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Notes for the Frankfurt Speech: Free Trade and Freedom

English Pages, 17. 11. 2006

Thank you for the invitation to this important gathering, and especially for giving me such a privileged speaking position.

If I am not wrong, my last presence here was nine years ago. It is fair to say that you kept inviting me year after year but I always – with regret – sent an apology. The main reason is that you have organized the congress on a very unsuitable day for me. The 17th of November is the Czech National Day, the day we celebrate the end of communism and the beginning of building free society after half a century of life in an oppressive, totalitarian regime. I am supposed to be seen at home that day. This time, however, the topic you suggested for my speech “Free Trade and Freedom” was so attractive and seductive that I was not able to refuse your invitation.

I find it challenging to be here, in Germany, in this very special and important country and to get involved in your discussions. I know also that there is almost an abyss between “das geistige Deutschland” and “die Ökonomen”, and I always try – with my arguments – to help the loosing side.

My views on free trade and freedom are heavily influenced by my personal experience, which is connected with this very date. Seventeen years ago I was living in a country which had neither freedom, nor free trade. It becomes difficult to describe it now. For someone like me it was practically unimaginable to be allowed to attend a congress in Frankfurt at that time.

We were not only unable to travel to the free world. There was no political freedom and civil rights. The citizenship was an empty term. We were strictly limited in all our personal activities. The economy was centrally administered (it was Walter Eucken who inspired me to speak about centrally administered instead of centrally planned economy.) We had a rigid foreign trade monopoly based on the quasi-mercantilist thinking that we should import only what was necessary – in the eyes of the central planners – to guarantee the elementary input-output balancing of the economy and that we should export as much as was needed to have no foreign trade deficit. Free decisions of consumers and producers were non-existent. Comparative advantages and other basic economic principles were not taken into consideration. The result was an extremely inefficient, excessively regulated, unfree and illiberal system.

We were dreaming about getting rid of it all the time, and some of us wanted nothing less than a fundamental change, nothing less than the total transformation of the whole political, economic and social system. We knew that it required to fully liberalize both the political and economic life. We knew as well that – at least in our part of the world, in our cultural and civilizational setting (I don’t speak about Southeast Asia) – these spheres were inter-related and that it was not possible to open them independently, separately or in any “planned”, sophisticated sequencing. It had to be (and was) done simultaneously.

The political task – after the melting down of communism – was relatively easy. It was sufficient to liberalize the entry to the political market, which only confirms my conviction that it is neither possible to construct the political system from above, nor to deliver it from abroad. It must grow from inside. We made no significant (or worth-mentioning) intervention in the spontaneous evolution of the political system in our country.

To substantially change the economic system was more difficult and especially more time-consuming. We had to liberalize, deregulate and privatize the whole economy, because everything was state-owned and regulated.

We understood very early that the precondition for success is the wide-ranging liberalization of foreign trade. I have to repeat that we had to liberalize foreign trade after half a century of a closed and almost autarchic economy. We did it without any gradualism, practically overnight, on the 1st of January 1991. I stress both the totally unfree trade in the past and the speed with which liberalization was done because it is relevant when looking at the situation in the world, and especially in Europe, now. Due to the currently dominant illiberal political, economic and social ideologies, this continent is very far from “free trade and freedom”.

I would like to state that the current situation in Europe is, of course, much better than it was in our country 17 years ago. We are trying to make a shift not from totally unfree to totally free trade regime now but a shift from less free to more free trade. To make a change is, however, perhaps paradoxically, more difficult. It is frustrating to witness that it takes us years to make the slightest change. The powerful vested interests are able to come together, to reinforce one another and to form a truly international fraternity (Kameradschaft) which is strong enough to block any progress. When I hear the frequent complaints of trade unions, various Handelskammers, and other similar institutions, here in Germany and elsewhere, about the almost deadly losses connected with eventual moving towards free trade, I have to say that had we accepted similar arguments in the moment of our transition from communism to free society, we would not have been able to do anything.

The same is true about political and civic freedoms. Freedom is or is not. It must be introduced fully, not partially, not with looking at currently fashionable – for some perhaps progressive and desirable – ideas, not with accepting the requirements of political correctness, not with listening to nowadays so popular “isms” (such as multiculturalism, humanrightism, environmentalism, supranationalism, communitarism, feminism, NGOism), etc. These “isms” are not contributing to the increase of freedom. They are endangering it. We have created a culture, legal system and institutions in the last decades that block public debate and make it difficult to discuss any subject honestly.

Seventeen years ago, in the moment of the collapse of communism, I expected the world in the year 2006 to be more free – both politically and economically – than it is:

- I did not expect the current degree of postdemocracy, of democratic deficit and of bureaucratic control of society, I see around.

- I did not expect the rigid version of authoritative economic planning, euphemistically called common agricultural policy.

- I did not expect the harmful ways of blocking trade which are used by developed countries of Europe and America vis-à-vis developing countries in the Third World.

- I did not expect the attempts to construct – which in reality means to block – markets under the banner of an anti-monopoly or pro-competition policy.

- I did not expect the extent of income redistribution and the detrimental welfare-state policies.

- I did not expect raising so many barriers to rational labour mobility (resulting in mass immigration).

- I did not expect the political control of the economy based on the collusion between government regulators and the very industry they are supposed to supervise.

- I did not expect the hypocrisy in demanding trade liberalization from other countries, while maintaining trade barriers and subsidies for own products.

- I did not expect such a risk aversion on the side of politicians who are maximizing their years in office but not the amount of necessary changes aiming at freedom and free trade.

Ideas have consequences. Let’s, therefore, start in the field of ideas because the free market for ideas is more important than any other market. And let’s not forget that freedom and free trade go together. There is no substitution, no trade-off, between them. There is complementarity. We should do something with it. Now. It is long overdue.

Václav Klaus, Speech at the 16th Frankfurt European Banking Congress, Frankfurt, Germany, November 17th, 2006