TRADING STALINISM FOR CAPITALISM : Czechoslovakia: Plans call for changes more sweeping than in any nation in Eastern Europe. But there are questions whether the public is ready for a free market.

To Zdenek Drabek, an anti-Communist dissident who escaped his native Czechoslovakia shortly after Soviet troops invaded in 1968, the massive building that houses the Czechoslovakian Federal Ministry of Economy is the “monument to Stalin.”

After all, the building was headquarters for the State Planning Commission--the ponderous bureaucracy that developed the blueprints for Czechoslovakia’s Soviet-style, centralized economy, a 40-year experiment that produced an economy in which supply had little relationship to demand. The Soviets had invaded Czechoslovakia in 1968 to thwart a democratization movement they feared would spread across Eastern Europe.

Drabek, who has lived in the United States the last eight years, has returned to Czechoslovakia and settled into an office atop the very same building--an edifice still adorned with statues personifying the workers that the failed Communist system sought to honor.

But now, the building houses the government think tank for a very different experiment--an effort to reinvent capitalism, an economic system eschewed in Czechoslovakia since the end of World War II.

It’s a popular experiment among the former Soviet satellites of Eastern Europe, countries once ruled by governments that had nationalized and controlled industry and land. They’re trying to establish free enterprise in Poland, just north of Czechoslovakia. And, they’re trying to unleash entrepreneurship in Hungary and Romania, the countries to the south.

However, Czechoslovakia, centrally located and the most thoroughly nationalized of the Eastern European states, is the center of attention because a major portion of its capitalist revival is unprecedented:

Czechoslovakia intends to do nothing less than privatize thousands of major state-controlled industries in one bold stroke.

If the privatization program works, economists say, it may serve as a global model for eliminating government-dominated economies--the kind of systems found in Communist nations and many Third World countries. Eventually it could help stimulate a further integration of the global economy--helping set the stage, perhaps, for a new world economic order.

Should the Czech Parliament vote this week, as expected, to adopt the government’s economic reform program, every Czechoslovak citizen would be eligible to receive a voucher worth a certain number of points.

Later this year, when the state enterprises are transformed into publicly held companies, citizens are to use the voucher points to purchase portions of the enterprises. A company’s value would be defined by the level of citizen interest and the amount of voucher points offered.

After citizens use vouchers to acquire stock, they could then buy or sell the shares, creating a stock market for Czechoslovaks and foreigners.

Just that swiftly, Czechoslovakia would become a nation of shareholders--all with a stake in capitalism and a sudden opportunity to make or lose money in a stock market.

To Drabek, an Oxford-trained economist who worked for the World Bank before returning to Czechoslovakia, the voucher plan is a gamble. But Drabek, now an adviser to Czechoslovakia’s capitalist-oriented Federal Ministry of Economy, considers it a good bet.

“In a society that had a centrally planned economy with no private ownership and no entrepreneurship,” Drabek observed, “one generation is not going to produce people expert in risk-taking, investment and entrepreneurship. But Czechoslovaks are fast learners.”

Indeed, Czechoslovaks may have to react quickly if they are to avoid being swept away by the whirlwind pace of events in their country and abroad. Final action on the voucher plan has been delayed several times because the Czechoslovak government has paused to react to developments in the Persian Gulf. Czechoslovakia has contributed a 180-man anti-chemical warfare unit to the multinational force opposing Saddam Hussein.

A concern closer to home for Czechoslovaks is the crisis in the secessionist-minded Soviet Baltic states of Lithuania and Latvia. Reacting to the violent crackdown involving Soviet troops last month, senior Czechoslovak officials have expressed fears that their country could face threats from the Soviets or from agents of the country’s former Communist regime.

Any Soviet crackdown stirs haunting memories for the Czechoslovaks. It was the Soviet invasion of Czechoslovakia in 1968 that ended Prague’s last great experiment, the process of economic and political liberalization begun under Alexander Dubcek, then the country’s leader.

Until 1965, economic control in Czechoslovakia was securely vested in the State Planning Commission, which defined priorities, allocated resources and determined production levels. Dubcek and other reformers successfully pushed to give greater authority to the managers of individual factories and enterprises. After the ouster of the Dubcek government, succeeding Czechoslovak regimes earned the reputation for toeing the Soviet line on economics and politics.

The relatively peaceful fall of Czechoslovakia’s Communist government on Dec. 29, 1989, was known as the “Velvet Revolution.” Calling privatization the “Second Revolution,” the government plans to put plants and enterprises within its major industries--forestry, manufacturing, mining, footwear, textiles and chemicals--on the voucher sales block.

Economic committees in Czechoslovakia’s Parliament are handling much of the restructuring. By eliminating central planning and transferring business assets to private hands, the government hopes to establish an economy in which prices--not shortages--reflect supply and demand, said Ivan Fisera, a member of one of those Parliamentary committees.

“There were shortages of all kinds--from tools to toilet paper,” Fisera said. “The planning commission constantly made bad decisions. For example, they sometimes devoted money and resources to building up our power stations. But they would not devote resources to make plant equipment at factories more efficient. In effect, we were creating more energy capacity for industry that could not use that power.”

The country’s Communist planners also wasted resources in vain attempts to establish computer manufacturing and other industries already dominated by other countries, Fisera said.

