Almost thirteen years have passed since the collapse of communism in the Czech Republic, as in other central and east European countries. No one can deny that we have succeeded rather rapidly in liquidating the formal structures and mechanisms of communist society, and establishing in their place the preliminary stages of a European version of parliamentary democracy and a market economy.
Up to a point, this is not a bad result. My question, however, is this: what exactly was it that we at least some of us really wanted to get out of this? Were we setting out to build a free society based on classical liberal principles? Or did we intend to venture up the blind alley of a regulated society, an unproductive welfare state, a brave new world of contemporary European social democracy, and an empty because artificial Europeanism (or internationalism, if you like)?
This past decade has been interesting, challenging, even rewarding for all of us. It has given us many important insights into what it means to build freedom, and free markets. We have learned some unforgettable lessons (especially regarding the organisation and sequencing of reform programmes); lessons that were not at all evident, clear, intuitively correct or indeed generally accepted, when we started dismantling communism.
We now understand more deeply its human aspects. But it was very difficult for the people of a country undergoing such a transition to understand the costs of systemic change and, particularly, the impossibility of catching up overnight with the current stage of development of countries that had not been put through a communist era.
We started with enthusiasm, but the original euphoria could not last. Pretty soon, we were confronted by impatience and disillusionment. This disappointment, however, was not at all the same thing as nostalgia for the old regime. Rather, this was the peculiar neurosis of a transition period, induced in us by our suddenly living in a world of radically increased uncertainty and risk.
Democracy is the winner
Already in 1996, Pascal Salin observed, in his presidential address to the Mont-Pelerin Society, that the collapse of communism was not a return to classical liberalism, but a return to democracy. This is a precise and well-judged formulation.
Eleven years ago, I was not so fortunate. I allowed a speech I gave in Sydney, Australia, to be entitled, Dismantling Socialism: a preliminary report. These rather provocative words were premature. What after all have we got? Instead of dismantling socialism, we have a World Wide Web; worldwide terrorism; the European Union (EU) and the euro; new, ever more sophisticated, hidden and intensive methods of government intervention and regulation; an ever-increasing welfare state, both in size and in scope; multiculturalism and political correctness.
This is not a great victory. It would have been more appropriate, therefore, to speak of dismantling communism. Communism at least, we can say today, is over.
Some lessons of transition
It was relatively easy to change the political system communism, more or less, collapsed. All that had to be done was to liberalise entry into the political market. New political parties sprung up almost instantaneously, establishing the much-needed political pluralism without further effort (or design). This was a spontaneous process. If there were efforts made to do it differently, these arose out of civil society or communitarian ambitions to go beyond parliamentary democracy and to effect a politics which was not dependent on political parties.
It was much more difficult to change the economic system. After forty years of pegged and centrally controlled prices, we had to liberalise prices and, also, foreign trade (abolishing state monopolies and opening up semi-autarchic, protected economies). We had to liberalise entry into the market for all types of enterprises, private as well as foreign. These steps were the necessary precondition for all subsequent development. I disagree with those, such as Joseph Stiglitz, who say that the gradual evolution of institutions and also of legislation, before the liberalisation of markets, is either possible or preferable.
To effect these changes was socially difficult, politically brave, but technically, relatively easy. Most of them simply needed to be announced. By contrast, it was the second stage of transition that asked for a positive and constructive input from the powers that be. This stage involved the transformation of the old and the building of new institutions, all of which took time and required complex organisation and administration.
This was especially the case when it came to privatisation. It was quite out of the question to wait for the slow demise of the state-owned companies, which, in the former Czechoslovakia, represented a hundred per cent of the whole economy. These had to be privatised, wholesale, and on a massive scale; something Western countries have never experienced and cannot begin to imagine. Privatisation is hard, politically, technically and administratively. Whatever the government does, and however it does it, its politicians will be accused of one of two fatal flaws: either of favouritism the inappropriate selection of the new owners or of not getting the best available price.
Moreover, the short-term results are not always positive. With the benefit of hindsight, I venture to say that our privatisation was successful. It was certainly much more effective than its reputation suggested, under the dark shadow of the political disputes that followed.
The costs of transition
Both at home and abroad, many people had assumed that getting rid of communism could be cost-free, without winners and losers, tensions, ups and downs, or any significant loss of time.
They had assumed that change would bring about immediate benefits: positive economic growth and an increase in living standards. They were of course, wrong. Such dreams soon evaporated.
Nevertheless, it was an important learning process. People in those countries undergoing transition slowly and reluctantly came to accept the inevitability of what I used to refer to as the transformation shake-down: the huge loss of output, income and employment; the disappearance of price stability, of the old, familiar distribution of income and property, and of existing levels of social protection; the shift in the ratio of reward to effort and so forth.
That these types of cost would be exacted was finally understood. But this was not the end of the story. Not long after, further problems surfaced. In my country, in the middle of the 1990s, coinciding with the currency crises in the emerging markets of Asia and Latin America, and a growing external imbalance in the current account of our balance of payments, the Czech National Bank suddenly, unexpectedly, and without any consultation with the government, switched over to a very restrictive monetary policy. This move immediately destabilised the economy, undermining its banking sector, and making both its domestic economic actors and its foreign investors very nervous. It led first to an outflow of foreign capital, then to a small currency crisis, and finally to an economic recession, which left many of our banks and enterprises significantly weakened and vulnerable.
