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Sappi Lecture

English Pages, 9. 4. 2001

I am really honored to be here today and to have the opportunity to address this distinguished audience.

Ten years ago, I was invited to give a lecture in Sydney, Australia with an inspiring title: "Dismantling Socialism: A Preliminary Report". A few days ago, I promised to come again this May and to deliver another lecture with a partly changed title: to keep the words "Dismantling Socialism" and to add either "an interim" or "a final report". We can confidently say that the process of dismantling is over. Dismantling was, however, an easier part of our task. Constructing a new system proved to be more difficult.

Our experience tells us that it was relatively easy to change the political system and the whole political structure. The main reason was the fact that communism collapsed, it was not defeated. It was, therefore, not necessary to violently stop or prohibit anything. It was sufficient to liberalize the entry into the political market. New political parties were established rapidly and quite spontaneously and, as a result of it, we have had a political plurality relatively soon without constructing (or designing) it. As I said, it was a spontaneous process, it was nobody´s design.

It was much more difficult to change the economic system. Its starting point was liberalization and deregulation of markets.

We began with price liberalization (after 40 years of frozen and administered prices), with foreign trade liberalization (replacing state monopoly of foreign trade and opening the semiautarchic, protected economy) and with liberalization of entry into the market for all types of enterprises (private as well as foreign).

To realize these measures represented the first stage of transition. It was a crucial move. It changed the whole society, it enormously increased the supply of goods and services available to the citizens, it interrupted some of the old, deeply built-in behavioral patterns, it attacked (and endangered) old habits or "certaintes" (as it was called in the past) as regards employment, various social benefits, intensity of work, etc.

To realize changes of that type was socially difficult, politically brave, but technically relatively easy. Most of the changes required just to be announced.

(To explain the difference between standard and transformation liberalization and deregulation.

The second stage of transition already asked for a more positive activity of the government. It was necessary to build and establish new and transform old institutions and organizations.

The main issue in this respect was privatization. It was impossible to wait for the slow emergence of hundreds or thousands of private enterprises and for the slow disappearance of state-owned firms, which 11 years ago in former Czechoslovakia represented almost 100 % of the whole economy.

It was necessary to privatize the state-owned firms on a massive scale, on a wholesale basis. (The difference between classical privatization and transition privatization is crucial.) Our ambition was to find the first, not the final private owners and to get rid of state ownership, not to maximize government privatization revenues. For that reason, we invented an original method, called voucher privatization, and used it together with standard, well-known and proven methods.

Privatization is difficult both politically and technically. Whatever the government does and however it does it, the politicians are accused either of favoritism and selection of inappropriate new owners;

or of not receiving the best price.

I would argue that some unnecessary delays in privatization were caused more by such fears than by the ideologically motivated unwillingness to privatize.

In any case, privatization has been done and it meant crossing the Rubicon. We were fully aware of the fact that it had to be done regardless the unavoidable political costs.

Most of the people at home and abroad – the participants in the transformation process as well as the uninvolved observers – live in a very strange mental state, if not schizophreny. They consider communism to be an absolute evil and total disaster but, at the same time, they more or less assume that to get rid of it should be free, without costs, without tensions, without ups and downs, without a non-negligible time.

Because of that, they assume, or perhaps assumed, that it would have been possible to see only success, that because of the undisputed efficiency of the private market economy (as compared to the command or centrally planned economy), every firm and every economic activity has to succeed. You know very well from your own experience that it can´t be true even in a mature, stable, developed market economy, but it is much less true in an economy in transition – with dramatically changing economic environment, in competition with much stronger partners from the rest of the world, without sufficient experience.

Transition (and privatization) was, therefore, connected with many business failures and the one who was blamed was the government, not the individuals owning and managing those firms. It became fashionable to argue that the failures were caused by

wrong privatization and

insufficient legislative and institutional framework.

There is no doubt that both the legislation and the accompanying institutions were imperfect (without long process of evolution, without slow learning by doing, without incremental changes, it could not have been different), but the main problem was that the citizens were not prepared to accept the phenomenon of business failure.

Many advisors came to give us their recommendations. We were confronted with enormous naivity as regards the formation of legislation, its enforcement, the relationship between formal legislation and informal rules, etc. We have been criticised for our inability to create a perfect legislation. It has been forgotten that

there is no perfect legislation;

the formation of legislation is and must be slow;

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

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

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

Our critics probably assumed that we were still a totalitarian state where the appropriate legislation could have been simply introduced. It is not true.

Dismantling communism as a revolutionary, in some respect heroic set of actions is over and is over in an irreversible way. Permanent revolutionaries were, of course, unhappy and still are eager to continue. They did not want a return to capitalism, to the pluralistic parliamentary democracy, to the market economy. They wanted to create another utopia. Our experience with two totalitarian regimes in one century has taught us that the next utopia would have been as dangerous as the previous two.

We live already in a totally different world. We live in the world of incremental changes, of standard political processes, of many imperfections but of standard democratic mechanisms how to deal with them. Perfect society is far away, communism is even further.

9. (Eventually, four stages of our economic development.)

It would be inappropriate not to mention Europe. Our transition goes paralelly with a rapidly changing European landscape. We started our changes in the era of EC, we have continued in the era of EU and we will finalize them in the era of EMU. As we see it, with our oversensitivity, inherited from the past, Europe is undergoing a radical change with uninvolved or uninterested majority of Europeans who do not care or do not pay sufficient attention to it. Intergovernmental cooperation of independent countries aiming at removing barriers for the movement of people, goods, money and ideas has been – slowly but certainly – converted into a supranational European state aiming at centralization of power in Brussels and at elimination of European nation states. With the benign neglect of majority of Europeans, minority of leftist intellectuals and of EU bureaucracy can have a decisive voice. Nevertheless, in spite of seeing it so sharply, we want to be again a normal European country and have to, therefore, participate in the European integration process with all our existing reservations. There is no other choice left.

Accelerated unification of Europe is in my opinion an unnecessary and not sufficiently prepared process which can bring more problems than solutions. It has become, however, a quasi-religious belief to see it as a panacea. To oppose it is dismissed as something nationalistic, undemocratic and reactionary and is put together with names as Lukasenko or Milosevic. I see dangers in creating another Brave New World. To be proud of its own nation (and flag) is not a symptom of nationalism and of "incorrect political behaviour". It is a rational political stance.

We are an integral part of Europe and, as I already mentioned, we want to participate in the European integration process. But we want to be nothing more or nothing less than a self-governing nation in the European Union.

Václav Klaus, Four Seasons Hotel, Prague, 9 April 2001