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The European Union, Economic Freedom and Prosperity: A View Influenced by the IEA Ideas

English Pages, 23. 11. 2005

Thank you very much for organizing this gathering and for taking care of my book “On the Road to Democracy” in Great Britain. The book was published in Dallas, Texas in April this year by the National Center for Policy Analysis, and was translated into Turkish and issued in Istanbul in May. Its shorter version was recently published in Bulgaria and the Greek translation is under preparation.

I am very glad that English readers will get a chance to get acquainted with my views because they are so often caricatured in the media and by some politicians. A few words about the book. The American publisher originally suggested a different title. He wanted to call it “The Road Out of Serfdom”. I could not accept this title for two main reasons.

First, as a conservative economist and politician I fully respect property rights. The combination of the words “road” and “serfdom” belongs to Friedrich von Hayek and I would not dare to use or misuse them. Secondly, our life in the communist era was very frustrating and constrained but I would not call it serfdom, because I am against devaluating well-defined terms by their overuse. Let’s keep the term serfdom where it belongs and do not use it as a label for real-life socialism (or communism) in my country in the sixties, seventies or eighties. Our freedom was heavily restricted but it didn’t stop us from doing many things, including reading Mises, Hayek or Friedman and from becoming their followers and true believers in their views.

There is one additional point worth mentioning concerning the title. Even in the darkest days of communism we were influenced by Western culture. I remember that – as a teenager or in my early twenties – I read British „angry young men“ and considered them being refreshing as compared to the official „socialist realism“ literature of that time. I was, however, much more influenced by American beatniks and therefore, I prefer to change the suggested title („the road to“) into the phrase „on the road to…“.

Six days ago, we celebrated the sixteenth anniversary of our Velvet Revolution. It means that we have been already sixteen years „on the road“ from communism to a free society, from central planning to a market economy, from the Soviet Union dominance to national sovereignty.

Where are we now, after 16 years?

Politically, we have already become a mature pluralistic, parliamentary republic with – ideologically – well-defined political parties. Economically, we transformed the centrally planned and state owned economy into a market economy, based predominantly on private property. It is, however, not the world of free markets of Mises, Hayek or the Institute of Economic Affairs variety. It is the European “soziale Marktwirtschaft”, a European paternalistic, overregulated welfare state. Internationally, we are part of the EU, of this special structure with more and more supranational features, with nonnegligible democratic deficit and with only very limited residual sovereignty in individual member countries.

Is this what we expected?

We expected political freedom and political pluralism domestically, which is what we do have. Some of the Czechs, however, expected miracles from a formal, nominal and institutionalized democracy, which, of course, did not happen. Miracles do not happen. Democracy does not automatically guarantee happiness to everyone. It is “only” a precondition for all kinds of man’s activities. As a consequence, some of the people listen eagerly to the preachers of new illusions, of an idealistic civic society (or communitarism) and of the brave new world of NGO’ism and begin to mistrust the parliamentary system.

Some of us expected to finally enjoy free markets, not the current European economic system, which has – in its extensive regulation of economic activities –structural similarities with our communist past. I have to admit that many Czechs like it. They do not see the direct and unavoidable casual relationship between such a rigid system and the not so favourable economic performance we see in Europe.

We expected to be again – after half a century of totalitarism – a free, independent, sovereign country. Not all of us are convinced that the EU, in its current institutional setting and with its continuous creeping unification, is exactly what we expected or dreamed of.

These are serious problems around us. My only hope is that we have not yet reached “the end of history”. That we will have a chance to continue our fight for the victory of liberal views, of our dreams. A leading German journalist Karl Peter Schwarz compared recently the speeches of my predecessor Václav Havel with my “presidential” speeches and made a very interesting observation: whereas for Václav Havel the central, and most often repeated term was “the truth”, for me the mostly used term is “the freedom”. It may be a correct and fair distinction expressing our differences. I really do believe in freedom. For me, it is an axial principle or a guideline and if I see it correctly this is also the main term used by the Institute of Economic Affairs for already five decades. My views were reinforced by reading the books, booklets and articles published by the IEA.

The same guideline should be used when we look at the current EU. To criticize – superficially – slow economic growth, high unemployment, loss of competitiveness, the aging of the European population, the crises of pension systems or of health-care systems, the insufficient quality of education, the hypothetically or apparently small number of university students, the non-free availibility of computers and internet, the less funding of research and development than in the United States or the recent French street riots (connected with immigration and multiculturalism) is missing the point. These, sometimes debatable, sometimes undisputably unpleasant and negative phenomena are “only” consequences of the lack of freedom and of the inappropriate trust in the omnipotence of government in Europe. Only freedom and socio-economic system based on freedom can find the optimal or adequate values of these phenomena: how many students or computers should be there, how to finance retirement, what is the natural rate of unemployment, what is the normal rate of immigration, etc.

