Nationalist Politics and Foreign Capital in Print Media in Post-Cold War East-Central Europe

The politicization of foreign capital in post-Cold War East-Central Europe extended beyond the initial period of economic and political transformation. Particularly sensitive was foreign capital in the print media sector and, for Poland, the presence of German banks. This article considers the factors driving attention to the identity of capital in Poland, Hungary and the Czech Republic in the period after the end of socialism with a focus on print media. Beyond a substantial increase in the liberalization of capital flows, external actors such as the EU de-emphasized state preferences for investment associated with the nation in a context featuring stark asymmetries in West→East capital movements. For Poland and the Czech Republic, memory of German domination stimulated comparisons between asymmetries in past and current capital flows.

Keywords: foreign capital, East-Central Europe, privatization, print media

Lynn M. Tesser 8 July 2008

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Foreign land ownership raised keen political debate in post-Cold War East-Central

Europe (Wood 2004, Tesser 2004), while foreign firms and investment have at times also

been constructed as a threat (Abdelal 2001).1 The liberalization of capital flows after 1989

ran directly against communist era nationalization campaigns that had put most enterprises

and investment under centralized state control. Postsocialist privatization processes then

reversed the course of centralization, leading to the sale of public assets and the opening of

emerging capital markets to foreign investors.

Beyond the shift away from state control, several factors account for resistance to

foreign participation during times of significant political and/or economic change. First is the

chance that foreign firms might wield disproportionate influence over entire economies or

certain industries, particularly those undergoing transition or rapid development. Second was

the social/class-based protest against the relatively sudden reintroduction of unemployment

after privatization began, and for those still employed, a loss of influence over work

organization (both of which could be interpreted as resulting from inflows of foreign

capital).2 For East-Central Europe (ECE) in particular, three more reasons exist: (1)

communists’ aggrandizement of property at the outset of privatization, an act that made

public protests not merely a result of unemployment and/or a loss of worker control, but of

the process’ unjust nature; (2) an overnight introduction to a globalized economic

environment with a neoliberal orientation; and finally (3) the legacy of the communist

intermarriage of economics and politics that made all aspects of privatization intrinsically

political.

1 The phenomenon is by no means limited to East-Central Europe. Other examples of the politicization of foreign capital came with the US reaction to the Japanese purchase of Rockefeller Center in the 1980s, when BMW purchased Rolls Royce in the 1990s or when Vodafone bought Siemens cell phone in 2000. 2 The logic of this thinking often ran in one of two directions: either foreign capital buys a privatizing (or privatized) firm in order to bankrupt it, thereby reducing the competition or the modern, labor-saving technology foreign firms tend to introduce ultimately leads to lay offs.

2

While these factors explain why foreign capital was politicized at the outset of ECE’s

economic transformation, they are less helpful in understanding why reservations towards

foreign participation continued for well over a decade. A 2003 Polish public opinion survey,

for example, showed that only half or less than half of respondents felt the presence of

foreign capital to be good for the domestic economy (Kapitał Zagraniczny 2003, 2). When

another 2003 survey on EU expansion asked why some respondents did not support joining

the EU, 54% in fact mentioned the idea of ‘Poland being bought by foreign capital’ (Motywy

Poparcia 2003, 6). A 2001 survey undertaken in the Czech Republic and Hungary showed

higher approval with 50% of Czech and 57% of Hungarian respondents claiming that their

respective domestic economies are better off with foreign investment (CEORG 2001, 1). For

Slovakia, continued support for parties like Vladimír Mečiar’s People’s Party-Movement for

a Democratic Slovakia (HZDS) and Robert Fico’s Smer (Direction) signal that part of Slovak

society had not yet warmed to the rapid internationalization of the Slovak economy,

particularly the sharp increase in foreign investment.3

Of the four countries, post-Cold War Poland exhibited the most explicit resistance to

foreign investment, sentiment owing in part to elite manipulation of fears over the return of

German domination. While the Czech Republic had been more open to German investment,

ambivalence also existed among elites and society. On the one hand, Czech elites saw

Germany as the key actor promoting the Czech Republic’s EU membership (with entry seen

as the best way to diminish German influence in the region). On the other hand, they also

saw EU expansion as a way to further German influence in Central Europe (Rupnik 2003,

37). While only the communists and the far right initially expressed such concerns – likely a

reaction to the fact that German investment made up over 80% of the Czech and Slovak

Federal Republic’s total foreign investment by December 1992 (Palata 1998, 29), the view

3 While HZDS was known for preferring foreign firms that operate according to Slovak interests, Fico’s talk of a ‘third way’ suggested a similar standpoint.

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was mainstreamed after Sudeten German expellees began to argue that the Czech Republic’s

EU entry be conditional on their compensation (Rupnik 2003, 38).

