Pride and Prejudice in Prague: Understanding Early Policy Error and Belated Reform in the Czech Economic Transition

Abstract

Failed banking sector policies and weak regulatory policies are the keys to the collapse of the Czech economic “miracle.” Why were these policy errors made? Why has it taken so long to correct them? We examine the roles of economic interest groups, political institutions, technocratic economic ideology, and political leadership. Initially, economic interest group support provided broad liberal constraints on economic policy making. Within this context, neither political institutions nor technocratic economic ideology prevented political leaders from making the key early policy errors. A change in technocratic ideology made eventual error correction difficult to avoid. But stable economic interest group support and institutional divisions made it possible for responsible leaders to delay the corrections.