The perfect neoliberal economic revolution
a critical reflection


•Neoliberal revolution (1990) in East Central Europe (ECE: CZE, POL, HUN, SLK) a perfect shot of
neoliberalism…
•ECE: fundamental redesign of economy, polity, society according principles of Western market
economies…
–Highest legitimacy and popular support (for 25 years);
–
•Favorable geographic (proximity, infrastructure), economic (industrialized, easily profitable)
political (plur. democracy = market economy), social conditions (skilled, educated, egalitarian)…
•
•What is (so far) the outcome of this historic opportunity?

CZE a perfect planed economy
•Level of state´s control of the economy second only to the USSR;
•By 1990 CZE: untouched by any liberalization (vs. YUG, POL, HUN, USSR);
–87% of product in SOEs, another 10% in socialist cooperatives (together 98,9% of employment);
–Export to GDP: 19,4% (low for small economy), 70% through CMEA (i.e. official bilateral
agreements);
–Foreign trade: state-run monopoly;
–Foreign investment negligible;
–Banking system: single state-owned national bank…
•

CZE a perfect neoliberal reform
•Neoliberal/monetarist dominated:
–CZE policymakers and business;
– neoliberal doctrine dominant in EU (climax SEA 1987: deregulation as a solution for decreasing
intern. competitive Vs. US)…
•Accession process of ECE into EU -> rapid reforms of political, socioeconomic, law institutions;
compatible with EU;
–Early 1990s: radical privatization; deregulation of foreign trade; currency convertibility;
–Late 1990s: no capital controls, little industrial policies; domestic manufacturing industry,
financial services, utilities – sold to foreign investors;
•Strong incentives to attract FDIs (investment protection, tax breaks, infrastructure development);
•CZE by 2014: 67% of manufacturing production and 96% of assets in banking sector under control of
foreign capital.
•

ECE – a perfect economic integration
(a distinct model)
•Independentist: development of domestic industrial base, using domestic capital, graduating
economy (independent developed national economy); (East Asia)
•
•Integrationists: much of capital comes from abroad – domestic industry is developed through
spillovers – learning, upgrading (goal: independent developed national economy); (LATAM, old E
periphery) (A. Amsden 2001)
•
•Hyper-integrationists: domestic firms overtaken by foreign capital, put out of business or pushed
to lowest value added segments (low tier suppliers); spillovers, graduation out of question; de
facto discriminated compared to foreign investors; (goal: western standard of living); (ECE)
(Scepanovic 2013).

ECE – a perfect catch-up
•FDIs: financial and physical capital, up to date technology, business organization;
•Result: rapid growth of productivity, strong competitiveness - complex industrial goods (cars,
electronics);
•
•Unlike other regions:
–mature goods for domestic markets (LATAM);
–or simpler phase of prod. process for international market (SEA)
–in ECE: final product assembled from intermediates locally produced – but by (follow up strategy)
foreign owned firms;
–
•Goal of the operation: to use skilled low cost labor for production activities… in order to supply
WE markets;
–Vs. headquarters in core economies - keeps central management; RD; design; provision of financial
and physical capital and intangible assets…


Export
%
Import
%
Balance
Food and livestock
2,498,265
1.5
3,928,424
2.8
-1,430,159
Beverages and tobacco
930,420
0.6
512,440
0.4
417,980
Crude materials
2,062,152
1.3
1,146,874
0.8
915,277
Mineral fuels
1,244,272
0.8
1,848,437
1.3
-604,165
Oils, fats and waxes
172,978
0.1
149,819
0.1
23,160
Chemicals
4,840,870
3.0
10,875,187
7.6
-6,034,317
Manu. goods classif. by material
15,292,121
9.4
13,666,540
9.6
1,625,581
Machinery and transport eq.
-USD/Kg
61,276,432
12.00
37.6

30,156,172
10.20
21.1

31,120,260

Misc. manufactured articles
-USD/Kg
14,587,232
8.61
9.0
7,463,362
7.39
5.2
7,123,870
Commodities
227,811
0.1
147,720
0.1
80,091
Total

63.4

49.0
33,237,578
Czech trade with EU15 2016 – goods
(SITC 1 classification; value in thousands of USD)
CZE - EU15 (AICs) surplus: 17.23% GDP (CH 4,55%; GER 8,22%; KOR 6,32%; JAP 0,77%)

