Dr Zdenek Drabek
Following the departure of Jozef Síkela to Brussels, his successor at the Ministry of Industry and Trade, Lukáš Vlček, presented a new government economic strategy, recently approved by the government. This report has stirred considerable debate in the media and among various experts, who have raised numerous objections. The report has faced criticism from nearly every institution involved in discussions on economic policy. It was sharply criticised by the Chamber of Commerce, the Confederation of Trade and Tourism, the Association of Small and Medium-sized Enterprises, and the Confederation of Industry and Transport. Naturally, it also became a target for opposition parties and was even addressed by the Václav Klaus Institute.
I cannot judge the dialogue between the ministers and experts from NERV (National Economic Council), but it seems to me that the government is hiding behind this advisory group of economists rather than defending its strategy itself.
The government’s strategy has been criticised from various perspectives, often reflecting the partial interests of the institutions mentioned earlier. However, one common demand emerged: What comes next? The Chamber of Commerce aptly summarised this in its critique, noting that many of the issues mentioned in the report have been known for decades yet remain unresolved. Anyone looking for a detailed roadmap in the report will be disappointed.
Indeed, what we see here are “princely pieces of advice” – inherently correct but ultimately hollow. So, what is the way forward? What the government’s document lacks is a deeper analysis of Czech economic growth during this period. Such analysis and the related debate should aim to identify specific barriers to growth. However, identification alone is not enough. A further step is required: distinguishing between short-term obstacles that can be addressed quickly and those requiring long-term solutions. Without this, we are left with nothing but hollow advice.
Moreover, there is a need for a shift in the mindset of Czech politicians and their advisors, particularly in two areas. The first concerns the current view of Czech foreign interests and their role in the economy. The Ministry of Industry claims that the model based on foreign investment and exports is gradually being exhausted and that local innovations should be utilised in final products domestically rather than abroad. While this sounds intriguing, I fear it reveals a significant (and perhaps profound) misunderstanding of the state of the Czech economy.
The Czech economy is, and will long remain, heavily reliant on foreign investment and trade. After Luxembourg, the Czech Republic is the most trade-dependent economy in Europe. Over 60% of jobs are tied to foreign trade, with exports contributing 70% of GDP. The automotive industry alone accounts for 12% of exports, and all major car manufacturers are foreign-owned. Nearly a third of the national debt is held by foreign investors. The banking sector, with few exceptions, is entirely foreign-owned. Any hint of a diminished ability to repay obligations could worsen terms for Czech debt, increasing debt service costs and squeezing public funds for healthcare, pensions, single mothers, and more.
A similar misunderstanding surrounds calls to support Czech innovation. No one doubts the ingenuity of Czech minds. However, for Czech innovations to be productive, those minds need access to financing. Increasing state budget allocations is not the solution. For innovation to translate into commercial success, proper market evaluation is essential. As is well known, this is not a skill our state possesses. Consequently, many experts focus on facilitating access to private capital for evaluating innovations. The state’s role should be limited to strategic areas such as space research or the defence industry.
A critical difference between entrepreneurship in the USA and Europe lies in the role of risk capital—investment phenomena like venture capital, private equity, angel investors, and seed capital, which are integral to supporting start-ups. In the EU, entrepreneurship depends far more on bank loans, government programmes, and subsidies, which predominantly benefit established large enterprises or stagnating businesses. The result is a significantly higher number of unicorns (highly successful start-ups valued at over $1 billion) in the USA.
Funding start-ups in the Czech Republic is problematic. Bringing R&D results to market is inefficient because the Czech financial sector cannot finance high-risk activities like innovation on an economically viable scale. The EU also struggles to provide adequate support due to its fragmented single market, where banks and financial institutions are divided by member states. The list of barriers doesn’t end there. The Czech stock exchange is entirely unsuitable for such financing.
Science and technology funding in the Czech Republic faces additional challenges. For instance, to ensure that public funds are truly spent on research and innovation, they must reach those responsible for producing innovations. This is still not happening effectively, as evidenced by the doctoral programmes at Charles University, highlighted in a report by Vice-Rector Ladislav Krištoufk. The state funds invested in science and research must be successfully transformed into commercial ventures, yet this process remains slow.
The Czech Republic needs a new economic policy, which requires a different mindset than what dominates current debates on economic reform. And it needs this urgently. The economic situation is critical—the economy has been stagnating for five years—and demands swift solutions. Promises that certain motorways will be completed by 2035 are of little help today. As John Maynard Keynes famously reminded us nearly a century ago, “In the long run, we are all dead.”