Monday, December 31, 2007

The Intellectuals and Socialism: As Seen from a Post-Communist Country Situated in Predominantly Post-Democratic Europe

22.8.2005 - ENGLISH PAGES

By Czech President Vaclav Klaus

1. I take it for granted that this audience knows the slightly provocative (because mercilessly generalizing) but very powerful and important, now already 56 years old article “The Intellectuals and Socialism”. This audience certainly knows as well that it was written by F. von Hayek and that it was published in the very confused and very pro-socialist post-second world war era, when the overall belief in the benefits of social engineering and of economic planning and, at the same time, the disbelief in free markets were at their heights.

I suppose that many of us still remember Hayek’s definition of intellectuals (we would probably say public intellectuals nowadays) as “the professional second-hand dealers in ideas”, who are proud of not “possessing special knowledge of anything in particular”, who do not take “direct responsibility for practical affairs” and who need not “even be particularly intelligent” to perform their “mission”. Hayek argued that they are satisfied with being “intermediary in the spreading of ideas” of original thinkers to the common people, whom they consider not being their equals.

Hayek was – more than half a century ago, which means before the current prevalence of electronic media – aware of the enormous power of intellectuals to shape public opinion and warned us that “it is merely a question of time until the views held by the intellectuals become the governing force of politics”. This is as valid today as it was when he wrote it.

The question is what kind of ideas is favoured by the intellectuals. The question is whether the intellectuals are neutral in their choice of ideas with which they are ready to deal with. Hayek argued that they are not. They do not hold or try to spread all kinds of ideas. They have very clear and, in some respect, very understandable preferences for some of them. They prefer ideas, which give them jobs and income and which enhance their power and prestige.

They, therefore, look for ideas with specific characteristics. They look for ideas, which enhance the role of the state because the state is usually their main employer, sponsor or donator. That is not all. According to Hayek “the power of ideas grows in proportion to their generality, abstractness, and even vagueness”. Hence it is not surprising that the intellectuals are mostly interested in abstract, not directly implementable ideas. This is also the way of thinking, in which they have comparative advantage. They are not good at details. They do not have ambitions to solve a problem. They are not interested in dealing with the everyday’s affairs of common citizens. Hayek put it clearly: “the intellectual, by his whole disposition, is uninterested in technical details or practical difficulties.” He is interested in visions and utopias and because “socialist thought owes its appeal largely to its visionary character” (and I would add lack of realism and utopian nature), the intellectual tends to become a socialist.

In a similar way, Raymond Aron, in his famous essay “The Opium of Intellectuals”, analyzed not only the well-known difference between the revolutionary and reformist way of thinking but also – and this is more relevant in this context – the difference between “prosaic” and “poetry”. Whereas “the prosaic model of thinking lacks the grandeur of utopia” (Roger Kimball), the socialist approach is – in the words of Aron – based “on the poetry of the unknown, of the future, of the absolute”. As I understand it, this is exactly the realm of intellectuals. Some of us want to immediately add that “the poetry of the absolute is an inhuman poetry”.

2. As I said, the intellectuals want to increase their own prestige and power. When we, in the communist countries, came across the ideas of Hayek and Aron, we had no problems to understand their importance. They gave us the much needed explanation of the somewhat peculiar prominence of intellectuals in our own society of that time. Our intellectuals, of course, did not like to hear it and did not want to recognize it because their peculiar prominence coexisted with the very debilitating absence of intellectual freedom, which the intellectuals value very highly. That was, however, not the only argument. The communist politicians needed their intellectual fellow-travelers. They needed their “dealings in ideas”, their “shaping of public opinion”, their apology of the inhuman, irrational and inefficient regime. They needed their ability to supply them with general, abstract and utopian ideas. They especially needed their willingness to deal with the hypothetical future instead of criticising the very much less rosy reality.

The intellectuals at that time, and I do not have in mind the life in the years of Stalin’s terror, were not happy. They were deeply disappointed with their own economic well-being. They were frustrated by many constraints they had to face and follow. Their position in the communist society was, nevertheless, relatively high and, paradoxically, very prestigious (I have, of course, in mind their relative position). The communist rulers, in their arbitrary and voluntaristic way of dealing with people, used and misused the intellectuals and were able to make them up for it. This brought the intellectuals in a very tricky position. They were not “valued” (or evaluated) by the invisible hand of the market but by the very visible hand of the rulers of that society. To my great regret many intellectuals were not able (or did not want) to understand the dangerous implications of such an arrangement.

As a result of this, and, again, it was no great surprise to me, after the fall of communism, in our suddenly free society, where many (if not all) previous constraints were removed practically over night, the first frustrated and openly protesting group were the intellectuals – “journalists, teachers, publicists, radio commentators, writers of fiction, and artists” (to quote Hayek). They were protesting against the unpleasant constraints created by the market. They found out very rapidly that the free society (and free markets) may not need so much of their service as they were used to in the past.

They especially understood that their valuation by the impersonal forces of supply and demand may be not only less favorable than their own self-valuation (and Robert Nozick is right when he says that “intellectuals feel they are the most valuable people”) but even less favorable than that of politicians and bureaucrats of the old regime. They became, therefore, the first visible and noisy critics of our new free society we had been dreaming of having for decades.

In their elitist criticism of the market, of the insufficiently “human” laws of supply and demand and of the prices, which were the outcome of nobody’s explicit decision and deliberation, they were – I have to admit – relatively successful. It should be made known that – especially at the beginning, but I am afraid it has not changed much – they have been more critical of the market economy (and of the lack of redistribution in their favour) than the rest of our society because – to their great surprise – the standard of life of ordinary people has been raised, at least relatively, more than theirs. Schumpeter was right when he, in 1942, in his “Capitalism, Socialism and Democracy”, made his well-known point that “the capitalist achievement does not typically consist in providing more silk stockings for queens, but in bringing them within the reach of factory girls in return for steadily decreasing amounts of effort.” That simple truth is something many intellectuals have not been ready or willing to accept.

We, who are here today, know that the free market system does not reward most neither “the best nor the brightest” (John K. Williams), but those who – in whatever way and form – satisfy the tastes and preferences of others. We agree with Hayek that “nobody can ascertain, save through the market, the size of an individual’s contribution to the overall product”. And we know that the free market system does not typically reward those who are – in their own eyes – the most meritorious. Because the intellectuals value themselves very highly, they disdain the marketplace. Markets value them differently than their own eyes and, in addition to it, markets function nicely without their supervision. As a result, the intellectuals are suspicious of free markets and prefer being publicly funded. That is another reason, why they are in favour of socialism.

These arguments are not new but our experience in the first days after our – so called – Velvet Revolution was in this respect more than instructive. What actually happened was more textbook-like than anyone of us would had expected.

3. In the first decade of the 21th century we should not concentrate exclusively on socialism. There is a well-known saying that we should not fight the old, already non-existent battles. I find this point worth stressing even if I do not want to say that socialism is definitely over.

There are, I believe, at least two arguments, which justify looking at other ideologies as well. The first is the difference between the hard and soft version of socialism and the second is the emergence of new “isms” based on similar illiberal or antiliberal views.

As regards the first problem we can probably confidently say that its “hard version” – communism – is over. It is a great victory for us, but this victory should not demotivate us because the fall of communism does not automatically lead to a system we would like to have and live in. It is not a victory of ideas of classical (or European) liberalism. Fifteen years after the collapse of communism I am afraid, more than at the beginning of its softer (or weaker) version, of social-democratism, which has become – under different names, e.g. the welfare state or the soziale Marktwirtschaft – the dominant model of the economic and social system of current Western civilization. It is based on big and patronizing government, on extensive regulating of human behavior, and on large-scale income redistribution.

As we see both in Europe and in America, the intellectuals love such a system. It gives them money and an easy life. It gives them an opportunity to be influential and to be heard. The Western world is still affluent enough to be able to support and finance many of their unpractical and directly unpurposeful activities. It can afford the luxury of employing herds of intellectuals to use “poetry” for praising the existing system, for selling the concept of positive rights, for advocating constructivist human designs (instead of spontaneous human action), for promoting other values than freedom and liberty.

We need to understand this contemporary version of world-wide socialism, because our old concepts may omit some of the crucial features of what is around us just now. We may even find out that the continuous use of the term socialism can be misleading.

