Electronic Library of Scientific Literature


Volume 45 / No. 6-7 / 1997



Central & East European Countries (CEEC) lag behind EU member countries in overall economic level, production infrastructure and development of market, economic and social environments. To overcome the general lag & find a new niche in the international division of labour will take several generations.
Domestic financial resources for the structural transformation of production are limited & a rather permanent inflow of foreign capital is not certain. The best hope lies in full EU membership, but at the moment EU is carving new Eastern markets while trade barriers often stand in the way of reciprocity. Chief macroeconomic dilemma is whether to give priority to quick economic growth & structural transformation or to price and currency stabilization. Analysis of trends in CEEC markets compered to EU economies and to other countries with transferable experience.

1. Development lags

The economic level of CEFTA countries, as measured by per capita GDP in price parity range between 31% + 56% of EU-15 average, while none reach the level of weakest country, Greece, while in terms of exchange rate, between 14% & 41%. Forecast for strongest CEFTA country, (ČR) reaching 70% of EU is 10-22 years. This suggests that rules for cohesion & EU structural funds will have to be substantially altered.
Achievement of relatively high GDP growth rates is one of the fundamental economic priorities of CEFTA countries. Interrelations within the region suggest that analysis of labour force flexibility must take into account situation in neighbouring transition countries. Before 1990, ČR & DDR had extremely high participation rates. Considering the rate of unemployment, difference between ČR & western & central European average is even bigger.
Macroeconomic indications suggest that structural transformation of industry makes quic-ker process in countries with rather high rates of unemployment. One core reason for slow restructuring of large enterprises in ČR is vague ownership relations and indifferent execution. Enterprise management is not motivated to deal with issues of development of production & sales. For production transformation, it is important that the qualification structure of labour be adjusted to new needs. For competitive ability, significant are lags in labour productivity and wages. In 1996, Czech labour productivity, average wage and employee compensation amounted to 42.7%, 16.9% & 17.9% of EU-15 levels. A „world level" of wages can be achieved only by reaching the „world level of labour productivity. Development of labour productivity versus wage relationship brought down ČR comparative advantages: low wages & conditions for higher rate of domestic sarongs.
After transformation, deceleration of economic growth & balance of payments current account called for measures for short-term stabilization & long term system issues.

2. Broad structure of economy

Shares of primary, secondary & tertiary GDP sectors shifted after 1990 in favour of servi-ces growth. ČR has lowest tertiary percent, Slovenia high manufacturing share, Poland highest primary (agricultural, mining & quarrying). Public services have stagnated due to limited resources & overdimensioned socialist period. ČR structural changes necessary, as industrial dominance unlikely to continue. While CEEC countries are highly industrialized, they are mis-developed in terms of technology, organization, management & modernization. German re-unification led to discarding of east German industry. A decreasing share of heavy industry can also be expected in the SR. Goal is not „green meadow" development, but remaking of available production capacities.
CEFTA integration into international division of labour is based on a cheap labour force, export of raw materials & low-sophisticated, energy-intensive products. This does not correspond to industrial traditions & prospective possibilities.

3. Savings & Investment

There is no recorded case of a country achieving top growth rates without having high rates of investment. Investment to GDP ratios of ČR (30%) & SR (32%) above 18.5 EU-15 rates. This overburden risks disturbing currency stability. High investments in transport, telecommunications & energy infrastructures will not show immediate pro-growth, pro-export and anti-import effect.
Domestic savings rates in SR (32%/1995) & ČR (25%) were at least above EU-15 levels, Poland & Hungary below EU-15. Balance of payments current account deficits cannot be maintained without effect on foreign exchange reserves & currency stability. Foreign debt increased in ČR & SR to „safe" level of 40% GDP, while Hungary is deepest in debt. Most desirable foreign capital inflow is foreign direct investment.

4. Comparative price levels & exchange rate policy

CEFTA lower economic levels reflected in lower price levels. Pre-1990 Hungary had higher prices, 38% of Austrian level. Price levels converge as result of faster CEFTA inflation not compensated for by currency devaluation. Hard exchange rate caused balance of payments difficulties. Continual depreciation of exchange rate not enough to compensate for devaluation-caused inflation differential. Pro-export, anti import devaluation effects swallowed by inflation increase. Cost of austerity package was decrease in real wages & deceleration of economic growth. Conclusion that devaluation is only short-term solution to current account deficit, and that non-price competitiveness factors (exchange rate policies) are more lasting.
CEFTA aim-gradual real currency appreciation on basis of rapid labour productivity growth and capital effectiveness increase. Experience of Portugal in EU shows decades needed to reduce ERDI coefficient to acceptable levels.