Code
Item
Share in
export
Export
USD/Kg
Share in
import
Import
USD/Kg
Most traded items
7522
Portable autom. data proces. machines,<10kg
1.1
268.13
0.4
299.99
75997
Parts for the machines of group 752
0.6
87.44
0.3
126.68
77316
Electric conductors, <1,000 V
0.5
6.54
0.3
5.93
77642
Processors and controllers
0.6
144.92
0.9
364.78
7812
Motor vehicles for the transport of persons
7.9
11.05
1.8
11.53
78432
Other parts and accessories of bodies
2.0
7.27
0.7
4.57
78433
Brakes and servo-brakes and parts thereof
0.9
7.81
0.5
6.45
78434
Gearboxes
0.3
15.34
0.4
14.13
78439
Other parts and accessories for motor vehicles
2.6
8.80
1.5
7.92
82119
Parts of the seats of subgroup 821.2
0.9
9.55
0.4
5.36
89399
Other articles
0.5
8.30
0.7
6.75
Other largest CZE exports
74159
Parts for the air-conditioning machines
0,.6
12.03
0.1
7.65
7422
Fuel, lubricating or cooling medium pumps
0.6
29.77
0.1
22.41
7523
Other autom. data process. machines
1.1
57.84
0.1
101.47
7527
Storage units
0.6
224.41
0.1
200.04
7616
Reception apparatus for television
0.5
24.56
0.0
38.02
76411
Telephone sets (incl. cellular, wireless)
1.0
981.58
0.2
752.15
76412
Other apparatus for voice, data transmission
0.7
245.28
0.1
118.64
77261
Equipment for control of electric., <1,000 V
0.5
47.12
0.3
53.70
77834
Electrical lighting/signalling equipment
1.0
28.92
0.1
28.89
82112
Seats of a kind used for motor vehicles
0.5
9.47
0.0
5.36
8942
Toys
1.0
19.91
0.2
9.25
Most traded items - Czech trade with EU15 in 2016 (SITC items groups 7 and 8; SITC 5)

Perfect domination by foreign capital
•Despite large trade surplus (both goods and services) – Current Account of CZE in deficit untill
2013; reason: extremely passive international investment position;
–Large deficit of primary income balance: most significant was repatriation of income from FDIs ->
negative net balance equals 8,2% GDP in 2016;
–Crisis 2008 led to rapid decrease of (already small) earnings from CZE investments Vs. no decrease
for profits from foreign investments in CZE (profits the same story: 2009 big fall for domestic
companies, profitability of foreign owned decreased little);
–
•Net primary income per capita is exceptionally negative… compared to all industrial AICs and DCs
(exc. Ireland, Luxembourg…);
•Capital inflows are gradually slowing down – since 2012 there is an overall outflow of
investments;
•…despite highest profitability of business in OECD (e.g. CZE banks easily most profitable in EU
during 2008-2014);
•Repatriation of profits from CZE Vs. reinvestment of profits and upgrading of firms in CZE.




FDI Payments and receips 2019
Payments
Receips
Balance
CZE
20,753
4,608
-16,145
POL
22,806
2,044
-20,762
HUN
9,404
2,083
-732
GER
53,052
121,903
68,851
USA
208,140
532,724
32,4584
SPA
26,860
35,978
9,118
ITA
17,824
28,628
10,804
GRE
1,868
935
-933


balance
per capita
bal. 2019
p/c 2019
CZ
-11,169
-1,052.6
-12,707
-1,190.9
Core industrial economies
Germany
57,164
697.9
124,402
1,497.2
France
54,078
835.6
UK
-32,357
-491.8
US
180,589
560.5
236,344
719.9
Japan
166,550
1,303.7
Korea Rep.
1,459
28.7
Other emerging markets
Poland
-17,571
-459.7
-22,828
-601.2
Spain
737
15.9
Turkey
-8,991
-113.1
Mexico
-33,598
-263.4
Brazil
-41,080
-197.8
China
-44,013
-31.4
Primary income balance 2016 and 2019
(mill. USD; USD per capita)


Inward FDI
Outward FDI
Balance FDI stocks
Net primary income (mil.)
Net primary income
Italy
22
29
7
11,797
0,6
Spain
47
43
-4
49
0,0
Portugal
60
24
-36
-5,442
-2.5
Greece
16
10
-6
20
0,0






Czechia
72
11
-61
-11,424
-5.3
Poland
45
5
-40
-20,218
-3.8
Slovakia
58
4
-54
-2,255
-2.4
Hungary
65
21
-44
-5,756
-4.1
FDI stocks; net primary income (percent of GDP, 2017, USD)


