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Qatar Speech: Czech Experience with Radical Transformation of Society

English Pages, 9. 4. 2005

Ladies and Gentlemen,

It is a real pleasure to be – for the first time – in Qatar and to have a chance to address this very distinguished audience as President of the Czech Republic, as President of a friendly country, of a country, which wants to have extensive and fruitful relations with this part of the world. I hope my today’s presence here demonstrates this ambition of ours very clearly.

I would like to use this unique opportunity for presenting my views on something we went through in the last period, on the non-trivial problems connected with attempts to radically transform the whole society (and economy) and – I have to add – to do it in the context of a highly integrated, or as it is now fashionably called, globalized world.

My views regarding this topic are supported by my own, personal experience with a such a task done, however, in a rather different political, social, economic and cultural setting than is yours. In the last fifteen years I have been actively involved in a far-reaching transformation of a former communist Czechoslovakia into a modern, functioning country, which is – nowadays, which means again – based on the system of a genuine political democracy and of a liberalized, deregulated, open and privatized market economy. Some aspects of our transition were very European, perhaps very Central European, and are, therefore, not easily exportable to other parts of the world but I do believe that some of our experiences are more or less general, which means relevant for all countries undergoing a similar fundamental systemic change. I will try to say a few words about it.

After the fall of communism, there was – in our part of the world – a strong demand for both political and economic opening-up. It was impossible not to do it. The radical political restructuring – the establishment of a more or less unconstrained political democracy and of a full-fledged parliamentary system with spontaneously arising political parties – was accomplished almost overnight and was accomplished in a very smooth, we used to call it velvet, way. It undoubtedly satisfied the aspirations of citizens of our country after decades of their living in an oppressive communist regime. At the same time it predetermined other aspects of the subsequent process of economic transformation.

It is quite clear that such a far-reaching political democratization made any technocratic or scientifically rationalistic master-minding of the economic restructuring impossible. The process of radical economic changes was very political. The choice – widely discussed at the beginning and considered important at that time – between the so called gradualism and “shock therapy” or between the partial and complex, full-fledged reforms was in reality practically non-existent. It was not feasible to organize a sophisticated planning of individual reform steps even if some of us were intellectually able to do it. Our transformation process was, therefore, a mixture of spontaneous evolution of events and of organized constructivism. One other thing is, however, clear. The changes in both fields, political and economic, reinforced one another. It is not true that it would have been better to introduce the inevitable economic changes prior to the widespread liberalization of political life as it has been sometimes claimed in the literature on development economics.

The preconditions for success in our endeavor were the following:

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

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

- the ability to persuade the majority of the citizens of the country to support it.

That was really crucial. In the economic sphere, it was absolutely necessary to privatize, to liberalize and to deregulate the markets as fast as possible. It would have been an unforgettable mistake to wait for textbook conditions, to wait for a sufficient degree of market efficiency. The quick abolition of old institutions was a sine qua non for success because it was the only way how to minimize the objectively existing – and non-negligible – transformation costs.

When I say „we“, I have to say how the people looked at it all? Were they ready for such a rapid change? Does free society presuppose - in addition to the creation of its basic institutions - some set of values or moral standards that would ex-ante anchor the whole society? Do the people need an interim period of „schooling“? Is such schooling realizable? Are there teachers for such a procedure? Are the people willing to be educated? My answer to such questions was then and is now very simple. The people are always ready and do not need a special training. What they need is a free space for activities, they consider to be in their interests and they need the elimination of unnecessary controls and prohibitions of all kinds.

We understood as well that

- any large-scale societal change is a domestic task because democracy and market economy are no export commodities. They are a do-it-yourself project;

- the transformation is a sequence of policies, not a once-for all policy change;

- the costs of transformation, the costs of liberalization, deregulation and privatization are relatively very large. The people should be aware of them in advance;

- the societies (and economies) undergoing transition remain fragile and vulnerable for some time.

The changes, we went through, were not done in a vacuum. The external environment in an important way influenced the political situation, the reform plans as well as the actual economic performance. It is not surprising. We live in an era of globalization, in a radically growing, world-wide integration of vital aspects of cultural, social, political, and economic life. Looking in the future, I am convinced that the trend toward more globalization is irreversible. The antiglobalization forces offer no feasible alternative, they offer only sentiments, emotions and protests. Their activities may be disturbing but – hopefully – they will not be sufficient to reverse the prevailing trend.

World-wide globalization creates new challenges. To cope with them requires a strong and efficiently functioning state but our experience tells us it must be a state, which limits its functions to the provision of public goods, to the internalization of externalities, and to the helping of people, who are – for various reasons – not able to successfully participate in the market process. This belongs to often discussed “good governance” issue. To aim at having a good governance is, however, not the result of one or another reform act, it is the outcome of an evolutionary process. This inevitably arising time-inconsistency creates one of the biggest problems of transition.

That is not all. Two other issues, which I consider crucial, are protectionism and externally imposed standards. It is true that high-income countries are more open to trade and capital flows now than ever before but they continue to protect their own inefficient, labour-intensive economic activities, especially agriculture. At the same time they try to force low-income countries to accept various external “standards”, which is premature because they represent an outcome, not a precondition for economic taking-off.

The real help for developing countries would be the radical opening-up of markets on the side of developed countries, the establishment of free (not of fair) trade, the end of protectionism, and the abolition of export subsidies in developed countries. This is, however, exactly what these countries do not want to do even if they must be aware of the fact that the absence of free trade creates huge discrepancies in income and wealth among countries and, as a consequence, growing migration which is destabilizing their own societies. Either the goods and services move freely and the people stay where they are (because they have economic opportunities there) or the movement of goods and services is blocked and the people move while searching for better economic opportunities abroad. It is that simple.

There is, at the same time, the uneasy and often unpleasant relationship between domestic imperatives, considerations and possibilities based on the understanding of, and respect to, domestic conditions, aspirations and constraints, and external requirements imposed on low-income countries from abroad. It has become, especially in recent years, “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. I have in mind labour, social, safety, environmental, hygienic, etc. standards which are presented to developing countries as exogenous “constants” of globalized human society whereas they are only “variables”, dependent 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 sounds – is an effective way to eliminate the existing comparative advantages of economically less developed countries and block their successful participation in the world trade.

We have gone through a very similar problem in the context of our recent aspiration to become a member state of the European Union. Countries like the Czech Republic need real convergence of their economies with the old EU countries and are afraid that the unnecessarily extensive nominal convergence – the insensitive implementation of rules, policies, legislation and all kinds of standards of more developed countries – will block, or at least significantly delay, the real convergence. The differences both among countries and inside countries in Europe are probably much smaller and, therefore, less dangerous than in your part of the world but their impact is important as well. I consider the issue of externally imposed “standards” to be a very significant constraint on the economic performance of developing countries. This should be avoided.

This brings me to my final point. There has been a continuous discussion about the impact of economic, and especially of financial, aid in economic development. I do not have in mind humanitarian help in catastrophic situations but aid as an economic phenomenon. The belief in its enormous potential was recently reborn again. I am deeply convinced that the economic and financial aid has only a very limited importance in economic development. The arguments are well-known and need not be repeated here.

The countries of this region will be, I believe, able to use their potential and to succeed in their transformation efforts. They should all learn both from our mistakes and from our success. It is productive to exchange views about them. I am convinced the Qatar Economic Forum gives us a good opportunity to do it.

Václav Klaus, Speech at Qatar Economic Forum, Doha, Qatar, April 9, 2005