SER-14.qxd 4/11/03 5:08 PM Page 247
Socio-Economic Review (2003) 1, 247–269
‘Czechmate’: the old banking elite and the
construction of investment privatization
funds in the Czech Republic
Hayagreeva Rao and Paul Hirsch
Kellogg School of Management, Northwestern University, Evanston, IL, USA
Correspondence: Hayagreeva Rao, Kellogg School of Management, Northwestern University, Leverone Hall, 2001
Sheridan Road, Evanston, IL 60208-2001, USA. E-mail: [email protected]
Received: 21 June 2001 ; revised: 16 September 2002 ; accepted: 17 September 2002
Although revolutions spawn new organizational forms, sociologists have paid little
attention to how economic elites affiliated with the old regime and how challengers
unaffiliated with the old order struggle to populate new organizational forms. We
suggest that the conflict between elites and challengers unfolds through organizations sponsored by each group. We argue that elites affiliated with the old order can
reproduce their power through a new organizational form if they collectively succeed
in influencing the institutional environment. In turn, the success of collective action
by elite-sponsored organizations hinges on the political opportunity structure consisting of the policy goals of the government, divided reformers, electoral instability
and influential allies. We intensively study the creation of investment privatization
funds (IPFs) in the Czech Republic during the Velvet Revolution when state-owned
banks sought to use IPFs to insulate themselves against takeover attempts, and private entrepreneurs deployed IPFs to gain control of state enterprises including banks
that were being privatized. Our data suggest that a favourable political opportunity
structure enabled state-owned banks to build alliances, lobby the government and
constrain challengers to take over banks. Private entrepreneurs were able to acquire
wealth and power subject to some limits imposed by state-owned commercial banks.
Keywords: Revolution, organizational change, elite transition, finance
JEL classification: G200 Financial institutions and services, general, P340 Socialist
institutions and their transitions, financial economics
1. Introduction
Do regime transitions lead to the circulation or reproduction of economic elites?
Do they lead to new organizational forms dominated by new entrepreneurs, or do
© Oxford University Press and the Society for the Advancement of Socio-Economics 2003. All rights reserved.
SER-14.qxd 4/11/03 5:08 PM Page 248
248
H. Rao and P. Hirsch
old organizations controlled by old regime elites retain and expand their control
over new spheres of activity? What can a study of such questions in a particular
episode of post-socialist privatizations tell us for other such episodes, for regime
transitions more generally?
Sociologists have been concerned with elite change or reproduction since the
work of Vilfredo Pareto, and have approached it by studying the social origins of
individuals occupying elite positions. Recent studies of post-socialist transitions in
Hungary, Poland and Russia focus on individual mobility and suggest that circulation is highest in the political elite and lowest in the economic elite because
managers of state-owned enterprises were able to convert their decision rights into
ownership rights (Hankiss, 1990; Staniszkis, 1991; Hanley et al., 1996; Szelenyi
et al., 1998; Wasilewski, 1998). Other research shows that entrepreneurs starting
small businesses after the revolution were still drawn from members of the old
order (e.g. Róna-Tas, 1994, p. 65).
Although sociologists widely agree that regime transitions lead to new organizational forms, they have devoted little attention to how political turmoil affects the
mix of organizations populating new organizational forms and industries: whether
new firms (de novo entrants) created by new entrepreneurs dominate or firms
controlled by old regime elites (de alio entrants) dominate (Carroll et al., 1996;
Davis and McAdam, 1999). Extant research on the relationship between organizations sponsored by elites and those backed by challengers presumes a continuous
state-based normative order. Studies of new industries spawned by technological
innovation suggest that de novo firms created by challengers outperform de alio
firms controlled by incumbents in other industries except where the latter possess
specialized and transferable skills (e.g. Carroll et al., 1996). Such comparisons emphasize the sources of parenting competences but defocalize the role of power because
they presume that continuously codified property rights and laws are enforced. Similarly, studies of how elites and challengers exploit mergers (Stearns and Allan, 1996)
and acquisitions (Hirsch, 1986; Palmer and Barber, 1999; Dobbin and Dowd, 2000)
trace how legal changes create both opportunities for challengers to acquire wealth
and for elites to hijack the innovations to further their own ends, but their empirical
setting is one in which there is a state that is not being reconstituted.
Revolutionary transitions constitute an extreme case to understand the
‘recombination of the inherited forms with emerging new ones’ (Stark and
Grabher, 1997, p. 6) because of the break in legality between the old order and the
new order. We study the Czech Republic where the ‘Velvet Revolution’ replaced the
governing one-party regime with a multi-party democracy and also saw the rise of
a new organizational form—investment privatization funds (IPFs)—to create an
equity market. Below, we outline a theory of elite and challenger competition, and
then discuss how state-owned commercial banks dominated the new form and
checkmated the effort to create an equity market in the Czech Republic we do this
SER-14.qxd 4/11/03 5:08 PM Page 249
‘Czechmate’
249
by drawing on archival data and qualitative data gleaned from interviews with key
decision-makers in the privatization process.
2. New organizational forms as sites for competition between
challengers and elites
Regime transitions break the ties that bind resources to vested interests and pave the
way for new organizational forms (Stinchcombe, 1965). But new organizational
forms are sites for competition between challengers and economic elites. New
organizational forms are new combinations of the core features of organizations
such as goals, authority, technology and served markets. So defined, new industries
fall within the ambit of new organizational forms.
When new industries are established in close proximity to existing industries,
incumbent firms belonging to the existing industry enter the new industry because
the new industry represents a potential threat, and diversification reduces instability
for the managers of de alio firms (Fligstein, 1996). Challengers establish de novo
organizations to exploit the new industry, and conflict ensues as contestants struggle
to define rules of interaction and to legitimate their vision of the organizational form.
Carroll et al. (1996) argued that challengers are likely to outcompete elites
during political turmoil because their organizations may be more ideologically
aligned with the new polity and, hence, gain access to more resources. Additionally,
challengers may be able to nimbly exploit resources when they become available
because they possess a simple structure. In contrast, incumbent organizations led
by elites in existing industries lack flexibility, agility and alignment with the new
polity. But incumbents may surmount political threats during revolutions by using
collective action to influence the formulation and enforcement of advantageous
new laws and regulations and to buffer themselves against the threats from the lean
and agile de novo organizations founded by challengers (Swaminathan and
Wade, 2001). Whether organizations sponsored by elites (de alio entries) or de novo
entries backed by new entrepreneurs dominate a new industry depends on ‘their
resources, the existence of a political opportunity to act, state actors willing to negotiate
grievances’ (Fligstein, 1996, p. 664, italics added).
During political turmoil, the policy goals of a government, electoral instability,
divided reformers and influential allies shape the state’s willingness to negotiate
grievances and, therefore, comprise a political opportunity structure for actors.
