The Permanent Income Hypothesis: A Test on Czech Privatisation

Since the late eighties, economists have been regarding the transition from command to market economies in Central and Eastern Europe with intense interest. In addition to studying the transition per se, they have begun using the region as a testing ground on which to investigate the validity of certain classic economic propositions. In his research, comprising three articles written in English and totalling 40 pages, Mr. Hanousek uses the so-called "Czech national experiment" (voucher privatisation scheme) to test the permanent income hypothesis (PIH). He took as his inspiration Kreinin's recommendation: "Since data concerning the behaviour of windfall income recipients is relatively scanty, and since such data can constitute an important test of the permanent income hypothesis, it is of interest to bring to bear on the hypothesis whatever information is available". Mr. Hanousek argues that, since the transfer of property to Czech citizens from 1992 to 1994 through the voucher scheme was not anticipated, it can be regarded as windfall income. The average size of the windfall was more than three month's salary and over 60 percent of the Czech population received this unexpected income. Furthermore, there are other reasons for conducting such an analysis in the Czech Republic. Firstly, the privatisation process took place quickly. Secondly, both the economy and consumer behaviour have been very stable. Thirdly, out of a total population of 10 million Czech citizens, an astonishing 6 million, that is, virtually every household, participated in the scheme. Thus Czech voucher privatisation provides a sample for testing the PIH almost equivalent to a full population, thus avoiding problems with the distribution of windfalls. Compare this, for instance with the fact that only 4% of the Israeli urban population received personal restitution from Germany, while the number of veterans who received the National Service Life Insurance Dividends amounted to less than 9% of the US population and were concentrated in certain age groups. But to begin with, Mr. Hanousek considers the question of whether the public percieves the transfer from the state to individual as an increase in net wealth. It can be argued that the state is only divesting itself of assets that would otherwise provide a future source of transfers. According to this argument, assigning these assets to individuals creates an offsetting change in the present value of potential future transfers so that individuals are no better off after the transfer. Mr. Hanousek disagrees with this approach. He points out that a change in the ownership of inefficient state-owned enterprises should lead to higher efficiency, which alone increases the value of enterprises and creates a windfall increase in citizens' portfolios. More importantly, the state and individuals had very different preferences during the transition. Despite government propaganda, it is doubtful that citizens of former communist countries viewed government-owned enterprises as being operated in the citizens' best interest. Moreover, it is unlikely that the public fully comprehended the sophisticated links between the state budget, state-owned enterprises, and transfers to individuals. Finally, the transfers were not equal across the population. Mr. Hanousek conducted a survey on 1263 individuals, dividing them into four monthly earnings categories. After determining whether the respondent had participated in the voucher process, he asked those who had how much of what they received from voucher privatisation had been (a) spent on goods and services, (b) invested elsewhere, (c) transferred to newly emerging pension funds, (d) given to a family member, and (e) retained in their original form as an investment. Both the mean and the variance of the windfall rise with income. He obtained similar results with respect to education, where the mean (median) windfall for those with a basic school education was 13,600 Czech Crowns (CZK), a figure that increased to 15,000 CZK for those with a high school education without exams, 19,900 CZK for high school graduates with exams, and 24,600 CZK for university graduates. Mr. Hanousek concludes that it can be argued that higher income (and better educated) groups allocated their vouchers or timed the disposition of their shares better. He turns next to an analysis of how respondents reported using their windfalls. The key result is that only a relatively small number of individuals reported spending on goods. Overall, the results provide strong support for the permanent income hypothesis, the only apparent deviation being the fact that both men and women aged 26 to 35 apparently consume more than they should if the windfall were annuitised. This finding is still fully consistent with the PIH, however, if this group is at a stage in their life-cycle where, without the windfall, they would be borrowing to finance consumption associated with family formation etc. Indeed, the PIH predicts that individuals who would otherwise borrow to finance consumption would consume the windfall up to the level equal to the annuitised fraction of the increase in lifetime income plus the full amount of the previously planned borrowing for consumption. Greater consumption would then be financed, not from investing the windfall, but from avoidance of future repayment obligations for debts that would have been incurred without the windfall.

The Dynamics of the Policies of Ethnic Cleansing in Silesia in the Nineteenth and Twentieth Centuries

