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Eastern Europe between Stagnation in the West and Rapid Growth in the East

English Pages, 21. 6. 2013

I was invited to talk here about Eastern Europe but I have to start by announcing a small definitional problem. As someone who spent his whole life in Prague, in this truly geographical centre of Europe, I have a certain reluctance to use the term Eastern Europe without at least briefly expressing my doubts on it.

When looking at the map, Prague is located west of Vienna and is closer to Copenhagen or Brussels than to Sarajevo or Kiev. I have for instance never visited Moldova or Belorussia, I was once in Estonia and Ukraine, but hundred times in the countries west of the Danube and the Rhine. I would, therefore, prefer to differentiate between Central and Eastern Europe. I don’t know whether to say WE in Eastern Europe or THEY in Eastern Europe.

My experience tells me that the West Europeans consider us “THEY”. Is it due to geography or history? If it is history, is it due to history in general or just the recent history, that is to say our communist past? Isn’t the adjective “Eastern” so popular because it is a courteous and neutralistic term which is easier to use than the more complicated, much longer, partly ideological term: “the economically less developed former communist countries of Europe”? I am afraid it is so.

In any case, people in the countries of Central and Eastern Europe lost almost half a century of normal life and social and economic development in an irrational, oppressive, undemocratic, if not criminal, inefficient and unproductive regime, but in spite of that we are not different – mentally, culturally, definitely not ideologically (because communism taught us a lot) – from the people in the rest of Europe. Some of us feel guilty of living so many decades under communism. Some are, therefore, less self-assured and less self-confident, but we all are deeply hurt by being patronized by West Europeans who were lucky to avoid a similar tragic and destructive era.

We did not have a good feeling in this respect, especially in the first years after the fall of communism. In spite of all the rhetoric, in spite of getting plenty of – hopefully – well-meant but non-committed and rather empty advice, in spite of receiving minor and, hence, practically irrelevant financial donations, we were not helped in any meaningful sense.

On the contrary. We were – by means of a very efficient use of both old and new mercantilistic methods – blocked from West European markets in many, for us very sensitive commodities. Some politicians spoke about dumping but they did not want to see that we had lower wages and lower costs at that time. We were also forced to – very prematurely – introduce all kinds of European social, labour, environmental, health, security, etc. standards which are economically not neutral and should be introduced only after attaining certain level of economic development, not before. We did it and now see that we were “holier” than many West Europeans. At that moment, our firms were – after our radical, truly revolutionary, fundamental and deep going systemic change and particularly large-scale and mass privatization – new, inexperienced, undercapitalized and financially weak and were not able to successfully compete with the West European firms on third markets. As a result, we lost these markets very rapidly.

I do not complain. I would like to be very explicit by saying that we did not make our Velvet Revolutions dreaming about European altruism or EU financial transfers (à la Spain and Portugal in previous decades). All we wanted was to be free. What we expected, however, was an elementary understanding of our unique situation at that time. We radically depoliticised, liberalized, deregulated and desubsidized our economy because we were sufficiently aware of the tragic incompetence of governments to mastermind or substitute the markets. We experienced it more than enough in the communist era. We wanted, therefore, to fully get rid of these practices. We did not get enough time, however. Our transformation process was quite rapidly brought to an end by the fact that we wanted to participate in the European integration process and were forced to reregulate, resocialize and resubsidize our economy as a precondition to our entry negotiations with the EU. The acquis communautaire was full of anti-market measures. The entry in the EU was, therefore, in many respects, a mixed blessing for us.

We are in a different stage now. As I tried to indicate by the choice of the title of my today’s presentation, we are situated between the stagnating Western Europe (and America) and the rapidly growing Asia. These adjectives are correct and their contrast has become more and more visible and more and more deep in the last couple of years. People like me are not surprised. Our long-term disagreement with the West European economic and social system (with “die soziale Marktwirtschaft”) on one hand and with the logic of functioning and with the institutional framework of the European integration process on the other is quite strong and substantial. This disagreement on our side did not emerge with the current Eurozone problems.[1]

These latest developments added a new dimension to the old European problems. The ruinous consequences of the erroneously constructed monetary zone are just the top of the iceberg, just one constituent part of the whole very problematic concept of European integration based on the idea of “ever-closer Europe” and on the suppression of the dominant role played by the nation states. Today’s evident crisis of the European single currency project was inevitable and its coming was obvious for many of us years or decades ago. One currency cannot function in a heterogeneous and not united continent.

