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1996 Wriston Lecture: The Czech Republic and Europe at the Turn of the Century

Thursday September 1996

Event Transcript

(unedited transcript)

ROGER HERTOG: Good evening. Welcome. I'm Roger Hertog, Chairman of The Manhattan Institute, and it's my pleasure to welcome you to the Tenth Annual Walton Wriston Lecture. In our usual, slam bang, raucous style, we express our gratitude to our friends and supporters, not with belly dancers and light shows, lavish feasts and elegant soirees, but a celebration of ideas. Ideas which stand at the crux of who we are and what we want to accomplish.

In 1996, this election year of circus politics, we at The Manhattan Institute hear our voices echo in the area of social reform. Who would have thought that such abstractions as choice, freedom, opportunity would rise above the din of personalities and rhetoric and influence the course of public policy.

In a sense, a think tank is an oxymoron. A band of scholars who seek to bridge that gap between thought and action, between research and reform. And, yet, to think, says Webster's Dictionary, is not only to reflect but to bring one's power of judgment. A tank, it states, is not only a reservoir but an armored vehicle with excellent cross-country mobility. [Laughter]

The political arena is a battleground and as Irvin Crystal (phonetic spelling) says, you can only beat an idea with another idea. But social reform, like all God's work, often moves grindingly slow. Twelve years ago, Charles Murray (phonetic spelling), and unknown Ph.D. at The Manhattan Institute in his own words, a nobody, dared to ask a simple question: Why had the basic indicators of well-being, unemployment, education, crime, family structure, economic independence taken a turn for the worse most consistently and most drastically for the poor. Who would have thought in 1984 when Losing Ground was published, that a Democratic President would have said, today we have an historic opportunity to make welfare what it was meant to be, a second chance, not a way of life. I will sign this Bill first and foremost because the current system is broken.

To you, Charles Murray, a friend, a scholar, and certainly no longer a nobody, we say, thank you and congratulations.

In the area of education, seven years ago The Manhattan Institute banded together with a renegade force of retired superintendents, principals and teachers and formed our center of educational innovation. It was to seek new paradigms for educating the one million students which constituted the public school population in New York City. By every objective measure of performance, attendance, test scores, graduation rates, college entrance exams, the pubic school system reflected a problem that needed and a system renewal. Asking the simple question, what could we learn from other systems, public and private. We fought to promote and new research, to provide opportunity for academic success. Then as now, the quality of education in our public schools is at the crux of the quality of life of the future of New York City.

Scholars like Sol Stern, who've examined the ability of Catholic schools to enhance the performance of students of similar socio-economic status, have added enormously to the fire and substance of the debate.

This year, Ann Rubeinstein Tisch and her husband Andrew ask another question, so basic to the rights of parents that everyone, scholar and activist, inside and outside the system, had to stand up and take notice. Based upon nothing more than common sense, the Tisches's radical idea was that parents had the right to choose to send their daughters to a single-sex public school because they believed it would dignify and enhance their learning process.

A small victory, yet a symbolic one in the battle of reform. Only 50 young women at this point are enrolled in the Young Women's Leadership School. But it was nonetheless an idea that the power of an armored tank, potent enough to provoke the opposition of the ACLU and would you believe, the National Organization of Women. Ann Tisch, we solute your commitment. Thank you.

There's a lot left to be done, but the message is our voice being heard and we continue to be both that reservoir of research and that armed force of ideas in the agenda of reform.

Tonight we are pleased to have the Prime Minister of the Czech Republic as our Wriston Lecturer. His work in his country is a point of light in service to the ideals that we hold so dear—freedom and opportunity. To introduce him, we've conscripted the force of a one-man juggernaut of ideas. A man who with simplicity of fact, elegance of language and courage of his convictions has spanned the chasm between thought and policy. As editor of commentary for 35 years, as a valued supporter of The Institute and as a cherished friend, I'm pleased to introduce Norman Podhoretz. Thank you.