4. This brings me to another problem. After the complete discrediting of communism and in the moment of the undeniable crisis of the European social-democratism the explicit socialism has become insufficiently attractive for most intellectuals. Nowadays, it is difficult to find – in the West – an intellectual, who wants to be “in” and to have an influence, who would call himself a socialist. The explicit socialism has lost its appeal and we should not have it as the main rival to our ideas today.

Illiberal ideas are becoming to be formulated, spread and preached under the name of ideologies or “isms”, which have – at least formally and nominally – nothing in common with the old-styled, explicit socialism. These ideas are, however, in many respects similar to it. There is always a limiting (or constraining) of human freedom, there is always ambitious social engineering, there is always an immodest “enforcement of a good” by those who are anointed (T. Sowell) on others against their will, there is always the crowding out of standard democratic methods by alternative political procedures, and there is always the feeling of superiority of intellectuals and of their ambitions.

I have in mind environmentalism (with its Earth First, not Freedom First principle), radical humanrightism (based – as de Jasay precisely argues – on not distinguishing rights and rightism), ideology of “civic society” (or communitarism), which is nothing less than one version of post-Marxist collectivism which wants privileges for organized groups, and in consequence, a refeudalization of society. I also have in mind multiculturalism, feminism, apolitical technocratism (based on the resentment against politics and politicians), internationalism (and especially its European variant called Europeanism) and a rapidly growing phenomenon I call NGOism.

All of them represent substitute ideologies for socialism. All of them give intellectuals new possibilities, new space for their activities, new niches in the market of ideas. To face these new isms, to reveal their true nature, and to be able to get rid of them, may be more difficult than in the past. It may be more complicated than fighting the old, explicit socialism. Everyone wants to have healthy environment; everyone wants to overcome loneliness of the fragmented post-modern society and to participate in positive activities of various clubs, associations, foundations and charity organizations; almost everyone is against discrimination based on race, religion or gender; many of us are against the extensive power of the state, etc. To demonstrate the dangers of these approaches, therefore, very often means blowing against the wind.

5. These alternative ideologies, in their unclear, unstable and yet undescribed potential synergy, are successful especially where there is no sufficient resistance to them, where they find a fertile soil for their flourishing, where they find a country (or the whole continent) where freedom (and free markets) have been heavily undermined by long lasting collectivistic dreams and experiences and where intellectuals have succeeded in getting and maintaining a very strong voice and social status. I have in mind, of course, rather Europe, than America. It is Europe, where we witness the crowding out of democracy by post democracy, where the EU dominance replaces democratic arrangements in the EU member countries, where the Hayek’s “paragovernment”, connected with organized (because organizable) interests is successful in guiding policy, and where even some of the liberals – in their justified criticism of the state – do not see the dangers of empty Europeanism and of a deep (and ever deeper) but only bureaucratic unification of the whole European continent. They applaud the growing formal opening of the continent, but do not see that the elimination of some of the borders without actual liberalization of human activities “only” shifts governments upwards, which means to the level where there is no democratic accountability and where the decisions are made by politicians appointed by politicians, not elected by citizens in free elections.

The European constitution was an attempt to set up and consolidate such a system in a legal form. It was an attempt to constitute it. It is, hence, more than important that the French and Dutch referenda made an end to it, that they interrupted the seemingly irreversible process toward “ever-closer Europe” and that they set into motion a hopefully serious discussion – in Eurospeak it is called “a reflection period”. I do not assume that this permitted reflection organized from above will go far enough to reveal deeply rooted causes of the current European problems. It, nevertheless, opened the door. We should use this opportunity for reminding our fellow citizens what makes our society free, democratic and prosperous.

It is a political system, which must not be destroyed by a postmodern interpretation of human rights (with its stress on positive rights, with its dominance of group rights and entitlements over individual rights and responsibilities and with its denationalization of citizenship), by weakening of democratic institutions, which have irreplaceable roots exclusively on the territory of the states, by the “multiculturally” caused loss of a needed coherence of various social entities, and by continental-wide rent-seeking (made possible when decision-making is done at a level which is very far from the individual citizens and where the dispersed voters are even more dispersed than in sovereign countries).

It is an economic system, which must not be damaged by excessive government regulation, by fiscal deficits, by heavy bureaucratic control, by attempts to perfect markets by means of constructing the “optimal” market structures, by huge subsidies to privileged or protected industries and firms, by labor market rigidities, etc.

It is a social system, which must not be wrecked by all imaginable kinds of disincentives, by more than generous welfare payments, by large scale redistribution, by many forms of government paternalism.

It is a system of ideas, which will be based on freedom, personal responsibility, individualism, natural caring for others and genuine moral conduct of life.

It is a system of relations and relationships of individual countries, which must not be based on false internationalism, on supranational organizations and on misunderstanding of globalization and of externalities but which will be based on good neighborliness of free, sovereign countries and on international pacts and agreements.

The founding fathers of the Mont Pelerin Society, Hayek and Friedman, together with others, always insisted on fighting for what seemed politically impossible. We should keep doing the same.


1. Aron, R., The Opium of the Intellectuals, London, Secker & Wartburg, 1957
2. Barry N., The European Constitution: a requiem? The Freeman, Ideas on Liberty, October 2004
3. Fonte J., Democracy´s Trojan Horse, The National Interest, Number 76, Summer 2004
4. von Hayek, F., The Intellectuals and Socialism, The University of Chicago Law Review, Spring 1949
5. von Hayek, F., Law, Legislation and Liberty, vol. 3, Routledge et Kegan Paul, London and Henley, 1979
6. von Hayek, F., The Fatal Conceit (The Errors of Socialism), Routledge, London, 1990
7. de Jasay, A., Free-Riding on the Euro, The Library of Economics and Liberty, September 17, 2003
8. Kimball, R., Raymond Aron and the Power of Ideas, The New Criterion Vol. 19, No. 9, May 2001
9. Klaus, V., The Third Way and Its Fatal Conceits, Speech at the Mont Pelerin Society Regional Meeting,Vancouver, Canada, August 30,1999
10. Klaus, V., Back to Europe or Avanti Into the European Union?, Speech at the Mont Pelerin Society Regional Meeting, Bratislava, Slovak Republic, September 10, 2001
11. Klaus, V., Reflections on the Current Situation in Europe, Speech at the Mont Pelerin Society Meeting, Chattanooga, U.S.A., September 18, 2003
12. Klaus, V., The Czech Republic’s Transition, European Problems, and the Fraser Institute, in “Celebrating Freedom”, Fraser Institute, Vancouver, Canada, 2005
13. Klaus, V., On the Road to Democracy: The Czech Republic from Communism To Free Society, National Center for Policy Analysis, 2005
14. Nozick, R., Why do Intellectuals Oppose Capitalism?, CATO Policy Report, No. 1, 1998
15. Schumpeter, J. A., Capitalism, Socialism and Democracy, New York, Harper & Row, 1942
16. Sowell, T., The Vision of the Anointed, New York, Basic Books, 1995
17. Williams, J. K., Intellectuals, Moralists and The Free Market, The Freeman, February 1982, Vol. 32, No. 2

Václav Klaus, Remarks prepared for the Mont Pelerin Society Regional Meeting, Reykjavik, Iceland, August 22, 2005

Law-Making in an Era Characterized Once Again by an Insufficient Belief in Human Action

8.3.2007 - ENGLISH PAGES

It is a great pleasure and a great honor for me and for my delegation to be here in Alabama, in the city of Montgomery, and to get a chance to address this distinguished audience in the State Capitol.

In one respect we came just in time. We have followed very closely the news of the destructive tornado that hit Alabama last week and were very sorry to hear about the victims of this terrible catastrophe. I want to use this platform to convey to you and to all affected families my deepest condolences.

Today, it is the first time I have the chance to visit Alabama after having visited the U. S. about 50 times before. To put it slightly ironically, I could say that I had not been invited. Until now. Thank you very much for it.

I came here as a President of the free and democratic Czech Republic, of a country which 17 years ago succeeded in getting rid of Communism, a country which quite rapidly, smoothly and without unnecessary additional costs overcame its past and transformed itself into a normally functioning parliamentary democracy and market economy, a country which is again an integral part of the free world, member of NATO and of the European Union, a good friend of the United States of America.

I came here with an important delegation to demonstrate our friendship with the U.S., to contribute to the intensification of our contacts with the Southern states, and to support our very active Czech community in the region.

