19/10/2017
Texts in English
Václav Klaus: Economic (and Political) Transformation in the Czech Republic


Many thanks for the invitation, many thanks for organizing your gathering in Prague (and in the Czech Republic), not just because of its historical beauty (luckily not destroyed in wars or by ambitions of all kinds of city planners), but because it has some exceptional specifics:

- Prague is really the heart of Europe – not only geographically but culturally as well;

- the country has a special experience with 40 years of communism (it was the only politically and economically developed country prior to its communist era);

- in addition to it, we have another experience, we have spent the last 13 years in the European Union, which is another artificial construct, based on aprioristic, constructivist, quasi-progressivist ideas. The EU is not a genuine outcome of a spontaneous human behaviour.

You suggested a title “Economic Transformation in the Czech Republic” for my today´s presentation. I accepted it, but I want to say immediately that what we went through after the fall of communism was not just an economic transformation. It was a political change as well, it was a fundamental change of the political, economic and social system.

We wanted – after half a century of communism and of our undesired belonging to the Soviet Empire – to become a free, independent and sovereign nation. This goal was achieved but our situation has been slowly changed by our EU membership. I will try to say a few words about it later.

I am personally motivated in preserving a correct understanding of the unique and unrepeatable era after the fall of communism. It is not easy. We are already more than one generation away from it. I entered politics in November 1989, in the moment of our Velvet Revolution. First I became the Minister of finance, then the Prime minister and finally the President of the Czech Republic. You came here just before the Parliamentary elections. They will undoubtedly change our political scenery, but no one knows how much. We will see Saturday afternoon. I don´t expect any substantial change.

Let me start with a short summing up of thoughts and attitudes of the Czech reformers in the moment of the fall of communism:

We were convinced of the necessity of a total and unconditional liquidation of the communist political and economic system. We wanted a rapid systemic change. We explicitly proclaimed that we wanted capitalism and resolutely refused all dreams about “third ways” or about possible and desirable convergence of economic and political systems. It was not entirely positively welcomed in Europe at that time. Europe was already moving in that direction.

We knew that such a transformation was not an exercise in applied economics. It was not a game of chess. It was something very real. It was a mixture of political and economic measures affecting millions of people with their dreams, vested interests, prejudices, ambitions, fates. The transformation process was an ad hoc mixture of constructivism and spontaneous evolution.

We wanted to avoid a non-transformation, a slow movement to nowhere. Some of you might have heard about a dispute between two different would-be transformation strategies, between “gradualism” and a “shock-therapy”. We rejected both of them. We did not believe that gradualism was a feasible reform strategy (in a politically free society) and we, symmetrically, disagreed with the term “shock therapy” both as a useful reform concept and as a description of reality in our country and elsewhere. The term “shock therapy” was not an analytical term. It was a political accusation. It was necessary to make a fundamental change as fast as possible, but we didn´t want to shock anyone. On the contrary, we needed a maximum of cooperation of the citizens in our country.

We felt that the transformation project had to be ours, based on our ideas and on our realities. We tried to find our own “Czech way” and to give the people the chance to be part of the game, not to be just passive observers. We did not consider ourselves representatives of international institutions and we did not feel any necessity to please them.

We considered both the economic and political reforms interconnected and indivisible. To separate them à la China was in Europe impossible. It was not possible to stop the changes. The whole concept of gradualism was (and is) based on the belief in the possibility of a detailed orchestrating of reforms. It would have been, however, possible only with the absence of political freedom which was not our case. We immediately opened the entry into the political system and organized first free elections with 40 parties participating as early as six months after the fall of communism. Fully-fledged political democracy has been existing since that time in our country.

There were, of course, some inevitable steps and “rules” which we followed and respected:

a radical restructuring of government institutions started immediately – some were abolished, the role of others was substantially changed;

- we were aware of the enormous importance of macroeconomic stability for the success of transformation. We were conducting a very cautious monetary and fiscal policies, due to it our rate of inflation was much lower than in all other transforming countries;

- we knew that liberalizing prices without a parallel liberalization of foreign trade would have been a tragic mistake especially in a small economy. So we did it in the same moment;

- a few days before the price and foreign trade liberalization we carried out a substantial devaluation of the Czechoslovak crown which more or less accepted the level of the existing black market exchange rate. It restored an equilibrium;

- we originally wanted to have a flexible exchange rate regime but we understood the role of the fixed exchange rate as a much needed anchor when everything else was rapidly moving. It proved to be a good idea.

