nDefinitions and differences nSocialist economic policy : the
pros and contras the pros and contras nOvernight turn upside down
nShareholders, pirates and tunnels n Main economic indicators,
positives and negatives nQuo vadis, Czech economy ?
Slide 3
What are the main differences between market-driven and
socialist command driven economy ?
Slide 4
Free market basically means that only the market forces, i.e.
supply and demand, are operating. The main rules are: lIf the
benefits of doing something exceed the costs, do it. lIf the costs
exceed the benefits, dont do it. That is the economic decision
rule. lIf supply exceeds demand, prices go down, what in turn
lowers supply. lAnd vice versa. That is the main free market
rule.
Slide 5
However, as we also know, free market seldom - or practically
never - exists in its pure form. The main reasons are: l market
failures l delayed action of the invisible hand l existence of
historical, cultural, national habits national habits l social and
political forces It leads in most cases to a certain level of
market regulation by the state
Slide 6
Of the opposite solution to the free market, a strictly
regulated, so-called centrally planned economy or command-driven
economy, we usually mention the example of communist countries. It
is not, however, the only example. This kind of economic policy is
connected to periods of any social or natural catastrophe, namely,
all war economies have to be centrally planned and regulated.
Slide 7
Differences with regard to 3 central economic questions What to
produce ? Capitalisms answer Capitalisms answer : What firms
believe people want & what brings profit Socialisms answer
Socialisms answer: What central planners believe socially ( or
politically) beneficial How to produce ? l How to produce ?
Capitalisms answer Capitalisms answer : Decided by the firm,
efficiently, profitably Socialisms answer Socialisms answer:
Decided by the planners, ideally to the best of the country and
people For whom to produce? Capitalisms answer Capitalisms answer :
Distribution according to ability and inherited wealth Socialisms
answer Socialisms answer: Distribution according to needs
(centrally defined by the planners)
Slide 8
According to these definitions and comparison, socialism - or
centrally planned economy of the socialist type - does not seem to
be as bad, does it ? Lets look at the practical example of the
former Czechoslovakia.. Examples .. Examples ..
Slide 9
What happened and when It started after the communist coup in
February 1948, but partly even before that.. Klement Gottwald the
first communist president The Peoples Militia
Slide 10
What happened and when There were approximately 5 distinct
etaps: There were approximately 5 distinct etaps: u1949 - 1959:
nationalisation of property, collectivisation of agriculture,
enthusiasm and political processes u1960 - 1967: stabilised and
developing socialism u1968 - 1969: an attempt of socialism with
human face, and market features, Soviet occupation u1969 - 1980:
political normalisation, concentration, over-reaching the
capitalists concentration, over-reaching the capitalists uthe
80ties up to 1989: integration of certain market principles - the
perestrojka
Slide 11
The main economic and social principles All production factors
belonging to the state All production factors belonging to the
state or co-operatives, no ( or almost no ) private or
co-operatives, no ( or almost no ) private enterprising
enterprising Production factors including labour allocated and used
according to the plan ( the famous 5-year plans) Centrally set
prices of all products, set system of incomes and salaries incomes
and salaries Main stress on quantity of production, all successes
loudly proclaimed, all problems concealed (everything over 100 %),
economic efficiency indicators misused
Slide 12
The main economic and social principles Economic and political
orientation on the socialist camp countries (COMECON), namely
U.S.S.R. Developed system of social benefits: free education, free
health care, free children and old age care Proclaimed rights of
people (right to work), in fact rather tight set of obligations
(obligation to work)
Slide 13
The megalomaniac statue of Josif Stalin in the centre of
Prague, built in 1949-1955, 15.5 m high, 12 m wide and 22 m long.
It weighted 17,000 tons. (It was nicknamed the queue in front of
the meat shopor the street jam). The sculptor commited suicide. The
statue was demolished by the army in 1961
Slide 14
The main economic and social principles Political and economic
priority of the Communist Party and its members: in education in
jobs and careers in housing, sport and recreation in culture Strong
role of the communist Trade Unions Little or no regard to
environment Suppression of free thinking, writing, culture,
travelling... Suppression of religion
Slide 15
Just one example of the many . Lets call the family the Novaks
(it is the most frequent Czech surname). In 1947, they owned an
estate of about 40 hectares in a Mid-Bohemia district, there was
the married couple with 5 children, the old parents and an invalid
granny. granny. They were - and still are - a religious family. And
they were a happy family. Until...
Slide 16
In the 50s, several big political processes were organised.
Tomorrow, we remember 59th anniversary of the execution of JUDr.