The policy goals of the government may be propitious for incumbents to the extent
that they emphasize the prevention of unemployment and bankruptcies. Governments committed to the prevention of unemployment may be willing to assist
incumbents in the interest of warding off bankruptcies. Electoral instability in
the form of coalitional governments creates opportunities for actors to exercise
marginal power to wrest concessions from the new regime. Divided reformers in
SER-14.qxd 4/11/03 5:08 PM Page 250
250
H. Rao and P. Hirsch
the government enable incumbents to lobby state authorities during political
turmoil. Conflicts among reformers in governments newly established after a revolution enable groups successfully to initiate collective action. Divisions among
reformers reduce the risks of collective action for resource-poor groups and also
encourage some reformers to act as ‘tribunes of the people’ to further their own
political influence. Finally, influential allies enable incumbents to reproduce their
control through new organizational forms during political turmoil. Allies can serve
as representatives, buffers or even acceptable negotiators with state authorities and
enable incumbents to wrest resources from state authorities.
3. Elites, challengers and IPFs in the Czech Republic: 1989–94
We conducted an intensive case study to understand competition between
elite-sponsored de alio and challenger-sponsored de novo firms in a new industry
during a regime transition. The case study approach also enables researchers
to select ‘extreme cases’ to exemplify theory (Eisenhardt, 1989). The Czech IPF
industry is an extreme case on three counts.
First, Czechoslovakia extricated itself from Communism through the abdication of the ruling elite (Stark and Bruszt, 1998). In contrast, other countries exited
Communism through compromise between Communists and the opposition
(Poland), restricted electoral competition between Communist parties and new
parties (Bulgaria, Romania, Albania) or unfettered electoral competition between
Communists and new parties (Hungary). When the political elite affiliated with the
Communist regime was replaced wholesale through capitulation, new entrepreneurs seeking to gain wealth and power were likely to face a hospitable environment
in new industries.
Secondly, the Velvet Revolution in Czechoslovakia diffused property rights
through a market process in which citizens were targeted and minimal financial
resources were required to acquire new property rights (Stark and Bruszt, 1998).
Czech reformers emphasized speed and scale by initiating a mass initial public
offering process. Each citizen was given a voucher book worth 1000 points (after
paying US$35), which could be invested in any of several hundred firms. Over 80%
of the adult population became stockholders, and the stock market was expected to
set prices for the shares (Jirasek, 1997). In contrast, East Germany relied on a special
agency that sold state-owned enterprises to other corporations, whereas Poland
granted vouchers to citizens and employees and Hungary relied on decentralized
re-organization where assets were evaluated through relational contracting (Stark
and Bruszt, 1998). In all three cases, markets played a minimal role and administrative processes were important. Prima facie, one would expect a market-based privatization strategy to advantage new entrepreneurs in their bid to acquire resources,
whereas privatization strategies that relied on administration and bargaining
would favour elites located in incumbent organizations.
SER-14.qxd 4/11/03 5:08 PM Page 251
‘Czechmate’
251
Finally, the privatization process in Czechoslovakia unfolded in two quick waves
rather than in a sequential process of case-by-case privatization. Czech reformers
sought to privatize state-owned enterprises in two waves: the first wave was from
May to December 1992, and the second wave was from late 1993 to mid-1994. In the
first wave that occurred before the formation of Slovakia, 1491 firms (992 Czech
and 499 Slovak) were privatized and, in the second wave after the partition, 861
firms (676 new and 185 from the first wave) were privatized. In the first wave, the
value of privatized property was 299.5 and 155.0 billion korunas, respectively.
In contrast, other countries such as Poland or Germany privatized at a much slower
rate and chose case-by-case privatization of state-owned firms. Prima facie, one
would expect that the new entrepreneurs would be more advantaged by a speedy
and comprehensive privatization process than by a slow process that might enable
elites situated in incumbent organizations to block reforms.
We gathered data from in-depth interviews lasting about 1.25 hours each with
42 key players, including: former and current government officers involved in the
privatization, investment bankers advising the ministry of privatization, managers
of IPFs, senior executives in brokerage firms, senior managers in both state-owned
and private commercial banks, and consultants involved in the design of both the
Czech and Slovak stock exchanges. We chose these respondents because they were
prominent actors involved with the privatization process as its designers, consultants or critics. We also relied on data from additional Czech participants and
informants, and numerous secondary sources, such as reports, published research
and information from the World Bank, Organization for Economic Co-operation
and Development, European Bank for Reconstruction and Development, International Monetary Fund (IMF), and Western and Czech media and government
sources. Our window of observation begins in 1989 (the onset of multi-party
democracy) and ends in 1994, when the second wave of privatization concluded.
4. IPFs as sites for competition between state-owned banks
and new entrepreneurs
The Velvet Revolution was precipitated by a general strike that took place on
November 27, 1989. Soon, the Communist authorities commenced negotiation
with dissidents, and a government of national unity composed of social democrats
and neo-liberals was formed, and it ruled from December 1989 to June 1990.
The neo-liberals pushed for mass privatization of state-owned enterprises on the
premise that private firms would be more efficiently monitored and managed than
government firms (Frydman et al., 1997).
Czech reformers chose mass privatization over the alternatives of auctioning
firms and employee stock-owned plans. Auctioning was deemed impractical
because private savings were too small to purchase the assets of firms at market
prices. For example, it was calculated that at pre-reform savings rates it would take
SER-14.qxd 4/11/03 5:08 PM Page 252
252
H. Rao and P. Hirsch
more than a century for the government to sell the assets of the Czechoslovak
industrial sector, valued at their historic cost (Estrin, 1997). Alternatively, the government could have auctioned selected firms (such as Skoda) to domestic buyers or
foreign investors. However, one interviewee, a policy-maker, noted that ‘Skoda’s
purchase by Volkswagen paralyzed the government. Privatization reduced transaction costs because government did not have to deal with selling to foreigners.’
The choice boiled down to either a social democratic or a neoliberal route. Social
democrats favoured management employee buyouts, wherein the firm would be
owned by a trust controlled by managers and/or workers. This model was championed by an opposition party leader, Miloš Zeman, who later (1998) became Prime
Minister and had earlier been a colleague of Václav Klaus in the Academy of Social
Sciences. The neoliberal alternative promoted by the electorally victorious Prime
Minister Klaus was mass privatization, whereby citizens would be sold the low-cost
vouchers to purchase shares in privatized state enterprises. The choice of shares to
buy was to be maximized by ensuring that several hundred firms were
privatized simultaneously.
Even though the social democrats supported management employee buyouts,
the neoliberals (led by Prime Minister Klaus) succeeded in implementing the
mass privatization programme. One informant, an academic observer, succinctly
summarized the reasons:
Klaus and company wanted mass privatization because they wanted
speed. Zeman and company wanted employee buyouts. But it was portrayed as socialist. Their scheme was based on loans from banks for
employee buyouts. The propaganda was that it was hidden socialism.
Nobody influential abroad supported employee buyouts. Small newspapers supported Zeman. But TV and large newspapers supported Klaus
as did international organizations like the World Bank and the IMF.
Mass privatization, as one of its architects described it, was ‘the greatest
experiment in market creation. There is no other way to educate people than to
make them participants.’ Pragmatic considerations also played a role. Unlike the
government-supervised case-by-case auction of firms, mass privatization shielded
the government from delay and criticism. Another informant, an international
consultant to the reformers, observed that Klaus and his allies were motivated by
considerations of ‘retail politics’; providing vouchers to all Czech citizens of voting
age meant that he would have an edge in elections.
