We reject the interpretation that the 1960s are part and parcel of some kind of homogeneous, consistently freedom-less, totalitarian forty-year period of Communist rule and that 1968 is grasped as a year when there was just a pointless exchange of one Communist establishment with another. That is to contrary to the truth.
We can ‘appreciate’ such an interpretation post November 1989 as a smart, politically effective move by Václav Klaus (and his Civil Democrats), feeding the public the opinion that any inspiration from 1968 is misguided and that the only true way to make the switch to democracy and a market economy was thought up by him. That is not all. From the position of the rightwing, perhaps the main effect was that ex-Communists expelled from the Party at the start of Normalization, the people who were behind the fundamental criticism of the Communist political and economic system and inspired the changes in the 1960s, were politically discredited and once again sidelined.
However, what is surprising is that the leftwing initially took only a defensive stance against this, and the only real alternative to be put forward came from the team headed by the deputy prime minister of the Czech government, František Vlasák. The success of a similar path pursued by Slovenia underscored how promising this alternative was.

Background to the reform of the 1960s
The ideas underlying the reform emerged from a critical assessment of the existing central command system. In an article intended for a generation bereft of personal experience of this system, we start from square one. In the period of history relevant to our discussion, the evolution of the economy was largely determined by political developments. Strictly speaking, the starting point of the period in question was February 1948. In the broader scheme of events, the three-year interval from 1945 to 1948, with its large dose of democratic relations and visions of a specific Czechoslovak path forward – including in the economy (a combination of a market economy with ‘tame’ planning) – was merely an interlude before Stalin’s patience snapped. Then the Leninist principle of the supremacy of policy over economy took root.
The economic future was formed by three moves in the spirit of social engineering. The first was a decision to completely redefine the structure of the economy, to build the hypertrophied heavy industry as the basis for feeding all other sectors with technology throughout the Eastern Bloc and as part of the preparations for military conflict, which was part of the strategic considerations nurtured by the Kremlin and hence by Prague. The second move was the establishment of a State Planning Commission as a central authority for decisions on the national economic plan; the methodology used for the composition of this body was taken from the Soviet model through their advisers. The third move was the nationalization of enterprises and banks, completed in about 1950 and going to the absurd length of encompassing small traders and retailers. As a result, microeconomic entities were reduced to recipients and executors of binding indicators under the state plan, including production tasks on the one hand and material, investment and wage allocations on the other, and from both of these there were passively derived, individualized financial ties to the national budget.
However untoward the long-term ramifications of these three actions, even with hindsight their mutual consistency is remarkable. We have already mentioned how nationalization and the loss of corporate personality, can be attributed to the introduction of central planning. In fact, the structural transformation of the economy would not have been possible were it not for central planning. Huge amounts of capital had to be invested in foundries, energy industries, fuels and heavy engineering, which could only be accumulated by depriving other sectors of the possibility of at least minimum asset replacement, let alone modernization. Building resources had to focus on the Ostrava area and Northern Bohemia to safeguard the construction not only of new production capacities, but also of homes for the enormous rise in the necessary workforce. These workers were transferred here by virtue of compulsory quotas imposed on other regions, which had no choice but to release them from their current employment. It was all rather more reminiscent of a military operation than economic policy.
Although the targets of the first five-year plan (up to 1953) were not completely fulfilled, there was a noticeable structural change towards heavy industry during the 1950s. The political elite lauded this as a major achievement: ‘We have created industrialization in the space of a few years, where capitalism needed a century.’
However, cracks in the system soon started appearing. First, there was what the Hungarian economist Kornai subsequently coined the ‘shortage economy’. Citizens, as consumers, found themselves constantly waiting in queues in shops, with ‘rare’ goods such as bananas available only in the run-up to Christmas. The shortage economy had even graver implications in inter-firm relations as it interrupted the flow of production. Enterprises responded to shortages by trying to incorporate larger allocations of materials into their plans; these materials were then kept in stock as a reserve, which simply made the imbalance worse. From the perspective of sales, there was also the problem that certain products were often not needed by consumers or the quantities required were overestimated in the plan. This was another factor increasing the level of stocks beyond a sensible level. The overlapping of shortages and increased stocks as a permanent accompaniment was clear evidence of the system’s failure to coordinate the economic activity of system entities.
A while later, another system defect started to become apparent: enterprises had no internal interest in innovating their production technology or in the qualitative characteristics of their finished products. Doggedly sticking to what they had coped with in the past was an easy approach that was not professionally challenging.