NORMAN PODHORETZ: You should all be so lucky as to be introduced by Roger Hertog.

Let me say first, that it's a twofold honor for me to be standing here tonight. I'm honored to be participating in an occasion associated with the name of Walt Wriston. A man whose career has taught the, to me, highly reassuring lesson that it's possible for an intellectual to achieve greatness and wealth in the world of business and finance. [Laughter] And I'm doubly honored in being charged to introduce Prime Minister Vaclav Klaus. A many whose career has taught the equally reassuring lesson that it's possible to be an intellectual and yet to achieve greatness as a politician and a statesman.

In addition to being honored, I'm also delighted by the opportunity to pay tribute to the leader of country for which I have a very special feeling. I have it on good authority, the authority of Chuck Brunie, that Prime Minister Klaus once remarked that a group of men, he himself included, I think, who in the dark days of Communist rule translated the works of Hyack Friedman (phonetic spelling) and Von Meesis (phonetic spelling) into Czech were now all members of his cabinet. Well, on a clandestine visit to Prague back in the darkest of those dark days, I met one of those men.

Like many of his fellow dissidents, he had been punished by being dismissed from an academic post and forced into menial labor. In his case as a stoker on the subway where he spent the hours from midnight until dawn alternately shoveling coal into the ovens and translating not only Hyack and Friedman, but also articles from commentary for distribution in Somisdod (phonetic spelling). I was moved beyond words and beyond tears to discover this and you will understand why I have had a special feeling for the Czech Republic ever since.

But I think I would have developed a special feeling for the Czech Republic even if I had never been given so personal a reason for doing so. Some of us used to say that the only Marxist left in the world were to be found in the universities of America and other Western countries. Conversely, there was a time when almost the only true believers in the precious freedoms we enjoyed here in America and throughout the West were to be found in the countries of Communist Europe. And of these true believers, none was more important than Vaclav Klaus. No one understood better than he did the profound connection between economic liberty and political freedom, a connection he has expressed, he has stressed and explored in many of his writings and speeches. Today, the great truth that economic liberty is a necessary if a not a sufficient condition of political freedom, is more widely understood both by intellectuals, recalcitrant though they be, and by politicians in the West, that it was only a few short years ago. And this is no small measure because people like Vaclav Klaus kept that truth alive while their countries were still prisoners of Communism.

But Vaclav Klaus in particular not only kept that truth alive when his country was still a prisoner of Communism, he then proceeded with great intellectual, steadfastness, moral courage and political acumen, to act upon that truth when his country was liberated after 40 years in the Communist wilderness.

Moving up the ladder from Finance Minister to Deputy Prime Minister and finally to Prime Minister, a post he has held since 1992, Prime Minister Klaus worked what has been widely hailed as the Czech miracle. Steering his country into a period of unprecedented freedom and prosperity. Thanks to his leadership it is a country whose democratic institutions are now solidly anchored in an economy that has been described as the most capitalistic of the formerly Communist nations.

Ladies and Gentlemen, it is indeed an honor to present the man who is recognized even by his critics as the dominant political leader in the whole of Central Europe, the Prime Minister of the Czech Republic, His Excellency Vaclav Klaus.

PRIME MINISTER KLAUS: Mr. Chairman, Mr. President, Ladies and Gentlemen, thank you for inviting me to come here and for giving me the chance to share with you some of my ideas about my country; about the post-Communist world and implicitly about Europe and about your country, as well. I will, of course, use my experience both from the Communist era and from the transition years as my main perspective.

Almost seven years after the so-called Velvet Revolution, the Czech Republic has completed its basic transformation from a Communist society to a free society based on a pluralistic political system and a free market economy. The relative success of the transformation process in the Czech Republic was made possible by clear vision of a society we wanted to establish. It as made possible by the capability of political leaders who were suddenly and unexpectedly put into their positions after the collapse of Communism to prepare and implement pragmatic and realizable transformation strategy. And it was made possible by the ability of political leaders to gather sufficient public support for the measures which were often painful and therefore not always popular.