5. Production & export composition as affected by undervalued exchange rate

Undervalued e. r. pushes towards manufacture of price-elastic low wage goods. Non-price competitiveness factors need longer adaption time. In ČR for example, more sophisticated (electrical engineering) manufacturing unable to compete with western advanced production due to „quality gap". Trap is that even cheaper countries take market share for export, raw materials face environmental, trade restrictions. Insufficient adjustment of supply, a structural problem, is key cause of rising CEFTA trade deficits.

6. Inflation, restructuring and growth

Quick economic growth form restructuring & low inflation CEFTA goal, but too strong disinflation action may impede economic dynamism.
THE RISE & FALL OF INFLATION (IMF) charts 30 years of progress of countries similar to CEFTA. Although this study shows negative correlation of inflation & long-term growth, also points out hazards of wage / price rigidities to control single-digit inflation. Many countries were able to maintain growth alongside 5-10% inflation.
In ČR, SR & Slovenia, inflation stands at these levels, but reducing further difficult due to wage & price rigidities. Housing price deregulation, imported goods & services, affect inflation. Problem to find balance between economic growth rate & disinflation. Maastricht inflation criteria threaten production restructuring, economic growth in CEFTA economies.

7. Conclusions for development of specific sustainable growth policies

Incomplete markets (capital) cross-ownership of banks, funds, enterprises prevent effective capital allocation. Ownership restructuring has not led to structural transformation, competitiveness (costs/productivity ratio, speculation rather than re-investment in production). Competitiveness development in enterprises, well-considered macroeconomic policies are paramount. Increases in domestic savings, foreign investment climate aid modernization, therefore labour productivity increase. Thesis: transition economics should prioritize economic growth; rapid changes in price & wage relations need the flexibility of looser inflation rate; structural transformation more important then rapid disinflation because external disequilibrium is struc-tural. Balance of payments deficits require economic deregulation & intensive state support, even though import deposits (ČR) criticized by EC. Proven that exchange rate devaluation less effective than non-price factors, Key cause, insufficient supply adjustment - competitiveness increase is the long-term solution.



The paper presents results of international comparative analysis of competitiveness of the economies of Czech Republic, Hungary and Poland compared to the member states of the EU in the years 1994-1996.
International competitiveness in its broader meaning (on the national economy level) is "the capacity of a country or company to generate more wealth than its competitors in the world market".
The assessment of individual countries' rating in national competitiveness is based on the concept developed by K. Schwab, President of World Economic Forum, Geneva, mainly in co-operation with the International Institute for Management Development, Lausanne. Multi-faced approach to identify rating of individual countries within 46, or 49 countries was used.
The ranking position of analyzed countries (3 CEEC, 15 EU member states, Japan and the USA) is identified by means of 224 criteria (selected according to their relevance to the competitiveness of national economies) arranged into 8 groups of factors characterizing domestic economy, participation in internationalization processes, government performance, financial market performance, infrastructure, quality of management, science and technology sector, human resources and labour market flexibility.
The total of competitiveness position of the Czech Republic (Poland and Hungary) compared with EU member states (with Japan and the USA) is based on its ranking position in terms of
generated wealth (fixed capital) of the community, transformation and internationalization processes,
growth potential of the national economy,
average ranking position (of 46 or 49 analyzed countries) in individual criterion groups.