Slovakia, under the direction of Meciar’s HZDS for much of the 1990s, not only

resisted opening to foreign investment, but also the introduction of markets. Jacques Rupnik

rightly notes that Slovaks experienced the rush to introduce market reforms after 1989 as just

another top-down modernization – albeit justified by principles of economic liberalism

(Rupnik 2003, 21). Along with Slovak separatism, this led HZDS economic policy to

emphasize the development of domestic industry. The party wanted foreign investment

steered towards modernization, industrial reconstruction, and technological improvements.

While it initially approved of foreign investment “where it was necessary to further Slovak

economic development,” HZDS elites later criticized foreign firms for not acting in

accordance with Slovak interests (Haughton 2001, 749). Foreign investment did not

significantly increase – nor did privatization occur – until Meciar left office in 1998.

Hungary, on the other hand, witnessed considerably less outward concerns towards

foreign investment. Two reasons explain why postcommunist Hungary’s privatization policy

emphasized selling state firms directly to foreign buyers when under the leadership of the

more nationalistic Hungarian Democratic Forum (MDF) (Bartlett 2000, 135): (1) experience

with and acceptance of communist-era foreign investment, and (2) the fact that Hungarians

generally do not possess negative memories of (German) revanchism. Germany along with

Japan and the U.S., in fact, were at the top of the list in a 1992 survey asking Hungarian

respondents which foreign countries’ firms would be most preferable in Hungary (Gedeon

1997, 105). Despite Hungary’s general openness, however, the swift rise of foreign

investment in print media after 1989 generated considerable debate over whether foreign

control might threaten Hungarian culture.

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This article presents a comparative case study of the varied reactions to foreign and

German capital in the print media industry in Hungary, Poland, and the Czech Republic in the

1990s. Foreign publishing conglomerates controlled between 50-70% of the print media

markets in Poland, the Czech Republic, and Hungary by the mid-1990’s, control that led to

varying debates over whether foreign ownership might threaten national culture (Giorgi

1995, 5). While reactions to foreign capital in print media privatization is not necessarily

representative of reactions to foreign investment more generally, this particular sector has

been chosen precisely given that: (1) the general public is more likely to be aware of foreign

ownership in this sector because of its greater visibility as an industry; and (2) the greater

sensitivity over print media allows the observance of an ambivalence that might otherwise be

obscured within other industries. Slovakia is generally excluded given the fact that

hindrances to privatization during most of the 1990’s kept foreign capital largely out of this

market.

Foreign and German Capital in Print Media

Foreign capital in print media was more likely to be politicized than in sectors less

directly tied to culture. Three other factors also mattered. First, the possibility that a few

multinational conglomerates might dominate the market led to concerns that cartels would

form and that the often unprofitable quality publications might not survive. Second, editors,

journalists, and others directly involved in publishing feared a general loss of control over the

media’s content, particularly in firms producing translated and modified versions of foreign

titles. Some publishing houses would even dictate how articles should be written (i.e., as if all

text in a singular publication was written by one person) (Kraszewska-Ey and Janicki 1995,

9). Third, resistance to foreign capital could well be expected in countries recently introduced

to the internationalization of media.

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Yet, these additional accounts cannot explain why Hungary and Poland experienced

the most heated and protracted debates in East-Central Europe over foreign capital’s potential

effects on culture and national identity (Giorgi 1995, 10). Nor do they illuminate the reasons

for Polish (and some Czech) ambivalence over German capital, or why it was Poland in

particular that took steps to keep German companies from entering the Polish print media

market. Legislation passed in the early 1990’s dealing with privatization and foreign capital

in print media did not reflect these variations. Hungary was the first to begin reforming its

press regulations after passing the 1986 Press Law creating conditions for a print media

market. Though a January 1990 amendment to the 1986 law gave private individuals the

ability to establish their own publications, the Hungarian government had a difficult time

passing media laws thereafter given the protracted disagreement over how to regulate foreign

investment and ensure media independence.4 While Czechoslovakia too had difficulty

passing a definitive press law, the Czechoslovak Federal Assembly did approve legislation in

March 1990 allowing both private citizens and foreigners to establish publications. Interested

parties were no longer forced to seek authorities’ permission and were required only to

register their activities. Foreigners were also required to register as well as to gain

permission to establish print media companies (Pehe 1992, 34).

Similarly, Poland’s primary postcommunist press law passed in April 1990 did not

attempt to formally regulate foreign participation in the Polish print media market.5

Ownership of Polish publications continued to be defined by the 1934 Commercial Code (and

subsequent amendments) along with the 1982 Law on Cooperatives. No codified restrictions

existed concerning the entry of foreign capital with the exception of the 1982 Law’s

4 Despite the amendment, the Press Law remained silent on the issue of setting rules for media privatization and for the entry of foreign investment (Oltay 1990b, 19). 5 Yet, original general privatization legislation allowed only 10% foreign participation in privatized Polish firms in the absence of special permission (Fischer 1992, 37).

