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Europe, Global Warming and the Current Economic Crisis: As Seen From Prague

English Pages, 10. 3. 2009

I would like, first of all, to express my thanks for giving me the opportunity to be here today and to address this distinguished audience. Some of you may know that this is not my first visit to the Columbia University. I was here eight years ago, in April 2001, at the invitation of Prof. Padma Desai and her Center for Transition Economies. It was at the end of the first post-communist decade in my country and in the entire Central, Eastern and Southern Europe and we were still preoccupied with our deep and far-reaching transition from communism to free society and market economy. At that time, my speeches abroad focused mostly on the discussion of the basic elements of this historically unique experience. 

This year we will celebrate the 20^th anniversary of the fall of communism, of our Velvet Revolution as we used to call it, and we can say with full confidence that the transition is over. We have become a normal – whatever it means – European country and as a consequence of this, we have already standard “European” problems, not the specific problems of a country in transition. This is, however, a mixed blessing.

Gradually adjusting our political, social and economic system to the rules and institutions of the European Union, we imported both its positive and its less positive attributes and features. Even though our post-communist era was characterized by a complete disbelief in the ability of the government to intervene in the economy and by a radical deregulation, liberalization, privatization and desubsidization of the economy, we – with some resistance – slowly came to accept the very rigid and demotivating European economic and social system and are – nowadays – confronted with problems connected with it. Specific problems result from the European unification process itself. It turned out not to be a slowly going, natural, genuine, authentic, evolutionary process, as some of you may expect, but a – from above orchestrated – fundamental change of the whole European institutional framework. 

And this is not the only serious challenge we have to face. Like you, we also have to deal with the artificially created global warming problem and with the consequences of the ongoing economic crisis. I will shortly touch upon all of these topics now.

First to our European problem. As President of a country currently presiding over the EU-Council, two weeks ago I got an exceptional chance to address the European Parliament – and together with it millions of Europeans – and used it to express some rather critical remarks on the situation in Europe. Some of the parliamentarians did not want to hear them, but I knew it was necessary to say it because the ordinary people did want to hear it.

We became EU-members in May 2004 because we wanted to participate in the European integration process. We did not want to stay aside, as we were forced to throughout the communist era. However, for many of us in Europe, and especially for those who spent most of their lives in a very authoritative, oppressive and non-functioning communist regime, the undergoing weakening of democracy and free markets on the European continent is a most undesirable development. 

This development is not accidental and easily reversible and there are several reasons for it. One of them being the reconstruction of European institutions, which can be summarized as the marching towards an ever-closer Union. This phenomenon has been around for some time, at least since the Maastricht Treaty, and became the main idea behind the rejected European Constitution and lately also behind its new version, the Lisbon Treaty. For me, it is a mistaken project which – by suppressing the role of nation states – paves the way to a postdemocratic Europe.

The other, easily observable and well documented reason is a gradual shift from liberalizing and removing all kinds of barriers towards a massive introduction of regulation and harmonization from above, towards the ever-expanding, overgenerous welfare system, towards the new and more sophisticated forms of protectionism, towards the continuously growing legal and regulatory burdens on business, towards the markets undermining quasicompetition policies, etc. All of that weakens and restrains freedom, democracy and democratic accountability, not to speak about economic efficiency, entrepreneurship and competitiveness. 

The Czech EU Presidency slogan “Europe without barriers” attempts to bring the original ambitions of the European integration – the liberalization, the opening-up, the getting rid of barriers and of protectionism – back to our agenda. And rightly so, because this is very much needed. 

For me and my country, the EU membership has never had any alternative. Yet, saying that does not imply that we are willing to accept that the forms and the methods of the EU institutional arrangements don’t have alternatives. To take one as sacrosanct, as the only permitted and politically correct one, is unacceptable. The right of the people to say “yes” or “no” to the European Constitution or to the Lisbon Treaty or to any other similar document should be considered sacred. 

I said it is not accidental. As usually, ideas have consequences. All of the developments I mentioned are connected with the currently dominant European ideology I call Europeism. In the last couple of years, this loosely structured, rather heterogeneous, not coherently described, formulated, analyzed and defended “conglomerate of ideas” has achieved an enormous strength, supported by vested interests of politicians and their “fellow-travellers”. Its main aspects can be summarized in the following way: 

-          the belief in the so called social market economy (it deserves to be in German, die soziale Marktwirtschaft) and the demonization of free markets;

-          the reliance on NGOs, on social partnership, on corporatism, instead of on classical parliamentary democracy;

-          the aiming at very activist social constructivism as a consequence of the disbelief in spontaneous evolution of human society;

-          the indifference towards the nation state and blind faith in internationalism;

-          the promotion of the supranationalist model of European integration, not its intergovernmental model.