The importance of historically created assets for the competitiveness of all three CEEC according to this analysis exceeds 60%, the rest (around 40%) is attributable to the influence of transformation processes.
All three CEEC gave better ranking of their competitiveness according to assets. Especially in case of the Czech Republic and Hungary is the influence of inherited assets on competitiveness very distinctive. The rating of the Czech Republic (of 46 countries) is more favourable than the other two CEEC.
Markedly less favourable position of all three CEEC, from the point of view of the influence of transformation process on their competitiveness, is near the ranking of Greece or Portugal. As for the transformation process criteria is the position of the Czech Republic more favourable than that of Hungary or Poland.
The influence of CEEC participation in internationalization processes on their competitiveness is evaluated by the attractivity for the inflow of foreign direct investment and for international co-operation of foreign firms with domestic firms. Both the Czech Republic and Hungary compete in creating favourable conditions for the inflow of foreign direct investment and for other forms of international co-operation. Their position (in 1996) is near the ranking of Greece, Portugal, Spain, and Italy.
In spite of an improved position (in the 1994-1996 period) of all three CEEC according to their active participation (measured by their aggressiveness) in internationalization processes, their ranking is markedly inferior to that of compared smaller countries of the EU - the position of the Czech Republic in 1996 is considered as a bit more favourable than that of Hungary and Poland. All three countries are in the ranking of this factor of competitiveness (of 46 countries) near the ranking of Greece, Portugal and Spain.
The total competitiveness position of the three CEEC in 1996 assessed by competitiveness index (of the group of 49 countries) and by total rating related to eight groups of factors is fairly similar. The best position occupies the Czech Republic followed by Poland as for competitiveness index or by Hungary as for the average of eight groups of factors, or by Poland taking into account alternative rating.
The position of the three CEEC according to rating and competitiveness index is very near to the position of three southern EU members, e.g. Greece, Portugal and Spain. The growth potential of the Czech Republic is ranked better than positions of the three mentioned EU members.
Comparing Czech Republic's total rating of competitiveness according to individual groups of factors to its total average position in the year 1996, one can say that the country's total competitiveness is very unfavourably influenced by the groups of science and technology and management factors.
This evaluation in fact confirms the results of many analyses and discussions that point out to the vital position these factors play above all for the Czech enterprising sector's competitiveness increase.
Most unfavourable influence on the competitiveness of the Czech economy (compared to average) have the factors of human resources and economy openness.
Strengthened total effects of favourable position in listed groups of factors will demand, however, marked improvement in ratings of science, research and technology in combination with enterprise management.
Concluding the paper, authors present main lines of policies for supporting competitiveness. The orientation of all three CEEC at more pronounced competitiveness (based on the EU or OECD members' experience) demands the formulation and implementation of mutually interdependent policies.

The main lines of global competitiveness policy of these three CEEC can be formulated according to the mentioned documents (especially according to the basic EU document) in the following way:
helping to adapt CEEC firms to the new globalized and interdependent competitive markets, mainly in seeking new balance between competition and co-operation in these markets;
stimulating the competitive advantage associated with gradual shift to an economy based on knowledge and exploitation of science and research potential;
promoting sustainable development of industry through a development of clean products and processes; this orientation of policies (contributing to the overall competitiveness in the three CEEC) will decrease the cleaning-up costs and stimulate faster diffusion of R&D results;
decreasing the time gap between the changes of supply and corresponding demand.

The results of international comparative analysis of economy position of the three CEEC from the point of view of the state and development of their competitiveness in the period 1994-1996 confirm the need to pursue their deeper transformation that will create conditions for strengthening their position.
Only competitive production of goods and services in both domestic and foreign markets can secure sustainable economic growth and help to close gradually the existing gap in the level of economic development and competitiveness between CEEC and the EU member countries; that is one of the important assumptions of CEEC entry into the EU in future.



