Thirty years later, was the privatization of vouchers a good decision?

“Frankly, it was a very difficult period. There were basically only two options to choose from. One was the privatization of vouchers [as it was undertaken] and the other was to privatize by selling company assets for real money.

“The problem was that there was no real money in the population. Also, at that time there was strong popular opposition to selling the company’s assets into foreign hands, although that would in effect be selling them for real money.

“So the privatization of vouchers was a way to redistribute state property without cash, these vouchers replacing currency.

“The vouchers weren’t free, but they were almost free – it was kind of a giveaway program. When you wanted to participate in the program, you had to register and pay a fee, which was 1,000 crowns [1,035 crowns including the cost of the voucher book]. At that time, 1,000 crowns were not peanuts. It was a substantial sum of money considering the average monthly salary.

Indeed, the average monthly salary in 1992 was 4,644 crowns, or almost a quarter of the monthly salary.

Evžen Kočenda |  Photo: Charles University

“Exactly, so although it was a giveaway program, there was a monetary incentive that made him wonder if he wanted to participate or not.

“There is one caveat, however, which I think should not have happened. Namely, that you could only register and get the voucher if you were 18 or older.

“So the minors were excluded and I think that was a mistake because these minors are now adults living in this new transformed economy and society.

“I think there should have been some sort of mechanism for them to participate. For example, through their parents.

Critics of the voucher privatization program often note that a small number of selected individuals ended up becoming very wealthy, while many of those who invested in a voucher book made no profit. Indeed, some have yet to even claim the profits they have made from their assets. Some of the economists who proposed the voucher method said in retrospect that there could have been a greater level of legal control. Was there a mistake in the way the voucher privatization was implemented?

“I wouldn’t call it a mistake, but there was definitely an institutional framework missing.

“Having said that, it is understandable that not all the institutions were in place at such an early stage of the transformation. [from socialism to capitalism].

“In fact, looking back, I think a decision to wait for such a legal framework to be in place might have actually had worse economic consequences than just going ahead with the privatization of vouchers in the imperfect institutional framework of the time. I don’t want to be general after the battle, it’s just an ex-post evaluation.

“Anyway, as I said before, this method of privatization has replaced cash with vouchers. People who acquired their shares in privatized companies directly or through privatization funds were very small owners. Each of them owned at most two shares. This meant that there was a huge proportion of dispersed ownership in these privatized companies.

“Meanwhile, some companies, those over which the state wanted to retain control, had very strong majority shareholders. Not all of the shares of these companies were therefore offered to the public via privatization by warrants.

“It is also true that some people acquired particularly large amounts of shares after the voucher program. However, these were acquired by paying “real” money to the original owners of the shares who obtained them through the voucher system.

“All of this basically means that you could end up with companies that are majority owned by one shareholder, while the other shares are dispersed among a large group of small shareholders.

“In such circumstances, it was possible that various asset stripping plans would take place. So many companies would go bankrupt – they wouldn’t perform and some people would make a lot of money from it.

“However, this brings us back to the beginning of the circle – namely, a lack of institutional framework – and this is the price that has finally been paid.”

So, in other words, the voucher privatization program was not perfect, but it was relatively successful given the times and the goals it was supposed to achieve?

“You could say that, because there were other things to consider as well. The result of the voucher privatization was that, on average, the citizens who participated in the voucher privatization got a net gain. It was a net win in the tens of thousands of crowns, which isn’t bad for a fee of 1,000 crowns.

“However, the dispersed ownership of these companies is something I would consider a negative side. The fact that the state wanted to retain control of some companies for a very long period of time meant that although many companies became formally private , they actually remained under the state for many years.

“When you look at the results of the Czech voucher privatization program on the economy and compare it to similar privatization programs in other post-communist states, then you can call the Czech program a relative success.”

Could you elaborate on this assessment a bit? For example, by pointing out the differences with the surrounding regional states?

“Well, it was very well handled in terms of the distribution of the vouchers and the administration of the multi-stage auction.

“It was also a very fast process that didn’t take too long and didn’t involve too much uncertainty, as was the case in some other countries.

“I would also say that the extent to which the assets of some companies were expropriated later [in the Czech Republic] is very little compared to Russia, for example, where the privatization of vouchers was just state-level theft.

Berta D. Wells