The easiest part of the whole process was the political transformation. It was put in place through a simple and rapid liberalization step through the introduction of free entry into the political market. As a result, almost overnight political entities, new political entities started to emerge to formulate their political programs and to establish their local branches throughout the whole country. They began their fears and in principal healthy political in-fightings. Nothing else was necessary.

What followed naturally, was a pure, spontaneous evolution. After the initial extreme automization [sounds like] of the political spectrum with more than one hundred political parties or quasi-parties at one moment, the more or less standard spectrum of political parties was clearly defined by their logical positions has gradually been created.

To a large extent, the current political structure of the Czech Republic resembles those of Western European style. This new structure (unintelligible) governments and in spite of the relative weakening of the (unintelligible) and the recent parliamentary re-elections, the Czech government remains the only right of center [sounds like] government of the post-Communist world.

The social transformation took a longer time. It started with the abolishing of the most visible aspects of the Communist paternalistic system, the subsidized food prices. It continued with the radical liberalization of all prices, practically all, which were 40 years under Communist control. Only a few prices like rents and the prices electric energy still remain regulated. But the deregulation process continues according to a pre-announced, annual formula. So that we expect to reach the equilibrium level of nearly all prices in the very near future.

An important step forward was the fundamental reform of the social transfer system with the introduction of means tested social benefits, last year. Even if one has the feeling that the system is still too generous, we envisage to continue to adjust it in the future.

As a result of that, overall climate within the society has changed. Individual responsibility and not waiting for help becomes the dominant social philosophy and a social psychology. We do not underestimate the role which social policy organized by the state should play in a healthy society, but we do not share the currently prevailing European concept of a social market economy with an overextended welfare state philosophy.

In the economic sphere, we have been consistently trying to follow basic well-know conservative axioms. We have been insisting on [sounds like] hellacy (phonetic spelling) finance and on a balance budget, which we have had for seven consecutive years already. I am flying home Monday night, and Tuesday afternoon I will be in Parliament where the eighth post-Communist budget will be discussed again, as the balanced budget.

Also, we have insisted on the continuous diminishing of the share of the state budget on GDP, on the vigorous de-regulation and liberalization and on rapid mass privatization of what used to be the state-owned economy. We understood that the role of privatization is absolutely crucial.

One qualification is, however, necessary. It's task was to find new private owners and not maximize the government's proceeds derived from privatization. I have to admit that we had troubles explaining it to our Western partners and friends. To privatize as quickly as possible we were forced not to rely fully on standard privatization methods which are useful when a government privatizes marginal parts of a whole economy. And we were forced to replenish them by our own invention by the so-called voucher privatization. This procedure made it possible to privatize quickly and on a large scale with the involvement of millions of our citizens. This rapid privatization which led to the situation where the private sector produces three-quarters of our GDP today, it was zero in 1989. [Applause] Proved to be the catalyst of the whole process.

Today, no additional radical, far reaching measures stand before us in the economic field. Now, the maturing of the whole system will depend more and more on spontaneous evolution of all Micro Agents involved then on the government's policies.

In the international sphere we have changed our previous Eastern orientation. As you know, the organizations as the were SOPEC (phonetic spelling) and COMMICON (phonetic spelling) were dissolved and at present our aim is to become full members of the European Union and NATO. However, it doesn't imply that we do not wish to continue our cooperation with the countries on other continents, as well as with the countries of the former Communist bloc.

It can be demonstrated by the fact that the Czech Republic is a founder and a very active member of CEFTA. CEFTA is still an unknown organization here. Central European Free Trade Area, which has become a very fruitful and very productive integration endeavor.

To discuss all of that in more detail wouldn't be, I guess, very interesting to this audience. Therefore, I wish to continue discussing some more general deeper aspects of all this.

