Title: Political Economy of Reforms: The Czech Experience Pavel Mertlk Chief Economist
1Political Economy of ReformsThe Czech
Experience Pavel Mertlík Chief Economist
- Growth Strategies Czech Ambition and OECD
Experience - Paris, OECD
- 11 January 2005
2Political Economy of Reforms
Key Success Factors of Market Economy
- Political stability, social cohesion, efficient
and performance-oriented governance, rule of law - Macroeconomic stability and dynamics
- Legal framework, enforcement
- Infrastructure (physical infrastructure, economic
environment including supply chains, knowledge
base RD, universities) - Educational standard of labor force
- Labor market flexibility
- Free market entry exit
- Cultural openness
- Cost base
3Political Economy of Reforms
Strong points of Czech Republic
- J Political stability
- J Social cohesion
- J Dynamic economy with excellent macrostability
- J Liberal labor market, flexible business
environment - J Still low but catching up costs
- J Low taxation
- J Locational factors
- J Good economic contacts in CIS and the Balkans
- J Good quality of technical education, although
with shortcomings in new technological
developments - J Work ethics
4Political Economy of Reforms
Weak points of Czech Republic
- L Weak (mostly minority) cabinets,
- L Structural problems high energy intensity,
population ageing gt
unsustainability of welfare state in the long run - L Disintegrated RD base
- L Incompetitive university system
- L Inefficient government, red tapes to
entrepreneurial activities - L Welfare structure that disincentivizes labor
insufficient pressure for economic activity - L Slow and unpredictable justice
- L Substandard transparency, weak anti-corruption
- L Growing anti-competition attitudes (but far not
in that extent like eg in France)
5Political Economy of Reforms
Special Focus Education and Labor Market
- Education
- Low total output of university graduates
- Inflexible reactions of universities to labor
market demands - Cooperation with industry and businesses subdued
- Low quality of new regional universities
(quantitative growth of universities dominant ) - Labor market flexibility comparatively high but
deteriorating since mid-1990ies - Government and legislation until recently didnt
support part-time and term labor contracts and
freelance recruitment
6Political Economy of Reforms
History of Reforms in the Czech Republic
- 1990 1992 First Reform Wave
- 1993 1996 Czech Road
- 1997 2003 Second Reform Wave
- Economic transformation finished before EU
enlargement - Economic reform agenda since 2003 European
reform business as usual fiscal consolidation,
pension reform, health care financing,
flexibility of labor market, further
deregulations and competition upgrades, reforms
of financing of university education - Strategy papers
- 1999 Economic Strategy of EU Entry
- 2005 Economic Growth Strategy
7Political Economy of Reforms
Key Issue Finding Consensus
- Since 1996 minority cabinets
- Finding political consensus key issue in reform
effort and policy-making - Broad public discourse
- Political negotiations
- The content of reforms compromise, but solid and
firm - High speed of change in public acceptance of new
social phenomena in Central European countries
allows reformers to keep on fast track - Shock Therapy vs Gradualism discussion of the
early 1990ies gradualist approach reigns in the
Czech Republic - (not necessarily in rhetoric)
8Political Economy of Reforms
Economic Growth Strategy The Art of Feasibility
- The Economic Growth Strategy of 2005 a case of
the gradualist tradition - Some radical, ie socially controversial,
proposals not approved by the government
university tuition fees, social insurance cuts - . But discussion about them fostered via the
process of work of the task force of the
Strategy document, and prepared ground for
future discussion, finding consensus, and
implementation in due time
9Political Economy of Reforms
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Market Outlook (Friday), CEE Equity Weekly
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prehled (monthly, in Czech), Strategy East
(quarterly), Strategy Czech Republic (annually) - Economic Research Department - contacts
-
- Pavel Mertlik (macro) tel. (420) 221 141 800,
pavel.mertlik_at_rb.cz - Helena Horska (macro, FX) tel. (420) 221 141
729, helena.horska_at_rb.cz - Michal Brozka (macro, fixed income) tel. (420)
221 141 498, michal.brozka_at_rb.cz - Jindrich Svatek (stocks) tel. (420) 221 141
841, jindrich.svatek_at_rb.cz