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Notes for the Gaidar Forum: Is the Title “Sustainable Development in Periods of Instability” a Correct One?

English Pages, 15. 1. 2014

Thanks for the invitation to Russia, to Moscow, and especially to this important gathering connected with the name of Jegor Gajdar, a good friend of mine, a very profound economist and significant Russian political leader. Let me use the title of this plenary session for making a few comments.

A.

I have a problem with accepting the term “sustainable development”. It is not a neutral term. It is – in my understanding – an empty, undefined and undefinable, more or less leftist ideological concept. It can’t be a good basis for a serious discussion. I suspect that those who use this term do not want to discuss how to restart economic growth in the stagnating West, especially in Europe, how to accelerate growth in developing countries and how to overcome poverty in the world. Those would be meaningful topics. To speak about sustainable development suggests a debate about creating barriers or obstacles to rapid, healthy and much needed economic growth.

The term sustainable development can’t be turned into an operational concept. The exponents of this term are the prisoners of the ahistorical and anti-economic doctrine of “the limits to growth” advocated since the 1970’s by green politicians and their fellow travellers in institutions and organizations of global governance. We should be careful when using such ideologically loaded terms. To spend time arguing against the ideology of environmentalism or against the global warming doctrine is not very productive.

Together with the people of Russia, I – with my experience with life in centrally planned and administered Czechoslovak economy and society – know something about the necessary preconditions for economic development. They include the full-fledged market economy, the minimum of government intervention, the dominance of private ownership, deregulation and liberalization of markets, desubsidization, and the elementary institutional and legal framework.[1]

Some of us believed that this is sufficiently known and basically accepted world-wide and that what we did two decades ago in the moment of the radical and far-reaching economic transformations in Central and Eastern Europe, and what Prime Minister Gajdar tried to do here in Russia, already belongs to historic textbooks. We were wrong – a very similar debate is here again.

When I say here, I mean Europe, which has become in this respect a very sad case. European Union´s highly politicized economic and social system, die soziale Marktwirtschaft, has turned into a fundamental obstacle to any positive economic development. It reminds us our old centrally organized economic system. There is an ambition to micro-manage the economy again there. The current European overregulated economy, constrained by a heavy load of social and environmental requirements, operating in a paternalistic welfare state atmosphere, does not make economic growth possible.

In addition to the ineffective economic and social system, the European Union´s more and more centralistic and bureaucratic integration model based on the idea of “ever-closer union” is another convincing proof of a non-productiveness of centrally administered society. It leads to the weakening of one of the main European assets – of democracy. As a result of it we have been witnesses (and joyless objects) of the undergoing de-democratization of Europe.[2]

B.

As regards the second part of the title of this morning´s panel, I don’t consider the term instability the proper description of the current phase of the development of the world economy.

There is no unusual degree of instability in the world economy now. There is a special disharmony and a historically new distribution of dynamism and wealth. Many parts of the world – especially the BRIC countries (or better to say the BRIC-like countries) – are not unstable. They grow very rapidly which is – inevitably – connected with all the problems, imbalances and inconsistencies of rapid development.

There are parts of the world which could be considered unstable – especially Europe, with its absence of economic growth and its heavy indebtedness, but it seems to me that the “revealed preferences” of Europeans – demonstrated in their behavior – and their ungrounded belief that everything is under control indicate that they are satisfied with the current state of affairs and are not ready to ask for a real change. I suppose that the forthcoming European elections will not bring any significant difference. The strength of the European political bureaucracy and the lack of attention on the side of the common people will – probably – continue to dominate the European landscape.

We should not forget to mention the finally promising situation in developing countries. We witness an almost miracle when looking at the massive decline of poverty in the developing world which happened in the last decades, especially in Asia. Poverty today is by and large an African problem and it is due to the fact that this continent is least integrated into the world economy. The change was made possible because of less of governments and more of markets there. The decline in poverty has not been done because of the unproductive, wasteful and corruption-enabling, if not corruption-provoking development aid but in spite of it. I am rather unhappy with the international organizations and some of their exponents who continue to exaggerate the extent of world poverty – in an attempt to advocate the importance of their “messianic” role.

C.

I don´t feel being in a position to express strong views about this country, about Russia. I don´t want to repeat the mistakes of many foreign commentators who are preaching democracy, rule of law and market economy here – without understanding the real situation and the specific characteristics of this or any other country. This is an arrogant and unfair approach.[3] I consider the developments here in Russia in the last two decades a relative success – when we take into account the heritage of the preceding 70 years.

It seems to me that Russia was in the early 1990´s weakened by the absence of a widely shared and comprehensible transformation vision which would have given the people an elementary orientation and hope for the future. I know that people like Jegor Gajdar tried to formulate it, but his attempt did not win. In my country, we made it clear to everyone very rapidly that our task is to build democracy, parliamentary pluralism, and market economy with a very limited role of government, which means to build capitalism.

People like me also observed with a worry the lack of macroeconomic and money supply control here in Russia in the early years which led to a very high and hence destabilizing inflation. As additional problem we considered the inability to set up genuine political parties and, as a result, a full-fledged parliamentary democracy. The changes introduced later made a difference but it seems to me that it is necessary to go further.

The authentic pluralistic political system is an inevitable step forward. The only question is how to introduce it and how to make it efficiently functioning without undermining the existing, rather fragile state of regional, ethnic, social and political realities in the country. The elementary textbook recommendations are of a very limited relevance. But it must be done sooner or later. The sometimes expressed arguments that it can be avoided because the whole world is entering a postpolitical, postdemocratic stage are wrong.

An easier task to achieve is to enhance the existing level of openness of the economy and to complete the liberalization of foreign trade and of all other economic and financial transactions with the rest of the world. It could only help. It would undermine domestic monopolies and bring positive effects to the consumers and to the general welfare. Advances in openness and economic freedom usually have positive spillover effects in other fields of society.

I would pay a lot of attention to the oil and gas revolution connected with the new technological breakthroughs in shale oil and gas drilling. Many traditional producers continue believing in the paradigm of permanently rising oil and gas prices (as a long-term tendency), and expect that any relevant change will happen on the demand side of the oil and gas equation. That is not true. New technologies to tap shale oil and gas reserves make a revolution on the supply side, which can fundamentally change the oil market with a potential price collapse. The only solution is to diversify the economy as much as possible.

Let me conclude by expressing my belief that the Russian decision-makers are aware of all that. I read with a great interest the recent Valdaj speech made by President Putin which suggests a new approach to many of these problems. I wish you success in realizing the needed changes in your country.

[1] See my speech „The Political Economy of Introducing Free Markets: Notes for IIASA Conference“ (Vienna, 14 January, 2012), https://www.klaus.cz/clanky/3022, and my article „The Post-Communist Transition Should Not Be Misinterpreted“ (Economic Affairs, Volume 33, Number 3, October 2013), https://www.klaus.cz/clanky/3468 .

[2] My recent book about Europe was published also in Russian language with the title „Европейская интеграция без иллюзий“, Chudožestvennaja literatura, Moscow, 2013.

[3] More about it in my speech „Europe, Its Problems, and Russia in the 21st Century“, The Russia Forum 2013, Moscow, April 18, 2013.

Václav Klaus, Speach at the Gaidar Forum 2014, Russian Presidential Academy of National Economy and Public Administration, Moscow, January 15th, 2014.