Czechoslovakia: People's Capitalism

It seems that half the political jokes in Prague center around Václav Klaus, the country's hard-charging, free-market finance minister. A favorite has a group of people including Klaus, being asked to identify an upturned bottle top. All except the finance minister give the expected reply. But Klaus, who favors dispensing with food subsidies, says confidently, "It's a pan for frying steak."

Many Czechoslovakian intellectuals and political leaders oppose Klaus and his bold plans for "a market economy without any adjectives." In December, seven of the 10 ministers in the Civic Forum government founded a Liberal Club to support policies that "lessen the effect of the economic reforms on socially weak groups."

But Klaus seems to have surprising popular support. In the June 1990 elections, he won more votes than any other candidate (President Václav Havel was not on the ballot). In October he won a stunning 70-percent victory among Civic Forum delegates to become chairman of the group. And in a tempestuous conference in January, he won approval for his vision of Civic Forum as a real political party with a firm, antisocialist platform. A recent Czechoslovakian TV poll places him only 5 percentage points below President Havel in popularity.

In January, the first "Klauskrieg" on socialism began when the government removed price controls on 85 percent of foods, restricted the money supply, and made the Czechoslovakian crown largely convertible. Many predict the inevitable short-term decline in living standards will determine Klaus's political support.

For now, though, he is riding high. Foreign Minister Jiri Dienstbier, a leading reform Communist during the 1968 Prague Spring and a leader of the Liberal Club, is despondent at the direction Civic Forum is taking. "We have come once again to having a party run by people who issue membership cards and advocate adherence to an ideological program," he mourns. By European standards, the new Civic Forum platform is certainly an ideological, laissez-faire document. "We mean to totally depart from socialism in all its forms," it proclaims. "A symbiosis of central planning and the market is not possible.…We reject 'perestroika' types of regulated market economics."

The platform goes on to say that its vision of Czechoslovakia is a society, the "pillars of which are individual citizens, families, townships, counties, and the state, in the above order. Free citizens are the source of political, economic, and moral initiative." A section on social justice calls for help to "the poor, sick, old, or otherwise handicapped individuals," but stresses that help should not destroy individual initiative or discourage private aid. As for foreign policy, "The principal guarantor of freedom and peace in Europe has been and continues to be the NATO alliance."

The platform also includes a rousing endorsement of Klaus's plans for "radical privatization in all fields of industry, agriculture and services." In January, the auction of all state-owned small businesses began. For larger firms, Klaus wants to follow the 1989 Velvet Revolution for political freedom with an economic one: a giveaway of much of the nation's capital to its citizens.

The first offering, for 20 percent of state assets, will give every Czechoslovakian vouchers representing the right to buy shares in state companies. The remaining 80 percent will be offered next to Czechoslovakian investors, with employees in state firms and the former owners of nationalized companies allowed to buy at a discount.

But the lack of domestic capital will mean that many of the assets will then be offered to foreign investors. "The irony is that the only way not to sell things too cheaply is to give some of them to the people," Klaus says. The voucher program would be a bold maneuver around many of the hurdles facing privatization in Eastern Europe.

One advantage of a voucher system is that there is no need for time consuming asset valuations—an overnight market in shares would develop. And, notes former Klaus adviser Jan Tauber, "Concern about foreign investment will weaken when people, and not the state, are allowed to sell to foreigners. Then people no longer think you are selling the family silver; it is making a good business deal."

After a speech last fall outlining his privatization plans at a meeting of the Mont Pelerin Society in Munich, Germany, Klaus was surrounded by German business reporters. One, openly skeptical of the voucher idea, noted that West Germany became a capitalist giant even though only 2 percent of its people own shares.

"Oh yes, your great social market economy," Klaus teased. "We plan to go beyond it. It is insufficiently dynamic for what we want to create. We Czechs hope to have the courage to try something the world can learn from—a genuine people's capitalism."

John H. Fund is an editorial writer for the Wall Street Journal. He visited Czechoslovakia in January.