Radek Špicar: Why we are not rich when we are the most industrialised country in Europe | 183
- Martin Hurych
- 11. 3.
- Minut čtení: 32
The Czech Republic is the most industrialised country in Europe. Our factories
produces quality products, our engineers are among the world's top and our entrepreneurs are not afraid of almost any challenge. That's how the world thinks of us. I've seen it for myself. So why are we still not among the most economically powerful countries?
Why are we instead watching our economy slow down, companies remain in the role of subcontractors and big money go abroad? Why do we have lower wages than our Western European colleagues, even though we produce at the same or better quality level?
This episode of Ignition is a peek out of the bubble and a look at the truth. My guest is Radek Špicar, Vice President of the Confederation of Industry and Transport, who has been trying for years in Brussels and in the Czech Republic to move our companies forward. And he openly admits: It won't work without a change of mindset, higher added value and expansion into new markets.
What's in store for you in this episode?
What are the three biggest barriers holding back the Czech economy
Why do Czech companies sell too early and do not build global brands
How to get out of subcontracting hell and start selling your own products
What needs to to remain competitive
Why are we falling down instead of catching up with the best
This episode is for every entrepreneur, manager and visionary who is tired of hearing that
"that's just the way it is". If we want change, we have to create it ourselves. And if we're going to conquer the world, we have to stop thinking that someone is going to give us something for free.
"We need cheaper energy. We need to connect the worlds of industry and academia. And we need to get out of the cheap economy trap. Otherwise we're trapped.“
Radek Špicar | Vice President @ Confederation of Industry of the Czech Republic
Who is Radek Špicar and why is he not ashamed of being a lobbyist?
Martin Hurych
Radek is Vice President of the Confederation of Industry and Transport and one of the top lobbyists in . You really surprised me by not being ashamed of the word lobbyist, a rather dirty term in the Czech Republic.
Radek Spicar
It's a terrible shame, because you are right that a lobbyist in the public sphere is usually a person who is accused in court of some corruption case. But I have studied in the United States, where the theory is a little different, where it has been known and sort of worked with since the founding of the United States that it is perfectly all right to defend interests. On the contrary, it is absolutely necessary for good decision-making because the people on the other side, I also served there for a few years as a civil servant, need information. It is not always available to them, and when those so-called stakeholders or lobbyists are ready, able and willing to supply the facts, it is terribly important for the decision-maker.
Harvard University has a nice theory about what lobbying should look like, and it's called embedded autonomy. It means that a politician should be embedded, he should be aware of the practice he is trying to regulate, he should be open to getting that information, he should meet with people from practice. At the same time, it should be autonomous, so it should distil out what is important for the country as a whole, not to give anybody any undue advantage, and really make decisions in the interest of the country.
What would he ride in his spare time?
Martin Hurych
Before we get into the big politics, I had a thought. As I was preparing for you this morning, I went through your bios and I spent about 2.5 hours with you today on various podcasts because you are a very publicly powerful person. I also checked out your Instagram and I a question. If you happened to get a leave of absence from your family and wanted to go for a drive, a Jeep Willys or a Skoda Superb?
Radek Spicar
Jeep Willys, of course. I love Skoda, I have green blood beyond life, spent many years there and still have great memories of it. If you have to learn how business works and how to do business in the Czech Republic, I think Skoda is an absolutely fantastic school. I'm very happy that I went through that school, so I will always love it and I'm very proud of it, for example how well it works within the whole group. But if you give me a choice, I'm a person who has a mission in life, and that is to connect worlds that don't really communicate with each other in the continental
Europe. In the Anglo-Saxon world, business communicates with the cultural world, the political world communicates with the academic world, and I always say that one world is not enough. That's why I drive an electric car, because I think it's a great mode of transport in the city for short distances, but at the same time I'm a big fan of the internal combustion engine and all the tradition and technology that Europe has mastered so well in the last few decades. The pinnacle of beauty in a classic car for me is really the 1942 Jeep Willys. I inherited that love for it from my father and so if you're giving me a choice of what I could and would like to drive in my spare time, it's definitely the Jeep Willys. It's an incredible experience to drive. It's a car that doesn't have doors, doesn't have a roof, where you can fold the windshield down and when you do that and you drive through that landscape, you really feel like you're flying through that landscape. All you see is this big steering wheel in front of you and you really feel like you're sitting on a flying carpet and you feel the landscape and it's an incredible experience.
Martin Hurych
You've already indicated here that you've been through politics.
