text_TITL pruh_TITL logoC The Way From The Centrally Planned Economy To The Free Market Economy Ondrej Castek castek@econ.muni.cz www.econ.muni.cz pruh+znak_ESF_13_gray4+bily_RGB pruh+znak_ESF_13_gray4+bily_RGB text_zahlavi 2 Fall 2009, Fitchburg State College 2 What can you expect n nThe starting position of the Czech Republic nObjectives of the transformation nPrivatization nRestructuring nFree price mechanism nConvertibility of the currency nForeign trade liberalisation nConclusion – Achievements, Failures n evropa.gif n czech_republic_map.jpg www.econ.muni.cz pruh+znak_ESF_13_gray4+bily_RGB pruh+znak_ESF_13_gray4+bily_RGB text_zahlavi 5 Fall 2009, Fitchburg State College 5 Motto In god we trust Truth prevails Area 3,794,066 sq mi (9) 30,450 sq mi (122) Lowest point Death Valley -282 ft Elbe River 377 ft Highest point Mount McKinley 20,335 ft Snezka 5,256 ft Population 307,212,123 (4) 10,211,904 (81) Population density 80/sq mi (180) 341/sq mi (77) Religion unaffiliated 12.1 % 59 % Education expenditures (% of GDP) 5.3 (57) 4.4 (94) GDP in 2008 US dollars $14.26 trillion (2) $265.2 billion (43) GDP per capita 46,900 (10) 25,900 (52) Currency US Dollar, USD Czech Crown, CZK HDI 0.95 (15) 0.897 (35) Infant mortality rate (deaths per 1000 live births) 6.26 (180) 3.79 (211) HIV/AIDS - adult prevalence rate 0.6% (68) less than 0.1% (161) Drinking age 21 18 Driving age 16 18 Suffrage 18 18 us-flag-small cz-flag-small www.econ.muni.cz pruh+znak_ESF_13_gray4+bily_RGB pruh+znak_ESF_13_gray4+bily_RGB text_zahlavi 6 Income groups 800px-World_Bank_income_groups_svg.png Fall 2009, Fitchburg State College 6 www.econ.muni.cz pruh+znak_ESF_13_gray4+bily_RGB pruh+znak_ESF_13_gray4+bily_RGB text_zahlavi 7 Advancement of Economies 800px-Imf-advanced-un-least-developed-2008_svg.png Fall 2009, Fitchburg State College 7 www.econ.muni.cz pruh+znak_ESF_13_gray4+bily_RGB pruh+znak_ESF_13_gray4+bily_RGB text_zahlavi 8 GDP composition (%) USA Czech Republic Agriculture 1.2 2.3 Industry 19.2 37.6 Services 79.6 60.1 Fall 2009, Fitchburg State College 8 www.econ.muni.cz pruh+znak_ESF_13_gray4+bily_RGB pruh+znak_ESF_13_gray4+bily_RGB text_zahlavi 9 Fall 2009, Fitchburg State College 9 The starting point nOne party political system (The Communist Party) nNow multiparty nState owned means of production (98 %) n1989: 98%, 1990: 80%, 1999: 12% nInefficient and inappropriate industry composition nAbsence of free price system n1989: 100% of GDP. 1991: January 15%, June 10%, December 5-6% nAbsence of suitable legal system nForeign trade fully under state supervision, currency not convertible www.econ.muni.cz pruh+znak_ESF_13_gray4+bily_RGB pruh+znak_ESF_13_gray4+bily_RGB text_zahlavi 10 Fall 2009, Fitchburg State College 10 Privatization nOwnership structure in 1989: 87% state, 10% collective farms, 2% private owners nVital issue: fast or slow? n3 forms: 1. restitutions 2. „great privatization“ 3. „small privatization“ n„Great“ = „coupon“ privatization nCzechoslovakia specific n2 rounds: 1992 and 1994 n„Small“ = auctions nUnfinished Největší podíl státu ze všech středoevropských CPE If slow a free market economy: manažerské tunelování (Hungary, Poland) Státní podniky držely všechny zdroje, if industry restructuring, pak hned State firms: financial state support at the expense of privat firms For slow: Není komu privatizovat, není kapitál, zahraničí nemá zájem. Symbolická cena: stát nic nezíská. Na dluh: chybí zdroje pro restrukturalizaci. Chybí legal system. Too late or unfinished privatization of banks and some other firms considered to be strategic: utilities, airlines, trains, city public transport www.econ.muni.cz pruh+znak_ESF_13_gray4+bily_RGB pruh+znak_ESF_13_gray4+bily_RGB text_zahlavi 11 Fall 2009, Fitchburg State College 11 Privatization – assets confiscation risk nAsset confiscation – managerial „tunneling“ n nTunneling is