Enterprise & Society (2023), 1-32
doi:10.1017/eso.2023.17
ARTICLE
Lost in the Transition: Czech Businesses Pivoting from the
Centrally Planned Economy to Capitalism
Lucie Coufalová
Libor Zídek
The Czech Republic often has been cited as an example of successful economic transformation.
The available literature has primarily focused on changes in the macroeconomic environment,
although the actions of economic agents at the microeconomic level have emerged as the crucial
factor explaining this success. Based on 101 oral history interviews, this article offers the firsthand
experiences, frustrations, challenges, and human dimensions of doing business at that time and
shows that the road from socialism to the market economy was a bumpy one. Our approach fills
major information voids, and thus offers a unique opportunity for business historians to avoid
slipping into the incomplete view of the world presented by written literature and archives.
Keywords: economic transition, oral history, business history, Czech Republic
Introduction
The conversion from a centrally planned economy (CPE) functioning under the rule of the
Communist Party for forty years to a democratic, free-market society is highly challenging.
Such huge political, social, and economic changes brought many unknowns. The economic
transformation of Czechoslovakia (the Czech Republic as of January 1,1993) that commenced
after the fall of the communist regime i n 1989 involved the rapid adoption of several reforms
that entailed a total change in the environment in which businesses could operate, disrupting
the order of the understood world. The reformers i n Czechoslovakia sought to restore a
functioning market economy as quickly as possible. Therefore, many changes occurred simultaneously,
among them a rapid liberalization of prices, the opening of the domestic economy
to world competition hand in hand with a major currency devaluation, the removal of subsidies,
and the introduction of standard accounting and tax systems. In parallel, the legal system
underwent permanent, fundamental changes.1
1. Klaus, Zeme.
© T h e Author(s), 2023. P u b l i s h e d b y Cambridge U n i v e r s i t y Press o n behalf of the Business History
Conference. A l l rights reserved. T h i s is an O p e n Access article, distributed under the terms of the
Creative C o m m o n s A t t r i b u t i o n licence (http://creativecommons.Org/licenses/by/4.0), w h i c h permits
unrestricted re-use, distribution a n d r e p r o d u c t i o n , p r o v i d e d the original article is p r o p e r l y cited.
1
https://doi.org/10.1017/eso.2023.17 Published online by Cambridge University Press
2 Coufalová And Žídek
At the very beginning of the transformation, the establishment of private business was
legalized, and in the following years, various state-owned enterprises were privatized. The
government returned some of those nationalized after 1948 to their original owners. A small
privatization project got underway, mainly concerning shops and service units. This largescale
privatization was initially carried out in two waves and concerned about two thousand
enterprises in the Czech Republic.2
Enterprises had to prepare a privatization plan, but at the
same time, anyone else could submit his or her own project.3
The Ministry of Privatization
then selected the winner—that is, the method or combination of methods, including voucher
privatization, direct sales, auctions, and so on, through which the enterprise would be priva­
tized.4
At the same time, the government agreed with some bidders to sell selected companies
directly—for example, Skoda Auto to the Volkswagen Group.5
From an economic point of view, there was relatively rapid macroeconomic stabilization:
the cumulative decline in GDP of 15 percent was one of the lowest in the transition countries;
after an initial jump, inflation stabilized relatively quickly to around 10 percent per year; and
unemployment remained around 3.5 percent until 1997, which was exceptionally low. As a
consequence, scholars have highlighted the successful nature of the Czech macroeconomic
transformation.6
However, successful transformation required changes at the level of individual
enterprises. Firms had to cope with the new situation and diametrically change their
behavior—rather than following orders and working to protect their firm by fulfilling the plan
(and no more!),7
they needed to eliminate inefficiencies, because only improvements in
corporate efficiency would lay the groundwork for the catching-up process on the macro-level.
To the best of our knowledge, scholarly written literature examining the transformation,
whether from its more-or-less supporters8
or its vehement critics,9
has largely focused on the
macroeconomic aspects of the process. Although cases in which authors have dealt with the
microeconomic sphere are rather limited, there are nevertheless some valuable works, such as
that of Clark and Soulsby,1 0
who realized a longitudinal study focusing on changes in management
and organization. The authors have been conducting interviews since 1991 in various
enterprises and in various municipalities, developing narrative materials through case study
research with publications from the 1990s till 2022 on changes—or lack of them—since the
collapse of communism. In one of their earliest studies,1 1
they show that the privatization
2. Discussions regarding the form of privatization, e.g., Rameš, Trh,
3. O n average, seventeen privatization projects were submitted per enterprise i n the Czech part of the
federation i n the first wave of mass privatization. Shafik, " M a k i n g a Market."
4. Kotrba, "The Demise."
5. Pavlinek, A Successful.
6. Dillon and Wykoff, Creating.
7. The central planning system was set up so that managers, i n an effort to secure rewards, struggled to
meet the plan. O n the other hand, they tried to avoid exceeding it too much, so as not to reveal the true
productive capacity of the enterprise, w h i c h w o u l d lead to a more ambitious plan for the next period. See,
e.g., Granick, "The Orthodox"; Mlčoch, "Chování."
8. For instance, Brown, "Central Europe"; Svejnar a n d U v a l i c , "The Czech Transition"; Beaulier, Boettke,
and Krasnozhon, "Political Economy"; Kucera and Marsal, "Costs and Benefits."
9. Stiglitz, "Whither Reform?"; Stiglitz, Globalization; Myant, "Economic Transformation."
10. See, e.g., Clark and Soulsby, "Transforming"; Clark and Soulsby, Organizational Change; Clark, "The
Role"; Soulsby, "Foreign."
11. Clark and Soulsby, "Transforming."
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Czech Businesses Lost in the Transition 3
process and the role of institutions in it were strongly influenced by the values and behavior of
key managers. Later, Clark1 2
observes the role of social capital in founding new businesses,
while Krátká investigated the transformation of corporate culture i n domestic branches of
foreign corporations newly established after 1989.1 3
Pavlinek1 4
focused on the privatization of Skoda Auto i n the hands of the Volkswagen
Group. This case is very specific, as Skoda Auto was the flagship enterprise of Czechoslovak
industry. Putting privatization into the hands of a major Western partner was rather exceptional.
Via voucher privatization, the government initially put most of the companies de facto
into the hands of the Czechoslovak population, which did not have the necessary capital or the
experience to deal with a market economy.1 5
Soulsby1 6
took a narrative approach to describe
one specific case of an enterprise in the automotive industry to analyze the legacies of the past
on Czech-German long-term relations. Last but not least, Pulec described the geographic
perspective of concentration processes i n the Czech brewing industry during the post-1990
economic transformation.1 7
Generally, these experiences are few and mostly very specific. We know little about companies
in other sectors of the economy, which prompted us to fill this lacuna and formulate the
following research question: What were the biggest problems for management in the transformation
process? This implies several sub-questions: What kind of hurdles did they have to
overcome? How difficult was it for them to adapt to all these changes? How did the initial
conditions differ from one company to another, and how did these initial conditions affect
businesses in transition? Were our interviewees' experiences similar to those presented in the
literature? These questions naturally raise even more, such as how did the companies manage
the transformation, and what was the basis for their survival, and so on. These are certainly
crucial questions as well, but they point more toward the resolution of the situation. This
already goes beyond the scope of our article, which is primarily focused on the corporate
sector's problems during the first few years of the economic transition.
To answer these questions, we continue the tradition set by Clark and Soulsby1 8
and the
literature based on narrative analysis1 9
and apply an oral history method. The research is
based on a unique data set of 101 interviews with direct participants of that era's events. We
describe the patterns that emerged across the interviews and supplement our analysis with the
available literature, thus contextualizing our findings. We add to the existing literature in the
following ways. First, we bring the view of economic agents at the microeconomic level—
those who witnessed the changes and had to operate in the new environment. The experiences
shown by the previous literature are rather scarce and limited to one small city2 0
or one
12. Clark, " T h e Role."
13. Krátká, Letos.
14. Pavlinek, A Successful.
15. Žídek, Transformace.
16. Soulsby, "Foreign."
17. Pulec, "Integration."
18. See Clark, " T h e Role"; Clark and Soulsby, "Transforming"; Soulsby, "Foreign."
19. See, e.g., Hansen, "Business History"; Maclean, Harvey, and Stringfellow, "Narrative"; Mordhorst and
Schwarzkopf, "Theorising Narrative"; Popp and Felhnan, "Writing"; Jones and Comunale, "Oral History";
Thiessen, " T h e Narrative"; Soulsby, "Foreign."
20. See Clark, " T h e Role"; Clark and Soulsby, "Transforming."
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4 Coufalová And Žídek
enterprise.2 1
As far as we know, there are no other sources based on narrative analysis, and the
economic literature in general shows little of the internal processes within companies and the
human dimension of doing business.2 2
To understand these processes, it is therefore necessary
to resort to a more sociological approach based on qualitative methods. Our research is
based on interviews with narrators across the country and many disciplines, which enables us
to identify similarities and differences among various groups of respondents.