Through studying German, Polish and Czech publications on Silesia, Mr. Kamusella found that most of them, instead of trying to objectively analyse the past, are devoted to proving some essential "Germanness", "Polishness" or "Czechness" of this region. He believes that the terminology and thought-patterns of nationalist ideology are so deeply entrenched in the minds of researchers that they do not consider themselves nationalist. However, he notes that, due to the spread of the results of the latest studies on ethnicity/nationalism (by Gellner, Hobsbawm, Smith, Erikson Buillig, amongst others), German publications on Silesia have become quite objective since the 1980s, and the same process (impeded by under funding) has been taking place in Poland and the Czech Republic since 1989. His own research totals some 500 pages, in English, presented on disc. So what are the traps into which historians have been inclined to fall? There is a tendency for them to treat Silesia as an entity which has existed forever, though Mr. Kamusella points out that it emerged as a region only at the beginning of the 11th century. These same historians speak of Poles, Czechs and Germans in Silesia, though Mr. Kamusella found that before the mid-19th century, identification was with an inhabitant's local area, religion or dynasty. In fact, a German national identity started to be forged in Prussian Silesia only during the Liberation War against Napoleon (1813-1815). It was concretised in 1861 in the form of the first Prussian census, when the language a citizen spoke was equated with his/her nationality. A similar census was carried out in Austrian Silesia only in 1881. The censuses forced the Silesians to choose their nationality despite their multiethnic multicultural identities. It was the active promotion of a German identity in Prussian Silesia, and Vienna's uneasy acceptance of the national identities in Austrian Silesia which stimulated the development of Polish national, Moravian ethnic and Upper Silesian ethnic regional identities in Upper Silesia, and Polish national, Czech national, Moravian ethnic and Silesian ethnic identities in Austrian Silesia. While traditional historians speak of the "nationalist struggle" as though it were a permanent characteristic of Silesia, Mr. Kamusella points out that such a struggle only developed in earnest after 1918. What is more, he shows how it has been conveniently forgotten that, besides the national players, there were also significant ethnic movements of Moravians, Upper Silesians, Silesians and the tutejsi (i.e. those who still chose to identify with their locality). At this point Mr. Kamusella moves into the area of linguistics. While traditionally historians have spoken of the conflicts between the three national languages (German, Polish and Czech), Mr Kamusella reminds us that the standardised forms of these languages, which we choose to dub "national", were developed only in the mid-18th century, after 1869 (when Polish became the official language in Galicia), and after the 1870s (when Czech became the official language in Bohemia). As for standard German, it was only widely promoted in Silesia from the mid 19th century onwards. In fact, the majority of the population of Prussian Upper Silesia and Austrian Silesia were bi- or even multilingual. What is more, the "Polish" and "Czech" Silesians spoke were not the standard languages we know today, but a continuum of West-Slavic dialects in the countryside and a continuum of West-Slavic/German creoles in the urbanised areas. Such was the linguistic confusion that, from time to time, some ethnic/regional and Church activists strove to create a distinctive Upper Silesian/Silesian language on the basis of these dialects/creoles, but their efforts were thwarted by the staunch promotion of standard German, and after 1918, of standard Polish and Czech. Still on the subject of language, Mr. Kamusella draws attention to a problem around the issue of place names and personal names. Polish historians use current Polish versions of the Silesian place names, Czechs use current Polish/Czech versions of the place names, and Germans use the German versions which were in use in Silesia up to 1945. Mr. Kamusella attempted to avoid this, as he sees it, nationalist tendency, by using an appropriate version of a place name for a given period and providing its modern counterpart in parentheses. In the case of modern place names he gives the German version in parentheses. As for the name of historical figures, he strove to use the name entered on the birth certificate of the person involved, and by doing so avoid such confusion as, for instance, surrounds the Austrian Silesian pastor L.J. Sherschnik, who in German became Scherschnick, in Polish, Szersznik, and in Czech, Sersnik. Indeed, the prospective Silesian scholar should, Mr. Kamusella suggests, as well as the three languages directly involved in the area itself, know English and French, since many documents and books on the subject have been published in these languages, and even Latin, when dealing in depth with the period before the mid-19th century. Mr. Kamusella divides the policies of ethnic cleansing into two categories. The first he classifies as soft, meaning that policy is confined to the educational system, army, civil service and the church, and the aim is that everyone learn the language of the dominant group. The second is the group of hard policies, which amount to what is popularly labelled as ethnic cleansing. This category of policy aims at the total assimilation and/or physical liquidation of the non-dominant groups non-congruent with the ideal of homogeneity of a given nation-state. Mr. Kamusella found that soft policies were consciously and systematically employed by Prussia/Germany in Prussian Silesia from the 1860s to 1918, whereas in Austrian Silesia, Vienna quite inconsistently dabbled in them from the 1880s to 1917. In the inter-war period, the emergence of the nation-states of Poland and Czechoslovakia led to full employment of the soft policies and partial employment of the hard ones (curbed by the League of Nations minorities protection system) in Czechoslovakian Silesia, German Upper Silesia and the Polish parts of Upper and Austrian Silesia. In 1939-1945, Berlin started consistently using all the "hard" methods to homogenise Polish and Czechoslovakian Silesia which fell, in their entirety, within the Reich's borders. After World War II Czechoslovakia regained its prewar part of Silesia while Poland was given its prewar section plus almost the whole of the prewar German province. Subsequently, with the active involvement and support of the Soviet Union, Warsaw and Prague expelled the majority of Germans from Silesia in 1945-1948 (there were also instances of the Poles expelling Upper Silesian Czechs/Moravians, and of the Czechs expelling Czech Silesian Poles/pro-Polish Silesians). During the period of communist rule, the same two countries carried out a thorough Polonisation and Czechisation of Silesia, submerging this region into a new, non-historically based administrative division. Democratisation in the wake of the fall of communism, and a gradual retreat from the nationalist ideal of the homogeneous nation-state with a view to possible membership of the European Union, caused the abolition of the "hard" policies and phasing out of the "soft" ones. Consequently, limited revivals of various ethnic/national minorities have been observed in Czech and Polish Silesia, whereas Silesian regionalism has become popular in the westernmost part of Silesia which remained part of Germany. Mr. Kamusella believes it is possible that, with the overcoming of the nation-state discourse in European politics, when the expression of multiethnicity and multilingualism has become the cause of the day in Silesia, regionalism will hold sway in this region, uniting its ethnically/nationally variegated population in accordance with the principle of subsidiarity championed by the European Union.