I will conclude my visit in Washington D. C. tomorrow, meeting vice-president Cheney, Secretary of Defense Gates, Speaker of the House Nancy Pelosi, and other leading U. S. politicians.

I want to say a few words about something that was absent during most of my life spent in the communist era. I have in mind freedom, something the Americans value very highly, even though they did not experience its nonexistence or absence personally. As I find myself in the Alabama State Capitol, I would like to make a few comments on the law-making and freedom based on my personal experience both from the communist era and from my political roles in the last seventeen years. One of them was also the Speaker of the Czech Parliament in the years 1998 and 2002.

The normal way of legislation formation and of institution building is through a long-term evolution, which takes decades or centuries on condition the country has the advantage of having a continuous, uninterrupted, evolutionary development. Your country did have it but we – in the Czech Republic – were not so lucky. Until 1918 we were a non-sovereign country within the Austro-Hungarian monarchy. Then – for a relatively short period of time – my predecessors enjoyed very positive and productive 20 years of freedom. Then Hitler came and occupied the country for six years and after him the Soviet communist empire took over for another 40 years. This irrational version of a totalitarian regime lasted practically till the year 1989.

We had to start anew. Our legislation formation after our Velvet Revolution in November 1989, when communism finally collapsed, was a consequence of an abrupt and fundamental systemic change. Law-making partly led the changes, partly followed them.

We did not rely on importing of legislation (as it happened in the East Germany or in Iraq) for several reasons. We did not have any model country to look up to, we were not forced to import foreign legislation, and – above all – we understood that the citizens of our country wanted to be the “owners” and the “framers” of the legislative process, of their Constitution, of their laws.

We did not have much time because we could not afford to have a legislative and institutional vacuum. We had to go through an accelerated internal law-making process based on a mixture of gradual law- and institution-building and of radical constructivism organized by the politicians responsible for the whole transformation process. I was one of them.

We were, of course, neither able to do it overnight, nor able to aim at creating a perfect system. Such a solution and such a system could be – hypothetically – achieved in a laboratory, but not in a democratic society with all its imperfections, competing ideas and divergent interests, with all the political maneuvering and rent-seeking. There is, however, no other way how to do it – provided we want to keep a free and democratic society.

Nowadays, the transition is over, and we already face the same problems and challenges as any other democratic society. We have to continue solving the eternal question whether we want more of government or less of government, whether we want small, restricted legislation or an extensive, big one. I am very frustrated when I see the dangerous tendency of the current world to legislate everything. There is a growing belief: the more of legislation, the better. Anything not “legislated” becomes a priori considered suspicious. I disagree with this tendency completely but I have to admit that I am not on the winning side. At least in Europe these days.

My other problem is connected with the currently fashionable and politically heralded idea of global governance, which asks for a supranational legislation, for a legislation which goes beyond national boundaries. Again, we have to choose between nation-specific or international (continental or world-wide) rules, laws, standards, institutions. I know that excessive harmonization and standardization in a non-homogeneous area brings heavy costs, which is something we feel very strongly in the EU. This issue is frequently discussed under the banner of social, environmental, health, or labor dumping. In the EU one hears also the term tax dumping. This is another big issue for me.

I don’t know the data about the share of federal and state legislation in your country. In the EU, however, 75% pieces of legislation come from Brussels these days, and only 25% are “home-made”, that is, “produced” in individual member-countries of the EU. Exactly this is the reason for so many current disputes within the EU and especially disputes concerning the so called EU constitution.

I hope to learn something here. I hope to learn how you succeed in restricting the volume of legislation in a world of very high propensity to legislate; and how you succeed in keeping legislation close to your voters, to the citizens of Alabama, in an atmosphere of unification, standardization and harmonization.

I strongly believe it is our task to start changing the prevailing mood of our times.

Thank you for your attention.

Václav Klaus, State Capitol, Birmingham, Alabama, March 8, 2007

Freedom and Democracy in Contemporary Europe: An Insider’s View

Mr. Chairman, distinguished guests, Ladies and Gentlemen,

It is a great pleasure to be here, to be for the first time in the American South after having visited the U. S. about 50 times before. Two months ago I was in Chicago, but it is very different here and there, and at this time of year, and in January. We are very pleased to be here with you.

I have come here as a President of the free and democratic Czech Republic, of a country which – it is already more than 17 years ago – succeeded in getting rid of Communism, a country which quite rapidly, smoothly and without unnecessary additional costs overcame its past and transformed itself into a normally functioning parliamentary democracy and market economy, a country which is an integral part of the free world, member of NATO and the European Union, a good friend of the United States of America.

I came here with an important delegation to demonstrate our friendship with the U.S., to contribute to the intensification of our contacts with the Southern states, to support our very active Czech community in the region.

I will conclude my visit in Washington D. C., meeting vice-president Cheney, Secretary of Defense Gates and other leading U. S. politicians.

In this speech of mine I want to talk about something that was absent during most of my life in the communist era. What I have in mind is, of course, freedom, something the Americans value very highly, even though they did not experience its nonexistence or absence personally. In this respect our own experience makes us especially sensitive.

I would like to touch upon two topics we have been occupied with for the past 17 years:

- our postcommunist transition, and- our involvement in the European integration process.

My views on both issues are heavily influenced by my personal experience. Seventeen years ago I was living in a country which had no freedom. We were unable to travel to the free world. There was no political freedom and there were no civil rights. The citizenship was an empty term. We were strictly limited in all kinds of our personal activities. The economy was centrally administered. Free decisions of consumers and producers were non-existent. It was an extremely inefficient, excessively regulated, unfree and illiberal system.

We were dreaming about getting rid of it all the time, and some of us wanted nothing less than a fundamental change, nothing less than the total transformation of the whole political, economic and social system. We knew that it would require to fully liberalize both the political and economic life. We knew as well that – at least in our part of the world, in our cultural and civilizational setting (I don’t speak about Southeast Asia) – these spheres were inter-related and that it was not possible to touch them independently, separately or in any “planned” sophisticated sequencing. It had to be (and was) done simultaneously.

The political task was relatively easy. It was sufficient to liberalize the entry to the political market, which only confirms my conviction that a political system can be neither constructed from above, nor imported from abroad. It must grow from inside. We made no significant (or worth-mentioning) interventions in the spontaneous evolution of the political system in our country.

We understood that freedom either is or it is not. It must be introduced fully, not partially, without looking at currently fashionable – for some perhaps progressive and desirable – ideas, without accepting the requirements of political correctness, without listening to nowadays so popular “isms” (such as multiculturalism, humanrightism, environmentalism, supranationalism, communitarism, feminism, NGOism), etc. These “isms” are not contributing to the increase of our freedom. They jeopardize it.

Changing substantially the economic system was more difficult and especially more time-consuming. We had to liberalize, deregulate and privatize the whole economy, because everything was state-owned and regulated.

The concept how to do it was not brought from outside. It was prepared by ourselves. Its implementation was achieved by our own domestic efforts and it was made possible by the political support of millions of Czechs who wanted to get rid of the past.

We had to liberalize prices in the environment of a monopolistic structure of the economy and we had to do so before privatization. We had to minimize inflation in the situation of excess aggregate demand and in the moment of a very sizeable loss of output. We did it by the radical opening of markets, by cautious fiscal and monetary policies, by “importing” competition through the liberalization of foreign trade and by the substantial devaluation of the currency.

We privatized without having any capital and capitalists. We privatized the whole economy, not just individual firms. And we privatized businesses as we found them and not, as some of our critics wanted, after bailing them out financially first.

The historic dismantling of communism brought us freedom and sovereignty. Our gradual approaching the European Union, adjusting to its requirements and in 2004 formal entering into it was a process with much different characteristics than the first one. It has brought us less freedom, less democracy, less sovereignty, more of regulation, more of extensive government intervention.

That is not the usual interpretation of the European integration process. What is usually seen or heard is the unstructured, unanalytical, almost naive pro-integrationist argumentation. It bothers me, because I consider march towards an “ever-closer”, supranationalist, regulated and harmonized Europe to be a mistaken ambition and the misunderstanding of the true substance of European integration to be a dangerous intellectual defect.

The European Union is currently neither a state, nor a purely intergovernmental organization, but has been evolving into a state-like entity, particularly over the past fifteen years. During that time the very positive inter-European opening-up based mainly on intergovernmental cooperation was replaced by supranationalism and by searching for democracy where it can hardly exist – i.e. above the states.

