Red Wolves & White Knights

by Peter Kysel

  I gave an hour-long talk, with illustrations. When I finished and asked for questions, I was met with silence. The audi­ence were busy writing. Nobody raised a hand to ask for any clarifications. It was embarrassing. That really flopped, I thought to myself, as I gathered my papers. I said my goodbyes and left the conference room feeling dejected. My delivery was hopeless. The concepts were alien. The audience switched off. They are hostile to the market economy.

  From my interviews with Radio Free Europe in the 1980s, which broadcast to communist Czechoslovakia, I knew that the Czech language lacked modern business and financial terminology. To overcome this problem, I wrote the expres­sions on the blackboard in English and then explained them in Czech. It didn’t work. My examples of international trade made no impression. I walked down the stairs feeling totally demoralised. The deputy governor caught up with me. I tried to compose myself, not to show my humiliation. He called out to me,

  “Wait, please.” I stopped hesitantly. I didn’t want to hear any recriminations. But he asked,

  “Would you mind coming back tomorrow to give us the same talk again?” I was puzzled

  “Why? Nobody seemed interested,” I said, annoyed at this waste of my time. Impatiently the deputy governor waived my objections away

  “It wasn’t like that. We were all writing down your lec­ture. Word by word. We have never had this opportunity before.” My depression lifted slightly. He continued, “We’ll digest our notes overnight. There will undoubtably be lots of questions tomorrow. Will you please come back?” I sighed, unconvinced, but I agreed.

  The deputy governor was right. The next morning, the ques­tions and answers flowed and continued for ninety min­utes. I felt so much better. The audience’s questions guided me towards the content of my articles for the Ekonom magazine.

  #

  Dr Salzman’s Tutorial

  Later that afternoon I took a stroll around the Old Town Square, reabsorbing the beauty of its ancient buildings. I was keen to see the astronomical clock in action again. I stopped to watch and was approached by a sixty-year-old man in a grey suit and a bow tie.

  “Excuse me, I attended both of your lectures. My name is Richard Salzman and I would really appreciate half an hour of your time,” he said very politely. I looked at him, not comprehending what he had in mind. Dr Salzman was a slim man of medium height, with silver hair. He was cour­teous but seemed anxious. Continuing, he said

  “I find it hard to grasp why a limited liability company is so important,” and he added,

  “Could I buy you a beer?”

  It was an alarming admission. A central banker in a post-communist country struggling with basic market concepts. But it was endearing that he had a hunger to learn. But why does he seem to be so anxious? Is he worried about his job? Does he want to impress his colleagues? Whatever the rea­sons, I put my questions to one side. I was pleased that he had approached me.

  “I’m free for an hour. Let’s have a beer in that restaurant over there?”

  Dr Salzman agreed. He ordered two pints of Pilsner Urquell and we took a window table to allow me a good view of the clock. Dating from 1410, it was a masterpiece of action. Apostles paraded in the two top windows, the figures of Vanity, the Miser, Death and the Turk joined in and a Cockerel ended the show. I loved it. The performance was reassuringly the same as two decade ago. An hour later Dr Salzman rose with a smile.

  “After your third explanation, I finally understand the concept of a limited liability company.”

  “I’ll go into more details in my magazine articles. Thank you for the beer.” I responded, wondering why Salzmann was so anxious to learn.

  “You’re welcome. I hope to meet you again. Here is my business card.” The card did not say much. I looked at it and thought

  I wonder what he has been doing at CSSB for the last four decades. One of the pillars of the regime? I seem to be breaking some ice.

  Dr Richard Salzman was a lawyer, who had spent his work­ing life in privileged jobs at the central bank. The largest commercial bank in central Europe, Komerční banka (KB) was being formed as a limited liability company. Salzman failed to mention that he had been appointed as its chair­man and managing director.

