Czechoslovakia: Brighter future for costume jewellery makers?

October 30, 1991

Approximately 6000 big companies are included in Czechoslovakia's so-called large privatisation program, two-thirds of them in a "first wave" and the remainder in a "second wave", with others at least temporarily held aside. Company managers had until October 31 to submit their own plans to ministries, and after approval, first-wave privatisation is supposed to begin on January 1. But long delays are very likely. Second-wave privatisation plans must be submitted by April 30, for privatisation later in 1992. Peter Annear and Sally Low present one in a series of case studies, each of which tells something about tomorrow's Czechoslovakia.

JABLONEC NAD NISOU — Bohemian crystal is world famous for its quality and beauty, but it is not the only product of the diverse glass industry in which Czechoslovakia is a world leader. This attractive, though polluted, north Bohemian mountain town was once the world's biggest source of costume jewellery, and for the past 40 years has been the home of the Bizuterie Concern.

Earlier this year, Bizuterie was broken into 20 corporations, including Preciosa, the largest of the new companies and a maker of chandelier glass, and Bizuterie itself, a jewellery producer. Both have been incorporated as joint-stock companies 100% owned by the state in preparation for privatisation. Preciosa has 5500 employees, Bizuterie 2500. Most workers are women.

In the interwar years, Czechoslovakia benefited from a comparative advantage in light industry. But, say Bizuterie managers, in the 1950s and 1960s the newly nationalised and planned economy gave priority to heavy industrial development. The enterprise was reduced to employing prisoners because of the unavailability of wage workers.

Czechoslovakia held 70% of the prewar world market for costume jewellery; it now has 7%. In the 1930s, the Jablonec region produced 30% of Czechoslovakia's jewellery exports; today, it contributes 8%.

Cutting trade links with the West was one of the main aims of the 1950s purges, which singled out people like deputy foreign trade minister Eugen Loebl. Even towards the end of the first five-year plan, 55% of Czechoslovakian trade was still with the West.

According to Loebl's account, "I argued that we had to maintain contact throughout the entire world so as to be able to benefit from the dynamics of technical and economic development".

The Gottwald government had promised to pay compensation for companies nationalised in 1948. One such was the Schicht works of the giant British Unilever company. Loebl proposed that compensation be paid in the following way: for its worldwide network of retail outlets, Unilever would obtain supplies of glass, jewellery, porcelain and toys from Czechoslovakia and would pay 80% of the purchase price, with the remaining 20% credited against the compensation account.

Loebl later served time for such initiatives. Today, Bizuterie is again exporting 80% of its output of metallic and glass costume jewellery to markets in the USA, UK, France and Italy, among 110 different countries. Director Miroslav Jotov says the company also hopes to regain much of the Soviet market recently lost in the collapse of trade.

At Preciosa, economist Jan Porizka says the company has regained a quarter of the world market for its major lines, and prospects are good. Much of the market lost in the 1950s and 1960s went to the Svarovsky company in Austria, founded by a Czech who emigrated at the turn of the century. The first of the world's producers of cut glass products, Svarovsky is technologically ahead of Preciosa, which ranks second.

In Bizuterie's privatisation, there is no intention to attract foreign capital. There is no need, Jotov says, for the finance, the markets or the technology which foreign investment might provide.

So why privatise? Says Jotov, "If the shareholders are identifiable, then the situation will be better, because each will be interested in the profitability of the company". This sounds remarkably naive in the world of monopoly capitalism, but such sentiments arise in part out of the economic stagnation of the past.

Enterprise managers now face the problem of how to maintain control over their companies in the face of privatisation. The biggest threat is from foreign capital, and plans like those at Bizuterie and Preciosa are usually directed at preventing a takeover. Companies which have not submitted their own plans may simply be sold to the highest bidder.

The major new shareholders in Bizuterie will be Czechoslovak banks. Additionally, up to 30% of shares will be issued to the public under a coupon scheme. And the company's employees are expected to buy a 10% stake. Jotov says the demand for shares will exceed the issued capital.

A similar plan has been devised by Preciosa. In addition, Preciosa will put aside 20% of shares for technical experts, whom they say may otherwise not stay with the company. This may put a sizeable portion of the ownership into the hands of management.

Issue