Second, we show how the use of oral history can indeed help to improve our knowledge of
business history. We use this method to investigate how company managers lived through a
period of such enormous changes—a period that encompasses the economic transformation in
Czechoslovakia and subsequently in the Czech Republic. These changes naturally created
several problems to which these actors had to respond. We try to describe them using the
testimonies of our narrators, although we are aware that such an approach has its limitations.
One reason is that in the process of sense-making, a given narrator describes the events and his
or her actions as stored in the memory;2 3
this very process can affect the accuracy of the related
events, because "with reconstruction comes distortion."2 4
This distortion is—due to the
limitations of human memory—inevitable, especially as the interviews were conducted
almost thirty years after the events we are discussing. Consequently, we are more interested
in the narrators' personal experiences of doing business in the period in question—their
frustrations, challenges, and the human dimensions of change at that time. These experiences
are not recorded in archives or books, but they complement and contextualize the formal
written record.2 5
Hence, our approach is a way to fill in the blanks and capture valuable
information that would otherwise be forgotten.2 6
Taking an Oral History Approach
Like any other method, oral history has its advantages and drawbacks. One of the most
important advantages is that an approach based on oral history goes "down to the most
mundane details"2 7
and "permits a level of nuance that is hard to obtain from written
documents."2 8
Consequently, it fills gaps in scholarly written documents, often questioning
the hegemonic discourse.2 9
However, that does not mean the oral testimonies are the source of
a different, sole, objective truth either. Their real value does not consist in fact-finding. It rather
lies in how the narrator makes sense of the past3 0
and the "comparison of interviews with the
written record may reveal questions left unasked."3 1
Oral history is thus a way to collect
21. See Soulsby, "Foreign."
22. E.g., Clark, "The Role."
23. Weick, Sensemaking.
24. Bernstein, Nourkova, and Loftus, " F r o m Individual," 157.
25. H a m m o n d and Sikka, "Radicalizing"; Carnegie and Napier, "Accounting's Past."
26. Perks and Thomson, The Oral History Reader.
27. Maclean, Harvey, and Stringfellow, "Narrative," 1219.
28. Jones and Comunale, "Oral History," 31.
29. See, e.g., Maclean, Harvey, and Stringfellow, "Narrative."
30. Thiessen, "The Narrative."
31. Ryant, "Oral History," 564.
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Czech Businesses Lost in the Transition 5
unknown insights at the individual level3 2
in order to provide "a deeper understanding of
complex (and often opaque) business ecosystems."3 3
Hence, the advantage of interviews lies not only in the information as such, but in the
process of storytelling itself. Just as in the writing of historical texts, narrators create history
during interviews, for example, by giving greater meaning to certain parts or by interpreting
the events in question. Furthermore, the result of the interview is also a collective process, as
the interviewer participates in the outcome by asking specific questions and interacts with the
interviewee.3 4
The major drawback here, however, is the lapse of time. The process of recollection is
largely influenced by the narrator's memory, which has its limitations, and is "highly susceptible
to distortion and error."3 5
As a consequence, "the history that depends upon memory is
no better than the memory upon which it is based,"3 6
as the process of reconstruction of the
original information includes omissions and distortions, especially when the narrator evaluates
his or her own attitudes and actions. The narrator also evaluates individual events from
the perspective of today.3 7
This evaluation is strongly influenced by his or her current personal
beliefs and political rationalization.3 8
A t the same time, various written sources also
influence and complement these memories, and thus the process of creation is affected by
collective memory.3 9
Moreover, the reconstruction also depends on the context in which it
occurs.4 0
On the other hand, the time gap can also present various advantages, especially in that
narrators often no longer have political or business ambitions and are therefore less circumspect
about talking about events of that time.4 1
Thus, although there are some limitations
inherent to the use of oral history materials, we believe that the information from the interviews
is essential to fully understand the social, political, and economic contexts of Czechoslovakia's
economic transition.
The aim of this paper is to identify the problems that businesses of that era had in pivoting
from socialism to a market economy. To do this, we conducted a total of 101 oral history
interviews between 2020 and 2022.4 2
Consistent with the available literature,4 3
the interviews
had a traditional structure. First, we gave the interviewees space to talk freely about their
personal and professional lives. This section is crucial to understanding the individual
32. See, e.g., Keulen and Kroeze, "Understanding"; Jones and Comunale, "Oral History."
33. Jones and Comunale, "Oral History," 25.
34. Linde, "Narrative."
35. Bernstein, Nourkova, and Loftus, " F r o m Individual," 158.
36. Bernstein, Nourkova, and Loftus, " F r o m Individual," 158.
37. Weick, Sensemaking; Beard, "Re-thinking."
38. Soulsby, "Foreign."
39. Berger, " O n the Role"; Beard, "Re-thinking."
40. Golden, "The Past Is the Past."
41. Soulsby, "Foreign."
42. Most of the interviews were conducted i n person. However, due to the COVID-19 pandemic, some of
them had to be conducted online via Skype or M S Teams.
43. See, e.g., Vaněk and Mücke, Třetí strana. This book follows the tradition established i n The Oral History
Readerby Perks and Thomson and reflects the fact that there are close links between Czech oral history and its
authors. The methodology has also been inspired i n part by Locke, Feldman, and Golden-Biddle, "Coding
Practices."
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6 Coufalová And Žídek
narrator's personal context. Next, we asked a series of specific questions prepared in advance.
The narrators' answers often contrasted with our prior knowledge. The entire research team
(the authors plus six others) then discussed each interview, comparing them with both other
interviews and the previous literature.
Interviewees came from many different industries. Most were managers of former socialist
enterprises that had gone private and managed to cope with the transition to a market economy.
Some interviews came from owners of newly established businesses, who also helped
characterize the business environment. Finally, a few narrators were former politicians or
lawyers, who helped design the reforms of the time. Narrators from the ranks of bankers and
brokers then completed the picture of the transformation. The oldest narrator was born i n
1934; the youngest in 1972. The sample of interviewees consisted overwhelmingly of collegeeducated
men. Only 9 narrators out of 101 did not have a college degree, and only 6 were
women. The bias in education reflects the fact that we interviewed very capable people in high
positions. The low representation of women among narrators reflects the corporate culture of
the time, because there were very few women i n leadership positions i n the 1990s, and the
same was true during the communist period. A l l interviews were recorded and subsequently
converted into text form. As a result, we had several thousand pages of text at our disposal
capturing the previously unknown personal experiences of the interviewees during the period
of economic and political transformation in Czechoslovakia and, by extension, in the Czech
Republic.
We recruited narrators in the following ways. To begin with, we made use of our extensive
personal contacts. We also had contact details and commitments from several narrators from a
previous project on the functioning of the CPE before 1989. These were almost exclusively top
managers who had run their respective enterprises under socialism and were also present
during the subsequent transfer into private hands. Some of them became owners. These
people had invaluable years of experience i n running a business i n both periods and were
able to identify the advantages that their businesses had over their competitors, as well as the
major difficulties they had to deal with during the transition. In some cases, we contacted
surviving businesses and requested the contact details of the direct participants in the events
under review. We also used our personal contacts to recruit narrators from post-1990 start-ups.
Along with entrepreneurs, we sought to interview public figures who made the rules of the
game at the time—the authors of the economic and legal reforms. However, given the political
tensions that characterized that era, some actors naturally refused to participate i n the
research. In the next step, we used snowball sampling, but in some cases, it was very difficult
to reach narrators because they were no longer i n contact with their former colleagues. The
advantage of this method is that personal contacts facilitate trust, especially i n elites still
working in their fields:
Currently employed executives may lack the time for interviews, be difficult to contact
directly, or be shielded from scrutiny by business organizations with little interest in publicizing
how they operate. Referrals can bridge such obstacles because they convey trust,
particularly when coming from senior industry figures.44
44. Bailey, " S n o w b a l l , " 76.
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Czech Businesses Lost in the Transition 7
Moreover, if a narrator is recommended by multiple people, it means that this is most likely
a person who is relevant for our purposes and can provide extremely valuable insights.4 5
In
sum, the snowball method was a very useful approach that enabled us to collect a valuable data
set. We do not pretend—or intend—to have a representative sample that can be applied to the
whole population. Our research aims to offer firsthand experiences that complement the
written literature and archives. However, there was a great deal of repetition in the experiences
of our narrators, and further interviews no longer provide much additional information.
Therefore, we believe that we have reached the saturation point.
Table 1 summarizes basic information about the narrators cited in this article. Most of the
narrators are from businesses, either privatized or new, that have since become successful—in
the sense that most of the enterprises under consideration managed to survive the transition
period. Due to space limitations, the rest of the narrators are not listed. A l l interviewees are
listed anonymously under a pseudonym.
