ndefinitions and differences nsocialist economic policy : the pros and contras the pros and contras...

nDefinitions and differences nSocialist economic policy : the pros and contras the pros and contras nOvernight turn upside down nShareholders, pirates and tunnels n Main economic indicators, positives and negatives nQuo vadis, Czech economy ?

What are the main differences between market-driven and socialist command driven economy ?

Free market basically means that only the market forces, i.e. supply and demand, are operating. The main rules are: lIf the benefits of doing something exceed the costs, do it. lIf the costs exceed the benefits, dont do it. That is the economic decision rule. lIf supply exceeds demand, prices go down, what in turn lowers supply. lAnd vice versa. That is the main free market rule.

However, as we also know, free market seldom - or practically never - exists in its pure form. The main reasons are: l market failures l delayed action of the invisible hand l existence of historical, cultural, national habits national habits l social and political forces It leads in most cases to a certain level of market regulation by the state

Of the opposite solution to the free market, a strictly regulated, so-called centrally planned economy or command-driven economy, we usually mention the example of communist countries. It is not, however, the only example. This kind of economic policy is connected to periods of any social or natural catastrophe, namely, all war economies have to be centrally planned and regulated.

Differences with regard to 3 central economic questions What to produce ? Capitalisms answer Capitalisms answer : What firms believe people want & what brings profit Socialisms answer Socialisms answer: What central planners believe socially ( or politically) beneficial How to produce ? l How to produce ? Capitalisms answer Capitalisms answer : Decided by the firm, efficiently, profitably Socialisms answer Socialisms answer: Decided by the planners, ideally to the best of the country and people For whom to produce? Capitalisms answer Capitalisms answer : Distribution according to ability and inherited wealth Socialisms answer Socialisms answer: Distribution according to needs (centrally defined by the planners)

According to these definitions and comparison, socialism - or centrally planned economy of the socialist type - does not seem to be as bad, does it ? Lets look at the practical example of the former Czechoslovakia.. Examples .. Examples ..

What happened and when It started after the communist coup in February 1948, but partly even before that.. Klement Gottwald the first communist president The Peoples Militia

What happened and when There were approximately 5 distinct etaps: There were approximately 5 distinct etaps: u1949 - 1959: nationalisation of property, collectivisation of agriculture, enthusiasm and political processes u1960 - 1967: stabilised and developing socialism u1968 - 1969: an attempt of socialism with human face, and market features, Soviet occupation u1969 - 1980: political normalisation, concentration, over-reaching the capitalists concentration, over-reaching the capitalists uthe 80ties up to 1989: integration of certain market principles - the perestrojka

The main economic and social principles All production factors belonging to the state All production factors belonging to the state or co-operatives, no ( or almost no ) private or co-operatives, no ( or almost no ) private enterprising enterprising Production factors including labour allocated and used according to the plan ( the famous 5-year plans) Centrally set prices of all products, set system of incomes and salaries incomes and salaries Main stress on quantity of production, all successes loudly proclaimed, all problems concealed (everything over 100 %), economic efficiency indicators misused

The main economic and social principles Economic and political orientation on the socialist camp countries (COMECON), namely U.S.S.R. Developed system of social benefits: free education, free health care, free children and old age care Proclaimed rights of people (right to work), in fact rather tight set of obligations (obligation to work)

The megalomaniac statue of Josif Stalin in the centre of Prague, built in 1949-1955, 15.5 m high, 12 m wide and 22 m long. It weighted 17,000 tons. (It was nicknamed the queue in front of the meat shopor the street jam). The sculptor commited suicide. The statue was demolished by the army in 1961

The main economic and social principles Political and economic priority of the Communist Party and its members: in education in jobs and careers in housing, sport and recreation in culture Strong role of the communist Trade Unions Little or no regard to environment Suppression of free thinking, writing, culture, travelling... Suppression of religion

Just one example of the many . Lets call the family the Novaks (it is the most frequent Czech surname). In 1947, they owned an estate of about 40 hectares in a Mid-Bohemia district, there was the married couple with 5 children, the old parents and an invalid granny. granny. They were - and still are - a religious family. And they were a happy family. Until...

