• Crisis and the Czech Republic: Political Observations from the Left

  • Jiří Málek | 20 May 09
  • Twenty years ago, in late November 1989, the division of Europe came to an end. At the time, people were generally full of hope. The last 20 years’ development has determined the current situation as well as the understanding of, and response to, the evolving crisis.

    The past twenty years

    What happened in those years? After the “Velvet Revolution” was accomplished, a transformation of society, of the economy and people’s mindset began to emerge. This uneasy process affected everything. At the beginning, few knew what would happen. People’s expectations were quite uncomplicated: most expected an improvement. The “things” that they disliked under the previous regime would no longer exist and the “things” that worked well and that they liked would be preserved. 

    Economic transformation soon began. It can be divided into several stages. In the first stage, the “small-scale privatisation” approach was adopted, in which smaller-scale state property was auctioned off to create the social stratum of “sole traders” (independent small businessmen). It was followed by the next, key step, “large-scale privatisation”, which was based on vouchers. Among other things, voucher privatisation responded to the subconscious wishes of the population (a mixture of communist and capitalist beliefs) that can be summed up in this way: we want to be given a share in our common – “socialist” – property and we want to manage it ourselves and in a capitalist way. The process of property transformation was a huge political experiment carried out by economists who did not belong to the hardcore dissident nucleus opposing the Communist regime. Most of them came from the scientific and theoretical state institutions, having studied the “criticism of bourgeois economic theories” as part of their scientific work. However, for many of them, their gurus were Friedrich von Hayek and Milton Friedman, whom they zealously followed. They had a unique opportunity to implement their theories in real life without having to take into consideration the real political limits that might impede them. Obviously, diverse concepts of property transformation and privatisation emerged. Supporters of the gradualist approach did not prevail. As Joseph Stiglitz said, in the beginning the argument was that those opposing shock therapy and preferring gradual change would be risking  the region’s reversion back to Communism. History has shown that this danger was a fiction, in the Czech Republic as in all other post-communist countries. According to Stiglitz, there had been an historic struggle in Czech territories against inequality, which gave the Czechs a good chance of building a market-oriented yet still quite just, egalitarian and cohesive society after the political overturn. The Czech Republic was not burdened with a huge property gap. However, the transformation did not create a market-oriented and yet cohesive economy. Human potential was not being developed and corporate governance was underestimated.

    The first response of the people to voucher privatisation was not very positive. Only after deploying other tools, including propagandist ones, and after actively involving such people as Viktor Koz?eny´ (later known as the “Pirate of Prague” on account of his conflicts with US laws), the process really got underway and the population started massively to buy privatisation vouchers. These property flows took place within very weakly defined legal limits and without any moral dimension. However, it was not only about the economy. This experience influenced the business environment of the next two decades and contributed to the current low regard in which the legal and moral aspects of the economy are held. The privatisation process also had a social and psychological impact on many ordinary people who learned that rules and laws were not too important. They learned that what is decisive is the ability to assert oneself, individualism, toughness and ruthlessness. Empathy, human solidarity and tolerance were suppressed. Individualism and the need to use one’s elbows were also instilled into the new young generation.

    Nobody has quantified or defined this non-material loss caused by such privatisation.

    Transformation costs were borne by the population with their silent assent or sufferance.

    Often, once a company sold through voucher privatisation proved to be a promising business operation, all means were used to push out the small shareholders, and ownership was concentrated, sometimes using very rough methods.

    We have been bequeathed a permanent problem whose origins date back to the very beginning of the entire process: In order to make society dynamic and competitive, it is necessary to dedicate its resources to education and infrastructure. In the early 1990s, the Czech government owned all the assets which could allow it to undertake this necessary social transformation. These assets were sold by the government to new owners who often stripped them without creating any wealth. This led to losses. Subsequently, the Czech government had to pump money back into the public sector. As Joseph Stiglitz says, this is how a vicious circle arises. First you get rid of something with loss and then you acquire it again with loss.

    What about the Left?

    There was no integration of leftist concepts, either in theory or in the debates. It was as if society were walking on one leg. Leftist ideas were not really formulated, not to mention communicated to the people and publicly discussed. The left, especially the radical left, spent most of its time defending itself. The attacks directed against it did not address the essence of the problems; they amounted to little more than the accusation: “You defend the past communist regime!” This was the argument used to answer the analyses of most of the radical and communist left regarding present-day problems. Since the left was exhausted by defending itself and by internal discussions primarily concerning the past, there was no energy left for seeking alternative left solutions and outlining alternative ways out. Social democracy? It was an advocate of “soft solutions” to globalisation issues and a liberal approach to contemporary capitalism. It identified itself with Blair’s Third Way and its adaptation to Czech conditions. There is no doubt that it emphasised the social dimension of the society’s development, but in the end, it was limited to the liberal-capitalist framework without offering any alternatives to society. This made it no different from other European social democratic parties.