Over 80% of the adult population became stockholders. A consequence of the
scale of the mass privatization strategy in the first wave was the rise of new financial
intermediaries to smooth transactions among investors. Three new financial
intermediaries appeared on the horizon: a dealer-based stock exchange (Prague),
a dealerless stock exchange (the RM System) and IPFs. The government established
SER-14.qxd 4/11/03 5:08 PM Page 253
‘Czechmate’
253
a central share registry (the SCP) to keep records of ownership of shares. The most
important financial intermediary created as a consequence of mass privatization
was IPFs, which comprised a new industry.
To begin with, Czech citizens who received vouchers and were asked to submit
them in exchange for shares in any of the 1491 firms to be privatized in the first
wave were bewildered because little information was made available about these
firms. There was also very little information or public discussion about what rights
accompanied share purchases. One observer remarked that ‘people thought vouchers were like lottery tickets’. Moreover, while mass privatization was an equitable
way to transfer assets, it also implied that the ownership of firms was likely to be dispersed, with the result that shareholders could not effectively monitor the performance of managers (Estrin, 1997). It was in this context that IPFs arose; as a foreign
banker indicated,‘people did not know what to do with their points’, and it became
a solution to the problem of fragmented ownership. The voucher-holders were
solicited to entrust, sell or trade in their voucher points to these funds, enabling
them to delegate the bidding for shares of enterprises in the voucher scheme. In
return, voucher-holders who traded rather than sold them to an IPF received shares
in the fund and were entitled to a share in its expected profits. It was argued that
IPFs would compete against each other, for voucher capital and for assets in the
newly privatized companies. The role of the state was limited to granting licences
to the new IPFs, with little or no investigation of their ownership (Pistor and
Spicer, 1997).
IPFs were initially established under the Government Decree on Investment
Companies and Privatization Investment Funds in 1991 and two parliamentary
amendments in 1992 (Decree no. 383 in 1991 and Parliamentary Amendments nos
67 and 69 in 1992). IPFs were joint stock companies created by and managed by
investment companies—which were themselves established by public or private
banks, financial institutions or individuals. Funds were subject to two major
restrictions: (a) they (or their parent investment company) could not hold more
than 20% of shares in a single company and (b) shares of any one company could
not constitute more than 10% of the value of their portfolio. More detailed regulations, the Law on Investment Companies and the Investment Funds Law No. 248 of
May 1992, were introduced later, but were applicable only to IPFs established in the
second wave of the voucher scheme. Commercial bankers and private entrepreneurs were the two groups who struggled over the creation of IPFs, and each group
had very different interests that they sought to realize by establishing IPFs.
4.1 State-owned commercial banks as de alio entrants
State-owned commercial banks were lateral entrants who sought to enter the
new IPF industry. State-owned commercial banks perceived themselves to have a
SER-14.qxd 4/11/03 5:08 PM Page 254
254
H. Rao and P. Hirsch
common heritage: they were offshoots of the socialist ‘monobank’ (State Bank of
Czechoslovakia) that combined monetary and commercial functions in the Communist one-party state. In 1990, the monobank was disbanded and seven commercial state-owned banks were spun off. Commercial bank managers were members of
the old order and played an important role in the economy. Of the seven stateowned commercial banks, the largest four banks controlled 85% of household
deposits and 65% of the loan market and employed 80% of the banking work-force:
in general, commercial banks ‘inherited the advantage of vast networks of regional
branches and the accompanying name recognition’ (Desai, 1995, p. 24). Thus, the
few new banks that were established by private entrepreneurs after privatization
were disadvantaged vis-à-vis the seven state-owned commercial banks. New banks
were required by the Czech National Bank (the Central Bank) to have a minimum
capital–assets ratio of 8% at the time of founding, but the seven state-owned commercial banks were given until 1996 to achieve this goal incrementally (Desai, 1995).
Moreover, state-owned banks had access to their own deposits, whereas new banks
set up by private entrepreneurs had to depend on the refinancing operations of the
Czech National Bank or the inter-bank market dominated by state-owned banks.
The senior managers of the seven state-owned commercial banks were employees with long tenures in the monobank, and their interests were moulded by their
banking role. None of the commercial bank managers jumped ship to become
private entrepreneurs and establish IPFs; instead, they sought to create banksponsored IPFs to safeguard the interests of their banks. Because the state-owned
commercial banks were themselves slated to be privatized, bankers perceived IPFs
controlled by private entrepreneurs as vehicles for outsiders to purchase the shares
of state-owned banks. To a person, all of our interviewees identified takeover
threats as the most important motivation for state-owned banks to start IPFs. Many
of the respondents also pointed out that IPFs could also increase the banks’ access
to the boardroom, provide directorships for employees and develop new clients. In
addition, a few of our interviewees pointed out that IPFs also enabled state-owned
banks to retain savings. Private IPFs could attract savings from the Czech
consumer, and deprive banks of oxygen. State-owned commercial banks paid out
low interest rates for deposits but charged high interest rates for their loans to stateowned enterprises; their performance depended on interest rate spreads of 5.9%
and above (Desai, 1995). Thus, for state-owned banks, IPFs were also a way of
retaining savings from the marketplace.
4.2 Private entrepreneurs as de novo entrants
The principal challengers to state-owned banks were three entrepreneurs who
established small and lean investment companies (e.g. Harvard Capital, LinhArt
and PPF) to exploit the opportunities created by privatization. Many of these
entrepreneurs came from unorthodox backgrounds and had not occupied any
SER-14.qxd 4/11/03 5:08 PM Page 255
‘Czechmate’
255
command post under the Communist regime. For example, Viktor Kozeny was a
Czech-born American who, after a Harvard undergraduate degree and a 4-year
stint at Robert Fleming, a London-based broker, established the Harvard Capital
Company to create IPFs, with a staff of about 30 employees. Similarly, a universityeducated engineer who owned the YSE engineering company realized the potential
of privatization and set up LinhArt in 1991 (which eventually created the YSE
fund). LinhArt had a total of about 20 employees including the managing director,
executive secretaries and senior managers who were trained abroad. Likewise, a
young entrepreneur who created a start-up firm in Prague in 1991 later hired a former engineer, who was a student of the MBA programme of the US Business
School, and established the PPF investment fund. The PPF Investment Company
had a total of 40 employees, and the organizational chart included the managing
director, three executive board members, two executive secretaries and senior
management. While Harvard, LinhArt and PPF were the most important of the
challengers, other small entrepreneurs also set up lean and small outfits to garner
voucher points from Czech investors.
These insurgent entrepreneurs saw IPFs as an opportunity to acquire wealth and
prestige. For example, the founder of the PPF Investment Company wanted to
‘build a strong investment company that would manage large privatization funds
and compete with the investment companies being established by the country’s
financial institutions’ (M. Otradevec, 1995, PPF A.S. Case Study, Czech Management Centre, Prague, No. 95–034, p. 10). Michael Dingman, an American turnaround artist who later became a partner of Kozeny, put it succinctly: ‘It’s like a
country that has gone through bankruptcy and all of a sudden there is a Monopoly
game created’ (Wallace, 1996, p. 81).
