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Economic and Political Trends in the Czech Republic

English Pages, 21. 11. 2001

Right now, it is exactly 12 years after the collapse of communism in the Czech Republic as well as in other Central and Eastern European countries. We ask, of course, ourselves permanently whether we used this period fully, in an optimal way, or whether much more could have been in this period achieved. My answer is that we have already succeeded in creating something like a basic stage of the system of parliamentary democracy and market economy and in liquidating all structures and mechanisms of the former communist society. This is a good achievement.

We have also learned some important lessons that were not completely clear, evident or widely accepted 12 years ago. We have learned, for example, that it is difficult for the people of the country undergoing transition to differentiate between systemic change and a catching up of the current stage of development of countries which did not go through the communist undertaking or experiment. Because of that, the original, undoubtedly unique and unrepeatable euphoria did not last long and we sometimes face impatience and desillusion now. But it is not nostalgia for the old regime as it is sometimes claimed, especially abroad.

We have also learned that some changes were easier to do than we expected but that some other changes were much more difficult, if not impossible to realize. We can say that we did not succeed in creating free society as the IEA would define it. I will try to explain what I mean by saying that.

 Eleven years ago, I accepted as a title of my speech in Sydney, Australia, rather provocative words „Dismantling Socialism: A Preliminary Report“. I did not protest against the word “socialism” either because I was not careful enough or because, at that time, I really believed in the possibility of the world-wide dismantling of socialism. Instead of it, we have got something else. We have got a world-wide-web, world-wide terrorism, European Union and Euro, new, more sophisticated, more hidden and more intensive methods of government intervention and regulation, the ever-increasing size and scope of welfare state, multiculturalism and political correctness. I know that it is not necessary to explain or emphasize here but it is not understood in many other places.

It would have been probably appropriate to speak about dismantling of communism. In this respect, my today’s speech could be “a final report”, because communism is over – politically as well as economically.

Our experience tells us that it was relatively easy to change the political system and the whole political structure. Communism collapsed and it was not necessary to violently stop or prohibit anything. It was sufficient to liberalize the entry into the political market. As a result of it new political parties were created almost instanteously and a political plurality was established without constructing (or designing) it. It was a spontaneous process, it was nobody’s design.

It was much more difficult to change the economic system. As is well known, the starting point of the transition was liberalization and deregulation of markets.

We began with price liberalization (after 40 years of frozen and administered prices), with foreign trade liberalization (replacing state monopoly of foreign trade and opening the semiautarchic, protected economy) and with liberalization of entry into the market for all types of enterprises (private as well as foreign).

To realize changes of that type was socially difficult, politically brave, but technically relatively easy. Most of the changes required just to be announced.

The second stage of transition asked for a more positive activity of the government. It was necessary to build and establish new and transform old institutions and organizations.

The main issue in this respect was privatization. It was impossible to wait for the slow emergence of hundreds or thousands of private enterprises and for the slow disappearance of state-owned firms, which 12 years ago in former Czechoslovakia represented almost 100 % of the whole economy.

It was necessary to privatize the state-owned firms on a massive scale, on a wholesale basis, which is something your country has never experienced. Nevertheless, your own experience with a limited privatization tells you that privatization is difficult both politically and technically. Whatever the government does and however does it, the politicians are accused

-        either of favouritism and selection of inappropriate new owners;
-        or of not getting the best price.

Some unnecessary delays in privatization in my country were caused more by such fears and by the political infighting than by the ideologically motivated unwillingness to privatize. In any case, privatization has been done and we have only several residual cases to solve now.

Many people both at home and abroad – the participants in the transformation process as well as the uninvolved observers – live even now in a very strange mental state, if not schizophreny. They consider communism to be an absolute evil but, at the same time, they more or less assume that to get rid of it should be free, without costs, without tensions, without ups and downs, without non-negligible lapse of time.

I have to disagree with this approach, with the naive belief that taking away the old barriers, obstacles, and constraints brings about immediate benefits - positive economic growth and increases in living standard, even in the short run.
It did not materialize. It was complicated by the additional problem that many things have changed to the better but some of them were not visible in statistical indicators. (There is no way to incorporate freedom, no shortages or no queuing into GDP statistics.)

The Czech people slowly and reluctantly accepted the inevitability of what I call the transformation shake-off - the huge loss of output, income, employment, price stability, prevailing distribution of income and property, existing degree of social security etc. But after that, they again made a mistake and expected a more or less uninterrupted economic growth.
They were, of course, confronted with further problems. In the middle of the 1990´s, in the moment of world-wide currency crises (from Mexico and South East Asia to Russia) and with growing external imbalance at home, the Czech National Bank unexpectedly (and without any consultation with the government) introduced very restrictive monetary  measures which destabilized the economy, undermined its banking sector, made both domestic economic agents and foreign investors nervous, and produced a relatively small currency crisis and after it an unpleasant economic recession which lasted for the next 2 or 3 years.

The Czech people did not expect it. They were (and are even now) very naively convinced that the market economy (as compared to central planning and state ownership) means – almost automatically - a success. They were not prepared psychologically for a business failure - both at micro and macrolevel. They felt having been cheated or betrayed by politicians who had sold them the idea of capitalism, free markets, liberalization, deregulation and privatization without sufficient warnings. (I don´t think, however, that selling of a new ideology could have been done differently).