The paper deals with the problem of the evaluation of the Slovak manufacturing industry structure and its competitiveness.
Methodological framework of this evaluation is backed up by several basic premises. Above all, Slovakia should in the preparatory phase for integration into the EU draw nearer to the average economic level of the EU (GDP per capita). There is a precondition of sustainable economic growth based on the increased competitiveness. This, however, is implicated by inevitably deep structural changes, mainly in the manufacturing industry. These contingent links between economic level of a country on one side, qualitative competitiveness of the economy and prevailing sophisticated industrial structure on the other side result from empirical analyses too. The author thus presents the view that one cannot consider economic transition as concluded before the relevant economy has demonstrated its ability to retain sustainable economic growth. Just this growth is possible on the condition of adequate competitiveness and suitable industrial structure.
In the first step the author therefore analyzes branch structural gaps in the Slovak economy, based on the comparison of this economy with that of the structure of small West European countries (hereafter SEDCs).
As for the sectoral structure of the Slovak economy the share of the service sector nearly reached the level of structure in comparable SEDCs, the increase of this share in Slovakia however did not stem from the adequate growth in labour productivity mainly in industry, as is the case in advanced market economies. The increased share of the service sector in Slovakia can be ascribed rather to the quantitative filling in the gap in service sector inherited from epoch of centrally planned economy.
For the analysis of the gaps in industrial structure the author has chosen methodology approach that in a way combines M. Porter's differentiation of the phases of growth and structuring cycles and selected macroeconomic aspects of individual branch classification. The following aspects are taken into account: source intensity (labour force, raw materials, capital investments, science and research), technology process stages (Ricardo branches, Hecksher-Ohlin branches and Schumpeter mobile and immobile branches) and lines of output use (foodstuffs, short-term consumer goods, semiproducts, durables, components and investment goods).
The analysis points out that from these macro-economic aspects the Slovak industry registers structural gaps that produce unfavourable impact on its competitiveness. Dominant Slovak industrial production is labour-, raw material- and capital- intensive, and standard, aimed predominantly at semiproduct semiconsumption and short term personal consumption. On the other hand, productions R&D intensive, Schumpeter type productions aimed at investment area, long term consumer goods and production co-operation are considerably less important. At the same time is this structure considerably import and environmentally intensive, with low added value, low foreign currency effect and does not create sufficient space for the application of qualified labour in production and R&D.
After the identification of structural gaps in the Slovak industry in the following step the author examines what impact these gaps have on the competitiveness of the Slovak economy. From the methodology point of view the analysis is based on seven indicators: exports and imports structure, ratio of foreign trade balance to the added value, trade coverage ratio, coefficient of revealed comparative advantages, REVELAST concept, terms of trade and unit labour costs.
Analysis has shown that in the terms of competitiveness Slovak industry has even greater offset against SEDC than it has in branch structure; this is influenced mainly by labour productivity, which on average is only half, in sophisticated products even one third of that achieved currently in SEDCs. In all explored commodity groups price competitiveness prevails which, however, is successful (from the trade balance point of view) only at semiproducts and labour and capital less intensive goods. At investment goods and at long term R&D intensive consumer goods price elasticity in demanding markets fails; it is obvious, that for the positive influence of the trade balance, radical technology modernization and product innovation is necessary. There are problems in less sophisticated commodities too, as in these commodities trade balance success is influenced by low terms of trade. Increase of competitiveness of more sophisticated commodities could enable the decrease of weight and the decrease of exported volume of less sophisticated commodities in overall exports, and thus approach nearer the line of prevalence of high quality competitiveness of the Slovak industry.
Thus the role of government in structural changes should be taken as the policy of support to the increase of competitiveness of the economy, rather than in the sense of currently formulated industrial policy.



From the late forties up to now. Austria has evolved from a relatively poor economy into one of the wealthiest, if measured by GDP per capita. Austria is not represented within the first ranks of the list of the world's most important companies. There are hardly any Austrian companies' names that would be well-known all over the world. Also, there are not many internationally well-know Austrian brand names. This is significantly different form Switzerland. In this sense, the wealth of Austria is in fact something of a miracle. Meanwhile Austria has become member of the EU, and the businesses are still having difficulties adjusting to this new situation. It turns out that it is not easy to be exposed to unprotected competition of Western Europe's giant companies. It has become an urgent question in which direction the Austrian economy should develop from this point, in which fields Austria might have comparative advantages, and in which way economic policy can promote positive growth. How efficient Austria's national innovation system will be in the future depends in many ways on the state. The innovation system as it is now does not seem satisfactory. Only a fraction of Austria's industrial enterprises are doing their own research, rather unusual for a developed market economy. The share of researchers in total employment is relatively low in Austria (2.5%), and many of them have no university degree. Exports of Austrian patents make up for merely 30% of the expenditures for imported patents. However, the bulk of Austrian enterprises have been implementing imported technologies very successfully.
Three „technology ministries" are sharing the responsibility for technology policy. They administer several Funds: the Fund for the Promotion of Scientific Research, the Fund for Industrial Research, the ERP Fund (European Recovery Programme) as the traditional instrument of Austria's industrial policy and the Fund for Innovations and Technology. Research outside the universities relies on three major research centres. Traditionally, there was an almost complete lack of co-ordination of research activities, but cooperation shows some progress.
The Austrian government has developed a programme for the promotion of structural adjustment, aimed at increasing the share of sophisticated high technology products. A key element is research and development (R&D). At present, its share in the GDP is around 1.5% and thus considerably lower than the average in the EU (close to 2%). To achieve the targeted level within several years, the government would have to expand its R&D expenditures considerably - while at the moment it is more concerned with budget cuts than with increases.
For the moment, Austria's example may appear rather promising for transformation countries, as the Austrian case shows that a country can have a high average income even with a below-average share of high technology products in overall production.