a specific kind of financial fraud. A group of major shareholders or the management of a company orders that company to sell off its assets to a second company at unreasonably low prices. The shareholders or management typically own the second company outright, and thus profit from the otherwise disastrous sale. Tunnelling differs from outright theft because people who engage in tunnelling generally comply with all of the relevant legal procedures; it is thus a subtler scheme than simply writing checks from a company to a private bank account. While people widely agree that tunnelling is unethical, penalties for tunnelling vary widely; some states impose criminal sanctions, whereas other states provide either for civil suits only, or for no sanctions at all. n www.econ.muni.cz pruh+znak_ESF_13_gray4+bily_RGB pruh+znak_ESF_13_gray4+bily_RGB text_zahlavi 12 Fall 2009, Fitchburg State College 12 Privatization – conditions to meet 1.On a micro-scale, the enterprise has to be sold off and management control and ownership have to be firmly rooted in the private sector. 2.Privatization works best if it is carried out in a competitive environment so that the SOE has to cope with liberalized markets-in which barriers to entry are minimized-for its products. 3.State subsidies and policy loans should be eliminated. 4.The SOE (state owned enterprise) monopoly prices have to be regulated with a pricing formula that keeps pressure on management to improve efficiency. 5.The markets that surround the SOEs on the output and input sides must be liberalized at the same time. n www.econ.muni.cz pruh+znak_ESF_13_gray4+bily_RGB pruh+znak_ESF_13_gray4+bily_RGB text_zahlavi 13 Fall 2009, Fitchburg State College 13 Privatization – three steps nCorporatisation creates a new separate legal entity for the firm by converting an SOE into a joint-stock company (JSC) all of whose shares are (initially) held by the State Treasury. n nCommercialisation implies that the new JSC, unlike the former SOE, will be run as a profit-seeking business. n nPrivatisation entails divestiture of (some of) the JSC's shares by one or a combination of various methods, such as initial public offerings, public tenders, management and employee buy-outs, and auctions of shares for vouchers distributed free under a mass privatisation scheme. www.econ.muni.cz pruh+znak_ESF_13_gray4+bily_RGB pruh+znak_ESF_13_gray4+bily_RGB text_zahlavi 14 Fall 2009, Fitchburg State College 14 Privatization – coupon (voucher) privatization nEvery adult citizen ages 18 and older was given the opportunity to buy investment vouchers - 1,000 points of investment money with limited maturity - for a registration fee of Kčs 1,000 (U.S. $34), representing approximately 25% of the average monthly wage. These vouchers, in turn, entitled Czech citizens to bid for ownership shares of any company privatized by the voucher method or to allocate their shares to an investment fund that would make investment decisions for them. nFirst round (wave), 1992: 93 % of offered shares were sold nIn 1995, after the end of 2nd round: 80 % of the economy privatized. n nMiddle class has been created. www.econ.muni.cz pruh+znak_ESF_13_gray4+bily_RGB pruh+znak_ESF_13_gray4+bily_RGB text_zahlavi 15 Fall 2009, Fitchburg State College 15 Free price mechanism n1989: The prices were set by the government for 100% of GDP. 1991: January 15%, June 10%, December 5-6% nBarrier: monopolies nSlow in some areas: telecommunications, energies, public transport, education, health system, social care system www.econ.muni.cz pruh+znak_ESF_13_gray4+bily_RGB pruh+znak_ESF_13_gray4+bily_RGB text_zahlavi 16 Fall 2009, Fitchburg State College 16 GDP y/y, % Unemployment, % www.econ.muni.cz pruh+znak_ESF_13_gray4+bily_RGB pruh+znak_ESF_13_gray4+bily_RGB text_zahlavi 17 Fall 2009, Fitchburg State College 17 CPI 1969 - 2008 www.econ.muni.cz