Milada Horkov, an outstanding Czech lawyer, politician and
representative of women movement, who was sentenced in one of the
first and biggest of them
Slide 17
The pros and contras Were there any positives of the system at
all ? Oh yes ! High social security for the majority, full
employment Practically no risks (if you did not oppose the regime)
Stable prices, low (highly subsidised) prices of food and housing,
cheap and wide-spread public transport Cheap and accessible culture
(if you were not too sophisticated) and recreation Free and
relatively good health care Growing level of living (relative, with
no comparison) No great differences - the satisfaction of being at
the same level as the Dvoraks or Novotnys Advantages of the economy
of scale Growing volume of production
Slide 18
The situation, both political and economic, seemed to be there
forever. Most people got used to it and did what they were supposed
to do. Just looking at the pictures of the 1st May
celebrations.
Slide 19
May 1, 1952, Tnec
Slide 20
May 1, 1974, Tnec
Slide 21
1968
Slide 22
May 1, 1986, Prague
Slide 23
May 1, 1987, Prague
Slide 24
AFTER THE 1989 VELVET REVOLUTION, THE CR TURNED ALMOST OERNIGHT
FROM THE CR TURNED ALMOST OERNIGHT FROM COMAND DRIVEN SOCIALISM TO
MARKET ECONOMY It seemed so easy: just to throw the
megalomaniaccommunist monuments over, tighten the belts for a
little while, let the free market let the free market work and the
democracy flourish, and to be happy ever after.
Slide 25
The golden nineties or What had happened during the last 15
years The main stages The main stages lprice liberalisation (1991)
lhome and foreign market liberalisation lrestitution process (1991
- ) lsmall and big privatisation (1991-92) lcoupon privatisation
(1992-94) leconomic boom and decline lthe burned country(1998) lthe
turn to the left (1998) l the EU accession (2004) l present
Slide 26
Coupon (voucher) privatisation was Czech special privatisation
method, which was later copied also in other countries (e.g.
Russia, Azerbeidjian) Under the Mass or Voucher Privatisation,
eligible citizens can use vouchers that are distributed free or at
nominal cost to bid for stakes other assts being privatised. In the
CR (then CSR), any citizen over 18 was entitled to buy a book of
vouchers for 1,200 CZK and then bid for the stakes of the
privatised firms in several rounds
Slide 27
The boom of private business We used to have a saying : Every
Czech is a musician Every Czech is a musician During the time, it
changed several times: Every Czech is a government minister in the
late 60ties Every Czech is a shareholder in 1991 Every Czech is a
businessman in the mid-90ties And now ? Probably Every Czech at
lest once bankrupt or twice unemployed
Slide 28
The boom of private business People started all sorts of
businesses. Small shops in private houses, pubs in cellars, houses,
pubs in cellars, trade in everything possible and imaginable,
erotic saloons, producing plaster trpasliks, rearing goats,
ostriches and snails.. And some big businesses as well.
Slide 29
Some of the phenomena Vietnamese markets McDonalds and KFCs
Supermarkets and HYPERmarkets HYPERmarkets mobile phone boom
tunelling the burned country bad humour
Slide 30
Super- and hypermarkets in the CR Hypermarket is a self-service
shopping mall with the shopping area bigger than 2,500 square
meters The first one in the CR was open in 1991, at present there
are 555 supermarkets, 426 discount markets and 165 hypermarkets in
the CR. The share is 19 large-area malls per 1,000,000 inhabitants
of the CR, which is the highest in Central Europe. About 60 % of
all shopping is done in these markets, Czech families spend the
whole days in shopping centers, as there is often also a cinema and
many catering possibilities
Slide 31
Do you know this famous Czech financial pirate ? His name is
Viktor Kozeny, he is a millionaire several times over, and just now
is prosecuted in the U.S. and the CR because of his role in the
attempt at coupon privatisation in Azerbeidjan and the CR. Lately,
he was put into the U.S. prison, but released again on bail Four
years ago, he even tried as the EP candidate for the CR !
