Wednesday, November 29, 2017

Co-father of voucher privatization Tomáš Ježek died

Tomáš Ježek (=Thomas Hedgehog) was born here in Pilsen, in Protectorate of Bohemia and Moravia, in 1940. He was one of the important men who led the transformation of the Czechoslovak economy from communism to capitalism after 1989.



As a young man, he fell in love with economics – like his classmate and basketball teammate Václav Klaus. Ježek did lots of things related to economics. For example, he translated Hayek's texts to Czech. He also belonged to the generation of pro-reform members of the Czechoslovak Communist Party in the promising 1960s. He left the party in 1969, in the wake of the occupation and restalinization ("normalization") of Czechoslovakia.




After the fall of communism, he was an adviser of Klaus, the chairman of the Fund of the National Assets, and a politician who co-founded ODA i.e. the Civic Democratic Alliance, who represented the OF i.e. the Civic Forum, then joined ODS i.e. Klaus' Civic Democratic Party, then left ODS and joined anti-Klaus US i.e. the Union of Freedom, and then he would join the Christian and some smaller parties, increasingly unsuccessfully.

He's had disagreements with various folks including Klaus – Ježek expected to become the finance minister but he didn't. Ježek also had legal disputes with social democrats' Jaroslav Bašta because of Ježek's personal role in the privatization of a Prague chocolate factory. He has been dissatisfied if not bitter for many years. Klaus wrote a decent statement today – when Ježek died at age of 77 – which focused on the positive things.




But Tomáš Ježek has been important as a co-father – with Dušan Tříska (=Soulman Splinter) – of the voucher privatization in Czechoslovakia. I have talked to Tříska many times but I have probably never met Ježek.

The birth of the voucher privatization was sketched in this 9-minute segment of the "Czech Century", a rather amusing TV reconstruction of the Czech political events of the 20th century.



Sometime in 1991, Ježek and Tříska were throwing pebbles to a pond while they were discussing how to turn the socialist economy into a viable, capitalist one. The "small privatization" was already taking place – restaurants and similar small businesses were being sold to particular Czech owners. It was much more difficult to figure out how to transfer the huge number of medium and large companies to private hands.

These two men were proposing various role models. Thatcher's experience could have helped – but she was really a loser because she only privatized dozens of companies. They needed to sell thousands. What about South America? Chile? Social democratic economist Valtr Komárek (=Walter Littlemosquito) just traveled there but you never know what he's up to, they mentioned. Komárek has worked as an aide to Fidel Castro but he may be visiting a new Pinochet now.

How can you sell this huge amount of factories to the Czechs if the latter are broke after 41 years of communism? ;-)

Finally, they figured it out. Ježek remembered the era immediately after the war when food rationing was used. We may just hand around the companies. The participants of the voucher privatization would pay CSK 1,000 (some $30, the unit is the Czechoslovak crown and I am inventing an acronym retroactively, we called it Kčs) for the voucher booklet and they could accumulate much greater assets. They were deciding which companies they wanted to buy for the proposed price and this purchase order either succeeded or not. This game was the first primitive stock broker in Czechoslovakia. And they sold this idea to Klaus by pointing out that if he starts his own political party, the party would have a chance to win because the grateful voters could get lots of stocks for free! ;-) The reasons aren't certain but when it comes to the outcomes, it worked. Klaus' ODS got above 30% in numerous elections – it worked fine and the party was #1 or at most a formidable #2 up to 2006 or so.

The voucher privatization was later copied in Russia.

It had two waves, I participated in both even though I was younger than 18 years during the first wave. But my mother and grandmother agreed to provide me with their voucher booklet. The second wave of the voucher privatization only took place in Czechia because Slovakia abolished the program right after the Velvet Divorce.

(The 9-minute video above shows Klaus presenting his famous statement – that has offended many – that there was no useful difference between the clean and dirty money. And in the same video, Klaus also mocked a Slovak journalist who argued that the voucher privatization was harmful to Slovakia. Everyone in Bratislava says so, the journalists answered when Klaus asked him for clarification. Klaus won this conversation handsomely because he pointed out that he's in Bratislava all the time – and he could show that he knows Slovakia and some of its places in the wild nature more than the Slovak guy did. Bring a map to this Gentlemen and show him Čergov in the Ondava Hills LOL!)



I still have one of these voucher booklets. The price was CSK 1000 plus you had to buy a stamp for CSK 35 to make it valid. For this CSK 1000, you earned 1000 points – let me call them 1000 stockcoins, virtual children's money to be used for a specific purpose (well, more mature money than the cryptocurrencies). There were many rounds of each wave of the privatization. Before each round, you learned that this or that communist company is sold at the rate X stocks per 1000 stockcoins. People went to the post office and chose which companies they wanted to buy for the stockcoins and whenever the supply of stocks was at most equal to the demand, they got what they wanted. When the demand was too high, the price of the stock in stockcoins went up for the following round.