Radek Spicar
I will correct you right away, I did not go through politics, I was a civil servant and it is important to separate that. I have never been a politician, even though many people, I have found out recently, think that if they see you on television, you are a politician. I'm always a bit puzzled when someone writes that, but so be it. I was a civil servant, it is true, at the highest level, Deputy Deputy Prime Minister, but I was a civil servant.
Which career position is he most proud of?
Martin Hurych
You have been through big business, you have been through the American think-tank, and now you are fighting for the interests of Czech and formerly European industry in Brussels. Which stage are you most proud of?
Radek Spicar
I have this quality that I love everything I do, otherwise I wouldnit. I've never had any goals, any career benchmarks that I wanted to achieve, which is probably because of the family I come from. I'm the first college graduate in my family's history, so I never had a father that my classmates wanted to match. I've always been awfully happy with what I had and where I've gotten to, I never wanted to push it anywhere high, the opportunities always found me somehow because someone noticed that I was doing what I was doing well and offered me a chance. I approached it without a plan, without a strategy, but in the end Karel Schwarzenberg, with whom I once talked about it, beautifully called it my career strategy. He said that their family motto, the Schwarzenberg motto, is to demand nothing, refuse nothing, which is absolutely wonderful.
That describes my approach to my career beautifully. I demand nothing, but I try not to refuse anything, when the interesting offer comes along, because it's always been an offer that's been so far out of my comfort zone. Every time the offer came, I was too young for it, people told me not to take it because I couldn't do it because it was something completely different from what I'd been doing all my life. I actually really enjoyed taking it, learning something from a completely different world and spending a few years there so it wasn't a one or two year thing and then moving on to another world with that experience again. When you have that experience, you can help communication between those different worlds, and that's not what we do.
We are unfortunately a country where there are many people who leave university, start as politicians and retire as politicians and that is unfortunate. Then you don't understand the business because you've never been in it. That is not the case in the United States, where they have this so-called revolving door principle. They know that it's terribly important to be in the administration for four years, then go to a think tank, think about what they're going to do when they get back there, or go into business, get some real experience in the real economy, and enrich the political world with that. That doesn't happen much in this country and when I became a civil servant a lot of people told me I would end up as a civil servant. Business will never take me on because business thinks of civil servants that they buffoons, that they can't do anything, that they are lazy and that they have a mindset that is absolutely useless in business. I thought that was terribly stupid, and that's why I worked very hard to get into the business, to show that even former civil servants are capable of succeeding there.
Why are we not in the TOP 5 EU countries?
Martin Hurych
Obviously, it was successful. Let's move on to industry and transport. You repeatedly say that we are not one of the most industrialised countries in Europe, but that we are the most industrialised country in Europe. So what has happened that we are not also in the top 5 richest countries in Europe?
Radek Spicar
We have a new strategy, the government has a new strategy, one of many, and Martin Jahn and I wrote the first ever supra-ministerial Economic Growth Strategy. The aim of the last one is to get into the top ten.
Martin Hurych
I just say 5 because my grandfather told me about the first republic and said we were top 4. I don't know if that's true, but I loved it.
Radek Spicar
All right, as a business person you should think like that. I know which countries are ahead of us and what the current state of the Czech economy looks like, so I would be very happy if we got into the top ten. We are not there, we were 14th about 2 years ago, now we are 16th, so we are falling unfortunately. Just as the first transformation model, which successfully pulled us up for 20 years, has been exhausted, so now, unfortunately, we have been stagnating for 10, 15 years and we are starting to fall. I would be happy for the top ten, the top five is the right ambition, but it's really very ambitious and getting there is not going to be easy for many reasons. The main one is that, like Germany, we haven't yet found the next transformation model that would kick-start that Second Economic Transformation. We have completed the first phase, we have totally exhausted the first transformation model, which was successful for 20 years, now it is no more, it is totally exhausted and we have not yet found the new growth model. Just like Germany is looking for its new growth model after the pillars of its growth on which it was based for the last 20 years have basically been exhausted.
Why haven't we become the China of Europe?
Martin Hurych
When I listen in your interviews to what is going on in China, where flew to even for Skoda, how they are kicking our ass in the automotive industry today, it occurred to me that we are the most industrial, we are very productive, but we have failed to be the China of Europe.
