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Book Review: Reniassance

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Renaissance: The Rebirth of Liberty in the Heart of Europe
by Václav Klaus (Washington, D.C.: The Cato Institute, 1997); 177 pages; $18.95.

0ut of all the countries of Eastern Europe and the former Soviet Union, the one that has so far had the greatest success in instituting market-oriented reform is the Czech Republic.

Czechoslovakia emerged as an independent country in 1918, following the disintegration of the Austro-Hungarian Empire. Throughout the period between the two world wars, it maintained a democratic political system, even as the other countries of Central and Eastern Europe came under the control of either totalitarian or authoritarian regimes in the 1930s.

In September 1938, Czechoslovakia was partly dismembered as a result of the Munich agreement between Britain, France, Nazi Germany, and Fascist Italy. In March 1939, the country ceased to exist when Hitler annexed its western regions (Bohemia and Moravia) as “protectorates” of the Greater German Reich, with Slovakia made into a nominally independent state under German protection.

Czechoslovakia reemerged as an independent country in 1945 at the end of the Second World War. But in 1948, a Soviet-sponsored coup established a communist government completely loyal and obedient to Moscow. In 1968, a “reform” communist government under Alexander Dubcek came to power in Prague. But fearful of Dubcek’s attempt to create “socialism with a human face,” the Soviet Union invaded the country in August 1968 and reimposed an orthodox communist regime.

In 1989, with Mikhail Gorbachev’s new Soviet foreign policy of “nonintervention” into the internal affairs of the Soviet-bloc countries of Eastern Europe, the communist regime in each of them began to crumble. In December 1989, a new noncommunist government came to power in Czechoslovakia. Because of political and economic disagreements, the two parts of the country — Czechia and Slovakia — formally separated, becoming independent republics in January 1993.

While it can be said that the earlier pre-World War II tradition of democracy and an industrial market economy in Czechoslovakia left a cultural legacy making post-communist reforms easier to implement, that would be only a partial explanation. It would leave out the importance of ideas and the principled men advocating them. In this case, the Czech Republic has been fortunate to have two articulate political figures defending the ideas of individual freedom and the market economy. They are Václav Havel, the president of the Czech Republic, and Václav Klaus, the country’s prime minister.

Václav Havel had been a dissident playwright, who spent several years in prison for his opposition to the old communist regime. In 1979, he illegally published his famous essay “The Power of the Powerless.” With courage and clarity, he unmasked the “life of the lie” people were made to live under communism; and he explained how those same people could live instead a “life of the truth,” even under tyranny. (See “Living the Life of the Lie: Part I” by Richard M. Ebeling, Freedom Daily, May 1993.)

Since becoming president of, first, Czechoslovakia and, now, the Czech Republic, Havel has continued to publicly address the issue of living the principles and morality of freedom. In 1992, he published Summer Meditations, in which he offered his conception of a free Czechoslovakia. And just this year, a new volume of his essays has appeared, The Art of the Impossible: Politics as Morality in Practice (New York: Alfred Knopf, 1997), in which he explains the temptations and dangers of power, corruption, and abuse in a democratic political order. Not being a trained free-market economist, he sometimes falls into the traps of “political correctness” on topics such as multiculturalism and environmentalism; but his vision of man and the free society still remains in the sound traditions of classical liberalism and civil society.

Václav Klaus worked as a professional economist under the communist regime. He discovered the free-market literature of the West and was completely persuaded by the arguments of the Austrian economists and the Chicago School economists. The Cato Institute has recently published Renaissance: The Rebirth of Liberty in the Heart of Europe, a collection of Klaus’s speeches on the strategy and tactics of transforming socialist economies into free-market societies.

His starting premise is that there is no “middle way,” no stable and workable system halfway between the free market and socialism, between capitalism and the command economy. Thus, he rejects the notion of a “social” market economy in which, having freed itself from socialism, the Czech Republic would be strangled by the interventionist-welfare state.

Klaus also explains that the transformation to the market economy is only possible if its proponents have a clear and consistent vision of a free society. And these proponents of the free-market society must present to the general public an articulate case for why such a free-market order is desirable, as well as an honest explanation of the short-run transition “pain” that will have to be borne for the long-run benefits of liberty and prosperity. Telling the truth is essential if a free market is to be accepted and wanted by the population.

Having actually implemented a program of market reforms and privatization, Klaus has no patience with those who argue about “shock therapy” versus “gradualism.” Every opportunity for introducing market changes must be taken advantage of and introduced simultaneously in as many corners of the economy as quickly as possible. Furthermore, a market economy’s development cannot be planned. Market relationships emerge and follow their own “spontaneous” course just as soon as people are free to search out and take advantage of mutual gains from trade.

What the government can do and has to do is establish the institutional setting in which individuals can produce their own prosperity through production, trade, and commerce. This requires that prices be freed from government control and that state property be privatized as quickly as possible. In the Czech Republic, Klaus used the “voucher” system — a process by which people could buy shares in the former state enterprises. It is less important whether the initial ownership distributions meet some hypothetical standard of “justice.” A functioning competitive market will soon enough “redistribute” ownership on the basis of how successfully the new owners are able to profitably satisfy consumer demand in comparison with their closest rival. Obviously, in conjunction with this, the government must establish and enforce clear laws concerning property and contract.

At the “macroeconomic” level, the government must balance its budget, keep taxes and spending low, and resist any temptation to finance government expenditures through monetary expansion. Any inflationary policy will undermine and disrupt the transformation to a market economy; Klaus advocates a fixed foreign exchange rate to foster confidence and greater predictability for both domestic and foreign investors.

Finally, Klaus argues that the purpose of making a free society is not to make some “new man.” Rather, it is to allow each individual to develop in his own way, according to his own vision of the good and desirable. The Czech Republic has not been made into a free-market utopia. But under such intelligent political leadership as that of Havel and Klaus, it has made a better start than the other countries in that part of the world.

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    Richard M. Ebeling is a professor of economics at Northwood University. He was formerly president of The Foundation for Economic Education (2003–2008), was the Ludwig von Mises Professor of Economics at Hillsdale College (1988–2003) in Hillsdale, Michigan, and served as vice president of academic affairs for The Future of Freedom Foundation (1989–2003).