Czech Republic's Economic Transformation

Table of Contents

Definitions and Clarifications: “Big Bang” or “Gradualism”?

Inefficiencies in the Czech Case

Effective Response to Problems

The Importance of Setting

Conclusion: Czech Republic’s Path vs. Others

Where is the Czech Republic Headed?

Final Words

Appendix

Bibliography

“The Czech Republic has made enormous strides in establishing a market economy, and despite having one of the largest state sectors at the beginning of its transformation, is now among the most advanced countries”.^[1]

Similar to the above quote, the 2007 EBRD Report states that the Czech Republic is “one of the most open and competitive economies in the region as well as the EU as a whole” and has “a mature and stable” political system,^[2] qualifying it for graduation from the EBRD list of post-communist transition countries, the first country to do so.

When we analyze the information on the Czech Republic’s democratization scores and its democracy transition indicators at the end of 2006 (see below), we also have this impression. However, this does not explain the process of transition, which had its bumps, and in this paper we will attempt to explain the reasons for the Czech Republic’s overall success in comparison to other post-communist countries in Europe while analyzing the “bump” during the 1997 economic crisis. We argue that although the Czech Republic was part of the group of countries with an initial “big bang” phase, its transition has been remarkably gradual, implementing changes as problems have presented themselves.

The paper’s organization is as follows. First we discuss what we mean by transition, “big bang”, and “gradual” and we clear up the discrepancy in the literature regarding whether or not the Czech experience adhered to “big bang” or “gradualism” (it used both in fact). Second, we discuss the inefficiencies in the Czech experience: employment, strategy, and finances, which showed up in the gradual phases of transition. Third, we discuss the Czech Republic’s reaction to these inefficiencies. Fourth, we analyze the significance of setting. Fifth, we conclude by comparing the Czech experience to other post-communist countries and by discussing what comes next.

Definitions and Clarifications: “Big Bang” or “Gradualism”?

The transition for post-communist countries was undeniably difficult. Goldstein writes that transition involved “a total restructuring of the economy into an entirely different form with new institutions and management skills”,^[3] and McMaster writes that this was especially difficult because all the remaining institutions were either newly created and lacked testing to see if they worked or old and in need of reform.^[4] These countries, thus, had a hard task, and in the Czech case, this transition involved two phases. The first implemented “big bang” radical reforms, of which the most radical occurred between 1989-1993.^[5] This was supported by then Czech Prime Minister Klaus who argued that this was an opportunity that Czech Republic “cannot afford to miss” and it was “the fast way of achieving an optimal situation”.^[6] If we look at the transition indicators below, we see the strong upward change in the economic liberalization scores and an improvement (decrease in this case because 1.0 is the optimal score) of the democracy indicators.

Economic Liberalization TPI and Democratization Scores^[7]

Abbildung in dieser Leseprobe nicht enthalten

However, following this positive period, things leveled off into a cloudy period of “gradualism”. This policy was argued by some Czech officials, who wanted “a phase, case-by-case approach”.^[8] Our data show that following the mid 1990s’, scores no longer drastically increased. The new developments were much slower^[9] yet gained considerable credit in Czech Republic.^[10] In the next portion of this paper, we look at these “gradual phases” and hope to answer why it worked so well and how it reacted to certain developments, in particular the 1997 economic crisis.

[...]

^[1] 2000, p.37.

^[2] EBRD, 2007, p.4-5.

^[3] 1997, p.532

^[4] 2006, p.163

^[5] UNDP, 2003, p.49

^[6] McMaster, 2006, p.161

^[7] Where TPI refers to the average of the EBRD economic liberalization scores; PR refers to Freedom House Index on political rights; and CL refers to Freedom House Index on civil liberties.

^[8] McMaster, 2006, p.161

^[9] Beck & Laeven, 2006, p.158

^[10] Brzeski, 1999, p.44