When speaking recently at an international meeting in Vienna, I was asked, what the tricks are, how it was achieved. I would like to make an attempt now to say a few words to that.

The transformation of the whole society is an evolutionary process which is composed of a very complicated mixture of planned and unplanned movements, of intended and unintended events. It's a process which is based on a rather delicate mixture of intentions of spontaneity, to use the famous Hyackean (phonetic spelling) terminology. This interpretation of events, however simple and trivial, proved to be very useful for both the theoretical discussions and the practical policymaking.

It was an approach disliked only by those immodest ambitions of social engineering and who, after the collapse of Communism, tried to make use of unique opportunity to construct such a complex phenomenon as a new social system and to fine tune its emergence. Some of us have been warning against all kinds of left wing social constructivism, but I am afraid that if you as a few years ago, even some of us tended to make a similar mistake.

We should know that capitalism cannot be introduced. We should know that it must evolve, grow, gain strengths and mature in the way described so clearly by Hyack and others.

When discussing transformation from Communism, and I stress now, from Communism not from an interventionist, welfare state, I suggest to start with a non-trivial idea that the Communist system collapsed. That it was not defeated. It collapsed because it was in an advanced stage of decomposition because it gradually lost its two strongest constitutive elements, the fear on one hand and the face [sounds like] on the other. In its final days, the Communist system became most soft and unconvincing. And such state of affairs was not sufficient for safeguarding its farther continuation.

It is an irony of history that Communism sort of melted down, which is something that some of our brave colleagues in the post-Communist world do not like to be reminded of. Part of their aura would be lost and that's the reason why they try to contest such an interpretation of events. But, I am convinced that it is correct.

We are being confronted with an idea that the collapse of Communism created a vacuum. At first sight, this seems plausible but it is not. What remained was not a vacuum. We inherited weak and therefore not efficient markets, and we inherited a weak and therefore efficient democracy. Both the economic and political mechanisms were extremely shallow; the political and economic agents were new, weak and fragile. And the outcomes of their interplay were therefore less efficient than in a fully-grown free society as you know it from the countries which have never experienced Communism and where it is spontaneous evolutionary process of institution building and agent formation has never been interrupted.

In spite of that there was no need not to speak about the possibility to fill the newly created space with a ready-made, imported, from outside delivered system. We had to move the margin and make incremental changes. No masterminding of the evolution of a free society was possible.

On the other hand, I agree with those who make a point that it was not possible to wait for a sufficient degree of market efficiency. The quick abolishing of old institutions was a (unintelligible) for success because it was the only way to minimize the non-negligible transition costs. At the beginning, the weak markets were not more efficient than the common [sounds like] economy which existed before, but this should not become an argument against early liberalization and de-regulation measures.

The relative weakness or strengths of institutions of a newly-formed free society is only one aspect of the whole issue. What about the people? Are they ready such a rapid change? Does free society presuppose in addition to the creation of its basic institutions some set of values or moral standards that would properly anchor [sounds like] the society? Do the people need an interim period of schooling? Is such schooling realizable? Are there teachers for such procedure? Are the people willing to be educated?

My answer to these and similar questions is rather simple. My answer is: that the people are always ready and that they do not need a special education. What they need is a free space for their voluntary activities, the elimination of controls and prohibitions of all kinds.

When I speak about a free society, or when we speak about a free society, what kind of free society do we have in mind. Should we transform ourselves to a theoretical model of free society? Or to a real free society as we see it in many forms in Western Europe and modern America? Theoretically, the answer is simple and straightforward. The closer we get to the ideal case, the better. In reality, it is more complicated.

Whenever I try at home to avoid introducing a liberal legislation or to repeal the existing one, I am reminded of the same law in one Western country or another, or recently, more and more often I am being told that what I do not want to accept is exactly the recent recommendation or even instruction of the European Commission. Following such examples can become paradoxical constraint on our spontaneous evolution to our free society. And we are aware of that.