4.3 The race to amass voucher points
Investicni Banka, which had established a subsidiary on November 27, 1990, was
the first bank to take action before any legal provisions concerning investment
enterprises were enacted. In 1991, when a decree allowing IPFs was put into play,
Investicini Banka created a subsidiary that became the first firm in the not-yet-constituted capital investment industry. Soon other state-owned commercial banks
also set up investment companies, and these bank-sponsored entities advertised
actively and sought to collect vouchers from citizens. In particular, five existing
state-owned banks (Ceska Sporitelna, Komericini Banka, Investicini Banka,
Zivnosteknska Banka and Cesjka Pojistovna) controlled a large chunk of voucher
points through their investment companies.1
1 Ceska Pojistovna was, strictly speaking, an insurance firm that was also privatized. We include it in the
state-owned commercial bank category because the situation facing Pojistovna was identical to that
facing commercial banks.
SER-14.qxd 4/11/03 5:08 PM Page 256
256
H. Rao and P. Hirsch
While state-owned commercial banks first started IPFs, advertising by investment companies founded by entrepreneurs (especially Kozeny) was decisive in
mobilizing investor interest. LinhArt and PPF also used very sophisticated advertising campaigns to lure citizens to deposit their voucher points with them. Fortune
Magazine described it as follows:
Kozeny used hard-sell television commercials, a print campaign, and
even girls in short shorts to sell his countrymen on two things: the value
of creating closed-end mutual funds, whose prices trade on the stock
market, and—more important—the value of handing their initial bundle of vouchers over to Harvard. The lure was an outrageous promise.
Kozeny pledged that every person who entrusted him with vouchers
would, within a year and a day, earn back at least ten times that initial
investment. Over a few months in 1992, more than 800,000 people
flocked to Kozeny’s offices and received, in exchange for a coupon book
initially valued at about $35, 20 shares of one of Harvard’s funds
(Wallace, 1996, pp. 78–83).
When the Prague stock market began trading in September 1993, share prices
surged upwards, and US$35 coupon books were worth US$675. If advertising created
an aura of attraction around IPFs, governmental rules to restrict concentration also
facilitated their explosion. Since the laws required IPFs not to invest more than 10%
of their capital in any one security, and not to own more than 20% of a security,
investment companies had incentives to surmount these constraints. As the creation
of more funds was not prohibited, IPFs were able to accumulate majority holdings in
firms by proliferating and jointly managing their portfolios. For example, Harvard
Capital set up eight funds and Investicini Banka created 11 funds.
Table 1 shows that IPFs arose rapidly: between September 1991 (when Decree
No. 383 was promulgated) and December 31, 1991 (the deadline for registration of
IPFs), over 400 funds were set up in the former Czechoslovakia (268 in the Czech
Republic alone).2 Table 1 also indicates that the IPFs accumulated 72% of the
voucher points available from Czech citizens in the first wave, and a smaller share in
the second wave. In the second wave, in addition to the existing IPFs structured as
joint-stock firms, a number of IPFs structured as unit trusts (in which shareholders
cannot vote) were created.
The guiding principle of governmental policy, as one of the architects of
privatization noted in an interview with us, was that ‘governments cannot organize
markets. Instead, there should be competition among market organizers.’
2 Note that rapid proliferation of
funds within such a small window of time made it difficult to conduct
detailed quantitative analyses of the inter-arrival times between bank-sponsored and challengersponsored funds because of ‘tied events’; multiple funds of both types being created at the same time.
SER-14.qxd 4/11/03 5:08 PM Page 257
‘Czechmate’
257
State-owned commercial banks and three private investment companies (Harvard
Capital, LinhArt and PPF) vied with each other to garner voucher points from
citizens. Although other private entrepreneurs also established funds in the first
and second waves, they accounted for a small portion of vouchers. Table 2 shows
the shares of bank-controlled IPFs and IPFs founded by the three influential private
entrepreneurial groups: Harvard, LinhArt and PPF.
Table 1 Investment privatization funds (IPFs) in the first two waves of privatization
First wave
Second wave
Number of privatized firms
Value of property
Number of IPFs registered
1491
299.4 billion korunas
437 (268 Czech, 169 Slovak)
Number of voucher points
% of vouchers to IPFs
8560 million
72
861
155 billion korunas
196 (63 new, 133 old);
158 unit trusts
6160 million
64
Sources: Mejstrik (1994), Mladek (1995).
Table 2 The largest investment privatization fund financial groups:
percentage share of total voucher points
% share
Sponsors
First wave
Ceska Sporitelna
Investicini Banka
Komercini Banka
Ceska Pojistovna
Agrobanka
CSOB
15.6
11.9
7.6
5.5
1.8
0.8
3.2
2.5
3.3
4.8
8.2
5.1
All bank-sponsored funds
43.2
27.1
Harvard Capital
PPF
LinhArt/YSE
Expandia
Creditanstalt
CS Funds
IS entrepreneur
10.5
1.9
1.2
0.0
0.8
0.8
0.0
7.5
3.3
4.0
7.8
2.4
2.4
4.0
Key private firms
15.2
31.4
Source: Mejstrik (1997).
Second wave
SER-14.qxd 4/11/03 5:08 PM Page 258
258
H. Rao and P. Hirsch
Table 2 shows that bank-sponsored funds amassed 43% of the total points
garnered by IPFs in the first wave and 27% of the total points in the second wave.
If Ceska Sporitelna’s investment arm was the largest player in the first wave,
Agrobanka—one of the smaller state-owned banks—also did well in the second
wave because it offered 2000 Czech korunas as a cash payment for those who turned
in their vouchers (as an advance against the expected value of the voucher book).
While Harvard,YSE and PPF did well in both waves, a new private investment company called Expandia also accumulated many points in the second wave. Expandia
was a brokerage firm that had bought up shares cheaply from owners who were
uninformed about the objectives of the brokerage fund to open a fund. When the
fund opened, the net asset value of the shares was much higher than the old shares’
market price, and Expandia managers were able to exploit the differential. A key
reason for bank-sponsored IPFs losing their edge in the second round was that by
then investors may have acquired information which induced them to invest in
IPFs started by entrepreneurs in the private sector.
Together, Tables 1 and 2 suggest that when the results of the first and second
waves of privatization are combined, bank-sponsored IPFs did well. At the end of
the first wave, bank sponsored investment funds had garnered 43.2% of the 8560
million voucher points (3680.8 million points) and 27.1% of the 6160 million
voucher points in wave 2 (1663.2 million points) making for a total of 5343.2 million voucher points or 36% of the total of 14 720 million voucher points available in
both waves. In contrast, IPFs controlled by private entrepreneurs accumulated
3563 million voucher points or 24% of the total of 14 720 million voucher points in
both waves.
4.4 State-owned banks and collective action
In the two waves of privatization, commercial banks themselves were being privatized.