The European Union has now its own flag, its own anthem, its currency, its bank holiday, its citizenship and its territory. It has its own ever-expanding law (the so called acquis communautaire) which includes 22,000 legal acts, out of which 12,000were introduced between the last eight years 1997 and 2005.

Europe is at an important crossroads and I am convinced that a turn must be made because the unification of decision-making at the EU level and the overall harmonization went much further than was necessary, rational and economically advantageous.

I suggest redefining the whole concept of the European Union, not just to make cosmetic changes. I suggest going back to the intergovernmental model of European integration. I suggest going back to the consistent liberalization and opening-up of the markets. I suggest minimizing political intervention in human activities. Where intervention is inevitable, it should be done close to the citizens (which means at the level of municipalities, regions and states), not in Brussels.

Those are the issues I feel very strongly about. I am convinced we should learn from the American experience, especially how long it takes to integrate and unify a country in an evolutionary, peaceful way. Saying that I have to, of course, forget about the Civil War.

Thank you for your attention.

Václav Klaus, World Affairs Council, Houston, March 5th, 2007

Brussels Promotes Far-Reaching Centralized Regulation of Human Activities and Standardization & Harmonization of Human Life

The Czech Republic After its Transition and After its Integration into the European Union

Czech President Vaclav Klaus

18.5.2007 - ENGLISH PAGES

1. Thank you for giving me a chance to speak here this morning. I am glad you decided to make your important gathering here, in Prague, in the Czech Republic. I am sure it was a good choice.

2. You came to the Czech Republic, to the country which − already more than seventeen years ago − succeeded in getting rid of communism and in dismantling its institutions, to the country which − in the couple of years that followed our Velvet revolution − quite smoothly and rapidly established a standard constitutional system: free and open society, full-fledged parliamentary democracy, market economy. As always and as everywhere, the political and economic systems in our country are far from perfect but they are very European – which is, of course, a mixed blessing. You came to the country which became – again, after half a century detour – a firm part of the Western world and which joined its main institutions (OECD, NATO, EU).

3. One point should be made strongly − the transition from communism to free society is over. We are not somewhere in-between. We rejected all kinds of third ways. The transition was relatively short, much shorter than most of the people here and elsewhere expected, and it was a costly process. As we − the pupils of Milton Friedman − know, there are no free lunches. Our experience tells us that there are no free far-reaching reforms, no free transitions, no free fundamental systemic changes either. To say that is rather simple, but important and non-trivial conclusion.

In our country and elsewhere, there have been dreams about realizing such a radical restructuring of the whole society without any costs, dreams about going immediately and steadily only upwards. It is not possible. Looking at the development of the national product, the J-curve is inevitable, and, similarly, after fifty years of fixed, administrated, totally irrational prices, large, but temporary inflation surge is inevitable as well. A proxy indicator, the sum of GDP loss and of the rate of inflation (conceptually similar to the unemployment-inflation index which was popular in the stagflation era of the 1970’s and 80’s) shows that the Czech Republic − at least during the first stage of transition − had achieved the lowest figure in the whole post-communist world.

4. In the following stage, at the beginning of the post-transition era, in the second half of the 1990's, we, however, suffered an unnecessary setback which was partly home-made (a consequence of the politically motivated fight between the central bank and the government), and partly the impact of the South-East Asian (or emerging markets) currency crises of that period. This episode was an unpleasant surprise for almost everyone and it resulted in a GDP stagnation for the period of the next 3-4 years which meant the interruption of our catching-up.

Since the beginning of this decade, our economic growth has been relatively very fast (in European terms), reaching 6% in the last two years. There is no visible domestic reason for a new slowdown.

5. As compared to the early postcommunist era, when we were basically preoccupied with ourselves, the external side of our economic performance becomes more important now, especially in two respects:

- the economic growth in the rest of the world, especially in our main export markets;

- the constraints connected with our membership in the EU, or to put it more explicitly, with economic growth restraining institutions and economic policies in the EU.

6. It seems that the second aspect is more relevant than the first one now. Due to our lower labour costs and due to our rapidly growing productivity we succeeded in penetrating even the very sluggish EU markets. The average annual rate of growth of exports in the last 10 years was 13,3%, of exports to the EU 14%.

The continuous appreciation of the Czech crown, rather surprisingly, does not represent a problem, yet. If we take the average exchange rate of the Czech crown vis-à-vis the US dollar during the 1990’s (which was 30,7), the crown is almost one third stronger now.

7. Much more important is the impact of EU institutions and policies. The overall positive impact of our opening-up and of our growing economic integration with the EU countries, which started immediately after our Velvet revolution, have been already “consumed” and most of it happened before our formal entry into the EU three years ago. It may be surprising to some of you, but the membership itself gave us no important additional benefits. Definitely not financial ones.

We know that in the long-term not the fact of membership, but the impact of the current EU socio-economic model becomes crucial. It brings me to saying a few words about the EU integration process.

8. The past 50 years of the European integration have been usually considered to be a success, even if it is very difficult to statistically measure it or to prove it. We all know that there have been many other unique, unrepeatable historical as well as much more important evolutionary global factors which were influencing the economic (and not only economic) performance of the EU member countries at the same time. This is not very often explicitly discussed and recognized. All progress of that period is usually attributed to the existence of the EU.

What I consider important is the fact that the concept (or model) of European integration has been fundamentally changing over time. With the benefit of hindsight, and with the courage to generalize, I see two different integration models (or methods of integration) in Europe in the last 50 years.

The first one I call the liberalisation model. It was characterised by an inter-European opening-up, by the overall liberalisation of human activities, by the removal of various, in the past created barriers at the borders of countries as regards the movement of goods and services, of labour and capital, as well as of ideas and cultural patterns. Its main feature was the removal of barriers and its basis was intergovernmentalism.

The second one, which I call the interventionist and harmonisation model, is characterised by enormous centralisation of decision-making in Brussels, by far-reaching regulation of human activities, by harmonisation of all kinds of “parameters” of political, economic and social systems, by standardisation and homogenization of human life. The main features of the second model are regulation and harmonisation orchestrated from above, and the birth of supranationalism.

I am frustrated that the people in Europe do not see this fundamental metamorphosis sufficiently clearly and especially do not think about its inevitable consequences. I am angry with politicians and their fellow travellers that they do maximum to hide it and to make it fuzzy.

I am – as it is well known – in favour of the first model, not of the second. I am convinced that the unification of decision-making at the EU level and the overall harmonisation of societal “parameters” went much further than was necessary and than is rational and economically advantageous.

I consider it wrong. I am not satisfied with making only cosmetic changes. I am, therefore, in favour of redefining the whole concept of the European Union.

I suggest going back to the intergovernmental model of European integration. I suggest going back to the original concept of attempting to remove existing barriers among countries. I suggest going back to the consistent liberalisation and opening-up of markets (not only economic ones). I suggest minimising political intervention in human activities. Where this intervention is inevitable, it should be done close to the citizens (which means at the level of municipalities, regions and states), not in Brussels.

To summarize, I want freedom in Europe, not democratic deficit, I want democracy in Europe, not postdemocracy.

The original European project to do certain things together – in spite of all existing historical, political, economic, cultural or religious differences and incompatibilities – was a positive and meaningful idea. The question was and remains to be how to do it. The task is to do it in a way which brings more benefits than costs to the citizens of European countries and in a way which guarantees freedom and not suppresses it. This is – in my understanding – not the case now.

I know that it is politically incorrect to say it, but we are obliged to do it. At least I feel obliged to do it, here and elsewhere, in academic discussions, as well as at EU summits.

Václav Klaus, Prague, Hotel Hilton, May 18, 2007

Freedom, Not Climate, is at Risk

By Vaclav Klaus

Published: June 13 2007 17:44 | Last updated: June 13 2007 17:44

We are living in strange times. One exceptionally warm winter is enough – irrespective of the fact that in the course of the 20th century the global temperature increased only by 0.6 per cent – for the environmentalists and their followers to suggest radical measures to do something about the weather, and to do it right now.

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In the past year, Al Gore’s so-called “documentary” film was shown in cinemas worldwide, Britain’s – more or less Tony Blair’s – Stern report was published, the fourth report of the United Nations’ Intergovernmental Panel on Climate Change was put together and the Group of Eight summit announced ambitions to do something about the weather. Rational and freedom-loving people have to respond. The dictates of political correctness are strict and only one permitted truth, not for the first time in human history, is imposed on us. Everything else is denounced.

