Central Europe Review The International OSI Policy Fellowships (IPF) program
Vol 2, No 26
3 July 2000
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Jan Čulík on the Czech Republic Czech-style Mafioso Capitalism
Jan Čulík

As I reported last week, the Czech Social Democratic government took decisive action against one of the largest Czech banking groups, Investiční a Poštovní banka (IPB), which had run into serious difficulties, due to the rather irresponsible behaviour of its management.

IPB was privatised in a rather irregular way during the first half of the 1990s. Since then, it has been run by a group of highly influential individuals, who have used unusual practices in order to get rich. This group running IPB resembles one of those shady financial outfits you find in Russia.

Through its ownership of two Czech commercial TV stations, TV Nova and Prima TV, IPB has exercised considerable influence in the media. Furthermore, it has proven itself capable of running campaigns against the government when it tried to curtail the influence of thess mafioso capitalists.

Regular readers of this column may know that the director of TV Nova, Vladimír Železný, broadcasts a weekly Saturday lunchtime programme entitled "Call the Director" in which he promotes his business interests and tries to influence the political views of his audience.

Before taking TV Nova away from its American owners, Central European Media Enterprises, last August, Železný needed significant loans to build up his own, "intrinsically Czech" TV Nova, and only then could he pull the plug on the American-owned station.

This money, some USD 30 million, was provided by a group called MEF Holdings, which was closely, but unclearly, connected with the IPB Bank.

It is significant that in its attempts to curtail the influence of the IPB Bank, the Czech government has failed to bring TV Nova and Prima TV under control. These television stations have been controlled by IPB through its subsidiary companies.

The people around IPB managed successfully to hive off these subsidiary companies before the Czech government took control of IPB and sold it to another bank, Československá obchodní banka, which is itself owned by a Belgian bank.

Thus, the subsidiary IPB companies continue to operate unchecked and Vladimír Železný continues to disseminate propaganda in support of IPB on his television programmes.

The media in the Czech Republic often fall prey to private entrepreneurial interest. Vladimír Železný and his TV Nova are prime examples of this. Železný has defended IPB in "Call the Director" on several occasions. This is what he had to say on Saturday 1 July:

Stop the witch-hunt against entrepreneurs!

A very, very strange atmosphere has sprung up in the Czech Republic and over the past few weeks, indeed days, indeed hours, which is becoming very, very pressing... This is an atmosphere of a paranoid witch-hunt with some of the characteristics of the [Stalinist] 1950s. Informers are used and the terminology of the 1950s [Stalinist police state] is also being used. This is a paranoid witch-hunt against entrepreneurs, against business and also against capitalism.

Creating the impression that all business activity and all entrepreneurs are criminal is a wonderful toy in the hands of the power wielders [in this country] because it turns entrepreneurs and capitalism into scapegoats.

Great, a rich entrepreneur is going to prison!

This is, I am told, what top members of the government say with a feeling of satisfaction quite regularly these days. They succumb to feelings of paranoid excitement. They believe that the citizens will be satisfied if a few rich entrepreneurs are sacrificed.

Surely they are rich, and hence they are hated. They are influential, we will get rid of them and that will be wonderful, because nobody will then ask whether this government really works correctly and efficiently.

We now find ourselves in a very difficult situation. Various attributes are starting to be used with the expression "capitalism," just as they used to be used with the expression "socialism," you will remember.

People now talk about "mafioso capitaism," which needs to be "defeated." The impression is being created that a different type of capitalism exists, kind, decent capitalism, a "capitalism with a human face." So we, these people say, want this "decent" capitalism, and it is necesssary to defeat the wicked version of capitalism by arresting entrepreneurs and sending them to jail.

This is a wonderful, wonderful toy!

But we tend to forget that capitalism is not anything brought into this country from the outside, there are no ready-made forms of "wicked" capitalism and "decent" capitalism. Every one of us is capitalism. Capitalism is every one of us and it cannot be divided into "mafioso" capitalism and "decent" capitalism.

You see, it is enough to start a campaign against a bank in the media, and that action will kill off that bank very quickly. Or it will place that bank into the very situation which those who wish to arrest entrepreneurs want it to be in. And then they will send special police units to raid that bank.

All these are situations which help create this unnecessarily atmosphere of paranoid witch-hunt against entrepreneurs and against business. It is wrong to create the impression that all business activity is criminal. Do not let us succumb to these moods, do not let us succumb to this paranoia.