All of this is something most Americans don’t pay sufficient attention to. Europe is usually discussed here in the context of European pro- or anti-Americanism, or by means of the now fashionable distinction between old and new Europe. A serious dialogue between Europe and America is long overdue. 1

As I have already indicated, I see another big problem in environmentalism and in its currently most aggressive form – global warming alarmism. The problem is not global warming, but the ideology which uses or misuses it. It has gradually turned into the most efficient vehicle for advocating extensive government intervention into all fields of life and for suppressing human freedom and economic prosperity. I will not discuss it extensively here now. I refer to my book “Blue Planet in Green Shackles” 2 and to my yesterday’s keynote address at the 2009 International Climate Change Conference here in New York City. 3

The problem is that we keep hearing one-sided arguments only. I am frustrated that the global warming propaganda has not been sufficiently challenged both inside and outside of climatology. It should be stressed that the global warming debate is a complex issue and climatology is only a part of it. 

As an economist, I have to claim that there is in this debate a special role for the economic profession, which has been developing its own scientific sub-discipline called „the economics of global warming“. The economists should come up with arguments about the inexhaustibility of resources, including energy resources, on condition they are rationally used, which means with the help of undistorted prices and well-defined property rights. They should supply us with comprehensive studies about the costs and benefits of the currently proposed “green” measures and policies. They should explain – even to non-specialists – the very complicated relationship between different time horizons (discussed in the economic theory by means of discounting). They should return to the elementary economic argumentation about the rational risk aversion (which would help to undermine the fuzzy and indefinable precautionary principle, used by the environmentalists), and they should bring back the arguments about the positive role of markets, prices, property rights and about the tragic consequences of the unavoidable government failure connected with ambitions to do such things as controlling global climate. The main arguments are developed in my book.

The last issue, I would like to mention here today, is the current financial and economic crisis. A month ago, I spent three days discussing this topic with many leading politicians at the World Economic Forum in Davos and my depressing feeling from these discussions is that both the elementary rationality and the economic science have been excluded, suppressed or forgotten. The very unpleasant, day by day deeper economic crisis should be treated as a standard, cyclically repeated economic phenomenon, as an unavoidable consequence and hence a “just” price we have to pay for the long-term playing with the market by the politicians and their regulators. Their attempts to blame the market, instead of themselves, should be resolutely rejected. Their activities, aiming at “reforming”, which means re-regulating the economic system world-wide, are all very doubtful and I as said in Davos: “I am getting more afraid of reforms bringing in more rules and increased international regulation than of the crisis itself.” A large increase in the scope of financial regulation and protectionism, as is being proposed these days, will only prolong the recession. 

My country has not, luckily, experienced any financial crisis so far. We had one ten years ago, in the moment of the Asian financial disturbances, and it motivated our banks to become very cautious. We did, however, import an economic crisis. This happened partly because of the fall of demand for our exports, and partly because of the behaviour of foreign banks which own our local banks. Due to the problems in their mother countries, and in the attempts to rebalance their portfolios, they dangerously restricted credits even in countries without apparent financial vulnerabilities. This is the effect of globalization and of our rapid selling of our state-owned banks after the fall of communism when there was no domestic capital at our disposal.

Aggregate demand needs strengthening. One traditional way to do this is to increase government spending, mostly on public infrastructure projects, on condition these are available and the country is ready to massively increase its indebtedness. The Czech government has not yet decided to do so because we do not believe in this procedure. Not all of us are Keynesians, even now. It would be much more helpful to initiate a radical reduction of all kinds of restrictions on private initiatives introduced in the last half a century during the era of the brave new world of the “social and ecological market economy”. The best thing to do right now would be to temporarily weaken, if not permanently repeal, politically correct labour, environmental, social, health and other “standards”, because they block human activity more than anything else. 

I did not come here to comment on your economic policies or to give advice. This is my first visit to the U.S. after the last year’s presidential elections and the change of the administration. We are looking forward to working with the new President. I am convinced his visit to the Czech Republic at the beginning of April will be a good opportunity for it. We hope this administration will – under his leadership – try to find an optimal mix of continuity and discontinuity both in American foreign and domestic policy. I hope it will include

–        not endangering the basic institutions of the market economy while fighting the current crisis;

–        staying involved in international affairs but listening more to friends and partners.

In the moment of the fall of communism, almost 20 years ago, I did not expect to experience such an extent of government intervention into my own life as I see now. I am, therefore, convinced that fighting for freedom and free markets, something we always appreciated here, in this country, remains the task of the day.

Václav Klaus, World Leaders Forum Series, Columbia University, New York, March 9, 2009. 

(Earlier version of the speech was held as part of Foreign Policy Lecture Series, Paris, February 11, 2009.)

1 - I held a speech on this topic at the World Forum, organized by the American Enterprise Institute, Beaver Creek, Colorado, June 20, 2003.

2 - “Blue Planet in Green Shackles. What is Endangered: Climate or Freedom?” Competitive Enterprise Institute, Washington D.C., 2008. Originally published in Czech language in 2007 under the title „Modrá, nikoli zelená planeta. Co je ohroženo: klima nebo svoboda?”, published by Dokořán, Prague, Czech Republic.

3 - The 2009 International Climate Change Conference, Heartland Institute, Marriott Marquis Hotel, New York, March 8, 2009