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Notes for Res Publica Society Luncheon Address

English Pages, 17. 1. 2001

1.      I am really honored to be here today and to have the opportunity to address this distinguished audience. The geographical distance between Prague and Claremont is huge but I believe we can understand each other.

2.      We have a much different history. During the last century your country lived independently, in a truly democratic atmosphere. My country was at first a part of the Austro-Hungarian empire, for 20 years following its fall was independent, then was occupied by Hitler, then we enjoyed short three years of relative freedom and after that, in 1948, four sad decades of communism began. The last decade was, again, a period of freedom and democracy.

3.      Ten years ago, I was invited to give a lecture in Sydney, Australia with the title: "Dismantling Socialism: A Preliminary Report". And I promised to come again this May and deliver another lecture with a similar, but slightly changed title: "Dismantling Socialism" and I am not yet sure if I should call it an interim report or a final report.

4.      Our experience tells us that it was relatively easy to change the political system and the political structure. Communism collapsed, it was not defeated. It was not necessary to stop or prohibit anything. It was - on the contrary - sufficient to liberalize the entry into the political market. New political parties were established quite spontaneously and the resulting political plurality was guaranteed without constructing (or designing) it.

5.      It was much more difficult to change the economic system. Its starting point was liberalization and deregulation.

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

To realize such a change represented the first stage of transition. It changed the whole society, it enormously increased the supply of goods and services available to the citizens, it interrupted some of the old, deeply built-in behavioral patterns, it attacked (and endangered) some old habits or "certaintes" as it was called in our terminology as regards employment, various social benefits, intensity of work, etc.

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

6.      The second stage of transition already asked for a more positive activity of the government. It was necessary to create and establish new and transform the 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 11 years ago represented in former Czechoslovakia almost 100 % of the economy.

It was necessary to privatize the state-owned firms on a massive scale, on a wholesale basis. (The difference between classical privatization and transition privatization is crucial.) Our ambition was to find the first, not the final private owners and to get rid of state ownership, not to maximize government privatization revenues. For that reason, we invented an original method, called voucher privatization, and used it together with standard, well-known and proven methods.

Privatization is difficult both politically and technically. Whatever the government does, the politicians are accused of

-         favoritism and selection of inappropriate new owners;

-         no achieving the best price.

Some delays in privatization were caused more by such fears than by ideologically motivated unwillingness to privatize.

In any case, privatization meant crossing the Rubicon and we were aware of the fact that it must be done regardless the unavoidable political costs.

7.      Most of the people at home and abroad live in a very strange schizophreny. They consider communism to be an absolute evil and disaster but, at the same time, they implicitly assume that to get rid of it is free, without costs.

They assumed as well that it would have been possible to deliver only success, that because of the undisputed efficiency of the private market economy (as compared to the command or centrally planned economy), every firm has to succeed. You know very well that it is not true in a mature market economy, it is even less true in an economy in transition - with dramatically changing economic environment, in competition with much stronger partners, without sufficient experience.

Privatization was, therefore, connected with many business failures and the one who was blamed was the government, not the individuals owning and managing those firms. It became fashionable to argue that the failures were caused by

-         wrong privatization and

-         insufficient legislative and institutional framework.

There is no doubt that the legislation and institutions were imperfect (without long and slow process of evolution, without learning by doing, without incremental changes, it could not have been different), but the main problem was that the people were not able to accept the phenomenon of a business failure.

8.      It is connected with another problem. We are confronted with enormous naivity as regards legislation, the formation of legislation, its enforcement, the relationship between formal legislation and informal rules, etc. We have been criticised for the inability to deliver a perfect legislation. It has been forgotten that

-         there is no perfect legislation;

-         the formation of legislation is and must be slow;

-         legislation is the result of the process of evolution, not of anyone´s dictate;

-         legislation is not the outcome of abstract rationalism, but of political process;

-         legislation is influenced not only by political or ideological arguments but by vested interests, lobbying and rent-seeking activities.

Our opponents have to assume that we are still a totalitarian state where the appropriate legislation can be simply introduced. It is not true.

9.      Dismantling socialism as a revolutionary, in some respect heroic set of actions is over and in an irreversible way. Permanent revolutionaries are, of course, unhappy and are eager to continue. They did not want a return to capitalism, to the pluralistic parliamentary democracy, to the market economy. They wanted to create another utopia. Our experience with two totalitarian regimes in one century teaches us that the next utopia would have been as dangerous as the previous two.

We live already in the world of incremental changes, of a standard political process, of many imperfections but of standard mechanisms how to deal with them. Perfect society is far away, communism is even further.

10.  It would be inappropriate not to mention Europe. Our transition goes together with a rapidly changing European landscape. We started our changes in the era of EC, we continued in the era of EU and we will finalize them in the era of EMU. Europe is undergoing a radical change with uninvolved or uninterested majority of Europeans who do not care or do not pay sufficient attention to it. Intergovernmental cooperation of independent countries with the ambition to remove barriers for the movement of people, goods, money and ideas has been slowly but certainly 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 leftist intellectuals and of EU bureaucracy has a decisive voice. We want to be again a normal European country and have to, therefore, participate in the European integration process whether we want it or not. There is no choice left. (If you want to play tennis in Claremont, you have to accept the rules of the Claremont tennis club. You cannot ask for a special treatment. 

Accelerated unification of Europe is an unnecessary and unprepared process which can bring more problems than solutions. It has become, however, a quasi-religious belief to see it as a panacea and to oppose it is dismissed as something nationalistic, undemocratic and reactionary and is put together with names as Lukasenko or Milosevic. I see dangers in creating another Brave New World. I can assure you that to be proud of its own nation (and flag) is not a symptom of nationalism and of "incorrect behavior".

We are an integral part of Europe, we want to participate in the European integration process but we want to be nothing more or nothing less but a self-governing nation in the European Union.

Václav Klaus, January 17, 2001, Claremont, California