The Permanent Fight for Freedom: A Czech Perspective
Sue Windybank talks to Vaclav Klaus
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V‡clav Klaus is President of the Czech Chamber of Deputies in the Czech Parliament, and was Prime Minister of the Czech Republic from 1992-1997. Along with V‡clav Havel, he helped found the Czechoslovak Civic Forum Movement (OF), the group of dissidents who led the Ôvelvet revolutionÕ that ousted the communists in 1991. After the split of OF in 1991, he was one of the founders of the Civic Democratic Party, of which he was elected chairman. As the first non-communist finance minister and then prime minister after more than 40 years of communism, he ran a postcommunist government for longer than any of his regional counterparts (bar Slovenia). Boldly putting the Czech Republic on the path out of communist stagnation, the man Margaret Thatcher once called Ômy favourite prime ministerÕ remains committed to more markets and less governmentÑwhat he has called a Ôpermanent fight for more freedomÕ.

Susan Windybank: Ten years ago you delivered a lecture for CIS entitled ÔDismantling Socialism: A Preliminary ReportÕ. Having been invited back to Australia recently to give an ÔInterim ReportÕ, however, you noted that socialism is still very much alive.

V‡clav Klaus: I am afraid that socialism is here to stay. We were mistaken by the fall of communism. We somehow expected that together with communism the rules of socialism were shaken. This is probably not true. Many socialists in the western world who opposed communism were quite happy that communism disappeared. But liberal ideas did not win the 1990s. On the contrary, we see no Ronald Reagan, no Margaret Thatcher on the world scene. The 1990s were much more associated with names like Bill Clinton, Al Gore, Tony Blair, Lionel Jospin, and Gerhard Schršder. At the beginning of the 1990s everyone was talking about The Road to Serfdom and Hayek, but I am afraid that now it has almost been forgotten.

SW: Why do you think that this happened just when it seemed as though ideas of liberty would triumph?

VK: I think that there are always intellectual waves. The intellectual wave of classical liberalism occurred in the 1960s and 1970s. Then in the 1980s it came to politics and became reality in some countries. Now these intellectuals are thinking about other things and they have returned to the ideas of various convergence theories and Ôthird waysÕ, something which I thought had been forgotten. Ten years ago I dismissed the idea of the Ôthird wayÕ by stressing my well known statement that the third way is the fastest way to the third world. Now we have to start fighting the third way.

DISMANTLING COMMUNISM

SW: The early days of transition in the Czech Republic were heady times. Looking back, what were some of the biggest challenges you faced?

VK: When we began dismantling communism, the most difficult issue was to fight the expectations-reality gapÑ the E-R gap as I call it. There was a naive assumption that getting rid of the obstacles and constraints of communism would release all the potential in men and women repressed by communism, and that they would immediately go up. These naive expectations were shared not only by the people in the former communist countries, it was also the dominant feeling in the West as well.

Of course, it was not true. When you reconstruct your own home, your living conditions during the reconstruction are worsened. This is exactly what happened in postcommunist countries. In the Czech Republic, the short-term loss was very visible. The first three years were marked by an inevitable economic declineÑa visible loss of output, income, employment, and so on. This is something that the people did not expect, and so it dramatically increased the E-R gap.

In addition, when the country suddenly opened, people started to travel all over Europe. They didnÕt compare themselves with either themselves in the past or with someone east of usÑin Warsaw, Budapest, or wherever. They compared themselves with someone from Zurich, Frankfurt, Paris or Amsterdam. ThatÕs another problem with the E-R gap.

SW: Does the E-R gap also apply to EU membership? Do some in the Czech Republic assume that by joining the European Union they will automatically enjoy the living standards of Western Europe?

VK: That is a tragic mistake. The slogans in the streets of Prague at the time of the Velvet Revolution ten years ago were ÔBack to EuropeÕ. It was a catch phrase. All the hopes of the people were expressed in this slogan. They wanted to become a normal European country. That makes it difficult to tell them that the slogan ÔBack to EuropeÕ is not the same slogan as the four words Ôinto the European UnionÕ. This is relatively easy to explain in an academic context. It is much more difficult to explain in 20 seconds on television. It is a very misleading situation. Somehow Czechs, Poles, Slovaks, and Hungarians expect that by joining the EU there will be an immediate improvement. This is not true. Joining the EU is in some respects an investment. With an investment, there are usually costs and benefits and you usually have to pay the costs first, and you get the benefits later. I am sure that in the short term the costs will exceed the benefits. In the long run it may level out, and hopefully the benefits will prevail.

