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The Czech Republic: Almost 17 Years of Postcommunist Transformation and of Approaching the EU

English Pages, 2. 10. 2006

This is my first speech at a university not just in Vietnam, but in the whole South-East Asia.

I can assure you that we have followed the developments in your country with great interest and attention for many years and decades and I dare to say that we are aware of all the difficulties and tragedies you had to go through. We are also the witnesses of your rapid economic growth and overall development in recent years and came here to improve our understanding of what happened here and how it happened.

It was, however, suggested to me to speak here about ourselves, about the Czech Republic, about our transition, about Europe.

Based on our experience, we understood that all the countries, sometimes called transition economies or perhaps emerging markets, had to undergo a difficult transformation (or in another terminology a fundamental systemic change) and we know as well that all of them – with all their differences and very different starting conditions – had to find their own path towards the efficiently functioning society and economy.

We, in our country, understood that it was necessary to find our own „Czech way“, we understood that it was not possible to import any „ready-made“, prefabricated solution from outside. There are, undoubtedly, some general principles, valid for all such countries, but there are important country-specifics and there are alternative ways how to organize, structure and sequence the transition.

Knowing that, we did not in the past and do not intend now to advertise our approach or to try to sell it to anyone else, which is probably very much different from what some other countries and especially many self-appointed „experts“, advisors and consultants do.

I am convinced that we, in the Czech Republic, have already created a democratic, normally functioning political system based on free competition of political parties and an economic system based on private ownership and market economy.

Our transition, the building of a new political, economic and social system, wasn’t done in a vacuum. It was done together with our gradual approaching the European Union, with our adjusting to its requirements and – in 2004 – with our formal entry into it. Whereas our transition was basically characterized by radical liberalization, deregulation and opening up, the entry into the EU was in several respects different – it brought us less freedom, less democracy, less sovereignty, more of regulation, more of extensive government intervention.

The radical transformation of our society was not brought from outside. It was done by ourselves, by our own domestic efforts, by our own decisive political activity, and it was made possible by the existence of an elementary political support of millions of the Czechs who wanted to get rid of the past. The unusual unity which existed in this moment was extremely important.

This unity was, however, mainly negative. The people were united “against something,” not in “favor of something.” Utopian “third ways” were being sought and promoted. Proponents of these approaches opposed the establishment of political parties, because they were in favor of the so-called non-political politics and because they claimed an exceptional role for intellectual and cultural elites in the running of the country. In essence, they advocated “postdemocracy.”

In the economic sphere, they did not want to fully abandon the old economic system, but merely to deepen “perestroika.” They did not trust the market and reiterated the old dreams about the possibility of convergence of totally opposite economic systems.

In the field of foreign policy, they were idealists without a realpolitik understanding of foreign policy. They planned to make the Czech Republic a bridge between the East and the West.

In this crucial situation, relatively small group of people was not afraid to say that the goal of our transformation was capitalism and a standard parliamentary democracy. We knew that there was nothing to wait for, because the existing euphoria did not provide us with an unlimited time for unpopular and often painful measures.

The political transition was conceptually easy. It was sufficient to liberalize the entry in the political market. That was all. In the economic sphere we faced many unrepeatable challenges, in many respects similar to yours.

The economic transition was not without costs. The key to the minimization of the transformation costs was radical opening-up of markets together with very cautious fiscal and monetary policies. We had to liberalize prices in the environment of a monopolistic structure of the economy and before privatization. The so important competition was not created by the visible hand of the government but imported by liberalizing foreign trade and by radically devaluating the currency.

We tried to minimize inflation in the moment of an unavoidable and very sizeble loss of output.

We privatized the economy without having capital and capitalists. We privatized the whole economy, not just individual firms. We privatized businesses as we found them and not, as some of our critics wanted, after bailing them out financially first. If we were to wait for the financial bailouts to happen, transformation and privatization would have never started and the economy would have collapsed.

Requests to postpone the beginning of these radical changes until all the institutions of market infrastructure and the whole legislation would be perfect were similarly wrong. In a democratic society, institutions as well as legislation are endogenous rather than exogenous variables of the system. We knew, therefore, that they had to gradually evolve. We knew as well that the rule of law can’t be „introduced“, it has to evolve as well. This is very often misinterpreted.

Our experience with the EU is a different story. What we usually see or hear abroad is the unstructured, unanalytical and to some respect almost naive pro-integrationist argumentation, based on the false assumption that the more of unification of the whole continent we achieve, the better. I don’t share this view.

The two crucial shifts which have been going on in recent years – from intergovernmentalism to supranationalism and from liberalizing, which means from removing various barriers and constraints to a massive introduction of regulation and harmonization – are not seen or fully understood.

To put it in a proper historical perspective, institutionalization of the centuries lasting spontaneous process of European integration originated in Rome, in 1957, in the form of the European Economic Community (EEC). To do it was an economic inevitability (after the Great Depression and the Second World War, which brought into Europe economic nationalism, protectionism, autarky, competitive devaluations, economic planning and a wide-ranging government interventionism). On the other hand, it was the result of political ambitions of an influential group of European politicians who interpreted the Second World War as a consequence of the existence of nation states. And, therefore, wanted to get rid of them.

I myself have always considered the economic unification as a beneficiary process, whereas the political integration as a non-necessary, over-ambitious and in principle dubious project which brings more problems than positives, more minuses than pluses.

The European Union, as we know it today, is much more than an economic integration and much more than an intergovernmental cooperation of sovereign countries. Whether this is what the citizens of the EU member states wanted and want has been the subject of many discussions and, recently in some countries, even the topic of peoples’ referendums with differing results. I see many problems in moving towards political union and towards supranationalism. That is why I am not I favour of it.

Václav Klaus, University of Economics, Ho Chi Minh, Vietnam, October 2nd, 2006