The author deals in his paper with the problem of restructuring in the Czech Republic mainly under two aspects:
contingency of restructuring on the privatization process (forms and other circumstances of the privatization process)
the role of commercial banks in restructuring.

A change of ownership from public to private is but the first step towards the restructuring proper. Bulk (voucher) privatization was chiefly property restructuring into the form of diversified shareholders of privatized companies. This privatization had not - and in fact could not - resulted in companies privatized by such a method towards the adequate production restructuring, which would lead to the increase of performance and effectiveness. No conditions for the installation of desirable „corporate governance" directly interested in long term entrepreneuring results were created. Standard privatization methods, e. g. those where particular owners acquired the company and were directly involved in the result of entrepreneuring, created better conditions for effective restructuring (including modernization of production, new strategy formulation, technology & quality improvement etc.).
General distinctive feature of restructuring in all Central and East European countries' (CEEC) economies were above all shifts in shares and importance of individual national economy sectors. Macroeconomical changes were organically accompanied by restructuring on company level. Even though is such restructuring judged as insufficient, its result - summation or rather conjunction of partial company restructuring activities - is just the shape of the whole national economy. In this sense both restructurings mutually determine one another. (Lack of restructuring is typical for the segment of „old", „big" companies which existed already before 1990).
Real (material, e.g. branch, product etc.) side of restructuring is linked to its financial side, which considerably influences its process and resulting effects. Radical restructuring of the whole national economy after the year 1990 meant a considerable „resource-demand shock" e.g. requires adequate resource coverage, which would make possible implementation of such restructuring. The transformation process itself and the circumstances accompanying it has, however, brought about no such increase of necessary financial means for companies, just on the contrary. By privatization companies released themselves not only from the government control and management, but also from the financial resources of the state as well.

Excessive need of an extraordinary volume of resources for companies is not covered by banks or capital market alone, as one might have felt at a first sight. The paper tries to make a list of further possibilities, that could enable companies to acquire necessary financial means. There is a variety of alternatives:
self-financing by companies themselves;
bank credits;
mutual enterprise indebtedness (overdue payments) as illegitimate but often used possibility;
financing through the home capital market;
financing through foreign portfolio investments;
foreign direct investment;
foreign loans and direct credits to enterprises.

The author notes individual „financial channels", and within the variety, incompleteness and mutual incompatibility of respective documents tries to quantify at least partially these channels.
Although the importance of bank credits as a factor influencing restructuring processes in Czech economy is thus scaled down, commercial banks and their credit activities are most established, and thus most important segment of the listed set of financing possibilities. (Determination by capital market is important too: moreover if primary market is integrated in the system as an external capital resource for companies, the secondary market is (or should be) the agent for overcoming the fragmentation caused by „voucher ownership" and helps to create proper corporate governance. Dysfunction of corporate structure can be to a great extent substituted by proper functioning of banks crediting relevant companies. (Foreign literature mentions control rights exercised by creditors; and thus the banks can positively influence restructuring behaviour of companies).
Historical experience has shown that a consistent realization of such rights is conditional on the existence of the possibility - and on the other side on the determination of banks - to go in exertion of these rights so far, that a non-prosperous and indebted company is let to bankrupt. (Just its „leaving the economic scene" is in fact a contribution to restructuring and thus solution from the national economy point of view - ineffective production will be thus reduced).
Due to the amount of loss that creditors suffer by gaining back only small percentage of their claims due to the length of respective proceedings, the bankruptcy solution is for the bank only a solution „of the last resort" and banks are reluctant to use it. By no means is this a result of an „indirect ownership" of companies by commercial banks which was produced by the participation of banks in voucher privatization. This context of an excessive inter-linkage of the interests of banks (as creditors) and companies (as their debtors, who ceased to be mere debtors) is highly exaggerated.
Small number of bankruptcies demonstrates, however, that the financial means flowing from banks to the entrepreneuring sphere are utilized to rescue companies, to maintain the current state of affairs and to repay previous debts, as well as to subsidize ineffective production (often inclusive redundant workers), rather than to finance the restructuring proper. The entrepreneuring sphere is lacking financial means and demands more inflow of capital from the banks; these means however do not satisfy the original aim and do not present desirable effect; those who grant these means, act in fact against restructuring.