Legacies of Communism
The socialist economy—predominantly industrial and oriented toward Eastern markets4 6
—was
based on a command system in which enterprises were not autonomous and were de facto
perversely motivated to maximize inputs and minimize outputs.4 7
Competition was virtually
nonexistent, and the domestic economy was not integrated with the global economy, hi general,
state-owned enterprises had very limited motivation to improve efficiency and production quality.
Not only were prices fixed, but Communist Party interference in decision-making processes
made efficiency suffer even more. According to the official propaganda, the economy was "scientifically
driven" and the system was rational and predictable. In reality, however, businesses
had to face uncountable real problems on a daily basis.4 8
First and foremost were permanent
shortages at all stages of production up to final output.4 9
Buyers were therefore in a weak position
vis-á-vis sellers—they had to persuade sellers to sell, not uncommonly through corrupt practices.
The economy was characterized by large enterprises that were often the only (or one of the
very few) producers of a given product on the market.5 0
When they had economic problems,
they received subsidies; bankruptcies were nonexistent; and profit was not an important
economic category. The main objective was meeting the plan. A l l residents had the right—
and the obligation—to work.5 1
Firms hoarded labor as well as other resources,5 2
which
resulted i n so-called overemployment.5 3
45. Bailey, "Snowball."
46. Nezval, Světová ekonomika.
47. Mlčoch, "Chovám."
48. Clark and Soulsby, "Transforming," 229.
49. Kornai, Economics of Shortage.
50. Žídek, Centrally Planned.
51. Coufalová and Žídek, "Functioning."
52. Malý and Herc, "Příspěvek."
53. International Monetary F u n d experts estimated that if up to 15 percent of the workforce were laid off,
there w o u l d be no decline i n output. See, e.g., Weigl, "Analýza."
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Table 1. Narrators and interview details
Pseudonym Branch
Occupation during the
1990s Career development Date of interview
Aleš
Andrej
Antonín
Bohumil
Dalibor
Daniel
Gabriel
Hynek
Jan
Jana
Transport
Engineering
Food industry
Electrotechnical
industry
Engineering
Food industry
Construction
Engineering
Engineering,
electrotechnical
industry
Commerce
General director
Middle management
Middle management,
company owner
Engineer
Programmer
Middle management
General director
Middle management
Head of controlling, financial
manager
Commercial deputy
He was a director of the company until 1994. Today he is
retired.
He established his own business in 1992. He was already
retired on the day of the interview.
He had already worked for a long time in thefood industry
before the revolution. He worked in the company after
its privatization as one of the owners until 2013, when
he sold his share.
He had already worked in the company before the
revolution. After 1989, he founded his own company,
where he still works today.
Since the early 1990s, he has worked in a different
industry from the one he worked in before the
revolution. He has held a number of jobs in banking
and as a finance director. Today he is self-employed.
From the first half of the 1970s, he worked in a state
enterprise in the food industry until the end of the
1990s. At the time of the interview, he was already
retired.
He worked for the same company from about the
mid-1970s until 2012. Today he is retired and works as
a consultant for the company.
He worked for the company in 1989 and for 20 years
after. At the time of the interview he was employed by
another company.
Before the revolution, he worked for the same company
until 2020, when he retired.
Prior to 1989, she served as a commercial deputy. After
the revolution, she co-founded a trading company. In
the period immediately before the recording of the
interview, she held senior positions in the executive
branch. She is still a shareholder in one company, but is
not actively involved in its management.
December 20, 2021
November 12, 2020
January 6, 2021
October 30, 2020
January 5, 2021
January 9, 2021
May 20, 2021
June 24, 2021
August 1 7, 2020
December 9, 2020
Table 1. (Continued)
Occupation during the
Pseudonym Branch 1990s Career development Date of interview
Josef Automotive Middle management,
company owner
He has worked for the company since the early 1990s and
worked his way up to the position of director. After
about fifteen years, he left the company.
December 11, 2020
Kamil Construction Middle management He established a business in 1991, which he was still
running on the day of the interview recording.
November 13, 2020
Karel Consumer
industry,
engineering
Head of sales, director Since the end of the 1960s, he worked successively in two
state-owned companies. In the 1990s, he moved to
another company as head of the sales department,
where he was briefly appointed to the role of CEO of his
company. Later he bought a stake in another company
where he acted as managing director. He is now long
retired.
February 23, 2020
Kvido Textile industry Chief operating officer He worked at the company from the mid-1970s until early
1992, when he left just before privatization. He
continued to work closely with the company.
October 9, 2021
Libor Light industry Company owner In the early 1990s, he began working at a company he
later co-owned. At the beginning of the new
millennium, he founded his own company, in which he
is still active.
November 17, 2020
Lukáš Gas engineering Middle management He started his business in 1989. He still serves as a board
member of one of the companies he founded in the
early 1990s.
November 16, 2020
Marek Government Minister Before 1989, he worked for many years in a FTE. After the
revolution he worked briefly in the executive branch,
and since 1990, he has been in the management of a
company operating in the automotive industry.
February 22, 2022
Martin Engineering Manager From the second half of the 1990s until the present day,
he has been a director and chairman of the board of the
company.
February 20, 2020
Michal Textile industry Manager Until 1989, he worked as the head of one division of a
socialist enterprise. After the revolution, the plant was
divided into several parts; the narrator bought the part
he oversaw. O n the day the interview was recorded, he
February 28, 2020
(Continued)
Table 1. (Continued)
Occupation during the
Pseudonym Branch 1990s Career development Date of interview
was still in the same position as owner and director of
the company.
Milan Engineering Project manager He has worked for the company since the early 1980s for
almost thirty years. He was already retired at the time
the interview was recorded.
March 12, 2020
Miloš State
administration
Director general He worked in research and SPC. Since 1990, he has
worked alternately in the executive branch and in stateowned
enterprises. He is now a member of the
supervisory board of one of them.
June 22, 2021
Mirek Energy sector Deputy director His entire professional career has been in the energy and
industrial sectors. From 1984 to 1994, he worked in a
power plant and then for almost ten years in another
major company in the sector. He is still active in the
field.
August 3, 2021
Patrik Engineering Financial director Before and after the revolution, he worked in the same
companies until 1998. On the day of the interview, he
was newly retired.
June 29, 2021
Pavel Government Minister From the revolution until the end of the 1990s, he served
in the executive branch. Since then he has worked in
the private sphere. He later returned to the civil service.
At the time of the interview, he was working in a
business support institution.
July 16, 2020
Petr Government Minister From the early 1990s until the day the interview was
recorded, he worked primarily in academia and
politics.
July 27, 2020
Radek Research Designer, middle
management
Although he is now retired, he is still actively involved in
the running of the company he founded after the Velvet
Revolution in 1991.
December 29, 2021
Table 1. (Continued)
Occupation during the
Pseudonym Branch 1990s Career development Date of interview
Richard Transport General director He was one of the managers of the original state
enterprise. He participated in its privatization and is
still working in the company.
December 8, 2021
Robin Advertising Manager He has worked for the company since the early 1990s and
has worked his way up to his current position as
director.
June 1 7, 2021
Roman Light industry Middle management,
company owner
He worked in a company that was restituted in the early
1990s and served as managing director and co-owner.
Today he has handed over the management of the
company and serves as a member of the supervisory
board.
January 6, 2021
Rostislav Light industry Middle management Until the revolution he worked in the stone industry. In
1989, he started his own business, which he still
manages.
November 2, 2020
Rudolf Construction Sales director He worked for the same company from the early 1980s
until 2018, when he retired.
May 20, 2021
Svatopluk Food industry General director He started working for the company in 1974. In the first
half of the 1990s, he participated in its privatization. He
still works in its management.
July 12, 2021
Štěpán Food industry,
banking
Manager From the first half of the 1980s, he worked in a state
enterprise in the food industry. The first years after the
revolution were spent in the banking sector. In the first
half of the 1990s, however, he started his own
business. Today he is still a very active entrepreneur.
October 26, 2020
Tomáš Services Company's owner From the beginning of the 1960s, he worked in the state
enterprise until its liquidation in 1992. He then started
his own business in the same sector. He was newly
retired on the day of the interview.
December 19, 2020
(Continued)
Table 1. (Continued)
Occupation during the
Pseudonym Branch 1990s Career development Date of interview
Václav Government,
lawyer
Minister, legislative council Until 2010, he held various positions in the executive
branch. The day of the interview he was already retired.
June 16, 2020
Vincent Arms industry Division director He worked at the company from the first half of the 1970s
until the day of the interview.
January 7, 2022
Vít Foreign trade Manager He was employed in FTE for almost twenty years. He is
now working in a completely different industry.
June 25, 2020
Vladislav Automotive Member of the board of
directors
He worked for the company from the 1970s until its
privatization in 1993. He then moved on.
