BUSINESS WATCH

Struggling for political and economic survival

They were forced into menial jobs under the Communists—now they are busy making not just a new country, but a new world

Peter C. Newman March 5 1990
BUSINESS WATCH

Struggling for political and economic survival

They were forced into menial jobs under the Communists—now they are busy making not just a new country, but a new world

Peter C. Newman March 5 1990

Struggling for political and economic survival

BUSINESS WATCH

PETER C. NEWMAN

They were forced into menial jobs under the Communists—now they are busy making not just a new country, but a new world

Czechoslovakia’s new minister of foreign trade, Andrej Barcák, glanced around the private gathering of Canadian business leaders in Ottawa’s Four Seasons Hotel last week and remarked: “We know very well that nearly every one of you around this table could write a cheque and buy all of Czechoslovakia. But we just don’t want that to happen. We must, at this early stage of our national transformation, be extremely cautious about how we privatize our economy.”

The meeting, chaired and organized by Bay Street guru Andrew Sarlos, who heads the newly formed Central European Development Corp., which intends to funnel North American investment dollars into Czechoslovakia, Hungary and Poland, brought together an impressive group of Canadian business luminaries. They included Thomas and Sonja Bata, the world’s leading shoe manufacturers (Thomas Bata arrived in Canada in 1939, a month after Nazi forces occupied Prague and most of the rest of Czechoslovakia); Adam Zimmerman, who runs the forestry operations of Noranda Inc.; John Sharpe, executive vice-president of operations for the Four Seasons Hotel chain; George Vilim, head of Toronto’s Torvil Management Inc.; George Fierheller, chief executive officer of Rogers Cantel Inc., operators of Canada’s leading cellular telephone network; as well as half a dozen leading American industrialists and investors. An indication of how significantly the Czechoslovaks—who were accompanying their president, Václav Havel, on his first trip to North America—regarded the closed-door, three-hour session was that their delegation consisted of Vladimir Dlouhy, the country’s deputy prime minister, Finance Minister Václav Klaus and deputy Finance Minister Dusan Triska, as well as Foreign Trade Minister Barcák and half a dozen other senior officials.

Impressively, the Czechoslovaks spoke fluent English, trading quips with the participants and one another, sounding like an untidy caucus

of feisty professors at a provincial college, showing off their appreciation of the differences between macroand microeconomics. Some of them had been in jail only four months ago; all of them had been banished to menial jobs during the Communist rule—and now they were busy inventing not just a new country, but a new world.

It was a bit like watching a cabinet meeting with one minister suggesting how fast the process of privatizing state-owned enterprises should proceed, another disagreeing, the deputy prime minister expressing his view decisively, and one cabinet member shrugging, “Okay, I agree, spontaneously.”

That issue—how to transform an economy locked in the ice age of Communist dogma for more than four decades—dominated the discussions. “We want to establish a market economy with no adjectives,” Dlouhy insisted, “devoid of the central planning that led to the present catastrophic state of our economy. We have a low rate of inflation (1.5 per cent), a relatively small foreign debt ($7 billion) and a stabilized consumer market, and new legislation is now being drafted to substitute for state ownership.”

He pointed out that except for such essential

sectors as utilities and transportation and communications, everything will be up for sale. In the ministers’ presentation, it soon became clear how very far they have to go to put in place the kind of infrastructure that can support a modern economy. At the moment, there is no way to place a telephone call or send a fax across the little country. The banking system remains primitive, though competing financial institutions to the central bank have recently been established. Above all, the Czechoslovak koruna can’t be converted into hard currency, so that profits gained by outside investors cannot be repatriated.

“Our problem,” explained Finance Minister Václav Klaus, “is that we can’t allow any major destabilization of the economy—we don’t want Polish-style hyperinflation. Probably our highest priority is defining a set of workable property laws. We don’t want to discourage investors, but we really can’t sell any assets until we establish proper titles and efficient ways of valuing assets. As we de-monopolize, we will require a large influx of outside investment funds. We’ve already provided for the issue of private debentures and will soon allow a stock market. But most important of all is that prices be set by the genuine free market and not imposed from above. Also, we must introduce proper bookkeeping and recruit trained accountants.”

That last thought was too much for Noranda’s Adam Zimmerman, who yelled out, “Don’t let them in!”

That comment broke the ice, but even the most kindly disposed members of the Canadian delegation could see that the Czechoslovaks were beyond their depth in the immensely complicated process of marrying the secondhand theories they had absorbed about how a free market economy works and the harsh realities of trying to run a government pledged to reform, but also due to face a general election on June 8.

Tourism seemed to be the industry that promised the quickest turnaround—while neighboring Austria attracts $9 billion tourist dollars a year, visitors to Czechoslovakia last year spent only $150 million. Other priorities will include expanding the machinery industry, automobile exports and, of course, Bata shoes.

The Canadian response went beyond wishing the Czechoslovaks good luck. Sarlos, who fled to Canada in 1956 after the ill-fated Hungarian uprising, pledged $50 million from the Central European Development Corp.; the Cantel people said that they were ready to bid on a new telephone exchange; George Vilim promised a Prague-based International Management Centre, in co-operation with Toronto’s York University, to train a cadre of Czechoslovak MBAs. Others expressed longerterm plans, but, as the meeting broke up, at least the start of a special relationship between Canada and post-Communist Czechoslovakia had been set.

It was also obvious to any dispassionate observer that, while Czechoslovakia’s path to democracy is difficult enough, it will be a cakewalk compared to transforming the little republic into a market economy.