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restriction of membership to Polish citizens.6 Foreign capital’s presence during privatization

was instead to be regulated on a case-by-case basis via Poland’s 1990 Law on Liquidation.

This particular piece of legislation established a framework necessary for the liquidation of

the party-controlled Polish print media organization, the Workers’ Publishing Cooperative

[Robotnicza Spółdzielnia Wydawnicza ‘Prasa-Książka-Ruch’ (RSW)] (Schliep 1999, 117).

At the height of its control, the RSW ran over 92% and 87% of Poland’s newspaper

and magazine circulation respectively (Bajka 1999, 84). During the late 1980’s, the RSW

held a total of 247 publications and employed approximately 90,000 people. Once the Law

on Liquidation was passed, Prime Minister Tadeusz Mazowiecki formed the Liquidation

Commission to break up the RSW.7 Though political elites certainly noted the benefits of

foreign capital, criticism prevailing at the time maintained that foreign companies only

wanted to purchase the most profitable titles, leaving the quality, high culture publications to

potentially fade out of existence (Schliep 1999, 120). The Commission had essentially

completed its task by the spring of 1991, allowing the sale of 78 titles. It also allowed

another 8 titles along with approximately 24,000 kiosks and 19 printing houses to either be

sold or allotted to the State Treasury while handing over a combined total of 70 titles and

publishing enterprises to journalists’ cooperatives (Giorgi 1995, 22).

Though foreign capital’s participation in the Polish print media market was not

regulated by law, the establishment and action of the Liquidation Commission showed more

obvious state involvement in privatization in Poland than in Hungary and the Czech

Republic/Czechoslovakia. This general absence of formal legal regulation combined with the

lack of organizational equivalents to Poland’s Liquidation Commission gave foreigners easier

access to the Hungarian and, to a lesser extent, the Czechoslovak markets – though publishers

in Czechoslovakia were initially far more reluctant to give up control to foreign companies 6 However, joint ventures with foreign investors were allowed (Giorgi 1995, 83). 7 The Commission consisted of an expert on civil law, an economist, several journalists as well as a representative of a journalists’ organization (Schliep 1999, 119).

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than in Hungary (Kusin 1991, 7). The Polish case was also unique in the emphasis placed on

distributing ownership in a way that would provide various social interests with a voice, and

not merely foreign capitalists. Its uniqueness stemmed from the lingering power of the

journalist cooperatives and their association with Solidarity.8

Beyond the German firms Bertelsmann AG, Axel Springer-Verlag, Heinrich Bauer

Verlag, Gruner+Jahr, and Burda Holding, media tycoons such as Robert Maxwell, Rupert

Murdoch, and Robert Hersant burst into the East-Central European print market after 1989,

particularly in Hungary (Oniszczuk 1999, 53-54). During the initial entry phase, foreign

investors tended to target regional presses rather than statewide newspapers for three reasons:

(1) less competition from domestic investors; (2) lower financial risk; and (3) less political

controversy stemming from a lower political profile (Giorgi 1995, 5). Foreign firms also

tended to take over already-existing firms and continued to publish pre-existing titles rather

than to establish new companies.

Hungary

With its greater overall openness to foreign capital, Hungary gained the most foreign

investment in the print media sector. The reform communist regime of Prime Minister

Miklós Németh essentially began the privatization of this industry, leaving a majority of

Hungary’s 32 local and statewide dailies to be converted into joint stock companies (Oltay

1992, 40). To counter fears of attempts to influence editorial direction, the editorial boards of

privatized Hungarian papers were allowed to hold a symbolic fraction of shares in the

investing firms (both for domestic and foreign companies) and received assurances that

investors would not interfere with their direction.9

8 On these journalistic organizations see Załuski 1996 and Borkowska 1999. 9 These boards took steps to improve the papers’ quality so that these presses might succeed in the race for capital investment (Oltay 1992, 40 and Oltay 1990, 20).

8

Already in 1991 foreign investors owned 82% of Hungary’s print media industry

(with a majority based either in English- or German-language countries). Concerning

German firms’ penetration of the Hungarian market, Axel Springer-Verlag acquired 85%

ownership in seven of a total of 19 regional newspapers by April 1990. Soon afterward,

Bertelsmann acquired 41% of the shares in Népszabadság, the Hungarian daily with the

widest circulation. Later that same year, the Westdeutsche Allgemeine Zeitungsverlag

(WAZ) purchased three of the regional Hungarian papers still available. Of total foreign

investment in print media listed in 1991, Axel Springer-Verlag and Bertelsmann held the

largest percentage of the country’s total foreign investment (15% and 14% respectively)

(Oniszczuk 1999, 54).

