AMONG all the countries of Eastern Europe, Czechoslovakla has been regarded as the most likely to succeed in the transition to a market economy. Its economy is stronger than others and is untroubled by a massive debt burden. But even this best-of-cases is facing major economic problems as a result both of external pressures and the government's own policies. Half year results for the economy in 1991 are now avallable.*
PETER ANNEAR
A
REPORT on economic and social development issued by the
Statistical government
Office says Czechoslovakia's transition to a market economy has been seriously affected by the collapse of the former East European and Soviet markets.
This is true, but is far from the whole story. The economy has seriously contracted. Compared with the same period last year, the creation of real national revenue decreased by 13.8% and Gross
Domestic Product declined by 9.2% according to the report. The State Bank expects the annual falls for 1991 to be
18% and 16% respectively.
Within the general pattern of decline, it is possible to identify certain major trends. Prices have risen sharply as a result of the transition in January to internal currency convertibility, that is, trade directly between enterprises instead of allocations, through ministry and the removal of subsidies to enterprises.
Sharp fall in real incomes
Real incomes have fallen as a result, causing a contraction of demand, especially for food products, as people have less to spend. Both convertibility and the fall in demand have caused huge agricultural surpluses, especially of dairy products, eggs and beef, and big losses for some farm collectives.
This agricultural crisis has generated protests from farmers and collectives who cannot find a market for their produce. In response, the government temporarily stepped back from its plans to reform the farm sector and has established a "market regulation fund" which will subsidize exports and purchase some surpluses.
Currently, all agriculture is collectivized or state run and is reasonably efficient. Legislation to reintroduce private land ownership has not passed through parliament despite several attempts. By creating a rural crisis, the government's policies certainly aid its political campaign against the collectives.
Such economic problems have been aggravated by the government's tight monetary and fiscal policies. Taken together, the federal, Czech and Slovak governments currently support a combined budget surplus of approximately $560m and interest rates are kept high. Not surprisingly. currency stability, industrial efficiency and management of agricultural competition are all key to Czechoslovakia's desperately sought membership of the European Economic Community.
Rather modestly, the Statistical Office says that the initial period of transformation of the economy after the January reforms was accompanied by unfavourable social effects. In particular consumer prices rose 49.2% between December and June and real income fell by 28.2% compared with the first half of 1990.
of July rose 3% over the same period last year, the physical volume was down by 45%. People have continued to spend available income, but the huge price rises mean that they can buy less. Moreover the depreciation of the currency means that one's life savings can be wiped out overnight.
Living standards have declined. Unemployment reached 4.6% in July according to the Statistical Bureau, with 363,700 jobless nationally, 165,000 in the Czech Republic (population 10.3m) and 197,000 in the Slovak Republic (pop. 5.3m). At the end of July there were an estimated 44,800 job vacancies inostly in the blue collar sector.
Skoda sold to Volkswagen
Privatization will not solve these problems. The most significant privatization project to date is the government's sale of the Skoda car enterprise to Volkswagen, which undertook to raise production to 400,000 units annually.
On August 30, Volkswagen deputy chairman Volkhard Köhler announced the company would immediately reduce output from 930 to 670 cars a day. The result is a shortening of the work week from five to four days, effective from September until further notice.
Köhler said the cuts were necessary because sales of the mainline Favorit model were poor. He said domestic sales to the end of August were only 30,000 compared to 123,000 for the whole of 1990 and the same low level of sales * This article first appeared in the Australian weekly Green Left. 11
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capitalism?
International Viewpoint #214 • October 14, 1991
CZECHOSLOVAKIA would continue throughout 1992, though exports had been good. Despite assuranc es to the contrary from Volkswagen, there are rumours that the company is using the Mlada Boleslav plant in Czechoslovakia to produce cheap labour components for its German plants.
According to the State Bank, foreign capital inflow for $600m, about 50% above previous estimates. Of the $400m invested this year, most came from Volkswagen.
