5. Early Years After the Break-up of Socialism

The transition process was complete when Jaruzelski resigned the presidency in 1991, and Lech Wałesa was elected President of Poland after he defeated Prime Minister Tadeusz Mazowiecki. Initial reaction to the transformation shock meant a decline of output, a rise in unemployment together with a sharp spike in prices and income inequalities. As a result, in the September 1993 election, the leftist coalition won and continued in transition efforts within a more gradual approach. The finance minister from 1994 to 1997 was Grzegorz Kolodko, who continued privatization and a strict monetary policy to combat inflation and kept the country fairly generous social safety net.

For example, Balcerowicz stated concerning the mainstream economic theory: “I was struck by the level of absurdities as propagated by top-level Western economists … since I studied the socialist economic system and knew that it was basically flawed because it deprived people of economic freedom, which is one of the other fundamental freedoms, private property, and the right to set up enterprise. I was really very, very surprised that in the West, most of the economists, who were technically very good, could propagate such absurdities for such a long time. And against this background, people like Hayek or von Mises or then Friedman … came to me as people who were not mistaken, who could recognize problems early on before they really emerged” (Aligica and Evans 2009, pp. 149–150).

Václav Klaus (1941–) was born in Prague and graduated from the University of Economics in Prague in 1963. He was active intellectually during the second half of the 1960s and worked for the Czechoslovak Academy of Sciences Economic Institute. From that period, his notable publications included Klaus et al. (1969), and later Klaus (1979), and Klaus (1988). He was pushed to leave the Institute in 1970 and joined the staff at the Czechoslovak central bank. In 1987 Klaus joined back the Academy of Sciences, this time the Institute for Prognostics, led by Valtr Komárek. From December 1989, he was Minister of Finance in the Czechoslovak government, from 1992, the Czech Prime Minister. Later the Chairman of the Czech Parliament, and from 2003 till 2013, President of the Czech Republic.

Different, politically less controlled, organizations often published proceedings of these discussions. ČSVTS-ŠBČS Ekonomické modelování, Sborník Referátu (Publication of Czechoslovak Scientific Society at the State Bank of Czechoslovakia, Economic Modelling, Collection of Presentations) published presentations of the Klaus’s seminars.

Besides Klaus, Karel Dyba was Minister of Economy (1992–1996). Tomáš Ježek became the first Czech Minister of Privatization (1990–1992), Chairman of the National Property Fund (1991–1994), and Chairman of the Prague Stock Exchange Chamber. Ivan Kočárník became Czech Minister of Finance, Václav Kupka was Vice-Minister at the Ministry of Economy (Havel, Klacek, Kosta, and Šulc 1998, p. 256). Besides, Josef Zieleniec (1946–) was Minister of Foreign Affairs of Czechoslovakia and the Czech Republic from 1992 till 1997, and Dušan Tříska (1946–) was the leading figure behind coupon privatization in the early 1990s. Vladimír Dlouhý (1953–) was Minister of Economy of the former Czechoslovakia, and in the period 1992–1997 he was a Minister of Industry and Trade in the government of Václav Klaus. Vladimír Rudlovčák, who died in 2002, was a Deputy Minister of Finance.

Bockman and Eyal (2002) contend that radical reform representatives were to an extent ‘pushed’ into liberal positions as believed that reform-socialism attempts were a failure. Already in the second half of the 1980s, there was quite a widespread skeptical opinion in the liberal circles toward the Hungarian market reforms. This author recollects an episode in an apartment of Rita Klímová in Prague in the early 1980s. At this meeting, a noted Hungarian economist, Tamás Bauer, participated. While people in the room were fascinated by Budapest’s changes, Klaus presented a passionate critique of the Hungarian socialist market-reform process. In Győr, in March 1988, on the conference Alternatives of the Socialist Economic Reforms, some Hungarian economists have already raised a critical voice toward the socialist market reforms. László Lengyel (1950–) argued that to mix the market system with the command economy was futile. Kálmán Pécsi (1930–2001) maintained that “we had enough of so-called semireforms” (Kusin 1988). However, there were still presentations in the socialist reform style. This author recollects Morris Bornstein (1927–2012) repeatedly pacifying Klaus to prevent his critical public remarks toward the reform-socialist presentations.

