Czechoslovakia's Great Sell-Off
The rapid privatization of state-owned companies is considered central to Eastern Europe's economic reforms. FROM MARX TO MARKETS: EASTERN EUROPE'S DARING LEAP
PRAGUE — SATURDAY morning in the Czechoslovak capital - auction day, and the big money's hit town. But the bidding here at the local theater isn't for fancy paintings or yachts.This auction is on the front lines of one of the boldest economic experiments of modern times - an effort to put thousands of enterprises nationalized by the communists back into private hands in just a few short months. Everything is up for grabs, from hotels to restaurants, hairdressers to souvenir shops. By the end of the year, the authorities hope to sell as many as 35,000 properties throughout the country. Without recognizable owners who have a vested interest in seeing their investment pay off, East Europe's reformers argue, a market economy cannot be built. True, the West has state-run companies that make a profit. But their products can be compared with those of private firms. "This is the crown jewel of the reform process," says Karel Dyba, Czech economics minister. "Without privatization, small-scale privatization, large-scale privatization, you cannot create a functioning market economy." So far, the sell-off concerns small shops sold at the auctions. Today's first happy winner is baker Zuzanna Sindelofalova, who bought a small property in the center of Prague. "Until now, I delivered my cakes" to other shops, she says. "Now I will be able to sell them in my own shop." The privatization of large state enterprises is beginning. A few large companies already have been sold to foreigners, most notably Skoda's automobile operations to Volkswagen for $6 billion. The bulk of the buying, however, will have to be done by locals, for both political and economic reasons. Rich foreigners are only interested in a few of the thousands of state firms. Moreover, the public opposes a fire-sale of state companies. The Prague government has come up with an ingenious and daring solution: It plans, for all intents and purposes, to give the companies away. For a nominal fee of about $32, all Czechs will be offered the opportunity to buy vouchers which they can cash into shares. Despite differences in technical details, Poland is preparing a similar voucher scheme. Hungary, more cautious, hopes to sell directly to company managers or to the country's emerging class of businessmen. Whichever technique is used, the task dwarfs Britain's much-heralded privatizations of the 1980s. Under Margaret Thatcher, only two dozen companies were shifted out of government control in 12 years. In Eastern Europe, as much 80 percent or more of the economy is to be put on the auction block. THE process is not without its problems. One typical complication is what to do with former owners. Last spring, the Czechoslovak parliament passed a law saying that individuals who had their businesses confiscated by the communists can recover them. According to Paolo Vanca, a partner of the Prague office of Price Waterhouse, more than 300 claims by former owners are filed every day, and the process of sorting them out could take months, even years. "The big difference is that in Poland and Hungary they decided to forget restitution," Mr. Vanca says. "They decided to go directly ahead into the future and say, 'We're sorry what happened before, but here we decided to clean the past. Many Czechoslovaks fear that former communist bureaucrats, black-market dealers, and money-changers will end up profiting the most from the privatization process. "There are ... well-known faces, which you can see at these auctions each time," admits Jindrich Kebrle, director of the Prague auctions. But most officials are pragmatists. They say it's better that money is invested in something productive than kept under a pillow. "I am not an employee of Scotland Yard," says Privatization Minister Tomas Jezek. "I am no detective and I refuse to ask people where their money comes from." Back at the theater, the auction is heating up. As well as shops and restaurants, two gas stations are on the block today. Bidding for the first gas station begins. It starts at 1.4 million crowns - almost $50,000. Quickly it rises to 2 million, 3 million, 7 million. A pause. Then the bids continue to climb. Eight million, 9 million. The auctioneer asks for more. The final, winning bid is 9.3 million crowns - more than $300,000. Pavel Ruzicka is the proud new owner. Until now, Mr. Ruzicka has made his living selling used cars. Before the communists came to power, both his father and grandfather owned their own businesses. So Ruzicka jumped at the chance to buy the station. He says he used his savings and money collected from friends to raise the cash. "This is a fulfillment of my dreams," he explains. Ruzicka has big plans for his property, starting with a new car-wash and a snack shop. His workers are pleased, too. Ruzicka has promised to retain all employees from the state station. Not only that, he's promised them better work conditions and higher salaries. "We would like to improve our service, to treat the clients better, to respect them more," says Frantisek Cerny, a worker at the gas station. "As long as Mr. Ruzicka has enough resources for modernizing the station, this should be possible." Ruzicka smiles. "I dream about a very nice gas station with super service, good prices," he says. "The time is changing so I can say only one thing: I'm a capitalist."