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How to Build a Free and Functioning Society?

English Pages, 16. 10. 2002

For someone like me who spent most of his life in the communist era (not mentioning that I was born when the country was occupied by another totalitarian regime, by Fascist Germany), the dreams, talks, plans and projects how to get rid of it, how to change it, how to reform it, were an integral and ever-present part of his life and his endeavours. Having discussed it over and over again, we understood that two, quite different tasks have to be distinguished.

One is the state (or government) reform which can be accomplished without a systemic change, which means inside an existing institutional framework, another is a fundamental systemic change. Whereas the first process can be based on incremental changes, small steps, partial reforms, the second one means a “wholesale” approach, a large-scale conversion. It requires to introduce a critical mass of individual reform measures at one moment as the only way how to break the old system, rules, institutions. Otherwise the change does not happen because partial steps will be overcome by the domineering logic of the old system.

In the Czech Republic (formerly Czechoslovakia) after four decades of communism, our task was quite evident – the systemic change. But it was not evident to everyone. This divergent position started a dispute (or a schism) which is alive even now, 13 years after the fall of communism. It has not been between the old-fashioned communists trying to restore communism and brave freedom fighters who opposed them. That would have been an easy contest. The serious confrontation has been between those who wanted perestroika, partial reforms, third ways and similar unknown, untried arrangements and those who wanted the complete disappearance of the old system and its basic institutional framework.

This confrontation set up the boundaries of the playground for the process we called transition or transformation. We succeeded in

-         having very early a clear and transparent concept of where to go;

-         preparing a feasible strategy how to get there;

-         persuading majority of the citizens of the country to support it.

I have to admit, nevertheless, that the original support, euphoria and enthusiasm did not last long. The expectations-reality gap began to grow, not everyone belonged among the winners, and uncertainty of a dynamic, free society replaced stationary social quasi-equilibrium (or social contract). The inevitable support ceased to exist and after the first critical moment, connected with the relatively small currency crisis in 1997, was followed by the rejection of or a serious scepticism about the originally chosen strategy in the elections of 1998.

The crucial precondition for the formation of a functioning, free and efficient society is to have a standard political system. Surprisingly, it was relatively easy to do it because communism more or less collapsed. Our experience tells us that it was sufficient to liberalize the entry into the political market. New political parties were created almost instanteously and the needed political plurality was established without constructing (or designing) it. It may be different in Central Europe than in Mexico but it was a spontaneous process, it was nobody´s design. The only attempts to do it differently came from the civic society or communitarian camps. They wanted to overcome the era of parliamentary democracy and to do politics without political parties which is, of course, not a way to a democratic society.

It was much more difficult to change the economic system. We had to liberalize prices (after 40 years of frozen and administered prices), liberalize foreign trade (abolishing state monopoly of foreign trade and opening the semiautarchic, protected economy) and liberalize entry into the market for all types of enterprises (private as well as foreign). It was necessary to do it before all subsequent, slower steps. I more than disagree with those who - like Joseph Stiglitz - say that gradualism and slow evolution of institutions (and of legislation) before liberalization of markets was possible and preferable.

To realize changes of that type was socially difficult, politically brave, but technically relatively easy. Most of the changes required just to be announced. On the contrary, the second stage of transition already asked for a more positive and constructive activity of the governing authority. It was necessary to build new and transform old institutions, which took time and required complicated organizational and administrational procedures.

The crucial movement was privatization. It was impossible to wait for the slow disappearance of state-owned firms, which – in former Czechoslovakia – represented almost 100 % of the whole economy. It was necessary to privatize them on a massive scale, which is something non-communist countries have never experienced and cannot even imagine. Privatization was, therefore, difficult politically, technically and administratively. Whatever the government did and however did it, the politicians were accused

-         either of favouritism and selection of inappropriate new owners;

-         or of not getting the best price.

In addition to it, we have to admit that the short-term economic effects were not always positive which is something the Czechs did not expect. They naively supposed that the private market economy (as compared to central planning and state ownership) guarantees – almost automatically - a success. They were psychologically not prepared for a business failure, both at micro and macrolevels. 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.

The one who was blamed was the government and the politicians. It became fashionable to argue that the problems were caused by

-         unsuccessful privatization (if not privatization itself);

-         insufficient legislative and institutional framework of a new, inevitably weak and shallow market economy and

-         human deficiency and lack of morality in a rapidly changed society.

It was forgotten that

-         there is nothing like a perfect legislation;

-         the formation of legislation is and must be slow;

-         the legislation is the result 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.

Due to it, the transition could not be masterminded from above and the appropriate legislation could not be simply introduced. We should not forget that the institutions are endogenous, not exogenous components of a free society that human beings are as they are and that the world cannot be improved by the preaching of morality by self-appointed well-doers.

To sum up, the liquidation of the formal structures and mechanisms of the communist society and the establishment of the basic stage of the European version of the system of parliamentary democracy and market economy were done relatively very rapidly. But we did not succeed in avoiding the European disease of a regulated society, of an unproductive welfare state, of new, more sophisticated, more hidden and more intensive methods of government intervention, not to speak about an empty and artificial Europeanism, corporativism, environmentalism, political correctness, humanrightism, etc.

As a result of it, the people still look at the government and do not want to take full responsibility for themselves. This is the main explanation for the fact that the Czech socialists (or social democrats) succeeded in this year´s elections in getting sufficient support for forming a left-of-centre government which will not continue the original strategy of deregulation and which has already started large deficit financing which will represent a difficult burden for the future.

If this is an interesting and instructive message for Mexico, I would be glad. However, I am not an expert on your country and don´t dare to make any recommendations. The change in Mexico in the last decade was enormous, but I raise – together with you – the logical question whether it was sufficient. Did it create full-fledged parliamentary democracy, full-fledged market economy, reasonable, economical and efficient social system? Has it brought about internal political, social and economic stability and a high degree of social cohesion? I am not sure about it but I do not pretend to know.

At the end, I would like to stress several points.

1.      Any large-scale societal change, any transformation is a domestic task because democracy and market economy are not export commodities. They are much more a do-it-yourself project.

2.      To succeed requires endurance, energy, competence and a know-how. Famous German reformer Ludwig Erhard put it quite clearly in 1958: “There is no miracle but a right economic policy”.

3.      The costs of liberalization, deregulation and privatization are non-zero and should be expected.

4.      The transformation is a sequence of policies, not a one-shot policy change.

5.      The societies (and economies) undergoing transition are fragile and vulnerable as your crisis in 1994 and ours in 1997 demonstrated. There are many similarities in both of them.

6.      The old, I dare to say, Latin American equilibrium (or quasi-equilibrium) must be broken and a new one should be built.

Václav Klaus, address at the conference „Efficient Government, Responsible Society“, Universidad Tecnologica de Mexico, 16^th October 2002