From this point of view it is therefore necessary:
to reassess the legitimacy of lamentations over „bad commercial banks who obstruct entrepreneuring" by allegedly strangling financial flow to the companies;
to set right and explain the fact, that - on the contrary - just by granting resources the bank in fact obstructs restructuring when by granting credits maintains ineffective and indebted non-perspective companies alive.


Martin MYANT

The level of Czech industrial productivity remains well below the EU level and there is a strong possibility that the Czech Republic will become entrenched in the role of a sub-contractor and supplier of less sophisticated products to powerful western firms. However, experience from elsewhere in the world demonstrates that it is possible to move from the middle-income into the high-income group of countries. This depends partly on the strategies adopted by individual firms, which in turn can be influenced by the policy framework. In the Czech case this framework has been strikingly unconducive to the development of successful strategies and some of the consequences of privatisation have exacerbated the problems. Foreign ownership has usually resolved financial difficulties and brought solutions to problems of strategy formulation. Foreign-owned firms can be seen as standards against which to assess the strategies adopted by Czech-owned firms. Research on three kinds of Czech companies is summarised to give an indication of the key policy issues. A number of „disasters", with continually escalating losses, have resulted from unfavourable starting conditions and poor strategic choices by managements: the government typically abdicated responsibility at an early stage. Firms in light industry were left to face the full force of the transformation „shock" and many have pursued vigorous adaptation strategies, but they are forced by their lack of financial resources into „second best" options with limited prospects. Past policy choices have con-tributed to some of the difficulties. Firms in engineering show the full range of performance with some adopting complex adaptation strategies. Those that have not, or that cannot, diversify, or that have refused to accept some sort of subordination to, or substantial co-operation with, a foreign partner have faced disaster. A major task for Czech policy-making could be the search for the institutional framework within which firms can hope to find the best available strategic orientations.



German political and currency unification started a structural shock in east German industry and its industrial research. The east German economy could not react as quickly as the sudden change of economic conditions. If this process had been up to the market alone, industry and industrial research would have been completely destroyed. To prevent such market failure, the state established extensive supports to enable a weaker turnaround for the east German economy from the beginning.
The industrial research has been in danger of cutting down, especially because it lost its special aims while the privatisation processes of enterprises have often been very long. Most of the enterprises have been privatised without R&D departments by selling them to new owners. Many R&D departments sourced themselves out of the parent firm and have been privatised by „management-buy-out"; they became „external R&D units". Most west German or foreign enterprises which bought east German firms from the Treuhandanstalt were well equipped with R&D capacities in their firm centres and had no desire to acquire east German R&D departments.
In this situation, the concerned R&D staff declined quickly. The east German R&D staff reduced from 86 thousand persons 1990 to 16 thousand in 1995, a decline of more than 80%. In the industry the decline was from 75 thousand in 1990 to 13 thousand R&D employees in 1995. The main cause for this development is that before privatisation the Treuhand firms had no money to finance R&D because their markets had disappeared. With privatisation, the dissolvance of R&D capacities continued. In 1995 in east Germany, approximately 7% of the total German R&D staff were still working.

In comparison with west German regions, east Germany is very weak in the structure of economic branches. It has a share of inhabitants of 19.3%, but in 1995 the east German industry had the following shares:
employees: 8.8%
turnover: 6.0%