Meanwhile, the government's privatization programme is proceeding slowly. The greatest difficulty will be coordinating the coupon method of privatization of state-owned enterprises, in terms of timing and logistics, with the more standard approaches such as auctions and direct sales, according to the Czech Republic's privatization minister Tomas Jezek on August 20. The Federal finance minister has attacked the Czech ministry for "sabotaging" the programme.
The total value of state enterprises to be privatized using the coupon method under the government's "large privatization" programme (in which each individual will be issued with coupons or shares worth 2,000 crowns) amounts to $4,667m in the Czech republic and $2,333m in Slovakia, representing the value of enter-
By the end of August, the Czech privatization ministry had selected all the enterprises to be privatized in this way in the Czech republic. Enterprises have until November 1 to submit plans for their own privatization. In this first phase, the Czech ministry will evaluate the plans of each of 2,490 such enterprises.
Requests for return of property
As of August 15, 7,058 shops and retail outfits in the Czech Republic had been auctioned for a total value of $190m in small privatization process. remained unsold. And the Czech ministry has received 50,000 requests from individuals for the return of individual property nationalized after 1948. September 30 is the deadline for submitting restitu.
But the underlying problem in the economy is the decline in output, which occurred in all areas of production in the first half of 1991. Industrial output dropped by 14.3%. The biggest declines were in clothing (33%), electrical engineering (29.9%) and non-ferrous metallurgy (29.5%). Construction industry output fell by 25.5%. Building commenced on 7,755 flats in the first half of the year, 82.6% down on the same period in 1990. Rail transport was down 22.1% and river transport by 22%.
Reflecting the agricultural slump, pur12 down by 19.9%, milk by 128% and cere chases of slaughter cattle nationally were
6.8%. Slovak agriculture minister Josef Krsek claimed in August that the persistent problems in Slovak agriculture stem from the fact that price liberalization did not take into account surpluses left over from 1990. Krsek said that in the first half of 1991 consumption of beef in Slovakia dropped 27% and milk 30%. By the end of the year surpluses are expected to total 110,000 tonnes of beef, litres of milk and 460,000
Pointing to the increasing incidence of insolvency of agricultural enterprises, Krsek said that out of 907 agricultural cooperatives in Slovakia, 160 showed losses last year. Slovakia will address the problems through subsidies for beef and dairy exports, protection of the domestic market and revision of the credit rates and pricing policy. This all comes hard up against EEC policy however.
The economic and political daily Hospodarske noviny (Economic News) has drawn attention to the ever-increasing problem of insolvency among industrial enterprises, accelerated above all by the enterprises failure to pay their accounts to each other. Previously the ministry would balance the accounts at the end of the period and hand out subsidies, but this no longer happens. According to the Czech industry ministry, while the total value of unpaid debts for the republic in January was $1,067m, by the end of June it had reached almost $2,600m.
It is becoming clear that the price of building a new economy is the destruction of the old. Industry is simply being run down. Investment in economy declined by 28.3% in the first half and expenditure on environmental protection at $150m was 11.6% less than in the same period last year. The result is not surprising: labour productivity in enterprises with more than 100 employees fell by 14.3% in comparison with the same period last year.
Redirecting trade from east
Increasing efficiency and competitiveness, however, will be the key to redirecting trade from east to west, a major goal of government policy. Currently, Czechoslovak suppliers are winning new markets in the east simply because their costs are lower. For example wages at the East Slovakia steelworks, the country's biggest steel producer, are one sixth of West European levels. What happens when wages rise?
As a result the trade deficit for the six months was lower than expected at $330m. A surplus of $310m was registered in trade with "advanced countries" and a deficit of $630m with the former members of Comecon.
This could mean that Czechoslovakia is exporting finished products to the west at relatively high prices while bartering or importing inputs from the east at relatively low prices. But how long can it
Czechoslovakia's single biggest supplier is still the USSR, which provides 35% of all imports, mainly oil, followed by united Germany with 18%. Exports now go primarily to Germany (24.6%), followed by the USSR (19.3%). At $290m, an increase of $23m since December, the country's gross debt is not a serious prob-
Considering the economic data now available in Czechoslovakia and other Eastern European countries it is now possible to draw some preliminary conclusions about the nature and course of the economic reforms occurring in the region.
