Historical and economic conditions in socialist Czechoslovakia favoured the emergence of a small but highly motivated group of entrepreneurs who would be on a roll after the fall of the Iron Curtain. Nepotism, elitism, or the ubiquitous “small houses” and cronyism, combined with the informing, tipping and persecution of non-communist elites, mixed a poisonous cocktail of people who, while devotedly kissing the communists’ shoes, were in fact already building the foundations of their future business activities under the shackles of the former regime.
They were mostly managements of companies that had contact with open business in capitalist countries. These elite were supposed to work for the state, but the contact with the possibilities of capitalism inevitably awakened in them the knowledge of how to make money in secret.
International trade – both in the export and import direction – was governed by international treaties. These were signed by the CSSR with each foreign country separately and specifically. However, there were also occasions when international agreements were signed in a framework and with a group of countries – for example, the Commonwealth of Independent States. This is where the germs of what we now call lobbyism were formed. It was interesting for the businessmen to push for agreements that strengthened trade in the goods they had obtained.
A group of foreign trade enterprises (FTEs) was legally in charge of the business. Although external influences interfered with their development, the growth of the industry after the aftermath of the Second World War led to a dynamisation best illustrated by the fact that while in 1953 there were 27 foreign trade enterprises in the Czechoslovakia, by 1990 there were already 52. However, to give a true picture, it is necessary to add that the growth was not only caused by the country’s rising production but also by the desperate shortage of certain commodities that it was unable to produce.
Trade with Western countries was influenced by the rules agreed in the framework of the GCC and especially the notes from Moscow. It is therefore clear that if the management wanted to work freely not only for the growth of the common socialist property, but also for its own property, it had to ensure good relations with members of the secret services. They were glued to managers going abroad from morning till night. Sometimes not only because of their service, but also out of envy, or in an attempt to get involved in secretive deals. To the elite created by the management of foreign trade enterprises, this created a pair in the form of StB agents, but also the services of other communist countries.
The first self-dealing was naturally covert. The custom was to do inconspicuous small home or hidden export and import deals. During socialism, officially for ideological reasons, but in reality because of shortages, Czechoslovakia was forbidden to export certain goods abroad, especially to Western countries. However, the management of enterprises on business trips arranged limited favourable and secret agreements for the export of these commodities. Naturally, several officials with secret service cover had to be involved.
Commissions could also be earned on unofficial surcharges. For a favourable price of goods purchased from a Czechoslovak foreign trade company, it was enough to pay smaller sums usually in cash or to the foreign hidden accounts of the PZO management. The commissions of the other members in the fraudulent chain were then taken care of by the manager himself.
It worked similarly in the other direction. If a foreign company arranged contracts for the import of valuable foreign goods into Czechoslovakia, it was possible to negotiate with the management unfavourable conditions for the state and favourable conditions for the supplier, also for a commission. The commissions took various forms, from financial gifts to the fact that something was lost from the number of imported goods in the import documents. It was therefore not uncommon for the rulers of the former regime to like to present themselves with luxury Western products, or on more than one occasion to hide them in barns and cellars out of fear.
Although it was known that some of the managers of foreign trade enterprises possessed assets which they could not earn above the regime’s standard, and although it was known that some of them went abroad not only for work but also for holidays and sometimes to their own weekend houses, the rulers called for the bourgeoisie to be combated elsewhere.
The hand washes the hand, I on my brother, my brother on me and similar popular sayings were created in those times. Along with them, the basic structures of the future elites in business and crime.
From the point of view of the grey economy, people from the structures in question learned how to bribe during communism, how to identify viable partners, how to find their weaknesses, how to blackmail them, but also – when necessary – how to silence them.
In terms of business, however, managers involved in Czechoslovakia’s foreign trade earned even more (and let’s leave aside the illegal earnings).
Representatives who have participated in trade processes with foreign partners have seen what the free market looks like. They have seen what competition looks like. They have learned to understand the needs of partners and the needs of customers that the centrally controlled economy had forgotten.
Going forward, this group of managers has gained negotiation skills, understanding how to exploit the weaknesses of other parties and present their own expertise. They learned the principles of cost optimization and profit maximization, or how to adapt to market specifics. But the future business elite of the Czech Republic and Slovakia also gained what led to the brutal distortion of a level playing field when the free market emerged in the 1990s. They learned that the most important thing is to know the right people in the right places, and they learned how to use those contacts. It was not only businessmen who were in the mailing lists, but also politicians. And the only people who kept these directories were the emerging future industrial, financial and criminal elite of the 1990s.
The very nature of the state monopoly was important. The monopolization of most industries led to the fact that only a small group of managers had the know-how and the contacts, and they did not want to let any competitors in. This did not particularly bother the Communist Party, which, as an all-people mix of citizens led by the bosses, did not understand the processes in the enterprises and was not aware of the possible possibilities of chicles in the structures of national enterprises. This naturally led to the emergence of a shadowy grey sphere – something was presented to the political leaders, something else was happening in reality. And the same process could be applied to most business activities.
According to some expert opinions, the economy in communist Czechoslovakia had elements of a strongly suppressed market economy. This was because the Party’s five-year plans could not be fulfilled, while in other respects production far exceeded the five-year plans. Thus, in the long term, enterprises presented something different externally than the reality, which is related to the managerial communication mentioned above. Everything favoured the emergence of grey business long before market liberalisation.
As for the sectoral focus of the Czechoslovak economy, it was obvious that it favoured future industrialists. Building on the heritage of the First Republic, the Czech, Moravian and Slovak territories were famous for engineering, but also for chemical and armaments companies. Unlike some other industries, the socialist leadership did not succeed in destroying them during the decades of centrally controlled economy. The industry was even strengthened in some cases thanks to the demand of the CPSU countries. The countries of this grouping, through international treaties, sought to exploit from each other just that part of production which was the preserve of the region.
During the former regime, there was also a minor struggle between Slovak and Czech managers. The Slovaks complained that most of the key companies were controlled by Prague. In Slovakia, mostly branches of these companies operated. As a result of the pressure, the Slovaks dominated and took control of key parts of some enterprises such as Chemapol, Koospol, Centrotex, Omnia, Drevounie, Kerametal, Martimex, Technopol, Incheba, Strojexport and Slovart. At the same time, a branch of the Czechoslovak Chamber of Commerce and Industry and a branch of the Czechoslovak Commercial Bank were established in Bratislava. It also led to a wider redistribution of competences between micro-regions and the need for the Czech management to respect the Slovak elite. Here, too, we can see the emergence of some partnerships that persisted after the break-up of Czechoslovakia.
Partnerships were formed in organised crime, but also in some of the sectors shaping the future financial groups. Here influential groups and names such as Tkáč, Haščák, Široký and Babiš were created. Their activities marked the development of the first decades of market liberalisation in Slovakia and the Czech Republic to a similar extent.
An important part of the formation of future business silos was also access to capital. Financial transactions of companies trading with foreign countries were initially in the hands of the Živnostenská banka in Prague. Years later, the rational step was taken to remove monopolistic decision-making from the closed, centralised institution, and a slight liberalisation was brought about by the creation of the aforementioned Czechoslovak Commercial Bank. Slovak emancipation over the years opened up the same powers to the local Tatra Bank. In parallel with the financing of foreign trade and the production of exporters, the need to create state insurance companies arose. Thus, the link between managers who were the only ones able to organise business projects and those who were the only ones with the ability to operate with capital can be traced back to this point.