“If we continued this state-controlled system, it would be disastrous,” Fisera said. “We need to change, and we have to move quickly.”

The government has already launched some reforms, passing into law:

* A privatization plan that transfers thousands of small enterprises from state control to individual ownership. The government last week began to privatize these small enterprises--such as shops and restaurants--by selling properties at public auctions.

* Measures that eliminated government control of prices. Controls were eliminated Jan. 1, but the government retained the right to place price ceilings on some staple food items.

* Provisions enabling business managers to convert currency. Also as of Jan. 1, managers can exchange Czechoslovak currency for Western currency, easing the way for trade of goods and services.

* A property restitution plan under which the government will return to previous owners assets confiscated by Communists in the 1950s.

Interest in the Czechoslovak efforts is already spreading through the old Soviet empire. The Polish government is looking at voucher proposals for privatizing major industrial assets, and Hungary is considering more limited voucher proposals.

Support for the privatization effort has come from the Washington-based International Monetary Fund, a United Nations lending agency that helps regulate the world economy. The IMF last December agreed to provide Czechoslovakia with $883 million in loans and credits, assistance designed to help buoy the country as it prepares for the voucher disbursement.

“The voucher plan is the keystone of their economic restructuring,” said Graham Newman, an IMF spokesman. “It’s a groundbreaking privatization method. It’s important because there’s no established formula for converting a centrally planned system to a market economy.”

Czechoslovak supporters of the novel voucher approach have reservations and differences over aspects of the plan, issues to be decided in Parliament. For example, some want to charge citizens a nominal fee of about $70 for vouchers, contending that many citizens will attach no value to stock and ignore the privatization process if vouchers are free of charge.

However, others oppose the fee because they believe that many poorer Czechoslovaks would not buy vouchers. Many would get no stake in the new economy unless vouchers are free, they say.

Some voucher supporters--including economic ministry adviser Drabek--are uncomfortable with part of the plan precisely because nearly every adult could get shares in enterprises.

“If management is to be effective, it has to be responsive to the performance demands of shareholders,” Drabek explained. “However, the voucher system transfers enterprise ownership to hundreds, thousands and possibly millions of people, and it would make it difficult for a shrewd shareholder to have influence on management under those circumstances.”

However, Drabek still supports the first phase of the voucher plan, contending that ownership will become more concentrated when citizens begin to buy and sell in a stock market.

The government is to retain 100% control of strategic industries such as weapons manufacturing and is also to keep from 20% to 60% of the equity in industries slated for the voucher sales block. The government may sell some of its equity to foreign investors.

Another school of critics believes that the current voucher plan is too hasty.

Joan V. Hintz, a Los Angeles investment counselor who has advised some Czechoslovak parliamentarians, believes that equity in major industries should be disbursed over a 30-year period.

Hintz says a gradual approach is needed, because she believes that many Czechoslovak enterprises will fail during the first five to 10 years of free market conditions, leaving many new shareholders alienated from the new economy. Hintz also says foreign investors may buy valuable stock cheap, taking advantage of inexperienced Czechoslovak shareholders.

Despite the concerns, Parliament this week is scheduled to enact a final plan--one that simultaneously puts all non-strategic major enterprises on the voucher sales block. The voucher selloffs will be handled by two economic ministries--one representing the republic of Slovakia, an area in the easternmost third of the country, and the other representing the Czech republic. The two republics--not the central government--will also implement the other privatization measures.

Some government ministers still hope to modify the voucher plan with proposals to set up intermediaries similar to mutual funds, institutions that would invest vouchers and manage a citizen’s investments. Among those favoring the establishment of such intermediaries is Karel Dyba, the Czech republic’s chief economic minister.

“As a government minister, I have no time to shop around for the right investment, and I’m sure that’s true for many people here,” Dyba said.

However, Dyba has no qualms about disbursing all of the country’s major assets quickly, arguing that such a disbursement is essential if the restructuring is to succeed. “The voucher system will help us introduce competition, and competition is the key to a successful economy,” Dyba said.

When a voucher plan is implemented, the size of the staff at the Federal Ministry of Economy building in Prague will drop to 200 from about 800 because the job of the agency’s privatization strategists will be complete, government officials have said.

The building--once home to about 1,000 bureaucrats involved in central planning--could soon be largely vacant.

CREATING A MARKET ECONOMY

Privatizing the economy through the proposed voucher system

1. Government determines which assets--for example, factories and other large government-owned enterprises--will be transferred to private hands through the voucher system.

2. The government issues vouchers to voting-age Czechoslovaks. Each voucher carries the same value. Under one proposal, each voucher would be worth 1,000 points. Citizens would not be allowed to buy sell or trade vouchers. Vouchers would be used only to purchase an ownership share in large assets and major enterprises like factories.

3. The first round of this privatization plan takes place as Czechoslovak citizens select assets and enterprises of interest by offering voucher points in exchange for a percentage of the shares in certain operations or properties.

4. The level of overall investment in an enterprise will be the determining factor in how equity (percentage of ownership) is parceled. For example, if 10 Czechoslovak citizens offer the same number of voucher points for an enterprise, each citizen would receive 10% ownership and each would receive 10% of the shares in the new privatized company.

5. Once company shares are issued, the second round of privatization begins. At this point, Czechoslovak citizens can buy, sell and trade shares on an open market. Citizens would also be free sell shares to foreign investors.