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The developing countries need trade, not aid

English Pages, 29. 11. 2007

Ladies and Gentlemen,

It is a real pleasure for me to be here and to get the opportunity to address this important gathering, both as a person who cares about the development of this part of the world and as President of the Czech Republic. My country maintained – especially in the past – very intensive relations with countries of your region and I would like to assure you that we intend to do it in the future again. I have to mention also my very successful state visit to Nigeria last year which helped me to better understand the challenges your country is facing.

The main theme of your today’s conference is “Europe as a Strategic Partner in Harnessing African Capital.” I am from Europe but to speak on behalf of Europe is impossible. What I may do is to give you a European or perhaps a Central European perspective on the issue of economic development. I must admit that I do not fully understand what “harnessing African capital” actually means. In my terminology and in my understanding, it is – I’d say – an ambition to fully use the African potential and to create preconditions for positive and sustainable economic and social developments in the African countries, in places where the economic growth is being inhibited by serious political, social, economic, cultural and religious barriers, where poverty is a pressing problem, and so is the 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. I – together with you – believe in “African capital”, in comparative advantages you have and must make use of. The question is: How to do it?

My remarks are based on my own experience with similar efforts, though in a much different setting, and on my – during my whole life amassed and accumulated – convictions, beliefs and theoretical arguments. In the last eighteen years, I have been actively involved in a radical transformation of a former communist Czechoslovakia into a modern European country based on political democracy and on a liberalized, deregulated, open and privatized market economy. Some aspects of our transition were probably very specific, that is to say very European, if not Central European, and, therefore, not easily exportable to other parts of the world (I do not have, therefore, the self-confidence and/or the arrogance of pushing our views forward as a model for the others to follow, as it is so typical in the current world) but some of our experiences are more or less general.

The preconditions for success in our endeavor were the following three, mutually interconnected elements:

- to have a clear and transparent concept of where to go;

- to dispose of a feasible strategy how to get there;

- to persuade the majority of the people to support it.

I would dare to say that we did fulfill all of these tasks which are all of equal importance, that is to say that no one is more important than any other.

We understood that

1. any fundamental change of that type and that scope is a domestic task because democracy and market economy cannot be imported, cannot be agreed upon or pre-arranged at international conferences, cannot be passively “acquired” as a foreign investment. It is a do-it-yourself piece of work;

2. it is a sequence of policies, not a once-for all policy change;

3. liberalization, deregulation and privatization are unavoidable and they are to be done as soon and as radically as possible. The people should, however, be informed in advance about the costs that are – especially in the short or medium run – relatively large;

4. societies (and economies) undergoing transition remain fragile and vulnerable for some period of time and the economic and social policies in the following period should be very cautious;

5. in our part of the world, the political and economic changes coincided. Our experience taught us that the changes in both fields, political and economic, reinforce one another;

6. to minimize the role of the state and to create legislative preconditions for political and economic freedom is of foremost importance.

I would like to turn to the external side of economic development now. No one should be afraid of the highly demonized globalization. It is nothing more or nothing less than the growing internationalization of economic activities. Its impact is in this respect basically positive. It should not, however, lead to something I would call a “monocultural” world, a world dominated by a single culture or lifestyle.

Let me mention several issues I consider important:

1. There has been a continuing discussion about the impact of economic, and especially financial, aid on the development of underdeveloped countries. (I do not have in mind humanitarian help in catastrophic situations but aid as an economic phenomenon.) I am deeply convinced that the economic and financial aid is of only a marginal importance.

Its size is very small. There is usually a huge gap between the foreign aid rhetoric and foreign aid reality. I do not believe it can ever change. It is in the interest of the foreign aid community (which is a specific rent-seeking group) to make the gap as wide as possible.

Its form and structure is not very good either, because it is based on the interests of the donors, not on the needs of those who are supposed to receive and use it. The interests of the donors, concealed in their missionary moral progressivist rhetoric, are very “earthly”. As a result, much of foreign aid is wasted.

And, finally, we should know that the aid is never free. It is, in many cases, very costly in the long run and even the gifts, not to speak about soft loans, turn out not to be free or so soft after all. The donors have their interests, priorities and prejudices. The lending institutions have a bureaucratic incentive to lend and to be involved. They are not ready to watch reforms passively, risking that their irrelevance will be revealed.

This is what we experienced in Central and Eastern Europe and it can’t be different in Africa.

2. What is essential is the free, not fair, trade, because fair trade means protectionism in disguise. Who should define what is fair? To expect that politicians and bureaucrats are better and fairer than markets is a myth. As a politician and bureaucrat, I don’t have the slightest ambition to play games with the rules of trade, with the exception of one important principle: that the trade must be free, which means with only a minimum of regulation.

Free trade is not only about elimination of tariffs, quotas and contingents. The export subsidies of developed countries are even more important, because the less developed countries do not have the financial resources to do the same.

3. Economic activities of the less developed countries are often being hindered by another obstacle – the imposition of the so called international standards (upon these countries). This tends to create a rather unpleasant tension between domestic imperatives, considerations and possibilities based on the understanding of – and respect to – domestic conditions, aspirations and constraints, and external requirements imposed on such countries from abroad.

It has become “politically correct” (and claimed as morally superior) to advocate the implementation of various external “standards” and to consider them obligatory, regardless the level of economic development. What I have in mind are labor, social, safety, environmental, hygienic standards which are presented to developing countries as exogenous “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 may sound – is an effective way to eliminate the existing comparative advantages of economically less developed countries and to block their successful participation in the world trade.

I do not want to say that all “standards” are wrong. To be acceptable (and fair), however, the standards should be introduced by domestic politicians and legislators, not by international organizations. Below the surface of their claims of progress, caring, risk-aversion and universality we usually find a very specific political and economic agenda of influential groups of various activists, advisers, consultants, etc.

We have gone through a process of acceptance of external standards in the context of our aspirations to become a member state of the European Union. Countries like the Czech Republic needed real convergence of their economies with the EU economies and were – and are – afraid that the unnecessarily extensive nominal convergence – the insensitive implementation of rules, policies, legislation and all kinds of standards of the more developed countries – will block or at least significantly delay their real convergence. I consider the externally imposed “standards” to be a very significant constraint on the economic performance of developing countries. One that should be avoided.

4. Very prominent role is currently played by the environmentalists with their new and very dangerous weapon called global warming and climate change. As I said at the UN Global Climate Conference in New York City at the end of September: “Different levels of development, income and wealth in different places of the world make world-wide, overall, universal solutions costly, unfair and to a great extent discriminatory. The already developed countries do not have the right to impose any additional burden on the less developed countries. Dictating ambitious and for them entirely inappropriate environmental standards is wrong and should be excluded from the menu of recommended policy measures.” Developing countries must be allowed to go along the same path of development as the countries that did so a century ago.

5. The only meaningful help for developing countries would be the radical opening of markets on the side of developed countries and the genuine end of protectionism. This is, however, exactly what these countries do not want, 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 destabilizes their own societies. Either the goods and services move freely and the people stay where they are, or the movement of goods and services is blocked and the people move around, searching for better economic opportunities abroad. It is as simple as that.

To summarize, what is my main message? Developing countries need political democratization and creation of institutions of market economy. They need open markets in the rest of the world and particularly in Europe. They need such social, labor, environmental, safety, hygienic and other standards that they define on their own and that reflect their economic level, not standards imposed upon them from the outside. They need trade, not aid.

Václav Klaus, Speech at the Osigwe Anyiam-Osigwe Foundation Annual Lecture Series, Lagos, November 29, 2007