For example, 37% of the shares of Ceska Sporitelna were privatized and 53% of
Komercini Banka was privatized (Coffee, 1996, p. 146). Since the commercial banks
controlled 85% of household deposits and 65% of the loan market, they were inviting targets for challengers controlling IPFs. Table 3 shows that private entrepreneurs used the IPFs under their control to target state-owned banks. IPFs under the
control of Harvard Capital and LinhArt devoted nearly 50% of their resources to
buying up bank shares.
Thus, state-owned commercial banks could be taken over by independent
entrepreneurs who controlled IPFs. Table 3 also shows that IPFs under the control
of state-owned banks (Ceska Sporitelna, Investicini Banka, Komercini Banka)
devoted significant resources to buying shares of banks. These purchases were an
effort by state-owned commercial banks to insulate themselves against the threat
of takeovers by private entrepreneurs. The prospect of takeovers threatened bank
SER-14.qxd 4/11/03 5:08 PM Page 259
‘Czechmate’
259
Table 3 Investment privatization funds’ investment in different industries
% investment
Sponsors
Consumer
Construction
Banking
Energy
Engineering
Ceska Sporitelna
Investicini Banka
Komercini Banka
Ceska Pojistova
Agrobanka
Zivnosteknska Bank
Creditanstalt
Harvard Capital
PPF
LinhArt/YSE
26
16
9
23
N/A
40
30
8
30
2
14
0
8
2
N/A
17
30
20
15
5
15
50
22
14
N/A
0
0
50
0
43
19
10
19
7
N/A
0
0
22
5
10
12
9
11
21
N/A
7
16
0
35
6
N/A, not applicable.
Note: percentages do not add up to 100 because smaller industries have been omitted.
Sources: Egerer (1995), interviews.
managers with greater monitoring and potential displacement. The takeover threat
further induced managers of state-owned commercial banks to initiate three types
of collective action: cross-shareholdings, lobbying of governmental authorities and
boycott of maverick entrepreneurs who tried to take over banks.
4.4.1 Cross-shareholdings State-owned commercial banks used IPFs as a means
of developing cross-ownership of banks and thwarting the efforts of challengers to
acquire control of banks. Thus, after the first wave of privatization, when 37% of
Ceska Sporitelna’s shares were privatized, Harvard Capital emerged as the second
largest shareholder (after the Czech State) with 12.9%, Investicini Banka had 8.8%
and Komericini Banka followed with 3.9%. Table 4 details the cross-ownership of
shares in major financial institutions in the Czech Republic in 1994.
In the case of Komercini Banka,after 53% of its shares were sold,Harvard emerged as
the second largest shareholder (after the State) with 17.6% of shares, Investicini Banka
had 10.8%, Ceska Sporitelna had 4.9% and the IPF established by Komercini Banka
had a 3.4% share of its grandparent. Thus, Ceska Sporitelna and Komercini Banka, the
two largest banks, were partly shielded from the threat of takeovers because other
banks bought shares in them via the IPFs established by their investment subsidiaries.
In the case of Investicini Banka, while the State retained 45% of the shares, 17% of the
shares were snapped up by IPFs established by Investicini’s investment company.
These cross-shareholdings were viewed by our interviewees as a first line of defence
employed by state-owned banks to prevent takeovers by private managers.
SER-14.qxd 4/11/03 5:08 PM Page 260
260
H. Rao and P. Hirsch
Table 4 Ownership of shares in major financial institutions (1994)
% ownership of shares
Investment
firm
Sporitelna a.s
Parent (CS)
PIAS
Parent (IB)
IKS
Parent (KB)
KIS
Parent (CP)
OB Invest
Parent (CSO Bank)
Harvard Capital
PPF
Other funds
State
% of shares privatized
Ceska
Sporitelna (CS)
8.8
Investicini
Banka (IB)
Komercini
Banka (KB)
0.5
4.9
17.0
10.8
3.9
3.4
0.2
3.0
0.7
0.2
1.1
0.3
12.9
40
37
0.6
N/A
45
50
Ceska
Pojistovna (CP)
2.0
10.0
4.1
10.0
–
10.0
1.0
17.6
0.1
14.0
5.0
44
53
24
15
N/A, not applicable.
Note: 44% of the shares of CP were allocated to the major banks before privatization.
Source: Hashi (1994).
4.4.2 Lobbying Commercial bankers lobbied for rules that would serve their interests. One informant summarized it as follows: ‘Players lobbied for regulation when
they had much to lose. The law puts form over substance.’ State-owned commercial
banks lobbied the government to reduce the threat of takeovers, and the Czech
National Bank promulgated a rule proscribing a person or entity from acquiring
more than 10% of equity without its approval; Harvard Capital was subsequently
forced to reduce its stake in banks. The National Property Fund (the custodian of state
assets in enterprises) also declared that it would retain a minimum 33% interest in all
the major Czech banks to ensure that hostile takeovers or mergers did not occur.3
3 Orenstein (1998) points out that Klaus was himself
a banker for 16 years and traces Klaus’s protection
of banks to a 19th-century Czech tradition which held that Czech independence from Austria–Hungary
was pursued largely by promoting Czech businesses, Czech capital, Czech manufacturing and Czech
farming through Czech banks. Teichova (1974, p. 337) observes that during the inter-war period,
‘Numerous industrial companies clustered around big banks, tied to them either by credits or direct
investment. In this way, large joint-stock banks threw a net of relationships of various degrees of
dependency over almost all branches of production in the country.’
SER-14.qxd 4/11/03 5:08 PM Page 261
‘Czechmate’
261
4.4.3 Countering bank takeovers When maverick entrepreneurs sought to control
banks, state-owned commercial banks retaliated by not providing funds in the interbank market. A striking example was the Motoinvest attempt to control Agrobanka.
In 1995 and 1996, a maverick private investment company called Motoinvest sought
to control Agrobanka, the fifth-largest state-owned Czech bank. Motoinvest used
two small private banks, Plzenska Banka and Kreditni Banka, to borrow money on
the interbank market to finance a takeover. In 1995, Motoinvest managed to buy
a portion of the shares in Agrobanka, along with its investment fund portfolio.
Motoinvest did not stop there, but instead used its position in Agrobanka to launch a
bold attempt to take over the Ceska Sporitelna. When Motoinvest managers secured
control of Agrobanka and the smaller Plzenska Banka, they launched a US$38.4
million campaign to persuade investors that they were committed to increasing
shareholder value and sought to challenge the large banks.
Organs of the state, such as the National Property Fund and the country’s largest
health insurer, withdrew deposits from Agrobanka. The major state-controlled
banks—Ceska Sporitelna, Komercini Banka, Ceskoslovenska Obchodni Banka and
Investicni a Postovni Banka—stopped trading with Agrobanka on the interbank
market. The Motoinvest group agreed to divest, provided that they were given a
130% premium for Agrobanka’s shares. Eventually, the Czech National Bank
put Agrobanka under ‘forced administration’ and, as part of a triage, major
state-owned banks cobbled a rescue package of US$231 million for Agrobanka.