However, it was Axel Springer-Verlag’s purchase of a majority of shares (85%) in the

four regional papers (later a total of seven) that raised the most controversy in Hungary. It

catalyzed a heated debate over whether the participation of foreign capital in Hungarian

presses ultimately threatened Hungarian culture. Two particular aspects of Springer’s tactics

contributed to such a result. First, the company took advantage of legal loopholes (i.e., the

general absence of legislation specifying foreign capital’s participation in the press) and took

over the dailies without paying any financial compensation. Second, Springer then took

control over the editorial staff, changed the titles of the respective publications, and

proceeded to publish ‘new’ papers (Giorgi 1995, 17). All major political parties protested

these actions. Their concern, however, was not only due to the nature of the takeover, but

also because foreigners would henceforth be responsible for providing a major source of

news in Hungary (Oltay 1990b, 21). Consisting of representatives from the six parties in

parliament, an ad hoc parliamentary committee was then established to supervise

privatization as well as the entry of foreign capital into the market – provided that pending

legislation regulating investment in the media would be passed (Oltay 1992, 41). The

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Hungarian government also passed an anti-monopoly decree in 1990 forbidding foreign

investors to purchase more than two newspapers (Glasperlen 1994, 143). This attempt to

limit foreign investment via decree, however, turned out to be short lived. The committee’s

1990 report investigating foreign buy-outs indicated that the sale of the Hungarian presses

occurred legally. It also explained the high level of foreign ownership as a result of the

dissolution of a state-based monopoly as well as a deficit of national capital to invest

(Oniszczuk 1999, 54).

Left without legal means to diminish foreign investment, the Hungarian government

instead bought back three country-wide papers from British-based publishing houses. The

immediate catalyst, however, was not concern over maintaining Hungarian culture, but a pure

political move by the right to remove obstacles to its support. After having noted the left-

liberal character of most countrywide papers, the conservative Antall government sought to

buy up some titles, presumably to reduce their effect on public opinion. Later in 1994, the

government also purchased Hersant’s 92% stake in the daily Magyar Nemzet (Oniszczuk

1999, 54 and Giorgi 1995, 17). The repurchase effort certainly had an effect. The percent of

Hungarian ownership in countrywide dailies, for example, rose from 30% in 1991 to 50.5%

in 1993 (Gulyás 1998, 114). Noteworthy was the fact that repurchases were from British or

French firms, thus indicating that it was not Springer’s German identity that made its

takeover controversial. Ultimately, the Springer incident was the key catalyst bringing to

light concerns over foreign control; concerns not only resulting from the avalanche of foreign

capital cascading into Hungary in the immediate post-Cold War era, but from the idea of

foreigners having control over a major conduit of national values.

Poland

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The Polish government, on the other hand, was far more reticent towards allowing

foreign, and particularly German, capital into print media in the immediate post-Cold War

era. While Polish elites too recognized the need for foreign capital, the strong influence of

Solidarity in postcommunist Poland and its alliance with journalists’ organizations reduced

the appeal of Hungary’s exclusively profit-oriented strategy, leading the Liquidation

Commission to prefer a more balanced participation of social and political actors in the print

media sector. The Commission’s favoritism towards Solidarity, or rather the numerous

enterprises and cooperatives formed under the latter’s umbrella, reflected this attitude (Giorgi

1995, 22). The first foreign investment in Polish print media came with the September 1989

establishment of Dziennik Dolnośląski in Wrocław with the Norwegian firm, Orkla Media,

holding majority ownership. Soon afterwards publishing giants Robert Maxwell and Robert

Hersant appeared on the scene together with the Heinrich Bauer Verlag from Germany.

These foreign firms soon discovered that a large number of titles were up for sale, that their

selling price was very affordable from the perspective of Western investors, and finally, that

each title had an already-established market of regular readers (Bajka 1999, 84).

Yet, not all foreign publishing houses could take advantage of the situation given that

the Commission showed a negative disposition towards offers from German and Austrian

firms (Giorgi 1995, 78). Nevertheless, German firms made inroads into Poland’s specialty

publication market. Burda Verlag, for example, began to offer a Polish version of its Burda

Moden and later published several other publications via Polish-German joint ventures

established to offset anti-German prejudices (Oniszczak 1999, 55). More Polish translations

of German magazines soon appeared.

1991 was also the first year a German firm was able to enter the more serious Polish

news market. Germany’s Passauer Neue Presse acquired shares in Wrocław’s Gazeta

Robotnicza, but only with the help of the middleman Swiss publisher Sweizer

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Interpublication AG. Bauer also entered the market by publishing the women’s magazine

Tina, 80% of which consisted of translated articles. While 1991 was a landmark year for the

entry of German investment in Poland, in 1993 its presence increased significantly. The firm

Gruner+Jahr, for example, opened an office in Warsaw and began publishing the women’s

monthlies Claudia and Sandra, the home-oriented women’s magazines Sekrety Kuchni

(Secrets of the Kitchen) and Moje Mieszkanie (My Apartment) as well as numerous other

specialty titles. Axel Springer-Verlag, the firm that raised considerable controversy in

Hungary, entered the Polish market only in 1995 by publishing the highly popular weekly

Pani Domu (Lady of the House) modeled off of Germany’s Bild der Frau.

