Jan Macháček

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Czech Business Weekly

Disregarding principles of the free market

29. 08. 2005
Disputes between the government and local commercial banks are peaking these days following the Finance Ministry’s list of 32 proposed “improvements” to banking services. Banks were told to adopt the proposals voluntarily or the government would impose legislation mandating them to do so.

Unlike in the 1990s, today there is no pressure on the banks about where and to whom they should lend money. This time, the government is pushing banks to improve their services for depositors and small clients. Complaints have been rife about the lack of transparency regarding various banking products. What the government now wants from banks, however, is a mixture of rational regulations and irrational demands that go over and above what is considered normal in the European Union and elsewhere.

According to the list put forth by Deputy Finance Minister Tomáš Prouza, if a client wants to change bank the bank is supposed to arrange everything – including all the paperwork – and should also absorb all the related costs. Banks are also supposed to agree on uniform names for their financial products and services, and then educate the nation about these products.

Many of these demands are reminiscent of forced administration.

One might think the government moves are a reaction to people’s wishes. And in a democratic society, politicians are expected to act in the public’s best interest, aren’t they?

But first the public must be duly informed. Recommending tough regulatory policies against such an important business sector should have been announced as part of a party platform ahead of elections. The policies should also have been declared as part of the coalition government’s overall program. Yet there have been no such announcements in this case.

On the other hand, we are witnessing rising energy prices, which means rising share prices and higher profits for state-owned energy giant ČEZ. And this time, the government seems unable to do anything about it.

Politicians are also here to defend certain principles, and the free market is an important one.

Then there are mainstream economic principles. The government should intervene in monopolies – or even anything close to a monopoly. However, there is nothing close to a monopoly in Czech banking, just a normal, competitive environment.

Other business sectors should support the banks, express solidarity and defend free-market principles because the government might someday decide to “improve” other business sectors simply because it’s popular with the voters – and because some people might think someone is earning too much money.

The opposition Civic Democrats (ODS) have been dangerously silent on this issue, since they suspect the attack on the banks might have popular support. The ODS has had an instinctive aversion to foreign investors in Czech banks ever since the banks were privatized to foreign strategic owners by the government of Miloš Zeman and against the wishes of the ODS, which pushed for the “Czech way” of privatization.

Mainstream economic principles dictate that the government does have the right to limit the profits and prices of a monopoly or a dominant market player like ČEZ. It is a complicated issue because of all the rules regulating the common market and independent regulators, but we are talking here about what is justifiable under the principles of a free market. A tougher approach against ČEZ is justifiable; a tougher approach against banks is not.

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