REVIEWS 363 Myant, Martin. TheRiseandFallof CzechCapitalism: Economic Development in the Czech Republic sinceI989. EdwardElgar, Cheltenham and Northampton, MA, 2003. xv + 288 pp. Maps. Tables. Bibliography.Index. ?59.95. AFTER the collapse of Communism in the countries of Central Europe it appeared that the Czech Republic was particularlywell positioned to achieve a successfultransitionto a marketeconomy. Although the Czech economy of the late i98os was still subject to rigid central planning, it had, unlike its neighbours, stable prices and a low foreign debt. Its other obvious strengths were a highly skilledlabourforce, a long traditionof technological sophistication in a wide range of industrial branches and geographical proximity to major European markets. Why then has the Czech economy performed somewhat less well, as measuredby GDP growth, than Hungarian and Polish economies? The book under review does much to answerthis question on the basisof its comprehensiveanalysisof the Czech economic transition. One of the most strikingand also convincing argumentsof the book is that the policy makers overestimated the strength of the Czech industrialsector. This led them to favour indigenous entrepreneursover foreign investors as agentsforrestructuring.An excellent case studyof an engineeringconglomerate SkodaPlzen presented in chapter eleven provides the relevantdocumentary evidence. It was Vaclav Klaus himself who was instrumentalin the 1992 appointment of Ludomir Soudek as the head manager of the conglomerate. Apparently Klaus decided that Soudek had exceptional managerial abilities on the basis of only limited contact with him. A telling statement of Soudek reproducedin the book reads:'nothingneeds to be privatisedforthe exclusive benefitsof foreign capital [. . .] we Czech engineers and managersknow how to cope' (p. 2I7). Soudek headed the conglomerate until February I999. During his tenure he obtained massive financial help from the government and the banks. Yet he failed abysmallyin his avowed aim to create a 'worldclass 'company. The book'sanalysisof Czech massprivatization(chapterseven)is informed by the view that any working system of corporate governance cannot be created over a shortperiod of time. It is arguedthat an earlyintroductionof a legal and regulatory framework to combat abuses during the privatization processwould not have allowed a rapidconcentrationof ownershipas desired by the government at the time. However the question arises whether the government would have considered it more urgentto provide an appropriate regulatoryframeworkhad it been able to predict the scale and character of abuses resulting in personal enrichment. The examples of corrupt financial operationsand the consequent gains obtained providedin the chaptersuggest that managerswere unlikelyto concentrate their effortson securingthe longterm profitabilityof their firms. Was the corruption facilitated primarilyby the rapid mass privatization and the role played in it by the badly regulated close-ended Investment Privatization Funds? The book appears to give a broadly affirmativeanswer. It is, however, noted that the managerial elite of the I990S emerged almostentirelyfromthosewho had occupied top economic positions under Communism (p. 2I2). Could this have led to the creation of closely-knit personal networks that greatly facilitate corruption? In other 364 SEER, 83, 2, 2005 transitioneconomies such networksare generallybelieved to be common, but it is also believed that their effectivenessis enhanced by the inclusion of postCommunist politicians serving in the government. Perhaps the fact that the former Communist party functionaries have never been a part of the postI989 Czech political elite should make us agree with the author when he dismisses the view that privatization was hijacked by the people of the old regime. Much attention is given in the book to the role of commercial banksin the process of transition. The saving deposits of Czech households have been large in relation to their incomes and this inevitably has resulted in a large volume of lending to the industrialsector. Although the bankswere partially privatized, the architects of Czech transition envisaged that they should remain under broad government control. The expectation was that their lending policieswould respondto the needs of the industrialsectorratherthan being constrained by considerations of 'narrow prudence'. The author providesmuch evidence that the banksobliged. An interestingquestion arises as to what extent soft budget constraints generated by the financial system compensated forthe restrictivemacroeconomic policies implementedin I99I. The issue is not fully analysed in the book, perhaps because the relevant empirical data are too fragmentary.It is, however, convincingly argued that the fast output growth in the mid-iggos was due to the availability of...
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Mar 12, 2024
Maja Babic 
Open Access