  #

  Ingenious Privatisation Idea

  On Wednesday, the telephone rang in my hotel room. It was Dušan Tříska, the deputy minister of finance. He requested a meeting to discuss his ideas for privatisation. Initially I was suspicious, but then my curiosity got the better of me and I agreed.

  “Shall we meet in the Hotel Forum (now Corynthia), next to the Palace of culture (now the Congress centre)? Come to the cafe Praha at eleven.”

  Dušan Tříska arrived on time. He was a slight man, about the same age as me, with curly hair and a polite demeanour and had the air of an academic. Cutting out the small talk, he launched into the concept of voucher privatisation.

  For a half an hour I listened to him in silence, fascinated. Dušan was offering a unique approach. His concept addressed most of my concerns about privatisation in east­ern Europe. It offered participation in a transparent and democratic privatisation for all adults. Everyone would be able to afford to participate. Vouchers offered the diversifi­cation of investment risks. Most importantly, the concept was designed for a rapid disposal of the state assets. The scheme was simple and unique, and I was impressed.

  “How many companies do you want to take through this voucher process?” I asked. Dušan let off a bombshell

  “About 3000 companies, representing about half of our economy,” I gulped

  “Amazing. Have you discussed this idea with anyone else?”

  Dušan sighed.

  “Professor Švejnar from Princeton university dismissed it. He is an academic, like me, with no practical experience. That’s why I wanted to talk to you. I need to understand if the concept is workable or not.”

  “What about your colleagues? What do they think?”

  “I discussed it with the minister of privatisation, Tomáš Ježek and he likes the concept, but doesn’t know if it would work. I have also presented it to my boss, the minister of finance, Václav Klaus.”

  “How did he like it?” I was curious, having met Václav Klaus at the finance ministry. He came across as an arro­gant man, not known to praise his subordinates.

  “Klaus thinks it’s the craziest idea he’s ever heard. He says it won’t work.” Dušan Tříska had put me on the spot.

  “What do you think?”

  I could hardly restrain myself.

  “I think it’s ingenious. Completely original and I think it will work. You should definitely fight for it and go ahead. After it’s all up and running you’ll be awarded the Nobel Prize.” I was wrong about the last one. Dušan perked up, as I added,

  “Voucher privatisation could be implemented rapidly. You will need efficient administrators and lots of computer power. It’ll be hugely popular, an election winner, just like the UK.”

  When I mentioned the British experience Dušan nodded his head

  “You have plenty of experience with British privatisation. What do you think are the lessons we should think about here?”

  “Four main lessons. Politically, it’s more important to pri­vatise than to raise money for the state. This is particularly true here. The state hasn’t paid for seized assets. Secondly, state property should be auctioned off at hefty discounts, to ensure that the investors profit.” Dušan was busily writing notes as I spoke.

  “Thirdly, people will have no idea which companies to buy. Introduce privatisation funds run by professional man­agers. Finally, there has to be a functioning stock market, to facilitate the trading of shares in companies and funds. The stock market can become the transparent transmission mechanism for local investors to sell on their holdings to multinationals.” We went on to talk about the dangers of corruption in the financial markets involving banks, rigged share auctions and lax supervision.

  “Should we restructur
e the companies before privatising them?” asked Dušan.

  “No. The country has no money, expertise or time. Under state ownership, managers are more likely to plunder their companies, then to restructure them. If you delay privati­sation, people will lose their jobs. I would suggest deval­uing the Czech crown to buy respite from global compe­tition and to give you time to find the ultimate foreign owners.”

  Several cups of coffee later and after rehearsing the argu­ments, Dušan left in the early evening. We parted, both happy with the outcome of our meeting. He had had his ideas reinforced and now understood how they could be made to work. I was delighted to be introduced to the idea of mass privatisation and began to feel that this was the answer to Vojta’s request, to undo the injustices of communism.

  It was the second time that I had met an original thinker on privatisation. I had had the same reaction when I heard Sir Keith Joseph, ten years earlier in London, outlining his ideas for privatisation in the UK. During the following decade most of the British economy was privatised, closely followed by other western countries. Privatisation generated huge ben­efits. Now, it was going to transform Central Europe.

