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Post-Communist Era: Atmosphere of Victory or of Lost Illusions?

English Pages, 2. 9. 2002

1. Introduction

Almost 13 years have passed since the collapse of communism in the Czech Republic and in other Central and East European countries. No one can deny that we have quite rapidly succeeded in liquidating the formal structures and mechanisms of the communist society and in establishing the basic stage of the European version of the system of parliamentary democracy and market economy. This is, on the one hand, not a bad result. My question is, however, whether it is exactly what we – or some of us – really wanted. Whether we are building free society based on classical liberal principles or whether we have fallen into the blind alley of a regulated society, of an unproductive welfare state, of a brave new world of contemporary European socialdemocratism and of an empty and artificial Europeanism (or internationalism).

The past decade was interesting, challenging and rewarding for all of us. It gave us many important insights into the formation of freedom and free markets. We have learned unforgettable lessons (especially as regards organization and sequencing of reforms) that were not clear, evident, intuitively correct or generally accepted when we started dismantling communism. We understood more deeply its human aspects. It was difficult for the people of the country undergoing transition to understand the costs of the systemic change and the impossibility of rapid catching up of the current stage of development of countries which did not go through the communist era. We started with enthusiasm but the original euphoria did not last long. We had to – relatively very soon – face impatience and disillusions. This was, however, not a nostalgia for the old regime. This was the neurosis of the transition period, of living in a radically increased uncertainty and in a more risky world than in the past.

2. The Winner of the Transition Decade is Democracy, not Freedom or Classical Liberalism

It is appropriate to quote our friend Pascal Salin who already in 1996, in his Presidential Address to Mont-Pelerin Society, said that the collapse of communism was not “a return to classical liberalism, but a return to democracy”. It was a very precise and well-judged statement.

Eleven years ago, I accepted as a title of my speech in Sydney, Australia, rather provocative words „Dismantling Socialism: A Preliminary Report“. It was a mistake. Instead of dismantling socialism, we have got a world-wide-web, world-wide terrorism, European Union and Euro, new, more sophisticated, more hidden and more intensive methods of government intervention and regulation, the ever-increasing size and scope of welfare state, multiculturalism and political correctness. This is not a great victory.

It would have been, therefore, appropriate to speak about dismantling of communism. In this respect, my today’s talk could be “a final report”, because communism is over.

3. Fundamental Pillars of Transition Should Not Be Forgotten

It was relatively easy to change the political system because communism more or less collapsed. It was sufficient to liberalize the entry into the political market. New political parties were created almost instanteously and the needed political plurality was established without constructing (or designing) it. It was a spontaneous process, it was nobody’s design. The only attempts to do it differently came from the civic-society or communitarian camps. They wanted to overcome parliamentary democracy and to do politics without political parties.

It was much more difficult to change the economic system. We had to liberalize prices (after 40 years of frozen and administered prices), liberalize foreign trade (abolishing state monopoly of foreign trade and opening the semiautarchic, protected economies) and liberalize entry into the market for all types of enterprises (private as well as foreign). To do it was a necessary precondition for all subsequent steps. I disagree with those - like Joseph Stiglitz - who say that gradualism and slow evolution of institutions (and of legislation) before liberalization of markets was possible and preferable.

To realize changes of that type was socially difficult, politically brave, but technically relatively easy. Most of the changes required just to be announced. On the contrary, the second stage of transition asked for a positive and constructive activity of the governing authority. It was necessary to build new and transform old institutions, which took time and required complicated organization and administration.

It was especially the case of privatisation. It was impossible to wait for the slow disappearance of state-owned firms, which – in former Czechoslovakia – represented almost 100 % of the whole economy. It was necessary to privatise them on a massive scale, on a wholesale basis, which is something Western countries have never experienced and cannot even imagine. Privatisation is difficult politically, technically and administratively. Whatever the government does and however does it, the politicians are accused

-         either of favouritism and selection of inappropriate new owners;

-         or of not getting the best price.

In addition to it, the short-term effects are not always positive. With the benefit of hindsight, I dare to say that privatisation was successful. It was without doubt much better than its reputation which was heavily influenced by the subsequent political disputes.

4. The Costs of Transition

Many people both at home and abroad had assumed that to get rid of communism should be without costs, without winners and losers, without tensions, without ups and downs, without non-negligible lapse of time. They had assumed that the changes bring about immediate benefits - positive economic growth and increases in living standards. They were, of course, wrong and such dreams were not realized. It was, nevertheless, an important learning process. The people in transition countries slowly and reluctantly accepted the inevitability of what I used to call the transformation shake-off - the huge loss of output, of income and of employment, the disappearance of price stability, of the old and familiar distribution of income and property, of the existing level of social protection, the shifts in reward-effort ratio, etc.

The costs of that type were finally understood. It was, however, not the end of the story. Sooner or later, we were confronted with further problems. In my country, in the middle of the 1990´s, in the moment of currency crises in Asian and Latin American emerging markets and of growing external imbalance in the current account of our balance of payments, the Czech National Bank suddenly, unexpectedly and without any consultation with the government, switched to a very restrictive monetary policy. This move destabilized the economy, undermined its banking sector, made both domestic economic agents and foreign investors nervous, led first to the outflow of foreign capital, then to a small currency crisis and finally to an economic recession which left many firms and banks weakened and vulnerable.

