The current situation in the Czech Republic is quite tense. Once again, twenty years after the so-called Velvet Revolution, citizens are asked to “tighten their belts” – however, this time not with the perspective that better times are coming, but that they are definitively behind them. The current government of Petr Necˇas applies extremely neoliberal policies that have in any case been present since the 1990s.
The 1990s began with the hope for a better life, higher living standards, the opportunity to travel, freedom of expression, etc. On the economic level, the discussion of “what to do”, how to reform the backward economy, was quite limited. First, there was the international climate that favoured the Washington Consensus as the only correct path to take. Although its implementation was not as extreme as, for example, in Russia, it definitely influenced Czech economic policy. Second, the main figure associated with the reforms of the 1990s was Václav Klaus, the current president and a charismatic person who seemed to know what to do; his self-confidence, sometimes hard to distinguish from arrogance, was almost predestined to lead the nation to “a better tomorrow”. At that time, people truly believed that the Western countries were coming to help, and not to flood the market with junk goods that would be unsellable elsewhere; they truly believed that tightening their belts for a few years would enable the Czech Republic (until 1993 Czechoslovakia) to catch up with Germany; and they truly believed in the virtues of the market economy without adjectives, as Klaus used to call the economic model he wanted to introduce.
The reforms at the beginning of the 1990s led to a rapid and extreme redistribution of wealth. An utterance that probably best illustrates this era that “gave birth” to a new class of “entrepreneurs” was Klaus’s claim that he did not know what dirty money was. This practically opened the way for processes that would be illegal in civilised countries; however, economists in the Czech Republic claimed that if the reforms were to be successful (which at that time simply meant fast) the economists must be quicker than the jurists. Privatisation by vouchers, a very unusual method indeed, was first viewed as a specific path to people’s capitalism, where every citizen is a shareholder. From the start, the information gap, between the public and those who knew the real situation of enterprises that were to be privatised, and later the emergence of private investment funds fully showed how naïve this approach was.
Soon it was obvious that privatisation through vouchers led to the opposite of what was promised. A well-known economist and harsh opponent of Václav Klaus, Milosˇ Pick (Pick, 42) put it directly: “What even I did not expect was that the administration and control of this property, separated from minority owners, would get concentrated so fast and in such an extreme way. The five biggest banks and an insurance company and fourteen companies, mostly their investment companies, control more than 40% of shares from the first round of privatisation by vouchers and about 80% of bank credits. It is a new pyramid of concentrated economic power, of managers, of members of boards of directors – amounting to very few economic subjects. About 500 families now control the economy, without owning it. In fact, it is a new “economic politburo”, never voted by dispersed owners and hardly ever recalled by them. Extreme concentration of economic power extremely separated from extremely dispersed owners – this is the result of the privatisation by vouchers”.
Later, the social-democratic opposition would call this privatisation by vouchers “the theft of the century”, emphasising that many enterprises were privatised (and many closed), while the banks remained in state hands, accumulating bad loans, since the decision of which companies were granted loans was based more on political than on economic criteria.
The fast and furious reforms affected the Czech and the Slovak part of the Republic in different ways. The Czech part had much better starting conditions, while the Slovak part faced higher unemployment and more structural weaknesses. It should be noted that the dependence of the Slovak part on the Czech reached record levels in the 1980s when ca. 8% of Czech national income was redistributed to Slovakia. Election results in 1992 showed major differences among the two populations: the Czech part favouring Václav Klaus and his reforms, and the Slovak part preferring more nationalist policies and different types of reforms. In the end, it was agreed to divide Czechoslovakia.
There were also further disasters in the offing. One of the most important decisions was the setting of the exchange rate. The IMF “recommended” deep devaluations. These steps gave the (not yet modernised) enterprises the benefit of a “price cushion”, but also showed the direction for the Czech Republic – price competition. The Czech companies withdrew from the Eastern as well as Latin American markets, for example, and oriented themselves strictly to Western Europe, where – to their own surprise – they were not particularly welcome as they were not a part of the transnational nets. The export structure, traditionally machine oriented, changed to primary products (wood, kaolin) and labour intensive production. The Czech Republic fell far down on the ladder of the international division of labour and started to compete with developing countries. Later, this strategy led to deep trade and current account deficits that culminated in a financial crisis in 1997, when the fixed exchange rate of the Czech crown had to be terminated.