If you were skillful or lucky, you could have accumulated up to tens of thousand of dollars per voucher booklet.

I bought some companies that were worthless, like Glass Electronics which just couldn't produce competitive electronics, it seems obvious today, but I got very many stocks for those stockcoins. ;-) Another company that turned out to be worthless was a coal company soon acquired by "The Pirate of Prague" Viktor Kožený's "Harvard Funds". In 2004, Kožený ran in the elections for the European Parliament – in order to get immunity – and he called me to my Harvard office (he studied physics department at Harvard for months before he switched to an economics degree that he completed over there) and offered me to become the shadow minister of education which I politely refused.

When I offered him to sell him the stocks of his Harvard Holding that still appears in my broker's portfolio LOL (it cannot be sold), he got pretty angry.

OK, I bought the stocks of one valuable company, Komerční banka, The Commerce Bank – a top 3 bank in Czechia now (freshly declared to be the best bank of 2017, just to make you sure that it's alive and kicking). Well, I sold those 23 stocks sometime in 2002 for CZK 2,000 a piece. Do I remember the price well? Maybe it was just CSK 1,000 a piece. The price today is CZK 4,500 – well, it's 900+ but each stock was divided to five new stocks a few years ago. Needless to say, like with an extremely prematurely sold cryptocurrency, it was a missed opportunity to sell stocks in 2002 – I just didn't want to have any hard to remember assets.

The voucher privatization became open to "investment funds" that have the rights to accumulate the stockcoins from the individual DIKs who agree with that – the individual investors. For me, it was terrible that these investments were allowed because the number of participants jumped from some 600,000 to 6 millions or so, I forgot exactly. My expected assets dropped to 10% of the previous expectation. That was the main reason I wasn't happy about folks like Viktor Kožený in 1991 or so. He has just diluted my stocks tremendously. He promised the DIKs to be paid CSK 10,000 immediately – it's ten times as much as what they pay for the voucher booklet. So of course, everyone would be stupid not to buy a voucher booklet if you could have immediately gotten much more money for that.

But if you continued as a private DIK, like I did, you could have gotten much more – and I did get more. A whole country was being privatized.

Czechs – and, to a lesser extent as I mentioned, Slovaks – became a nation of stockholders. Most citizens had an account in the database of stocks and they did some kind of trading of stocks. That was not bad for what was the most socialized country of the Soviet bloc just a few years earlier. And when I think about it, I think that this giveaway – aside from Klaus' charisma and political talent – could have been the main reason why the down-to-Earth, materialist, economically left-wing Czech nation that has thought mostly as the working class for some 150 years voted for Klaus' right-wing party a few times in the 1990s.

This anomaly is over and these days, you may safely win elections by repeating dumb and hostile slogans against the privatization and most other aspects of the post-1989 economic transformation. Klaus likes to say that the people who got lots of votes in the recent elections are extremely skillful politicians who may formulate the greatest slogans and attract millions – well, I prefer to agree with the Prague Café and say that the voters of the likes of Babiš are just stupid and that's the relevant explanation of ANO's 30%.

There were large companies that were sold to a foreign owner – like Škoda Auta that was bought by the Volkswagen Group and basically became the most admired Czech company in the following years. But most companies were in a bad enough shape and no foreign investors wanted to buy them. They still contained assets that could have been promising or that had some value. But no official could have estimated the value nicely. We were facing the threat that all the companies would basically be stolen by the communist apparatchiks who previously led them as directors – communist apparatchik Andrej Babiš who devoured the communist chemical company Petrimex is the best example of this pathology (which does nothing to reduce his fans' love for this stinky bastard).

For these reasons, I think it was an excellent idea to use the voucher privatization. People got their stocks but of course, most of them were inclined to sell them so some real bigger owners who wanted to manage the companies were gradually emerging. I don't claim that it was absolutely necessary to organize the voucher privatization – and Slovakia and other countries did well enough without this program – but I would still do it in qualitatively the same way.

In fact, it's too bad we no longer have companies waiting for some privatization. A new privatization like that could be used to make Czechs more excited about capitalism again. I propose to nationalize the assets of some shadowy billionaire figures like Babiš or Bakala – and organize the third wave of the voucher privatization. The pro-capitalism politician who would organize this plan of mine would soon be more popular than Babiš who would be freshly robbed. ;-)

RIP, Mr Ježek.

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