Publication detail

Rise of an Authentic Private Sector in an Economy of Transition: De Novo Enterprises and their Impact on the Czech Economy

Author(s): doc. Ing. Vladimír Benáček CSc.,
Type: IES Working Papers
Year: 2003
Number: 34
Published in: IES WP 2003/34
Publishing place: Prague
JEL codes:
Suggested Citation:
Abstract: The paper aims to find out, by using the evidence from the Czech economy during 1990-2002, how the methods of privatisation and policies for the development of private businesses contributed to the incentives of wealth creation, growth, competitiveness and the shaping of economic institutions. The performance of Czech de novo firms is compared with private enterprises transformed from former state-owned enterprises.
The long-lasting problems of the Czech economy, which became apparent already in 1996, have their roots in the behaviour of a significant part of the domestic enterprise sector. These problems were called into being by a very intensive, albeit deeply non-standard, mass privatisation. The authentic private sector cannot be based on a command coming from the upper hierarchies of the social organisation. It can arise only from gradual acts at the level of economic agents making their decisions autonomously at the grass roots of the economy.
While the Czech mass privatisation scheme created a soft market environment prone to moral hazard and acting against the development of entrepreneurial activities as defined by Schumpeter, the authentic private sector, which evolved mainly from the rise of de novo small and medium-sized enterprises, was driven to a position of an outsider. Notwithstanding the lack of government support, market imperfections, bureaucracy and (intentionally) failing judiciary, the authentic privates sector showed a high degree of viability and at the end of 1990s it became a dominant player on the market side of the Czech economy.
Since the described situation is not a unique Czech phenomenon, the economic policy-making in transition countries should consider the general features in presented facts and devote more attention to the support of two progressive segments of the authentic private sector: the small and medium sized enterprises and the enterprises established by foreign direct investors.

KEYWORDS: Privatisation, small and medium-sized business, economic policy, institutions, competitiveness.
Downloadable: WP 34


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