The author Michael Crichton stated it clearly: “the greatest challenge facing mankind is the challenge of distinguishing reality from fantasy, truth from propaganda”. I feel the same way, because global warming hysteria has become a prime example of the truth versus propaganda problem. It requires courage to oppose the “established” truth, although a lot of people – including top-class scientists – see the issue of climate change entirely differently. They protest against the arrogance of those who advocate the global warming hypothesis and relate it to human activities.

As someone who lived under communism for most of his life, I feel obliged to say that I see the biggest threat to freedom, democracy, the market economy and prosperity now in ambitious environmentalism, not in communism. This ideology wants to replace the free and spontaneous evolution of mankind by a sort of central (now global) planning.

The environmentalists ask for immediate political action because they do not believe in the long-term positive impact of economic growth and ignore both the technological progress that future generations will undoubtedly enjoy, and the proven fact that the higher the wealth of society, the higher is the quality of the environment. They are Malthusian pessimists.

The scientists should help us and take into consideration the political effects of their scientific opinions. They have an obligation to declare their political and value assumptions and how much they have affected their selection and interpretation of scientific evidence.

Does it make any sense to speak about warming of the Earth when we see it in the context of the evolution of our planet over hundreds of millions of years? Every child is taught at school about temperature variations, about the ice ages, about the much warmer climate in the Middle Ages. All of us have noticed that even during our life-time temperature changes occur (in both directions).

Due to advances in technology, increases in disposable wealth, the rationality of institutions and the ability of countries to organise themselves, the adaptability of human society has been radically increased. It will continue to increase and will solve any potential consequences of mild climate changes.

I agree with Professor Richard Lindzen from the Massachusetts Institute of Technology, who said: “future generations will wonder in bemused amazement that the early 21st century’s developed world went into hysterical panic over a globally averaged temperature increase of a few tenths of a degree, and, on the basis of gross exaggerations of highly uncertain computer projections combined into implausible chains of inference, proceeded to contemplate a roll-back of the industrial age”.

The issue of global warming is more about social than natural sciences and more about man and his freedom than about tenths of a degree Celsius changes in average global temperature.

As a witness to today’s worldwide debate on climate change, I suggest the following:

■Small climate changes do not demand far-reaching restrictive measures
■Any suppression of freedom and democracy should be avoided
■Instead of organising people from above, let us allow everyone to live as he wants
■Let us resist the politicisation of science and oppose the term “scientific consensus”, which is always achieved only by a loud minority, never by a silent majority
Instead of speaking about “the environment”, let us be attentive to it in our personal behaviour
■Let us be humble but confident in the spontaneous evolution of human society. Let us trust its rationality and not try to slow it down or divert it in any direction
Let us not scare ourselves with catastrophic forecasts, or use them to defend and promote irrational interventions in human lives.

The writer is President of the Czech Republic

Copyright The Financial Times Limited 2007

Brussels and its Federalcrats Are Suffering From Centralization Fever

We Must Cure Brussels of its Centralising Fever


by Lüder Gerken and Roman Herzog

Europe's World (Policy Journal)

The inappropriate centralisation of political power by the EU is one of the main reasons people mistrust it, argues former German President Roman Herzog. He and Lüder Gerken prescribe four curative measures to cure the ailment

People are increasingly ill-at-ease, and even downright sceptical about the European Union. One of the main reasons is that they cannot shake off the feeling of an ever-stronger and inappropriate centralisation of its competences. These are concerns that must be taken very seriously because they have not been simply dreamed up.

In the world of politics, of course, the reason for this centralisation is that politicians and civil servants at EU-level have striven for more influence. Also, Brussels is frequently used as a backdoor for introducing legislation that a national ministry fears would meet too much resistance at home. And then there is the phenomenon in which member states' representatives in the Council of Ministers frequently bundle together totally unrelated projects and forge alliances to make up a voting majority.

What can be done to halt this trend towards inappropriate centralisation? First, we need to draw up a list that stipulates the precise scope and limits of EU competences. The proposed constitutional treaty does not contain such a list, even though this was specifically demanded by some people during the constitutional negotiations of the European Convention.

What's more, the constitution would in many policymaking areas entail a changeover from unanimity in the Council of Ministers to majority voting. If implemented the constitutional treaty would thus even reinforce the EU's gradual process of centralisation, however inappropriate that often is, simply by making the European decision-making process more straightforward.

The idea of introducing the listing of competences to clearly differentiate between EU competences and those of the member states was rejected by the European Convention chiefly on the grounds that it would impair the "dynamic ability of the EU to develop". Yet that is exactly the point of such a list. And in any case a list of this kind can be amended whenever it would be appropriate to extend the EU's competences.

The so-called discontinuity principle must also be introduced at EU level. This would entail the automatic expiry of prospective legislation if it has not been adopted within a legislative period, so that the procedure has again to begin from scratch in the new legislative period. This is a matter of course in Germany, but not in the EU. EU bodies repeatedly have to deal with legislative initiatives that are 10 years old or more, but the proposed constitution nevertheless abstained from introducing the discontinuity principle into EU legislation.

EU member states need to be given the right through the European Council to withdraw competency for a particular area of policy from European level and restore it to the national level. This would clearly reduce the risk of structural contents of EU competences being developed in a way that is contrary to the preferences of most member states, and would in particular remove the risk of measures being taken by the EU that turn out in the end not to be covered by the competences that had been granted to it.

If this is even just a possibility, it is in the interests of both the Commission and the European Parliament to exercise, with reservation and without excess, the powers that have been granted to them to prevent any risk of their being withdrawn completely. Having said that, it is also true to say that for this threat to be a real one, the right to restore any of the EU's present competences to the national level has to be based on a majority vote rather than a unanimous one.

The draft constitutional treaty doesn't contain the possibility of restoring individual competences to national level as a way of breaking the centralisation trend. Instead, it counts on the same one-way street as before, which leaves the EU heading towards ever-greater centralisation.

The combination of these three institutional measures could successfully counteract the shift towards inappropriate forms of centralisation that originate from day-to-day politics in Europe. So far as most policies are concerned, the three measures would take over the function of "subsidiarity controller", which up to now has been the Council's job and which it was incapable of performing effectively, witness the developments of the last 15 years.

Quite apart from the political realities that have caused the sorts of inappropriate centralisation we have outlined here, there is a fourth cause that although very influential has been generally overlooked. This involves the legal practices of the European Court of Justice, whose verdicts on competence issues reveal a systematic tendency to decide in favour of the EU in this area whenever it can find any justification at all.

A good example would be the verdict handed down in November 2005, when the European Court of Justice declared null and void the possibility of concluding temporary employment contracts with older employees that had been contained in Germany's Hartz-I package as a core element of Chancellor Gerhard Schröder's labour market reforms. The German measures had been aimed at reducing long-term unemployment amongst older people, but in the face of amazed expert opinion, the European Court of Justice came up with the justification that the "prohibition of discrimination on account of age" is a "general principle of Community law".

Another example has been the January 2006 verdict on so-called E-101 certificates, documents that say an employee temporarily working in another EU country remains insured in the social security system of his home country, and is therefore exempt from paying social security contributions in the country of temporary residence. A major problem here is that social security fraudsters often advance incorrect information so as to obtain E-101 certificates abroad, and escape from having to pay social security contributions at home.

The European Court of Justice, however, has now categorically refused national courts any judicially viable means of checking whether an E-101 certificate could have been obtained by fraud. This prohibition means that German social security fraudsters, who have falsely claimed to have sent employees abroad, must be acquitted in any German court. With this verdict, the European Court of Justice has created the need to establish new European regulation in an area that actually belongs to the member states' core competences.

The increasing centralisation of powers in the EU through legal practice that is determined by the European Court of Justice is something that must be stopped. To do so would entail setting up an independent Court for Competence Issues that would operate in parallel to the European Court of Justice and deal solely with questions of distinguishing between competences that belong at European level and those that are properly at member state level.

To be independent, this Court for Competence Issues would have to be made up of members from the constitutional courts of the member states. This court should be able to judge not only the legal instruments and political measures of the Commission and the European Parliament but also the verdicts of the European Court of Justice.