This dysfunctional corporate behaviour was allowed to burgeon in negotiations on planned indicators. A symptomatic characteristic of this procedure, preceding the approval of the plan, was for every subordinate level in the management pyramid to push for more favourable indicators than its superior levels (lower tasks, higher allocations) during the negotiations. In practice, the system designers’ projection that universal interests would prevail at corporate level was shown to be naïve. Perhaps inadvertently (in which case all the more paradoxically) they incorporated the exact opposite into the system – interest in the lowest possible indicators in the plan. This is because enterprises were assessed and their managers rewarded based on whether they achieved the planned indicators, so the common principle was ‘the lower the plan, the better for us’.

Substantive content of economic reform
In the 1960s, critical ideas started emerging that ultimately became Šik’s reform package. What were the fundamental circumstances behind the materialization of this current?
An external point of view, free of all ideological illusions, was applied to the central planning system. It was understood to be inoperable to the core, which meant that no amount of tweaking could remedy the situation. This was confirmed by comparisons with western market economies, which were evidently functionally superior and reported better qualitative results, especially in the application of new scientific breakthroughs.
A comparison of the theoretical backcloth of the two systems gave even more reasons to be doleful. In one corner, there was the knowledge of economic science accumulated over two hundred years and verified by economic development, albeit interspersed with crises. In the other corner, there was the poorly substantiated claim that even Marx had tied future socialism to the concept of planning, plus a plethora of empty ideological phrases not joined up into any coherent theory, in the vein of ‘in socialism people will work better because they are working for themselves, not for the profits of capitalists’, which relied only on moral motivation and concealed the absence of the chief motivating mechanism – the market.
Let’s look at the resultant set of ideas painting a picture of the conceptual notion of reform. We believe a crucial factor is the idea of nurturing an environment that would change profoundly the behaviour of enterprises. In the previous system, for the enterprise the superior bureaucratic bodies were the key player, with whom it can negotiate anything for itself and its employees. In this respect, it played the role of a trade union of sorts, perhaps even a social institution. The customer was a nuisance rather than someone to bow down to. The enterprise was not dependent on the customer; it produced and supplied to customers only in accordance with the plan, and anything else was a matter of good will.
In the new system, enterprises had a new lord – the consumer, the customer. The enterprise’s revenue position depended fully on the sales generated. Therefore, in this interrelationship the economic balance was meant to shift in favour of the customer. The customer would have room to choose between alternatives, while the supplying enterprise had no alternative – it needed the customer’s money. This generated natural interest on the part of the enterprise in the best possible customer service and in maximum efficiency and innovation as a way to produce relatively higher value added and profit.
If an enterprise’s revenue position was to hinge solely on income from customers, further paradigm shifts were required. The plan should not impose binding indicators on businesses. The price created freely on a competitive market should be a parameter for the enterprise to which it must adapt its costs and, by extension, efficiency. Relations vis-à-vis the national budget could no longer be individualized based on the enterprise’s financial situation, but under the law should be set identically for everyone. The recoverability of loans should be strictly enforced. All this should place an enterprise in an environment where financial performance would depend exclusively on its efficiency and customer service.
In line with the new concept of the relationship between enterprises and the national budget, investments were reassessed. The only sources of investment funding could be resources accumulated by the enterprise from its profits or returnable loans. The idea of creating a capital market did not surface until a later stage of reform, and raised doubts about the compatibility of speculative operations typical for such a market with the ethos of the reform ideas.
This environment was designed to give companies freedom of choice and liability for economic results while moulding their behaviour. From the legal perspective, the personality of large enterprises was similar to that of a state enterprise headed by a self-governing body in which a third of members were employees, a third external experts, and a third delegated representatives of the national property fund. The basic powers of this autonomous setup were the appointment and removal of managers and the approval of the long-term enterprise development concept. Cooperatives or private ownership were envisaged for other enterprises.

The contribution by Šik’s reform to the social-policy ‘miracle of 1968’
The ‘miracle of 1968’ departed from the development trajectory of Stalinist socialism, which simply bulldozed its way through time, flooring any attempts or even ideas geared towards recovery. This miracle had been maturing for years, at least since the start of the 1960s. Šik’s reform was just one of a number of factors gradually mobilizing society until this movement peaked in 1968.