Compared to these German firms, the French publishing giant Robert Hersant, had

unparalleled success in purchasing shares in regional daily presses during the RSW

liquidation. By late 1992, Hersant held a majority stake in eight major Polish daily papers.

These included: Dziennik Bałtycki, Wieczor Wybrzeża (both in Gdańsk), Dziennik Łódzki,

Express Ilustrowany (Łódź), Dziennik Zachodni, Trybuna Śląska (Katowice), Gazeta

Krakowska, and Tempo (Kraków). During the bidding for Dziennik Bałtycki, for example,

Hersant prevailed despite the fact that his offer was not the highest (Kraszewska-Ey 1994, 6).

Beyond not being identified with a German-language country, his firm had such success for

three reasons: (1) guarantees given against interference in editorial decision-making; (2)

financial offers made to employees of the titles to be acquired as well as the Liquidation

Commission; and finally, (3) the practice of seeking local Solidarity committees’ approval as

well as to form a basis on which joint companies could be funded (Giorgi 1995, 78-79).

German firms interpreted the Liquidation Commission’s good will towards Hersant,

particularly concerning the sale of papers in Silesia and in the area around Gdansk (two

regions that had lied in Germany prior to the end of the Second World War), as a sign of

disfavor towards German-owned firms in general (Oniszczuk 1999, 55 and Gasperlen 1994,

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142-143). The Commission’s good will towards the French multimedia media giant was also

based on the myth of Hersant’s aid for the underground press associated with Solidarity. Yet,

Donald Tusk, then one of the members of the Liquidation Committee, could not recall

Hersant’s involvement with any publications associated with the underground when

interviewed on the matter. What Tusk instead recalled was Hersant’s alliance with Solidarity

on a number of titles and commented that “Hersant was a good partner for Solidarity; a well-

financed manager that did not interfere with editorial matters.”10 Due to financial difficulties,

however, Hersant was soon forced to sell all his shares in the Polish print media market in

1994 with the exception of a 49% stake in the national daily Rzeczpospolita. The Hersant

sale was quite significant because it essentially allowed the first major ‘German’ penetration

of the serious Polish print media market, occurring only after the Liquidation Commission

ended its work. Passauer Neue Presse bought Hersant’s shares in the eight Polish dailies for

a sum of DM 100 million.

Overnight the largest foreign publisher of news-focused dailies in Poland went from

being ‘French’ to ‘German,’ a change that sharply escalated debate over foreign participation

in print media. The narrative of German domination in conjunction with liberalization

ultimately made identity salient, first, in the Liquidation Commission’s refusal to seriously

consider German and Austrian offers, and second, in controversy arising over Passauer’s

buyout of Hersant. Foreign participation in the serious regional press was not controversial,

after all, until Passauer bought Hersant’s shares.

By 1995, foreign capital was indeed manifest with foreign ownership comprising 50%

of regional publications and 56% of national ones. Passauer Neue Presse by then held a

prominent position in Poland’s print media as well as a near monopoly status over the Czech

Republic’s regional presses (Katzenstein 1997, 7). German capital again sparked additional

10 Hersant usually bid for papers ‘behind the shield’ of Polish companies in which several of the following possessed shares: local governments, journalists’ cooperatives, and Solidarity (Kraszewska-Ey 1994).

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controversy after Passauer’s 1998 purchase of a prominent local newspaper in Olsztyn, in a

province formerly lying in Germany until the end of the Second World War. Local Polish

politicians from both the more right-wing Solidarity Electoral Action (AWS) as well as from

the center-left Democratic Left Alliance (SLD) protested the sale. SLD representative and

former Olsztyn Province Governor Janusz Lorentz not only sent Passauer’s owner Franz

Xavier Hirtreiter a letter indicating that a group had been formed to buy the paper back, but

make a statement claiming: “Mr. Hirtreiter, I will try to tell you that you do not buy symbols

of other nations” (quoted in Pawlak 1998). Halina Nowina-Konopka, a representative

affiliated with the AWS, asked Hirtreiter to cancel the sale and stated “I consider this

situation as the first stage in the realization of the disintegration of our fatherland” (quoted in

Pawlak 1998).

The original Gazeta Olsztyńska was known for being a medium to preserve Polish

culture and identity against German domination in the former East Prussia. Its historic role in

keeping Polish culture alive, however, ended when the paper closed down in 1939. After the

war, the party paper Głos Olsztyński took its place, with Gazeta Olsztyńska reappearing again

only in 1970. In 1986, the editors of Gazeta Olsztyńska decided to inscribe “published since

1886” under the paper’s title, a change that led to protests over the association of a party

paper with more august prewar times (Pawlak 1998). It was only with Passauer’s purchase of

the paper that a number of local residents began to see Gazeta Olsztyńska as a symbolic

descendent of its prewar counterpart and once again as a bearer of Polish identity and culture.

