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Czechoslovak Republic and Protectorate of Bohemia and Moravia

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After the end of World War I and the founding of Czechoslovakia, the new state had to cope with a number of issues and also the Second World War was destructive to the economic life of country.

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After the end of World War I and the founding of Czechoslovakia, the new state had to cope with a number of issues. Industrial and agricultural production barely reached half of the pre-war level, the transportation system collapsed, inflation was rising, and there was a catastrophic lack of food. Moreover, there were significant differences in the new state between the economically developed Czech provinces and the rather underdeveloped agrarian Slovakia and Carpatho-Ukraine (Ruthenia). Czech industry was dominated by coal mining and consumption industries (textiles, glass, sugar, brewing). However, these industries were often dependent on imported raw materials, which made their situation more difficult in the destroyed Europe after the war.

The post-war crisis peaked in 1919. With the help of excellent Czech national economists - among whom we should mention in particular the first Czechoslovak minister of finance, Alois Rašín - the young country managed over a short period of time to initiate economic expansion. As early as 1925 Czechoslovakia reached its pre-war production volume level, and from 1929 it experienced a considerable boom. The regional economic imbalance was overcome to a great extent. The originally not very satisfactory industrial structure was improved, which had its roots in quite different conditions. It was part of a much greater state, and in some areas it literally had excessive capacities (sugar, glass, textile industries). However, due to modern management systems introduced in practice, the national labor productivity grew. The pioneers in this field included Skoda’s machine-building works in Pilsen, and the firm of Tomáš Baťa (1876-1932), who in Zlín founded a very modern (for that period) shoe-making factory. The shoemaker, from a poor background, used his entrepreneurial spirit and made himself a businessman and a major player first in Europe, then all over the world. In his hometown, he established a perfectly operating company and made the then-small and insignificant town in Moravia a shoemaking metropolis.

He erected entire residential quarters for his workers, including the related infrastructure, and Zlín thus became one of the most modern cities in Czechoslovakia and beyond in the period between the wars. Baťa then expanded his shoemaking empire to Partizánske in Slovakia, then he founded branches abroad, even in India. His grandson, Thomas George Baťa, today follows in the footsteps of his father, and leads one of the greatest global brands in shoe production and sales, operating branches all over the world.

Czechoslovakia continued its modernization, and in the late 1930s all industry was fully electrified, and the same applied to 80% of households. Czechoslovakia ranked among the most developed states of that time, and its national product per capita exceeded that of Austria and Hungary, as well as that of Italy. All this was despite the fact that the eastern provinces of the country (Slovakia, Carpatho-Ukraine) were only modernized gradually. Without exaggeration, Czech industry reached the top level worldwide in many fields. International acknowledgement was notable in particular for the production of airplanes, cars, weapons and high-grade steels, i.e. products requiring highly sophisticated technologies (we can mention companies such as Aero, Škoda, Tatra, Poldi, etc.).

Due to the Black Friday crash on the New York Stock Exchange in 1929, the world was sent into an economic crisis, which with a certain delay also impacted Czechoslovakia. It affected in particular the consumption industry oriented on exports. National exports dropped to one-third of the pre-crisis level, and industrial production to 60% of the level in 1929. The crisis reached its peak in March 1933, when there were 978,000 officially unemployed persons, i.e. some 17.5%.
Several governments of a broad coalition led by agrarians tried to cope with the consequences of the crisis, primarily by strong interventions by the state, yet they were not very successful. They increased agrarian tariffs, regulated imports and exports, intervened in bank loan conditions, introduced a grain monopoly, and to alleviate the harsh social impacts, they introduced higher unemployment benefits, food vouchers for those in need, and public work. Nonetheless, these measures always only represented “emergency” solutions to the worst effects of the crisis. There were very few measures that would aim at the core of the crisis. To overcome the crisis, in 1933 the government even adopted the Act on Extraordinary Empowering Rights, which gave the government a quite exceptional right to implement many measures without these having to be approved by Parliament. This sparked serious fears of totalitarian tendencies, yet in contrast to Hitler’s Germany, these measures could only pertain to the economic sphere, and they only affected civil rights in emergency cases, primarily to suppress outbreaks of social dissatisfaction.
At the end of the 1930s, the country began to recover economically, mainly due to the weakening effects of the crisis in the world. Yet an even more cruel shock came. Based on the Munich Agreement of 1938, Czechoslovakia was forced to surrender its border areas inhabited by Germans to Germany. World War II was right round the corner.

The Protectorate of Bohemia and Moravia

In March 1939, the rest of the Czech provinces (after the separation of the Sudetenland) were occupied by the German Army, and the Protectorate of Bohemia and Moravia was created. A formally independent clerical and fascist state was formed in Slovakia, which was in effect a mere satellite of Germany.
The economic life in the protectorate was heavily impaired. Not only the separation of Slovakia, but in particular that of the Sudetenland caused unexpected economic problems. Many major industrial companies were concentrated in the German border regions, and the inland areas were suddenly not self-sufficient. If we add the fact that all inhabitants of Czech nationality were displaced from the German territories, who then despite all kinds of help hardly found any work in the rest of the country, and considering the initial signs of war, we can depict a situation that was anything but good.

The “Aryanization” (seizure) of all Jewish assets was also an important factor. The Jewish ethnic group played an indispensable role in pre-war Czechoslovakia. According to some estimates, there were several hundred thousand Jews living in Czechoslovakia, partially assimilated, who played important roles in culture and science as well as in the economic life of the country.

Protectorate administrators were appointed to major industrial companies, and the actual owners, if they were not sent directly to concentration camps, were deprived of any decision-making powers.

All production facilities in the protectorate were re-oriented to military production, or made to support the war-waging Germany. The developed arms industry of the pre-war period was intensified even further, textile and shoemaking firms participated massively in producing military uniforms for the Wehrmacht, and agricultural and food production was also directed to meet the needs of the occupying superpower. Due to these factors, the local population experienced a logical lack of basic consumer goods and foods. Therefore, rationing was introduced as early as in October 1939. The rations were gradually reduced during the years of war. Due to the absolute lack of necessities, mainly in the cities, the black market developed significantly. The urban population, which was hardest-hit by the consequences of war, was often totally dependent on aid from relatives in the countryside, who were at least able to maintain moderate self-sufficiency.

Although the Protectorate of Bohemia and Moravia was saved from the worst war atrocities as no battles took place on its territory except for during the end phase of the war, the situation in the country was far from being normal, and the impact on the economic life was also destructive.