (1998) )
[7] Many of Czech economists were convinced that the Soviet type of economic planning does not meet the needs of more developed Czechoslovak economy. They proposed to implement more elements of market into the socialist economic mechanism. The market socialism is a name of the theory, which wanted to combine public ownership, planning and market. Among the economists, who prepared the Czechoslovak economic reform, the most popular were O. Šik, O. Turek and K. Kouba. J. Kornai, famous Hungarian economist labeled ideas of market socialism like very naive attempts (see Kornai, 1990), but he did not respect enough the time and conditions in which the Czech reform started.
[8] The market oriented reforms were interrupted soon in 1968 by the invasion of the troops of Warsaw pact. 4 (Note4: It is interesting that Hungarian army took place in this occupation of Czechoslovakia, but in the same time a similar reform process in Hungary started.) Once more the majority of Czech economic theoreticians lost their jobs and some of them emigrated. The Czech theory in seventies was once more ideologically restricted and that was why it copied in official publications rigid soviet textbooks of political economy like Cagolov or Kozlov.
[9] At the beginning of eighties nothing showed that the Iron Curtain could fall. After the Jaruzelski’s suppression of trade union “Solidarity” it seemed that all of the problems of real socialism will be solved by the force. On the other hand in all of the socialist countries economic difficulties were stronger and stronger.
[10] A specific situation was in the Czech Republic because the ideological justification of occupation and following purges was that the economic reform in sixties was focused on the liquidation of the socialist economy - to the counterrevolution. Even if the economic situation needed changes the word “reform” could not be used. A non provoking vocabulary like “improvements of socialist planning system” was used.
[11] The economic theory was asked several times in eighties, what to do. Many of unpublished research papers recommended deep changes of the economic mechanism. Nobody could imagine how much courage was necessary to write such words, how risky were many critical comments etc. The most critical studies were prepared in the team of V. Klusoň at the Economic Institute of the Academy of Sciences (1982 - 1985).
[12] The situation changed a bit after the beginning of Gorbatchov era in former Soviet Union. Gorbatchov`s reform attempts in many respects evoked notions of similarities with Czech market socialism. On the other hand, Czech party leaders were conservative. I have a deep suspicion that these old aparatchiks hoped, that Gorbatchov will be replaced soon by a traditional communist dictator.
[13] Under the protection of L. Štrougal who was a prime minister in this time, the Institute of Forecasting (PgÚ) within the Czechoslovak Academy of Sciences was founded in 1997. Its director V. Komárek employed many of “sixtyeighters,” as well other competent people. 5 (Note5: In Institute of Forecasting were employed people like V. Klaus, V. Dlouhý, V. Rudlovčák, V. Kupka, K. Dyba, M. Ransdorf, K. Kouba, J. Mládek, Z. Hrubý etc.) The most important result of the team was the Prognosis of Czechoslovakia till 2010. This study analyzed openly the weaknesses of Czech economy. After its discussion in party structures (Central Committee of the Czechoslovak Communist Party) in autumn 1988 a strong ideological criticism against it started. Publication of Prognosis was prohibited, but after the reading of some chapters in Radio Free Europe several papers (initial studies, not the final wording of Prognosis) were published in Politická ekonomie. 6 (Note6: Politická ekonomie - journal issued by Economic Institute of Academy of Sciences (now by Prague School of Economics).)
[14] Staff from the Institute of Forecasting as well as from the Economic Institute CSAV 7 (Note7: From the staff of the Economic Institute of Czechoslovak Academy of Sciences most popular were people like M. Toms, A. Kotulan, M. Hájek, K. Janáček, J. Vaner, M. Hrnčíř, O. Dědek, J. Hlaváček, D. Tříska and later on also L. Mlčoch.) later on created a core of reform group. Many of the Czech economists admired neoliberal theories in this time and from their attitude to the reform strategy it was quite visible (Klaus, Tříska, Dlouhý, Ježek). Sympathies for new Keynesian thought were quite rare in this time (M. Sojka, J. Klacek, V. Izák, P. Mertlík). It witnesses the simple fact, that neoliberal theories reached the peak of their popularity just in the second half of eighties (and not only in Czechoslovakia).