  Until the meeting with Dušan Tříska, I doubted that the east Europeans would cope with privatisation. I also feared that its slow progress could destroy their nascent democra­cies. My conversation with Dušan Tříska made me more optimistic. Two questions still nagged me.

  Would people like Tříska be able to overcome the political opposition to his rapid privatisation programme? Foreign firms were poised to move in, and their imports could destroy local companies. Could privatisation be achieved before the fragile East European economies fell apart?

  #

  Battle at the Chateau

  In February 1990 the government invited domestic and foreign specialists to a conference at the Koloděje Chateau in Prague, to debate its proposed economic reforms. The chateau was a chilling place. Under the communist regime it had served as a special prison and was used by the StB to extract confessions by torture. The chateau was later used for secret sessions between the former government and its Soviet supervisors. Walking along the corridors, I imagined I could hear the screams of people being tortured, although here was no evidence of blood on the walls in 1990.

  The finance minister Klaus joined our small English-speaking group before the debate. As we were introduced, he pronounced in his famously whiny voice

  “So, you are the foreign consultants who peddle soft advice for our hard currency?” Klaus lived up to his reputation. He managed to offend a senior western banker, who responded,

  “You are wrong. We paid hard money to come here to give you free advice…” but before he could finish, his younger colleague stepped in to trump Klaus’s rudeness.

  “But giving our advice would be like casting pearls before swine,” Klaus glared at him, turned and walked off.

  At the conference, the Czech-American economist, Jan Švejnar, dismissed voucher privatisation as unworkable and my heart sank. Had I wasted my time with Dušan Tříska. Economic reforms would come to nothing. During the lunch break a smiling Dušan Tříska joined me for a drink. Expecting bad news, I asked,

  “How is your boss responding to voucher privatisation?” Tříska beckoned to Tomáš Ježek, to join our table and said

  “It’s going well. Klaus can’t stand Švejnar, who is even more arrogant than he is.” Tomáš Ježek was sitting down and added, laughing.

  “Vaclav believes that whatever Švejnar says, has to be wrong. He’s now adopted voucher privatisation as his idea.” I looked at them in disbelief.

  “So, it was that simple. By inviting Jan Švejnar here to speak publicly against voucher privatisation, you knew that it would be adopted?” Václav Klaus passed by, just to say,

  “Švejnar can’t stand my concept of democratic privatisa­tion. He’s never had an original idea of his own and thinks that if it wasn’t invented in America, it won’t work.” He nodded to me.

  “Our English banker, I have a copy of the lecture you gave at the National bank.” My nickname had caught on. Václav Klaus slapped Tomáš Ježek on the shoulder.

  “I need a rough timetable for the voucher privatisation by this afternoon”. Tomáš Ježek turned to me and whis­pered, “It’s going well. Our dear deputy prime minister, Valtr Komárek, is using the same arguments as Švejnar. He wants to delay privatisation. Klaus and Komárek are rivals.” Ježek and Tříska excused themselves and went off to discuss their proposals.

  Reassured, I skipped the rest of the conference and went horse riding. On my way to the stables, I couldn’t help chuckling to myself, remembering Ježek and Tříska’s cun­ning plan. Inviting that academic Švejnar was a masterstroke. It made voucher privatisation an inevitability.

  The Czech countryside was perfect for horse riding. Large open fields, meadows and forests were unfenced enabling horses and riders to let go. We galloped through the open countryside to forget politics.

  #

  The Austro-Hungary Fund

  Our first project in post-communist Europe was launched a month later. My marketing colleague John Wright and I flew to Vienna and then to Budapest to promote the Austro-Hungary fund. It was the world’s first public vehicle for investing in the region. The Hungarians were ahead of others in privatisation and we worked with them on the reforms needed to bring in foreign investments. The fund included Austrian investments, in order to balance the risks and to insure shareholders against any reversals from the market economy in Hungary.