In the second half of the 1990s it was obvious that the series of neoliberal reforms did not bring a better life to most of the population and for the first time the popularity of Václav Klaus (at that time Prime Minister) started to sink. Unbelievably, the governing elite refused to admit its mistakes, instead claiming that the reforms mostly ended successfully. When the inner imbalance (of supply and demand) became unacceptable, the right-wing economists had a ready reply: most of the people lived beyond their means, and they announced a second wave of belt tightening, trying to repeat the “shock therapy” of the early 1990s. However, at that time people began to be angry when they learned how much state property got privatised in a very peculiar way and “vanished”, and in 1998 the opposition party – the social-democrats – received their largest vote up to that time. They were able, after difficult political negotiations, to create a minority government.
The minority social-democratic government faced an unfavourable economic situation from many points of view. The privatisation process had created a new class of wealthy “entrepreneurs” who have been extremely hostile towards everything “social”. Then there was the media, mostly consisting of former communists and young communists (svazák), by now on the “right” side. This situation prevails up to the present day. If it were not for the internet, it would be almost impossible to get information on the trade unions, etc. The whole media scene is in the “right” hands (for example, the billionaire Bakala, in which instance even the Court acknowledged that it may be admissible to call him a bastard). The so-called public media is only so-called, as according to various polls about 90% of the journalists claim to be right-wing (and demonstrate this amply in all TV and radio programmes). Moreover, there was a difficult economic situation characterised by an unprivatised banking sector burdened with bad loans, traditional companies in bankruptcy, a rising rate of unemployment and bad results in international trade.
The social-democrats followed a traditional redistribution path, but had to decide what to do with Czech industry. Their reasoning was that the only solution was to attract foreign capital to the country. First, in so doing they would at least partly stop the formation of the new class of “Czech oligarchs”, and, second, modernisation was deeply needed. Within the same logic, it was the social-democratic government that privatised banks (a step the right-wing governments were afraid to take). A deep banking crisis, with many bankruptcies and bank runs led to the current situation, in which there is almost no Czech bank left. The dependence on foreign capital thus grew in every sector. Zeman´s social-democratic government introduced a complex export promotion and investment policy, with new and strengthened institutions. As unemployment reached 10%, foreign investment in assembly-line plants were given preference because such plants can create many jobs.
Although it seemed quite improbable at the beginning, Zeman´s government actually managed to govern for four years, and even more surprisingly the social-democrats won the elections in 2002 again. Their coalition government was very unstable (with three changes of Prime Minister); however, the economic situation began to brighten. In 2004 the Czech Republic joined the EU, and since 2005 it has had a positive balance of trade, a very important factor of growth for the traditionally very open, small economy. However, it must be remembered that the social-democrats at that time fully accepted Tony Blair’s and Gerhard Schröder’s “Third way” and tried to “modernise” the welfare state. Probably their crucial mistake was the policy of decreasing corporate taxes, which was the policy recommended to the Finance Minister by the neoliberal economists he kept in his team. The rising deficits and consequent indebtedness of the country was the main critical target of the right-wing opposition parties.
They were expected to win the next election, but a perfect stalemate in the 2006 elections complicated matters. There are 200 deputies in the Chamber of Deputies. There were 100 for the left (social democrats, communists), and 100 for the “right” (including the Greens – it was their first and probably last entry into the Chamber of Deputies; quite strikingly Greens in the Czech Republic have a strictly right-wing orientation). The negotiations continued without resolution, but at the beginning of 2007 the interim Prime Minister Mirek Topolánek announced that he got the support of (read: he corrupted) two deputies from the social-democrats and thus obtained a majority.