    It is necessary to recognise that the ruling right-wing politicians (especially former Prime Minister Václav Klaus), despite their liberal orientation and rhetoric, carried out a pragmatic policy in real life; they sought to avoid an excessive escalation of social tensions, and, tactically, they even ceased to pursue some of their original goals. Sometimes this even led to criticism from the right side of the political spectrum.

    The Czech radical left was further weakened by its rupture in the early 1990s. Two groups began to take shape: one could be called traditionalist, and the other followed in the tradition of the 1968 activists and of what used to be called Eurocommunism. It is sometimes said that Stalinism is the main characteristic of the traditionalist group and that it is clinging to the outdated Communist past. Adherents of Stalinism and of the Communist past do exist, but in the actions and politics of the Communist Party, neither of these dominate. The general public has expressed the following attitude towards this party: indifferent/reserved – 40%, negative as a matter of principle – 24%, positive – 31%, no response – 6% (survey by KSP (Club of Sociologists and Psychologists), 2007).

    Compared with other post-communist left-wing parties in Eastern Europe, the Czech radical left has been weakened throughout the post-Communist period and has never been able to become the governing party. On the other hand it continued to be a significant player in the political arena. The remaining Czech radical left organisations remained marginal, although Strana demokratického socialismu (Party of Democratic Socialism), with its pro-European yet left internationalism, has achieved a certain importance, which is more significant at the international level than in the Czech Republic as such.

    Czech economy and society and the crisis

    The Czech economy is very open, and thus not very different from other post-communist countries of Central and Eastern Europe. Any global crisis will soon affect the domestic economy. The national government is in a very weak position vis-à-vis supranational economic structures and processes.

    The integration of the Czech economy into the world’s globalised economic relationships can be illustrated through figures. The figures compare the Czech Republic with certain stat

    This situation is the result of the joint policy of both right-wing and social democratic governments. None of these governments ever doubted the need to open up the economy. Investment incentives and orientation to foreign countries have been at the core of the last two decades’ economic policy. Obviously, the acquisition of foreign capital, the positive impact on employment and maintaining social peace were good and valued results. However, this is a policy for peaceful times. In difficult times, the situation of such economies with an extreme degree of involvement in the international division of labour is insecure. According to an analysis commissioned by the Czech trade unions, the Czech economy has become a mere complement of stronger economies (especially that of Germany), fulfilling the function of reserve capacity used primarily in boom years and abandoned in times of crisis. This is especially true if the value of national labour does not improve sufficiently and if the comparative advantage is primarily based on low labour costs. This is, moreover the case in all of Central and Eastern Europe, whose countries are suffering the consequences of being such unilaterally open economies. This is evidenced for instance by the 3% decline in Hungary, 5-10% decline in the Baltic states, potential state bankruptcy of Latvia, the very difficult situation in Romania, and by a double-digit plunge of industrial production in Slovakia. Up-to-date figures from the Czech Republic show a quarterly decline in GDP dynamism in 2008: it rose by 4.9% in the first quarter, but by only 0.7% in the fourth quarter.  

    This decade has witnessed transfers among social groups. It would be over-simplifying and incorrect to say that the wealth of some of these groups declined (i.e. they became poorer). With some exceptions, their wealth mainly stagnated or its growth rate declined (e.g. in the rural population, among traditional working classes, pensioners). Trends usually do not exist across the whole territory; and this phenomenon was also regionally differentiated. However, it is a fact that poor regions began to appear, while the Prague region grew above the average of the EU. 

    Czech society is still among the most egalitarian. This has been confirmed by a comparison of economic and statistical data as well as by expert opinion. However, many Czechs do not feel that way. A major section of Czech society sees the wealth gap as increasing and as socially unjust and improper. 

    The results of a recent public opinion poll (KSP, 2007) asking people to classify themselves on a scale of rich to poor show two fifths of respondents classifying themselves as poorer.&nb

    The living-standard-satisfaction surveys have shown very stable results in the long term. In the four years examined the answers hardly changed, even though this was the period with the greatest macro-economic results of the last twenty years. 