[15] Another group was from the underground. It consist mainly from sixtyeighters theoreticians and practicians too. Seminars were organized by V. Kadlec (former minister of education and president of Prague School of Economics). Seminars attended e. g. F. Vlasák, V. Valeš, R. Zukal, V. Šilhán, Z. Šulc, B. Sucharda. Also this group formulated its attitude to the possible reform strategy, mainly in the work Stát a ekonomika by Zdislav Šulc.
[16] Of course, we have to mention, that in this time was some official marxist theory. It was rather symbolic that M. Toms, who was a respected guru of intellectual Marxism, died in 1988 just before the fundamental changes in Czechoslovakia started. Other official Marxists were not too active in this time.
[17] Many of Czech economists were in exile, but they did not form any compact group. The exile economists differed by education and praxis. The first wave of emigration was after 1948, the other after 1968. Other group consisted of younger people which were educated on western universities. After December 1989 only J. Švejnar submitted a reform scenario, which for the first time presented the idea to distribute shares of the companies to the population (Švejnar, 1990). 8 (Note8: From other people were more active in formulation of the Czech economic policy only Z. Drábek and J. Vaňous. Many other exile economists helped to the Czech universities. For more about Czech exile economists see Kosta (1992).)
[18] From the beginning of the velvet revolution, economists were among the first line of the revolutionists. The necessity of deep market oriented economic reforms was from the very beginning fully accepted by the Czech nation. Three employees from the Institute of Forecasting became federal ministers several weeks after 17th November 1989. V. Komárek was a deputy prime-minister, V. Dlouhý a chairman of federal State planning committee and V. Klaus a federal minister of finance. Many other economists from Academia became advisors of the government and many of them popularized economic reforms in press.
[19] The general orientation of reform process was described in the document from the Institute of Forecasting “Features of new social economic program for development of ČSSR,” from December 1989. (Komárek, 1990) Similar attitude one can find in more concise document from Economic Institute, prepared by broader team headed by J. Zieleniec. (Zieleniec et al., 1989) But concrete steps, their shape and their timing were open. The development of the reform program was in the beginning in the responsibility of V. Komárek. But in his new function he inherited an old staff, which prepared the reform in socialist notion. And former co-workers from the Institute collaborated or with V. Klaus or with V. Dlouhý. That was why Komárek never submitted a concrete reform scenario. 9 (Note9: From his speeches one can derive that he preferred a gradual reform process against the shock therapy. (compare with Šulc 1998: 73))
[20] The first team which prepared more concrete scenario was the team of the Czech (not federal) government. Team was organized by F. Vlasák and core of the team consisted mainly from sixtyeighters. 10 (Note10: Members of this team were Z. Šulc K. Kouba, J. Fogl, J. Hanzelka, J. Holec, V. Klusoň, K. Kouba, Č. Kožušník, L. Mlčoch (who resigned because the team was against restitutions), J. Řehák, P. Ševèík, O. Turek, K. Václavů, later on also M. Horálek, J. Kolář, M. Matějka, M. Pick, A. Suk, O. Šik a V. Valeš.) Another team was organized by V. Klaus on the federal ministry of finance. It was a result of Klaus’s more and more open political ambitions, but also an understandable reaction against activities of the older generation of the economists. 11 (Note11: Even in sixties Klaus was not satisfied by the ideas of market socialism, because he pleaded for standard market economy.)
[21] The emphasis of both scenarios was on macroeconomic stabilization, prize liberalization and limited convertibility in early stage of reform. The main difference was in their attitudes to privatization. If Czech team proposed mainly de-etatization (separation of state and enterprises) on the basis of an umbrella of a relatively independent state organization (National Property Fund - an institution quite close to the Austrian state holding) and privatization was proposed as a further step, federal team emphasized on a rapid privatization with its main pillar - voucher scheme. The last important difference was in the liberalization of foreign trade, if Czech team proposed a gradual attitude, federal group preferred a shock therapy.
[22] After the long discussions federal government decided to unify both scenarios into one document. It looks like a compromise but the organization of the process was in the hands of the federal ministry of finance. In reality it was an elegant victory of federal team, because in final version only a few rudiments of Czech proposal survived. Among them the most important was the idea of National Property Fund. But later on the entrepreneurial functions of this institution were minimized and the only role of it was to fill the privatization decisions of the government. Scenario of economic reform was submitted to the parliament in September 1990.