Industry
Finances and
insurance
Other
services
Other
Total
CZE
16.2
10.0
10.7
17.5
13
Japan
5.1
17.8
10.7
18.2
10
Poland
13.3
10.3
7.4
3.5
10
Hungary
15.2
8.4
5.7
3.9
9
Estonia
13.0
7.9
9.9
4.7
9
Austria
18.7
9.1
3.5
7.7
9
Sweden
7.6
8.2
8.1
3.0
7
Denmark
4.4
3.0
7.4
-
7
United Kingdom
5.1
4.0
8.1
8.0
6
USA
6.2
4.7
5.7
6.6
6
Netherlands
3.9
6.2
1.6
9.3
5
Italy
4.2
2.9
3.9
2.1
3
Spain
4.7
4.2
3.0
0.1
3
Slovenia
12.7
-2.5
-17.7
-7.3
0
Korea
-0.7
-0.9
-0.2
-0.7
-1
Ireland
24.7
5.8
-
0.0
-
The profit rate of foreign investments situated in countries (OECD 2014)
CZE banks: easily highest RoA and RoE indicators in whole EU.


Immediate
investing country
Ultimate investing
country
Netherlands
24.0
5.2
Austria
13.2
9.5
Germany
12.6
26.5
Luxembourg
12.1
3.0
France
6.1
6.4
Switzerland
4.7
2.8
Cyprus
3.9
3.2
Slovakia
3.8
2.8
US
3.6
8.9
UK
2.6
4.6
Foreign direct investment in the CZ – territorial structure 2014
(percentage), immediate and ultimate investors

Poor ability to retain FDIs
•CZE economy is extensively incorporated into global value chains;
•OECD input-output tables: CZE has the lowest and declining value added (VA) among members; lower
than figure usual for DCs;
•Domestic VA only 35.5% in overall product (e.g. cars 18.3%); 54.7% in exports (e.g. cars 46.4%);
•In context of complete product processing (including intermediate parts… e.g. Skoda cars) on its
territory – it raises questions about transfer pricing:
–arbitrary set prices of specialized services provision or provision of intangible assets by
concern headquarters; manipulation with cost of financing and credit).



1995
2000
2005
2008
2011
CZE
Gross Output
39.41
38.32
37.30
35.98
35.54
- motor vehicles
18.18
17.09
19.70
20.36
18.25
- electronics
27.85
22.13
13.14
8.55
9.75
Germany
Gross Output
54.48
51.68
51.41
49.33
48.98
- motor vehicles
33.68
23.37
24.52
22.35
27.11
- electronics
41.73
37.82
41.16
39.19
42.94
Mexico
Gross Output
58.47
57.44
58.81
57.70
59.04
- motor vehicles
32.27
34.18
34.32
34.09
33.97
- electronics
18.26
19.41
13.73
11.85
13.54
Portugal
Gross Output
48.05
47.92
48.39
46.94
48.20
- motor vehicles
10.94
19.16
16.92
14.93
15.74
- electronics
23.59
22.30
16.52
15.77
20.62
Spain
Gross Output
49.19
48.41
46.94
48.34
52.00
- motor vehicles
22.59
19.56
18.95
18.72
19.55
- electronics
33.17
28.00
27.30
31.91
43.85
Turkey
Gross Output
53.15
54.84
43.43
44.89
44.56
- motor vehicles
36.2
37.35
19.49
20.22
19.27
- electronics
52.55
40.49
17.80
21.80
25.97
Brazil
Gross Output
53.33
51.02
48.70
48.60
50.57
- motor vehicles
23.01
20.81
15.16
17.53
17.58
- electronics
19.28
24.76
20.19
22.29
21.76
Indonesia
Gross Output
52.10
49.90
51.63
51.38
51.86
- motor vehicles
35.49
24.59
43.90
43.99
45.00
- electronics
24.29
30.47
35.43
35.43
35.46
Malaysia
Gross Output
46.32
36.81
31.12
34.03
34.65
- motor vehicles
35.90
20.83
15.02
16.03
17.60
- electronics
33.92
17.87
12.66
16.13
16.44
Domestic value added as a percentage of gross output (motor vehicles, trailers and semi-trailers;
and computer, electronic and optical equipment; in percentage)