June 12, 2021
Vlastimil Government,
engineering
Chief national executive Before and after the revolution, he held various positions
related to foreign trade, academia, and the executive
branch. At the end of the 1990s, he founded his own
business. He was still employed on the day of the
interview.
June 18, 2020
Vojtěch Government Head of accounting Until the end of the 1990s, he served in a number of
political positions. He then left public life altogether.
January 13, 2022
Zdeněk Transport Head of technology
department
He worked for the company from the second half of the
1960s until 1994. Then he moved on.
June 16, 2021
Czech Businesses Lost in the Transition 13
A l l of these characteristics are diametrically opposed to those of a market economy under
normal circumstances. The system of central planning and the embargo on imports of
advanced Western technology led to a gradual loss of competitiveness of Czechoslovak
goods.5 4
Enterprises were, for the most part, unable to produce goods marketable in highdemand
Western markets.5 5
In 1989, only 15 percent of Czechoslovak exports were sold in
developed markets;5 6
according to some estimates, in the 1980s, only 3-5 percent of domestic
products reached the quality of goods traded on world markets.5 7
The economy permanently
lagged behind the developed Western economies.5 8
The fall of the Iron Curtain spurred the transition from a CPE to a system in which businesses
had to learn to stand on their own two feet; one of the first reform steps was the
elimination of subsidies. A t the same time, competition returned, and success no longer meant
meeting the plan's goals, but making a profit.5 9
However, the road to a market economy was by
no means easy. To be successful, enterprises had to deal with several problems inherited from
communism, the common denominator of which was low efficiency, and this consequently
complicated the functioning of businesses in virtually all sectors.
Dealing with Excess Production Capacity and Labor
One of the problems that the literature as well as our narrators frequently mentioned that firms
had to deal with from the beginning of the transition to the market economy was overcapacity
as a consequence of bad planning or the hoarding of resources.6 0
For example, Aleš described
the State Planning Commission's (SPC) plan to build a new plant for a transport equipment
company. To his great astonishment, the SPC planned to build a plant consisting of three giant
production halls that would produce 2200 vehicles per year—at the time, this was the annual
production volume worldwide. He was able to stop the construction of one of the halls, but it
was too late to stop construction of the others, so in the end, the company inherited two giant
production halls measuring half a kilometer by half a kilometer. He described the absurdity of
the whole situation in his experience with foreign bidders for the company:
When they came and found out we were building a hall for 2200 [transport vehicles]6 1
annually,
they looked at me and I was like—what am I supposed to say, I'm not the dipshit who decided
this, or what am I supposed to say, right? [Laughs.] Because they said—"Well, how many orders
do you have now?" And I said, "Well, right now 36 [transport vehicles] for the year."
Moreover, the overcapacity problem had also been significantly exacerbated by the everpresent
fear of military conflict between East and West. As a consequence, the already large
enterprises often had spare production capacity for a possible transition to a war economy, which
54. Myant, The Rise,
55. Půlpán, Nástin.
56. Federální statistický úřad, Statistická ročenka.
57. Půlpán, Nástin.
58. Coufalová, M i k u l a , and Žídek, "Competitiveness."
59. Žídek, Transformace.
60. Malý and Herc, "Příspěvek."
61. For the sake of anonymity, we do not provide the exact type of vehicles produced.
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14 Coufalová And Žídek
contributed to inefficiency and low competitiveness during the transition period. For example,
Patrik talked about incredibly oversized production halls, 30^0 meters high for the housing of
looms that were only 2 meters high, in case it suddenly became necessary to produce tanks and
missiles. This put Patrik's enterprise at a disadvantage against foreign competitors who had tiny
halls—appropriate for the size of the machines—and therefore had much lower heating costs.
In addition to production capacity, the greatest consensus among narrators concerned the
labor surplus. Patrik observed that overemployment was concentrated predominantly in
administrative departments:
All the companies that operated in the previous regime were somehow overstaffed with overhead
in terms of accounting, information, offices, and so on. So the basic job description, if I'm
going to overstate it, was to increase efficiency, which means reducing the number of people.
Similarly, Dalibor commented that the finance department in his company had 60-80
percent higher costs because of surplus labor.
Thus, to deal with this problem inherited from the socialist period, managers had to take
steps to drastically increase labor productivity, that is, they had to make layoffs. However,
most of our narrators remember this task as highly challenging, because after forty years of job
security for everyone, people were not prepared to lose their jobs. Managers had difficulty
being the villains who made these staff reductions. Consequently, a common pattern across
the interviews was that layoffs were—and after thirty years still are—perceived as personally
very difficult times. They remember it as a "painful" (Rudolf) or even "traumatic" (Richard)
experience.
It was all the more difficult for them, because they never had to do that during the socialist
era (on the contrary, they used to have problems with labor force shortages):
I'd never done that before. [...] What was a shame wasn't even about impoverishing people,
but more the moral aspect... One woman said, she had arguments "I've been working here for
40 years, like a dog, and now you tell me you don't want me anymore. Yeah?" I struggled with
that then. (Kvido)
The narrators also observed that the crucial social role of these big state-owned enterprises
in their respective regions played a major role in this "pain" and "trauma." Moreover,
as Clark and Soulsby highlighted,6 2
under socialism, the majority of middle and senior
managers spent most of their working lives in the same enterprise, which reflects the fact
that fluctuation of the labor force was generally very low. As a consequence, Hynek recalls
this situation as an internal conflict between what is efficient and good for the operation of
the company and what is socially acceptable. In this sense, Richard recalls dismissals as a
very "dark" experience:
It was a dark day, because of that I didn't sleep for a long time, when I signed 75 terminations
just like that, in a single day. And it was cruel because it was guys, women, girls that I worked
62. Clark and Soulsby, "Transforming."
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Czech Businesses Lost in the Transition 15
with in the same workplace whom I knew, and they all came to me saying they understood.
They were just asking why they were the ones, right? So that's where it really, it floored me at
that time.
The whole process was hampered by the fact that "there was, like, a lot of social feeling
among the management as well" (Hynek). The available literature6 3
shows that this is still a
strong legacy of the communist past across the post-socialist countries, as unemployment
continues to be a very sensitive topic in this region, and the size of this indicator plays a key
role in the electoral support for incumbents.6 4
Although narrators across all industries remember layoffs as a necessary step to increase the
efficiency and survivability of the company, many scholars have pointed out that unemployment
remained exceptionally low after 1989, partly reflecting management's reluctance to
dismiss people even though employment in industry significantly declined.6 5
Our results are
in line with literature that presents "the manager" in the period of transition in the Czech
Republic as a very socially sensitive individual; this perception was also a consequence of
socialism.6 6
Managers of privatized state enterprises generally lacked the toughness that is a
necessary attribute of standard (Western) managers, and we can assume that the failure of
some firms in transition was often due to their unwillingness to reduce labor costs sufficiently.
Even today, after thirty years, it is clear from the accounts of our narrators that it was a very
unpleasant and traumatic experience.
Bad Habits from the Communist Era and the Lack of Knowledge About the Functioning
of the Market Economy
Apart from excess production capacity and labor, businesses had to cope with other legacies of
communism that affected their efficiency as well. Vast empirical literature exists showing that
the forty-plus years of communist rule and a CPE profoundly affected the way people think
and behave—their morals, values, and beliefs6 7
—the informal institutions.6 8
Changing informal
institutions generally takes a very long time. According to Clark and Soulsby, "It has
proven impossible to erase forty years of state socialism, ideology, institutions and behavioral
patterns, and simply inscribe the new values, structures and appropriate conduct of 'market
capitalism.'"6 9
Similarly, twenty years after the fall of the socialist regime, Roland7 0
observed
that despite rapid change in formal institutions, informal institutions had changed very little.
References to inertia from the communist era emerged as a common pattern across the
interviews. As an example, Patrik reminisces that "terrible inertia, all these things hurt terribly
63. See, e.g., Roberts, "Hyperaccountability"; Coffey, " P a i n Tolerance."
64. Fidrmuc, "Political Support."
65. Gitter and Scheuer, " L o w Unemployment."
66. Clark and Soulsby, Organizational Change.
67. For more about informal institutions during the socialist era, see Coufalova, "Formal."
68. See, e.g., Kluegel, Mason, and Wegener, "The Legitimation"; Alesina and Fuchs-Schundeln, "Goodbye
L e n i n " ; Landier, Thesmar, and Thoenig, "Investigating"; Sirovatka, Guzi, and Saxonberg, "Support";
Fuchs-Schundeln and Schundeln, "The Long-Term."
69. Clark and Soulsby, "Transforming," 216.
70. Roland, "The Long-Run."
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16 Coufalová And Žídek
and take a terribly long time." Hynek agrees with this statement and even believes that
communism has a legacy in the behavior of the workforce today:
I think that it stayed in those people, that mindset there ... I think it's still alive in some
companies to this day, yeah? [laughs] [...] Among the people, that kind of socialist thinking.