Radek Spicar
You are absolutely right, and now I would like to say a phrase coined by Martin Wichterle, my dear colleague, a great man and an excellent businessman on the board of the Confederation of Industry and Transport. He said that in first 30 years of economic transformation, we have to produce brilliantly, but mostly for someone else. Now we need to learn how to develop and sell our own products under our own brand, not only in Europe, but in markets all over the world. That is the task of the Second Economic Transformation, of the next 30 years at least, because what we are living with now and what is the problem of the no-growth and the stagnation is what we call the cheap economy.
We are a subcontracting economy. The subcontractor doesn't have a direct relationship with the customer, which is a very awkward position in the market, and usually has a much lower margin than the finalist, and doesn't have that private label, so they don't decide where the product is exported. That's a terribly important thing.
Every year the government tells us if we are finally going to get out of 90% of exports to the EU, we say it's not like we are going to start exporting to the United tomorrow because we don't have the final product. The German has the final product, he has the fridge with his brand and, unfortunately, we only supply the radiator and the motor to the fridge within the structure of the Czech economy, so we do not decide where the fridge goes. We are caught in these supplier-customer relationships, in the awkward position of being subcontractors within Western Europe, which is why 90% of our exports go to the EU, which is terribly dangerous. I am a great supporter of European integration, because our competitiveness and prosperity depend on it, but I also say that 90% dependence of exports on one territory is too big a risk.
But we won't be able to diversify further, like the Germans can, who are strong in North , in South East Asia, in Europe, in North Africa, unless we have those final products. That's
a huge task for all of us to get from the position of subcontractors to the position of final producers.
The second challenge is that the first transformation model was based, among other things, on selling off the economy into foreign hands. It could not have been done any other way, it could have been done a little less, like the Poles, for example, but it is not worth discussing now, it helped us. Foreign capital really came in, put the economy on its , and without Volkswagen Skoda would either not have existed at all or would certainly not be in as good shape as it is today. But there is a downside, and that is the hundreds of billions of crowns that flow out of here every year in dividends to those foreign mothers. It is fair to say that this is money that, if it had stayed in the economy, could have gone on salaries so that we would not have a third of the salaries of Germany. It could have gone on investment in new technologies, where we are lagging behind, it could have gone on digitalisation, automation and robotics, where we also have a lot of room for improvement. This does not mean that we should make it difficult for foreign investors to invest in the Czech Republic, taxing their dividends and profits so that they leave. Fortunately, we already have great Czech companies that do the same, that successfully do business abroad and send the dividends they earn there to the Czech Republic.
Unfortunately, what we are not doing is to motivate those foreign investors to keep their money here. I am really very sorry about that, because it is our task and our fault that we are not doing that. Then it seems that several times a month I get calls from Czech bosses of Czech daughters of foreign mothers saying that they have convinced the mother that the Czech daughter is prospering here, that she is doing great here. They would like to keep the money they earn here, not send it to Germany, France, Italy, so the mother tells them to come up with some interesting idea. They come up with the idea that we will build a technology centre here, my mother tells them to come up with what it will look like, they will earn the money, so she will leave it in the Czech Republic. Then they come to the board in Wolfsburg and say they have the money, only it won't take 2 years to build the center with the permitting processes, but 6 if it goes well. They either won't get the 200 engineers here at all or it will take them an awful long time and they will be very expensive and the mother will tell them they are out of their minds.
The third thing is that we have to uncompromisingly digitalize, automate and robotize our economy, which is really the most industrial economy, just because we don't have people. We have lived through all these crises, which have come in brutally short succession and have been devastating for us, with the lowest unemployment in the entire European Union. There are no people, either low-skilled labour or high-skilled labour, so we have to automate those operations, there are no people. Unfortunately, we still employ huge numbers of people in manufacturing jobs that are physically very demanding, require almost no qualifications and are poorly paid. If anyone thinks that the economy can be restarted to start converging again and catching up with the most successful economies with this kind of job structure, we can't.
We need to increase productivity, we need to get these people out of these jobs, but of course it will not be a sacking without compensation. If you make a factory more efficient through robotics, you produce four times as much, so you need warehouse workers, you need sales people, you need marketers who can establish it in that market. It's just the fourth industrial revolution, so let's not worry about someone losing their job here because of it without compensation. But it's not going to be completely easy because you're going to have to upskill and reskill those people, you're going to have to give them a new competency. Imagine that.
so that the supermarkets will fire the cashiers, which is , we'll do it ourselves, but they don't want to fire them. They're going to offer them a job in the meat and wine section, for example, advising people where the meat is from, what meat to buy, what wine goes with it and so on. Upskilling, reskilling, other competencies, and then the economics will take care of it. Those are the three important tasks that will get us out of the cheap economy trap.