    In 2008, the average (nominal) wage was CZK 23,542, i.e. approximately EUR 840 (compared to the average wage of CZK 6,095 in 1993). Interestingly, price levels are almost the same as in the neighbouring states; the prices of some goods are even higher in the Czech Republic. With regard to the average wage spread, it is important to note that two thirds of the population receive a wage which is below the average. 

    In terms of the economic crisis, there is a difference between the Czech Republic and the traditional Western European capitalist states. Nevertheless, the roots, manifestation and impact of the crisis on individual economic segments are identical or similar, or only different in terms of time.

    Some phenomena are more distinctive and radical in Western countries, for example the mortgage and banking crisis. Czech political leaders are more or less right in evaluating the banking crisis. In our country, the crisis has not evolved and the Czech banking sector has not been affected as much as in other countries. Nevertheless, the reason for this is that Czech banks had already been on the edge of a precipice in the late 1990s and were saved only thanks to massive state intervention, paid as always out of the taxpayers’ pockets. These revitalised banks were then transferred to foreign hands. There is no purely Czech bank at the moment, i.e. all banks are controlled by foreign economic entities. And all parent banks are among those having major or minor problems. As we can see, the banking crisis had already been present in the Czech Republic.

    The mortgage crisis did not affect our country because the Czech mortgage business is too recent a phenomenon and therefore did not have time to become infected. 

    As in other countries, the economy in the Czech Republic is approaching red figures, but not in a dramatic way, and compared to other Central and Eastern European states there is no reason to panic (for the time being). The Czech specificity does not lie in the economic situation but in the political perception and interpretation of the crisis. Specifically, it was the lack of will of the governing right-wing to face, recognise and identify the situation and adopt political measures in a timely manner. In autumn 2008, the argument was that the crisis would bypass the Czech Republic and if there were to be complications, they would be only minor ones, without any major impact on the population. In the beginning of December 2008, the Czech Prime Minister said in his forecast for the next period that a significant crisis alternative for 2009 would be growth (!) lower than 2%. Today, the same person says that the real forecast is a decline (!) of approximately –1%. Much expert opinion is even more negative. The liberal right-wing Czech community consistently criticises the “haphazard measures” adopted by the other EU member states and suspects them of being a hidden promulgation of “European socialism”. They are still sticking with their iconic demand for the “freest possible market”. But at the same time and with minimal noise, they are trying to realise their political and economic goals as a “by-product” of the fight against the crisis. These goals are the concept of direct taxation and social-insurance reduction, i.e. “undercutting” of public finances. This would significantly dissolve social solidarity under the motto that everyone must be responsible only for themselves.  Interestingly, current analyses of the crisis indicate that “people have been living beyond their means”, and this must change. Apparently, this statement is not meant to refer to the current political and economic elites. They lived within their means. Recently, the Czech Prime Minister, while defending the tax adjustments to the benefit of high-income groups, said that “the middle class had already received their share”.  

    For the Czech situation, there is another important difference. Statements about defending the welfare state seem inappropriate in the Czech context. We have almost nothing to defend and people are not able to imagine anything specific meant by the “welfare state”. The welfare state, as understood in Europe in the second half of the 20th century, did not exist in our country. Obviously, the past communist political and economic system had built in mechanisms and tools that might be perceived as part of the welfare state and that fulfilled its purpose. However, the transformation concept did not mention a welfare state. Under the guise of criticism of the “communist regime”, addressing the issue of the welfare state was carefully avoided. For instance, in the early 1990s, experiments such as replacing employment with the hiring of “free-lancers” were initiated. Each worker and craftsman was to become a “sole trader” (small independent businessman). The companies hiring labour thus cut cost and shifted most of the risk to those selling their work.  A recent example is the import of a Vietnamese workforce, where various agencies do not import people as employees but organise their arrivals based on business visas to carry out very simple and low-level work. Tens of thousands of these foreigners, with the status of “sole traders”, are stuck in a distant country, in debt, with slim chances of getting out of their difficult situation. All of a sudden, they cannot find work, the agencies withdraw their “helping” hand to the “foreign sole traders” and the government is helpless. It is clear that such a situation leads to higher level of xenophobia among the local people and entrance into illegal and criminal structures, since these people are often willing to do anything. This is a threat not only for the Czech Republic but due to the Schengen Area also for the whole European Union.

