Trade and Economy - History
11.08.2009 / 23:00
Early Middle Ages
If we want to speak about economic development in the Czech provinces, we must begin at the very start of social development. Actually, we have more information from the early period about economic activities than about the politics, administration, and legislation of the first forms of state in our territory.
Development in the Czech provinces in the early Middle Ages followed that of other European countries. It was a state, the economy of which was based on raising crops and keeping cattle. Yet even from this early period we have information that trade was of great importance, even on an international scale. This can be attributed mainly to the country's suitable position on the intersection of many major trade routes. Prague and of course other smaller towns at that time were visited by traders travelling from Italian ports to the north of Europe, and by merchants from the east on their way to rich towns in Germany, France, and the countries of the current Benelux.
Also, Bohemia itself was a significant partner in trade. Products exported from the Czech provinces to German states as well as to Russia and the Baltic region included in particular agricultural produce, and later on craft products, mainly made from metal, in exchange for mostly salt and also furs (from Russia) or wines, spices, and exotic fruits from Italy.
With the development of merchant towns, handicrafts developed as well, and we can consider them as predecessors of the industry as we understand it today. Metal processing, pottery, and crafts connected with foodpreparation (baking, malting, honey production) were of particular importance. Later on, in the 11th and 12th centuries, there was a growth in the significance of other skilled workmen such as turners, tanners, goldsmiths, shoe-makers, butchers, and cloth makers. Nonetheless, cloth was still processed mostly in a domestic manner in households or on farms. Tailors did not appear until the 13th century. The first specialized craftsmen frequently worked at churchyards, which on the one hand had enough money to pay these specialists, and on the other hand created constant demand for their products, which included not only products for daily consumption but also artistic items for cult purposes.
High Middle Ages
Trade and crafts developed considerably from the thirteenth century. The first major advancement was recorded during the reign of Premysl Otakar II and then, after a slight decline due to the dying out of the Premyslids, under the rule of John of Luxembourg and in particular his son, Czech King and Emperor of the Holy Roman Empire, Charles IV. Craftsmen at that time worked as free traders and associated themselves in brotherhoods, which over time turned into guilds (a professional organization of masters and journeymen of the same craft). The primary motive for forming guilds was to protect the market against foreign craftsmen, who could on the one hand act as unpleasant competitors for the local professionals; but on the other hand, without the control by guilds they would be able to supply poor quality goods to the market. The system of guilds became so important that guilds even wielded a limited legal power over their members. They could for example independently resolve disputes between their members, they were greatly involved in the administration of towns where they were based, and their masters were highly respected personalities. The boom of crafts and their specialization reached its peak during the reign of Charles IV, when 225 specific crafts could be found in Prague alone. Guilds operated in certain parts of towns, and even today we can discern some locations by the names of quarters or streets. For example, in the Old Town and the New Town of Prague, erected by Charles IV, we can find the streets of Celetná (called after "tsaleters", an old word for bakers), Železná (Iron Street), V Jirchářích (Skinner Street), Kožná (Leather Street) etc. The crafts included both " common" and "artistic" professions, which were characterized by an unusually high quality for that period, and they were very highly valued even beyond the borders of the Czech kingdom. From that time (from 1490 to be exact) we have the unique Old Town Clock, a masterpiece of a craftsman born in Hradec Králové, the legendary Master Hanus, whose story has been recorded in many legends.
Under the reign of Charles IV, international trade also experienced marked development. The emperor realized the importance of trading for growing wealth in the hereditary provinces, and did not hesitate to invest considerable sums of money in maintaining a quality network of roads and in protecting the main merchant routes against bands of robbers. He enriched the local community (meaning mostly that in Prague) with Italian masters and German merchants, whom he invited and who brought their know-how with them. Thus, they contributed to the fact that in the fifteenth century Prague was a thriving European city that could be considered equal to major Italian or French metropolises.
Late Middle Ages and Early Modern Age
The early 15th century is connected with the Hussite revolt, which caused a notable economic decline. Due to this uprising, the country faced international isolation since the Pope, and with him the whole of Catholic Europe, declared a ban on trading with the " heretic" Bohemia, which was de facto a trade embargo. The state was significantly weakened, and in such a situation it was definitely unable to actively support the development of production, crafts, and trade. Due to epidemics, famine, and other negative accompanying phenomena of the Hussite revolt, the population in the Czech provinces declined by 40 - 50%. It took some time for the country's wounds to heal. Whatever positive aspects the Hussite movement had had, undoubtedly contributing to a great national self-awareness, in terms of the economic life the impacts were quite negative.