How to get out of the supplier position?
Martin Hurych
I can think of so many devil's advocate questions right now, I don't know which one to start with. I've been hearing this for at least 10 years and I don't see anything happening. What needs to happen for us to really start going down this path, which I don't think there is any discussion in society that we need to do this?
Radek Spicar
You're right, where I get the remaining optimism is that I see it in the private sector, which is aware of this and is being pressured by the real economy in a way that is proving to be the only solution. I see subcontractors who are trying to work with universities to put themselves in a position of being finalists, looking for new markets outside the European Union. When I went to your place, I was looking at the statistics that the Confederation of Industry and Transportation just released, the great growth in exports to the United States. That is why I am so worried about these tariffs, because really Czech exporters are fantastic in the they can adapt and establish themselves in these changing conditions. They are really able, after the crisis in Russia, in Ukraine, after the not entirely positive relations with China, to move the mass of those exports to those great, fantastic, promising American markets, and that is hopeful. So I hope that Trump doesn't complicate things and we can really take this friendshoring further.
But where I am not entirely optimistic, unfortunately, is when I look at whether the government is shining a light or rather a shadow on this necessary trend. This is not just my opinion, but virtually all the studies that have been done by the , the World Bank, the OECD, the European Commission agree on this. They say that the Czech Republic is great in the private sector, it is highly competitive, it really has its finger on the pulse of the times, but the public is pulling it back. Unfortunately, the most successful countries are those where the public and the private create the necessary synergy.
Martin Hurych
This means that if we have a chance, it is in spite of the state rather than with its help.
Radek Spicar
Absolutely. I moderated a conference at CTU for startups 5 years ago and I will never forget when an Indian student who studied at CTU spoke there. He started a company while doing it, it wasn't exactly easy for him to agree with the university on the spin-off and he said he went through hell. He ended the lecture with Sinatra's, New York, New York, who makes it here will make it everywhere, who makes it here will make it everywhere in the world. It actually occurred to me that the system here puts so many sticks under your feet that if you overcome that, then you really take over the world, typically employee stock, which works crazy here. We talk to the government about this every month, there is no power to explain to these politicians how it needs to be set up. Whoever passes this is then really successful in the world and we have great companies, Richard Valtr, Mews, Tomas Cupr, Rohlik, Avast, LINET, Wikov. But I'm a bit worried that along the way we're going to lose a lot of companies , the environment was kinder, would have been more successful and would have made it too. It's really only the toughest ones that will make it.
Why don't we have more world-renowned companies?
Martin Hurych
There is another level that notice. You have now named undoubtedly great companies, I often do an exercise with my bubble to name 10 world famous companies like Shell or Siemens that are owned by Czech capital. You try it, if you have that kind of insight.
Radek Spicar
It was Avast, which is no longer ours, but we were able to build such a champion. It's Productboard, it's Mews, in Europe it's Rohlik I think, then in a certain segment it's LINET and then there's not much else.
Martin Hurych
That's exactly right, I heard a podcast a long time ago where this occurred to me. As long as we don't have the brands here, you're absolutely right, there will be an outflow of money out, there won't be an inflow of money . That means once that company is sitting here, has that headquarter here, there's a chance of some money coming in.
Radek Spicar
I forgot about Sazka, which buys the British lottery, the Greek lottery, the Czech arms factory, Colt, I could probably list them all.
Martin Hurych
Now the question is whether they are really so famous that everyone remembers them as Coca-Cola.
Radek Spicar
That's too much to ask. It takes decades to build it. So I have to say that I've been following this with the Chinese and they invited me on the lecture tour for this, by the way, because they invited me to do a brand building lecture. I went there thinking that they didn't have brands at the time and they were very eager to find out how to build brands. Today they have them and they're strong.
Martin Hurych
That's where I'm headed. You say it absolutely right, it takes decades, maybe several generations of owners, to build a strong global brand. But what I see a lot of times is that when that company succeeds, and I wish them terribly hard on a personal level, a lot of those owners shoot it down. We're not going to build anything that way.