Železný´s ravings remain uncontested. Petr Štěpánek, member of the Czech Council for Radio and Television Broadcasting, a regulatory body which oversees the activities of TV Nova and which is supposed to make sure that TV Nova´s broadcasts are impartial (which is what the law demands) explained in Britské listy recently that Železný´s programme "Call the Director" is absolutely fine and impartial.

The real history of the privatisation of IPB

On 22 June 2000 Václav Žák explained the chequered history of IPB in the Czech daily Právo:

At the beginning of the economic transformation of Czechoslovakia, after the fall of Communism, several large banks were created from what used to be the one and only state bank. It was intended that these banks should function like true commercial banks. They were supposed to finance entrepreneurial projects. IPB was one of these newly created banks.

These new banks began operating in a very difficult situation: nobody knew how to do business properly, hardly anyone was capable of assessing loan risk. There was very little banking know-how.

It would have been a wise solution to sell some of these Czech banks to foreign owners, who would have brought banking expertise into this country. This, however, did not happen. The Czech public would have rebelled against Czech banks being handed over to foreign owners and Czech politicians never attempted this.

The then prime minister, Václav Klaus, had very good reasons for not handing Czech banks to foreign banks. He knew that he would not have been able to force foreign banks to support politically motivated privatisation projects in the Czech Republic.

Various Czech banks developed in very different ways. Česká spořitelna and Komerční banka did exactly what the government wanted. Československá obchodní banka and Živnobanka kept their independence. Investiční a Poštovní banka set out to build an "empire."

The state lost control over IPB in 1993, as a result of its "wild privatisation." A trick was used: the IPB issued a large amount of new shares and the state did not participate in this share issue. Rumours appeared in the press that the IPB bank management acquired as much as 49 per cent of the bank's shares. But there was no clear proof.

Why? The IPB bank co-operated very closely with the then ruling Civic Democratic Party of Václav Klaus, as well as with the Social Democrats. IPB became a serious problem specifically because it had close links to both main Czech political parties and to many other influential people.

The Social Democrats, who are the current ruling party in the Czech Republic, originally wanted to give Czech banks CSK 60 billion [USD 1.6 billion] of taxpayers' money. Of course, IPB strongly supported this plan.

The IPB "privatised" itself long before the state had sold its minority stake to the Japanese bank Nomura. Nobody else was interested in a bank with such a non-transparent ownership structure. Václav Klaus is fully to be blamed for this.

The IPB was not "just" a bank. IPB built a financial empire, it owned other, specialised banks; it owned an insurance company, a pension fund, a number of businesses and the media.

Asset stripping was one of the major diseases of the Czech privatisation process of the 1990s. Individuals who took control of the former state businesses appropriated the most lucrative parts for themselves. Members of the "entrepreneurial group" around IPB did the same. One of the IPB managers, for instance, gave himself a loan of CSK 2 billion [USD 53 millions] for his own personal purposes.

Over the past few days Václav Klaus has reacted very strongly against the government's decision to curtail the activities of IPB and to sell it to CSOB.

There is indirect evidence that IPB was a source of funds for the Civic Democratic Party and that if the Social Democratic government succeeds in curtailing the influence of the IPB mafioso group, Klaus and his party will find themselves in serious financial difficulties.

It remains to be seen, however, whether the Czech government will be able to successfully curtail the activities of the IPB bank. As we have noted, important property in the IPB portfolio, including the media, was sucessfully hived off, and the government has not been able to bring these assets back under its control.

Jan Čulík, 2 July 2000

Jan Čulík is the publisher of the Czech Internet daily Britské listy.

Correction: Milan Šmíd points out that in Jan Čulík´s first piece about IPB, published last week, some information from Milan Šmíd´s article, published in Czech in Britské listy, was quoted incorrectly.

Šmíddid not mean to say that "the Prague newspaper Lidové noviny ran a sustained campaign against the sale of Česká spořitelna to Erste," he meant to say that "Lidové noviny published information about the sustained campaign against the sale of Česká spořitelna to Erste." (Šmíd´s original sentence in Czech was ambiguous.)

Moving on:


Wolfgang Deckers
Twin Souls,
Two Realities

Fatmir Zajmi
Defending NATO

Mel Huang
Done Deal

Focus: Cities
Wojtek Kość
After the Reform

Sam Vaknin
Time in a Bottle

Gusztáv Kosztolányi
More Than Salami

Brian J Požun
Second to One

and Analysis:

Oliver Craske
of the East

Židas Daskalovski
A New Kosovo

Jan Čulík
Mafioso Capitalism

Sam Vaknin
The Political Economy of
Post-Soviet Russia

Diane Strickland
Traveling Angels

Culture Calendar:


Mixed Nuts