Czech list for reform

by Don Erler


When Vaclav Klaus was inaugurated as president of the Czech Republic in March, he declined to deliver his first address from a balcony of the spectacular old palace overlooking the square.

Klaus chose instead to speak in the square itself, after which -- the band playing When the Saints Come Marching In -- he ordered the restraining ropes removed and was mobbed by hundreds of his appreciative fellow citizens.

Some 350 people gathered Monday evening in Dallas to listen in on a conversation between John Goodman, president of the National Center for Policy Analysis, and the Czech economist-turned-politician.

The road from the "Velvet Revolution" of 1989 through the "Velvet Divorce" of the Czech and Slovak sections of Czechoslovakia at the end of 1992 to the relative prosperity of the present has been difficult.

Klaus was appointed finance minister in the first post-communist government. His task was enormous: Change a Soviet-style socialist system into a free-market economy "as fast as possible."

Klaus noted that in 1989, "everything was in state hands." Not a single private restaurant or hairdressing establishment could be found in gracefully aging Prague.

"The people really expected some results," so the new government decided to make the transition from a centrally planned to a privatized economy as abrupt as possible. Prices were freed with a single stroke of the pen.

"At 8 o'clock in the morning, it's done," said Klaus.

It was a dramatic step that led to an "inevitable" economic contraction that preceded an acrobatic leap to prosperity. Within four years, 80 percent of the country's assets had been privatized.

Klaus joked that Margaret Thatcher has been justly praised for privatizing three or four British firms per year. "We did three to four per hour."

Small companies were sold at public auction. Major enterprises were liberated from state ownership via "voucher privatization," in which ordinary citizens could pay what Klaus called "a symbolic" (modest) price to acquire shares.

"We were really afraid that the people would not understand it," Klaus explained. But 75 to 80 percent bought in, and "the stock market works."

Klaus is an economist by academic training, steeped in the free-market principles of the Chicago and Austrian schools. Yet his "thinking was mostly formed by the irrationality of the communist system," he acknowledged.

"In the 1980s," he said with a laugh, "there were more Marxists on the Berkeley faculty than in all of Czechoslovakia."

And he added, "I didn't know anyone who was a genuine Marxist."

Klaus' evolution from economist to politician was spurred by his observation that the "crucial condition" for reforming a dysfunctional economy "is to persuade the people that it must be done." So he organized a political party and was elected prime minister.

"Not all [Czech people] feel better off," Klaus admitted. Although everyone enjoys improved material conditions "absolutely," some have seen themselves decline relative to economic winners. Capitalism does not guarantee that all enterprises prosper.

Klaus observed that he has not won every political battle. He's not happy that his republic's membership in the European Economic Union has come at a steep price: adoption of Europe's absurdly expensive welfare system and rigidly controlled labor markets.

As an economist, Klaus understands that these burdens on production are destructive "in the long run."

But as a politician in a free country, the Czech president knows that he must sometimes be flexible.