EVOLUTION OF THE EUROPEAN UNION

SW: No-one in Europe seems to be discussing Europe along classical liberal lines; that is, a Europe characterised by freedom, choice, competition, and diversity. Nor does anyone seem to be talking about the corporatism and paternalism that seems to be flourishing there.

VK: ThatÕs true. I have many fights in Europe these days, not only over the current model of unification but also over things like German soziale Marktwirtschaft [social market economy]. Being against this is almost a sin these days. One is almost alone in saying that. So now we have to start again from the very beginning, to repeat ideas that we thought were clear to everyone.

SW: You have likened the EU to the former communist economic bloc, COMECOM, which strikes me as an quite an apt comparison. The possibility that the EU could turn into a USSR-style superstate cannot be dismissed entirely.

VK: Structurally, there are many similarities. Decision-making occurs several thousand kilometres away. Individual countries have a very limited role. Just like in the Soviet Union, there is a remote central power, and you have to follow decisions made not in your own country by your own elected politicians, but by some other unelected people far away.

I see many dangers in the accelerated unification of Europe represented by Maastricht, Amsterdam and Nice treaties. It is based on our oversensitivity, which is the heritage from the communist era. Pro-European activists dismiss all objections to their struggle for supranationalism and ever closer union as undemocratic, nationalistic and reactionary, and dismiss all those who disagree with them as potential Lukasenkos or Milosevices. Nevertheless, in spite of seeing it so sharply, we want to be a normal European country again and to participate in the European integration process. But we would like to be allowed to be proud of our nation without being accused of nationalism and of Ôincorrect political behaviourÕ.

ItÕs a danger. And it is part of a worldwide move to what I would call internationalism. Now the word ÔnationalÕ has a negative connotation, and the word ÔinternationalÕ has a positive connotation. That seems nonsense to meÑ a priori, there is nothing better about international than national. In both cases it is about people, about interests, about ideas, and sometimes there are better people, better ideas, and maybe more positive interests at the national rather than the international level. But the dominant tone in the world these days is that international by itself is a positive.

SW: You recently experienced a form of this ÔinternationalismÕ in Prague. What do you make of the way international groups like NGOs try to bypass national governmentsÑ

VK: Ñthey are statists. And they are not interested in classical democracy. They know that they have no chance of winning a classical democratic competition inside a country. They know that they are not able to form a standard constituency and so they search for a non-standard solution and find their constituency dispersed all over the world ready to come to Seattle or to Prague to demonstrate. That is a much easier way to achieve results than through a slow process, say, of starting a political party, establishing a position in the party, getting elected, changing some laws. The slowness of the political process can be a positive thing. They want to achieve results without waiting. That is why they undermine classical democracy, which is a natural organising principle for people.

SW: One more question about Europe. The acronym for European Monetary UnionÑEMUÑis, as you now know, also the word for an Australian bird. This bird cannot fly. Do you think itÕs an apt metaphor?

VK: Economists discuss monetary unions by discussing optimum currency areas as their starting point. A common currency area has some preconditions and when these are not met, then it is not a so-called optimal currency area. In such a situation, the costs exceed the benefits. The conditions for a currency area are not fulfilled in Europe. The theory has two crucial assumptions. When you eliminate a variable and convert it into a constant, then something else must move. You need labour mobility and you need wage and price flexibility. It doesnÕt exist in Europe. Labour mobility in Europe is incomparably lower than in the United States. To speak about price and wage flexibility in Europe is a joke. I donÕt think the movement of labour across borders and the movement of prices and wages can compensate for this. Something else has to move. Fiscal transfers have to move from one part of the monetary union to another. So the EU inevitably involves huge fiscal transfers. This means it must be followed by the creation of a European fiscal union. Since you canÕt have taxes without political power, the fiscal union must be converted into a political union. The main cost of EMU will be political unification. So to return to your metaphor, the EMU may fly if you add some additional engines or jets. But it will be very costly to make it fly.

TRANSITION IN HINDSIGHT

SW: What are some the main reform hurdles when shifting from one type of economic system to another, or rather from one philosophy to another?

VK: There are two types of reform programmes. One type is to move from communism and central planning and state ownership to a market economy based on private interests and ownership. This reform project is what we called transformation. It is a systemic change. This was our task in the 1990s. Another reform is to incrementally or marginally change different aspects of life. The smaller the role of the state, the less corruption. task of a typical, free, pluralistic society such as Australia. I was involved in the first one.