Radek Spicar
I have a few comments on this. We have looked a lot in recent years at why we have so few of these signs, and unfortunately there are not just regulatory and legislative things. If those were the only barriers, it's easy, it's easy to change the law, but it's our mindset and our culture and it's terribly slow and difficult to change. What we have found is that if you look at surveys of graduates, what is their dream job in the job market, you know very well that it's not entrepreneurship, it's not starting companies. We're not Israel, a startup nation, where you want to start a company, first conquer America and then the world, that's not our mindset. I said it in that debate with the President and the President, we really are the hobbits in this who are awfully happy in their little valley. We feel that there are always some epidemics, revolutions, invasions coming from outside and that we would be best off living behind these mountains and nobody poking their noses into our affairs. Quite a few people have that mindset to start a company and conquer the world right away. The preferred option for those graduates is employment, we are a nation of employees and that too in a big multinational company. With that mindset, building that new economy is not exactly easy.
The second thing is that if you look at the countries that are giving it, like the Baltics, Estonia or Israel, there is a very strong external threat motif. They have a sense of external threat and that accelerates them, it charges them up, it makes them perform. We here have the feeling that nothing can happen to us. Objectively, we live in a great country here with a high quality of life, whether it's health care, security, we're one of the best in the world at that. The Prague people will kill me, but the public transport here is really not bad, so it's a great country to live in, but it lulls us to sleep, which is a huge problem. We don't feel the pressure from the outside to do anything. That feeling of no external threat, which is also false, is quite destructive for us. I persuaded the Czech head of McKinsey at the time to give me three consultants for free and they quantified it for us. They showed us on a farm where they calculated that the farmer had about 200 sheep and they told him that if he had 500, the economies of scale, the profit from it, the opportunity to invest, to develop it, would be many times greater. He told them that he knew that, but that this is how it works for him, he has weekends off, he goes on holiday twice a year, he employs everyone he wants, he knows all his customers and he's happy. His ambition is not to conquer the world. It really makes a big difference when I was in Israel with President Paul and they went through
us through the startup scene there, you'll understand the impact of the military on all the startups and the technological progress that we don't have here. You start a company there, not to conquer Israel, nobody cares about that, that's the very basis, they start companies to conquer the United States and after the United States they go to the world and they want to conquer the world. That's not exactly a common mindset here.
Why are we selling companies abroad so quickly?
Martin Hurych
When I talk to those who decide not to go to the big corporation and live their life on a decent corporate salary and start building a startup, most of them talk about global expansion. The moment the first investor comes along, they sell. Productboard is a shining exception. What about it?
Radek Spicar
It's not just Productboard, but I'm the theorist in this, so you'll just hear some of my impressions and feelings from discussions with friends who are involved in this and really live it. The consensus there is that we're selling companies too early, that we're not getting them to the where you can really make a lot of money on it afterwards. 's terribly counterproductive because we're missing out something called the Skype effect. When you get it to that stage and you sell it, not only does the founder and the major shareholder multiply his wealth many times over, but he makes a lot of other people around him millionaires. They then invest that money into that economy and help those other startups and that whole ecosystem to get off the ground and start to work better. We don't have this symbol here that would force others, because of that positive envy, to also set up that Skype and shoot it up, showing that kind of Czech dream that it can be done, that you can start a globally successful company from here, sell it and make a huge amount of money.
I think the Czechs would rather be envious, but that envy needs to be approached positively. It can be done and you can do it too, any of us can do it if Pepa from the garage does it here. Zbyněk Frolik founded LINET, which is now probably the third largest hospital bed company, and he's asked by House of Cards to give them his best bed for free for the show. They put Kevin Spacey on it as the American president after the assassination because they want to show that the president is lying on the best bed and the symbol for the best bed in America is LINET. But he started that company with two homeless men in a dilapidated cow shed outside of Prague near Slany. You need to show that and then you need to sell that company when you're on, if you're not going to keep it then. What I'm also dealing with with these friends is succession, a huge problem. They don't often have a son, a daughter in their families to take over, so it's really hard. But really if I've conquered the world, I shoot it, I become a billionaire, I make a multimillionaire out of 20 people and then I show that company that it can be done, anyone can do it. Then I'm pumping money into the economic ecosystem of that country, helping startups as a mentor with money, and we need that, but unfortunately it's not happening much in our country.
How to build pride in Czechness?
Martin Hurych
Let's be positive and maybe even a little pathetic. For example, how to build this pride in being Czech, despite the state, which I don't feel much from, how to build it from below so that it doesn't happen?