You know very well that, even in a mature, stable, developed market economy, there is not only a success. But it is even less true in the economy in transition – with dramatically changing economic environment, in competition with much stronger partners from the rest of the world, without sufficient experience.

The one who was blamed for business failures was the government, not the individuals owning and managing the firms. It became fashionable to argue that the failures were caused by

-        unsuccessful privatization and
-        insufficient legislative and institutional framework.

Many advisors came to give us their recommendations. We were confronted with enormous naivity as regards the formation of legislation, its enforcement, the relationship between formal legislation and informal rules, etc. We were criticised for our inability to create a perfect legislation. It was forgotten that 

-        there is no perfect legislation;
-        the formation of legislation is and must be slow;
-        the legislation is the outcome of the process of evolution, not of anyone´s dictate;
-        the legislation is not the outcome of abstract rationalism, but of a complicated political process;
-        the legislation is influenced not only by political or ideological arguments but by vested interests, lobbying and rent-seeking.

 Our critics probably assumed that we were still a totalitarian state where the appropriate legislation could have been simply introduced. It was and is not true.

With all our problems, we already live in a totally different world. We live in the world of incremental changes, of standard political processes, of many imperfections but of standard democratic mechanisms to deal with. Perfect society is far away, communism is even further.

As I mentioned before, we do not see, however, the end of socialism – either in my country or elsewhere. We may even be closer to it now than 10 years ago. Because of their structural similarities, the fall of communism and the overall attack on its irrationalities temporarily weakened socialism. Unfortunately, the last decade did not bring us the end of it. The decade of the nineties can be described as a victory of socialdemocratism, of various alternatives of third ways, of communitarism, of enviromentalism, of the dictate of political correctness, of humanrightism, of Europeanism, of corporativism, of NGOism. To put it in a generalized way, we see a victory of new collectivisms.

Ten years ago, the dominant slogan was: “deregulate, liberalize, privatize.” Now the slogan is different: “regulate, adjust to all kinds of standards of the most developed and richest countries (regardless your stage of development), listen to the partial interests of the NGO&s and follow them, get rid of your sovereignty and put it into the hands of international institutions and organizations.”

It brings me to mentioning Europe. Our transition goes paralelly with a rapidly changing European landscape. We started our changes in the era of EC, have continued them in the era of EU and will finalize them in the era of EMU (or EFU or EPU). As we see it, with all our oversensitivity, inherited from the past, Europe is undergoing a radical change while the uninvolved or uninterested majority of Europeans does not care or does not pay sufficient attention to it. Intergovernmental cooperation of independent countries aiming at removing barriers for the movement of people, goods, money and ideas has been – slowly but surely – converted into a supranational European state aiming at centralization of power in Brussels and at elimination of European nation states. With the benign neglect of majority of Europeans, minority of proEuropean activists and of EU bureaucracy can have a decisive voice.

No one in this room - I suppose - is against opening-up of societies and against elimination of all kinds of barriers and obstacles to the free, unconstrained exchange of ideas, of people, of goods and services, of money over the world. Some of us, especially us who come from Central and Eastern Europe, know from our own personal experience what it means to live in closed, inward-looking, almost autarchic societies where any form of contact with the outside world was prohibited (or at least made very difficult). We do know what it means to live in the world of barriers, obstacles, borders, prohibitions and - eventually - of permissions to be allowed to do something or to go somewhere. Due to that, we have been dreaming for years and decades about being part of the European open society.

My empirical observation is that the current European unification process is not only or not predominantly about opening-up. It is about introducing massive regulation and protection, about imposing uniform rules, laws and policies, about weakening standard democratic processes (which were evolutionary developed during centuries), about increasing bureaucratization of life, etc.

I am very sensitive to both sides of this process. Twelve years ago, we wanted to go “back to Europe”, to the freedom which we did not enjoy in the communist era but it is not the same as to rush into the European Union which is currently the most visible and the most powerful embodiment of ambitions to create something else - supposedly better - than a free society.

Accelerated unification of Europe is in my opinion an unnecessary and insufficiently prepared process, which will bring more problems than solutions. It has become, however, a quasi-religious belief to see it as a panacea. To oppose it is dismissed as something nationalistic, undemocratic and reactionary and everyone who dares to do it is put together with such names as Lukasenko or Milosevic.

I see dangers in creating such Brave New World. To be proud of its own nation (and flag) is not a symptom of nationalism and of "incorrect political behaviour". It is a rational political and human stance.

We have always been an integral part of Europe and we want to be nothing more or nothing less than a self-governing nation in the European Union. I have to be explicit in saying that in spite of seeing it so sharply and with all our reservations, we want to participate in the European integration process. There is no other choice left. It is the only way how to get international recognition and legitimization.

To sum up: looking at my country in the November 2001 I can say that the pluralistic parliamentary democracy and market economy are already there. The standard human problems remain.

Václav Klaus, Notes for the Institute of Economic Affairs, London, November 20, 2001