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Jeddah Speech: Czech Experience with Taking-Off

English Pages, 20. 2. 2005

Ladies and Gentlemen,

It is a real pleasure for me to be for the first time in the Kingdom of Saudi Arabia, to be able to attend this important gathering and to get the opportunity to address this very distinguished audience as President of the Czech Republic. In the past our country had intensive relations with this part of the world andI would like to stress that we intend to have them again. I hope my today’s presence here demonstrates this ambition of ours very clearly.

I interpret the title of your conference ”Capacity Building: Developing People for Sustainable Growth” as a searching for ways to create conditions for positive and sustainable economic and social development in the countries of the Middle East, of Asia and of Africa, which means in places where there have been many serious political, social, economic, cultural and religious obstacles to economic growth and a lot of poverty, underdevelopment and uneven participation of hundreds of millions of people in the process of development, in growing welfare and in the increasing quality of life.

My today’s remarks will be based on my experience with a similar task but in a much different setting and atmosphere as well as on my convictions and beliefs. I have been in the last fifteen years actively involved in a radical transformation of a former communist Czechoslovakia into a normal European country which is – nowadays, which means again – based on political democracy and a liberalized, deregulated, open and privatized market economy. Some aspects of our transition were probably very specific, which means very European, perhaps very Central European, and are, therefore, not easily exportable to other parts of the world ( in this context I would like to add that we do not have the self-confidence and/or the arrogance of pushing our views as a model for anyone else to follow) but some of our experiences are more or less general. I am convinced that they are relevant for all countries undergoing a similar fundamental systemic change. I will mention only three of them here now.

My first point refers to the basic structure of the transition, which is the interplay between political and economic changes. In our part of the world, the political and economic changes coincided. To put it differently, the sequencing problem was – in our country – not an issue. After the fall of communism there was a strong demand on the side of the citizens of the country for both political and economic liberalizations. The radical political restructuring – the establishment of unconstrained political democracy and full-fledged parliamentary system with tens of competing, spontaneously arising political parties – was done almost overnight and in a very smooth, we used to call it velvet, way. It undoubtedly satisfied the aspirations of citizens of the country after decades of living in an oppressive communist regime but I have to concede, first, that this sequencing was not our deliberate choice and, second, that it predetermined many other aspects of the subsequent process of economic transformation.

The crucial thing was that the far-reaching political democratization made any technocratically rationalistic master-minding of the economic transformation virtually impossible. The choice – widely discussed at the beginning and considered important – between the so called gradualism and “shock therapy” or between the partial and full-fledged reforms was practically non-existent. In our situation it was impossible to organize such a planning of necessary changes. The image of a brave, clever and ruthless reformer enforcing changes on – changes resistant – citizens would be totally misleading and untrue if accepted as a description of our last fifteen years. The whole transformation process was an unplanned, only partly organized, and therefore unrepeatable mixture of spontaneous evolution of events and of organized constructivism. What is even more important, we can say that according to our experience the changes in both fields, political and economic, reinforce one another. It is not true that the economic changes have to be done prior to widespread liberalization of political life as it is sometimes assumed.

My second argument refers to the uneasy and sometimes unpleasant relationship between domestic imperatives, considerations and possibilities based on the profound understanding of, and respect to, domestic conditions, aspirations and constraints, and external requirements imposed on transforming countries from abroad. It has become, especially in recent years, “politically correct” (and claimed as morally superior) to advocate the implementation of various external “standards” and to consider them obligatory and inevitable, regardless the level of economic development. I have in mind labour, social, safety, environmental, hygienic, etc. standards which are presented to developing countries as exogeneous “constants” of globalized human society whereas they are “variables” dependent not only on traditions, customs and habits but principally on GDP per capita levels. The imposition of such standards – however messianically the rhetoric of various would-be globalists sounds – is an effective way to eliminate the existing comparative advantages of economically less developed countries and block their successful participation in the world trade.

We have gone through a very similar problem in the context of our recent aspirations to become a member state of the European Union. Countries like the Czech Republic need real convergence of their economies with the EU economies and are afraid that the unnecessarily extensive nominal convergence – the insensitive implementation of rules, policies, legislation and all kinds of standards of more developed countries – will block or at least significantly delay the real convergence. The differences both among countries and inside countries in Europe are probably much smaller and, therefore, less dangerous than in your part of the world but their impact is non-negligible. I consider the issue of externally imposed “standards” to be a very significant constraint on the economic performance of developing countries. This should be avoided.

It brings me to my third, and final point. There has been in the last half of century a permanent discussion about the impact of economic, and especially of financial, aid in economic development. I would like to stress that when talking about aid in this context I do not have in mind humanitarian help in catastrophic situations but aid as an economic phenomenon. The belief in its enormous potential was, in a rather deceptive moralistic way, expressed by many West European politicians at the World Economic Forum in Davos several weeks ago. I disagree with this view. I am deeply convinced that the economic and financial aid has only a very limited importance in economic development. The arguments are, I believe, well-known and need not be repeated here.

The only meaningful help for developing countries would be the radical opening of markets on the side of developed countries, the establishment of conditions for free (not for fair) trade, the real end of protectionism (which in these days is based on many new and sophisticated techniques), the abolition of export subsidies in developed countries, etc. This is, however, exactly what these countries do not want to do even if they must be aware of the fact that the absence of free trade creates huge discrepancies in income and wealth and as a consequence growing migration which is destabilizing their own societies. Either the goods and services move freely and the people stay where they are (because they have economic opportunities at home) or the movement of goods and services is blocked and the people move while searching for better economic opportunities abroad. It is that simple.

To summarize my arguments, in my short presentation I stressed three points I consider crucial:

- the role of political freedom in economic transformation;

- the costly loss of comparative advantages due to internationally imposed “standards”;

- trade instead of aid issue.

To be correctly understood, I would like to point out that I did not mention other problems because of the lack of time given to my remarks here this morning but because I consider other problems to be much less important.

Václav Klaus, Speech at Jeddah Economic Forum, Jeddah, Kingdom of Saudi Arabia, February 20, 2005