After the inauguration of George of Poděbrady, the economic situation was markedly revived, and the king's diplomatic activities were instrumental in supporting international trade development. The country quickly recovered from the economic depression caused by the political instability of the previous years.
In the 16th century there was a great expansion. Production became ever more sophisticated, due also to the inflow of foreign craft masters, again mostly from Germany and Italy. During the reign of Rudolph II, Prague virtually became the capital city of the kingdom, and Rudolph's court was filled with the greatest artists and scientists of that time. The alchemic workshops at Prague Castle were witness to, in addition to the quaint attempts at devising the Stone of Wisdom etc., the first discoveries in natural science, in particular in chemistry. Here we can find the roots of an important industry that was later to influence economic life in the Czech provinces more than almost any other industrial activity.
The Thirty Years War
As became customary in the Czech provinces, the period of economic boom was followed by a crisis, this time caused by the Thirty Years War, which swept across Europe in 1618 - 1648. The times that supported the bohemian lifestyle of Rudolph II were followed by a period of military campaigns, and the production of fine cloth, wine glasses, and filigreed jewels was replaced by the manufacture of weapons, coarse cloth and boots for soldiers.
The Thirty Years War broke out as a religious and political conflict in Bohemia. After the Battle of White Mountain (1620) and the subsequent execution of 27 Czech noblemen (1621), major property transfers followed. The properties of many old Bohemian non-Catholic aristocratic lineages were seized and members of this aristocracy were forced to emigrate. Their land was divided among newly settled noblemen. The ruler had the right to grant "incolate", i.e. the right to inhabit, or citizenship, which was usually connected with land holding. Great amounts of property were also gained by those who, during the war engaged in speculative trading and political contrivances, thus acquiring extensive assets. Such persons included Albrecht of Wallenstein. Wallenstein, chief commander of the army, together with Prince Charles of Lichtenstein, Jan de Witte, a Dutch banker, and the Jewish merchant Beshevi contributed to the fiscal collapse of the state in 1623. They founded a financial consortium that minted "long coins", i.e. coins with a low content of precious metal, which rendered the currency weak, and the consequence was fiscal bankruptcy. In combination with the post-White-Mountain property confiscation, the consortium members enjoyed high profits from this business. With his enormous assets, Wallenstein virtually controlled the kingdom, and the king de facto became his hostage. Moreover, Wallenstein was so obsessed with his own enrichment that he even did not hesitate to collaborate with adversary powers. This eventually led to his downfall and in 1631 he was murdered in Cheb. His adversaries and murderers then divided his extensive property among themselves.
Period after the Thirty Years War - Mercantilism
After the Peace Treaty of Westphalia, which in 1648 ended the rampage of the Thirty Years War, and following a certain degree of political consolidation, it was necessary to renew the country economically. Due to the war conflicts, the population in the Czech provinces was reduced by one third, and other European countries faced a similar situation. This required a new approach to economic policy in many states. In the second half of the 17th century, the economic theory of mercantilism appeared, which in very simple terms considered trade, in particular on the international scale, as the main driver of economic growth. This economic school foresaw a great deal of intervention by the state, which should mainly play a role in international trade. In the Austrian group of states, the main theorist of this school of thought was Philip Wilhelm Hörnig, an economist in Vienna. He argued that the production self-sufficiency of the state was to be supported to the maximum extent, thus reducing dependence on foreign countries (maintaining an active foreign trade balance). He recommended that the state should not export raw materials but process them in local firms; he also advised that the unemployed poor be employed in production, which should prevent potential social conflicts.
In terms of trade in a Europe-wide context, it became obvious that the position of the Czech provinces in the heart of the continent, with no access to the sea, was rather disadvantageous. This was notable in particular when comparing the Czech economic development with the boom in naval colonial powers such as England, France and the Netherlands. The first international trading companies in Austria were established at that time. In contrast to the meagrely successful Dutch East Indian Company, which was established in 1718 in Ostende, the Oriental Company, founded in 1719 in Vienna to trade with the Ottoman Empire and the Mediterranean region, showed better results; however, only until Austria lost its position in the Balkans after being defeated by the Turkish army in the 1720s and 1730s.