[...] It went very slow, the former system was really still very deeply rooted there.
Informal institutions from the communist era thus inevitably affected the functioning of
enterprises. The available literature7 1
shows that there were strong communist legacies in the
thinking and practices of management even after the fall of the communist regime.7 2
Our
narrators also recalled this inertia in the thinking and acting of managers, who were not used to
behaving according to market principles. Miloš, who worked as a state official, noted that "it
all fell on the management, who always thought that next month we would reintroduce
socialism," and it took a very long time for these managers to learn the rules of the game:
What was difficult was to switch that mindset, from where the management cared that the
company and especially the employees were having a good time [laughs], and to switch it to
the company and especially the shareholders were having a good time. (Patrik)
Nevertheless, our narrators also observed strong vestiges of the previous regime in the poor
work ethic and low motivation exhibited by some workers along with low motivation in some
jobs. It was not just the size of the labor force, but it was also its quality and efficiency that
engendered the problem. Workers' morale during socialism can be summed up by the following—commonly
heard—slogan: "We pretend to work, and the state pretends to pay us."7 3
The
atmosphere in the work teams indeed corresponded to this, and Hynek laughingly recalls that
when some of the workers worked hard, they were criticized by the others: "Hey kid, don't
screw up the plan here."7 4
Management, even if it sought to increase the work effort of
employees, had no leverage over them because of the permanent shortage of manpower and
also because of significant leveling in remuneration.7 5
The poor work ethic remained deeply rooted in the minds of people even after the fall of the
Iron Curtain. Hynek assesses this situation from today's perspective—after thirty years of
experience with the market economy:
Now I have a chance to compare it, because I'm in a foreign-owned company, so obviously it's
a whole different thing, yeah? The huge pressure to perform and whatnot, it's not like that was
there, right? The people there weren't really motivated, right? [...] I don't mean that in a bad
way, but basically, "day-in, day-out, that's my work hours, okay?"
71. See, e.g., Clark and Soulsby, "Transforming."
72. According to Clark, the reproduction of institutionalized practices from socialism was typical especially
for privatized enterprises, but not so for newly established businesses. Clark, "The Role."
73. Mlčoch, "Chování."
74. This quote refers to the perversity of the CPE, i n w h i c h state-owned enterprises d i d not seek to
maximize profits. A s was mentioned earlier, a big overshoot meant a more ambitious plan for the next period,
so they tried to avoid effort. See, e.g., Coufalová, M i k u l a , and Žídek, "Competitiveness."
75. Coufalová and Žídek, "Functioning."
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Czech Businesses Lost in the Transition 17
But the problems with the poor work ethic in the previous regime were not only matter of
employees, but also managers, who themselves admitted it. For instance, Josef (middle management
in the automotive industry) told us that they worked an hour per day and their goal
was "to come up with a scam to go to the pub for a beer." The management had to start working
much harder after 1989. It was especially true for those who became owners of a company and
thus became extremely interested in making a profit.
However, in managerial cases, their work effort often quickly shifted to the opposite
extreme. Daniel remembers that he worked for twelve hours per day, and moreover drew
up contracts in the evening; Štěpán quantifies his effort at twelve to sixteen hours; Bohumil
noted that "I actually gave it all my time"; Kamil said that he worked "from sunup to sundown,
including Saturdays and Sundays"; last but not least, Lukáš described his working day in the
following way: "I drove to and from construction sites, for maybe four hundred kilometers a
day, every day. Bread roll in one hand, steering wheel in the other."
Some narrators said that it did not bother them at that time, but thirty years later they are
able to see that it had its consequences. Štěpán lost his marriage; for Libor, it was " devastating";
Lukáš remembers that he ended up at a very famous doctor's for three weeks in the hospital
suffering from "total exhaustion"; Daniel added that "back then, the story went that every top
manager of a company would either have a heart attack or crash his car, and the latter
happened to me."
Another aspect of inertia was noted also in the behavior vis-á-vis customers. Under socialism,
the central planners largely determined supplier-customer relations and quantities to be
produced.7 6
During the transition to a market economy, the enterprises had to strive to obtain
customers themselves, which required changing the approach to customer service. Michal,
who worked in a textile industry company, argued that this change was somewhat difficult. He
described an experience with one of his employees, whom he repeatedly tried to teach to
behave in accordance with market principles and, above all, to put the customer first. After
repeatedly admonishing the employee to behave properly with the firm's clients, Michal had
to dismiss him, which was again a painful experience. "Look, when I watched from the
window here, as he walked to his car with those plastic bags, and I saw that his wife was
unemployed, I felt bad."
Similarly, Mirek, the deputy director of an energy company, discovered that his salespeople
never personally went to their biggest customer; instead, the customer always had to come
to their office. It was one of the reasons he had to replace his sales manager—repeatedly. Even
after ten years, Mirek indirectly discovered that the treatment of customers was poor, and that
he, as CEO, would go around and say how much he valued the customers, but then the
employees—who were supposed to implement this—behaved differently: "Those were such
clunky times, it was great, we were all learning. A n d that was probably the hardest part, getting
that to trickle down through the company."
Learning was a sine qua non to succeed in the nascent market economy. The lack of
knowledge extended to other areas; indeed, it was omnipresent. Bureaucratic management
of the socialist economy and the fact that business had been presented almost as a criminal
76. Žídek, Centrally Planned.
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18 Coufalová And Žídek
activity both led to a lack of managerial skills and market experience in transition economies.
As the main goal was to fulfill the plan, the socialist managers were risk-averse and had limited
information about the functioning of the market.7 7
In this vein, Vincent argued that after forty
years of socialism, most people had absolutely no experience with how a market economy
functions: "It was a question at first that we didn't know what. We were on our own.... It was
also due to the fact that a lot of factories had the same problems that we had, that they didn't
know what they were."
Some interviewees note that a big reason why this era was so challenging was just because
they had no one to help them, and they had to learn everything on their own without any
preparation or guidance:
Just as we were all guided, right, by how socialism operated, all at once we all ran headlong
into a place where the market would take care of everything. But that wasn't true, because of
course there were a lot of so-called wise guys and different connections from the past, and
unfortunately, I think that was what made us most vulnerable during our start in this new
world. [...] Thank goodness all that we have to say [is] that those [are] some of the negatives
that we had to experience, it was a pretty expensive education sometimes, and the state didn't
help much in that, but maybe it was for the best, you know. Sink or swim, do what you can
do. [...] We weren't prepared for it or we were brought up in socialism, but now we've arrived,
and I think we managed somehow. (Andrej)
The External Environment
In addition to internal, firm-level problems, companies had to deal with outside influences far
beyond their control. Most businesses faced a huge problem in the early 1990s related to the
transformation of supplier-customer relations. During socialism, companies had no need to
actively seek out customers or suppliers, because the economy at that time had a monopolistic
structure and was centrally planned, so there was usually no choice and nothing to choose
from.78
Moreover, shortages in the economy were pervasive, so the problem was getting
inputs, not selling outputs.7 9
However, this changed radically at the beginning of the transformation.
The market, and therefore the forces of supply and demand, began to drive everything,
and competition increased. A t the same time, the economy was going through a
so-called transformation recession caused by the total upheaval of the economic management
system and the disintegration of the C O M E C O N markets, which had a generally negative effect
on demand.8 0
The recession lasted from 1991 to 1993. In the first year, domestic demand
declined by 21.4 percent. Both investment and consumer demand fell, which was mainly
related to restrictive macroeconomic policies that created room for the necessary adaptations
77. Estrin, Meyer and Bytchova, "Entrepreneurship."
78. Mlčoch, "Chování."
79. E.g., Kornai, Economics of Shortage.
80. Vintrová argues that the disintegration of the C O M E C O N markets accounted for approximately onethird
of the total drop i n GDP. Vintrová, "Možnosti."
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Czech Businesses Lost in the Transition 19
to the changed internal and external conditions. The biggest decline on the supply side of the
economy was mainly caused by slumps in the industrial and construction sectors; services, on
the other hand, grew.8 1
There were also changes in foreign trade relations. The initial conditions for Czechoslovak
exporters were certainly not easy, as they were only able to compete by exploiting the low
price of their goods or by exporting goods with lower added value. It became increasingly
necessary for some companies to import advanced foreign technologies to be able to compete
in the demanding Western markets.8 2
Moreover, during socialism, exporters could not trade
with foreign partners on their own, as foreign trade was conducted through so-called foreign
trade enterprises (FTEs).8 3
This meant that managers lacked the necessary experience to deal
with their foreign counterparts. Sales departments in socialist state-owned enterprises were
mere administrative units,8 4
which had major consequences in the transition period. There
was a general consensus among the narrators that domestic products decidedly lagged behind
Western products in design and advertising. According to Kvido, although the quality of their
product was comparable to what was sold abroad, "design-wise it was worse ... we didn't
know how to sell it, that maybe in red it would be more marketable than in green, right?"
