NCPA - National Center for Policy Analysis

Czech Republic A Market Success

June 13, 1996

Some former Soviet Bloc countries have moved slowly toward democracy and capitalism -- while others are abandoning reform parties for resurgent neo-communist ones. However, for a number of reasons the Czech Republic has made a swift transition to a free-market economy with a minimum of trauma and has the most stable government in the region.

The result of market reforms is evident in the Czech Republic:

  • Gross domestic product grew by 4.5 percent in 1995 and is currently growing at 6 percent a year.
  • Industrial production has been rising at a rate of more than 9 percent for two years in a row.
  • Per capita income already equals that of Portugal, a member of the European Community, and inflation is less than 10 percent a year.
  • Unemployment is the lowest of all European countries at 3.5 percent.
  • The government budget is running a surplus and foreign capital is flowing into the country.

Among the factors that account for Czechs' successful reforms since its first non-Communist government came to power in November 1989:

  • The region was heavily industrialized for generations before the post-war Communist takeover.
  • It is a Western European country in every sense -- political, economic and cultural.
  • Reformers, led by the non-Marxist economist Vaclav Klaus, planned carefully for a year and acted decisively beginning in January 1991, including decontrolling prices and making the currency convertible.
  • Mass privatization of 2,500 state enterprises through vouchers has moved the economy from 2 percent private ownership in 1990 to 80 percent today.

Industrial production fell by 35 percent during the privatization process, as inefficient state enterprises were liquidated. However, Klaus prepared the public in advance by repeatedly explaining the necessity and benefits of reform.

Source: Roger W. Fontaine, "Red Phoenix Rising? Dealing With the Communist Resurgence in Eastern Europe," Policy Analysis No. 255, June 13, 1996, Cato Institute, 1000 Massachusetts Avenue, NW, Washington, DC 20001, (202) 842-3490.

 

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