It is not just EU bodies and its member governments that should have the right to sue, but national parliaments too. While the proposed constitutional treaty includes the possibility of national parliaments and the Committee of the Regions taking action following any alleged violation of the EU's subsidiarity principle, this right still risks vanishing into thin air because in addressing such action to the European Court of Justice as an EU institution, any corresponding verdict will probably interpret the competence regulations in favour of the EU whenever possible. That's why this independent court is so vital.

As it stands, the EU's constitutional treaty makes no provision for any of the four institutional measures proposed here. But in the now very likely event of a revision of the draft constitution, these are measures that should definitely be incorporated.

Sunday, December 30, 2007

UNESCO Promotes Behavior Modification For Sustainable Future Through Universal Mandatory Education

Globalization and Education for Sustainable Development: Sustaining the Future

United Nations Educational, Scientific and Cultural Organization

UNESCO and the international community in general, believes that we need to foster – through education – the values, behavior and lifestyles required for a sustainable future. Indeed, sustainable development is not so much a destination as a process of learning how to think in terms of “forever”. Sustainable development involves learning how to make decisions that consider the long term future of the economy, ecology and equity of all communities. Building the capacity for such future-oriented thinking is a key task of education.

Teaching and Learning for a Sustainable Future is rooted in a new vision of education, a vision that helps students better understand the world in which they live, addressing the complexity and interconnectedness of problems such as poverty, wasteful consumption, environmental degradation, urban decay, population growth, health, conflict and the violation of human rights that threaten our future.

This vision of education emphasizes a holistic, interdisciplinary approach to developing the knowledge and skills needed for a sustainable future as well as changes in values, behavior, and lifestyles. This vision requires us to reorient education systems, policies and practices in order to empower everyone, young and old, to make decisions and act in culturally appropriate and locally relevant ways to redress the problems that threaten our common future. Teaching and Learning for a Sustainable Future will enable teachers to plan learning experiences that empower their students to develop and evaluate alternative visions of a sustainable future and to work creatively with others to help bring their visions into effect.

...By requiring us, individually and collectively, to make difficult choices about how we live, sustainable development is an ethical and moral challenge as well as a scientific concept...Ultimately, the Decade’s goal is to integrate the values inherent in sustainable development into all aspects of learning strong>to encourage changes in attitudes and behavior that allow for a more sustainable and just society for all.

...Sustainable development means that we need to embrace the values, behaviors and
lifestyles required for a sustainable future. We need to transform mentalities and visions; and be able to transform those visions into reality.

...What path can humans follow in order to achieve prosperity and sustainability? Most people believe they need only adjust and adapt to local society. This represents a basic type of diversity, whose needs are addressed through basic education covering reading, writing, math, and a rudimentary understanding of science and social behavior. However, advanced education, starting at the high school level and continuing onward, develops each person’s unique, innate abilities in order to spur progress towards a sustainable society.

...UNESCO and the international community in general, believes that we need to foster – through education – the values, behavior and lifestyles required for a sustainable future. Indeed, sustainable development is not so much a destination as a process of learning how to think in terms of “forever”. Sustainable development involves learning how to make decisions that consider the long term future of the economy, ecology and equity of all communities.

...This vision of education emphasizes a holistic, interdisciplinary approach to developing the knowledge and skills needed for a sustainable future as well as changes in values, behavior, and lifestyles. This vision requires us to reorient education systems, policies and practices in order to empower everyone, young and old, to make decisions and act in culturally appropriate and locally relevant ways to redress the problems that threaten our common future.

...What is the state of best practice in e-learning today? Today’s best practice is being shaped by mobile, ambient technology. It is changing the dynamics of how we will live, work, and learn in the future. These new experiences will shape behaviors, practices, and social groupings for knowledge sharing.

...Doing first what matters most is another way of describing priority analysis, which leads to the question of who is going to hold the most influence at the end of this decade and beyond. It will likely be people in their late twenties and thirties who will be shaping how we view business and politics in the future.

...The vision of education for sustainable development is a world where everyone has the opportunity to benefit from quality education and learn the values, behavior and lifestyles required for a sustainable future and for positive societal transformation: every world citizen must learn to contribute to a sustainable future for all humankind.

More Disguised Protectionism Justified on False Pretense of Environmental Hazards Allegedly Posed by Air Transport

Fresh Organic Produce Shipped By Air Could Soon Be The Next Target Of The Environmental Campaigners

By Roger Turney

AirCargoWorld Online at:

As if the debate over carbon emissions weren't enough, airlines could soon face a challenge over their organic footprint amid calls to virtually ban the shipment of all air shipments of organic produce.

The startling move comes from the United Kingdom's Soil Association, the country's leading campaigner and certification organization for organic food and farming. It verifies the organic credentials of 70 percent of the UK's $4 billion organic produce market, with most imported produce coming into the country from Africa and South America.

Less than 1 percent of organic imports into the UK come by air, but this market already valued at $84 million a year and growing rapidly.

But the association claims more than 80 percent of the volume is grown in low-income countries. Said Anna Bradley, chair of the Soil Association's standards board: "It is neither sustainable nor responsible to encourage poorer farmers to be reliant on air freight, we need to seek alternative markets for these producers, so that they are no longer dependent on air freight to get their produce to market."

The Soil Association is seeking to impose stringent standards on all organic produce flown into the UK, which would demand that all producers not only meet tougher ethical trade standards, but that they agree to reduce any remaining reliance on air freight.

The association's ultimate goal, said Bradley, is to minimize the use of air freight for all imported produce.

Sans Airlines

In recent months, the association conducted a series of studies and meetings with input from more than 200 interested parties, including growers, suppliers and importers. Notably, no airlines were consulted. Ken Hayes, standards research manager for the Soil Association, said the group is concerned about the long-term impact that shipping produce by air could have on the environment.

"We recognize that a general ban could potentially inhibit growth in the organic market and focusing on the environmental impact of air freight could be considered disproportionate and unfair when in the UK, for example, the majority of carbon dioxide emissions for food transport
occurs on UK roads, not in the air," Hayes said.

A selective ban might work, he said, but that would be difficult, involving social and political judgments that would be extremely difficult for an organic certification body to make.

"But that would at least allow us to make the call allowing the shipment of organic produce by air in justifiable situations, such as guaranteeing year round supply," Hayes said.

One suggestion is to push the decision onto the end customer by labeling all organic produce shipped by air. Hayes said this labeling would "prick the conscious of the customer," but does not help resolve the complex debate over the safest form of transportation.

The association could consider carbon offsetting as a way to balance its priorities with the business demands of the fast-growing UK organic produce market. "The only problem is that no national standard for offsetting yet exists," said Hayes.

After further consultation through 2008, the new standards are set to be applied from the start of 2009.

Over Top

But is some organic produce suppliers believe the Soil Association might be in danger of overreacting.

Anthony Pile is chairman of Blue Skies, an organic produce supplier, which imports fresh pineapple into the UK from Ghana in West Africa. "We have always felt that focusing on air freight in the organic food audit trail grossly simplifies the issue and does not take into account
the social and economic impact of organic farming in somewhere like Africa."

He called for the UK Soil Association to commission a more detailed study into the environmental impact of organic food production."We need to get across the message that measuring environmental impact is not as simple as counting the, 'food miles' or targeting the
airplanes," said Pile. "It is about looking at the whole story from when it is grown to when it is eaten."

Environmental groups have targeted what has become known as food miles as one example of problems growing out of globalization, arguing that food shipped around the world has had a troubling impact on the environment. One study showed food imports into the UK doubled in the 1990s and industries such as the strawberry and apple farms have been sharply cut back while imports soared.

Pile insists Blue Skies only exports products from Ghana using passenger aircraft on existing scheduled services. "If we were to stop flying organic produce, the planes would still fly and the extra space left in the belly holds would probably be filled by non-perishable goods, which do not necessarily need to be flown," Pile said.

Although not consulted, the airfreight industry also has a viewpoint. "There is a great deal of noise surrounding the issues of organically produced and ethically sourced perishables," said Ed Searancke, general manager of customer delivery for British Airways World Cargo. "But there
is also a lack of industry data, which is needed to enable us to have an informed debate."

BAWC handled 115,000 tonnes of perishables through London Heathrow last year. With year on year growth rates of between 5 percent and 10 percent, perishables now represents a fifth of the airline's cargo tonnage. Don't expect the carriers to go all-organic any time soon.