The Rise of Manufactories
Due to the forced withdrawal from international trade, during the reign of Charles VI the focus was on heavily supporting the national economy. Entrepreneurs were granted numerous privileges and interest-free loans. Unified customs rules were created, which replaced the former common protective (and medieval in their nature) regional and municipal duties, and introduced single tariffs applicable throughout the monarchy. This significantly improved conditions for trade at least within the Austrian monarchy. Nevertheless, we cannot say it was anything similar to a free market. The volume of exports from the Czech provinces to foreign countries was almost double that to other regions of the monarchy.
There was a certain division in exports from the Czech provinces, where the main export route from Bohemia was along the Elbe to the German states, with the main destination being Hamburg. On the other hand, exports from Moravia were mostly southbound to the Black Sea, or used the Oder river system toward the Baltic Sea. Due to the unsuccessful plans to create an Oder-Elbe channel, this obstacle was only overcome by the completion of "imperial roads", which represented the main transportation system before the introduction of railways.
Manufactories were originally established completely outside the old guild structure; guilds gradually lost their former privileges and positions. Manufactories primarily represented another level of development of the extensive home crafts, in particular cloth-making. In the early phase, the manufactories had a distributed form. Spinners and weavers lived in villages, mainly in sub-mountainous regions, often in serfdom under their lords. The products were purchased by "factors" (merchant middlemen between entrepreneurs and home workers), which delivered them to big warehouses in Lusatia and Silesia. From there the products were exported through Hamburg to England. Factors were also those who assigned work to local workers. The entire system was organized with major assistance from foreign experts invited by aristocratic businessmen, who had the required capital and sufficient labour force. Actually, the starting conditions in the Czech provinces for industrial production development were relatively good in comparison with other states of the monarchy. The country had the necessary natural resources and a good level of handicraft production.
The textile production further developed into centralized manufactories, where production phases were no longer divided into mutually linked and locally distributed workshops; production was concentrated in one place. The first manufactory of this kind produced cloth in Horní Litvínov; it was founded by John Joseph of Wallenstein in 1693. An invited specialist from Saxony in Germany helped establish another manufactory for stockings in Osek at the local monastery in 1695. Glass-making was another industry that experienced a great boom at that time, in particular in arboreous and sub-mountainous regions (Jizerské Mountains and Šumava). These areas provided the raw material used to produce glass (siliceous sand) and in particular enough wood for the production of the charcoal that was required for the glass ovens. According to documents preserved from that time, Czech crystal was of equal quality to Venetian glass, and represented one of the main exported articles. Due to its price, which was lower than that of the well-established Venetian production, Czech crystal found markets not only in the Balkan states but also in the developed countries of Western and Southern Europe. In the 18th century, other industries that developed significantly included the production of sugar, porcelain (Horní Slavkov), and paper. It is interesting that the foundations of future industrial regions were already laid at that time. And since the initial machine production required water power, the centres of these industries were formed in regions with suitable natural conditions - along small yet fast rivers (the Jizera, the upper section of the Morava, the Elbe, and the Oder, and partially also the Vltava and other rivers). These regions included primarily the regions below the mountain ranges in Northern Bohemia and Northern Moravia, where the prevailing production specialized in cloth, glass, early foundries and machinery production. Although water power was later replaced by steam engines, these regions still preserved their "industrial character". The production range over time partially changed as described below. Due to the Napoleonic Wars and the related continental blockade, the traditional export industries such as the production of cloth and glass faced a decline. On the other hand, new fields of production appeared. Due to the total absence of imports, mainly from England, the national production of cotton, cotton cloth and iron began to expand, i.e. articles that were until then nearly exclusively covered by imports.
The population in the Czech provinces rose from 4.8 million to 6.8 million between 1815 and 1850. Such a population growth required radical changes, and not only in the agricultural methods used. The original three-field system was gradually replaced by alternative cultivation. Fields were no longer left fallow; they were cultivated by growing technical crops, primarily clover and alfalfa. This positively affected not only the soil quality but in effect the overall effectiveness of agricultural cultivation. Due to the growing use of agricultural land, a portion of which was still used as pasture for sheep (sources of yarn for textile factories), some less productive ponds, which were established long before in the Middle Ages, were emptied at that time.
