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President Havel of Czechoslovakia 10/22/91 [OA 8330] [4]
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President Havel of Czechoslovakia 10/22/91 [OA 8330] [4]
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President Havel of Czechoslovakia 10/22/91 [OA 8330] [4]
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26
21
7
2
BUSINESS IN EASTERN EUROPE
Jam tomorrow
T
ELEVISION crews, journalists and assorted
ment. Nobody bothered to ask who owned Curtis
A savage recession
Polish dignitaries recently gathered in Mlawa, a
or why the company was investing in the factory
small town north of Warsaw, to witness what
and the complexity
when it already successfully imported televisions.
would have been a routine event in the West: the
And nobody was much interested in the one piece
of reform are
opening of a factory employing 250 people. For Po-
of hard information that Mr Niemczycki was eager
slowing the
land the opening was something of a milestone. Es-
to reveal, namely that he was pleading with the gov-
transition to a
tablished by an American company called Curtis
ernment to raise customs duties on imported tele-
market economy.
International, to assemble Japanese-made televi-
visions to make it easier for the Mlawa factory to
sions and video recorders, the Mlawa factory was
But Eastern Europe
succeed. Incredibly, this avatar of Poland's move to
one of the first in Poland to be built from scratch by
a free-market economy was already demanding
needs faster, not
a western investor.
government help against competitors.
slower, change.
The scene encapsulated many of the confusing
Equally bewildering scenes are being repeated
That means rapid
currents now swirling through Eastern Europe.
throughout Eastern Europe. Since the Mlawa cere-
privatisation,
Among the honoured guests were Father Henryk
mony, Poland has been rocked by a series of bank-
argues David
Jankowski, who became famous as a staunch ally of
ing and corporate scandals that have fuelled the
Lech Walesa during the 1981 strikes in the Gdansk
growing disillusionment among ordinary Poles.
Manasian, our
shipyards, and Tadeusz Fiszbach, an old foe of Soli-
Opinion polls indicate that a majority now con-
business editor
darity as former head of the Communist party in
sider corruption the biggest problem facing their
Gdansk, who is currently deputy speaker of the Pol-
country. The government, the boldest reformer in
ish parliament. Both Catholic priest and commu-
Eastern Europe, is in disarray. Poland's first fully
nist apparatchik are now keen to be seen as backers
free parliamentary election, on October 27th, is un-
of capitalism.
likely to give power to any single party, making it
Judging from the questions of Polish journal-
even more difficult for the next government to take
ists, suspicion of capitalism also remains strong.
bold action. Poland's sense of drift is shared by the
They devoted an hour-long press conference to in-
other four countries liberated by the revolutions of
terrogating Zbigniew Niemczycki, the Polish emi-
1989-Czechoslovakia, Hungary, Bulgaria and Ro-
gré who is Curtis's president, about how well his
mania. Hopes for a quick transition to the market
firm would treat the factory's workers and whether
have faded. Disappointment and bitterness are
a trade union would be allowed. This was a strange
growing.
topic to pursue in an area with 40% unemploy-
The plight of these countries should be a warn-
THE ECONOMIST SEPTEMBER 21ST 1991
4 SURVEY BUSINESS IN EASTERN EUROPE
ing to reformers in the Soviet Union that defeating
SWEDEN
Moscow
the inept plotters of a coup d'état is child's play
LATVIA
DENMARK
Baltic
compared with the long and difficult task of build-
Copenhagen
Sea
LITHUANIA
ing a market economy from the wreckage of central
planning. Perhaps most discouraging is the fact
Gdansk
that the Soviet Union's neighbours began their re-
SOVIET
forms so bravely and with so much popular sup-
Berlin.
Paznan
UNION
Warsaw
port. The changes of the past two years have been
GERMANY
POLAND
startling. All five governments have embraced free
Krakow
markets and political pluralism-at least in word if
Prague
not, in the case of Bulgaria and Romania, yet in
CZECHOSLOVAKIA
deed. The three leading reformers, Poland, Czecho-
Bratislava
slovakia and Hungary, have freed most prices,
AUSTRIA
Budapest
made their currencies convertible for most busi-
HUNGARY
ROMANIA
nesses, flung open the doors to foreign investors
and lowered trade barriers.