After the collapse of hard Communism, we rejected reformed Communism. We avoided at least in the Czech Republic romantic nationalism with its very negative systemic consequences. We overcame utopian attempts to forget everything and to start building a brave, new world based on (unintelligible), moralistic and elitist ambitions, ambitions of those who are better than the rest of us. But our remaining task is not to lose this statist, interventionist, paternalistic, social democratism which we see in so many free societies to the West of us. We know that it is our task to attack the expanding state which was and still is a dominant tendency of the 20th century, of the century of socialisms with the variety of confusing objectives. The majority of intellectuals and social scientists of this century considered this tendency to be almost an iron law of history. We have to demonstrate that it is possible to make a return to the liberal, in the European sense, social order.

Thank you for your attention.

ROGER HERTOG: The Prime Minister had a long day. He flew in today, as a matter of fact, for this talk, but he would be more than happy to answer a few short questions. And so why don't let him field a few from the audience.

Do I see hands. Chuck Brunie.

CHUCK BRUNIE:  Is there a difference in support within your country between the younger people, the 20's and the 30's versus the 50's and the 60's, or between male and female.

PRIME MINISTER KLAUS: Some politicians are very popular with the ladies, so, of course, there is a difference in support. But, surprisingly, the strongest support for all that, for the whole radical transformation, the strongest support comes from the age group which is losing most. This is the old generation. It is very interesting, of course, that they know that they will not be the, they will not have a chance to live in a functioning society, functioning system, but nevertheless they spent longer time in the Communist era and they know that what, they understand what has changed.

Surprisingly, for a young generation they have plenty of opportunities, they take it immediately for granted. For them, almost they were born to such a system. They take it as a normal situation. So, if you put a question that way, it's approximately so.

MALE VOICE 1:  In 1945, I was in (unintelligible) --

I was (unintelligible) regimen in Czechoslovakia, it was in (unintelligible) and we had the opportunity at that point to decide whether or not the United States was (unintelligible) back to Russia or allow them to take over all of Eastern Europe. It seems to me that that was the real turning point in our foreign policy. What is your attitude towards this (unintelligible) mistake.

PRIME MINISTER KLAUS: Well, this is history for me which simply happened and there is not way to rewrite again. So, I take it for granted and our task was to try to change it and we did.

MALE VOICE: Mr. Prime Minister, this year is the 20th anniversary, I think, of a book by Daniel Bell called the Cultural Contradictions of Capitalism, in which he argues that there is a tension between the acquisitor's [sounds like] celebration of laissez-faire capitalism and the kind of social mores, family, church, social stability that often undergird it. Do you see this tension between being rich and being good?

PRIME MINISTER KLAUS: I'm not rich, which means it's not necessary to be good. [Laughter] How to put it. No.

I think that it is probably important to discuss such an issue. But I must say that we were in many respects, we were privileged to spend 40 years in a Communist system. It gave us something very special. It gave us a very special sensitivity, maybe even over-sensitivity, to many, many things which you take for granted and you don't even discuss. And in this respect, for me, I would never write such a book as Daniel Bell, 20 years ago. [Applause]

I remember his axial thinking is something my intellectual qualities are not sufficient to understand. [sentence sounded like]

MALE VOICE: What happened to the other half of Czechoslovakia and did the separation make it easier for the Czech Republic to move forward and do you see any lessons at all for other countries that are undergoing similar discussions, Canada and so on.

PRIME MINISTER KLAUS: First, my generation was born in Czechoslovakia so I have never thought about the possibility to divide the country into two parts. My wife who is here with me is a Slovak, so we survived well the divorce of the country [laughter] and we definitely didn't want it, and most of the Czechs didn't want it. I must says that it is very difficult after the collapse of Communism to differentiate sufficiently what was the Communist centralism and what was centralism coming from the capital of the common state. Simply, Slovakia had the feeling that is not sufficiently represented, there are things that are not done as they like to have them, and simply they wanted to be independent. Which is something I didn't way, my wife didn't want, but we had to accept that ambition. And the fact that we were able, and I spent one year of my life doing that, we were able to organize the split in such a friendly, smooth and quiet way as it was definitely positive.

