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20 Years After the Fall of Communism: A View of a Non-Neutral Insider

English Pages, 5. 6. 2009

President Kaczynski, Governor Skrzypek, distinguished guests, ladies and gentlemen, dear friends,

Thank you for the invitation and for giving me the opportunity to address this important gathering which is taking place at the moment, when Poland – together with Polish friends abroad – celebrate the 20^th anniversary of its first free elections after more than forty years of communism. The historic year 1989 will be commemorated in all the countries of Central and Eastern Europe, but at different moments. In my country in November.

I remember I was here also 10 years ago at a similar conference organized on the occasion of the 10^th anniversary of the fall of the Berlin Wall.[1] It is good and reassuring to find out that some of today’s participants were here 10 years ago as well. It means that we – who remember – are still alive. 

Many interesting and thought-provoking ideas, partly reflecting the implicit competition among the well-known reformers, were expressed here then but I will never forget one of them, made by our friend, former Prime Minister of Russia, Yegor Gaidar. When being attacked – in a rather unfriendly manner by one very self-assured, but the post-communist transformation only from a distance observing expert – for not succeeding – in Russia – to arrange a rapid institution building and an almost immediate formation of perfect rules and legislation, he came up with a brilliant answer: “I was only the prime minister of Russia, not the Czar of Russia.” I have been quoting it repeatedly ever since.

His remark fully coincides with my deep conviction – both then and now – that the whole transformation process from communism to a free society was a very fragile mixture (or melange) of an inevitably imperfect and fragmentary constructivism of rules and institutions by the politicians and of a spontaneous emergence of markets which was – luckily – an unorganized, unplanned, uncoordinated outcome of activities of millions of finally free people in our countries. This is something we have to insist on and only on this basis this whole process and the role of politicians in it can be rationally evaluated.

Some of us knew that it would have been a tragic mistake and a complete misunderstanding of the meaning and nature of the market economy to aim at constructing markets as many of our “contemporaries” – both friends and adversaries – wanted. The markets can’t be constructed, they must evolve. 

At the beginning, in the first years after the fall of communism, the dispute between those who wanted more constructivism and less spontaneity and those who knew that this ambition was nothing else than an attempt to legitimize the continuation of a slightly reformed status quo of the perestroika years was misinterpreted and mislabeled as a dispute between “gradualism” and “a shock therapy”. These terms have already been almost forgotten but I am repeatedly frustrated when I see them reemerging again and again.

Some people still do not know that the inevitably complicated and for many very unpleasant and painful transformation process was not a laboratory exercise in applied economics. It was all very “real” and the citizens of our countries had to bear its non-zero costs (measured in the fall of real income and employment). We were not able to organize any experiments and did not intend to because we already lived in a highly democratic political setting. We were not Czars, kings or authoritative rulers of any kind. Our task was to minimize these costs. I have many times emphasized that there are not only no free lunches but no free systemic changes either. 

Most of the politicians who were in charge of the reforming countries at this very moment were well aware of this. They had, however, a mixed mandate. They felt a very strong support for rejecting, abandoning and dismantling the oppresive communist political regime as well as  its irrational and unproductive economic system, but there was no clear idea (or vision) where to go. Most of the people were afraid to openly say that they wanted capitalism and free markets. There were not many of us who were ready to openly say that. This is almost forgotten now but the reluctance in this respect was at that time enormous.

I will never forget what happened to me in this country. I came to Poland for the first time as a politician (as minister of finance) in the first days of January 1990, three weeks after the formation of the first Czechoslovak non-communist government. I unwillingly shocked several of my Polish colleagues when – at a press conference – I rather unexpectedly suggested the dissolution of COMECON. It sounds like an almost irrelevant issue now partly because many people don’t even know what this acronym means, but at that time it was an important topic and a radical statement. 

