Vaclav Klaus on privatisation and monetary union

I was lucky enough to be at the 3rd Pembroke College (Cambridge) Annual Adam Smith Lecture. This year we were graced by the presence of Vaclav Klaus, 2nd President of the Czech Republic.  He combined a rich understanding of Classical Liberal theory with decades of practical experience completing reforms at the height of Czech politics. His full speech can be read here, but there were four highlights I particularly enjoyed.

Firstly his 5 point plan for reform:

  • open-up the country after half a century of life in a semi-autarkic society
  • liberalize prices and foreign trade
  • radically deregulate the markets
  • privatize the whole economy, not just a particular small segment of it as in the UK;
  • de-subsidize the heavily distorted economy and to return it to economic principles.

Secondly his account of the sheer scale of reform:

"We had no private economy at all. I remember repeatedly saying that my hero Margaret Thatcher had to privatize 3 – 4 firms per year, whereas we were forced to privatize 3 – 4 firms per hour…The inefficient visible hand of the bureaucratic communist government was replaced by Adam Smith’s invisible hand of the market."

Thirdly, in response to questions about the Eurozone crisis he drew upon his experience as the last leader to break up a major currency union. He highlighted the relative insignificance of Greece to the Eurozone. It represents roughly just 2% of total GDP. When he broke up the Czechoslovakian currency union as Finance Minister, Slovakia represented around a third of GDP. For Klaus, this was easy. It was an event that passed without crisis, an event he claims few would even remember.

Also on the Eurozone he highlighted the Latin Monetary Union, established in 1865 by France, Belgium and Italy. They were later joined by Spain, Greece, Romania, Bulgaria, Venezuela, Serbia and San Marino. This currency zone collapsed as the governments took on excess debt and debased the currency. There was one particular culprit, Greece, who were temporarily expelled in 1908. Greece decreased the amount of gold in their coins in breach of the currency zone’s rules. Economic turbulence in 20s finished off the flawed Union.

Finally when asked about the correct rate of tax, he gave an answer sure to please many a free-marketeer. He declared that he was no philosopher king who could impose an ideal tax level. Instead, he simply pleaded to see them cut as low as possible. For Klaus, taxes in the UK and Czech Republic are far too high across the board. We should get cutting.