In the 50s, several big political processes were organised. Tomorrow, we remember 59th anniversary of the execution of JUDr. Milada Horkov, an outstanding Czech lawyer, politician and representative of women movement, who was sentenced in one of the first and biggest of them

The pros and contras Were there any positives of the system at all ? Oh yes ! High social security for the majority, full employment Practically no risks (if you did not oppose the regime) Stable prices, low (highly subsidised) prices of food and housing, cheap and wide-spread public transport Cheap and accessible culture (if you were not too sophisticated) and recreation Free and relatively good health care Growing level of living (relative, with no comparison) No great differences - the satisfaction of being at the same level as the Dvoraks or Novotnys Advantages of the economy of scale Growing volume of production

The situation, both political and economic, seemed to be there forever. Most people got used to it and did what they were supposed to do. Just looking at the pictures of the 1st May celebrations.

May 1, 1952, Tnec

May 1, 1974, Tnec

May 1, 1986, Prague

May 1, 1987, Prague

AFTER THE 1989 VELVET REVOLUTION, THE CR TURNED ALMOST OERNIGHT FROM THE CR TURNED ALMOST OERNIGHT FROM COMAND DRIVEN SOCIALISM TO MARKET ECONOMY It seemed so easy: just to throw the megalomaniaccommunist monuments over, tighten the belts for a little while, let the free market let the free market work and the democracy flourish, and to be happy ever after.

The golden nineties or What had happened during the last 15 years The main stages The main stages lprice liberalisation (1991) lhome and foreign market liberalisation lrestitution process (1991 - ) lsmall and big privatisation (1991-92) lcoupon privatisation (1992-94) leconomic boom and decline lthe burned country(1998) lthe turn to the left (1998) l the EU accession (2004) l present

Coupon (voucher) privatisation was Czech special privatisation method, which was later copied also in other countries (e.g. Russia, Azerbeidjian) Under the Mass or Voucher Privatisation, eligible citizens can use vouchers that are distributed free or at nominal cost to bid for stakes other assts being privatised. In the CR (then CSR), any citizen over 18 was entitled to buy a book of vouchers for 1,200 CZK and then bid for the stakes of the privatised firms in several rounds

The boom of private business We used to have a saying : Every Czech is a musician Every Czech is a musician During the time, it changed several times: Every Czech is a government minister in the late 60ties Every Czech is a shareholder in 1991 Every Czech is a businessman in the mid-90ties And now ? Probably Every Czech at lest once bankrupt or twice unemployed

The boom of private business People started all sorts of businesses. Small shops in private houses, pubs in cellars, houses, pubs in cellars, trade in everything possible and imaginable, erotic saloons, producing plaster trpasliks, rearing goats, ostriches and snails.. And some big businesses as well.

Some of the phenomena Vietnamese markets McDonalds and KFCs Supermarkets and HYPERmarkets HYPERmarkets mobile phone boom tunelling the burned country bad humour

Super- and hypermarkets in the CR Hypermarket is a self-service shopping mall with the shopping area bigger than 2,500 square meters The first one in the CR was open in 1991, at present there are 555 supermarkets, 426 discount markets and 165 hypermarkets in the CR. The share is 19 large-area malls per 1,000,000 inhabitants of the CR, which is the highest in Central Europe. About 60 % of all shopping is done in these markets, Czech families spend the whole days in shopping centers, as there is often also a cinema and many catering possibilities

Do you know this famous Czech financial pirate ? His name is Viktor Kozeny, he is a millionaire several times over, and just now is prosecuted in the U.S. and the CR because of his role in the attempt at coupon privatisation in Azerbeidjan and the CR. Lately, he was put into the U.S. prison, but released again on bail Four years ago, he even tried as the EP candidate for the CR !

Quo vadis, Czech Republic ? Now we have come to Europe. Not in the geographical sense of the word, because, as you know, Prague is the heart of Europe, but in the political, social and economic sense. After the successful referendum, Czech Republic has become the EU member on May 1, 2004 Where are you going Where are you going,

Negatives of the situation Unemployment growth State budget deficit Social disturbances, strikes strikes Roma minority problems problems

Roma minority, with still different cultural habits, high unemployment level and low education level, is one of the biggest social problems. According to the census, there are 12,000 Romas only in the CR, the reality is probably rather different

Czech society is also rather rascist

Another big minority are Vietnamese immigrants The first ones came in 1956 on the invitation of the Communist Czechoslovakia Other waves continued in 1973, 1980- 1983 At present, the Vietnamese population is estimated at 17,000 persons There are much less problems, however, as the Vietnamese people are hard- working, smiling and put a high value to education of children