The actual beginning of the industrial revolution is closely connected to the growing use of steam engines, and with the transfer from production in manufactories, with primarily manual work, to machine production, which multiplied production quantities several times over. The year 1800 is most often mentioned as the breakpoint in the Czech provinces. The dominant industries of course included textiles. One reason was that the textile industry simply continued the tradition of former manufactories, and another one was the fact that many specialists from England, who had the most experience in this field, were in the country. They brought their know-how as well as the necessary technologies. Textile production, in particular machine spinning and weaving of cotton and wool, was followed in the thirties by food processing, in particular sugar production. The introduction of railways and steam transportation means initiated a revolution in transportation. In 1832, České Budějovice and Linz in Austria were connected by the first horse-drawn railway on the European continent. This unique piece of engineering, which could only be compared to one similar railway in England, pioneered a great boom in railway transportation in the Czech provinces. The oldest railway track built for steam locomotives was launched in 1847, connecting Vienna with the iron works and coal mines in Northern Moravia, and later on with the salt mines in Halič. In 1839, the first train arrived in Brno, and six years later in Prague. Traditional procedures were still prevalent in glass production; only the glass works of J. Kavalier in Sázava from their founding in 1837 were the only works to specialize exclusively in technical glass. It was the first glass manufacturer in the world to do so and it gained wide acknowledgement in this field. In 1842, the first brewery that was managed in a modern manner was established in Pilsen. The light Pilsner lager soon became so popular that its name has to date been used to refer to this type of beer (pilsner). In the early half of the 19th century, industrial businessmen began to take over the active role from traders. We can mention the textile factory owner J. Liebig of Liberec, a typical self-made man of his time, the Klein brothers in the railway business, and Lämmel and Pečka, founders of major banks.
The Czech provinces experienced an unparalleled economic boom in the second half of the 19th century. If until then the states of the Austrian monarchy were rather on the periphery of the modern industrial civilization, during the period we are discussing they were already among the regions with the most developed economic systems in Europe. Considerable natural resources, in particular abundant black coal deposits, a high population density, and probably the densest railway network in Europe were the decisive factors that made the Czech provinces the industrially most interesting region of the monarchy. Its production volume and quality were comparable with the most developed countries of Western Europe. For instance, 60-70% of the entire industrial production of the Austrian-Hungarian monarchy was concentrated in the Czech provinces at that time. A typical representative of the new economic elite of that time was an entrepreneur of Austrian origin, Emil Škoda. In 1869, he purchased a small factory in Pilsen from Count Wallenstein, and over a few years he turned it into a first-class machine factory, the products of which successfully competed in the demanding markets of Western Europe. Škoda thus founded a company that, despite various political tumults, multiple changes of ownership, nationalization and then privatization, has survived to date, keeping up with state-of-the-art technologies in its field.
The constantly expanding large-scale production could not prosper without sufficient capital. Since the private funds of individuals, either enterprising aristocrats or new members of the business elite, could not by themselves cover major capital projects, the financial sector began to develop as well. The first basis was formed by credit unions, and later on the classic investment banks became the leading players. Economic life required a legislative governance of business entities; the stock company (or corporation) has since then played the greatest role. The economic expansion also accelerated due to a quality education system. In contrast to England, the cradle of the Industrial Revolution, where all knowledge and skills were gained by practice, in the Czech provinces (and similarly in Germany), the emphasis was always placed on perfect theoretical preparation. The investments in education undoubtedly paid off in the form of many technical inventions and a qualified labour force, which was able to enrich industrial production efficiently. The early phase of industrialization was connected with textile production, situated in the border areas populated mainly by German nationals. In the inland regions, where the Czech nation prevailed, agriculture was mainly developed (in particular the growing of cereals, sugar beet, and hops), followed by food processing, in particular sugar production and brewing. Major industrial centres in Pilsen, Kladno, and Ostrava concentrated machine production and engineering, chemical industries, and the mining of raw materials, in particular black coal.