[23] We can assume that Scenario of economic reform was based on restrictive monetary and fiscal policies, tax reform (including replacement of turnover tax by value added tax) and change of budgetary rules. The change of ownership relations was seen in a freedom for founding of new entrepreneurial subjects as well as in capital inflow and in privatization. Among the methods of privatization small and large privatization are mentioned. Voucher scheme had a fundamental role in large privatization. A quick price liberalization and internal convertibility of Czechoslovak crown is mentioned too. Scenario discussed two alternatives of an exchange rate to USD (lower initial rate about 20 crowns per USD and higher rate from 24 to 30 crowns/USD). 12 (Note12: Final decision for initial exchange rate was 28 crowns/USD.) Scenario mentioned some structural policy but it was never positively formulated.
[24] Later on V. Klaus spoke about only two protection mechanisms for the Czech economy in an implemented reform strategy. First was relatively low labor compensation in comparison to Western countries and the second was the exchange rate. This two cushions are only temporal, because liberalization gradually equalized home and foreign markets (Klaus, 1994). It witnesses fully about the liberal orientation of reform.
[25] Scenario mentioned limited restitution of property to original owners too. This restitution was focused only on the real estate property which was expropriated after 1959. It was a relatively small volume, but in practice political pressures lead to other and other enlargement of restitutions. They finally stopped in 1948. 13 (Note13: The majority of Czech nationalization processes was done before 1948.) Enthusiasm of Czech economists for restitution was limited. Only L. Mlčoch defended restitution but not by economic arguments. He emphasized that it was the fundamental moral question. In discussions on the field of Czech Economic Society was Mlčoch criticized by Z. S. Blaha, who argued that restitution represents justice for some group of former owners but a deep injustice for the other owners, whom another type than real estate property was expropriated. 14 (Note14: That is why the restitution laws have the diction about the compensation of some (not all) damages made by the communist regime.)
[26] The core of Czech reformers was from academia. It is not complicated to describe sources of the theoretical economic orientation of the designers of Czech economic reforms. Even in eighties many of their papers in references mentioned von Hayek’s Road to Serfdom which samizdat translation circulated among the economic society. Czech scholars were acquainted with the neo-liberal studies as well as with the standard economic theory. 15 (Note15: In 1988 V. Klaus and A. Kotulán organized standard course of economics based on the famous textbook of P. Samuelson (12th edition). )
[27] The only problem of them was, that no one of them knew from the personal experience the fundamental preconditions for the functioning of the standard market mechanism. An institutional framework is a necessary basis for the market. The society must have mechanisms by which its members can protect their rights. Some these mechanisms are formal (law) some of them are informal (moral, professional ethics). No doubts that institutional dimension of market was deeply undervalued in implementation of Czech economic reforms.
[28] We cannot overlook that situation in the Czech republic was even worse in comparison to other transition countries. Private sector was totally liquidated in Czechoslovakia. In Poland part of private sector survived for the whole period of socialism (agriculture and retail trade) and also Hungary strengthened private sector during twenty years of gradual reforms. Czechs started practically from zero level, which provoked many failures, naiveté and economic crime.
[29] If the first years of economic reforms gave an excellent statistical data like surpluses or balanced state budgets, low unemployment and acceptable rate of economic growth the second half of nineties opened many problems which were hidden for a long time. Many economists spoke about the failure of privatization, where voucher scheme and privatization to the Czech owners scarcely lead to satisfactory results. Many enterprises were in a critical situation, banks signalized a credit crunch, and macroeconomic data worsened. People criticized openly rapid social differentiation, which was not based on the performance in the market but on immoral business practices.
[30] Critical comments of reform were more and more frequent after 1995 (L. Mlčoch, J. Klacek, J. Mládek, Z. Tůma, P. Mertlík, M. Mejstřík, E. Kočenda, M. Singer, J. Hanousek, V. Benáček, J. Havel etc.). J. Mládek spoke about the failure of economic nationalism of professor Klaus which for a long time in fact discriminated many serious Western investors in privatization, while Czech journalist many times used for explanation of such situation sharper words like corruption of the state administration.