Passauer’s purchase of Gazeta Olsztyńska, in other words, led to the near instantaneous

creation of continuity between the its prewar version and the post-party paper published

today. Conceiving a potential German buyout as a threat was indeed crucial in altering

memory about the paper.

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Such resistance to Passauer’s expansion into the Polish market and the Liquidation

Commission’s tacit rejection of German capital signal clear ambivalence towards German

capital. It is here that memory of German domination, particularly when combined with

liberalized and asymmetric capital flows flowing from West to East, can provoke such

outcomes. Polish media firms, after all, could not have reciprocal influence on German or

other European markets to counter the presumed effects of German publishing firms on

Polish culture.

The Czech Republic

Like Poland, Czechoslovakia – and later the Czech Republic – did not initially attract

the stream of foreign capital flowing into Hungary. Though foreign attempts to acquire

ownership in presses had allegedly been made, local Czech and Slovak publishers carefully

guarded their presses (Kusin 1991, 12). Foreign as well as domestic buyouts were also

hindered by the Czechoslovak government’s imposition of a 22% turnover tax in 1990 on all

publications, a move that has been interpreted as a way to keep foreign investment at bay

(Giorgi 1995, 25). Unlike Poland, however, German firms were not excluded from the more

serious news market. While Passauer had to wait until 1994 to enter the Polish market, by

the end of 1990 this firm had established over 30 local papers in Czechoslovakia. This figure

increased to 47 titles in 1991, making Passauer the leader in this market and eventually the

largest publishing house in Czechoslovakia/the Czech Republic (Oniszczuk 1999, 56 and

Giorgi 1995, 28).

Also noteworthy at the time was the highly symbolic sale of Skoda in 1990, an auto

manufacturer strongly associated with Czech identity, to Germany’s Volkswagen. The

government’s decision to sell a majority stake met accusations of a national sell out. Though

some public officials declared it a key step towards the sale of Czechoslovak industry to the

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powerful German economy – potentially leading to German cultural domination, the

government in the end chose Volkswagen’s offer over Renault-Volvo for at least three

reasons: (1) Volkswagen offered generous social benefits for Skoda employees; (2) the Skoda

brandname would remain; and (3) that Renault-Volvo had a relatively poor business

reputation at the time.11

Compared to the automobile sector, foreign capital entered print media more slowly

and on a smaller scale (Jeřábek and Zich 1997, 165). Initial foreign investment came from

Hersant and the Swiss Ringier group. By 1992, a firm in the Hersant group (Socpresse)

acquired 47% of the Czech daily with the second largest circulation – Mladá Fronta Dnes

(Young Front Today) as well as significant minority holdings in three regional papers

(Jeřábek and Zich 1997, 170). Ringier at this time held majority ownership in an important

Moravian daily while also owning the daily Blesk (Lightening) (Jeřábek and Zich 1997, 170).

In 1992, only nine of 24 of the Czech dailies were owned by foreign firms – with two of the

nine owned by German firms (Jeřábek and Zich 1997, 172).

Foreign expansion into the Czech regional press, however, has been more apparent.

By founding several regional publishing houses and modernizing the production of regional

papers, Passauer has been particularly successful in introducing a system in which a basic

daily was produced with local variations.12 By the end of 1992, Passauer had gained control

of almost 80% of the Czech regional presses, a fact that spurred discussion over the firm’s

rapid rise in the Czech regional market. Passauer’s success also catalyzed a 1993

investigation by the Ministry for Economic Competition over whether the regional presses

were breaking the anti-monopoly law via maintaining near monopolies within each region.

While the investigation revealed that the companies involved (all owned by Passauer) did not 11 It also likely helped that high level managers from Volkswagen delivered a clear plan for the company’s future while Renault’s low-rank officials were less clear about the plant’s future (Obrman 1991b, 7). For a more extensive discussion of Volkswagen’s buyout of Skoda see Jeřábek and Zich 1997. 12 These include Passauer for eastern Bohemia, Labe Ltd. for northern Bohemia, and Vltava Ltd for southern, western, and part of central Bohemia (Jeřábek and Zich 1997, 173).

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consult the Ministry in deciding to merge eleven periodicals (and ordered that they do so), the

fact that the papers’ distribution extended beyond the specific regions led the Ministry to

conclude that Passauer’s actions in merging the publications had not created a monopoly

(Jeřábek and Zich 1997, 174). This ultimately derailed the effort to hinder Passauer. Known

for taking steps to keep enterprises in Czech hands (Siemssen 2001, 8), then Prime Minister

Václav Klaus stated at the time that “there are no indications suggesting that there is a

development towards a monopoly situation in the regional press which would hinder free

competition and lead to an increase of prices” (quoted in Giorgi 1995, 26).