The Four Little Dragons: How Asia’s Smaller Heavyweights are weighing in

Institute for Trade Standards and Sustainable Development

By: Osman Aziz

The emergence of Asia’s small heavyweights onto the global financial stage is forcing the reconsideration of the archetype of economic development in Asia. Of particular focus are the “four little dragons” of the burgeoning Asian paradigm, Taiwan, Singapore, South Korea, and Hong Kong SAR. The recent developments in Sovereign Wealth Funds (SWF) emerging especially from the ASEAN region harbors astonishing implications for Asia as a whole, chiefly, exactly how such smaller Asian nations can throw their weight around with other traditional powerhouses as China and Japan. The answer lies in a twofold approach that has been gaining some serious momentum in the last decade or so. For one, the four seek to increase by leaps and bounds the volume of export, and secondly, to purchase a major stake in the financial markets of foreign countries so as to essentially convert these smaller nations into massive financial conduits. Due to large trade surpluses, these nations often enjoy the luxury of repackaging their gains into stocks, bonds, and other maneuverable financial assets. The sort of power and clout these organizations possess play out in the financial rink in many ways. The Government Investment Corporation of Singapore’s recent investment of 10 billion dollars in UBS [1] and the subsequent publicity that SWF’s are garnering around the world are just slight examples of the growing power of such institutions. However, criticism’s abound regarding the nature of such funds, and if their role is even beneficial to the overarching notion of sustainability and development. In Anders Åslund’s article The Truth About Sovereign Wealth Funds” he assails these funds as a means for authoritarian regimes to seize on private capital.

If anyone should worry about them, it’s the people whose governments are amassing them. That’s because governments tend to be terrible at managing money that is best left in the hands of private citizens. And locking away billions of dollars in wealth can have pernicious economic side effects. Maybe that’s why sovereign wealth funds are popular with dictators and semi-authoritarian regimes, which don’t have to answer for the consequences when they make poor economic gambles.” [2]

Although Åslund takes a jab at the ADI (Abu Dhabi Investment) for its recent acquisition of 4.9% of Citibank as private interest being undermined by authoritarianism, his attack on Singapore seemed to find itself in jeopardy. Labeling, quite arbitrarily, that Singapore’s leaders are unelected in the sense that elections are not fair and balanced, he goes on to regard Singapore’s actions as anathema to the spirit of private investment. Whether or not such blanket accusations hold any real weight, small nations such as Singapore and South Korea are taking up the scepter of SWF’s as a means to exert influence. The negative stigma that has been attached to these organizations, whether grounded or not, don’t account for the reality that such funds are assuming. Additionally, criticisms of SWF’s risk labeling efforts by its endorsing nations as simply the consequence of ambitious authoritarianism. As a reality, SWF’s pose a new shift in a paradigm that is expected to carry significant clout in the next decade or so.

US-Malaysia FTA: The implications for regional bodies and FTA’s and a word on Sovereign Wealth in Malaysia

Recent negotiations underway for a US-Malaysia FTA could bring this regional powerhouse onto the global stage to the degree that it hasn’t been seen. As the 10th largest trading partner to the US, Malaysia’s significance as an economic opportunity to the US is greater than ever before. Trade negotiations, which began in June of 2006 have reached new heights with continued efforts on the part of the USTR and ASEAN. The existence of a US-ASEAN TIFA has buttressed efforts to strengthen ties with Malaysia. Naysayers cite the lack of a definitive standard for labor rights although the US-ASEAN TIFA clearly states that their exists the “observance of the declarations of the World Trade Organization Ministerial Conference on internationally recognized labor standards…”[3] Utilizing the US-Singapore FTA as a framework, the notion of a free trade agreements existing with Malaysia is not a far-detached reality. Although negotiations have not concluded yet, the USTR’s capitalization on an existing association was pivotal in pushing the agenda for a free trade agreement with Malaysia. The lesson to be learned with regards to the Four Little Dragons in self-explanatory: Working through a larger association in order to achieve aggregate FTA’s seems more inclined toward success. So what about other regions in the world? Although FTA’s are slowly succeeding in MENA nations, the relative difficulty in negotiating these agreements is hampered by there not existing a collective identity in the region. This trend is observed in other regions as well. The OAS, whose constituent members are comprised of nearly every Western Hemisphere nation, has been largely unsuccessful in advancing the notions of free trade. Instead, this role has been filled by efforts from the US, an endeavor that has been met with much criticism because of the US’s alleged “imperial” interests. Whether or not this is true, the success that is Southeast Asia is a compelling argument for the establishment of successive FTA’s under the umbrella of regional organizations.

The Kazanah Nasional Fund, the official SWF of Malaysia, created in 1993 under the Companies Act, handles nearly 18.3 billion dollars[4] of public assets in Malaysia. Very much like the GIC of Singapore, the KNF is responsible for repackaging trade surpluses into liquid assets such as securities and bonds. The amount of publicity the KNF has garnered over the last few years is not nearly as considerable as ADI or the GIC, but with trade negotiations underway for Malaysia, its emergence as a regional powerhouse is not too far behind. New considerations are being deliberated on regarding the traditional role of dominant forces in the Southeast Asia, but the US is playing the right game in making no distinction with regards to Malaysia. Although technically a Muslim nation with a duality legal system, one consisting of Sharia, the other of common law (a side-effect of Britain’s involvement in the nation)[5], many have disregarded the role that Islam has played in the formation of the collective conscious of the Malaysian people. The fact that Malaysia has emerged as an economic and political power, regardless of its status as a Muslim nation, is evidence of the fact that there exists a workable compromise and dialogue that can balance the supposedly “competing” interests of the modern world and that of traditional Islam. Regardless of the criticisms either in favor or opposing, the truth of the matter is that Malaysia’s economic boom is a reality that is undeniable.

[1] Channel News Asia. Growth of sovereign wealth funds inevitable, time for regulations to kick in. (December 12, 2007)

[2] Foreign Policy. The Truth About Sovereign Wealth Funds. (December 2007)

[3] United States Trade Representative. Trade and Investment Framework Arrangement Between the United States and The Association of South East Asian Nations. (June 2006)

[4] Reuters. FACTBOX-Sovereign wealth funds brim with money. (Oct 20, 2007)

[5] Radio Singapore International. How interfaith matters are decided within Malaysia’s dual court system. (January 25th, 2006)

Government Accountability and the elimination of Extra-Legal Norms:

Institute for Trade Standards and Sustainable Development

By: Osman Aziz

Efforts undertaken by the World Bank, IMF, and other international financial institutions to analyze the nature of government accountability and inclusiveness in the Middle East have been effective insofar that they have analyzed the situation in MENA nations under normative terms. In their analysis, the question of government accountability and corruption hints to the notion of extra-legality, a concept enshrined in Hernando De Soto’s “dead capital”. In the World Bank’s diagnosis of MENA nations in 2003, they concluded that the question of spurring greater accountability and transparency in Middle Eastern nations hinged on the nations ability to undo the bureaucratic hamstringing of the private sector.

“Improving the inclusiveness and accountability of governance mechanisms in MENA will help in three ways: by reducing the scope for persistently arbitrary or distorted policies, by improving bureaucratic performance and thus reducing the uncertainties and costs of doing business, and by improving the delivery of public services for businesses to be productive.”[1]

The burgeoning debate surrounding sustainability in not only the Middle East, but around the world is a debate that encircles more than simply economic development and the mechanics that provide for it. Questions of sustainability also include legal paradigms, cultural norms, and other certain norms that are indelibly tied to the region in question. Although the concept of development and progress harbors undertones that cut across cultures and borders, the considerations, both historically and traditionally, must be taken when assessing a region that possesses a rich history entrenched in a legal tradition that held reign for hundreds of years. The issue of Sharia, a tense topic that elicits misrepresented notions of its “incongruous” position in the modern world. Research up to this point in analyzing certain methodologies presented under Sharia in relation to sustainable development have lacked any real relation to the traditional methods of analyzing the body of law and its respective notions of land right and tenure regiments (concepts such as mewat, waqf, mu-amalat, and qist). Regardless of the debate in favor or in opposition, the failure of modern movements such as Arab nationalism, socialism, pan-Arabism, and others is evidence unto itself that a new paradigm must take precedence that holds the notions of private property and free trade in greater respect than current regimes.