[31] Many discussions were focused on evaluation of voucher scheme. No doubts that voucher privatization politically “sold” privatization to the Czech population, which in the very beginning was quite reserved. On the other hand voucher privatization did not find an effective owner of the enterprise and preprivatization agony 16 (Note16: Pre-privatization agony - situation of the enterprise when it is not decided about its concrete privatization, or it is decided but new owner still does not receive the property rights. All of the strategic decisions are stopped and management and other employees misuse the situation characteristic by the lack of owner’s will.) continued many times after privatization too. Voucher privatization created cross-ownership, because formally private enterprises were owned by investment privatization funds, most of which were controlled by biggest Czech banks, which still remained in the hands of government (privatization of banks was completed ten years after voucher privatization). If in 1990 Andrew (Ondřej) Jonáš (a banker from London) joked, that the most effective and the quickest way of privatization is to switch off the light for a while, the lack of state control before and ineffective ownership after voucher privatization paradoxically filled this proposal. 17 (Note17: This was a standard critique of privatization maneuver. See e.g. Mlčoch, Mejstřík, Mertlík etc.)
[32] Journalists and economists used also term banking socialism which described situation that state bank financed till 1996-7 many hopeless projects because of corruption or political pressures. 18 (Note18: I do not know, who used the term banking socialism for the first time, but it fits the real situation quite well. Maybe it was K. Kříž.) After 1997 central bank as a regulator implemented stricter (i.e. standard) prudential rules which opened many hidden problems. This problems were solved by capital increases, bailouts and guarantees. The total sum of them is estimated at the level of 200 bn CZK.
[33] Many other critical voices were addressed to the unsatisfactory institutional framework. Czech republic had a mortal combination of bad economic laws, incompetent judges, police and public attorneys. Legal consciousness of the population was quite minimal. If the first two years of the reform are characteristic by the quick and enthusiastic building of the legal fundament of market economy, after 1992 this process was much slower and less competent. Criticism of this attitude rose from 1995 and a new period in this field started after 1998. The Czech target to join EU is an effective engine of such changes because Czech Republic must show that it has comparable standards in all areas.
[34] Lectures of standard economics started at Czech universities several weeks after November 1989. The core of new courses was derived from a popular textbook of P. Samuelson, which was translated soon to the Czech language. Czech translation was made by the broad team from the Economic Institute of Czech Academy of Sciences and Prague School of Economics headed by M. Mejstřík (co-headed by A. Kotulan and M. Sojka). 19 (Note19: Samulson was popular in Czechoslovakia since sixties when the first translation (6th edition) was prepared by L. Urban and R. Budínová. ) Similar processes were in special economic disciplines (banking, public finance, marketing, management etc.) And a mushrooming of originally Czech textbooks started a bit later.
[35] The demand for economists was enormous. The numbers of students of economic disciplines increased dramatically. If in 1989, only six faculties had an accreditation for the economic education, in 1995 it was more than 25 faculties of public universities. But quantity in education was not in all cases followed by quality. That was why Ministry of Education organized “evaluation” of all faculties and some of them lost accreditation temporary or had to increase the quality of their academic staff and education. Since 1999 also private universities can exist, and about two dozens of them are really functioning in economic disciplines.
[36] If I mentioned a rapid development of economic education, it is the pity that the same cannot be said about Czech economic research. In the end of eighties three economic research institutes were active within the Czech Academy of Sciences: Economic Institute, Institute of Forecasting and Social-economic Institute (Ústí nad Labem). All of them were abolished by general meeting of the Academy in 1992, and they finished their activities in 1993. Abolition of these institutions was a very negative surprise, because mainly Economic Institute was seen as a place where two fundamental reforms were prepared and several ministers were educated. 20 (Note20: Graduation school of the Economic Institute gave the best postgraduate education for two generations of the Czech scholars. ) Economic Institute was informally the research institution No 1 in the Czech Republic and its library was for a long time one of the last islands of freedom under socialism.