The late 19th century was marked by the onset of new technologies - combustion engine and electric systems. This period is sometimes referred to as the second industrial, or scientific and technical revolution. Some of the most significant Czech inventors of that era include Josef Ressel, the inventor of the screw-propeller, the Veverka cousins, who invented a turning plough, an advanced form of plough that not only ploughed but also turned the soil, and the inventor of water turbine, Viktor Kaplan, Professor at Brno Technical University. František Křižík, called the "Czech Edison", reached extraordinary importance. This inventor, electrical engineer, and entrepreneur invented, among other things, the electric arc lamp, improved the railway safety system, and established the first Czech power stations. In 1881, during the Jubilee Exhibition, he launched the first electric tramway. In 1903, he built the first electrified railway between Bechyně and Tábor. However, the period of relative economic expansion was basically only interrupted by the economic crisis of 1873, yet in 1914 it was abruptly stopped by World War I.
After the end of World War I and the founding of Czechoslovakia, the new state had to cope with a number of issues. Industrial and agricultural production barely reached half of the pre-war level, the transportation system collapsed, inflation was rising, and there was a catastrophic lack of food. Moreover, there were significant differences in the new state between the economically developed Czech provinces and the rather underdeveloped agrarian Slovakia and Carpatho-Ukraine (Ruthenia). The Czech industry was dominated by coal mining and consumption industries (textiles, glass, sugar, brewing). However, these industries were often dependent on imported raw materials, which made their situation more difficult in the destroyed Europe after the war. The post-war crisis peaked in 1919. With the help of excellent Czech national economists - among whom we should mention in particular the first Czechoslovak Minister of Finance, Alois Rašín - the young country managed over a short period of time to initiate economic expansion. As early as 1925 Czechoslovakia reached the pre-war production volume level, and from 1929 it experienced a considerable boom. The regional economic imbalance was overcome to a great extent. The originally not very satisfactory industrial structure was improved, which had its roots in quite different conditions. It was part of a much greater state, and in some areas it literally had excessive capacities (sugar, glass, textile industries). However, due to modern management systems introduced in practice, the national labour productivity grew. The pioneers in this field included Skoda' s machine-building works in Pilsen, and the firm of Tomáš Baťa (1876-1932), who in Zlín founded a very modern (for that period) shoe-making factory. The shoemaker, from a poor background used his entrepreneurial spirit and made himself a businessman and a major player first in Europe, then all over the world. In his home town, he established a perfectly operating company and made the then small and insignificant town in Moravia a shoemaking metropolis.
He erected entire residential quarters for his workers, including the related infrastructure, and Zlín thus became one of the most modern cities in Czechoslovakia and beyond in the period between the wars. Baťa then expanded his shoemaking empire to Partizánske in Slovakia, then he founded branches abroad, even in India. His son, Jan Tomáš Baťa, today follows in the footsteps of his father, and leads one of the greatest global brands in shoe production and sales, operating branches all over the world.
Czechoslovakia continued its modernization, and in the late 1930s the entire industry was fully electrified, and the same applied to 80% of households. Czechoslovakia ranked among the most developed states of that time, and its national product per capita exceeded that of Austria and Hungary, as well as that of Italy. All this was despite the fact that the eastern provinces of the country (Slovakia, Carpatho-Ukraine) were only modernized gradually. Without exaggeration, Czech industry reached the top level worldwide in many fields. International acknowledgement was notable in particular for the production of airplanes, cars, weapons and high-grade steels, i.e. products requiring highly sophisticated technologies (we can mention companies such as Aero, Škoda, Tatra, Poldi etc.).
Due to the "black Friday" crash on the New York Stock Exchange in 1929, the world was sent into an economic crisis, which with a certain delay also impacted Czechoslovakia. It affected in particular the consumption industry oriented on exports. National exports dropped to one third of the pre-crisis level, and industrial production to 60% of the level in 1929. The crisis reached its peak in March 1933, when there were 978,000 officially unemployed people, i.e. some 17.5%.
