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Václav Havel’s Economic Legacy

Václav Havel, the dramatist and reluctant politician who led Czechoslovakia (and later the Czech Republic) as president following the collapse of the communist in regime in 1989 during the Velvet Revolution, passed away on Sunday, December 18. Since his death, he has rightly been eulogized for his words and deeds on behalf of democracy and human rights, which reached far beyond the borders of the former East Bloc nations. Havel’s ideals were not merely abstractions; they were personal. The price for being the most visible anti-communist dissident in the Czechoslovak Socialist Republic was repeated incarceration. Upon assuming the presidency, he opposed efforts to strip former communist officials of their civil rights, or to engage in other punitive actions since, as he famously claimed, all citizens were “co-creators” of the totalitarian machine.

But his legacy is not only the rebuilding of the “human, moral and spiritual potential, and the civic culture that slumbered in our society” that he noted in one of his first speeches to post-communist Czechoslovakia. More than many other technocrats who ultimately managed the economic transformation in Eastern Europe, Havel understood that the post-communist “transition” would be a Janus-faced creature—capable of both sowing deep nostalgia for authoritarianism, and also creating a stable, democratic nation. The difference, according to Havel, would hinge on the resilience of civic and political institutions, which would be needed to force mid-term corrections in economic policy, to support competition, to police the common market, and to protect consumers, investors, taxpayers, and entrepreneurs.

Havel’s economic positions have often be juxtaposed to those of his political rival, Václav Klaus, who served as his prime minister between 1993 and 1997, and who replaced Havel as president in 2003. Klaus famously argued “civil society” did not exist and that it was merely a leftover, albeit useful, fiction employed by former dissidents to fight the communist regime; Havel believed the absence of civil society in economic reform would inevitably produce economic crime. Klaus barely concealed his distaste for (and continues to criticize) the European Union; Havel recognized the power of an external anchor to convince Czech citizens that their destinies were tied to “the West,” and to create incentives for companies and banks to adopt EU practices in business matters. Klaus intended to irreversibly remove the government from economic activity; Havel saw the need to maintain credible governmental institutions in economic activities.

An instructive contrast between the “Two Václavs” can be seen in how privatization—one of the cornerstones of the post-communist transition—was conducted before and after Klaus came to power. Before Klaus launched the voucher-based privatization program for which the Czech Republic became famous (if not infamous), the Czechoslovak automobile company Škoda was sold to Volkswagen in late 1990, requiring lengthy negotiations between government officials and Volkswagen. Meanwhile, a similar trade sale of Zetor (a tractor company) was halted in favor of distributing shares as vouchers, which drastically limited the government’s role, and became the main privatization policy during the early Klaus years. Škoda’s global presence grew dramatically, while Zetor ended in bankruptcy and floundered for over a decade before staging a recovery. Notably, the Klaus government failed to privatize banks, contributing to the rapid accrual of bad debt, and a currency crisis in the mid-1990s. Havel found little consolation in the fact that Klaus's neglect of institutional matters led to a financial scandal in the governing party, which caused the collapse of Klaus’s government.
 
Nor is Havel’s economic legacy merely an historical curiosity—a long-forgotten debate between “big-bang” reform advocates and their opponents. One year after the beginning of the Arab Spring, it is central on Egypt and Tunisia’s agenda. Reformers struggle to navigate between the imperatives of economic opportunity and the demands of the population for human dignity, knowing that extremism or dictatorial backlash may be the consequence of reform failures.

As protests emerge in response to rigged elections in Russia and Kazakhstan, the limits of imitation democracy—even for regimes that deliver economic prosperity—are becoming apparent. As Havel noted in his essay The Power of the Powerless, “The original and most important sphere of activity . . . is simply an attempt to create and support the independent life of society as an articulated expression of living within the truth.” In the “year of the protester,” Havel’s life and work should serve as a reminder to all citizens of the importance of civic virtue in underpinning both political and economic liberty.

  • Raj Desai focuses on the political economy of development, economic adjustment and market reform and the business environment of developing countries. His current research includes poverty reduction and economic policy reform in developing countries. He also is a professor at Georgetown University’s School of Foreign Service.