  Two illustrious Hungarian noblemen, Georg Festetics and Furstenberg-Esterhazy joined us as directors. Their appoint­ments added authenticity to the fund. The international media enthusiastically endorsed our early involvement in Eastern Europe. Our target of £50 million was raised within weeks and we began investing within a few months of the fall of communism. Shares were listed on the London stock exchange and were introduced as the first foreign company on the newly formed Budapest stock market.

  I took charge of the Austro-Hungary fund as its manag­ing director. I enjoyed the irony of somehow recreating a nostalgic reference to the Habsburg monarchy, which had ruled over my nation for three centuries. The fund became the perfect device for unlocking business realities in a new region. It was a highly visible step in expanding our business.

  But challenges very soon became apparent. We bought a Hungarian supermarket chain, Globe. On inspecting its stores, we found rotten tomatoes on display.

  “How long does it take to get tomatoes from farm to shop?” we asked the manager.

  “About eight days.” Back in London, I shared the rotten tomatoes story with a Tesco executive, in order to illustrate the lack of management skills in the region. He immedi­ately spotted an opportunity.

  “It takes us eight hours to bring tomatoes into our stores. Let’s discuss your chain further.” Over a period of time we sold Globe to Tesco and our supermarket chain became the launchpad for their involvement in the region.

  Ultimately Tesco became the largest retailer in the Czech Republic. Coincidentally its flagship store, Máj (May), in Prague, was only a few steps from the spot where Jakeš’ gestapo had beaten up and arrested demonstrators on Mayday 1963 and again in November 1989. A plaque com­memorates the November events. It’s a pity that our Mayday demonstrations of 1963 have been forgotten.

  #

  My Clubtocracy membership cancelled

  My promotion at Lloyds Merchant Bank, promised for January, was delayed and ultimately cancelled in March 1990, when Lloyds announced the acquisition of an asset management business by Schroders bank. The deal included a job guarantee for the head of the incoming team. He was given the top job in the combined investment organisation and I remained in my old position. I was deeply disap­pointed. My strategy for the merchant bank was in pieces.

  Our new managing director, Peter Axten, was a gruff, large, red-faced individual and a complete shock to the staff. He was abrasive, habitually used exple
tives to intimidate us, and smelled strongly of Brut aftershave.

  Axten’s job qualifications were a mystery. His former team referred to him as “Brute, the undereducated overachiever.” Axten failed to address the staff and explain his game plan for our business. Instead, individuals were called into his office for aggressive meetings. Years later his behaviour would be labelled as harassment. On meeting him, I realised that my prospects at the bank had taken a dive. I thought It was a mistake to apply for the top job. Axten is a weird guy. The bank was crazy to hire him. This episode will end badly. I shan’t be joining the clubtocracy.

  #

  Valtr, Deputy Prime Minister

  Our encounters with prominent people from Czechoslovakia brought us up against a dose of reality. In March 1990, my banking friend Pavel and I sat waiting at Le Caprice restau­rant in St James’s, to dine with Valtr Komárek, the deputy prime minister.

  We were looking forward to an interesting and enjoyable dinner. Having read his file, we wondered why this man had changed his tune. A slim, sixty-year-old man with curly hair and a goatee beard, wearing a light grey suit, stepped out of a dark Mercedes. We looked at each other and nodded.

  “That’s got to be him,” said Pavel. We rose from our window table to greet him at the entrance

  “Dobrý večer (Good evening) “We said, and he responded

  “Díky bohu že můžem mluvit česky (Thank God, we can speak Czech).” Komárek found English a struggle. He emerged from meetings with British officials complaining that they lectured him on economic reforms in a conde­scending manner.

  “My nejsme opice (We are not monkeys),” he kept exclaim­ing, banging the table. Pavel and I were solicitous and tried to calm him down, but Komárek ignored our small talk and steered the conversation to his economic views.