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Czech Republic/Poland: Private Enterprise Flourishes

Warsaw, 28 February 1997 (RFE/RL) -- Polish cosmetics queen Irena Eris and Prague hotelier Martin Hoffmeister are typical examples why the Polish and Czech economies are charging ahead, while those of other post-Communist countries of Eastern Europe and the former Soviet Union languish -- or even continue to slide backwards.

Hoffmeister, 49, was a filmmaker who transferred his talents for staging and direction to the running of a 38-room luxury hotel which he and his wife built from the ground up after the collapse of Communism in 1989.

Undaunted by the fact that he couldn't get credit from any bank, he entered into an innovative agreement with a construction company to build the hotel in return for payments from future profits. If the would-be hotelier had defaulted, the construction company would have gotten to keep Hotel Hoffmeister. By opening the hotel on the edge of Prague's historic Lesser Town (Mala Strana), Hoffmeister created 65 jobs -- an accomplishment he's proud of.

Eris, an elegant, smartly-dressed woman, has since the fall of Communism transformed a small home business producing one type of face cream into a cosmetics giant employing 205 people, producing 80 products and generating an annual turnover of about $18 million.

Interestingly, Eris was able to first open her business in 1983 -- with the equivalent of $15,000 borrowed from family and friends -- because Poland never outlawed small-size private enterprise. All through the Communist decades, most farms remained in private hands while private restaurants and small service establishments began to spring up in the 1980s. But Eris's big expansion came after 1989, and she admits that "great changes occurred in the last seven years."

Poland and the Czech Republic have been by far the most successful of the ex-Communist countries in making the transition from state direction of the economy to market economy.

On this score, the progress has been dramatic -- especially in the Czech Republic, which was one of the most politically and economically orthodox of the Soviet bloc states. Before the Velvet Revolution which toppled communism in 1989, a minuscule two percent of property in what was then Czechoslovakia was owned by private persons. In today's Czech Republic, the figure has soared to 80 percent.

In both Poland and the Czech Republic, the private sector now accounts for about two-thirds of the value of goods and services produced every year -- a measure known as the Gross Domestic Product (GDP).

Hotelier Hoffmeister says the private sector is crucial to the Czech Republic's economy.

"Everything the giant state-owned industrial complex is unable to produce, the private entrepreneurs are producing," he said.

To arrive at the same point, the two countries took very different routes. The Czech Republic instituted a program of mass privatization and restitution. It turned nearly every Czech citizen into a shareholder by selling voucher books that could be traded for shares in state-owned enterprises. And it returned to private owners buildings, some land and even castles that had been confiscated at the time of the Communist takeover in 1948.

The idea was that public ownership would result in better business decisions by managers of formerly state-owned enterprises. Dusan Triska, author of the Czech voucher privatization plan, says there was also a strong ideological element of forcing people long used to the passivity of Communism to become accustomed to making decisions for themselves.

Poland had concentrated on selling off state assets -- often to foreign investors -- in larger chunks, and only last fall began a mass privatization scheme through the establishment of several internationally-run investment funds through which the public could acquire shares in separate companies.

It met with overwhelming public acceptance. Nearly every one of the 28 million Poles who were eligible bought the privatization coupons in the funds that were on offer for a negligible 20 zlotys (less than $7). The coupons immediately soared in value to 120 zlotys (about $40). As one young woman waiting in a long queue to buy coupons before the deadline last November told RFE/RL correspondent: "It's like they're giving away money."

Despite the public acceptance, there have been problems with each country's approach. Milos Zeman, leader of the opposition Czech Social Democratic Party, wrote recently that the Czech privatization plan might well have been invented by the country's most famous surrealist writer, Franz Kafka.

Zeman wrote that having millions of owners is the same as having no real owners -- or the same as the Communist system. Most shareholders invested their shares in privatization funds which now own the majority of enterprises. But, he said -- pointing to what he sees as the absurd element -- the funds are owned by banks which in turn are owned by the state.

In Poland, whole sectors such as telecommunications and energy have been untouched by privatization. Moreover, the entire program has become a subject of political disputes between the liberally-inclined reformers and the nationalistic and populist conservatives who are highly antagonistic to economic reform.

Cosmetics manufacturer Eris also complains that Poland's parliament keeps changing laws that affect businesses, sometimes retroactively.

But what's perhaps more important than these criticisms of the privatization process is the fact that the field is generally open for private entrepreneurs to flourish.

Hotelier Hoffmeister says that he can find fault with the Czech government's attitude towards private entrepreneurs, but that it is impossible to expect everything to be perfect after only seven years.

"I am very happy with what's happened after 1989. The developments here are marvelous, brilliant," he said.

This is part two in a four-part series about the transition of the Czech Republic and Poland to market economies.