By mid-1994, the low participation of foreign capital in Czech print media was a

thing of the past. Over 50% of Czech publications had foreign owners and foreign firms

owned more than 16 of the 25 largest dailies (Kettle 1995, 4), with foreign ownership even

clearer in the regional presses. German ownership here was not relegated mainly to the

specialty magazines market as in Poland. German firms were instead able to acquire regional

weekly and daily papers, leaving German firms to own 10 of the 23 dailies (Jeřábek and Zich

1997, 172). The rapid and noticeable German expansion into the Czech print media market

likely contributed to 1996 survey results indicating that over half of Czech respondents saw

Germany as a threat to the Czech economy even though only 1% of Germany’s foreign trade

was then with the Czech Republic.13

While the Czech Republic has indeed been more open to German capital in print

media than Poland, concerns over German control arose particularly with Sudeten German

expellees’ demands that Czech entry into the EU be conditional on their

compensation/restitution, concerns that have been addressed across the political spectrum. A

comment from the victorious Social Democratic Party candidate for Prime Minister in the

June 2002 elections, Vladimír Špidla, illustrated that a left-wing party not known for playing

13 Thompson 2001, 936. Thompson also noted that 4 of the Czech Republic’s top 20 firms were German.

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on national symbolism (like the SLD in Poland) can nevertheless draw on fears of German

economic domination – fears that were tied to Passauer’s enormous and well-publicized

success in the Czech print media market. Concerning EU entry, Špidla later remarked that the

country faced no risk of losing sovereignty and added that “we would become partially

dependent on Germany” and that “German influence would be of greater significance than it

is now” if the Czech Republic would not join” [quoted in RFE/RL Newsline (12 June 2002)].

Špidla’s statements, along with comparatively greater Czech openness to German capital,

signal that Czechs have been less likely to interpret the high levels of German capital as

necessarily leading to cultural domination (as in the Polish case), but instead as complete

economic control.

German Banks in Poland

Beyond print media, the presence of German capital was particularly controversial in

Poland’s banking sector following the acceleration of bank privatization in 1999. Foreign

banks met resistance not merely here but across the region as they were the largest group of

foreign direct investors, contributing to approximately one third of FDI (Wagstyl 2000).

International banks’ presence in the region have risen significantly – contributing from an

average of 20% to 41% of investment’s market share from 1997 to 1999 (Wagstyl 2000).

The debate in Poland has been particularly heated, not merely because foreign capital in the

banking sector increased substantially around the turn of the millennium [from 48% at the

end of 1998 (Tarnowski 1999) to 70% in mid-2000 (Gdzie te banki 2000, 32)], but due to

German banks’ comparably high participation (listed at over 18% in June 1999). This swift

rise in foreign ownership can be traced, in part, to the 1997 law passed to meet EU and

OECD membership requirements. This legislation ended the need to gain permission to

acquire shares in Polish banks listed publicly and allowed foreign banks to acquire property

18

under special conditions. Generally speaking, governments of ECE states slated to join the

EU in the 2004 enlargement wave rushed to push legislation on banking and capital markets

through parliament to prepare for accession; yet, making its quality unclear (Berecz 2000,

45). Full liberalization then followed only upon accession in 2004.

Debates reached a high point when Deutsche Bank (DB) attempted to increase its

shares in Poland’s BIG Bank Gdański (BIG) in Winter 2000. Questions over whether the

transfer of these shares was legal and beneficial for Poland set off a heated public discussion

over how much foreign capital should be allowed in the banking sector as well as to the

expression of fears over having already sold off too much. Phrases heard frequently during

the controversy suggest a prominent role of nationalist politicians: “the sell out of national

capital” (wyprzedaż majątku narodowego), “the threat of a loss of economic sovereignty”

(groźba utraty suwerenności gospodarczej), and claims of the existence of a “fifth column of

foreign banks” (piąta kolumna obcych banków) (Bachmann 2000). As in the case of

Passauer’s 1998 purchase of Gazeta Olsztyńska, however, such phrases came instead from

representatives of parties closer to the center, thus indicating that supporters and opponents of

expanding foreign capital’s participation in Polish banking can come from all positions along

the political spectrum (Mackiewicz 2000a, 15). Representatives of the center-right wing

AWS, for example, demanded the dismissal of Poland’s treasury minister, Emil Wąsacz, for

the “irresponsible sell out of Polish banks to foreign investors” (Mackiewicz 2000, 15).

President Alexander Kwaśniewski’s (SLD) chief economic advisor Marek Belka proposed

that forthcoming bank privatizations be restricted only to domestic capital (Mackiewicz 2000,

15). Statements like these suggest that it was difficult to think of capital solely as a

commodity, rather than as in the nation’s service.

