Czech Republic

The Czech Republic, capital Prague, is a small land-locked central Eastern European state with a population of 10.2 million. The lands of Bohemia and Moravia were an advanced part of the Austro-Hungarian Empire. When the empire collapsed in 1918, a new Czechoslovak state was formed. This lasted until Nazi expansion in World War II. Liberation led to the re-creation of the state and a short-lived coalition government before integration into the Soviet bloc in still-controversial circumstances in 1948–49. The communist regime was shaken in 1968 by the Prague Spring. Soviet invasion halted this, but in 1989 the communist regime collapsed in the face of popular demonstrations and the peaceful Velvet Revolution. The current Czech state emerged in January 1993 from a Velvet Divorce with Slovakia—hitherto the eastern part of the country.

When the communist regime failed, the Czech Republic was seen as something of a model transition country and its leaders sought to obtain recognition for its strategic location in central Europe. (Czechs were often offended at being considered “east,” as Prague is farther “west” than Vienna). The Czech Republic joined NATO in 1999 and the EU in 2004.

Czech leaders, and especially Vaclav Klaus as prime minister from 1992 to 1997 (elected president in 2003 and 2008), were careful to echo the appropriate free market rhetoric, although some skeptics suggested that reality often deviated. Czech privatization was distinguished by the use of vouchers to create popular share ownership. This aim was not achieved but the management quality of Czech privatized firms tends [Page 472]to be relatively high. Early on, a high international credit rating was gained. Czech politics and society were viewed positively despite undercurrents of corruption, crime, racism, and minority oppression. The tourist boom reflects these contradictions, with some attracted to the glories of the past and others by cheap alcohol and prostitution.

Czech industrialization began early, and the country today is 75 percent urban. Agriculture plays a small role (3 percent output). Industry provides around 38 percent, and services the remainder. The Czech arms industry was famous for many decades. Engineering, machinery, and iron and steel along with consumer goods, including the famous Czech beers, are an important part of industrial output. But parts of Czech industry are still in the central European economic “rust belt.” There is significant inequality between the 13 different regions of the Czech Republic, with a strong polarization around the capital Prague.

Economic growth has enabled a sustained rise in output per capita. Inflation has been held down and unemployment has been contained. The government has tried to make the Czech economy more market friendly. Staged reductions in corporate taxes are in place, as is the replacement of the progressive income tax with a flat rate. But there is a strong tradition of welfare support and opposition to elements of a neo-liberal agenda. This makes consensus difficult to maintain.

Trade is focused on the West, with Germany having a third share. Trade with Slovakia is relatively small given the history of unity. Manufactured goods make up an important part of commodity trade. The Czech Republic early on attracted significant foreign investment and is one of the more successful cases in the transition states. Brands like Skoda and the Czech beers were still seen to be valuable by Western multinationals.

...