At the same time, there were attempts at political reform: it is worth recalling, at the very least, the conference of writers in 1967, the openness with which the media started giving voice to experts and, in particular, the people, expressing dissatisfaction with the current situation, and the new wave of Czechoslovak films, Suchý’s Semafor Theatre and Havel’s Garden Party. Reform-minded politicians such as František Kriegel and others (especially V. Kadlec, J. Litera, Z. Mlynář, J. Pelikán, V. Slavík, J. Smrkovský, J. Šabata, J. Špaček, F. Vodsloň), who in the past had already wielded informal clout within the KSČ (the Communist Party), opened up the path to the reform process.
How did changes in the economic system make their way onto the table? The initiator was Ota Šik, who was appointed director of the Economics Institute of the Czechoslovak Academy of Sciences in 1962. In his academic work he focused on critical analysis of the existing system of the centrally planned economy and looked for ways of tackling its defects. This activity culminated in his book Economics, Interests, Politics (‘Ekonomika, zájmy, politika’). He surrounded himself with economists who had the same mindset and published work in the same spirit (including D. Fišer, M. Horálek, R. Kocanda, Z. Kodet, B. Komenda, K. Kouba, M. Koudelka, Č. Kožušník, V. Pleva, M. Sokol, and O. Turek).
The third five-year plan collapsed in 1963, and national income declined for the first time in the era of central planning. The country’s political leadership needed to demonstrate to the public that it stood ready to do something about this.
This was the background to the decision to draw up a comprehensive proposal for an enhanced system of economic management. At governmental level, the State Commission for Management and Organization (SKŘO) was delegated to submit the proposal; a working (or ‘theoretical’) party headed by Ota Šik and composed of the above-mentioned economists was set up to prepare the relevant materials. One of the people linked to the group was František Vlasák, already a member of the government and the president of the State Planning Commission (SPK), whose role was indispensable because of his contributions to debates, drawing on his long-standing experience of the way governmental bodies function, and – perhaps more importantly – because of his ability to identify the relevance of principles of ‘high theory’ as the basis for problems encountered by the economy.
The theoretical party’s materials were submitted to the SKŘO and SPK for discussion, and were assessed by the presidium of the KSČ – sometimes by the central committee. It followed from the logic of efforts to maintain the status of individual bodies that the originally more radical proposals became less emphatic as they passed through the various stages of discussion.
For Šik, Vlasák and the theoretical party, it was clear that, besides the fate of their materials in the formal authorization procedures, what was of greater importance was that the original, non-reducible pivotal ideas of reform must resonate in society. Fortunately, it was possible to publish very open, critical articles as censorship found itself running out of puff and strength every year. The members of the theoretical party and an ever widening group of economists sharing the same mindset published texts which were lapped up by the public. Šik himself delivered dozens of speeches in companies, and his voice could even be heard emanating from television screens. The reform attracted mass sympathy, support and even impatience with regard to its launch into the real world because the public found it so plausible.
This social mood infiltrated the power structures and logically split them into two camps – reformers and conservatives. The central committee, thus ‘prepared’, replaced the party leadership at its session as 1967 gave way to 1968. When, after a few weeks, the people found out that the changes were not of the ‘cosmetic’ nature they were used to, they realized that the very barriers of the Stalinist pattern were being shaken. This gave rise to the hope that the anomalies that had embittered people’s lives over the years could now be ventilated in public and solutions found. A remarkable initiative emerged, cells of civil society were formed, more and more policy suggestions emerged from meetings that frequently transgressed the absorption capacity of the bodies that were meant to give them life. The ‘holy’ principle of the leading role of the Communist Party was somehow turned upside down, resulting in a situation where the nation was leading the Party towards deep regenerative reform in all spheres of social life.

Lessons of a more general nature
In the conditions of Stalinist socialism, the cohesion of the economy and politics is so strong that reforms are either superficial so that they do not affect the political system (regardless of the fact that they do nothing to help the economy), or are so profound that, while they pave the way for the improved functioning of the economic system, they wash away the foundations of the political system. Therefore, its representatives try to suffocate the reform process at birth and impose exemplary punishments on the originators. Šik’s reform was an exception – it was not stifled at birth, but influenced public opinion over a number of years, and its first steps on the way to practical implementation returned positive results. Dubček’s leadership gave the green light to the reform, appointed Šik deputy prime minister, and was accommodating to popular pressure for the democratization of the political system, so further developments were steered towards democracy and a socialist market economy. However, Moscow intruded in the run of events in August 1968. The military intervention in itself was not enough to break the spontaneous nationwide movement, but laid the foundations that would convert domestic politics to the new, Husák,s administration, which would restore Stalinist socialism. Only then was Šik’s reform suppressed.