Several governments of a broad coalition led by Agrarians tried to cope with the consequences of the crisis, primarily by strong interventions by the state, yet they were not very successful. They increased agrarian tariffs, regulated imports and exports, intervened in bank loan conditions, introduced a cereal monopoly, and to alleviate the harsh social impacts, they introduced higher unemployment benefits, food vouchers for those in need, and public work. Nonetheless, these measures always only represented " emergency" solutions to the worst effects of the crisis. There were very few measures that would aim at the core of the crisis. To overcome the crisis, in 1933 the government even adopted the Act on Extraordinary Empowering Rights, which gave the government a quite exceptional right to implement many measures without these having to be approved by the Parliament. This sparked serious fears of totalitarian tendencies, yet in contrast to Hitler's Germany, these measures could only pertain to the economic sphere, and they only affected civil rights in emergency cases, primarily to suppress outbreaks of social dissatisfaction.
At the end of the 1930s, the country began to recover economically, mainly due to the weakening effects of the crisis in the world. Yet an even more cruel shock came. Based on the Munich Agreement of 1938, Czechoslovakia was forced to surrender its border areas inhabited by Germans to Germany. World War II was right round the corner.
Protectorate of Bohemia and Moravia
In March 1939, the rest of the Czech provinces (after the separation of the Sudetenland) were occupied by the German army, and the Protectorate of Bohemia and Moravia was created. A formally independent clerical and fascist state was formed in Slovakia, which was in effect a mere satellite of Germany.
The economic life in the Protectorate was heavily impaired. Not only the separation of Slovakia, but in particular that of the Sudetenland caused unexpected economic problems. Many major industrial companies were concentrated in the German border regions, and the inland areas were suddenly not self-sufficient. If we add the fact that all inhabitants of Czech nationality were displaced from the German territories, who then despite all kinds of help hardly found any work in the rest of the country, and considering the initial signs of war, we can depict a situation that was anything but good.
The "Aryanization" (seizure) of all Jewish assets was also an important factor. The Jewish ethnic group played an indispensable role in pre-war Czechoslovakia. According to some estimates, there were several hundred thousand Jews living in Czechoslovakia, partially assimilated, who played important roles in culture and science as well as in the economic life of the country.
Protectorate administrators were appointed to major industrial companies, and the actual owners, if they were not sent directly to concentration camps, were deprived of any decision-making powers.
All production facilities in the Protectorate were re-oriented to military production, or made to support the war-waging Germany. The developed arms industry of the pre-war period was intensified even further, textile and shoe-making firms participated massively in producing military uniforms for the Wehrmacht, and agricultural and food production was also directed to meet the needs of the occupying superpower. Due to these factors, the local population experienced a logical lack of basic consumer goods and foods. Therefore, rationing was introduced as early as in October 1939. The rations were gradually reduced during the years of war. Due to the absolute lack of necessities, mainly in the cities, the black market developed significantly. The urban population, which was hit the most by the consequences of war, was often totally dependent on aid from relatives in the country, who were at least able to maintain moderate self-sufficiency.
Although the Protectorate of Bohemia and Moravia was saved from the worst war atrocities as battles did not take place on its territory except for during the end phase of the war, the situation in the country was far from being normal, and the impact on the economic life was also destructive.
A Period of Recovery
At the end of World War II, Czechoslovakia was in a difficult situation of heavy economic and social crisis. On the other hand, there were reasons to be quite optimistic since the population, full of euphoria from the past terror of the war, was enthusiastic about rebuilding the country. Moreover, since the air raids by the allied forces to a relatively great extent did not destroy the Czech industrial plants, Czech industry had a good chance of being revitalized successfully and quickly.
However, the political situation after the war was extremely
adverse for a country that was on the border of the Soviet sphere
Although the newly established Czechoslovak government began to renew the damaged economy in 1945, it had strong socializing inclinations due to the political situation, when Czechoslovak communists had an ever-growing say in politics, being heavily supported by Stalin's Soviet government. It became more and more isolated internationally.
Still in 1945, President Beneš issued decrees that were used to nationalize all major industrial firms, film studios, and the entire "strategic" industries such as communications and banks. Medium-sized and small firms and trades still remained in private ownership. In this aspect, the development in Czechoslovakia was not too different from the then prevailing measures all over Europe. Similar steps were taken in other countries of Central Europe as well as in France and the UK.
