1.2 Czech Republic & Employee Financial Participation (EFP)

The Czech Republic, as a member of the EU, should support the trend of building a European social model. We need to fully realise the necessity of a change in the labor market to achieve its greater flexibility under certain conditions. Taking into account the almost complete loss of citizens’ trust to the economic policy of the state, in market mechanisms and corresponding fair distribution of economic results, caused by the latest political and economic developments, a recovery process is required. This process must work up from the bottom of the economy and the labor market so that it citizens will be able to clearly see and evaluate its progress and merits.

In order to revive the support of enterprise based on three main pillars: environmental and economic sustainability and social responsibility, it is necessary to encourage the development of social enterprise, as well as various other forms of innovative enterprises, including the cooperatives. Related to it is also support of small and medium-sized companies (SME, firms with 0-249 employees) to which the formerly mentioned types of enterprises mainly apply to. SMEs are the engine of economies and in most EU countries that is true, however, CR is a big lagging behind the EU average. Although according to the EC report Small Business Act on the CR from 2013[1] the number of SMEs and the number of jobs they create is even higher than the average in EU, their performance and added value for the whole economy is lower. EC also finds alarming that the number of SMEs closing down their businesses after more than 15 years on the market, is rapidly growing. Out of all SMEs that folded their business in 2012, 50% had 15 years of recorded history. Also, there is a remarkable difference between how the entrepreneurship is perceived in CR compare to EU from the SMEs or of potential start up entrepreneurs perspective. Mainly in terms of state support to start ups, financing, insufficiently responsive administration, law enforcement, etc. “The biggest problem in the CR is unstable environment for doing business, very frequent and essential changes in legislation and taxes, often last minute before the dates of application.” (Eva Svobodová, general director, Association of Small and Medium-sized companies and entrepreneurs of CR, AMSP). Due to these and other barriers the number of new entrepreneurs is stagnating, according to the Association’s survey.

The support of SMEs and other forms of innovative enterprising can result not only to strengthening of the whole economy on the macroeconomic level, but also to building up the middle class, which is historically quite weak here and the situation lasts for several generations. Also, it can contribute to balancing of economic differences among individual regions. For instance, while Prague reported average unemployment of 7.68% in 2013 and 170 SMEs per 1000 inhabitants, at the same time the unemployment in Usti region was over 11%, in Moravian-Selesian region it was 9.77%, and the number of SMEs per 1000 inhabitants in both regions was only 80.[2]

In accordance with that one of the natural solutions how most efficiently approach the issue of support of entrepreneurship is the support of cooperative principles. Not only could it help to finance start ups, but also an argument of Czech liberals can be taken into account: the essential difference between the risk that an entrepreneur-employee is undertaking versus the risk-less life of a regular employee working for a wage. Why? Because in a cooperative (almost) every employee is an entrepreneur.

We think that the cooperative concept is a valid and actually modern way of doing business and therefore it needs to be addressed in the Czech Republic; discussion of it needs to be revived, not only because it corresponds with the European Social Model, but because it has a great potential. Companies where employees are financially participating prove to be more stable in the long-run as opposed to firms owned by one or a few individuals. Due to their representative democracy they allow for a certain consensus in times of crisis. For instance, as explained in the theory of Share Economy developed by Weitzman in 1984, during economic crises these companies favour wage adjustment mechanisms rather than reducing their employment levels. This corrects two major market failures: first, by assigning their production resources they achieve lower unemployment levels and, second, by maintaining greater business stability they manage to offset economic cycles.

It has been and will always be natural for people to group together and join their skills, knowledge and capital in order to prosper. And social economy can play an important role in the future. Unfortunately, the Czech Republic (and elsewhere in the Central and Eastern European region) due to the historic exploitation of the idea by communist parties. In order to re-establish it as part of today’s economic life in our country, the concept needs to be clear of its historic stigma and adopted by broader spectrum of political parties, thereby shifting the concept towards the left-centre of the political spectrum.

On the case study of the Mondragon Cooperative Corporation in the Spanish Basque Country, we can demonstrate and prove that the concept itself has very little to do with the ideas of “collectivisation” or “expropriation” as imported to our region from Russia after the World War II.   Mondragon was not chosen as example by chance–as you will see in the discussion of the case study, there are several parallels between the Czech Republic and the Basque Country.

[1]    EC, Report on SBA 2013 in CZ (Evropská komise, Přehled údajů SBA (Small Business Act) 2013 v ČR)

[2]    Ministry of Industry, Report on SMEs and its support in 2013 (Ministerstvo průmyslu a obchodu, Zpráva o vývoji malého a středního podnikání (MSP) a jeho podpoře v roce 2013) and data from the Czech Statistic Office

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