Hernando De Soto’s seminal work, The Other Path, was written in response to the socialist ideology of the Shining Path, a terrorist organization with its allegiance firmly rooted in Maoism. In it he argues that the plight of rural farmers is directly correlated with the government’s inability to enable the average citizen with a set of legal rights wherein he/she may be able to leverage, mortgage, or accrue equity on their land. He also claims that if the average citizen was enabled with such economic freedoms, they could become, in his words, budding entrepreneurs. His thesis and study on Peru garnered widespread attention and was quickly emulated elsewhere in other countries. A case diagnosis of Cairo, Egypt found that 92% of Cairenes hold their real estate extralegally (or in other words, outside the formal realm of law), and that 82% of entrepreneurs operate extralegally. Further analysis reveals that nearly 248 billion dollars in assets exist extralegally, capital that could be invested in business ventures.[2] These findings, coupled with the fact that current legal regimes that exist in MENA nations are of a foreign source (either French Civil or British Common Law) presents not only a dilemma religiously, but of the sovereignty of a region that steeped in cultural and societal norms. The question then becomes: Has the introduction of foreign norms contributed to the ascendancy of extralegal institutions, and furthermore, what are these institutions exactly?

The OECD’s work in 2007 regarding the relevancy of societal norms and governing institutions outlined a basic framework for the definition of such norms. In their work “Informal Institutions: How Social Norms Help or Hinder Development,” Johannes Jütting, Denis Drechsler, Sebastian Bartsch and Indra de Soysa level disparate criticisms, stating that informal institutions are either the result of a poor effort on the part of the government for establishing foreign norms in countries with their own traditions, or the fault of the citizens of such nations for not investing trust within the systems introduced to them by their governments.

In emerging and developing countries, formal institutions such as laws, regulations and legally enforced property rights are usually poorly established. Informal institutions based on trust, solidarity and social capital – such as family and kinship structures, traditions, civil and social norms – often substitute for, compete with or complement formal institutions. In fact, informal institutions are of high importance and can help or hinder the development process: ignoring them can be costly for partner and donor countries alike.”[3]

The particular paradigm presented by the MENA region poses a serious reconsideration of the institutions that currently exist. De Soto’s disturbing case study of Egypt and the extraordinary inefficiencies that its governmental institutions exude is evidence unto itself of either the nation’s inability to successfully understand the local customs, or the negligence of the average citizen in relation to the law. Regardless, the existing systems in the MENA nations have not duly addressed the issue of extra-legality. If this is a matter of foreign or alien forms of governance modeled after western secularist notions, then a more thorough analysis of the role of religion in the everyday administration of social interactions needs to be taken into account. Certain phenomenon’s, embodied by the duality legal systems present in both the UAE and Malaysia present precedence’s that can serve to widen an unconsidered debate.

[1] “Better Governance for Development in the Middle East and North AfricaThe World Bank Group (2003)

[2] “Dead Capital in EgyptILD. (2007)

[3] Organization for Economic Cooperation and Development. Development Centre Studies Informal Institutions: HOW SOCIAL NORMS HELP OR HINDER DEVELOPMENT. (2007)

The Death of Chavez’s Dream: How the US-Peru FTA is combating Bolivarianism and Regional Socialism

Institute for Trade Standards and Sustainable Development

By: Osman Aziz

Recent developments in Latin America, chiefly the passing of the US-Peru FTA on December 7 and the nationwide referendum on Chavez’s socialist dream harbors significant undertones for a region that is emerging on the global stage. In a way, two competing ideologies are meeting face to face in a heated battle to see who emerges as victor. Chavez’s defeat in Caracas points to the mollification of a backlash in Latin America, namely one against the supposed meddling of foreign elements of western influence. So the question boils down to this: why is capitalism and free trade, as opposed to the socialist doctrines of Chavez, Morales, and Cuba, winning the day in Latin America? Populist leaders such as Chavez and Morales have long relied off of a platform that vindicates the US and its supposed interests in exploiting Latin America. This popularity has been undercut, at least specifically in Venezuela, by rampant inflation that has placed the value of food and bare necessities far higher that the average Venezuelan can afford. Although the situation in Venezuela has been mitigated by the presence of massive oil revenues flowing into the nationalized oil company PVDSA, Chavez’s utter hatred for the private sector has contributed to faulty social programs and an underestimation of market forces.

“In Venezuela’s case this has been exacerbated by Mr. Chavez’s ideological hostility to the private sector, which has involved selective nationalization and intermittent threats to private property. While many private companies (and banks) have done well out of the boom, they have been loth to make long term investments. Imports have risen fourfold over the past four years, while GDP has expanded by only half over the same period.”[1]

Although Venezuelans have prospered marginally from Chavez’s social programs and his redistribution of oil funds, the very fact that a sustainable paradigm of free trade and the protection of private property are being fundamentally undercut by Chavez’s regime has contributed to a sense of fear in Venezuela over long term investments. Since no guarantee or promise exists that any form of investment by private capital will actually yield returns (due to the tenuous nature of the protection of private interests in Venezuela), many Venezuelans have resigned themselves. However, this trend hasn’t been the norm in other parts of Latin America as is evidenced by the Heritage’s foundation “Index of Economic Freedom”. The annual report, which documents different factors that contribute to the overall nature of economic freedom found that the Americas has maintained a sustainable level of economic freedom that has contributed to the rise of per capita GDP over the last decade or so. However, the report also found that protectionist policies being adopted by numerous regimes in the region threaten the integrity of such sustainability by subjecting it to unfair practices that deter foreign investment.

“The recent rise of populists like Evo Morales and Hugo Chávez threatens to widen the freedom gap in the Americas even more. The Americas has been the second-highest region in terms of freedom since 1999, when it was the world leader. That was before Argentina’s economic implosion and the protectionist policy responses that followed, notably the weakened average trade score.”[2]

The question that now faces a region such as Latin America is what definitive direction it seeks to work out in the next few years. The passing of the US-Peru FTA recently may be an indicator that the socialist backlash that seemed to be taking hold in South America is losing its grip. Additionally, an indication of growth, coupled with a political atmosphere that may be conducive to free trade is potentially turning the tide. The nature of the US-Peru FTA and what it seeks to bring to the table is a complex matter. Some argue, such as Sandy Levin of the House Ways and Means Committee asserts that the agreements does not go far enough in enforcing labor law rights in Peru. Specifically, he argues that provisions under the FTA do not address the underlying ineptitudes of the current condition in Peru.

I favor a U.S.- Peru FTA, but this Agreement is bad for U.S. standing in the Latin American region. In negotiating trade agreements, the U.S. should not once again be locking in the status quo, but given constructive opportunities, helping to leverage change. The use of the standard, "enforce your own laws" in relationship to workers and their rights, when change is vitally needed, puts us on the wrong side of people who know the current law is not working to their benefit.”[3]

Although Levin raises legitimate concerns with regards to the nature of labor rights in Peru and elsewhere in Latin America, his lack of consideration for the fact that such an FTA would open up Peru for considerations in complying with international labor standards, a consideration that would have been pounced upon by leaders such as Morales and Chavez as “neo-imperialist,” is frankly questionable. Conflicts within the Ways and Means Committee over the nature of an ITUC report on the status of labor rights in Peru was a major point of contention. According to a release by the WAMC on the issue of labor rights, it was related that the ITUC report in question actually provided for “legally binding amendments” which restricts Peru from reneging on its labor rights provisions. If the Peruvian government was to be found not in compliance with such binding amendments, the US government would have the mandate to challenge the Peruvian government in the same tradition of a commercial treaty violation.[4] Regardless, the widespread acceptance that the US Peru FTA garnered in the Peru legislature itself is evidence unto itself of the willingness of the government of Peru to comply by the universal force of free trade and trade liberalization.

The overall affect that the US-Peru FTA will have in quelling the increasing tide of socialism across the landscape of Latin America is, at best, minimal. However, unlike most efforts being exerted in combating this trend, the FTA’s being negotiated in the Latin American region harbor a profound meeting for the area as a whole. With such virulent strains of criticism as that originating from Chavez, Latin America deserves the chance to partake in the global market by making its resources, both physically and intellectually, open to the greater global financial dynamic. Its high time that such populist movements as that of Bolivianarianism be shelved by the promises of sustainability that are inherently bound in the spirit and practice of Free Trade Agreements and international trade.

[1] The Economist. The wind goes out of the revolution. December 8th, 2007

[2] 2007 Index of Economic Freedom. Economic Freedom in Five Regions. (2007)

[3] Sandy Levin on the US-Peru FTA