Radek Spicar
We, as the Confederation of Industry and Transport, are a 100-year-old organisation and we feel that the economy is changing dramatically and that we must be able to represent and defend the interests of the new economy. I am very happy that last week we agreed on the entry of the Startup Association into the traditional Confederation of Industry, which represents those Skoda, Trinec Ironworks, CEZ and Siemens. I really think it is terribly important that we know what the sector needs, what this type of economy needs, and that we are able to defend its interests and lobby for them at national level. We have now had the director of BusinessEurope here, which is Europe's largest employers' union, representing tens of millions of European companies vis-à-vis the Commission, the Council and Parliament. He said quite clearly that we are the best-performing union in Central and Eastern Europe, and that we have the biggest clout in . I am very happy that we are going to start now, because we have them in the membership base, we are going to dedicate a very significant administrative capacity within the Union to look after them. We have dozens of people in the executive apparatus and we will be defending the interests of this new economy. So I don't want to resign myself to the fact that the state is not doing anything for this part of the economy, that would be very bad.
Then there is the second important thing, which now involves 32 of the most successful Czech businessmen and women in the Second Economic Transformation. We finally brought them , they never commented publicly, they didn't comment on the public events, they didn't enter into it, and now they have built these companies and they finally feel that they can devote themselves to the public space. Pavel Bouška, the owner of Brito, says the tax budgeting here is disastrous. If I want to build a business here and I think some city will be happy that I'm going to build a business there, build there, they're all going to throw me out because it's just a liability to them. There will be more trucks coming in and there will be foreign workers, which they don't want. In Finland, the mayors are knocking on Paul's door and asking him to build it there because they will get a pretty high of the taxes he will pay. These are things that need to get into that public space, and I'm so glad that these people are finally getting involved publicly. We are trying to work with them to figure out what to do to make things better and their big issue is the image of the Czech Republic abroad. They rightly say how the Czech Republic is perceived and when they go to tender in America against a German or Swiss company, for example, they automatically have -15% to offer. Made in Germany and made in Switzerland have a completely different sound than made in the Czech Republic and this needs to change.
Martin Hurych
We're not going to change that until the brands are here, and we're not going to change that until the companies are here. I see an awful lot of people going against the when Forbes celebrates that somebody built a company here and shot it out. If that mood changes and we celebrate those who build the big companies here and hold them up as examples like Skype, which isn't happening much here, then the mood of society as a whole might start to change. Is that right?
Radek Spicar
I'm sure. You mentioned Forbes, but I think that the now departing Petr Šimůnek from Forbes has done a lot for it. When Forbes started, the entrepreneurs were really dirty suspects who got rich in a non-transparent, corrupt way through wild privatisation. Peter started to show not the big companies, but the small, family-owned companies, of which we have an awful lot here, are terribly successful, and he started to show them positively, which is possible because they are positive cases. I think Peter in particular, with his great team and Forbes as such, has done an awful lot to change the way the majority of society views entrepreneurs.
This is what needs to be done and what politicians should be doing, which they are not doing and I am terribly sorry. When we had the second Second Economic Transformation Conference, I came up with the idea of inviting all the Czech unicorns to one panel, which we have four of them, so we could fit them in. Richard Valtr came from New York and my question was what he expected from Czech politicians. He said he would like them to be cheerleaders for the country, to cheer on the entrepreneurs, to show the successful ones, to cheer for them, to open doors for them abroad. It always bothered me terribly that when I stepped off the plane in China, the taxi driver made me feel like he was already living in a world where it would be better. Then I came back to Europe and it didn't matter if I got off in Frankfurt or London or Ruzyne, and immediately the blanket of a continent where people feel that better has come before fell over me. So politicians should be cheerleaders, as Richard said, and really cheer up the good mood a bit and break up the bad mood. It's not just marketing, of course, without some concrete action, but really improving those employee shares, pointing to the company that used them, where the top management and the founder got rich, doing a bit of marketing.
What is changing in the EU? Is Draghi's report of any use?
Martin Hurych
I don't want to get too much into politics here, but if I take the level below that, I don't see that it's good not to sell there either, that it's good to build those businesses here and show more of those people. If they're ready, I'll just appreciate it because I see Martin Wichterle in my bubble sometimes and the rest of them are kind of quiet for me. We mentioned coming back from China into the inversion. I, when I flew to China some 10, 12 years ago, I had the same thing. Is anything changing in the European Union?