    A specific role was assigned to trade unions in the past. Formally, they have their place in the political system, they participate in tripartite negotiations; but especially the right-wing governments and political structures see them as a relic of the past, an historically outmoded structure, or even as agents of communism and socialism. Many companies believe trade unions are vermin that ought to be exterminated. An example: One employee of a small company started thinking of forming a trade-union organisation. As a preventive measure, he was “assigned” a security watchdog in order to watch out for any slip he might make during the work day. The employee worked as warehouseman and fork-lift truck driver and anyone can imagine how this ended. Clearly, this relation to trade unions is not a Czech specificity; however in other countries this practice, although regarded as possible and sometimes deployed, is socially unacceptable. On the contrary, modern Czech small and medium-sized enterprise circles often appreciate and publicly praise this behaviour.

    In the last twenty years, with few exceptions, there have been no massive public demonstrations by workers. This form of expressing joint group opinion was successfully profaned by the previous regime. The new elites in control understood very quickly that this method does not need to be revitalised. There have been almost no significant strikes either. For example, one of the biggest events was a demonstration against the Labour Code amendment, which was to significantly reduce the rights of employees and give them the freedom of a flexible employment relationship. The trade unions organised approximately 20,000 participants from the entire country. Is this a lot of people? It was a huge event in the Czech context. Mass mobilisation similar to what is common in Western European countries is almost impossible to achieve. This does not mean that there will not be social conflicts and confrontations with the government, occasionally very sharp ones. However, they will never be part of the struggle of the majority and of the defence of employees’ rights and interests. They will rather be conflicts of various more or less radical groups from different parts of the political spectrum.

    The EU wants to show that it cares about people by allocating part of its funds to the struggle against unemployment. Behind the curtain we can sense concerns about social unrest. Officially, there are no such concerns in the Czech Republic and there is no real reason for them for the time being. Nevertheless, the Czech secret police has already warned of this potential threat. Still, a revolutionary atmosphere does not correlate with GDP trends, at least the experience of the last decades shows this.

    Even the crisis can become a battlefield using PR tools. It is quite common for the mass media, especially public media, unambiguously to support one and the same concept. In this sense, the time-proven tradition of the past regime continues, and the current practice is only more sophisticated and effective.

    The beginning of this year was marked by the mobilisation propaganda of all right-wing and liberal forces. Concerns about “socialism” have been pronounced everywhere. Those who remember the past regime would confirm that the same mechanisms were used then to advocate policies and claim certain realities that at least deserve discussion. It seems that the Czech Republic is the last island of a liberal approach that considers Keynes a “suspicious leftist”. A reflection of this is an article by Czech President Václav Klaus in The Times, which fiercely criticised the works of Karl Marx and the mention they are receiving at present.

    The rescue packages of the Czech government are designed primarily to give direct help to the business sector, the idea being that if business is “saved”, this will automatically benefit normal individuals and all social groups. And, according to this approach, if someone is left behind, it is their own fault.. There are no left alternatives being presented, discussed or demanded by society. Everything is in harmony with the current political and economic arrangement. Almost no one dares to look beyond the Czech horizons in the current situation. 



    We cannot say that there is a significant difference between the crisis in the Czech Republic and in Western Europe. The roots, manifestation and impact are similar; they may be different from the temporal and quantitative perspectives, but they are qualitatively equivalent. In any case, all of this conditions the potential search for a left solution of the crisis in Czech and probably also generally in Eastern European conditions. Of course, it is important correctly to assess the situation and its causes; however, from the political point of view it is more important to make the right decision affecting the future. An important difference is in the people. In the Czech Republic, the population has absorbed different historical experience and has a lower capacity to protect and enforce their rights and interests. They are more passive in political and social affairs and they are not able or do not want to express their opinion and use the power of their political voice. The past transformation period left the social structure atomised and fragmented and reduced social solidarity. The position of employees, pensioners, the unemployed and disabled has been weakened. So far, the left has not played a major role in determining how things will be dealt with and who will be the key players. However, on the other hand, the right (not even the radical right), for its parts, has also not played a major role.

    There has been an intense debate about the tools, techniques and technologies needed to overcome the crisis. However, the political and human dimension of the crisis has not attracted the larger attention of politicians, economists or the media, even though past experience shows that this has been historically the most significant dimension affecting all future generations. The whole political scene seems paralysed. But this may change soon. 

    To conclude we may say together with Gary Younge and The Nation: People taking to the streets does not mean they are going in the same direction.