From the street stalls, Vietnamese salesmen are moving gradually into stone shops and they are about opening a Vietnamese shopping chain

Vietnamese children are among the best pupils in primary and secondary schools, many of them study at universities

Unemployment rate in % 1991-2008 It was zero in 1989, as everybody had to be employed

Regional unemployment 2005 (NUTS 3 level)

State budget deficit ( bill.CZK and % of GDP, 1994-2004)

Positives of the present development lEconomic growth (GDP) lLow inflation rate lGenerally growing level of living lIncrease of FDI

In the long run Gross Domestic Product, bill. CZK current prices

GDP, year-to-year changes in %

Inflation rate in %, 1995-2008

Foreign direct investments per 1,000 inhabitants (mill. CZK, CR total and in regions, 1999-2006)

Trade Balance moving sum of latest 4 quarters in per cent of GDP

Further present problems Fiscal system reform Social insurance reform Population development Health care system reform Political turn to the left Legal system (non)functioning Corruption

Fiscal reform Since January 1, 2007, Czech Republic implemented flat income tax as the first step of fiscal reform It regards physical bodies, the tax base is the so-called super-gross income (gross income + the employers contribution to health and social insurance) The tax rate is theoretically 15 %, but from a different base than before (practically about 23 %) The reform should further introduce the same tax rate also for legal bodies and for the VAT, but this has been postponed

Flat tax in Europe A growing number of countries in Eastern Europe have adopted a flat tax (in bold), pressuring Western European nations to lower their rates. The table supplies a comparison of the top rates on personal income (marginal tax rates)

Social insurance reform should be the next step. At present, retirement age is changing and should reach 65 years for both men and women by 2010 The obligatory social insurance payment should decrease and it should be complemented by the state-supported and guaranteed voluntary insurance system State-guaranteed retirement payment should thus decrease considerably and should cover only the necessary base, the rest will be the individual responsibility The problem is, that no government is willing to stepp into such an unpopular field.

Health care system reform has also been started. The first step has introduced: obligatory payments for visits to medical doctor in the defined cases daily payment for stay in hospital payment for some medicals yearly limit of health care payments per inhabitant privatisation of hospitals Also these steps are highly unpopular, so the obligatory payments were already reduced

Population development up to 2004 The population is ageing, natality was very low in the 90s (1.12 children per 1 couple in productive age) Expected population age structure in 2020 Men Women In ths Age years

Number of liveborn children in ths

Development of Czech population since 13. century (million people)

During the last year, the situation has changed We have now experienced a slight baby-boom in the previous years, because the strong generation of the mid- and late 70, so-called Husaks children, were starting families. In 2008, 114,600 babies were born, most from the year 1993, and there is also immigration However, this still has not increased the natality rate to the natural reproduction level (which is about 2.4 children/1 couple) and also this creates further problems: shortage of hospital places shortage of kindergartens and nursery schools in bigger towns, shortage of primary schools

Turn to the left In many post-communist countries, a certain turn to the left is taking place during the last years. People are tired, unemployed, disappointed. In the parliament elections in 2002, the Communist Party got 18 % of votes and 20 % of seats

EU Parliament election results June 2004 Communists

Parliament elections June 2006 Communists 12.81% votes, 13% seats

EU Parliament election results June 2009

and a not very stable government The victor of the elections 2006 CDP had only 81 seats (out of 200), together with the coalition partners (CDS+ GP) it had just 101 seats Therefore, all decision-making was very difficult and the government was thrown down in April 2009. After that, we had an interim government till the June 2010 elections

Ing. Jan Fischer,prime- minister

The governmental crisis occured shortly after the CR took over the EU presidency for 6 months on January 1, 2009

2010 parliamentary elections

RNDR. Petr Neas, prime-minister

Corruption Football scandal Privatisation Bio-ethanol Land restitution Health care .

The Corruption Perceptions Index (CPI) is a composite index, using data compiled between 2003 and 2005. 16 surveys of businesspeople and assessments by country analysts from 10 independent institutions enter the CPI. The scale is 10 (best) -0 (worst) Source: Transparency International 4.3 points

So the question is: Quo vadis, Czech Republic ?

So the question still is: Where are you going, Czech Republic ?

Thank you for attention !

ndefinitions and differences nsocialist economic policy : the pros and contras the pros and contras...

Documents

market forces

state slide

market features

market failures

main free market rule

planned economy

main differences

peoples militia slide