The second issue was how to get there. Immediately after the fall of communism, it was necessary to open the markets – both internally and externally, to liberalize and deregulate them, to desubsidize the economy in order to reveal the true costs and prices of all kinds of economic activities, to denationalize and privatize the whole economy. The quick disappearance of the institutions of the old system led, however, to an institutional vacuum which had to be filled with alternative institutions as soon as possible – to avoid huge costs of anarchy or semi-anarchy. 

Waiting for Godot, waiting for the existence of a perfectly prepared box of rules and institutions of a market economy before the starting of the whole liberalization and deregulation process would have been a tragic mistake. The scholastic dispute of what should come first – markets or market supporting institutions – reminds me of the eternal chicken–egg sequencing question.  We had to go ahead and work on chickens and eggs simultaneously. 

Most of us argued along these lines already 10 years ago. Where are we now? On the one hand, the economies of the post-communist countries are stronger, more mature, more stable, more robust, less vulnerable now. The institutions and rules are more solid and comprehensive, learning by doing brought about positive results, new generations with a different approach to life and society are taking the lead. 

I believe that the first post-communist decade can be characterized as an “uphill” movement – more freedom, more democracy, more market economy, less state intervention, less regulation. In the equation citizen-state, we had been moving towards the free citizen, away from the state and its masterminding of society. Socialism (or social democratism) was in retreat, new collectivistic “isms”, such as environmentalism, had been – no doubt – gradually gaining strength and some of us were aware of that but their role was not yet dominant.

This has, however, dramatically changed. The second post-communist decade is quite different from the first one. We have been moving into the opposite direction: downhill. We experience less freedom, more regulation, more manipulation of people in the name of all kinds of politically correct ambitions, post-democracy instead of democracy, growing disbelief in markets. Social democratism and environmentalism are on the winning side. The “market economy” disappeared, we got a “social and ecological market economy” instead. 

This shift was evident during the whole second decade of the post-communist era but the current financial and economic crisis made it even more profound. It weakened the achievements of the era of the radical dismantling of communism 20 years ago even further.

We did not come here to discuss the current crisis. We know it will sooner or later be over. The real damage caused by the crisis will, I am afraid, stay with us much longer. The adversaries of the market have again managed to spread a far-reaching distrust in the existing economic system, but this time it is not the mistrust in the free market capitalism, in the laissez-faire system, in the capitalism of Adam Smith, Friedrich von Hayek and Milton Friedman, as it was the case 70 – 80 years ago. It is now the mistrust in the highly regulated capitalism of the last decades. I am not sure whether capitalism can survive such a massive attack. The market either is, or is not.  There are no third ways[2]

We should consider our duty to fight against the newly rediscovered belief in the state, against the “second-generation” Keynesianism we see around us these days. We must not allow the repetition of the 1930s and the decades that followed. 

As I said, this crisis is an unavoidable consequence of the long-term playing with the market by the politicians (and their regulators). Their attempts to blame the market, instead of blaming themselves, should be resolutely rejected. I am getting more afraid of the reforms bringing in more rules and increased international regulation than of the crisis itself. 

The current crisis has not been caused by capitalism and definitely not by too much capitalism. It was caused by the lack of capitalism, by suppressing its normal functioning, by introduction of policies that are not compatible with capitalism, of policies that undermine it. In a standard economic terminology, we witness a government failure, not a market failure as some politicians and their fellow-travellers in the media and academia keep telling us.

The democrats and liberals (in the European sense) in the 1930s have failed both intellectually and politically to avert the growing mistrust in the market. What is at stake today is not to end up even worse.

Václav Klaus, Speech at a conference “1989-2009, 20 years after the collapse of the socialist economy”, Warsaw, National Bank of Poland, June 5, 2009.

[1] See my speech “Political Aspects of Transition, or Politics Matters”, Warsaw, October 15, 1999; www.klaus.cz/clanky/2214

[2] Václav Klaus,  „The Third Way and Its Fatal Conceits“, Mont Pelerin Society Meeting, Vancouver, Canada, August 30, 1999; www.klaus.cz/clanky/1504