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Notes for the European Resource Bank Meeting Speech

English Pages, 22. 8. 2009

Many thanks for the invitation, for the opportunity to meet so many good friends and for the privilege to speak here tonight. I am glad to be in this historic city and in this beautiful part of France again. I know that this is a very knowledgeable and truly cosmopolitan audience, which makes the choice of the topic rather difficult for me. I will, therefore, briefly touch upon several issues which could be of interest to you at this very moment. 

We have the financial and economic crisis, we are supposedly approaching a planetary catastrophe due to global warming, but the first topic I would like to mention is this year’s 20th anniversary of the fall of communism.

It is not a lost or irrelevant topic. It is a living and a highly controversial one. There is no generally accepted doctrine as regards this subject. There are, in our part of the world, many competing interpretations both of the fall of communism and of the subsequent process of radical systemic change but I am not happy with most of them. They are too often based on a misleading and very biased „story-telling“ which does not take into account the broader picture and which does not use the available instruments, concepts and doctrines of well-established social sciences. This “story-telling” also usually exaggerates the role of individuals – especially of those individuals who are presenting the story and who see themselves as the real heroes of that era. 

Since the very beginning, I have been advocating the rather unpopular concept that “communism was not defeated. That it collapsed or simply melted down.” I don’t feel I have to change my position. At the end of the 1980’s, communism was already weak, soft, old and emptied of all meaning to exist much longer. 

There were also many disputes about the course, rationality and outcome of the subsequent transformation process. The original questions were where to go and how to get there. The people in our countries wanted a better society, society that would be more free, more efficient and, therefore, more prosperous, but – most of them – were afraid of capitalism. At least at the beginning. This term had been successfully discredited not only in the communist countries but in the Western world as well. In spite of this, some of us wanted capitalism and resolutely refused to participate in building any kinds of third ways. To a certain degree we succeeded.

It is much worse now. In the last couple of years new variants of third ways have been imported to us from Western Europe and North America by means of the European integration process. I have particularly in mind European neosocialism on the one hand and the ambitious environmentalism, or its extreme variant, global warming alarmism on the other. The success of both of these “isms” has significantly reduced the freedom we started experiencing and enjoying 20 years ago. It also endangered the healthy and productive functioning of free markets and impaired our economic efficiency and prosperity. 

The key debate about how to go forwards was diverted into a blind alley by a false controversy about the so called gradualism and/or shock therapy. Such a choice had never existed. Gradualism was always only an unrealistic dream of those who wanted to mastermind the society, to organize (if not plan) every single detail of the transformation process and by doing so to control us again. 

The real transformation process was different. It was a very complicated mixture of spontaneous evolution produced by uncoordinated decisions of millions of finally free people and of limited constructivism organized by politicians, operating already in a democratic political setting. There were no philosopher-kings, no czars, no dictators of any kind. To understand this is conceptually very important. This unique experience should not be forgotten together with us, with my generation.

My second topic, which is more closely related to your three-day meeting, is the current financial and economic crisis. The economic profession, the politicians, as well as the public did not expect not only its timing but its mere possibility. It is very sad. They probably forgot all lessons from history and all pieces of knowledge of economic theory. They accepted – explicitly or implicitly – the delusion of the so called “Great Moderation” hypothesis, for years supported by socialists or interventionists of all colors, based on the belief in the omnipotence of central banks and governments to control the macroeconomy and in the feasibility, rationality and positiveness of microeconomic regulation, including the financial and banking sectors.  

As we see, their dream about the final removal of business fluctuations did not materialize. We have to insist that the current crisis was a foreseeable consequence of a combination of well-known and widely discussed failures. On the macroeconomic side, the origin of the crisis was connected with the unprecedented build-up of imbalances in the world economy and with the unusually long period of easy money policy of low real interest rates in the U.S. On the microeconomic side, the existing partial and very imperfect regulation distorted the rational behaviour of banks and financial institutions and motivated them to look for ways to escape it by means of various “financial innovations”. They found it relatively easy to move their activities outside the regulatory perimeter, the most known example of this is the securitization of subprime mortgage credit. 

We have to go back to our standard views. We have to keep stressing that the current crisis is not the result of a market failure or of any inherent deficiency of capitalism. It is a government failure, resulting from the immodest and unhumble ambitions to control such a complex system as society and economy. But my saying that is  like “bringing coal to Newcastle” because I am sure you discussed it in a similar way in the last three days.

Third topic worth mentioning is the doctrine of the climate change and the role it has in shaping our society. I will just touch upon it without discussing either the ideology of environmentalism and of global warming, or its scientific or climatologic aspects. In this respect, I want to refer to a book I wrote about this issue more than two years ago. The title of its English version is “Blue Planet in Green Shackles”. It has been published already in 10 languages. I see two men here who organized its recent publication in French and Italian – Jacques Garello and Alberto Mingardi. It’s great to see you both here tonight. The substance of the book is captured in its subtitle which asks: What Is Endangered – Climate or Freedom? My answer is simple: what is endangered is freedom, climate is O.K. I hope it is not necessary to go into detail here now.

I prefer spending the rest of my time on another extremely problematic issue which is Europe, or perhaps, more accurately, the European integration. It has become a real threat to our freedom. 

It may be a surprising statement to some of you. People like me were – because of communism – deprived of the possibility to participate in the European integration process at the moment of its inception in the 1950’s. The acronyms EEC, then EC and finally EU were – from our perspective – considered the oases of freedom and prosperity. We should be – at least this is the feeling of all politically correct “eurocrats” – happy with the fact that we are “there” (or perhaps “here”). That is not my feeling. In 1989, all the post-communist countries wanted “back to Europe” which was a rational and understandable ambition. This aim was, however, different from a similar one which I dubbed “avanti into the European union”. This destination is different. By stressing this difference already at the beginning of the 1990’s, I had troubles to be understood. To my great regret, it is only slightly more understood now.

European integration process had many dubious ambitions already in the moment of its birth but in that era the leading idea was to liberalize, to open-up, to remove barriers at the borders of individual European countries, to enable free movement of not only goods and services but of people and ideas around the European continent. It was basically a positive concept. It should continue and be promoted by all of us who have elementary liberal, which means not statist or nationalistic Weltanschaung. With some degree of generalization, we can say that this integration model dominated the first decades after the signing of the Treaty of Rome in 1957. 

The situation changed during the 1980’s and the decisive breakthrough came with the Maastricht Treaty in December 1991. The integration had turned into unification, the liberalization into centralization of decision making, into harmonization of rules and legislation, into the strengthening of European institutions at the expense of institutions in member states, into the enormous growth of democratic deficit, into post-democracy. The true substance of the current dispute about the Lisbon Treaty is about whether to go ahead with this process at the cost of our freedom and prosperity, or whether to stop it. The victorious slogan “Back to Europe” 20 years ago was not meant to bring us back to a centrally organized and controlled world. 

But, again, I am sure you’ve already discussed all of these issues before my arrival. I hope in a similar spirit. Thank you for your attention.

Václav Klaus, 6th European Resource Bank Meeting, Dinner Speech, Hotel Radisson, Marseille, France, August 22, 2009.


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