The European integration process, which institutionally started already in the fifties, on the one hand “opened up” Europe (within Europe) and increased the freedom to move in or around Europe. It was, undoubtedly, a very positive thing. We have to say, however, that the original, predominantly liberalizing tendency was slowly, gradually, and for many Europeans invisibly metamorphosed into something else, into the building of a centralized, supranational entity with ambitions to mastermind Europe from above.

How and why this metamorphosis happened?

It happened because of the victory of a doctrine (or ideology) I call Europeanism which is an amalgam of two political and ideological stances:
- it is based on disbelief in the spontaneous evolution of human society and, consequently, on belief in the possibility (and necessity) to organize human society from above, by the government, by politicians and by their academic fellow-travellers (philosopher-kings in another terminology);
- it is based on the idea that the era of states (or nation states) is over, that externalities are everywhere and that – due to this – most of things the human beings do must be decided at a pan-European, continent-wide level.

The current EU is created as an application of these ideas, it is not based on liberal ideas. I am convinced they are both wrong. I know they are not held or championed by the IEA, but they do prevail in the current EU and as a result, there is now a huge gap between real and political Europe, between common people and political elites, between citizens and the EU institutions, between pro-European activism of politicians and benign neglect of ordinary citizens who – as typical free riders – enjoy the benefits of the more or less borderless European space without being aware of the directly invisible costs of unification, harmonization, homogenization and standardization of the whole European continent.

There is a challenge for us who see it so clearly, because it is extremely difficult to measure these visible and invisible costs and benefits of the current European arrangement. When evaluating the contribution of the EU, it is especially difficult to isolate the impact of the EU itself from the role of all other factors, to evaluate the relative importance of the myriad of factors which influence the multidimensional outcome, but at least one simple qualitative statement should be made. It should be the explicit disagreement with the implicitly held and sometimes even explicitly formulated view we see so often around us: that everything what has happened in Europe since 1957 is the consequence of the existence of the EU (or EC or EEC).

To assume this is ridiculous. I have attended several conferences on Europe in Europe in recent weeks or months and it is difficult for me to accept that some of the people believe that:
- the EU brought peace to Europe;
- we need the EU because of “le défi américain” (because of the necessity to challenge the U. S. dominance);
- we need the EU because of globalization;
- we must be big and unified because our competitors are big as well;
- the choice is the EU or Mr. Lukashenko in Belarus;
- the democratic Czech Republic would not be created without the EU, etc.
It is difficult to believe these arguments are meant seriously.

My two main, long-term worries about Europe are the following:
- it is the democratic deficit created by the shift of decision-making from state to supranational levels. This shift weakens the traditional democratic mechanisms which are inseparable from the existence of the nation state. I agree with those who say that “the nation state is the home and guarantor of parliamentary democracy” and with those who say that “the European Parliament is not part of the solution”, but part of the problem. A “higher”, European-wide democracy is an illusion for me.

- No liberalization of human life and of human activities is occurring because the shift of decision-making from state to supranational levels – per se – is not liberalization. This shift often increases regulation. Supranational levels are much farther from individual citizens and from their elementary supervision and “control”. No liberalizing aspect is involved in this shift.

What is our task for the future?

We should be aware of what makes our society free, democratic and prosperous. It is not the democratic deficit, it is not supranationalism, it is not the government, it is not an increase in legislating, monitoring, and regulating us. It is a political system, which must not be destroyed by a postmodern interpretation of human rights (with its stress on positive rights, with its dominance of group rights and entitlements over individual rights and responsibilities and with its denationalization of citizenship), by weakening of democratic institutions, which have irreplaceable roots exclusively on the territory of the states, by the “multiculturally” caused loss of a needed coherence inside countries, and by continental-wide rent-seeking (made possible when decision-making is done at a level which is very far from the individual citizens and where the dispersed voters are even more dispersed than in sovereign countries).

It is an economic system, which must not be damaged by excessive government regulation, by fiscal deficits, by heavy bureaucratic control, by attempts to perfect markets by means of constructing the “optimal” market structures, by huge subsidies to privileged or protected industries and firms, by labour market legislation.

It is a social system, which must not be wrecked by all imaginable kinds of disincentives, by more than generous welfare payments, by large scale income redistribution, by all other forms of government paternalism.

It is a system of ideas, which must be based on freedom, personal responsibility, individualism, natural caring for others and genuine moral conduct of life.

It is a system of relations and relationships of individual countries, which must not be based on false internationalism, on supranational organizations and on misunderstanding of globalization and of externalities but which will be based on good neighbourliness of free, sovereign countries and on international pacts and agreements.

The recent defeat of the EU constitution may become a Pyrrhic victory. Its text was not the birth of Europeanism, it was its ex-post summary, its political manifesto. The text of the constitution was “only” an attempt to legislate it. We have to do something with the ideas which stand behind it.

Václav Klaus, Speech for Institute of Economic Affairs delivered at the Cass Business School, London, November 23, 2005