Czechmate: The Old Banking Elite and the Construction of Investment Privatization Funds in the Czech Republic

Abstract

Although revolutions spawn new organizational forms, sociologists have paid little attention to how economic elites affiliated with the old regime and how challengers unaffiliated with the old order struggle to populate new organizational forms. We suggest that the conflict between elites and challengers unfolds through organizations sponsored by each group. We argue that elites affiliated with the old order can reproduce their power through a new organizational form if they collectively succeed in influencing the institutional environment. In turn, the success of collective action by elite-sponsored organizations hinges on the political opportunity structure consisting of the policy goals of the government, divided reformers, electoral instability and influential allies. We intensively study the creation of investment privatization funds (IPFs) in the Czech Republic during the Velvet Revolution when state-owned banks sought to use IPFs to insulate themselves against takeover attempts, and private entrepreneurs deployed IPFs to gain control of state enterprises including banks that were being privatized. Our data suggest that a favourable political opportunity structure enabled state-owned banks to build alliances, lobby the government and constrain challengers to take over banks. Private entrepreneurs were able to acquire wealth and power subject to some limits imposed by state-owned commercial banks.

Keywords: revolution, organizational change, elite transition, finance