So, I am pretty sure that there friendly relations between that Czechs and Slovaks now, and I think that there is a normal functioning with two independent countries. It doesn't mean that I suggested it to anyone that, and we are of course sometimes quite unhappy. I am, personally, very unhappy when I see the leaders of would be independent part of Belgium --

-- visit me and considering me as their hero. So, definitely, this is something I do not advocate and I do not recommend to anyone.

But I would say that two more homogeneous parts and countries were created. One of the main problems of let's say, Russia, today, is the lack of homogeneity and the vastness of the whole country. So the fact that the country was divided made it easier, paradoxically, for both. And I must say that Slovakia is doing quite well. I think that economically Slovakia is doing unexpectedly well. And I must say that simply the press is a little bit under-advertising Slovakia vis-a-vis some other countries.

Everyone speaks about Hungary and Poland. I don't compare it with the Czech Republic now, but I'm sure that no one in this whole North that the GDP per capita is higher in Slovakia than in Hungary and Poland. Nobody knows that almost. So, I think that Slovakia is sort of functioning with all the troubles.

ROGER HERTOG: John, we'll make this the last question.

JOHN: Mr. Prime Minister...

... in the other Eastern Bloc countries there were people like you who wanted to move toward freedom. Why did you succeed when they have not. Why were you so much more successful, how did you convince your people?

PRIME MINISTER KLAUS: I think there are several reasons and it's very difficult to make the correct ranking of the various influences.

But in one respect, we were lucky. As you know that Czechoslovakia in the '60's organized so-called Prague (unintelligible), the first attempt to reform or restructure the Communist society. As you know, what followed was the Soviet invasion in Czechoslovakia. And at that moment, people like me were simply drastically fired from all possible positions of influence. We were fired from universities, from the think tanks [laughter], from academies, from other positions, and had absolutely no chance in between to do anything. Which means that we were much more radical in rejecting all kinds of half reforms. Whereas all my colleagues and friends in Poland, Hungary and other countries, spent 20 years working in various government and Communist party commission preparing the irrational, unnecessary, not helpful, semi-quasi, prehistoric style reforms. Only in the Czech Republic simply we're out, we're not inside that game. So when we came to power—it's something I don't like to use—but, when we had a chance to do something, our rejection of all the flirtation with something in between, with shared [sounds like] ways, with mixtures of capitalism and socialism, our rejection of all that was absolute.

I remember in my first trip abroad, after the Velvet Revolutionist Minister of Finance was Davos [sounds like] (phonetic spelling) in Davos there is—and by the way—I met this gentleman, Herb Hermot (phonetic spelling) who was chairing my session there in the (unintelligible) World Economic Forum, am I right—[exactly, response from audience]—and I remember that first simply first speech abroad, first speech to an international audience and I shocked everyone with my almost innocent remark, which I know was not translated into hundred languages. I said: The third way is the fastest way to the Third World. [Laughter] And it was end of January 1990, some six weeks after the change and our reposition was so clear. So, I think that was one of advantages.

Second reason was that my generation was lucky at the end of the '60's in the relatively free moment of Czechoslovakia to study abroad, to spend time studying in Western Europe or here in this country. Again, the same group of people from the, had crucial positions in the first post-Communist government. So, but I would name them (unintelligible) history, the older history, the democratic traditions in the '20's and '30's and many other things.

ROGER HERTOG: Thank you very much.

I want to thank the Prime Minister for an inspirational evening, to wish him luck on the much important work that he has ahead. And I'm sure you share my sentiment and I thank you all for coming.