The “achievements” of Topolánek´s government are of three types:
Paradoxically, the plan to build an American missile base brought something good. After many years of the almost complete passivity of Czech citizens, an issue appeared that was able to create the most successful civic movement up to now – Ne Základnám (No Bases Initiative). The relentless resistance of this movement to all media manipulation has been admirable. The Czech media were furious that something like a spontaneous movement– without (their) “right” control – could emerge. The representatives of this movement were regularly accused of being Russian agents, naïve children or fanatic communists. The media campaign was incredible (representatives of Ne Základnám could not appear on TV), but whatever the media did to support the project (the female Defence Minister went to the lengths of singing a kitschy song to support the Americans), about 70% of the population were steadily against the base. Perhaps the most surprising thing was that the Green Party, whose equivalents elsewhere in Europe are linked to pacifist movements, supported the bases. However, this was also the issue that in the end caused the party to break up, as two Green coalition deputies later turned against the government.
Topolánek did not have the overwhelming support of the current Czech government; nevertheless he was able to introduce some “reforms” that brought deep changes not only to the Czech economy, but also to the whole society.
Topolánek’s reforms followed the neoliberal thinking that the state should be as small as possible, with everyone minding their own business and not bothering the state with illnesses, injuries, aging, etc.
In this logic, the government increased the VAT and decreased corporative taxes (again!). However, the flagship of all reforms was the introduction of the flat tax. The tax had a clearly regressive nature and of course the richest profited greatly from it. Another step was the healthcare reform, inspired by the American system. Topolánek´s government did not have the strength to achieve everything it intended; it “only” introduced fees at the doctor’s office. The main argument was that pensioners go to the doctor too often and overuse the care that must for this reason be regulated.
However, these fees have had a major impact on the whole of society. The fees represented a milestone in the new notion of what public service is, as people were used to getting all these services for free. Especially the young generation, born after 1989, acquired the attitude that it was normal to pay cash for public services if you wanted to have “quality”.
The reaction to the financial and economic crisis was very specific. Firstly, the Czech government refused to acknowledge that there was such a thing as crisis. When they did, they denied that it would reach the CR. The Finance Minister and later founder of an extreme right party TOP09, Miroslav Kalousek stated: “I repeat: there will be no crisis in the CR. Economic growth will be slower. Despite all problems, the CR will grow”.
The tragedy was that he not only probably thought so, he also set the budget for 2009 based on this conviction, and projected a growth of more than 4%, while the reality was a more than 4 % drop in GDP. No wonder he “managed” to run up the biggest deficit in modern Czech history. However, he had the unique opportunity to point to the crisis in order to excuse his catastrophic economic management.
The new political culture had numerous features. One of them was the enormous arrogance of the government, which despite the way it arose with its very weak “majority” refused to negotiate with the opposition and showed utter disregard for its social partners, e.g. the trade unions.
Hardcore right-wing rhetoric occupied the media, where everything social was considered to be communist and a curse-word. The rhetoric was not only extremely right-wing, but Prime Minister Topolánek, in particular, repeatedly showed his propensity for Nazi terminology. When his party achieved power, he promised a “night of the long knives”. When he was kicking a journalist, he announced (in German) “es kommt der Tag”. He also said that the election promises of the social-democrats were an “Auschwitz lie”. On the international scene he achieved fame when photographed naked in Berlusconi’s villa.
All this being said, it was not surprising that the perspective of the coalition parties on the eve of the 2010 elections was quite gloomy. In all the polls, the social democrats were predicted to be the clear winners. However, then came the Greek crisis. The right-wing parties, together with newly established ones: TOP09 led by Finance Minister Kalousek (the extreme right party) and Veˇci Verˇejné (Public Matters, led by the journalist Radek John) grabbed their unique opportunity. The Greek crisis and especially the topic of debt and of state bankruptcy garnered major attention and simply dominated the political agenda. No political discussion on TV could do without the Greek topic and its implications for the CR. The right-wing parties used the traditional area of competence of the social-democrats, the welfare state, as the symbol of their attack, saying that such profligacy will lead us inevitably to end up like Greece. Unfortunately, the social-democrats were absolutely unable to react to this agenda and instead of arguing that the CR’s debt is among the lowest in the whole EU, they flooded the country with idiotic vapid orange billboards in American campaign style.
The results of the 2010 election came as a shock to almost everybody. Although the social-democrats won, it was a truly Pyrrhic victory; the rightist parties were able to build a very strong government – their overwhelming majority brought them 118 deputies in the Chamber of Deputies. Right from the start, the government of Petr Necˇas announced “necessary austerity reforms”, for which, as they claim, they have a strong mandate from their voters.