Up until 1997 it has not gotten better. The share of the industry is too small, the R&D intensity low. Only 25% of the value added of the industry produced in the is chemical, machinery, electrical engineering and road vehicle industry - branches which normally carry the main part of export and R&D.
With privatisation, the basis for R&D in big industry has gone. The very small shares of R&D in big enterprises are the most fundamental deficit of east German industrial research. Especially, the big enterprises in electrical engineering and in machinery are missing - bran-ches, which in west Germany have big parts of the R&D staff. The transformation shock had the result that 85% of the east German R&D staff works in enterprises with less than 500 employees. More than half of the enterprises with own R&D personell have less than 20 employees. Approximately 30% of industrial R&D staff work in external R&D units. Corresponding to this picture the number of bigger, sophisticated R&D projects is low. Because of the unstable situation of the enterprises and external R&D units, R&D projects with a lower level of innovation and quicker results on the market are preferred. In east Germany per capita of the inhabitants a third of the R&D staff of west Germany works, the expenses for R&D per unit turnover are 13% of the west German level. The share of east German expenses in the total German R&D expenses is 2.9%.
If the R&D staff completely dissolved in the transformation period it would have been a hard, long running and expensive task to rebuild it. Without R&D the change to more sophisticated industrial structures is impossible. R&D is a prerequisite for innovation and growth, it improves the conditions of industrial locations by advertising for investment activities from outside. These are the causes for the federal government and the governments of the „Bundesländer", to start supporting programs to enable a new beginning for R&D, to create an R&D infrastructure like in west Germany and to support firm-founders. With this support it was able to stop the quick cut down of the east German R&D staff since 1993.
Up until now most of the R&D capacities are still unstable and the aim of a growing R&D staff in managing the industrial deficits is not fulfilled. Bigger enterprises still reduce their R&D staff. Smaller enterprises are starting with R&D activities again. Fragmentation and con-tinuing reduction of R&D staff are obvious and there is the danger, that with the privatisation of the last big firms this will be forced on them.
The enterprises had the opportunity of using many forms of state support, but they always had to finance most of the investment-or R&D projects-expenditures alone. The share of support per enterprise is watched over by the EU. The maximal share is regulated. The analysed enterprise had a share of support for R&D of 16% in average. The meaning is that the support mobilised much private capital for R&D. The support had a multiplying effect. Most of the enterprises can finance R&D before obtaining return-stability. This is possible only by state support. 30% would not have been able to finance it without the support. A first, direct result of the support has been the saving of appr. 7000 qualified jobs in R&D which would have been lost otherwise. But today most of the enterprises have not earned the results of their R&D activities, the main-result of R&D and support. The support contributed in reducing backlogs and in preparing success on the market. But the main results are a question for the future. Up until today 50% of the analysed firms have problems in financing R&D and the fol-lowing phases of innovation up until market success.

Some remarks about the philosophy of state policy:
There are big differences between the economic power of east and west Germany. This has been and is the cause of creating special conditions in east Germany, which enable building a basis for self-made economic growth in the near future. The economic policy wants to build a basis from it by setting up special conditions. One part of this is economic subsidy, especially for east Germany which should help normal market competition develop, so that disadvantages of the enterprises in competition and lacks in the market mechanism can be compensated. In this regard economic support is not considered to be a violation of the principles of market economy in the economic policy.
The main point is to make east Germany more attractive for sophisticated investments and to help the enterprises overcome their weakness out of transformation. Nobody wants to bring them out of market competition. The aim of the support for industrial R&D is to build a R&D staff which can carry the development of a sophisticated industry, which is integrated into the international division of labour. A precondition is to maintain the existing core of R&D staff.
This is the problem of R&D in the east German development. But there are fundamental, theoretical causes to support R&D everywhere, not depending on the east German problems. The support can be justified by external effects of R&D, which have favourable effects on the whole economy. The support can stimulate the enterprises to invest more money in R&D, to come to a better or optimal allocation of production factors, which could not be reached alone, because the enterprises by themselves cannot earn the full „return of investment". The private return is normally lower than the total return of R&D expenditures in the economy. The consequence is a lower than normal level of R&D based only on private financing. The R&D sup-port counteracts mistakes in the factor allocation, improves the public prosperity directly and cannot be considered to be „normal" subsidies.

These general arguments justify state support for R&D everywhere. Above all, there are special causes for R&D support in east Germany:
to create a basis for sophisticated industrial development as an element of sustainable self-made economic growth,
maintenance of the R&D staff for the catching-up-process,
maintenance and strengthening of the innovation ability of the enterprises in transfor-mation and structure shock.