The second one is there and we do it on a permanent basis. Nevertheless, there is transformation privatisation and classical privatisation. Transformation privatisation means transforming the whole country. Classical privatisation means transforming individual public utilities. Transformation, deregulation and liberalisation means liberalising prices after 50 years of communism when prices are frozen and administered. Whereas Australian price liberalisation means liberalising one type of enterpriseÑ

SW: Like milk, deregulating the dairy industryÑ

VK: Ñyes, to liberalise milk, is to liberalise one item. It is a sufficient reform programme for one political party, for one election period. But our task was to privatise everything. ItÕs a different project.

SW: A related issue to privatisation, and one that seems to be common to all postcommunist transitions, is corruption. The Czech Republic was rated at 42 last year, just above Poland, on the Transparency International IndexÑ

VK:ÑI donÕt believe in such ratings. They are too subjective because they are based more on media headlines than on serious studies. What is clear, however, is that corruption, clientelism and favouritism are phenomena connected with the role of the state. They are nothing new. They appeared with the politicisation of economic life, with the emergence of politicians and bureaucrats of all types. My proposition is that where there is more government, there is more corruption. The smaller the role of the state, the less corruption, clientelism and favouritism.

What may perhaps be new is the current exaggeration of the problem and the exploitation of it for political purposes. The point is that when you transform society from a fully statist one to a free society and a free market, there is tremendous government activity. Privatisation, for instance, involves privatising thousands of firms. This is a very unusual role for the government. I think the accusations of corruption are vastly exaggerated and are connected with this unique period of transforming property on a wholesale basis from the state to individuals. In any case of privatisation in Western Europe, there are rumours about incorrect behaviour. But these countries privatise three or four firms a year. In transition countries, there was a natural increase in potential corruption and favouritism associated with mass privatisation. I donÕt think it is a specific propensity of postcommunist countries to be more corrupt. Privatisation was a specific historic and unrepeatable task. Otherwise I think the propensity for such behaviour is identical.

SW: A properly functioning legal system enforces the rules of the game. Did not personalistic and clientistic relations increase during the transition period because of uncertainty caused by gaps in the legal system?

VK: I donÕt think that an increase in the importance of personalistic relations is relevant to Central European countries. This is more typical of Asian societies, and maybe Russia as well, but not Central Europe.

The problem is different. I almost always disagree when people say you either have the rule of law or you do not. This is a misunderstanding. Just as it is not true that you have either central planning or a free market. In reality in Australia you are somewhere in between. You have a lot of central planning, whether it is industrial policy or whatever. And you have markets. Central planning and the free market are the model cases. It is never black and white.

The same is true of the rule of law. There are hundreds and thousands of laws in the Czech Republic. We inherited the legislation from the communist era. We have been transforming the legislation at a record pace. Our parliament may meet for two weeks and have something like 50 or 60 new laws or amendments of existing laws to pass. To tell us that we should have had 100 or 200 is crazy and proves the lack of understanding of the real issue.

Legislation is the product of human action, to use Hayekian terminology. ItÕs not a product of human design. There is not a group of five or six perfect lawyers who come up with perfect drafts of perfect laws. The laws are created in a real society, in real life, in a very individualistic society and there is a fight over every sentence of the law. And sometimes you win and sometimes you lose. Western commentators make a mistake when they speak of the rule of law in black and white terms.

To make the point even more dramatically, if you are not happy with the quality of the legal system, what about terminating communism, introducing freedom and then telling the happy millions of people, ÔWait a minute. We are happy that we defeated communism, but we donÕt have empty boxes of legislation prepared for you. So letÕs wait for five, ten, 15 years. In the meantime, you can travel all over the world, play golf or whatever and we will put together the best brains, who will rewrite thousands of laws. Then, on the 1 January 2013, we will annouce that we now have perfect legislation and the free society can start.Õ ItÕs nonsense, but that is exactly what the highbrow commentators usually imply when they criticise our imperfect legislation.

Imperfect legislation is everywhere. I am sure that in Australia people feel that the legislation needs to be improvedÑto fill holes and gaps, to make it more difficult for criminals to do wrong. The same is true in the Czech Republic, except that we did not experience the evolution of the legal system for centuries. So our task was much more difficult.

SW: In comparisons of postcommunist transitions in the former Soviet bloc, one pattern that seems to be emerging is that those countries that adopted a parliamentary system of government have fared better and have been more stable than those that adopted a presidential system where power was highly concentrated in the executive. As a parliamentarian, what are your views on this?