Firstly, at the level of the macro economy, the reforms are very weak. This involves mainly the building of market structures like direct trade between enterprises and price liberalization. While the effects of these measures has so far been bad, the extent to which the market has begun to lead the economy is virtually nil. Meanwhile the government's monetary and fiscal policies, directed towards curbing inflation, are recessionary.
Consequently the success of the transformation depends almost exclusively on micro-economic reform, that is, privatization. In many respects this is the government's only policy, because most other things, including rational trade between enterprises, the import of foreign capital, and external trade relations depend on it. The object of the privatization process is, of course, to create a functioning capitalist class, which is a prerequisite for furIslands of modern industry in
La sea of backwardness
But the limited scope and the slow pace of privatization, plans will affect less than about 20% of the economy in all the eastern and central European countries (except for former East Germany) for a long long time to come, means that these economies will remain overwhelmingly state-owned and state-run for decades. But these statized economies will be dotted with islands of probably foreign owned, low wage, highly profitable, modernized industries lying in a sea of backwardness.
The realities are staring the likes of Czechoslovakia's minister Vaclav Klaus in the face. If Klaus' Civic Democratic Party wins the June 1992 federal elections, privatization economic and political policy here could be much more forcefully implemented. While the social and economic effects of the Czechoslovak economic reform do not look so bad at the moment, that is only because the real reform has not yet begun. *
TO SE NESTADÍTE, ELOVĚCE " IMÁST U SOUKRONÍM OBCRODE ?!
HUNGARY
Krausz
"Aren't you ashamed to steal from a private store?" -
Vladimir Jiranek in Lidove noviny
A GENERAL strike was proposed in Hungary last June In opposition to a doubling of fuel prices. Around 800,000 of the country's 5 million active population was ready to stop work.
The government retreated on some issues, conceding financial help to the most disadvantaged and some forms of employees' control in privatized enterprises. International
Viewpoint interviewed Tamas Krausz, a historian and a member of the Hungarian Left Alternative, on the current situation in Hungary. The Interview was conducted by
Jacqueline Jauffret and Dominique Mezzi.
20000%
W
HAT has been the
Impact of the movement?
We have just seen an big to organize
CroSsprofessional strike initiated by the old trade union, the one that existed before the change of government.
The government's weakness was revealed and it made important concessions to the union and the workers. It had to take note of the problems of the poorest and admit that unions and workers had the right to participate in the privatization process to a certain extent.
But the most important thing is that the movement has shown the government that the working class still exists in Hungary.
The two other, new, unions originate from the National Centre for Workers
Councils (NCWC), which was not at first a union, but a real organization for workers' power. However, it has been revealed that these unions do not really exist, because the political parties have taken control of them.
• But workers' councils continue to exist in the factories.
Small groups still exist that we are trying to help to become stronger. But the former NCWC is now in the grip of the
Democratic Forum and the other goverment parties. It is now a government union.
Furthermore, the biggest section of these unions opposed the strike preparations. The other part, the league of liberredistribution of the national wealth (that is, privatizations). They fought against the old union, whose strength they fear, claiming that the strike movement was manipulated by Communists. But Hungarians could see that this was not true, and in any case the leaders of the new unions are also products of the Stalinist apparatuses.
The government tries to set the unions against each other while the left tries to establish contacts between them. We are the only ones with the legitimacy to do it.
does the trade union movement amount to in reality?
The old unions are not very active in the factories. The newly elected bureaucracy wants to make compromises with the enterprise heads over privatizations. The old union's national bureaucracy is more effective than that at factory level, since the rank-and-file leaders scared of losing their jobs and they do not have sufficient legal backup to con-
This is the current situation. In some ways they have fewer rights thar. under Kadar; they have lost old rights without gaining new ones. • Do the workers support the government or is the degradation of their situation making them nostalgic for the old regime?
Workers who suffered under the old regime now want change at the level of the workplace. They opposed Stalinism, but now have little to hope for as the government attempts to introduce strict financial criteria in the factories. The government can hope to set workers against each other in this period.