Public Sector Transformation
(PST)
The Czech Republic Case
Public Sector Transformation
N Introduction - PST as a part of a global
transformation of a Czech Society after
1989
N Public Sector and Public Finance
N Principles and Goals
N Current Structure of the Public Sector
N Issues
N Discussion
Global principles
Politics Economics Social
ˇ democracy ˇ competition &
market
ˇ no state
paternalism
ˇ plurality ˇ mixed
economy
ˇ individual
responsibility
ˇ freedom ˇ privatization ˇ social safety
net
Principles for the PST
N diminishing of and changes in the economic
role of the government
N privatisation, plurality
N new fiscal and budget policy
N new social policy - social, health care,
education reforms

Changed role of the Government
N from state monopoly to pluralism
N from directive commands and plan to
organizing, standard legal environment, and
economic incentives
N from preferred state ownership to an equal
treatment for all kinds of ownership
N from the tough centralism to some
decentralization
N lowering the level of redistribution
Privatisation
N The specific nature of privatisation - it was
a tool of eliminating a major systemic
feature of the communist system - primarily
ideological objectives!
N Government's top priority was to privatise
the public sector quickly.
Privatization - methods
N restitution
N ,,small-scale" privatization (services)
N "large-scale" privatization (in order to
privatize large industrial enterprises)
N ¨They have either been sold directly to pre-
approved buyers or transformed into joint-stock
companies whose shares were sold either
N directly to investors
N or through voucher privatization.
Privatization 1
N the share of the private
sector was not higher
than 4.2% of GDP
before 1990
N less than 2% of
registered property
was private
N 63% of GDP from
private sector in 1995
N 85% services
N 90% agriculture
N 40% industrial output
N much higher now

Non-state sphere share in GDP
0
10
20
30
40
50
60
70
1992 1993 1994 1995
%of GDP
Privatization 2
N ,,small" privatization in 1990 (services)
N two waves of a coupon privatization
N 8.5 mil. stock-holders after 1995
N major owners - banks and investment funds
N massive foreign investment
,,Capitalism without a capital..."
Fiscal policy strategy `93
N graduate decline in the general budget`s
share on GDP
N balanced public budgets
N stabilized public debt at current nominal
level
N a new tax system based on a neutrality,
equity, and simplicity
0
5
10
15
20
25
30
35
40
45
1993 1994 1995 1996 1997 1998 1999 2000 2001
%
Transfery dom ácnostem Dotace podnik ům a fin.inst. Nák up z b ož í a služ eb Ostatní

Public debt
Tax quota
34
34.5
35
35.5
36
36.5
37
37.5
38
38.5
1993 1994 1995 1996 1997 1998 1999 2000 2001
Social policy strategy
N stronger individual responsibility
N reform of the social benefit system
N reform of the health care systém
N market incentives

Selected Issues
N Privatization and Definition of the ,,Public
Interest"
N Changes in Institutional Structure
N Non-for-Profit Sector
N Public Control & Lack of Accountability
N Mandatory Expenditures Growth
Privatization and Definition of
the ,,Public Interest"
N Privatization as an ideological goal
N Not clear what should be the role of the
government (education, health care, culture,
housing, etc.)
N Equity x efficiency mix
N Cream skimming
Non-for-Profit Organizations
N a proper legislation is still absent
N government's reluctance to lose control
N culturally "new", sponsoring, donating is
not developed enough
Public Control
N non-of-my business attitude
N "beer critiques"
N media
N political culture

Lack of Accountability
N private secrecy
N public money cannot be traced
N an information code is just brand new - a
right to be informed
Mandatory Expenditures
95 96 97 98 99 2000
revenues 440 482 509 537 557 594
total. exp. 432 484 524 567 597 634
mandatory 305 357 400 439 500 529
other 127 127 125 127 98 104