Czechs Meet Capitalism

THE BALTIMORE SUN

Prague. -- "Czechs have forgotten how to be responsible, to work hard, and to take risks," says Josefa N. in her soft way. She is retired, a widow, a yoga exercise enthusiast, and as of this month a suspicious founding member of the first Czech Association of University Women -- suspicious because the association's pledge of solidarity with the world's women smacks too much of the old Communist ideology for her taste.

"But never mind," she adds, more hopefully, "we'll muddle through somehow."

She remembers personally the years in the 1930s when the Czechs were among the world's ten or 20 most productive countries. Precisely because of the contrast with that disciplined era, she is dubious about how well today's spoiled Czechs, after 40 Communist years of sloughing off and stealing from the state, will adapt to the more stern requirements of the new market economy.

She does grant that various tradesmen now work in the afternoons as well as the mornings, an unheard-of industriousness in the days prior to the "velvet revolution" of November 1989. And she observes that the East Germans too lost their work ethic over the past four decades, "so the Czechs are not the only idiots."

She also knows that the Czechs are better off than the Poles or Hungarians -- the country has relatively low foreign debt and inflation, German investments are pouring in, and Prague at least has only 2 percent unemployment -- in effecting the transition to a free market.

Josefa speaks sadly, but with a glint of dead-pan humor. She loves the city she has lived in for 50 years and the people who have roots here. She related the story of a young Czech her husband shared a prison cell with in the 1950s; the man fled the country as the Communists took over in 1948, then became homesick, returned and got caught. She understands that youth's fateful wish to see once more the Prague Castle crowning the city, and she regrets that none of the children of the emigres she knows ever wants to come back here to live.

With an unusually high pension of 3,200 crowns and a supplementary 1,860 crowns a month from teaching English part-time, she is relatively well off, above the average monthly wage of 3,500 to 4,000 crowns ($125-$143). Her rent has already gone up from 600 to 1,000 crowns ($36) a month and will go up again after the June election. This year her income tax will double to 30 percent. Some of her retired friends complain about the tax hike, but she assets, "I don't mind. I gladly pay for freedom."

So far she doesn't mind paying the other rising prices of the market economy either -- and she appreciates having her choice expanded from the old wilted carnations and wrinkled apples to include fresh irises and orchids and kiwis and pineapple. The cost of shoes is outrageous, however, and so many neighborhood shops are now being converted into tourist discos and boutiques and Slender You Figure Studios that all the dry cleaners have vanished.

Still, she is spared the vexation of an acquaintance who lives in the Letna district; there shoppers have to pay a crown more than in downtown Prague for every item, since restitution of Communist-confiscated property awarded all the grocery stores there to one owner, who now charges monopoly prices to captive local customers. Equally offensively, the friend in Letna also has to put up in her own building with the conversion of the old Czech-Soviet Friendship Society headquarters into a sex shop.

Josefa welcomes the return of Count Kolovrat and the Bata heirs and various other emigre capitalists to Czechoslovakia. The nonagenarian Count Kolovrat has reclaimed the building across the street from her, she explains, and although he is charging rents too high for any Czech to pay (except for patent lawyers), he is admirably lending a palace in another part of Prague to a theater for one crown a year for ten years, and letting an old people's home remain in a second palace of his under the same arrangement.

Bata, for its part, will shortly reopen a shoe store in its old property around the corner on Wenceslas Square and is advertising for persons up to the age of 30 to train as salespersons. It brings back a certain amount of Czech entrepreneurial pride; both its training program and the employee housing it built were exemplary in the 1920s, when it also pioneered a country-wide network of outlets. By the 1930s and 1940s its high-quality footwear was so well known that in one grisly tribute the Gestapo regularly identified Slovak Jews who had fled to Budapest to escape the Holocaust by their Bata shoes.

Josefa is more critical of some other Czech emigres, who seem to her to exploit their stay-at-home confederates. One woman who now lives in Switzerland, for example, comes to have a dress custom-made by the fine Luxus tailor for 5,000 crowns ($185) -- but orders twenty identical copies and then sells them, presumably for huge profits, in the West. Josefa acknowledges that this does give welcome business to the tailor, but it seems to her that in fairness he should be the one to reap the income.

Her cozy fourth-floor apartment is in a building belonging to the ,, Prague district government, and she and the other residents have formed a cooperative to see if they might buy the building before the district sells it to some Czech front for a rich German businessman. Everyone in the cooperative thinks the asking price of two million crowns ($70,000) is astronomical -- everyone, that is, except the young man on the second floor who is opening a computer store and is offering to put up the two million and get paid back in cooperative rents over the next 40 or 50 years.

Josefa has already made her other major financial decision: where to invest her 1,035-crown ($37) coupon book entitling her to shares in the large firms that are currently being privatized. Conservatively, she is entrusting her vouchers to an investment bank to pool with others.

She won't give it to the Golden Gate Fund, which advertises with mock $1,000 bills with the motto (in English) "In Gold We Trust." Nor will she invest in Harvard Capital Consulting, which recently caused an uproar by promising TV viewers to pay back 10,000 crowns in a year and a day to anyone who now places his 1,035-crown rights to shares with Harvard. The real Harvard University in the United States, notes Josefa with disapproval of such wild claims, has said it doesn't have anything to do with the fund -- though she adds as a contrary criticism of the Harvard commercial that the investment banks may actually give an even bigger return.

Indeed they may, since one of the virtues of the coupon system -- beyond making instant shareholders out of every Czech and Slovak who buys and registers a voucher book -- is that it does not even attempt the impossible task of assessing the worth of individual companies on the basis of distorted communist accounting. It kick-starts a private ownership system and then leaves it to the market to sort out values as the ubiquitous new mutual funds make their purchases.

Many of the privatized firms will go bust, but the ones that prove to be competitive enough to survive will be worth many times their book value -- and very many times the value of the nominally-priced vouchers -- as Western Europe's prosperity seeps eastward.

Actually, the flashy Harvard commercial has performed the wonders that all the dull government propaganda failed to do. It suddenly convinced the millions who initially had less confidence than Josefa in the unique privatization scheme that they had a real stake in the system.

Such long lines suddenly formed outside all the voucher sales and registration points in mid-January -- even in less sophisticated Slovakia -- that there was a temporary shortage of coupon books. Suddenly, everyone got involved.

The Harvard fund advertising also triggered the belated recognition, of course, that the fledgling parliament -- in its rush to churn out a new post-Communist constitution, a complete new civil code, election laws, restitution, privatization and all the other necessary legislation for a new democracy -- forgot to provide basic consumer or anti-trust protection or mandate financial disclosure to avert fraud. These gaps will need to be filled. Some Western observers, seeing that the Harvard chutzpah has raked in as much as a third of the total coupon books, hope that is the process the fund will not be punished for its brash but legal success.

"Never mind," says Josefa of the whole mess. "We'll muddle through somehow."

Which, come to think of it, isn't a bad motto for a new, or an old, free-market democracy.

Elizabeth Pond is a John D. and Catherine T. MacArthur Fellow in Central Europe.

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