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Building a New Economy in the Czech Republic

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At the beginning of the changes in 1989 in East-Central Europe, civil society activists were very interested in alternative approaches to economic development. They'd seen the failures of Soviet-style Communism up close, and they didn't want to import the worst kind of McDonalds-style capitalism. In 1990, when I visited East German pastor and dissident Wolfgang Ullmann, he pulled the book Mainstreet Capitalism from his shelf to illustrate a point. It was a rather obscure book about ways of broadening share ownership in the United States and England. Ullmann, who went on to serve in both the German and European parliaments, was casting around for ways to transform ownership in East Germany "without deceiving our people and taking away their rights," as he told me.

Eventually West Germany absorbed East Germany, and discussion of economic alternatives largely disappeared. Elsewhere in the region, a new economic consensus emerged around some form of "shock therapy" transition to capitalism. A few vestiges of worker self-management survived in Slovenia, agricultural cooperatives lingered in some places, and most states retained ownership of a few key industries and services. But the new generation of politicians were not interested in experimentation. They had their eye on eventual membership in the European Union and wanted to implement whatever economic reforms were necessary to facilitate accession.

Especially after the financial crisis in 2008 and the Eurozone crisis of the following year, many people in East-Central Europe are again looking for alternative economic strategies. The Czech political economist Ilona Svihlikova was only 12 years old when the Velvet Revolution took place in her country, so she did not participate in that earlier discussion of transition. But she is very busy thinking about how to create a new economy in the Czech Republic today.

"From the start, we entered the world market in the bad position that we had, and we refused to use any instruments to rise higher in the value-added chain," she said in an interview in Prague last February. "We just got into the system in the position of a semi-peripheral power. At best, we have been a colony of Germany. That's the reality. If you look at the structure of the economy, the pillars are in foreign hands."

Three years ago, she created a new organization called Alternative from Below. "We try to find inspiration from other countries, from the United States, for instance, and the New Economy movement. The main pillar of our activities is to realize projects that try to help at least a bit, like cooperatives, like social entrepreneurship. We try to involve people in politics," she told me. "We are trying to say to the political elite that their approach is wrong, that they need some kind of program, that they need to think differently. We try to spread community work throughout the Czech Republic, using different tools like participatory budgeting and local currencies. These are unknown things here."

Participatory budgeting, a technique developed in Brazil to involve citizens in the creation of budgets at a local level, is particularly appealing for Czechs. "In all the towns and cities, there are 'interesting' things going on with public procurement," Svihlikova explained. "If people had a look inside, they might get quite afraid. Most people who contact us are from opposition parties that have found out that something wrong was going on with public money, and they want to get to the bottom of this. They contact us to implement participatory budgeting in their town. It's a long-term project, but you have to start somewhere. Some people say that Prague is too big for that. And I say, 'No, you just don't want it because you are afraid.'"

We talked about the perils of globalization, the political strategy of the new Czech president Milos Zeman, and the rebirth of civil society.

The Interview

Let's talk about the economic situation here in this country. What do you think were the major mistakes made in the early period, in the early 1990s?

It was probably all a big mistake! For instance, the way property was privatized. That's a technical thing, though. Maybe the major problem was that there wasn't a vision. Or it was presented as a vision but it was not a vision for a sovereign state. From the start, we entered the world market in the bad position that we had, and we refused to use any instruments to rise higher in the value-added chain. We just got into the system in the position of a semi-peripheral power. At best, we have been a colony of Germany. That's the reality. If you look at the structure of the economy, the pillars are in foreign hands. Like all countries of this type, we suffer a huge outflow of profits.

Almost 98 percent of the banking sector is in foreign hands. Nobody cares much about economic structure. They had a very naïve theory that if they just "let it be," the economy would somehow evolve by itself. They totally ignored the social aspects of the change. People were not important at all. What Vaclav Klaus wanted, and he was clever enough not to show it directly, was to build an elite quickly, an elite that would support Klaus' first steps to achieve power. That was the biggest mistake.

Then there were technical mistakes, which I'm interested in but might be too technical for your readers -- like what they did with the exchange rate or the way privatization took place. They totally destroyed the cooperatives, which were very strong. They totally destroyed agriculture. Nowadays we import billions of crowns of horrible food from Poland. They thought that the economy would evolve by itself without any state intervention, which left the Czech Republic in the position of a semi-colony. This situation remains the case today.

Do you think any country in this region was able to come in at a better position?

Slovenia, in part. They had a different system in Yugoslavia. The employees and the cooperatives were more active. Russia might have been able to, if there had been somebody in charge other than Yeltsin, who was completely in the hands of the Chicago boys. They could do whatever they wanted with him in part because he was an alcoholic. Russia of course would have been in a better position because it was strong enough, in a military sense, to say, "this is not what we want." Putin tried this later, of course, but under different conditions and in a different way because you just cannot return to the past.

One of the most successful examples is China. I don't want to suggest that everything that China is doing is fine. I don't like the regime there. That's a different question. But they never had a vision of simply remaining an exporter of cheap textiles. That was for them only one of the stages they had to go through. They had an intelligent vision of how China would in the end become a very powerful economic actor.

I don't imagine that the Czech Republic will ever become such a powerful economic actor. But if it became a decent economic actor, that would be enough.

Both Russia and China have some leverage with respect to the world economy. One could argue that a small country, even with very smart leadership, simply can't have that kind of leverage. So, what do you do in a situation like that? What could have been done here?

To read the rest of the interview, click here.