5. How did state-owned banks defend themselves?
The Czech Investment Companies and Investment Funds Act (section 24,
paragraph 11) declares that ‘An investment company or investment fund established by a bank or insurance bank may not purchase the shares of its founder, its
depository, or other banks and insurance banks.’ State-owned commercial banks
circumvented this rule through a technicality; they established investment companies as wholly owned subsidiaries, and it was these subsidiaries that set up IPFs
(ergo, the banks did not establish the IPFs). Our informants suggested that the government permitted banks to skirt the law and collude against takeovers because of
policy goals of the government to prevent unemployment, influential trade unions
and the Central Bank. Electoral instability and divided reformers compelled state
authorities to promote an anti-bankruptcy policy that was based on liberal bank
loans to the inefficient state enterprises that were being privatized and gave stateowned banks considerable leverage.
5.1 Policy goals of preventing unemployment
The government of national unity that came into power after the Velvet Revolution
was firmly committed to preventing unemployment. Since the government was
SER-14.qxd 4/11/03 5:08 PM Page 262
262
H. Rao and P. Hirsch
committed to preventing unemployment, it became dependent on state-owned commercial banks, whose continued loans could reduce bankruptcies and thereby keep
unemployment at a very low level. A corollary of the government’s anti-unemployment policy was an anti-bankruptcy law that practically blocked anyone from initiating bankruptcy; bankruptcy proceedings could be started only when a firm could no
longer sell goods and was, therefore, primarily insolvent (McDermott, 1997). Even
then, bankruptcy proceedings had to be approved by the Ministry of Industry, which
could extend proceedings for up to a year. Banks, and many of the state-owned industrial firms organized into councils, lobbied for this definition of primary insolvency
because firms sold products to each other on credits to avert insolvency. Banks were
pressured to provide easy credit to these insolvent firms, otherwise they would have to
be closed. They went along with this policy partly because loans to these firms were at
much higher rates than the interest rates paid to depositors (Desai, 1995).
Thus, when these state-owned banks established investment companies that in
turn founded IPFs, the government allowed them because, if their ownership
passed to private IPFs which called in the loans, the resulting liquidations of these
insolvent firms would cause significant unemployment. Indeed, from November
1992 to October 1993, not a single state-owned enterprise and only 993 small
businesses were declared bankrupt (Brom and Orenstein, 1994). In contrast, in
Hungary, 10 000 bankruptcies (and higher unemployment) were experienced
during the same time period.
5.2 Influential allies—trade unions and the Central Bank
Czech trade unions indirectly helped the banks by committing the government to
its anti-unemployment and an anti-bankruptcy policy. Since their role in the
general strike, unions had restored their sagging legitimacy and were quickly taken
over by activists who had organized the strikes. The 17 old unions were dissolved,
and 50 new unions emerged from their ruins forming a national federation. Neoliberals in the national government sought to introduce a bill regulating strikes, but
backtracked as labour activists launched petition drives to oppose it. The International Labour Organization served as an intermediary and enabled unions to enact
the Act on Wages of 1991 and the 1991 Act on Collective Bargaining. The unions
not only secured their rights and those of the workers but also championed a tripartite council (government, labour and business) which would serve as a consultative
body. An important contribution of the tripartite council was to secure low real
wage/low unemployment. Low wages enabled firms to employ workers and, in
return for wage restraint, the unions secured a commitment from the government
to cushion workers from bankruptcies (Rutland, 1994; Orenstein, 1996).
In a similar vein, the Central Bank, which was concerned about the stability of
the banking system, was committed to supporting the main state-owned banks.
SER-14.qxd 4/11/03 5:08 PM Page 263
‘Czechmate’
263
Interfirm debt rose by 250% in 1991 and by 100% in 1992 (Dyba and Svejnar,
1992). Banks had lent heavily to state-owned firms that were likely to be privatized;
bank loans to industrial firms equalled 70% of gross domestic product of
the Czech Republic. The seven major banks accounted for 99.5% of all loans in
Czechoslovakia in 1990 and 80% in 1992.4 So the Central Bank sought to
protect the main banks and condoned state-owned commercial banks even when
they did not provide loans from the interbank market to banks controlled by
upstart entrepreneurs.
5.3 Divided reformers and electoral instability
The government of national unity that came into power after the Velvet Revolution
in December 1989, and ruled until June 1990, saw disagreements between social
democrats (led by Václav Havel) who were concerned about remaking the moral
economy and neoliberals (led by Václav Klaus) focusing on the creation of a market
economy. As the social democrats outnumbered the neoliberals, Klaus agreed to
combine a neoliberal vision for market reform with a social democratic policy that
guaranteed minimum social benefits to all and aimed to prevent unemployment.
This mixed programme was ratified by Parliament in September 1990 and implemented in 1991.
In the June 1990 elections,Václav Havel’s party, the Civic Forum, won a landslide
election victory. Soon, a chasm developed between radical reformers, led by the
Finance Minister Václav Klaus, and others like President Havel committed to the
‘civic movement’ form of organization. Klaus challenged Havel’s faction and in
October 1990 won an election; but then he found that his efforts to import scientific
management were still blocked by his party’s committees. In February 1991, Klaus
led his faction out of the Civic Forum to create the Civic Democratic Party (CDP).
The CDP became a prominent player in Parliament and, from the second elections
of June 1992, a driving force for rapid privatization and market reform. Klaus
headed the governing coalition until 1997, after which he co-headed the new
governing coalition, with the electorally victorious social democrats. Throughout,
the emphasis on an anti-unemployment policy and an anti-bankruptcy policy
continued to be a linchpin of Klaus’s regime.
While the CDP became the largest party, electoral rules and the tricameral
Czech parliamentary structure made it dependent on other political parties to
enact legislation. Although it won 30% of the popular vote, the CDP secured only
38% of the seats (76 of 200) in the Czech National Council, 32% (48 of 150) of the
4
The government also established the Konsolidacni Banka in 1991 so that Czech banks could sell their
lines of revolving credits and bad loans for some percentage of their nominal value. By the end of the
year, Konsolidacni Banka had bought 24% of the domestic credit liabilities of firms (Anonymous, 1993,
SER-14.qxd 4/11/03 5:08 PM Page 264
264
H. Rao and P. Hirsch
seats in the Assembly of People and merely 25% (37 of 150) of the delegates to the
Assembly of Nations. In the tricameral structure, the Slovak parties, although
smaller players, were less committed to radical reform and could use the upper
house to impede legislation. So Klaus had to depend on two other parties, the
Christian Democratic Union–People’s Party (15 seats) and the Civic Democratic
Alliance (14 seats) to cobble together 105 delegates in the 200-strong National
Council. In this slender majority, if only six representatives were to throw their support to rivals, Klaus would be out of power and, hence, he had to be cognizant of
the junior partners. Due to coalition partners, and the power of labour, Klaus
was forced to retain the anti-unemployment policies, and stated that ‘The costs the
people have to bear must be widely shared; otherwise their fragile political support
is lost’ (Klaus, 1997, p. 11).
In summary, Czech privatization reform, as an architect of the privatization
process stated in an interview, may have been a ‘most complex social process with
no parallel in history that aimed to create a new distribution of power and wealth’.