Radek Spicar
They are changing because what business has been talking about for 10 years, these politicians have started to realise and Von der Leyen had Draghi work on the Competitiveness Compass. You in business will tell me that this is not an action plan, but the civil service and politics is really different from business. You really have to experience that to know that the business and political space-time is completely different. What you think of as super speed in politics is light years for business. You will object to me that the Compass is again a bunch of fine talk that will come to nothing, yes, but it is one of Draghi's first attempts to report
turn it into an action plan and start fixing the problems that Europe has. They are deep, everyone is aware of them, they are quantified, they are clearly described in several hundred pages, and now we have to do something about them.
If you me whether it will happen quickly or slowly, I think it will when the crisis comes again. What is being shown about European integration is that European integration is only going in the right direction because of the crises that are hitting Europe. The global economic , Europe unprepared, almost no competence in the area of economic policy coordination, but thanks to that crisis, a bulwark, better coordination of banking policies, so that the banking sector in Greece does not drag us all into the abyss again. 2015, the migration crisis, Europe unprepared, almost no competence in common migration policy. Now Frontex is better again, trying to coordinate better in the fight against illegal migration, it has moved us forward again. Covid, again a shock, Europe reacting late because, again, it does not have the competence to react as a continent, as the United States can. Now, again, strategic stockpiles of protective equipment, better preparedness to coordinate, closing borders when something like this comes up. This crisis always gives courage to those politicians who do not have it in normal times, because we do not have courageous politicians, we do not have leaders like Donald Trump.
Martin Hurych
So more Putin, more Trump, more China?
Radek Spicar
As my professor at Charles used to say, more mid-term crises that are not irreversible. The problem we have now is that there may be a crisis that will completely unravel it, which I hope won't happen. Irreversible mid-term crises will finally give those politicians the courage to do the painful things that they do not do in normal times, which is what Europe needs. I think that, based on the Draghi report, the pressure from Putin on the one hand and the pressure from Trump on the other, Europe needs to understand that it cannot be business as usual and that it needs to do something. Otherwise, we will be completely eliminated from global competition, because the drop in Europe's share of world GDP in recent years has been enormous.
Martin Hurych
You are an incredible Euro-optimist, and I admire you for that. I would love to believe that, but, on the other hand, I see that Germany, the largest country in the European , has made Schengen, for example, a piece of . I see what happened under Covid, when, at least in the beginning, before we consolidated, the European Union was in tatters and everybody was trying to help themselves and damage the others. So I wonder how we can benefit from these crises if, in every crisis, we first turn in on ourselves and look at our 80 or 10 or 5 million voters.
Radek Spicar
You are absolutely right and you describe it exactly. This playing nation states and damaging others is the reaction that always comes, only it turns to be counterproductive for everyone. The right solution is a Europe-wide solution.
Martin Hurych
I don't question it at all, I wish it so. But I think Europe is terribly slow and perhaps it cannot do it.
Radek Spicar
Or it has no competence to deal with the crisis. Moreover, if is a strange hybrid that is neither a federation nor a bunch of independent states, it can't be quick. At the moment, the corporate governance of the European Union, the way it is constituted, is a dysfunctional hybrid, and it cannot go on like this. There are some people who are in favour of going back to some sort of patchwork of nation states where it will be fantastic, but I say that is the worst thing that could happen. If we are to stand up to the pressure from the east, from the west, we have to stand up as a half-billion dollar bloc. We're going to be taken seriously, we're going to negotiate something, if Germany negotiates with Trump, it has no chance at all. We have to strengthen those transnational elements, we have to liberalise strictly the internal market, because we have a huge internal market that we are not using. Why?
Because those countries are no longer tariffing, because we have abolished that for them as part of European integration, but non-tariffing, and that has to change, and nation states will not do that. That has to be pushed through by a supranational structure, the European Commission or someone , we need a single capital . If we are to catch up with the United States, it will never happen without a single capital market. If Czech companies are going to go to the banks for venture capital, we both know how that will turn out, I think, what the appetite of the banks here to finance SpaceX is. You need that bolder capital market for that, and if Europe does not have a strong capital market, we will never catch up with the United States, and I could go on. For me, the solution to what we are going through now in many areas of Europe is a unified defence policy. Should each country have 27 radar troops when one radar covers four countries in the Benelux? That is stupid, so let us not waste money.
How far is the EU from breaking up?
Martin Hurych
I don't even want to judge whether it is good or not at this point, because I don't understand it. What I see, and what we have said here, is that, in order for this to start happening, in theory, the states have to give up some of their other powers, which they do not want to do. At the moment, knowing what is happening around us, how far is the European Union from breaking up?