As I said, it is just one part of the whole EU concept but a very special and substantial part. I agree with the recent, widely quoted statement made by Nigel Lawson that “the very nature of the European Union has fundamentally changed after the coming into being of the European Monetary Union and the creation of the Eurozone” (The Times, May 13, 2013). The EMU, however, did not unexpectedly appear out of nowhere. This fundamental change was planted in the Maastricht Treaty more than two decades ago.[2]

Now a few words about Asia, which is the real East – more eastern than Eastern Europe. The rapid economic growth in Asia (and in all BRIC or BRICS countries) is a surprise only for those who are hopelessly Europocentric and are not able to look at Asia with open, non-aprioristic eyes. In my recent speech at the Russia Forum in Moscow
(in April 2013),[3] I tried to outline the main characteristics of BRIC countries. Some of them are not attractive for most of us, certainly not for people in Eastern Europe. Nevertheless, some of them are relevant for our today’s discussions. These countries are competitive

– because of their lower labour costs;

– because of their less costly, less rigid and less counterproductive welfare systems;

– because of their more rational environmental policies (especially because of their more responsible approach to the evident nonsense of the global warming doctrine)[4];

– because they are industrializing, not deindustrializing themselves. They have not yet become victims of the self-destructing fallacy so attractive for the Europeans that the engine of economic development should be the tertiary sector;

– because they have a labour force which still wants to go ahead and is ready to work hard. These countries are far from being leisure economies;

– because they have not yet reached the age of affluence (however relative that term may be) and their further economic development is not yet blocked by the diminishing motivation to work.

They are, undoubtedly, more centrally administered than the countries in the West, which undermines democracy and economic efficiency of free markets on one hand, but makes it possible to have a long-term, strategic thinking and to carry out large-scale governmentally organized projects on the other.

This was not an attempt to comprehensibly describe Asia and other emerging markets. They have many other important characteristics. I used this summary as a suggestion for an implicit way of looking at ourselves in the mirror without rose-colored glasses. This is needed for Europe and even more for Eastern Europe. We should look in the mirror more often.

There is a lot of work to be done in countries of Eastern Europe before they reach the economic level of Western Europe. This target as such is disputable and questionable. I have to admit that I am not sure being locked in the EU makes it possible at all. England is an island, it is much better here.

But all our efforts and eventual successes will not change Asia, the East. If we in Europe do want to compete with the East or to keep up with the East, we have to change the West, which is possible only on condition the West wants to be saved. I am not sure about it. Systematically abandoning or gradually detracting from the values upon which the West was built is detrimental. Decades spent under communism made us very sensitive to that. In the moment of the fall of communism, I did not expect that the world in the year 2013 would have so many aspects evoking the memories of the past. 

Václav Klaus, Speech given at the Le Cercle meeting, London, Great Britain, June 21, 2013

[1] See my book “Europe, the Shattering of Illusions”, Bloomsbury Publishing, London, 2012.

[2] See chapters „Posun, který nastal v Maastrichu“ (“The Shift that Happened in Maastricht”) and “Finanční a ekonomická krize let 2008 – 2009 a její důsledky” (“Financial and Economic Crisis of 2008-2009 and its Consequences”)  in my book “My, Evropa a svět” (“We, Europe, and the World”), in Czech, Fragment, Prague, 2013.

[3] See “Europe, Its Problems, and Russia in the 21st Century”, https://www.klaus.cz/clanky/3363).

[4] See my book “Blue Planet in Green Shackles. What Is Endangered: Climate or Freedom?”, Competitive Enterprise Institute, Washington, 2008.