VK: To begin with, in the 1920s and 1930s, before communism, the Czech Republic was a parliamentary democracy, not only comparable but in many respects better than some other Western European countries. So the existence of political parties was considered quite normal, and political parties emerged quite rapidly after the collapse of communism. Within a few weeks or months, 142 political parties were established, although most were just grouped around one personality or another. Most of them disappeared very quickly. At the first elections in June 1990, 42 political parties participated.

Now the situation has stabilised. I am convinced that the existence of a fully fledged parliamentary democracy is based on well-defined political parties, not on movements or alliances against something or for somebody. ItÕs already a standard political system, which was a very important precondition for the relative success of transition in other areas. The countries that succeeded in forming such a political structure had a stable political system, whereas the countries that did not have political parties have a very unstable political system. Russia is a typical example.

SW: Speaking of Russia, many commentators seem to have written off the reforms there as a total failure, depicting a country run by the mafia, former communist apparatchiks and KGB spies. What is your view of RussiaÕs progress since the collapse of communism?

VK: That is an incorrect inter-pretation of events in Russia based on what is written in the headlines. If you look inside, you get a different impression.

There was a book by a well known Russian historian, Andrei Amalrik, which came out at the end of the 1960s. It was called Will the Soviet Union Survive Until 1984?, after George OrwellÕs famous novel, 1984. If you look at the book now after more than 30 years, what he expected at the moment of the collapse of communism was a fully fledged civil war in the country. By contrast, what is going in Russia is almost a peaceful and smooth development. We may consider the war in Chechnya as something totally unacceptable. But what we expected was 100 Chechnyas, not just one. After 70 years of communism, there was one afternoon of fighting around the Russian parliament. One afternoon fight! What we expected was civil war with millions of people involved.

With all its problems, Russia is muddling through. It is very different to what anyone here in Australia or in my country would accept. Nevertheless, the highbrow way of looking at it seems inappropriate.

SW: The Czech Republic emerged from the communist era in much better shape than Russia, which is not at all. But how do you account for the relative success of the Czech Republic compared with some of its neighbours to the east?

VK: The experience of the 1960s in Czechoslovakia was important. This was when a visible social, cultural, economic even political revolution took place, usually known as the Prague Spring era. The Soviet armies that invaded Czechoslovakia in August 1968 crushed it. It was a period when my generation was just ending university studies. We used the time to be abroad. I spent five months studying in Italy, one semester studying in the United States. That was a very unusual window of opportunity that did not exist in any other former communist country.

My generation carried out the velvet revolution. With the dismantling of communism, we were in a better position than most of our colleagues in Poland, Hungary, Russia, Romania, and elsewhere, because after 1968 people like me were fired. We lost our jobs because we were considered anti-Marxists and counter-revolutionaries. The result was that we didnÕt have the slightest chance to be involved in the endless reforming of the communist regime. In contrast, Poland and Hungary didnÕt have the Prague Spring era. My colleagues and counterparts in academic institutes joined government commissionsÑthe Communist Party commissionsÑon how to reform, how to improve the functioning of the socialist economy. We were in a totally different position. We were ÔoutÕ. We never tried to reform anything, so for us it was much easier to reject fully the communist system. With the Velvet Revolution in 1989 we didnÕt want to repair communism, we simply wanted to start something totally different.

SW: You recently established an institute, a think tank, and you have joked that if you donÕt win the upcoming elections, you will have something to fall back on. How is the state of intellectual and academic debate in the Czech Republic?

VK: In the past, the Czech Republic did not have think tanks. We had universities or the so-called Academy of Sciences, a very highbrow institution, where I started working in the mid 1960s. I started work in the Institute of Economics, in the department that studied capitalist economies; it used to be called non-Marxist economies. This is where I discovered liberal economic wisdom and theories. I was paid to study them and, of course, to criticise them. That is why I read Western economic literature. So we had the Academy of Sciences, but it was a sterile institution.

After the fall of communism, the role of academics was very low because whoever wanted to do something about the situation, joined the Velvet Revolution, joined political parties, joined the new people in the government. Most of my colleagues in the governmentÑdeputy ministers, cabinet members, crucial advisersÑwere former academicians. Those who didnÕt want to do anything stayed in the academic institutions. There was no real academic development in the Czech Republic in that whole decade. The politicians discussed things amongst themselves because most of them were academic economists or sociologists. And so there was no real academic debate. Several small think tanks started to operate, and in April 1998 I started the Centre for Economics and Politics, which organises seminars and publishes bulletin and other publications. A selection of my writings on Europe was put together and published as a book in June this year.

SW: I look forward to seeing a copy. Thank you very much for this interview.

Susan Windybank is Editor of Policy.

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