Radek Spicar
I really think there are two such extreme scenarios at play right now. The first is a break-up, a return to nation states where the stronger always win, which is not the best option for us. The second scenario is the realisation that there is strength in unity and that united we stand, divided we fall, as is the case in America. When asked what will happen with the Draghi report, the Compass is a signal that Von der Leyen realises this.
If you read the Compass, there are a lot of signals that there should be a strengthening of those pan-European projects in the area of the free market. So at least the Commission knows this and wants to move in this direction. It is going to come up against nation states and if nation states are going to protect those particular interests and not make policies that are in the interests of the whole of Europe, it is not going to end well. Then we will not be able to face Trump, or China, or Russia.
What should the owner of a manufacturing company take from this?
Martin Hurych
Knowing that you said that small and medium business is not exactly your thing, I would like to come back to this bubble at the end of this podcast and introduce one particular person, the owner of a mechanical engineering company in Jihlava. What should I take away from what we've talked about here today as a medium-sized business owner in Jihlava?
Radek Spicar
If he's a subcontractor, he should really try to get out of that position of subcontractor to the Germans and into a position of maximizing the added value of what he has. He may well be a subcontractor, but of something exclusive that just about anybody doesn't have that the German can't replace for 6 other suppliers from China. Because then you end up with expensive energy. If you don't have something exclusive with high added value, our crazy energies here will kill you. We represent 11,000 companies with a combined million and a half employees, and those managers of the Czech daughters tell me they started shining in those corporate leagues a few years ago in terms of labor costs. They used to tolerate that, but now they're red-lighting energy, and they're no longer tolerating it. They've stopped sending money, they're sending investments to Portugal, to Spain, they're moving it to America. So if Europe does not resolve energy prices, the owner of the engineering company in Jihlava is going to have a really hard time. The state, Europe, has to sort this out, and of course the company can also help by reducing its energy consumption, but you can hardly compensate for three times cheaper energy than in America.
We also need to digitalize, automate and robotize, looking at new technologies. I understand that this is expensive, and I know from our companies that, after what they went through with Covid, after what they went through with the energy crisis, the inflation crisis, they have nowhere to go. But it's terribly important and if they're making any money now, let them put it into the technology, into the digital twin technology, let them look at 3D printing, artificial intelligence, machine learning. You just can't do it without that technology, if you look in China, what it's based on in America. There's a lot of it, but I really feel when
I'm saying this because it's a kind of rakish advice from the table here and I know that sitting in that factory in Jihlava and doing something about it, finding the money, is hard, but these are the things that need to be done.
Martin Hurych
Now, a comment came to my brain about how we can't even get to some of the totally ultra-innovative stuff because we have an embargo on some chips.
Radek Spicar
We are fighting for it, I have a great colleague, the first vice-president in the 100-year history of the Confederation of Industry, Milena Jabůrková, has really incredible traction not only at the national level, but especially at the European level in the area of the digital agenda. This is the number 1 priority right now. This must not happen, if we are under pressure from the East, it is not possible for the West to get so upset and for us to be second-class citizens where high-tech will not come. For us it is totally unacceptable and really believe me we are doing everything we can to change that because it is absolutely crazy.
Martin Hurych
I'll keep my fingers crossed that it . If this podcast were to be one, two, three sentences that would then be quoted on Seznam, Nova, etc., what would that be for you?
Radek Spicar
As I said, without cheaper energy, things will end badly here, so companies have to work for it as much as they can, but because their options are limited here, the state and the European Union really have to work for it. It is necessary to connect the worlds, if the corporate world here develops completely in parallel, without intensive contact with the academic world, with the research world, then we are finished. I have seen this in Cambridge, a university that said to itself, when it was in a bad way, that it would link up with business in a completely integral way. When you go there you see the researchers, the offshoots, the spin-offs that the university has with the business. It's a university that has one of the highest numbers of Nobel Prizes in precisely because it's not shy about that collaboration with business, and business is not shy about collaborating with that academy. That's what we have to do, otherwise we're finished.
Then we really need to get out of the cheap economy trap that we have characterised here, because that is the only way to get out of the cheap labour trap. When the unions say we have cheap labour here, we have one-third the wages of Germany, let's raise them, if we do that by starting by raising those wages and not getting rid of the cheap economy, then we are finished. It's all over in 2 years. We have to get rid of the cheap economy first, be those finalists with high margins, high productivity, and then we'll naturally get rid of the cheap labor, but it can't be reversed.