Author in the paper defines current conditions for strategy making in Czech enterprises. In the first part positive and negative macroeconomic, political and social conditions for strategic activities of Czech enterprises are presented. He presents supporting factors of enterrprise activities coping with inflation and stable exchange rate, which can favourably influence economic growth. Social conciliation, relatively high qualification of labour force, revitalization of an almost lost tradition of industrial production in certain branches and good contacts with Western Europe are positive factors as well.
Negative factors are non-existence of economic policy, excessive liberalization of imports, and nontransparency of economic activity of organizations. In spite of the fact, that the government recently granted more financial means into science and research, the support of these remains low. As further negative factors one can see fragmentation of the manufacturing and technical base of industry, non-transparent financial and banking operations, low tax discipline, overemployment, financial burden inherited from the past as well as from the present as an impact of privatization. Serious shortcomings are also the devastation of wholesale network, malfunction of judiciary, disintegration of the network of foreign representations, preference of financial sector to the real sector, overall undervaluation of the function of macroeconomics, decline in morale, base ethics and corruption.
In the second part the author presents an overall situation in enterprise sphere. Enterprises are classified into several groups: enterprises with predominant foreign participation, enterprises with major property interest of state not yet privatized, former big enterprises now fragmented into small independent private entities, and new small and medium enterprises newly founded „on virgin site".
In the third part listed enterprises are analyzed from the point of view of the survival strategy, aims, financial capital, management modernization, overall economic effectiveness and their position on domestic and foreign market.
Next part is dedicated to the professional level of strategy and strategic management in Czech enterprises. The enterprise management level and the ways of its implementation is a decisive factor of enterprise success. This level is ultimately influenced by enterprise management and its owners. The evaluation of the level of Czech management is often contradictory. In the World Competitiveness Yearbook 1996 the Czech management is ranked 39th out of 46 evaluated countries. The author explains this as a result of the change of economic system and deformation of thought, working methods and related conditions. Further negative factor is the loss of traditional eastern markets, lack of financial means for enterprise refurbishment, and lastly insufficient abilities of management.

One of criteria for the evaluation of the level of management quality is just enterprise strategy. The evaluation of Czech enterprises was implemented in accordance with the following criteria:
Whether the enterprise has its own strategy or not - here one finds out that many Czech enterprises have no qualified strategy of their own at all.
Strategy offensiveness. Outward strategy offensiveness of Czech enterprises markedly improved, The penetration into new markets, however, is still inadequate. The offensiveness inwards the enterprise is very poor (inadequate work time exploitation, low rate of new product introduction, high costs).
Flexibility of strategy. The ability of Czech managers to predict correctly the future world-wide development and responding by smartness usual in most developed economies is still low.
Endeavour for achievement of world parameters in economic effectiveness. Managements of firms, that set themselves such a task for the near future are, however, rather an exception.
Innovativeness and achievement of world parameters of quality. Several Czech enterprises obtained already ISO 9000 certificate. Innovativeness of Czech products is generally low.
Transcontinental strategies. Only some enterprises really implement such transcontinental strategy.
Orientation to the proper market and customer. After the loss of COMECON market the enterprises go on seeking new markets.
Exploitation of the latest scientific knowledge. Weakened R&D basis and the lack of financial means demonstrates itself negatively in enterprises.
Complexity of strategy. Only a part of the enterprises implement a method for steering the preparation of its own strategy, that would include all important enterprising processes.
Speed of implementation of strategic operations. In many enterprises strategic operations are implemented at a slower pace compared to the most advanced enterprises. The pace of some activities in the building industry however, increased considerably.

The goal of enterprises in the open economy is to approach as quickly as possible the standard level of profit currently achieved in the world, achieve the level of economic activity and liquidity, which would be necessary at time of the Czech entry into the EU. Czech firms gain experience and contacts and learn marketing only gradually; this can be utilized in production and distribution of higher quality products in the future. The basis of successful strategy is a knowledge of technology, good level of management, informatics and staff management; all that demands money and time. The author presents a mathematical and economic code that enables to simulate dynamics of enterprise development as an effective method for the preparation of management strategy.
In the concluding part of the paper several alternative scenarios of the future of Czech enterprises are presented. They start both at considerations of the character of Czech Republic's integration into European communities (two possible alternatives) and at possible alternatives of Czech economy management (three alternatives).
One accentuates that Czech enterprises have their destiny in their own hands and that there is a chance above all for such enterprises, that will be provided by highly qualified strategy supplied by necessary resources. One awaits gradually wider integration of Czech enterprises into international capital groups.