With hindsight, however, we can see that it was not defeated – the seeds of knowledge and hope were cultivated in the people for another two decades. In November 1989, the public not only welcomed the end of the Normalization caricature of socialism but also, according to surveys conducted at the start of the 1990s, 90% of people also rejected capitalism. Only post-November developments put paid to that hope.
To what extent can Šik’s reform be compared to Klaus’s transformation, considering that the historical missions of the two were diametrically opposed? The latter took root after the political fall of Stalinist socialism, the former accomplished the mission required to trigger that fall. A major factor contributing to this outcome was 1968 in Czechoslovakia. Illusions about the system’s ability to function rationally and return results that would help it keep pace with the developed world evaporated. Two decades of Normalization were agony for the system. While the command system was an adequate means of reinforcing heavy industry in the 1950s, in the 1980s, when the world entered a post-industrial phase stressing the knowledge society, the command system became absolutely ineffective, and as a result the economy lost a lot more ground.
To what extent could the intelectual Šik’s reform legacy of at least be regarded as the inspiration for the formation of a target modern leftwing, non-capitalist economic system?
Although the documents adopted within the scope of Šik’s reform did not specify in full the procedure to be applied in attaining a market economy, initially they did selectively concentrate on market exploitation primarily as a mechanism for the coordination of economic activities and the application of the motivation, based on the equivalence principle, where each entity receives income corresponding to its societal benefit. This is a sphere where, for centuries, the market has revealed itself to be a good servant and where the link between a certain reform step and the exorcism of universal abuses was abundantly clear to everyone.
However, as has been mentioned above, the reform processes developed to a level well beyond the framework of the adopted documents in the minds and support of the public and in the behaviour of enterprises. In the words of theorists, the changes to formal institutions were outstripped by changes to informal institutions. This is a globally unique phenomenon and is a contrast to the post-November developments. This process primarily sought an answer to a fateful question highlighted even in the speeches of Ota Šik, to the symbiosis of the roles of the state and the market. This was not an original Czechoslovak concept. In the bipolar world, the Cold War threatened catastrophic consequences, but was also a platform for competition and the tendency to approximate social and economic systems from both sides of the Iron Curtain. Our 1960s reform approached the symbiosis of the roles of the state and the market by ‘adding’ the role of the market to the previous role of the ‘pure’ state, whereas the West European welfare state approached this objective from the other end, ‘adding’ the role of the state (in macro- and microeconomic policy, the plurality of ownership, the redistribution of income, moral motivation) to the ‘pure’ market. The economic miracle of the time – economic growth, improved productivity, competitiveness and living standards – verified the substance of the reform approach on both sides.
This symbiosis is thus all the more relevant in the era of the 21st-century knowledge society than the current incursions by neo-liberals designed to curtail the welfare state in EU countries or than Klaus’s restoration of the ‘pure’ market in the Czech Republic. (What is more, Klaus’s strategy was a shock strategy that did not allow enough time for the construction and maturing of legal and ethical institutions, or for gradual privatization which, instead of enriching individuals by means of manoeuvres bordering on illegality, would have been of major benefit to the state. There is also a lack of effort to ensure that the market does not make inroads into spheres where it would be a bad taskmaster, such as the health service, the education system and culture.)
At an even higher level of abstraction, a dual cardinal issue looms large – a matter of contention even then between Milan Kundera and Václav Havel – that of whether we were the ‘navel of the world’ or just a part of global evolution, and whether this included the replacement of the Stalinist system, albeit only with the restoration of capitalism, or even with the renaissance of the untapped potential of a project of free and market socialism. Today, we know that the ‘Czech lot’ was and is part of the world’s (and especially Europe’s) lot, where a battle is being waged to overcome the capitalist model with a freer, more socially just model.
This contest takes place in the ebb and flow of reformist and anti-reformist waves. ‘Prague Spring’ flourished side by side with the ‘European Spring’ in 1968. The restoration of Stalinist socialism in Czechoslovakia by virtue of ‘Brezhnev’s Doctrine’ of restricted sovereignty was accompanied by the shock restoration of capitalism by virtue of the ‘Washington Doctrine’ (the shock liberalisation, the total privatisation and the macroeconomic restrictions demand) , which was imposed on Latin American countries in the 1970s and on the post-Communist countries of Central and Eastern Europe in the 1990s, and is crowned by the current neo-liberal incursion intended to abridge the European welfare state. However, reverse trends are now surfacing in the world.