The Czechs did not expect it. They naively supposed that the private market economy (as compared to central planning and state ownership) guarantees – almost automatically - a success. They were psychologically not prepared for a business failure, both at micro and macro levels. They felt having been cheated or betrayed by politicians who had sold them the idea of capitalism, free markets, liberalization, deregulation and privatisation without sufficient warnings.

The one who was blamed was the government and the politicians. It became fashionable to argue that the failures were caused by

-         unsuccessful privatisation (if not privatisation itself);

-         insufficient legislative and institutional framework of a new, inevitably weak and shallow market economy and

-         human deficiency and lack of morality in a post-communist world.

Such views were based on the lack of understanding of the transition process, of the formation of legislation, of its enforcement, of the relationship between formal legislation and informal rules, as well as of human nature. It was forgotten that

-         there is no perfect legislation;

-         the formation of legislation is and must be slow;

-         the legislation is the result of the process of evolution, not of anyone´s dictate;

-         the legislation is not the outcome of abstract rationalism, but of a complicated political process;

-         the legislation is influenced not only by political or ideological arguments but by vested interests, lobbying and rent-seeking.

Our critics probably assumed that we were still a totalitarian state where the transition could be masterminded from above and where the appropriate legislation could be simply introduced. It was not true. The liberals knew and know that the institutions are endogenous, not exogenous components of a free society. It was forgotten as well that human beings are as they are and that the world is not improved by preaching morality by omnipotent intellectuals (philosopher-kings).

5. Where Are We Now?

With all our problems, we live in a totally different world than in the past. We live in the world of incremental changes, of standard political processes, of many imperfections but of standard democratic mechanisms to deal with them. Perfect society is far away, communism is even further.

We do not see, however, the end of socialism – either in my country or elsewhere. We may be even closer to it now than 10 – 12 years ago. Because of their structural similarities, the fall of communism and the overall attack on its irrationalities, lawlessness and crimes temporarily weakened socialism. Unfortunately, only temporarily, because – as we see it – the last decade did not bring us its end. It brought us victory of socialdemocratism, of various alternatives of third ways, of communitarism, of environmentalism, of political correctness, of humanrightism, of Europeanism, of corporativism, of NGOism. All of them can be described as new collectivisms.

Ten years ago, the dominant slogan was: “deregulate, liberalize, privatise.” Now the slogan is different: “regulate, adjust to all kinds of standards of the most developed and richest countries (regardless your stage of development), listen to the partial interests of the NGO&s and follow them, get rid of your sovereignty and put it into the hands of international institutions and organizations, etc.”

The intellectual climate became increasingly hostile to liberal ideas. To win arguments in such atmosphere – and I know something about it (especially after last elections) – is very difficult. I agree, therefore, with Milton Friedman when he – in Two Lucky People (p. 359) – says that “I have learned how easy it is to be misunderstood and how hard it is to be crystal clear”. Even more difficult is to attract attention to being seriously listened to.

6. The Impact of Expanding Europeanism and of EU

Our transition has been going parallel with the changing Europe. We started our changes in the era of EC, have gone through most of them in the era of EU and will finalize them in the era of EMU (if not EFU or EPU). As I see it, Europe is undergoing irrevocable changes while the uninvolved or uninterested majority of Europeans does not care or does not pay sufficient attention. Intergovernmental cooperation of independent countries aiming at removing barriers for the movement of people, goods, money and ideas has been – slowly but surely – converted into the formation of a supranational European state aiming at centralization of power in Brussels, at elimination of European nation states and at socializing Europe. With the benign neglect of majority of Europeans, minority of pro-European activists and of EU bureaucracy has a decisive voice.

In this respect, there are many misunderstandings. No one in this room - I suppose - is against opening-up of societies and against elimination of all kinds of barriers and obstacles to the free exchange of ideas, of people, of goods and services, of money over the continent and over the whole world. Some of us know from our own personal experience what it means to live in closed, inward-looking, almost autarchic societies where any form of contact with the outside world was prohibited (or at least made very difficult). Due to that, we have been dreaming about being part of the European open society.

But the current European unification process is not only or not predominantly about opening-up. It is about introducing massive regulation and protection, about imposing uniform rules, laws and policies, about weakening standard democratic processes, about increasing bureaucratization of life, about enhanced importance of judicial authorities, etc. This is not what we wanted.

We wanted to go “back to Europe”, to the freedom we did not have whilst living in the communist era but we understood that to rush into the European Union which is currently the most visible and the most powerful embodiment of ambitions to create something else - supposedly better - than a free society is a different project.

As a small Central European country, we are and have to be part of Europe and have to participate in the European integration process. There is no other choice left for us. It is – additionally – the only way how to get international recognition and legitimisation. Looking at it this way, it is a trap we do not know how to break or avoid.

Vaclav Klaus, Aix-en-Provence Summer University, 1st September,2002