It is significant for the Czech political scene that every four years a party of “new, modern politicians” appears and claims to be different from the old, corrupted establishment. Although there has been much experience with this phenomenon Czech voters seem willing to “try their luck” again and again. The Greens were such newcomers, but after their acceptance of the missile base, the disillusionment with them grew strong. Thus, they failed in the election of 2010. Instead, a new party – if it may be called that – appeared and was the surprise of the election. Veˇci verˇejné (Public Matters) built their campaign on the fight against corruption. For this they engaged a former journalist, well known from various TV investigatory programmes as a “party” leader. The party also gained popularity because of its criticism of the old established parties – just like its predecessors. However, not much attention was paid to the fact that the party was financed by a security agency and organised civic patrols to get the homeless and other “unwelcome” people out of parks and out of public view. Some political scientists warned that Veˇci verˇejné could not be considered a party, being more a conglomeration of very different kinds of people connected to entrepreneur interests and procurement contracts.
The traditional Christian Party lost support and for the first time in its long history became a non-parliamentary party. Instead, a new party, founded by Miroslav Kalousek, the disastrous finance minister, gained major support especially among young people. The party was (and partly still is) viewed as “cool” and different. The only formal leader is an aristocrat Karel Schwarzenberg. It is difficult to stay if he received support due to his noble origin or by his willingness to fall asleep during all negotiations, no matter how important. Kalousek spoke from the start with unbelievable arrogance of the need to decrease the state deficits and so also the public debt. He made his party into a section of the Christian right and made drastic reforms and total abolition of the welfare state (which, so he claimed, “we cannot afford”) his main issue. As a part of his campaign he even sent a cheque to every Czech citizen to pay his part of the debt. Many pensioners were so shocked when opening the envelope that they had to be brought to hospital.
TOP09 gained particular fame from its association with a video in which young people (famous young actors) persuade their peers to visit their grandparents – depicted as communist-voting benefit scroungers – and “explain” to them that they should vote for the right or else they (their grandchildren) won’t visit them anymore. Although the video provoked widespread disgust, young people found it “cool” and, also attracted by the funny aristocrat who doesn’t care if he falls asleep and speaks such amusing Czech, voted massively for the party with the strange name of TOP09.
These two new “parties” decided the elections since they claimed to build the coalition with the party that finished second – the Civic Democrats (the party founded at the beginning of the 1990s by Václav Klaus) – and thus obtained the above-mentioned overwhelming right-wing majority. Petr Necˇas, whose name very appropriately translates as “bad weather”, became the Prime Minister.
The social-democrats and communists had to stay in opposition.
The coalition negotiations were very quick and in practically no time the most right-wing government imaginable was established. It made clear from the start what its priorities were, calling itself “The Government of Budget Responsibility” and “The Government of the Fight against Corruption”.
The government explicitly declared that its main aim was to carry out deep, structural reforms with many irreversible features, or ones that will be very expensive to reverse. The Government Declaration states that the Czech Republic must increase its competitiveness or it will end belonging to a group of countries that are unable to solve their own problems (meaning here the involvement of the IMF as the so-called threat of last resort). Also, we learn that wealth comes from the entrepreneur sector of the economy. The government begins with the need to apply austerity measures so that the Czech Republic will not end up like Greece (a motif of the election campaign). Interestingly, emphasis is placed only on the expenditure side of the budget and there is no mention of an effort to recoup the tax revenues lost through the abolition of progressive taxation. The government announces that it will cut social benefits, even abolish them in many cases and privatise lucrative sectors of public services – specifically, pension reform is prioritised.
The government also planned serious changes in the Labour Code, weakening the power of trade unions and of employees as a whole and benefiting mostly the self-employed.
In what follows I would like to analyse the concrete steps that have been already taken or are being prepared, but also the reaction from civil society.
