ANO’s Ivan Pilný: Czech economy needs diversification

16-10-2013

One of the front-runners in the upcoming Czech lower house elections is the newly-formed grouping ANO which polls suggest might take as much as 14 percent of the vote. Founded by the Slovak food magnate Andrej Babiš, the group only revealed its detailed policies rather late in the race. In this edition of Marketplace, I discuss ANO’s economic programme with Ivan Pilný, the party’s economic expert and former Microsoft CEO for the Czech Republic and Slovakia. I began by asking him if he agreed with Andrej Babiš’ view that the Czech Republic needs to be run like a company.

Ivan Pilný, photo: CTKIvan Pilný, photo: CTK “Well, there are a lot of similarities between governing a state and a controlling a company. If you look at the budget, for example, that’s something they have in common. If you look at the responsibilities of the managers, they are the same. The problem is that the budget of the Czech Republic and the responsibilities of its managers don’t reflect the situation in successful companies.

“But the parallel can only go that far. Czech citizens are definitely not shareholders because they were born in the country; they didn’t buy the shares of some company. So even in the case when the state is at the edge of bankruptcy, the government or the state must take care of them, not like in the company, which is the subject of the bankruptcy.”

The Czech economy has just emerged from recession. The recovery seems moderate, but is definitely seem to be there. What recipe does your party have for the situation the Czech economy is in? What would you propose to do if you were successful in the elections to boost the recovery?

“Basically the economy is not in a bad shape but on the other hand the question is, is this sustainable? Looking at the macroeconomic side, the economy needs two kinds of diversification. The first is commodity diversification because we are very much oriented on the automotive and construction industries; when there is a crisis within the automotive industry, we suffer.

“In the 1930s there was a much bigger range of diversification: light industry, heavy industry, also automotive but also textile; we were building dams and breweries all over the world, so we have to restore this diversification.

“The other obstacle is the geographical barriers, because we are very much focused on Europe, on Germany especially. That means if these countries are experiencing problems, we are also in trouble. So we have to reach Latin America, Asia, Africa, and Russia.”

Photo: Tomáš AdamecPhoto: Tomáš Adamec But economic diplomacy has been a talking point for months if not years now. The interim government is doing its best: they are reopening embassies that were closed during the previous austerity- focused right government. So how do you want to diversify Czech industry and exports?

“Well I don’t mind if it is the responsibility of the ministry of foreign affairs or the ministry of industry. The best thing to do is to have real professionals with language and entrepreneurial experience to be able to open this door for us. Such people definitely exist and it’s necessary to reach these countries and send ambassadors of this type there. That’s the solution. So far I can’t say somebody is doing something special in this area. But of course its not just a matter of the government to support it, the economy must be able to use these opportunities.”

How do you want to diversify the industry? You said we are focusing too much on the construction and automotive business. How can parliament make sure the industry is more diverse?

“We have to support the industries that aren’t exposed to investment. That means we have to support global innovative and scalable kind of business. This means support for start-up companies and support for mid-sized businesses. These have a lot of ideas with little investment requirements, and they could go easily global. So the government, for example, could set up something like the Czech venture capital fund to support these companies and their business.”

Doesn’t that go against what the leader of your party, Mr Babiš, said the other day? He said that supporting start-ups is great but doesn’t really make any difference, and that what really matters are large companies which actually provide work for these small and mid sized firms.

“Yes, I understand that. I don’t exactly agree with that point because of course there are a lot of mid-sized companies that are linked to heavy industry. On the other hand, we have thousands of mid-sized companies that have nothing to do with that, so to support this natural engine of economy is really necessary. There is no black and white, we have to support both basically.”

Andrej Babiš, photo: Filip JandourekAndrej Babiš, photo: Filip Jandourek ANO has made several promises to voters including include lowering the value added tax which saw some turbulent changes under the previous government. You also pledge not to raise direct taxes, you promise cheaper energy, and other things. How can the state afford all that without going deeper into debt?

“Well, a prosperous economy can not be suppressed by adding another tax system in there, its just nonsense. As for the corporate taxes, there is no ground for raising them. As for the taxes like VAT and so on, it has something to do with the consumer oriented economy and it is one of the pillars of the macro-economy.

“There is space for lowering VAT. The result or the difference between those 15 or 10 per cent rates in effect only 20 billion, which could easily be made up for by higher household consumption, and lower government spending. Also, if you look at higher value added tax rates, you see that it is less than it was in 2011. So we are talking about relatively small numbers which will definitely raise the consumer support in there.”

Speaking of public administration costs, ANO wants to streamline state administration by cutting the ministries’ operational budgets by twenty per cent. Do you think this is a realistic promise?

“Of course it is. If you look at Eutostat data, there are only eight countries in Europe which have effectively diminished their government costs; two of them, Ireland and Greece, simply had to do it. But if you look at other economies like Poland you see a relationship between the effectiveness of the government and a raise in GDP, so its imperative basically. If you look at the government spending, there are many example where you can really be much more effective and there is a big reserve which could be relatively easily used.

One budgetary issue the Czech republic is faced with is the pension system which is running into deeper and deeper trouble. The previous government attempted to reform it by introducing the so called second pillar by giving people the opportunity to put some of their insurance payments into a private pension fund. But it has not been very successful. You propose the introduction of a separate pension account outside the state budget. Does this mean individual accounts for everyone?

Photo: Barbora KmentováPhoto: Barbora Kmentová “The separate pension account is not the idea only of our political party. It’s really necessary. There are three entities in this. Political parties, clients, and pension funds. These entities follow very different interests. A politician will always play some political games which makes the system very unstable. The clients don’t know anything about conservative or dynamic strategies, regardless of the fact that the analysts of the pension funds know exactly the same. And these pension funds will, of course, follow the interests of the pension funds. So yes, we want the second pillar, why not: but it must be a totally depoliticised entity.”

So it would be a public or a commercial fund?

“It will be commercially handled, but monitored by professionals and qualified people who have nothing to do with politics. Otherwise you can not be sure if the next government will nationalise it. How will you persuade people to join something like that? That’s exactly what’s gong on right now.”

Mr Pilný, your party has been surging in various election surveys, some of which place your group second after the social democrats. Who are your natural allies? If you indeed manage to enter the lower house, is there any party that you would see cooperation with as easier or smoother than others?

“Our partners, regardless whether they are right or left (with the exception of the Communist party), are people who will want to solve problems, not bring them, and people who will go directly to the matter and take the responsibility for their decisions. I hope in the next parliament we will find these guys. If not, then we will definitely go to the opposition”.

16-10-2013