A much more important factor for further development was the heavy political dependence on the Soviet Union, and the resulting growing isolation from Western Europe and from the United States of America in particular. The consequences became apparent soon. As early as 1946 negotiations ended in a deadlock with the International Bank for a loan for post-war renewal activities, and in 1947, following pressure from the Soviet government, Czechoslovakia rejected the plan of George C. Marshall, US Secretary of State, for recovery aid to Europe, known as the Marshall Plan. The Iron Curtain dividing Europe into western and eastern parts, meaning democratic and totalitarian, was drawn closed.
After the communist plot in February 1948, the nationalizing mechanism went into full swing. Communists immediately began to eliminate the entire private sector of the national economy. At the end of 1948, more than 95% of the industrial labour force worked in state-owned companies. Small trades were subsequently massively eliminated, including retailers and sole traders. The state, and through it the Communist Party, became a monopoly ruler over the Czechoslovak economy. Not even agriculture was saved from forced confiscation. Private farmers were forced to join "United Agricultural Cooperatives", and those who refused were persecuted and their property seized. Only very small areas of land remained in private ownership, which rather resembled gardens or private plots around houses. The proactive efforts of Czechoslovak communists actually significantly exceeded those of their fellow comrades from other countries of the Eastern bloc, and nationalizing did not reach such dimensions anywhere else but in Albania and of course, Russia.
Under the influence of the Soviet government, the Communist Party pushed the concept of Czechoslovakia as a machine-building and engineering power, the armoury of the Soviet bloc. Regardless of the actual needs and potential of the country, emphasis was placed mainly on heavy engineering and mining industries. Arms production grew up to one third of the total production of the national engineering industry. Foreign trade was completely reoriented towards the Soviet Union and its satellite states. Thus, the relatively developed Czechoslovak economy had to trade with partner countries that were under-developed, and the Czechoslovak production structure was adapted to these partners in trade. This happened under direct diktat from the Soviet Union, where Soviet representatives during negotiations about economic treaties directly determined what was to be or not to be produced and where. In order to coordinate the development of each of the Soviet bloc economies, the Mutual Economic Aid Council (MEAC) was established in 1949. Its strategic goal was to become completely independent from the rest of the world.
Five-year plans were introduced in the country for all spheres, including the economic sphere. These plans determined in great detail what products were to be manufactured and in what quantities, often regardless of the real needs of the population, i.e. with no actual sales guaranteed. Such a centrally planned economy resulted in such situations where, for example, Czechoslovakia produced the highest quantity of iron per capita in all of Europe, yet the population lacked sufficient quantities of basic foods, not to mention consumer goods. The communist rulers continued with this policy, with only a few minor corrections, virtually during the entire period of their reign.
There was monetary reform in Czechoslovakia in 1953, which depreciated all savings of the population, although the government leaders had until the last moment assured the people that nothing like this was planned. Due to this unpopular step, there were even several occurrences of civil disobedience but the efficient repressive units of the party and of the government managed to suppress them very quickly. Such rebellions did not reach a massive scale.
The "Prague Spring" Period
In the early 1960s, the rigid political doctrine softened a bit, and this process culminated in a period referred to as "Prague Spring". Yet it affected the economic life very little. Though there were plans for reforming the centrally planned economy, which should have introduced elements of the free market in the existing system, the economists grouped around Professor Oto Šik did not have enough time to put their theories in practice. This development was abruptly stopped in 1968 by the intervention of the Warsaw Pact armies.
Despite all the problems, the living standard gradually improved from the 1960s. Social security also reached a good level. However, any private initiative was completely eliminated. The goal of the regime was to ensure that everybody was equally well off. The result was quite the opposite; eventually everybody faced the same misery. Except for a small group of the ruling elite, almost everybody had more or less the same salaries, irrespective of whether he was a trench digger or a university professor. If there was any wage differentiation, preference was always given to workers in "blue-collar" professions, who were in accordance with the Marxist philosophy considered the real "creators of value" unlike the "working intelligentsia". The wage uniformity was accompanied by consumption uniformity. The range of products available on the market was very limited, and there were constant problems in supplying even the most basic articles such as toilet paper or women's sanitary products. The heavily limited trade with countries outside the Soviet bloc led, among other problems, to an ongoing lack of tropical fruits. Many people still remember the never-ending lines before Christmas for the allowed ration of one kilogram of oranges, tangerines, or bananas. Only a narrow group of people could buy things in specialized stores called Darex, and later Tuzex, which offered goods from the West that could only be purchased with special coupons or vouchers. The vouchers were distributed in exchange for western currencies, or as a special reward for productive employees. The regime thus corrupted its own people in a somewhat paradoxical manner: it rewarded them by allowing them to purchase goods from denounced imperialistic countries, which, according to the official propaganda, should of course have been much worse than domestic products. Yet the booming black trade in the vouchers proved quite the opposite.