After the shock of the election, the left parties were paralysed. Especially the social-democrats needed several months to understand what their Pyrrhic victory meant – for them, for the society. If something positive came with the government of Petr Necˇas, it was the activation of the trade unions and especially of the civil society that had been dormant for almost twenty years, with some short exceptions. Many new movements, civic organisations and initiatives have been established. Such activity is unprecedented and means that something indeed is changing in Czech society. Just before the elections, a civic community initiative Alternativa zdola (Alternative From Below) came into being. As a direct reaction to the government policies, the initiative Proalt (For Alternatives, against the cuts) was established. Since that time many others entered the scene and now there are efforts to coordinate better demonstrations and events and cooperate more closely with the trade unions.
In sum, the government plans to undertake serious reforms in:
The government got down to the austerity measures right away. One of its first steps was to carry out collective lay-offs in the public sector, along with at least a 10% cut in salaries. This measure activated the trade unions, which organised the biggest demonstration in many, many years, with more than 40,000 members, including policemen and firemen taking part. However, the government uses the same mantra when it encounters dissatisfaction and resistance to its policies:
The government of Mirek Topolánek has already done serious damage to political culture in the Czech Republic, but Necˇas´ government has managed to go even further. Necˇas shocked us again when he named Roman Joch one of his advisors for human rights. Joch is a bizarre political figure who openly speaks, for example, of torture as necessary in the name of democracy, who finds it quite acceptable to shoot at demonstrators, who believes gentlemen (and he considers himself to be one) may have slaves if they like and that universal suffrage is actually a very dangerous tool and should be abolished. Regarding the revolutions in Arab countries, he made “wise” recommendations that such undeveloped countries simply cannot have democracy and it would be best if they had a rightist authoritarian regime (which the US should arrange). He also praises the traditional family and assigns women the task of giving birth to at least two children, as a condition of her getting the right to vote. With Roman Joch, fascist tendencies that were already visible in Topolánek burst forth from the society and not only get public and media attention but also enter the mainstream – not as things that are impossible in a civilised country, but as opinions that are part of mainstream rightist tendencies.
Ever since, there have been articles and discussions on the Internet, but also in the rightist printed media, criticising universal suffrage because it gives the a poor man (it is of course his own fault that he is poor, because he is lazy and does not want to work) the same vote as a rich man. Almost every day, there are proposals to abolish universal suffrage and to base suffrage on wealth, or to grant the right to vote only to those who pay taxes or are employed. Hatred for the poorest – the Roma, the homeless or unemployed – is being used systematically as a tool of government policy. These groups are, according to the government, responsible for our economic problems (not the rich, who transfer their profits to tax havens, for example). No wonder that proposals to deport the homeless out of the towns (Prague especially) to special “camps” have appeared. What is worse, much of the middle class would welcome such measures. The government also enacted reforms of social benefits to prevent their misuse. The conditions for getting unemployment benefits had already been one of the strictest in the EU. Now the government came up with the idea of granting benefits in the form of vouchers (to prevent spending these on alcohol or gambling) and of compulsory public work. All these measures are aimed at further stigmatising those who are in social need. Because these groups are dependent on state benefits, they are considered the guilty party.
Although the coalition parties were mostly voted by the young voters, it came as an unpleasant surprise to them when the coalition started introducing reforms of tertiary education. School fees were one of the most important elements. This demonstrated again how many voters, especially the youth, had no idea of party programmes, did not read them, just knew that Schwarzenberg was a “cool guy” and the reforms are necessary. However, the reforms are necessary as long as they do not adversely affect these young voters. The same students that voted for TOP09 were fiercely opposed to school fees, because it would hit them directly. The tertiary education reforms comprise much more than just school fees. The reform bill openly states that the universities should cooperate more with business and that research and development is valuable but should be supported only if it helps private business. Universities should be also managed like private companies.
Besides collective lay-offs, the changes in public administration lead to a further privatisation of public services. One of the best examples is the reform of Bureaus of Labour. These bureaus will be closed down and centralised in regions. The official explanation is that it will save some money, but the main reason is that private job agencies are to be given more of a role.
In healthcare, the coalition’s model is the American system. In its programme TOP09 foresaw a constant increase in fees paid by individuals, thus less and less care based on public funds. One of the main steps of the reforms should be the definition of “standard” care that will be paid from the public healthcare funds, while all other services should be paid with cash. With this go further steps, such as decreasing the number of hospital beds, dramatically increasing the payment for patients with long-lasting illnesses, the reasoning being that old people misuse healthcare. Fees paid directly to doctors, mainly specialists, are to increase almost sevenfold! Significantly again, the government seeks to get the funds from the poorest people in the society, from the old and ill. It does not target the pharmaceutical lobby and the drug policy that makes the Czech Republic a bonanza for these rich and influential companies. On the other hand, more and more medicine will be paid cash.