The Czech people were not expecting it. They had naively supposed that, in contrast to central planning and state ownership, the private market economy guaranteed success, almost automatically. They were not at all psychologically prepared for business failure, either at the micro or macro levels. Not surprisingly, they saw themselves as having been betrayed and cheated by those politicians who had sold them the idea of capitalism, free markets, liberalisation, deregulation and privatisation without sufficient warning.
It was the government and its politicians who came in for the major part of the blame. It became fashionable to argue that these upheavals had been caused directly by:
- unsuccessful privatisation (if not privatisation in itself)
- the inadequate legislative and institutional framework accompanying a new, inevitably fragile and shallow market economy
- the human deficiencies and immorality inevitable in a post-communist world.
These views were based on a lack of understanding of the transition process, its legislation, its enforcement, and the relationship between laws and informal rules. It was also based on a misunderstanding of human nature. People forgot that:
- there is no such thing as perfect legislation
- the formulation of the law must take time
- law comes about through an evolving process, not through anyones diktat
- law comes about as a result of a complicated political process, not through some abstract, process of rationalisation
- the precise form of legislation is influenced not only by political or ideological arguments, but by vested interests, lobbying activities and the seeking of patronage and place.
Our critics perhaps imagined that we were still running a totalitarian state, where the transition could be masterminded from above, and where the appropriate legislation could simply be summoned into existence. This was not true. Liberals at the time realised, as they know now, that such institutions are the endogenous, not exogamous components of a free society. Moreover, human beings also are as they are and the world is little improved by the ceaseless moralising of self-appointed philosopher-kings, or intellectuals.
Where are we now?
With all our problems, we now live in a totally different world from the one in the past. We live in a world of incremental changes, of regular political processes, of many imperfections but with standard democratic mechanisms for dealing with them. A perfect society is a long way away communism, even further.
What we do not see, however, either in my country or elsewhere, is the end of socialism. We may be closer to it now than we were ten to twelve years ago. Given their structural similarities, it is not surprising if the fall of communism, and with it, the attack on all its irrationalities, lawlessness and crime, also temporarily weakened socialism.
But unfortunately, one has to say, only temporarily. Because, it seems to us that the last decade did not at all see its termination. It brought us instead the victory of social democracy, of various alternative third ways, communitarianism, environmentalism, political correctness, human rights speke, Europeanism, corporatism, and the rise of the non-governmental organisation (NGO) all of these capable of being designated as new collectivisms.
Ten years ago, the prevailing wisdom was deregulate, liberalise, privatise. Now, the slogan has changed: Regulate, adjust to the standards of the most developed and the richest countries in the world (regardless of your own stage of development). Moreover, listen to the partial interests of your NGOs and follow them religiously. In short, get rid of your sovereignty, putting it into the hands of international institutions and organisations, etc.
The intellectual climate has become increasingly hostile to liberal ideas. To win arguments in such an atmosphere and I know something about this, especially after the last elections is an extremely uphill effort. I sympathise, therefore, with Milton Friedman in Two Lucky People, when he says, I have learned how easy it is to be misunderstood, and how hard it is to be crystal clear. Even more difficult is attracting peoples attention in the first place, so that one might be seriously heard out.
The impact of EU expansion
Our transition has been going on in parallel with the changes in Europe. We began in the era of the European Community, we have gone through most of them during the era of the EU, and we will finalise them under the European Monetary Union (if not the EFU or European Payments Union. As I see it, Europe is undergoing irrevocable changes, to which its uninvolved and uninterested majority of European citizens pay far too little care or attention.
What began as an act of intergovernmental cooperation between independent countries, aimed at removing the barriers to the movement of people, goods, money and ideas, has been, slowly but surely, converted into the formation of a supranational European state under their noses one which it is intended should centralise power in Brussels, eliminate European nation states, and socialise Europe. Thanks to the trusting neglect of the majority of Europeans, a handful of pro-European activists and EU bureaucrats hold sway over these developments.
Many misunderstandings ensue. Some of us know, from our own personal experience, what it means to live in a closed, inward-looking society, where any form of contact with the outside world is prohibited (or at least made very difficult). We are unlikely to be against the opening up of societies, or the elimination of all those barriers to the free exchange of ideas, people, goods and services, or money over the continent or the whole world. As a result, we have been dreaming of being part of a European open society for many years.
But the current European unification process is not only, or not primarily, about such an opening up. It is about introducing massive regulation and protectionism; about imposing uniformity, laws and policies; about weakening standard democratic procedures; about the increasing bureaucratisation of life; about the enhanced power of the judicial authorities. This is not what we wanted, is it?
We wanted to go back to Europe, to the freedom we did not have whilst living under communism. But we also understood that this was different from rushing into an EU which is currently the most visible and the most powerful embodiment of the ambition to create something else something supposedly better than a free society. This is a different project.
As a small, central European country, we are part of Europe, and we have to participate in the European integration process. There is no other choice left open to us. It is, in addition, the only way we know to get international recognition and legitimation. Looked at this way, it is trap we do not either know how to break out of, or how to avoid.