In 1990, the first reforms leading to the liberalization of foreign trade were implemented.
One of them was a huge devaluation of the crown, which gave exports an advantage but made
imports of raw materials and intermediate goods more expensive.
At the same time, business was freed up and the monopoly of the FTEs was abolished. In the
following year, the state introduced internal convertibility of the Czech crown and reduced
tariffs to an average of 5 percent; however, an import surcharge of 20 percent was introduced at
the same time, prompted by concerns about the stability of the balance of payments. Nevertheless,
these worries proved to be exaggerated, and the surcharge was quickly reduced.
Czechoslovakia took another important step at the end of the same year when the country
signed its Association Agreement with the European Community countries.8 5
A l l these changes were accompanied by the adoption of an unmanageably large number of
laws,8 6
which made the environment in which individual businesses operated opaque and
created room for occasionally dubious business practices.
The Decline in Demand for Products
Our narrators remember the interruption of supplier-customer relations as a serious obstacle
in doing business. Many enterprises in the production chain went bankrupt or stopped
producing due to the drop in the demand for their products. For example, Patrik noted that
his company lost two-thirds of its customers; Vincent explained that "a company that used to
buy 99 percent of our products went bankrupt overnight." This left many executives in a
difficult position, suddenly scrambling to find new buyers or suppliers. Our narrators
81. C Z S O , "Českárepublika."
82. Coufalová, M i k u l a , and Žídek, "Competitiveness."
83. Nykryn, Zahraniční obchod.
84. Coufalová, M i k u l a , and Žídek, "Competitiveness."
85. Žídek, From Central Planning.
86. Klaus, Země.
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20 Coufalová And Žídek
remember that it became exceedingly difficult to sell their goods i n both the domestic and
global markets. For example, Vincent, who worked in an arms industry company, states that
his company had to build business relationships from scratch; Roman, when asked about what
was the most challenging period of the 1990s, also says that it was the search for markets; and
Gabriel uses the expression "huge handicap" when commenting on the collapse of the
demand-supply chain. According to Libor, this period lasted four years:
Well, there was a period of about four years that was really bad before we actually started to get
our own customers, customers that we had to hunt for ourselves ... just before that, it got to the
point where it was getting interesting. Otherwise, it was just really, really bad. It was just dayto-day
survival at times.
Demand-side problems also came from abroad. The first major issue was the drop in demand
due to the collapse of the Eastern markets and deep economic and political problems in other
transforming economies.8 7
This caused some companies to decline. Patrik uses the term "crisis"
when referring to this situation, when there were "mountains of machines packed up in the yard
for shipment, nobody wanted them, nobody was willing to pay for them. And the company that
was exporting them went out of business." Aleš says that his company had a contract with the
Russians for two hundred locomotives, but they only actually paid for sixteen of them. Zdeněk,
who worked in the same company, remembers that the drop in foreign demand for some products
at the turn of 1990-1991 was around 90 percent. He refers to that time as "terrible" or "sobering,"
because in 1989, when the Iron Curtain fell, there were extremely high expectations among
people, still remembered by the vast majority of our narrators regardless of their industry, as
"euphoria." Over time, however, the first problems associated with the total change of the
economic system and trade links began to manifest themselves and disappointment set in:
Well, that's the time when there was a huge sobering up, and the hangover followed. The
hangover was very tough, because the people were still there in the workshops, the machines
were there, the desire to work was there. But people were going to work and waiting for work
to come in, playing cards and drinking rum, to cut a long story short. And then it started to
gradually fall apart, people leaving and so on. Yeah, sobering up was terrible.
On the other hand, enterprises that retained a loyal customer base had a major advantage, as
Jan who worked i n engineering and electrotechnical industry reminisces:
Certainly, it was not as easy as during the totalitarian times, where the business cases were
more or less dreamed up, but the difficulty was not huge, the market in the Czech Republic
remained, and no one else had been buying all those switchboards, devices, and all those
products, because there was that tradition, and it was not quite as easy to switch to ... another
supplier. It was the same i n Slovakia, and we also had an agreement that the United Arab
Emirates would continue. Our key product at that time, the [anonymized type of product],
was relatively viable, modern, and so on and so forth. There were certainly some slight, I don't
87. Vintrová, "Možnosti."
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Czech Businesses Lost in the Transition 21
want to say problems, more like new challenges to reorient [the firm] to market conditions,
but it was not an earthquake that would destroy the market. No way.
However, companies that retained customers were the exception, rather than the rule.
Those that were privatized by foreign partners also had an advantage. One of these was the
well-documented case of Skoda Auto. The privatization of Skoda was crucial for the Czech car
industry and the entire economy. The agreement was signed in the first quarter of 1991; even
before that, Škoda's management had the opportunity to get acquainted with Volkswagen's
suppliers i n Germany. A t the same time, the latter also sought to retain Škoda's domestic
suppliers.8 8
Škoda thus avoided the problems associated with the disintegration of supply and
demand chains that other companies—the vast majority of the recently privatized state-owned
enterprises—had to face.
The breakup of Czechoslovakia at the beginning of 1993 also created problems for some
businesses. Although most narrators (e.g., Kamil, Lukáš, and Rostislav) said that the split had
no effect on their businesses, Svatopluk, whose company was heavily dependent on trade with
the Slovak side, found it very difficult, because the physical border itself created a barrier, as
did the Slovak import surcharge. His company had problems delivering to Slovak customers
on time, as their trucks could be delayed at the border for half a day. However, Roman notes
that a location close to the border with Austria and West Germany was advantageous, because
the companies were able to find customers there.
On the other hand, some companies had problems with suppliers, for example, encountering
complications in obtaining raw materials and semi-manufactured goods (e.g., Roman).
Pavel, who was a government minister, recalls that the disruption of trade links also manifested
itself in shortages of some goods, such as sugar, i n the market. "The problems started
with the oil supply from the former Soviet Union. This peaked in the summer, around the time
of the elections i n June 1990." According to Roman, proximity to the Western border also
increased the chances of obtaining scarce inputs.
Lost Beyond the Borders
However, the problem with international trade was not only that foreign markets had disappeared.
This problem was exacerbated by the fact that many companies stopped using the
services of the FTEs. During the socialist era, the state had a monopoly over foreign trade, and
consequently nobody else could carry out relations with foreign entities.8 9
The government
had authorized fifty-two companies to perform this policy on its behalf;9 0
these companies
purchased products from domestic manufacturers and sold them abroad. The manufacturer of
the product was not directly involved in this sale at all, and the same was true for the purchases
of imports. A s a result, FTEs were unique entities (with some exceptions) i n that they had
contacts with customers and suppliers abroad9 1
and a general knowledge of how markets
88. Pavlinek, A Successful.
89. Nykryn, Zahraniční obchod.
90. Dillon and Wykoff, Creating.
91. Nykryn, Zahraniční obchod.
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22 Coufalová And Žídek
worked. Domestic producers lacked not only the necessary contacts abroad, but also experience
in marketing and concluding foreign contracts.
Our narrators remember that after the liberalization of foreign trade in the early 1990s, the
belief was widespread that there was hardly any economic justification for the existence of these
intermediate links in the supply chain, so many companies considered them unnecessary or
expensive. Termination of the relationship with FTE companies resulted in situations in which
an inexperienced company's management had to make foreign trade decisions on its own,
which Hynek remembers as a "difficult," "tough" time, because they were "learning on the fly."
From today's perspective, the narrators generally see scrapping the FTEs as a mistake that
deprived the enterprises of established trade ties abroad:
We destroyed the FTE that was selling the products, and that had the connections and that
knew how to push them into those markets. [...] We were fools to get rid of or weaken those
traditional marketing links so much that those companies went bankrupt. (Vincent)
Thus, without the FTEs, businesses had to negotiate international contracts and anticipate
the behavior of foreign partners without any previous knowledge. As a result, executives'
inexperience sometimes resulted in serious problems:
We got a big order from Libya for about a thousand vehicles, 900 maybe. They were produced,
delivered, and to this day remain in storage in Libya at the port. [...] They didn't pay, did they?
It was just inexperience again. Weren't the contracts backed by letters of credit or anything,
just to guarantee the purchase or to guarantee the payment, anything? (Vladislav)
Patrik and Vit have similar recollections of such situations, and according to Marek, the
only exceptions were companies whose management made the wise decision to employ
former staff from the FTEs:
And everybody thought that foreign trade was the same as domestic trade, and they didn't
look at the conditions abroad, they didn't know them, and it was only a few people who, like,
pulled those workers from foreign trade to do it, so they could reliably do what they had to do.
The Emergence of Competition
Moreover, when the monopolistic structure of the socialist economy collapsed, enterprises
had to start dealing with newly emerging market competition. As Radek puts it, the fight for the
customer began in earnest. "There were a couple of companies here, so we started a business.