Tomáš Ježek (1940–2017) was born in Plzeň, graduated from the University of Economics in Prague, and worked for the Economic Institute of the Czechoslovak Academy of Sciences. He was a Minister responsible for privatization in the first years after the break-up of socialism. During the 1980s, Tomáš Ježek was translating Hayek’s work into the Czech language. Ježek shared Hayek’s belief that one should submit to arbitrary, sometimes poorly understood, market forces. For Ježek, it had, most likely, a profound religious connotation. Ježek had a deep mistrust of that part of the mainstream economic thought, which valued market-socialism on par with the capitalist market economy. His mistrust was even higher toward radicals and progressives of the Western and developing world who worshipped so much socialist economies he lived in. His recollections appeared in Ježek (2007).

Despite his early publications as Mlčoch (1967), Mlčoch (1969), and Mlčoch (1970), Lubomír Mlčoch (1944–) has lost his academic job in the early 1970s, after the Prague Spring purges, and worked as a clerk in an enterprise. In the seminars, Mlčoch argued that the managers of socialist enterprises, together with the local party elite and branch ministries representatives, exercised property rights. Mlčoch considered central planning a reversed pyramid as managers of enterprises held an informational advantage, which substantially weakened a vertical character of the relationship between planners and enterprises. He rejected the view that a socialist enterprise is a passive unit that only fulfills the plan’s targets (Mlčoch 2000b). Klacek and Kupka (2018) rightly summarize that these were revolutionary and risky thoughts in the 1970s and the 1980s, even if some researchers might consider it a common knowledge today. Most likely, the privatization in the early 1990s confirmed Mlčoch’s view as managers of the former socialist enterprises used their informational advantage, and in several cases, became real owners. In other words, to an extent, socialist managers transformed informal property rights into formal legal rights in the first years of the transformation (Mlčoch 2000a). His views from the socialist period are summarized in Mlčoch (1990, 1992).

The socialist authorities were aware of these seminars, and finally, the security police closed these seminars in 1986. Durčák (2018), based on archives investigation, provides a good description of the knowledge of security forces about these seminars. This knowledge stemmed from reports of some less known participants, economists, who reported to the security police.

For example, a group of economists published a manifesto in Lidové Noviny on the last day of 1991 entitled Economic Transformation: Strong and Weak Side, A Statement of Independent Czech and Slovak Economists. Vladimír Benáček, Aleš Bulíř, Jiří Hlaváček, Milan Horniaček, Jiří Kosta, Karel Kouba, Josef Kučerák, Oldřich Kýn, Michal Mejstřík, Pavel Pelikán, Jiří Sláma, Zdeněk Tuma, Petr Zahradník, and Alena Zemplinerová signed this manifesto. These economists agreed with the basic principles of liberal reform but pointed to the importance of institutional aspects, and relationships of market and state. One should also mention Klacek et al. (1991).

This group includes Miloš Zeman, Valtr Komárek, Lubomír Mlčoch, and also economists from the 1968 reform as Karel Kouba, Otakar Turek, Zdislav Šulc, and others. An independent vision of a slower path of reform is associated with Valtr Komárek (1930–2013), the former director of the reform-oriented Prognostic Institute of the Czech Academic of Science. Komárek envisaged a more substantial state involvement as an alternative to radical reform. Komárek had a voice in the new government and was initially popular, but later lost politically to liberals. His publications included Komárek (1985), Komárek et al. (1990) and Šulc (1998).

This group included František Vlasák, Karel Kouba, Otakar Turek, Zdislav Šulc, Václav Klusoň, Lubomír Mlčoch, and others. This group believed in more gradual privatization after socialist enterprises became fully fledged market subjects. They opposed the voucher privatization based on the idea that it does not create clear ownership, and replaces inefficient state ownership with dispersed impersonal ownership. These economists seemed inspired by post-war German experience and considered Klaus’ reform as an example of Latin American liberalization, which was non-applicable to the Czech reality. Their views appeared in Alternativní přístupy ke scenáři přechodu k tržní ekonomice (Alternative Approaches of Transformation Toward Market Economy) in 1990 (Sojka 2000; Rameš 2020).

Aven and Kokh (2015) discuss the success of Polish and Czech transformations at the beginning of the 1990s compared to Russia’s failed transformation. They emphasize that the leading Russian reformists Gaidar and Yavlinsky—as compared to Klaus and Balcerowicz—were never able to receive substantial political power needed for the implementation of reforms. They quote Gaidar (p. 376), who said, “It was easier for Eastern Europe. They could always find a person from the alternative elite—for instance, from the Church—who had never been a member of the Communist Party.” Aven says on page 384, “The quality of the elites is the main difference between Russia and East European countries. Over 70 years, our ruling class was fully replaced, and the intellectual elite mostly integrated with the state, while the other countries preserved a counter-elite throughout 40 years of the communist regime—clerics and a broad anti-communist intelligentsia.”