The pension and fiscal reform are closely connected. At first the government’s idea was simply to order citizens to save money in private funds. This was too much even for some influential right-wing journalists and economists who stood up against this proposal. Although it is a crucial reform, the government, after first announcing the concept with great fanfare, then changed it about five times a week, which further eroded support for the measures. According to the latest version, people above 35 may choose to save money in privately owned funds. However, because of costs (decrease in social contributions), the government “simply had to” increase the VAT. And, because the increase in VAT will also make medicine and all healthcare equipment more expensive, the fees will have to be increased again and less and less care will be covered by the universal healthcare insurance. It is a perfect vicious circle, and the government can argue: we have to proceed that way; you see that there is no money in the system.
The government is repeatedly pursing the same policy: it practices austerity by cutting revenues directed to specific spheres and then claims that there is not enough money in the system; therefore it must be privatised, because private subjects are always better than the state.
The growing dissatisfaction in the society – the latest polls show the government has the trust of only about 20 % of citizens – is not only over austerity. There is another issue:
It is the government’s second main issue, especially of the Veˇci verˇejné party: the fight against corruption. This is the way the fight looks: At the end of the year, an official made public an attempt by the Minister of the Environment (Civic Party) to enrich himself and the party from a procurement amounting to 500 million crowns! A sum that far exceeds unemployment benefits. However, it was not the minister but the official who was publicly called a “traitor”, a “bastard”, etc. – because he in fact made public an instance of high-level corruption. The minister indeed had to leave, but he was given the job of “ideological party leader”. Since then there has been almost a scandal a day. Every day citizens learn of corruption, of secret recordings compromising different ministers and deputies. None of these are properly investigated by the police, which mostly comes to the conclusion that the proof is insufficient. Or, even worse, there is strong political pressure on the judiciary to investigate certain affairs as a favour to someone. The occurrences are so frequent that even the journalists are not able to follow them. Many political scientists talk of mafia relations in the Czech Republic with the government as the “capo di tutti capi”.
Some of the ministers acknowledge that the scandals are “a bit of a problem”, but that the reforms are so important that it is necessary to go on, despite all tensions in the coalition.
On the one hand, many people are still very passive and resigned. Privatism is widespread in the CR. Some people still try not to see the reality and escape into silly TV programmes or to their weekend homes. But, step by step, the anger in the society is growing. A famous political scientist, Prof. Dvorˇáková warned that people are getting very angry and radicalised and ready to go into streets. In her opinion, the government is using practices that can no longer be called politics but are mafia activities.
Recently, the trade unions organised a demonstration with the participation of about 48,000 people. Harsh words were directed at the government – there was even talk of general strike and of civil disobedience. The government was shocked, reacting with some right-wing deputies speaking of fascism in the trade unions (and extreme right journalists began writing of the need to prohibit the trade unions). The “nobleman” minister Schwarzenberg said that everyone should shut up and not make the already complicated situation
worse.However, it is highly unlikely that society will listen to the “aristocrat”.
There is a battle going on in the Czech Republic. It is a battle not only
against austerity measures, against the corrupt government. It is a fight for
basic civil rights, a fight against fascist tendencies in the society, and a fight
for a true democracy.
CKOS (Czech Trade Unions): Pohledy – nové kolo reforem verejnych financínekonecny príbeh (New Round of Government Public Finance Reforms – An Endless Story), 2/2010.
Janícko, Pavel, Svihlíková, Ilona: “Tax Policy and Employment: The Case of the Czech Republic”, South East Europe Review for Labour and Social Affairs, 2/2009.
Pick, Milos: Stát blahobytu, nebo kapitalismus? (The Welfare State or Capitalism?), Grimmus,2009.
Prorok, Vladimír, Lisa, Ales: Politologie. Vydavatelství a nakladatelství A. Cenek, s.r.o., Plzen 2009.