We had to elbow our way in a little bit because we were fighting for the client position, but
based on our knowledge of the repair business, for example, we had a good reputation."
Tomas recalls how fierce competition was in his company's industry, noting, "That was
something new, an awful lot of people started doing business in our industry. We were quite
unhappy about it. [...] There really were a lot of them, every now and then somebody
appeared." However, the accounts of our narrators are much more colorful, and evidence of
the impact of competition varied considerably from industry to industry and from company to
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Czech Businesses Lost in the Transition 23
company, ranging from those who wanted to liquidate the competition (e.g., Kvido, i n the
textile industry, argued that competitors often wanted to buy the company he worked for i n
order to close it down), to friendly relationships with rival firms (e.g., Lukáš, gas engineering;
Rostislav, light industry; Robin, advertising), to a clear carve-up of the market among competing
businesses (e.g., Kamil, construction; Antonín, food industry).
In addition to competition from the domestic market, competition from abroad after the
liberalization of foreign trade was also a major shock. Several narrators identified the "huge
pressure" (Richard) from more experienced or inexpensive foreign competitors as a serious
problem. They especially note that the influx of production from countries with cheap labor
was especially frustrating. According to Karel, his company was "completely liquidated" due
to the influx of less-expensive goods. He notes that the markets were flooded with these cheap
products, and Vincent remembers it i n the same way: "I'm thinking mainly of China, India,
Turkey, which started to produce these textile products for a song." At the same time, despite
the devalued currency and the initial import surcharge, Aleš recalled that the biggest problem
his company had to face was imports from Western markets.
However, these problems again varied according to the industry and depended on how
much of the company's production was exported or destined for the domestic market. Because
even in the textile industry, which was hit especially hard by foreign competition, there were
exceptions, such as damask producers. These companies' production was mainly for foreign
markets already, and they benefited from the devalued currency.9 2
The "Wild '90s"
The 1990s were also a time of constant, rapid change in the legal environment that individual
actors had to navigate and respond to. The legal environment was very opaque. Most of our
narrators remember it i n terms of "problematic" (Vlastimil) or "messy" (Patrik), which is in
line with a number of researchers who have criticized the state and the development of the
legal environment.9 3
Patrik even laughingly comments that "it was just a huge clusterfuck,"
and for Václav, "there was a problem everywhere you looked, because of course it was a
complete reorientation, a total overhaul of the legal system."
Private-sector actors had to constantly adapt to these changes and learn new rules, which the
narrators remember as "exhausting." According to Rudolf, "It was horrible, because there were
literally hundreds of different standards, maybe thousands, that a company had to somehow
digest, or at least know about," and it took very long time for the legal environment to stabilize:
"Let's say after the first fifteen years of the new millennium, then it was a satisfactory situation."
For Richard, the change in the legal environment was a really powerful experience:
I can't imagine it today. Every month or so, I used to get, apart from the Hospodářské noviny311
(which was more or less up and running), the Collections of Laws delivered to my desk.
92. Matesova stated that i n 1990, with almost the same volume of production of damask as i n the previous
period, the share of exports increased from 65 percent to almost 90 percent. See Matesova, "Country."
93. A m o n g others, see Mlčoch, Úvahy; Dillon and Wykoff, Creating.
94. Hospodářské noviny was (and still is) the largest daily business newspaper i n the Czech Republic,
comparable to the Wall Street Journal i n the United States or the Financial Times i n the United Kingdom.
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2 4 Coufalová And Žídek
We were studying the new laws, we were studying the accounting laws, we were studying all
kinds of regulations that ... we were learning like crazy. A n d we started working with law
firms. We were forced to follow the legislation somehow, the changes in legislation and these
developments.
Marek also related the complexity of the transformation of the whole system and how
incredibly difficult it was to navigate the new environment:
It was so dynamic, very unstable, things were always changing, there were always new
regulations and new standards coming out, there were always new regulations coming out
on customs and tax matters, yeah, it was quite unstable, and it took away a lot of people's
appetite for it or they got lost in the system. [...] That was unpleasant. Whether it was customs,
taxes, excise taxes, the VAT, the introduction of these. Things that fundamentally changed
business from one day to the next, you had to rework everything under the sun.
However, not all narrators complain about the legal environment. For example, Gabriel and
Karel do not remember anything in the legal environment that would have hindered or
complicated their business in any way. Similarly, Martin perceives the legislative environment
to be the least difficult aspect of all. "There were problems wherever you looked, but
from the point of view of legislation, I would say those were the smallest ones."
Moreover, Petr argues that compared with other CPEs, Czechoslovakia had the advantage of
the tradition of the Austro-Hungarian Empire, while other countries had nothing to build
on. This corresponds with findings by Roland,9 5
who pointed out that the evolution of the
institutional environment in the former communist countries was conditioned on their historical
experience before communism, such as being part of the Austro-Hungarian Empire.
Complex and permanent changes in the legal system inevitably resulted in problems with
law enforcement and, for some, a search for ways to take advantage of this situation. The state
did not interfere much in the enterprises' affairs—unlike governments in the countries of the
former Soviet Union9 6
—although in both regions, the enforcement of rules was limited.
Narrators spoke of this period in terms of it being the "real jungle" or " w i l d " years (e.g., Milan).
Jana recalled the period in a similar way, reinforcing the idea that it was a jungle:
Legislation was a hassle, because of the way it was setup at the beginning, and because things
were always changing, and because nothing was respected, the rules just didn't apply. [...] I
think that what tied us down the most was really the environment, which was inconsistent,
unstable from the regulatory side, and in fact the legal enforcement was poor, so you didn't
really have much to rely on, except yourself, and moreover that you wouldn't accidentally fall
into the hands of someone who would just take advantage of you, abuse you.
The consequence was that it was impossible to rely on relationships with business partners
—managers had to be more vigilant about how contracts looked and whether a client or
95. Roland, "The Long-Run."
96. Estrin, Meyer, and Bytchova, "Entrepreneurship."
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Czech Businesses Lost in the Transition 25
supplier was trying to take advantage of them. The change in customer relations after 1989 was
also a topic that Rudolf remembers. According to him, during socialism, relations were
Maybe friendlier, there wasn't that element of having a partner, how it sometimes is with
apologizing for the rip off, yeah? [...] We had never had to close a deal, and now negotiations
were going on, contracts, it was of a different nature. Before, nobody working with us had to,
like, pay attention to what was in the contract or not, yeah? When we were delivering to
Klement Gottwald's New Steelworks, there was nobody who wanted to trick us or stick
anything in the contract that would have done that.
Moreover, some companies refused to pay.9 7
According to Gabriel, the problems were not
massive, but nevertheless, "we lost a million here and there."
Some of our narrators show that their companies were not only victims of the situation but
also culprits (perhaps as a result of the hard-hitting transformation or their own bitter experiences).
According to Hynek, i n the 1990s, his top management forced its employees not to
pay suppliers, and Milan remembers that some companies tried to go to extremes, take
predatory actions, and exploit the situation:
But in the '90s, there was just such a wild supplier-customer relationship. Back then, it was
very easy to borrow money from the bank9 8
and these people swelled up, they set up
companies, then they bought machines from us on invoice, they exported the machines
somewhere, and the invoices never got paid, so we were getting into this secondary insolvency,
that we had tons of all kinds of receivables all over the world, which in many cases
were completely uncollectible, right? Which was terrible for us, of course, because we needed
to buy materials to keep producing, right? A n d the companies didn't want to give us the
material, so there was a situation where they were just extending the due dates, and then it
was so bad that somebody would say to us—yeah, I'll buy the machine from you, but I'll pay
you back in six months. Yeah? And we, just to sell it, just to have any money at all, so we were
able to, like, shit like that. And the guy would use the machine to print for six months, until he
had orders, he paid for it, and then he'd send it back to us because it was "bad" [laughs].
Similarly, Vlastimil points out that the speed of change eventually created room for rather
questionable business practices. "That was the worst problem, the unenforceability of the law,
the endless corruption, the tunneling."9 9
These were often additional remnants of socialism.
Corruption and bribery were deeply rooted i n society and were common business practices.
The literature bears this out; Fassmann has quoted surveys among Czechoslovak inhabitants.
The share of people who had admitted to giving a bribe in the previous twelve months were as
follows: i n 1979, 34 percent; 1981, 32 percent; and 1989, 52 percent.1 0 0
Petty bribes were
also common among businesses, especially i n an attempt to secure scarce raw materials or
97. Sojka ("Deset let") and Holman [Transformace) pointed out the dramatic growth of mutual indebtedness
already existing i n 1991 and 1992.
98. O n this point, narrators' opinions diverge. According to some, it was easy to get a loan, but according to
others, it was almost impossible.
99. "Tunnelling" is a Czech term commonly used for the withdrawal of assets from a company.