[37] The reason why the Economic Institute was abolished is not quite clear. We can guess that this step was partly influenced by the traditionally bad relations between social and other sciences in the Academy. If natural sciences have the majority on the general meeting of the Academy, it is quite natural that they prefer to cut social than their own disciplines. Other reason why is rather political. If dozens of reform oriented economists left their institutes for their posts in government or business, the rest of the staff had the other ideas about the economic reform or criticized the chosen way of transition. 21 (Note21: The concentration of sixtyeighters or left oriented economists was much higher than before. With abolition of their institutes they lost organizational and financial backing.) One cannot imagine, that the Academy of Sciences could abolish the institutes from which many of the key economic ministers or their close collaborators came from (Klaus, Dyba, Dlouhý, Ježek, Zieleniec, Komárek, Mládek, Kupka, Rudlovčák, Janáček, Tříska, Češka, Kříž, Jonáš, Waigl etc.) without any informal consultations. Academy was too dependent on the state budget, that an independent behavior in such a thing can be surely excluded. Last but not least were the ambitions of J. Švejnar and J. Vepřek (who was responsible for social sciences in the Academy) to establish their own institute with another people and program (this was finally accepted). My opinion is that the way of abolition of Economic institute was a shame.
[38] National Economic Institute headed by J. Švejnar replaced other institutions in the Academy. It is a smaller institution combined with CERGE (Center for Research and Education - Charles University). Its position is rather controversial, its reputation is maybe better abroad than at home. It looks like a department of foreign university in Prague, it has a minimal number of Czech graduates (PhD) and it has a relatively scarce contacts with other Czech universities. Institute does not present itself by a permanent monitoring of the Czech economy. On the other hand it has an excellent library and many interesting lectures of foreign professors could be followed here. Maybe some bitterness from the past leads to skeptical evaluations of this institute.
[39] Not only research institutes of the Academy of Sciences were abolished. The same story was followed by many other institutions incl. newly established (after 1990). It was the fate of ÚÚNV (Central Institute of National Economic Research), VÚFÚS (Research Institute of the Ministry of Finance), IEV UK (Institute of Economic Sciences of Charles University), IHP VŠE (Institute of Economic Policy) and many others. In 1998 IE ČNB (Economic Institute of National Bank) was abolished, and once more political motivations of this step were mentioned. 22 (Note22: Its director J. Klacek was an economic speaker of ČSSD (Czech Social Democratic Party). Also P. Mertík (later on a deputy prime minister and minister of finance) was employed here.) Just now there is no independent research institution focused on the research of the Czech economy. If the country had about one thousand economic researchers twelve years ago, now it has several dozens only.
[40] In nineties some of research teams were financed from the sources of EU (PHARE, TEMPUS) or from other sources (US AID, World Bank etc.). Later on many of the programs focused in the Czech Republic were terminated because of relatively good economic situation of the Czech Republic. It meant that the country had sources enough to finance the economic research from its own sources. Maybe it really has, but it does not do it in comparable volume.
[41] For the Czech economic research has now a key importance financing from the sources of Czech Grant Agency. Czech Grant Agency distributes the state sources by the standard grant system. 23 (Note23: Just now about fifty projects are sponsored by CGA.) Hlávka Foundation is also important for smaller individual projects. Czech sources are not satisfactory for the institutions which live only from research activities. They are interesting for universities as an additional source of financing (equipment, literature, travel costs), but the system does not motivate individuals enough because of limited compensation.
[42] Important place of discussions is Czech Economic Society (now headed by J. Frait). Liberal ideas are popularized by Liberální Institut (headed by M. Ševčík), which has also some research and publishing activities. Politically oriented (to ODS of V. Klaus) is CEP (Center for Economy and Policy). Another political orientation has e.g. Institute of Applied Economy (J. Mládek). Many other activities are developed by professional associations and business analysts, mainly from big financial institutions.
[43] We can conclude that namely Prague has a vivid life of professional discussions. On the other hand I am not quite sure that all of these discussions are deep enough, that they are not oriented to the popular problems of economic policy. In theoretical orientation an aggressive liberalism from the beginning of the reform process was replaced gradually by more acceptable mainstream economics. Institutions are now in the center of theoretical attention, because they are marked as a main weakness of the Czech economy.
published 2002
