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Czech Republic: Many Favor Strong State Role In Economy

  • Kathleen Moore

The Czech Republic's transition to a market economy has not always been smooth sailing. But compared with much of the former Eastern Bloc, the Czech Republic is a model of a modernized, prosperous country where the private sector accounts for more than three-quarters of the economy. Wages have risen steadily, the economy has been growing even as those further West have faltered, and the Czech Republic is on the verge of joining the European Union. So why did three-quarters of respondents in a poll last week say they are in favor of strong state involvement in the economy?

Prague, 1 April 2002 (RFE/RL) -- In less than three months, Czechs will be going to the polls to elect a government that -- it's hoped -- will lead them into the European Union in 2004.

If EU entry happens on schedule, it will be the crowning achievement of the country's transition from socialist central planning to a market-based economy. It hasn't all been easy sailing, but compared with much of the former Eastern Bloc, the Czech Republic is a model of a modernized, prosperous country.

Admirers point to the successes of that transition. Fifteen years ago, what was then Czechoslovakia had one of the most nationalized economies in Eastern Europe. But the private sector now accounts for more than three-quarters of the Czech economy. A strong influx of foreign investment in recent years has boosted competitiveness and created jobs. Wages are rising steadily, inflation is low and the currency is stable -- if a little too strong for exporters' tastes. After a recession in the late 1990s, the Czech economy has been expanding even as those further West have faltered. And for years, growth has been powered by a shining example of a privatized company -- the Volkswagen-owned Skoda carmaker.

So it may be surprising to hear that a poll released last week shows that three-quarters of respondents favor a strong state involvement in the economy -- and that this view is not restricted to left-of-center voters. More than half of those on the right of the political spectrum said they shared this opinion as well. There was also little difference between urban and countryside respondents.

STEM, the agency that performed the survey, notes that respondents do have different interpretations of what state "control" or involvement actually means. Only a minority -- one in 10 -- say they in fact favor a return to a communist-style, centrally-planned economy.

But the overall results are nonetheless surprising. Some 80 percent of respondents say the state should retain a controlling stake in the country's large banks. Three quarters believe the state should regulate rent, certain accommodation-related prices, and allocate housing. And half said the state should help large firms survive through subsidies and other financial props.

Jaroslav Huk is one of the researchers on the STEM study. He says old habits die hard for many Czechs.

"The desire for a strong state, that someone should have something under control, is very strong. It's universal here. And Czechs, after two or three generations of growing up in a nonmarket environment, are used to relying on a buffer -- called the state -- that has almost inexhaustible resources and that should regulate, control, and manage. This [is a] very strong [belief], and even people who say they support a market economy retain a certain amount of reservations on some issues and [instead] rely on the state."

Huk says memories are still fresh of the period in early 2000 when the country's minority government looked shaky.

"This danger -- that some kind of chaos would break out, that no one would be in charge -- was [felt very strongly], and people are still worried about this. This is universal in the Central European region. And in the Czech Republic it's very clear there's a strong need for someone to be there as the final guarantor -- and that that someone should be the state."

The economic transition has also had its costs. A currency crisis in 1997 triggered a three-year recession and rising unemployment. And taxpayers have had to foot the multimillion-dollar bill for cleaning up the country's big banks to make them attractive to foreign buyers. Economic liberals say the bill was steep because bank privatization was delayed for too long -- banks lent generously to well-connected firms with little regard to whether borrowers could or would return the cash.

But many people think privatization may have gone too far. While some firms have prospered under responsible new owners, Czechs have also seen their fair share of embezzlement scandals as owners "tunneled" money from privatized firms. Others dislike the mere idea of selling the "family silver" to foreign firms. And there's a pervasive view that many members of the Czech Republic's new wealthy class got there by semi-legal means.

Huk says the desire for strong state involvement in the economy is tied to respondents' overwhelmingly dim view of privatization.

"Many people think we overdid privatization -- that the state should have kept more, that it should have kept a controlling stake in key companies and the biggest banks, that it should continue to administer much of the country's agricultural land. And in some other areas like housing, many people -- especially those who want a firmer state hand -- think that privatization went too far and there's too little security here. Czechs need security and they [feel they] don't have it in an environment where the market has a decisive role and the state is weak."

So with a general election just around the corner, what lessons are there for the main parties? Opinion polls give the two main center-right groups combined support of just under 50 percent, while the ruling Social Democrats and the Communists together are at less than 40 percent.

That suggests the winner will have to find a coalition partner to form a majority government. But because the parties don't all fit easily into the usual definition of right and left, coalition partners might not be from the same side of the political spectrum.

The center-right Civic Democrats, led by former Prime Minister Vaclav Klaus, could just as likely team up with the Social Democrats or with the rightist Coalition grouping. Thanks to a power-sharing pact, Klaus's party has already kept the Social Democrats in government for the last four years.

Blurring the picture further, it's the left-of-center Social Democrats who have privatized big state-owned banks and companies -- an area where previous rightist governments dragged their feet.

Huk says the parties will do well to take the survey results seriously. But he says it will be hard for right-of-center parties who want to minimize the role of government in people's lives.

"It's quite a difficult position. And they need to explain these principles and show that a free market does not mean insecurity, collapse, chaos, but that it's a system that can work well. It's difficult because of the experiences these people have had and because of privatization, but it's necessary if these parties want to save face and want to be really loyal to the principles that they are defending." Two days of voting begin on 14 June.

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