During the 1970s and 1980s, the industrial production was marked by the concept of "production for production". A considerable amount of power was consumed by metallurgy and heavy engineering, which on the other hand produced costly equipment for high-capacity power plants. The "defence" industry was relocated to Slovakia for political and strategic reasons. In the 1990s, this move proved to be detrimental for entire regions in Central and Eastern Slovakia, which experienced high unemployment rates after losing markets when the iron curtain fell.
In the attractive sphere of foreign trade, the main source of foreign exchange, Czechoslovakia always vacated its positions in favour of the Soviet Union if they showed interest. All foreign exchange profits went to Moscow to "support the international workers' movement". In reality, they were only used to enrich a small group of the ruling elite. The external and primarily internal indebtedness of the state reached enormous levels. This was despite the fact that, for example, the trade balance with the Soviet Union showed a highly positive balance on paper, yet the debts were virtually unrecoverable. The policy of "perestroika", meaning reconstruction, declared by Gorbachev in the mid 1980s, aimed at reforming significantly the degenerated economy not only in the USSR but also in the entire Soviet bloc. However, the core Czechoslovak communists accepted this policy only with hesitation, if not directly rejecting it. In the late 1980s, the Czechoslovak economy was in a truly deep crisis, which was not always apparent from the outside.
Development after November 1989
After the fall of the communist regime in November 1989, it was
obvious that, apart from major political reforms, the country would
have to undergo much more crucial and painful economic reform. The
new government began to prepare radical economic reforms right
after being installed in December 1989. The reform concept was
subject to a heated political dispute between the rather "social
democratic" vice-chairman of the government, Valtr Komárek, and the
Minister of Finance of the federal government, Václav Klaus (the
current President of the Czech Republic).
After the elections in the spring of 1990, it was clear that the concept presented by economists grouped around Klaus prevailed. This paved the way toward a standard market economy, emphasizing private ownership and maximum reduction of state expenditures. As part of this concept, foreign trade restrictions were gradually cancelled, the Czech crown was devalued, and as of 1 January 1991 the remnants of price regulation were completely abolished.
Despite the reluctance of the leading economists in the
government, there were extensive restitutions of property
nationalized after February 1948. Quite in parallel, the lengthy
process of privatizing national property began. "Minor
privatization" aimed at selling small trade and service retail
outlets to private owners, while "major privatization" focused on
selling big corporations. Foreign capital was used to a limited
extent; most companies were privatized during two phases of voucher
privatization, when shares of the companies concerned were
virtually distributed among the population.
On the one hand, this process represented a very fast and to a certain extent "fair" method of privatization as every person of at least 18 years of age could participate in the privatization for a small fee, thus gaining a small stake in one or more companies. On the other hand, the companies did not gain the desired specific ownership structure, and their management had more or less complete freedom to conduct various activities. More importantly, the companies did not receive the required capital boosters for their development, as was the case in corporations that were sold to foreign strategic partners.
At the same time, the process of total industrial transformation began. The heavy mechanical engineering industry, which suddenly lost all its markets, in many cases had to undergo painful reorientation towards more lucrative light production, and some companies had to wind up. This attribute of transformation showed more painful impacts in Slovakia, which had a greater imbalance in its industry structure, and the companies there had a much harder time coping with the new conditions.
However, the process of economic transformation did not always
go smoothly, and the privatization of certain industries was
postponed for many years, mainly for political reasons (the
privatization of some major corporations has not been finalized
yet). The economic transformation in Czechoslovakia, and after the
split of the federation in 1993, only in the
Czech Republic, was not accompanied by any greater
social disturbances. The main direction taken proved to be the
right one, and the Czech economy followed the path toward a
standard European model of social market-oriented economy. This
process was symbolically completed by the country's accession to
the European Union on 1 May 2004 and Schengen Area in December 2007..