100. Fassmann, Stínová ekonomika.
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26 Coufalová And Žídek
semi-finished goods. These practices remained even after 1989. Mirek argued that small bribes
or "gifts"—like a bottle of slivovitz—still determined how quickly a client's application would
be processed. Officials expected these "gifts," and if the applicant failed to bring the bottle, his
or her application was relegated to the bottom of the pile for processing.
On the other hand, some of the narrators saw positive aspects of this " w i l d " era, because it
provided great opportunities. For example, Vojtech states that despite the "wildness" of the
legislative environment, the level of bureaucracy was generally not too high, which greatly
facilitated business, because everything was much simpler and the courts and other agencies
did not complicate the situation. So, law and law enforcement were not perfect in terms of
today's legislation, but "if every other privatization project ended up in court (...) it would
have never come together."
Martin summarizes all the problems he saw in the early 1990s:
The political changes, the changes in relationships, the unrest among the workers, the
collapse of markets and so on, it all made the 1990s extremely difficult. A n d our lack of
skills, as it were, and the lack of preparedness for new times and new circumstances. That
made it terribly difficult, but from the point of view of entrepreneurial possibilities, freedom,
and opportunities, those years had far greater potential than those of today. Because regulation
was basically ... minimal compared to what it is today.
Conclusion
After the collapse of communism, the Czechoslovak (after 1993 Czech) Republic had to
undergo a path of reforms to move from central planning to a market economy. The relevant
literature has comprehensively documented this transition, evaluating it rather positively
both for its general effects as well as its macroeconomic stabilization. Nevertheless, the
microeconomic point of view is rather scarce. Contrary to the results presented by the conventional
economic literature, this paper based on oral history method shows that the macroeconomic
perspective is not the whole story. In practice, firms had great difficulty adapting
to this new situation. Our research fills this empty space and identifies the key problems of
Czech businesses during the transition period, and it helps researchers gain insight into what
needs to be considered when trying to understand such a huge change in an institutional
system. By adopting this approach, we can better explain the difficulty of the road from
socialism to a market economy. The recurring narrative themes point to several areas of
concern.
First, the legacy of central planning created a particularly large burden. Managers had to
contemplate a complete paradigm shift when doing business—from trying to meet the plan
(regardless of efficiency) to trying to make a profit (emphasizing efficiency in every action).
The managers were not—and could not have been—prepared for this change, because most of
them had virtually no practical knowledge of how a market economy worked. The command
system forced them in practice to build up excess stocks of everything—including their labor
forces—to ensure that the plan was met, which was perfectly rational according to the
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Czech Businesses Lost in the Transition 27
incentives of the system. However, such excess capacity became a major liability at the
moment that profitability became the key factor of their work. The new system forced them
to make cuts and layoffs. Decisions about layoffs were a recurrent topic across the narrators'
accounts and were perceived as extremely difficult in human terms—in part because the
declared advantage of the socialist establishment was the absence of unemployment. The
extensive literature we have cited consistently points to embedded cultural attitudes toward
work and social security across post-socialist countries, whose inhabitants were unprepared
for unemployment and expected high levels of social (i.e., governmental) protection. Unemployment
also had arisen as one of the most important determinants of voting behavior in these
countries. Our article has contributed to this literature by using narratives, throwing into relief
the point of view of the managers of that time. We observed a common pattern across the
interviews: a certain trauma of having to face a choice between the search for business
efficiency and the social and human aspects of layoffs, which the narrators—regardless of
the industry in which they worked—still feel thirty years after.
Narrators also perceived legacies of communism in informal institutions. Previous literature
has already noted that these morals, values, and beliefs only change very slowly.1 0 1
With
regards to business specifically, scholars have pointed out how the legacy of communism
affects the behavior of managers.1 0 2
This was also a common pattern across our interviews,
which nevertheless also revealed that it was very difficult to change the behavior and work
ethic of employees. Another problematic aspect was employees' attitudes toward customers,
because they were used to customers being in a pleading position. However, the new system
required placing customers first; this concept proved to be extremely complicated for management
to instill in their workers. The distance in time from the events under examination
helps us to uncover sensitive topics like the details of nepotism and petty corruption on the
part of the employees that would otherwise have remained in anecdotal, relative obscurity.
It was thus absolutely necessary for managers to completely change employees' attitudes
about business and their role in it—but also managers themselves had to change their work
ethic. Under the previous system, it was similar to that of employees, because they also were
not motivated to work hard. Our interviews reveal that in their case, the pendulum often went
in the opposite direction, and managers were unable to keep a reasonable work-life balance,
which sometimes even led to self-destruction.
The second challenge for businesses arose from the external environment. Management
was used to working in a state of total stability, where conditions had been virtually
unchanged for decades, and business relations were planned and perfectly stable. This world
quickly collapsed after the fall of the communist regime, and managers had to adapt to the
nature of a market economy—to permanent change. The transformation itself also meant a
general decline in demand caused by the transformation recession. The supply and demand
chains were interrupted, and moreover, competition began to emerge in the domestic market.
This problem was even more profound for companies that previously exported their goods,
because the traditional Eastern markets collapsed. In addition, managers also spoke about the
decision of a number of companies not to use the services of FTEs anymore—despite the fact
101. See, e.g., Roland, "The Long-Run."
102. For instance, Clark and Soulsby, Organizational Change.
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28 Coufalová And Žídek
that only FTE employees had knowledge of how foreign markets worked. These companies, in
an attempt to save costs or because of their hubris or naivete, believed that they would be able
to deal with foreign markets on their own. In retrospect, our narrators saw this as a critical
mistake.
Third, it was not only the business relationships but the rules of the economy—the legal
system—that were constantly and fundamentally changing. These legal changes, combined
with their weak enforcement, contributed to counterproductive patterns of behavior (including
nonpayment as a general phenomenon), which Czechs often refer to as "the wild '90s."
Based on the most recurring topics, we have identified various forms of this " w i l d " behavior—
some firms simply failed to keep up with the changes in the rules, others ignored them, while a
few outright abused them. It is hard to guess what the predominant cause of this "jungle"
ecosystem was, but regardless of the cause, most narrators considered it to be a serious
drawback. A t the same time, the passing of time allowed some of them to admit that their
companies had also behaved i n a predatory way. O n the other hand, others associated the
period with a generally lower level of regulation, which they praised.
Fourth, the position of different sectors within the economy was very uneven. As the
available literature has pointed out, the initial conditions for various sectors varied greatly.
Sectors like heavy industry or metallurgy were massively favored at the expense of others; this
was reflected, for example, i n the level of investment.1 0 3
Moreover, some companies had
newer machines or were able to export to Western markets, so their products were relatively
competitive, whereas others had obsolete technology and had exported to the Eastern markets,
which quickly disappeared.1 0 4
In the words of the narrators, the initial differences were
intensified by the transformation itself. This had a decisive impact, because the demand for
some products stayed more or less constant or the company, such as Škoda Auto, was lucky,
because a foreign investor purchased it with plans for further development.
The changes described affected not only Czech companies. The change from a command
system to a market-led economy took place in other Eastern bloc countries, but the individual
centrally planned systems differed significantly i n both macroeconomic stability and the
position of enterprises. For example, in Poland and Hungary, the private sector played a much
larger role, and state-owned enterprises were also able to make more autonomous decisions.
The differences were further exacerbated because the approaches to the transformation process
were not identical,1 0 5
which makes the experiences within each country very specific and
not fully transferable. Thus, more research exploring the experiences of businesses i n other
post-socialist countries could be a promising avenue for future research.
LUCIE COUFALOVÁ is an assistant professor i n the Department of Economics at Masaryk University.
Contact information: Department of Economics, Masaryk University, Faculty of
Economics and Administration, Lipová 41a, 602 00 Brno, Czech Republic. E-mail: Lucie.
Coufalova@econ.muni.cz.
103. Teichová, The Czechoslovak Economy.
104. Coufalová, Mikula, and Žídek, "Competitiveness."
105. Žídek, From Central Planning.
https://doi.org/10.1017/eso.2023.17 Published online by Cambridge University Press
Czech Businesses Lost in the Transition 29
Libor ŽÍDEK is an associate professor in the Department of Economics at Masaryk University.
Contact information: Department of Economics, Masaryk University, Faculty of Economics
and Administration, Lipová 41a, 602 00 Brno, Czech Republic. E-mail: Libor.Zidek@econ.
muni.cz.
Acknowledgement
This work was supported by Czech Science Foundation under Grant G A CR 20-23131S. The authors declare no
competing interests.
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Cite this article: Coufalová, Lucie and Libor Žídek. "Lost i n the Transition: Czech Businesses Pivoting from the
Centrally Planned Economy to Capitalism." Enterprise &• Society (2023): 1-32.
https://doi.org/10.1017/eso.2023.17 Published online by Cambridge University Press