Slide 32
Quo vadis, Czech Republic ? Now we have come to Europe. Not in
the geographical sense of the word, because, as you know, Prague is
the heart of Europe, but in the political, social and economic
sense. After the successful referendum, Czech Republic has become
the EU member on May 1, 2004 Where are you going Where are you
going,
Slide 33
Negatives of the situation Unemployment growth State budget
deficit Social disturbances, strikes strikes Roma minority problems
problems
Slide 34
Roma minority, with still different cultural habits, high
unemployment level and low education level, is one of the biggest
social problems. According to the census, there are 12,000 Romas
only in the CR, the reality is probably rather different
Slide 35
Czech society is also rather rascist
Slide 36
Another big minority are Vietnamese immigrants The first ones
came in 1956 on the invitation of the Communist Czechoslovakia
Other waves continued in 1973, 1980- 1983 At present, the
Vietnamese population is estimated at 17,000 persons There are much
less problems, however, as the Vietnamese people are hard- working,
smiling and put a high value to education of children
Slide 37
From the street stalls, Vietnamese salesmen are moving
gradually into stone shops and they are about opening a Vietnamese
shopping chain
Slide 38
Vietnamese children are among the best pupils in primary and
secondary schools, many of them study at universities
Slide 39
Unemployment rate in % 1991-2008 It was zero in 1989, as
everybody had to be employed
Slide 40
Regional unemployment 2005 (NUTS 3 level)
Slide 41
State budget deficit ( bill.CZK and % of GDP, 1994-2004)
Slide 42
Positives of the present development lEconomic growth (GDP)
lLow inflation rate lGenerally growing level of living lIncrease of
FDI
Slide 43
In the long run Gross Domestic Product, bill. CZK current
prices
Slide 44
GDP, year-to-year changes in %
Slide 45
Inflation rate in %, 1995-2008
Slide 46
Foreign direct investments per 1,000 inhabitants (mill. CZK, CR
total and in regions, 1999-2006)
Slide 47
Trade Balance moving sum of latest 4 quarters in per cent of
GDP
Slide 48
Further present problems Fiscal system reform Social insurance
reform Population development Health care system reform Political
turn to the left Legal system (non)functioning Corruption
Slide 49
Fiscal reform Since January 1, 2007, Czech Republic implemented
flat income tax as the first step of fiscal reform It regards
physical bodies, the tax base is the so-called super-gross income
(gross income + the employers contribution to health and social
insurance) The tax rate is theoretically 15 %, but from a different
base than before (practically about 23 %) The reform should further
introduce the same tax rate also for legal bodies and for the VAT,
but this has been postponed
Slide 50
Flat tax in Europe A growing number of countries in Eastern
Europe have adopted a flat tax (in bold), pressuring Western
European nations to lower their rates. The table supplies a
comparison of the top rates on personal income (marginal tax
rates)
Slide 51
Social insurance reform should be the next step. At present,
retirement age is changing and should reach 65 years for both men
and women by 2010 The obligatory social insurance payment should
decrease and it should be complemented by the state-supported and
guaranteed voluntary insurance system State-guaranteed retirement
payment should thus decrease considerably and should cover only the
necessary base, the rest will be the individual responsibility The
problem is, that no government is willing to stepp into such an
unpopular field.
Slide 52
Health care system reform has also been started. The first step
has introduced: obligatory payments for visits to medical doctor in
the defined cases daily payment for stay in hospital payment for
some medicals yearly limit of health care payments per inhabitant
privatisation of hospitals Also these steps are highly unpopular,
so the obligatory payments were already reduced
Slide 53
Population development up to 2004 The population is ageing,
natality was very low in the 90s (1.12 children per 1 couple in
productive age) Expected population age structure in 2020 Men Women
In ths Age years
Slide 54
Number of liveborn children in ths
Slide 55
Development of Czech population since 13. century (million
people)
Slide 56
During the last year, the situation has changed We have now
experienced a slight baby-boom in the previous years, because the
strong generation of the mid- and late 70, so-called Husaks
children, were starting families. In 2008, 114,600 babies were
born, most from the year 1993, and there is also immigration
However, this still has not increased the natality rate to the
natural reproduction level (which is about 2.4 children/1 couple)
and also this creates further problems: shortage of hospital places
shortage of kindergartens and nursery schools in bigger towns,
shortage of primary schools
Slide 57
Turn to the left In many post-communist countries, a certain
turn to the left is taking place during the last years. People are
tired, unemployed, disappointed. In the parliament elections in
2002, the Communist Party got 18 % of votes and 20 % of seats
Slide 58
EU Parliament election results June 2004 Communists
Slide 59
Parliament elections June 2006 Communists 12.81% votes, 13%
seats
Slide 60
EU Parliament election results June 2009
Slide 61
and a not very stable government The victor of the elections
2006 CDP had only 81 seats (out of 200), together with the
coalition partners (CDS+ GP) it had just 101 seats Therefore, all
decision-making was very difficult and the government was thrown
down in April 2009. After that, we had an interim government till
the June 2010 elections
Slide 62
Ing. Jan Fischer,prime- minister
Slide 63
The governmental crisis occured shortly after the CR took over
the EU presidency for 6 months on January 1, 2009
Slide 64
2010 parliamentary elections
Slide 65
RNDR. Petr Neas, prime-minister
Slide 66
Corruption Football scandal Privatisation Bio-ethanol Land
restitution Health care .
Slide 67
The Corruption Perceptions Index (CPI) is a composite index,
using data compiled between 2003 and 2005. 16 surveys of
businesspeople and assessments by country analysts from 10
independent institutions enter the CPI. The scale is 10 (best) -0
(worst) Source: Transparency International 4.3 points
Slide 68
So the question is: Quo vadis, Czech Republic ?
Slide 69
So the question still is: Where are you going, Czech Republic
?