1995
2000
2005
2008
2011
CZE
Gross Exports
30.47
38.73
42.55
42.31
45.28
- motor vehicles
55.12
50.55
52.42
51.11
53.56
- electronics
45.49
49.76
70.13
65.18
67.08
Germany
Gross Exports
14.86
20.22
21.34
24.77
25.54
- motor vehicles
20.03
27.29
28.32
32.36
31.43
- electronics
18.68
24.51
23.88
27.56
24.49
Mexico
Gross Exports
27.34
34.39
33.03
32.75
31.71
- motor vehicles
40.80
48.76
46.98
47.81
49.61
- electronics
62.01
64.20
69.37
69.72
64.11
Portugal
Gross Exports
27.37
30.18
31.81
33.81
32.78
- motor vehicles
56.47
55.12
58.23
60.13
58.33
- electronics
47.42
50.39
55.10
61.60
52.45
Spain
Gross Exports
19.16
25.83
26.28
27.58
26.88
- motor vehicles
36.47
47.04
46.64
46.32
46.09
- electronics
28.12
39.75
40.72
34.95
29.12
Turkey
Gross Exports
8.94
13.06
20.96
2499
25.73
- motor vehicles
13.16
29.05
36.29
38.13
44.20
- electronics
18.13
33.61
40.63
37.44
38.93
Brazil
Gross Exports
7.83
11.46
11.71
12.54
10.77
- motor vehicles
12.68
17.88
20.14
22.31
19.92
- electronics
17.59
27.42
27.19
26.98
24.08
Indonesia
Gross Exports
12.57
17.37
16.56
14.62
11.97
- motor vehicles
33.25
32.13
27.85
29.59
25.47
- electronics
34.82
27.76
26.55
29.72
27.11
Malaysia
Gross Exports
30.50
47.73
45.95
41.23
40.62
- motor vehicles
38.65
50.20
62.34
59.91
59.11
- electronics
45.81
70.20
70.74
67.16
66.83
Foreign value added as a share of gross exports (exports of “motor vehicles, trailers, and
semi-trailers” and of “computers, electronics and optical Equipment;” in percentage)

Poor convergence record
•Great recession (since 2008) unveiled some less evident problems of CZE (and ECE) convergence
process; •Real consumption in CZE stagnated 2008-2014; consumption grew slowly even before vs.
solid growth of GDP/capita (outflow of profits); •For whole period 1990-2016 the CZE indicator
improved by only 5.5% towards US level (15.7% to GER)(1990=100). •If extrapolated – this pace would
result in catch-up by year 2814 (US) resp. 2146 (GER); •Hyper-integrationist model delivered
limited (CZE) or moderate (ECE) economic convergence; •Doesn't outperform other contemporary nor
historical examples of (partials) catch-ups (consumption, GDP/cap).


1990
2000
2008
2010
2018
2019
Czechia
23.66
25.05
34.71
33.51
39.45
40.31
Poland
11.32
16.23
22.46
23.98
31.77
33.09
Hungary
16.54
19.55
25.98
24.49
31.07
32.62
Slovakia

16.09
26.14
26.07
32.07
32.79







Italy
36.77
43.27
44.84
42.87
42.20
42.41
Spain
27.60
34.83
39.32
37.00
40.33
40.88
Portugal
23.59
30.42
32.35
31.84
34.01
34.80
Greece
24.46
29.37
37.70
33.97
29.71
30.32
GDP/capita (PPP, thousands of 2017 constant USD)


GDP per capita
GNI
Consumption
Italy
39,421
39,421
21,535
Spain
38,006
37,990
19,661
Portugal
31,673
30,980
18,047
Greece
27,602
27,620
17,095




Czechia
36,327
34,450
15,634
Poland
29,124
27,970
16,145
Slovakia
31,616
30,880
15,555
Hungary
28,108
26,960
12,710




EU 28
41,192
41,074
20,938
limit for CF

36,967

Standard of living, V4 and SE comparison (2017, USD)

 Dorothee Bohle & Béla Greskovits (2018): Politicising embedded neoliberalism: continuity and
change in Hungary’s development model, West European Politics


Poor perspective of graduation
•Division of labor between particular activities within one chain of activities inside one
corporate structure – but on territories of different national economies;
•Headquarters can assign value to particular activities -> decrease value added and reported
productivity in controlled firm -> decrease in reported productivity -> can justify low wages;
–Graduation unlikely: productivity (higher VA content) increase leads to growth of wages =
inconvenient side effect;
–Goal of foreign investors: keep profitability of activities conducted in investors´ home (high
wage) country;
–
•Private business expenditures on RD in CZE low as share of GDP and per capita; fragment of
investments by core economies…. (hard to imagine how CZE could converge…).
•


R&D, percent
of GDP
R&D per capita
(USD, PPP)
Researchers per
million inhabitants
Universities in top 500 (top 800)
H2020 allocation
(mill. Euro)
H2020 (Euro per capita)
Sweden
3.34
1798
6875
11 (11)
1,970
195.1
Austria
3.17
1752
4947
7 (11)
1,630
181.0
Czechia
1.93
754
3402
1 (3)
423
39.5
Poland
1.21
381
2064
0 (1)
633
16.7
Italy
1.40
581
1956
26 (48)
4,830
79.9
Spain
1.24
494
2613
7 (21)
5,350
114.4
Portugal
1.37
452
3662
3 (8)
972
95.3
Greece
1.18
355
2791
2 (7)
1,410
135.3
Selected R&D indicators (2019, 2020)



















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