But, with bank-sponsored IPFs becoming new sources of power, one outcome of
the Velvet Revolution was a reproduction of bank power. As one informant, a
socialist critic who no longer taught about Marx but about Jack Welch’s management ideas, aptly noted, the Czech experience involved a:
. . . transformation from socialism to old capitalism. Old capitalism is
similar to socialism. Similar hierarchy and central planning—people at
the top will decide and control. New capitalism requires flexibility,
boundarylessness, and empowerment.
6. Discussion
In contrast to research on revolutions that primarily looks at the origin of individuals
occupying key positions, or at founders of small businesses, our study focused on
how elites initiating de alio entries, and challengers sponsoring de novo entries, battle over new industries. Challengers can displace elites when they establish de novo
organizations in new industries to exploit new sources of wealth amidst political
turmoil. However, elites controlling adjacent industries can promote de alio entries
and counter the threat from challengers if they engage in collective action and
shape the legal and regulatory environment surrounding the new form. In turn, the
success of collective action by elite-sponsored de alio organizations hinges on a
wider political opportunity structure consisting of the policy goals of the government, electoral instability, divided reformers and influential allies. Our findings
are limited to post-socialist transitions, where the old regime capitulated rather
than other countries, where regime transitions occurred via compromise (Poland),
limited electoral competition (Bulgaria, Romania) or unfettered competition
between the old and new regimes (Hungary).
SER-14.qxd 4/11/03 5:08 PM Page 265
‘Czechmate’
265
Our case study expands the literature on the financial hegemony of commercial
banks. Since Mintz and Schwartz’s (1985) pioneering account, a growing body of
findings chronicles how commercial banks constrain corporations through director interlocks (Mizruchi and Stearns, 1988). While the research on the financial
hegemony of banks presumes that the role of banks is contingent on the availability
of funds from capital markets (Davis and Mizruchi, 1999), it says little about how
the larger political opportunity structure enables banks to reproduce their control
over new forms of financial intermediation that potentially threaten banks. In the
Czech case, electoral instability, divided revolutionaries and influential allies
explain why the old logic of bank control was played out in a new financial intermediary. By establishing IPFs, banks became creditors and owners of firms. Czech
privatization rearranged the ties that bound companies together (McDermott,
1997), and the new IPF form was not built on the ruins of the old order but with the
ruins of the old order (Stark, 1996).
In the case of Czech IPFs, the ‘translation’ of elite roles into new social spaces did
not occur gradually ‘firm by firm’ but was, instead, the outcome of networked actors
collectively bursting through the fetters of an existing form to ‘remake the social
foundations and the cognitive identities of the elite’ (J. Padgett, unpublished data,
1998). Members of the old elite, managers of partly state-owned commercial banks,
were able to safeguard their interests, and even expand their role in the Czech
economy, by hijacking the IPF form. Czech bankers were creditors of state-owned
enterprises, but through IPFs became owners of Czech enterprises. Although
the IPF form enabled bankers to reproduce their power, it also provided an opportunity for challengers to acquire resources as long as they did not directly threaten
state-owned commercial banks. Investment companies such as Harvard Capital,
LinhArt/YSE, PPF and Expandia became the hubs of financial conglomerates
created by private entrepreneurs.
Moreover, the study of the Czech IPF industry also demonstrates how
post-socialist transitions quickly lead to recombinant property (Stark, 1996). On
the one hand, the incestuous relationship between banks, investment companies,
IPFs and business firms undermined the distinction between public and private
property and the boundaries of enterprises. On the other hand, if the managers of
bank-sponsored and independent IPFs were accountable to their shareholders in
the first wave because of the joint-stock format of the IPFs, the spread of the unit
trust format was instrumental in making them virtually immune to investor pressure. The adoption of the holding company format by bank-sponsored and independent IPFs served only to accentuate the concentration of power in the hands of
managers at the expense of shareholders. By the end of the second wave, managers
of bank-sponsored and independent IPFs were no longer custodians of their shareholders but, instead, had become self-serving trustees. Thus, privatization did not
transfer property rights from public to private hands, but created a recombinant
SER-14.qxd 4/11/03 5:08 PM Page 266
266
H. Rao and P. Hirsch
property (Stark, 1996) with IPFs being the principal mechanism by which such
recombinant property was created.
The limitations of our study also point to directions for future research. For one,
our study lacks a comparative lens and, instead, focuses only on the Czech Republic
in which the old political regime capitulated to a new regime. It would be instructive to compare competition between old business elites and new challengers in
new industries in other countries that extricated themselves from Communism
through compromise with the Communists (Poland), restricted electoral competition between Communists and other political parties (Bulgaria, Romania,
Albania) or unfettered electoral competition between Communists and new
parties (Hungary). Another limitation of the study is that it chronicles competition
between old business elites and new challengers without discussing the policy consequences of elite circulation in the business arena. Some writers suggest that the
social networks that facilitated elite circulation may be self-regulating (Stark,
1996), others imply that they may be harmful (Johnson, 2001) and some others
suggest that it is public policy that moderates the effects of social networks
(McDermott, 2002). Our study observes IPFs from 1989 until 1994, but after 1994
state-owned commercial banks and private entrepreneurs in the Czech Republic
exploited the favourable political opportunity structure to reduce shareholder
rights by reconstituting IPFs as unit trusts, and later as holding companies. These
legal transformations checkmated the goal of creating investor capitalism because
it meant that IPFs could not be traded on the stock exchange. Future research needs
to show how the political opportunity structure and the sequence of public policies
create path-contigent outcomes in the design of market institutions (Johnson,
2001; Kogut and Spicer, 2002).
Acknowledgements
We are thankful to the Davidson Institute at the University of Michigan and the
Halle Institute of Emory University, and to Northwestern University’s Center for
International and Comparative Studies and Institute for Policy Research, for financial support. Vashek Prosser of the US Business School provided us with enormous
help in Prague.
References
Brom, K. and Orenstein, M. (1994) ‘The Privatized Sector in the Czech Republic:
Government and Bank Control in a Transitional Economy’, Europe–Asia Studies, 46,
893–928.
Carroll, G. R., Bigelow, L., Seidel, M.-D. and Tsai, L. (1996) ‘The Fates of De Novo and
De Alio Producers in the American Automobile Industry 1885–1981’, Strategic
Management Journal, 17, 117–37.
SER-14.qxd 4/11/03 5:08 PM Page 267
‘Czechmate’
267
Coffee, J. C. Jr (1996) ‘Investment Privatization Funds: The Czech Experience’. In Frydman,
R., Gray, C. and Rapaczynski, A. (eds) Corporate Governance in Central Europe and Russia,
New York, NY, and London, Oxford University Press, pp. 111–86.
Davis, G. F. and McAdam, D. (2000) ‘Corporations, Classes, and Social Movements’.
In Staw, B. and Sutton, R. I. (eds) Research in Organizational Behavior, Oxford,
Elsevier Science, pp. 195–238.
Davis, G. F. and Mizruchi, M. (1999) ‘The Money Center Cannot Hold: Commercial Banks
in the U.S. System of Corporate Governance’, Administrative Science Quarterly, 44,
215–39.