A public opinion survey conducted in December 2000, shortly before the DB – BIG

debate erupted, also showed only a weak link between party identification and support or lack

19

thereof for foreign capital in Poland (Opinie o Przemianach 2000, 11). Both supporters of the

more nationalist Polish People’s Party (PSL) (50%) and of the left-wing SLD (42%) tended

to think that foreign capital in the Polish economy was too great.14 A significant one third of

the more liberal-free market Freedom Union (UW)-identifying respondents as well as those

inclined towards the AWS also agreed.15 When controlling for factors other than party

identification, it appears that approval or disapproval towards foreign capital correlated most

with occupation. Though the difference with other groups was not great, managers, directors,

and other officials along with white-collar workers tended to think that there was too much

foreign capital in the Polish economy (Opinie o Przemianach 2000, 11). Those employed in

the private sector (agriculture excepted), on the other hand, tended to think there was too little

foreign investment (Opinie o Przemianach 2000, 11). When asked a similar question –

whether the presence of foreign capital in the Polish economy is advantageous,

disadvantageous, or whether it is simply hard to say – differences of opinion were not

strongly correlated with party identification. There was a clearer correlation between

favorable attitudes towards foreign capital and wealth, higher social position, residence in

larger cities, and higher education.16 This challenges the presumption that identity politics

surrounding capital are driven simply by nationalist parties, rather than from a certain

resistance to the EU’s de-emphasis on having capital and firms serve the nation.

When the debate over DB’s attempted takeover of BIG really took off in January

2000, 60% of all shares in Polish banks were foreign owned (with German firms owning

approximately 19%) (Mackiewicz 2000). Beyond the German identity of DB, controversy

14 15% of SLD supporters said foreign capital’s participation is too small, 22% said it is appropriate, and a significant 21% said it was hard to tell. 15 28% of UW supporters indicated that foreign capital’s participation is too small, 28% said that it is appropriate, while 14% indicated that it is hard to say. The AWS breakdown is quite similar for this particular question: 21% said there is too little foreign capital in the economy, 26% said it is just right, and a comparably higher 26% indicated that it was hard to say. 16 In short, the higher the education and satisfaction with one’s living standards, the greater the likelihood of viewing foreign capital favorably. Those less disposed to accepting its presence tend to be rural residents and those living in smaller towns (Opinie o Przemianach 2000, 13-14).

20

stemmed from the ‘inbreeding’ of investment in the firms involved, meaning that the

investing firms sometimes owned parts of one another. Among the shareholders of BIG, for

example, was the 70% State-Treasury-owned insurance carrier Powszechny Zakład

Ubezpieczenia (PZU) in which BIG also owns shares. PZU’s support for the DB takeover

was also at issue given that Wąsacz (the Treasury’s head) did not support the sale of these

shares to DB. Thus, PZU’s approval of the German bank’s actions appeared to fly in the face

of its primary shareholder’s wishes. Among his criticisms of the attempted takeover, Wąsacz

accused DB at the time of trying to hide the transaction from the public eye. He claimed:

“By avoiding publicity, the Germans undermine the trust of the Polish market. It is a scandal

that a foreign investor enters a large Polish bank through the kitchen doors” (Mackiewicz and

Samcik 2000). After questioning the legality of these actions, the situation finally came to a

conclusion in June 2000 when DB sold its 19% stake in BIG to the Commercial Bank of

Portugal (Węglewski 2000, 26).

Admittedly, public officials prevented DB from acquiring BIG essentially to court

different national varieties of foreign banks,17 not necessarily to diminish the penetration of

‘German capital’ in the Polish economy. Yet, four reasons exist to suggest that German

identity might have mattered: 1) the controversy escalated when DB attempted to increase

its shares in BIG; 2) DB expressed interest in buying other Polish banks but was rebuffed; 3)

the fact that ambivalence towards German capital appears in Polish public opinion surveys;

and 4) that German identity was clearly significant in print media privatization. All suggest

that the German factor can be influential even when it is not directly observable. Subtle

statements such as Wąsacz’s also allude to the particular meaning of German capital in

Poland.

17 Joshua Heatley confirmed this line of reasoning via personal communication.

21

Conclusion

Stemming both from the need for capital and from international organization’s

pressures to liberalize, Poland, Hungary, and Czechoslovakia opened their emerging capital

markets early on in the post-Cold War era. While noting several possible explanations for

the politicization of foreign capital during times of significant economic and political change

at the outset, this article emphasizes several factors explaining why reservations towards

foreign participation continued for over a decade: (1) the substantial increase in the

liberalization of capital flows since 1989; (2) the de-emphasis on state preferences for

investment of a particular nationality coming from external actors like the EU; (3) stark

asymmetries in West→East capital movements; and for Poland and the Czech Republic, (4)

memory of German domination stimulating comparisons between asymmetries in past and

current capital flows.

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