pruh+znak_ESF_13_gray4+bily_RGB pruh+znak_ESF_13_gray4+bily_RGB text_zahlavi 18 Fall 2009, Fitchburg State College 18 Convertibility of Czech Crown, foreign trade nFree trade since 1990, still high import duty n„Internal“ convertibility until 1995 nFull convertibility since 1995 nToo passive balance of trade since 1995 nCause of macroeconomic problems www.econ.muni.cz pruh+znak_ESF_13_gray4+bily_RGB pruh+znak_ESF_13_gray4+bily_RGB text_zahlavi 19 Fall 2009, Fitchburg State College 19 Exchange rate CZK/USD and CZK/EUR(XEU) www.econ.muni.cz pruh+znak_ESF_13_gray4+bily_RGB pruh+znak_ESF_13_gray4+bily_RGB text_zahlavi 20 Fall 2009, Fitchburg State College 20 Export and import y/y rates (%), balance of trade (bil. CZK) www.econ.muni.cz pruh+znak_ESF_13_gray4+bily_RGB pruh+znak_ESF_13_gray4+bily_RGB text_zahlavi 21 Achievements nMacroeconomics: inflation and GDP nSocial state nOpen economy with active balance of trade nMemberships: OECD, WTO, CEFTA, IMF, WB, EU Fall 2009, Fitchburg State College 21 V dalších tranzitních ekonomikách až hyperinflace Protiinflační kotva: pevný kurz koruny. V Argentině navázání měny na dolar problém, když dolar v 90. letech prudce posiloval – Argentinský vývoz v potížích. Proto u nás navázání na koš měn. Po uvolnění cen nenásledovala valorizace státních mezd a důchodů – snížení životní úrovně. Snížení ale nižší, než v ekonomikách postižených hyperinflací. Sociální stát – velký stát Exportujeme na náročné trhy: Německo www.econ.muni.cz pruh+znak_ESF_13_gray4+bily_RGB pruh+znak_ESF_13_gray4+bily_RGB text_zahlavi 22 Achievements – CIA World Factbook Comment nThe Czech Republic is one of the most stable and prosperous of the post-Communist states of Central and Eastern Europe. Maintaining an open investment climate has been a key element of the Czech Republic's transition from a communist, centrally planned economy to a functioning market economy. As a member of the European Union, with an advantageous location in the center of Europe, a relatively low cost structure, and a well-qualified labor force, the Czech Republic is an attractive destination for foreign investment. n Fall 2009, Fitchburg State College 22 V dalších tranzitních ekonomikách až hyperinflace Protiinflační kotva: pevný kurz koruny. V Argentině navázání měny na dolar problém, když dolar v 90. letech prudce posiloval – Argentinský vývoz v potížích. Proto u nás navázání na koš měn. Po uvolnění cen nenásledovala valorizace státních mezd a důchodů – snížení životní úrovně. Snížení ale nižší, než v ekonomikách postižených hyperinflací. Sociální stát – velký stát Exportujeme na náročné trhy: Německo www.econ.muni.cz pruh+znak_ESF_13_gray4+bily_RGB pruh+znak_ESF_13_gray4+bily_RGB text_zahlavi 23 Comparison – GDP y/y Fall 2009, Fitchburg State College 23 www.econ.muni.cz pruh+znak_ESF_13_gray4+bily_RGB pruh+znak_ESF_13_gray4+bily_RGB text_zahlavi 24 Comparison – Unemployment, CPI (y/y) Fall 2009, Fitchburg State College 24 www.econ.muni.cz pruh+znak_ESF_13_gray4+bily_RGB pruh+znak_ESF_13_gray4+bily_RGB text_zahlavi 25 Failures nTunneling nToo many bad loans – many bankruptcies nLate privatization of banking sector nSlow implementation of legal system nUnenforceable law in 90ies Fall 2009, Fitchburg State College 25 Tunelování majoritním nebo i minoritním dominantním akcionářem podniků zprivatizovaných kuponovou privatizací Banky: dnes zdravé, žádné krachy v této krizi. V druhé pol. 90. let ale jejich privatizace zpolitizovaným tématem Špatné úvěry – nebyli zkušení pracovníci, nebyly credit histories Selhal dohled ČNB Sekundární platební neschopnost – secondary insolvency www.econ.muni.cz pruh+znak_ESF_13_gray4+bily_RGB pruh+znak_ESF_13_gray4+bily_RGB text_zahlavi 26 Sources nGeographic Facts nCIA World Factbook nhttps://www.cia.gov/library/publications/the-world-factbook/ n n n Fall 2009, Fitchburg State College 26