Desai, R. (1995) Financial Market Reform in the Czech Republic, 1991–1994. The Revival of
Repression, Working Paper, Prague, Centre for Economic Research and Graduate
Education and Economics Institute.
Dobbin, F. and Dowd, T. (2000) ‘Antitrust and the Market for Corporate Control:
Railroading, 1825–1922’, American Sociological Review, 65, 631–57.
Dyba, K. and Svejnar, J. (1992) ‘Stabilization and Transition in Czechoslovakia’, paper
presented at National Bureau of economic Research Conference on Eastern Europe,
Cambridge, MA, February.
Egerer, R. (1995) Investment Funds and Corporate Governance in Emerging Markets:
an Assessment of the Top Ten Voucher Funds in the Czech Republic, Washington, DC,
World Bank.
Eisenhardt, K. E. (1989) ‘Building Theories from Case Study Research’, Academy of
Management Review, 14, 532–50.
Estrin, S. (1997) Privatization in Central and Eastern Europe, London, Centre for Economic
Performance, London School of Economics.
Fligstein, N. (1996) ‘Markets as Politics—A Political-Cultural Approach to Market
Institutions’, American Sociological Review, 61, 656–73.
Frydman, R., Rapaczynski, A. and Earle, J. S. (1993) The Privatization Process in Central
Europe, Prague, CEU Press.
Frydman, R., Gray, C., Hessel, M. and Rapacznyski, A. (1997) Private Ownership and
Corporate Performance: Evidence from Transitional Economies, New York, NY, New York
University.
Hankiss, E. (1990) East European Alternatives, London, Clarendon Press.
Hanley, E., Yershova, N. and Anderson, R. (1996) ‘Russia—Old Wine in a New Bottle? The
Circulation and Reproduction of Russian Elites, 1983–1993’, Theory and Society, 637–68.
Hirsch, P. (1986) ‘From Ambushes to Golden Parachutes: Corporate Takeovers as an
Instance of Cultural Framing and Institutional Integration’, American Journal of
Sociology, 91, 800–37.
Johnson, J. (2001) ‘Path Contingency in Postcommunist Transformations’, Comparative
Politics, 33, 253–74.
Klaus, V. (1997) Renaissance: The Rebirth of Liberty in Europe, Washington, DC, Cato
Institute.
SER-14.qxd 4/11/03 5:08 PM Page 268
268
H. Rao and P. Hirsch
Kogut, B. and Spicer, A. (2002) ‘Capital Market Development and Mass Privatization are
Logical Contradictions: Lessons from the Czech Republic and Russia’, Industrial and
Corporate Change, 11, 1–37.
McDermott, G. (1997) ‘Renegotiating the Ties in Czech Industry’. In Grabher, G. and Stark,
D. (eds) Restructuring Networks: Legacies, Linkages, and Localities in Postsocialism, Oxford
University Press, pp. 70–106.
McDermott, G. (2002) Embedded Politics: Industrial Networks and Institutional Change in
Post-Modernism, Ann Arbor, MI, University of Michigan Press.
Mejstrik, M. (1994) ‘Czech Investment Funds as Part of the Financial Sector and their Role in
the Privatization of the Economy’, April, Department of Economics, Charles University.
Mejstrik, M. (1997) The Privatization Process in East-Central Europe: Evolutionary Process of
Czech Privatization, Dodrecht, Kluwer Academic Publishers.
Mintz, B. and Schwartz, M. (1985) The Power Structure of American Business, Chicago, IL,
University of Chicago Press.
Mizruchi, M. S. and Stearns, L. B. (1988) ‘A Longitudinal Study of the Formation of
Interlocking Directorates’, Administrative Science Quarterly, 33, 194–210.
Mladek, J. (1994) ‘Privatization in the Czech Republic’, Seminar Bulletin, December,
Bratislava, Center for Economic Development.
Orenstein, M. (1996) ‘Out of the Red: Building Capitalism and Democracy in PostCommunist Europe’, PhD dissertation, New Haven, CT, Yale University.
Orenstein, M. (1998) ‘Václav Klaus: Revolutionary and Parliamentarian’, East European
Constitutional Review, 7, 1.
Palmer, D. and Barber, B. (1999) ‘Challengers, Elites and Owning Families; a Social Class
Theory of Corporate Acquisitions in the 1960s’, Administrative Science Quarterly, 46,
87–120.
Pistor, K. and Spicer, A. (1997) ‘Investment Funds in Mass Privatization and Beyond’. In
Lieberman, I., Nelson, S. and Desai, R. (eds) Between State and Market, Washington, DC,
World Bank.
Róna-Tas, A. (1994) ‘The First Shall Be Last? Entrepreneurship and Communist Cadres in
the Transition from Socialism’, American Journal of Sociology, 100, 40–69.
Rutland, P. (1994) ‘Workers’ Responses to the Market Transition: the Czech Case’, Working
Paper, National Council for Soviet and East European Research.
Stanszikis, J. (1991) The Dynamics of Breakthrough in Eastern Europe, Berkeley, CA,
University of California Press.
Stark, D. (1996) ‘Recombinant Property in East European Capitalism’, American Journal of
Sociology, 101, 993–1027.
Stark, D. and Bruszt, L. (1998) Postsocialist Pathways: Transforming Politics and Property in
East Central Europe, New York, NY, Cambridge University Press.
Stark, D. and Grabher, G. (1997) ‘Organizing Diversity: Evolutionary Theory, Network
Analysis, and Postsocialist Transformations’. In Grabher, G. and Stark, D. (eds)
SER-14.qxd 4/11/03 5:08 PM Page 269
‘Czechmate’
269
Restructuring Networks: Legacies, Linkages, and Localities in Postsocialism, Oxford University
Press.
Stearns, L. B. and Allan, K. (1996) ‘Economic Behavior in Institutional Environments: the
Corporate Merger Wave of the 1980’s’, American Sociological Review, 61, 699–718.
Stinchcombe, A. L. (1965) ‘Organizations and Social Structure’. In March, J. G. (ed.)
Handbook of Organizations, Chicago, IL, Rand McNally, pp. 253–93.
Swiminathan, A. and Wade, J. (2001) ‘Social Movement Theory and the Evolution of
New Organizational Forms’. In Schoonhoven, C. B. and Romanelli, E. (eds) The
Entrepreneurship Dynamic in Industry Evolution, Stanford, CA, Stanford University Press,
pp. 286–313.
Szelenyi, I. (1998) Socialist Entrepreneurs, Madison, WI, University of Wisconsin Press.
Teichova, A. (1974) An Economic Background to Munich: International Business and
Czechoslovakia, 1918–1938, Cambridge, Cambridge University Press.
Wallace, C. P. (1996) ‘The Pirates of Prague’, Fortune Magazine, 23 December, pp. 78–83.
Wasilewski, J. (1998) ‘Hungary, Poland and Russia: The Fate of Nomenklatura Elites’.
In Dogan, M. and Higley, J. (eds) Elites, Crises and Regimes, Lanham, MD, Rowman,
pp. 147–68.