The decisive part of the transformation process was privatization. It was based on several ideas:

- fast privatization was considered to be the best contribution to the much needed restructuring of firms (we did not believe in the ability of the government to restructure the firms);

- our goal was to privatize practically all the existing state-owned firms, not just to allow the setting up of new firms on “green fields”;

- because of the lack of domestic capital (which did not exist in the communist era) and because of the very limited number of serious potential foreign investors, the firms had to be privatized at a low price. This idea led us to the concept of “voucher privatization”, which played an important role in our privatization program. It was our invention.

From the very beginning, the Czech reformers knew that they had to privatize the economy they inherited as soon and as fast as possible. We inherited the smallest private sector in the whole group of communist countries. The fast speed of privatization we considered an asset, not a liability. We did not have any great interest in the size of privatization proceeds.

Transformation is inevitably a process, which takes time. It has many aspects and dimension but we understood that we had to introduce the critical mass of reform measures at one moment. It was achieved in the first half of the 1990. We were – as the first post-communist country – accepted into the OECD, into this club of most developed industrial countries, as early as in 1994. It was a symbolic moment for us.

In the second half the 1990s we also started our approaching the EU. As a Prime minister I sent the application letter for the EU membership in January 1996 and as a President of the country I signed the Membership Treaty in 2003. This “investment” has – as everything else – its costs and benefits, it is definitely not a one-way-street. However, we are not sure that the benefits exceed the costs which is, of course, not a politically correct statement. Mr. Juncker wouldn´t be happy with it.

We lost a lot during the communist era but we also learned a lot. It was a unique opportunity for gaining profound and intimate knowledge of a highly centralistic, undemocratic, dirigistic and interventionist political and economic system in its pure form. To our great regret, during the last two decades we have found that the current European arrangements, the EU, is another, of course still much softer, variant of such a system, or – at least (to avoid an easy criticism) – that it moves quite rapidly into that direction.

We – undoubtedly – live in a different and much better world now than 28 years ago but we are – in many respects – disappointed. The beginning was promising. It is not so promising now. In the last couple of years, we have been moving away from standard politics to post-political, post-democratic arrangements, from authentic, ideologically well-defined political parties to ad hoc political projects, from democracy to post-democracy. Radically and without unnecessary delays, we privatized, liberalized, deregulated and desubsidised the rigid communist economy.

However, both for domestic political reasons and for our EU accession, we started a reverse process. Our economy is more regulated and subsidized (and harmonized and standardized) now than it was the case a decade or two ago. The increasingly destructive weakening of the nation-state by the European Union (and its ideology) and by moving towards global governance fundamentally undermined our sovereignty. All of that bothers us.

It is not easy to understand the EU, the contemporary version of the European integration project. The original – less ambitious and less detrimental – integration project of a friendly cooperation of member states, which originated in the 1950s, has been in the last two-three decades transformed into a centralized, bureaucratic, excessively standardized and harmonized project aiming at the unification of the whole continent. We see in it many features resembling the system we abandoned 28 years ago. The methodological difference between terms “integration” and “unification” is absolutely crucial.

We feel that the EU membership brings us back from capitalism to a modern form of European socialism, to an administratively organized society. It may sound too harsh, but I always justify this stance of mine by saying that living in communism sharpened our eyes. Not everyone in Europe have had such an experience.

The currently prevailing EU ideology undermines the traditional, historically proven, main pillars (or building blocks) of the European society:

the nation state – by favouring regions to states and by attacking a nation state as an awful and abominable basis for nationalism (and, therefore, for wars);

the family – by promoting genderism and feminism, by proposing all kinds of registered partnerships and same-sex marriages, by questioning the natural and historically proven sexual orientation of men and women, etc.;

the man – by trying to create a new European man, homo bruxellarum, by artificially mixing citizens of European countries and – especially in the recent era – by promoting and organizing the mass migration of individuals without European roots into Europe.

All what we see in Europe now is done under the umbrella of political correctness, multiculturalism and human-rightism. These “isms” (or doctrines) have become the principle ways and methods how to block a serious discussion about fundamental issues, how to eliminate free speech, how to indoctrinate new generations, and silence the opposition. Some of us experienced such an arrangement in the past, in the communist era. To make such a comparison is not a provocative overstatement. The contemporary degree of manipulation and indoctrination reminds those of us who are alert and live with open eyes the era of the late communism.

Václav Klaus, Speech at the Wealth and Beyond Europe Summit, Hotel Marriott, Prague, October 19, 2017.


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