Bucharest
Belgrade
The results are visible on the streets of Warsaw,
YUGOSLAVIA
Prague and Budapest. Shops are full of western
BULGARIA
goods. Where grim-faced policemen once stared
ITALY
MSofla
down pedestrians, steet vendors now hawk their
ALBANIA
wares. The Communist Party's former headquar-
Tirane
ters in Warsaw houses Poland's infant stock ex-
as
TURKEY
change. Prague's Wenceslas Square is festooned
Miles
500
GREECE
with colourful advertisements. Hundreds of thou-
sands of local entrepreneurs have started small
neurs have responded by starting small businesses.
businesses. Scores of western law firms, consultants
Western companies are hunting for opportunities
and accountants are setting up offices. From all ap-
to invest. But foreign investment, though increas-
pearances, business is booming.
ing, is still smaller than once expected. And the dis-
Or is it? By most measures, Eastern Europe is in
mantling of the public sector, the biggest and most
the grip of a prolonged and savage recession. After
damaging economic legacy of communism, has
declining by 8% or so last year, the five countries'
barely begun.
GDPS are expected to drop another 8% this year. In-
During the communist years, small groups of
dustrial output has declined even faster, by 17% last
economists throughout Eastern Europe had always
year and probably 11% this year. Like all statistics
quietly studied western economics under their
about Eastern Europe, these figures are endlessly
desks. Confronted each day with the absurdities of
disputed and have to be taken with a large pinch of
a command economy, most became ardent fans of
salt. They may paint too grim a picture because they
free markets. When suddenly handed the reins,
underestimate the growth of private businesses. Yet
they rejected any "third way" between socialism
these countries are clearly in economic trauma.
and capitalism. They also scorned suggestions of a
In all five, inflation is still destructively high,
gradual transition to the market: that looked like
while unemployment is rising rapidly. East Euro-
the most direct route to the kind of chaos provoked
pean economies have been clobbered by the virtual
in the Soviet Union by Mikhail Gorbachev's
collapse of trade with the Soviet Union and the for-
perestroika. They did not want to fix the system, but
mer East Germany, as well as by an abrupt rise in
to sweep it away. And yet, like most western econo-
energy costs as the Soviet Union began demanding
mists, few anticipated how complex would be the
world prices for its oil.
task of turning socialism into capitalism.
Economic reform has also taken a toll. Contrary
To function efficiently, modern market econo-
to the relentless optimism of the consultants and
mies rely on institutions and rules established over
investment bankers trying to promote deals, many
a century or more: property and contract laws and
western businessmen have re-
the courts to enforce them; accounting and bank-
The long climb back
1
turned from visits to Eastern Eu-
ruptcy rules; tax codes; pension and unemploy-
Central and Eastern Europe
rope shaking their heads at its de-
ment systems; labour laws; the supervision of
3,500
GDP per person, 1989 dollars
moralised workers and decrepit
banks and financial markets. Governments in East-
$
factories. The World Bank predicts
ern Europe have only just begun to think about
that output per head in Eastern Eu-
most of these issues.
rope may not recover to 1989's level
At least there are established models to copy in
3,000
Hungary,
until 1996 or later (see chart 1).
setting up the legal and institutional framework of
Poland and
Czechoslovakia
Both optimism and pessimism
a market economy. But there are no models at all
have some justification on their
for transforming a centrally planned one, with al-
side. At least in the three most de-
most everything owned by the state, to one domi-
2,500
veloped
countries-Poland,
nated by private ownership. Lessons from 40 years
Czechoslovakia and Hungary-
of economic development in the third world, gath-
governments have bravely intro-
ered by the World Bank and others, are not imme-
Bulgaria,
duced essential changes for the
diately relevant. These indicate that a strategy of re-
Romania and
2,000
Yugoslavia
move to a market economy, de-
stricting government intervention, opening the
N
spite a series of blows that could
economy to trade, maintaining prudent and pre-
1989
91
93
95
97
99 2000
est
Forecasts
easily have derailed less commit-
dictable government budgets and investing in edu-
Source: World Bank
ted reformers. Aspiring entrepre-
cation, health and basic infrastructure leads to the
THE ECONOMIST SEPTEMBER 21ST 1991
F
BUSINESS IN EASTERN EUROPE SURVEY 5
Snapshots
2
Poland
Czechoslovakia
Romania
Hungary
Bulgaria
1989
1990
1991*
1989
1990
1991*
1989
1990
1991*
1989
1990
1991*
1989
1990
1991*
Real GDP % charige
over previous year
-0.2
-12.0
-3.7
1.4
-3.1
9.8
-9.9
10.2
-10.0
-0,2
-3.5
-6.0
-0.4
-11.8
19.8
Industrial output,
% change over
previous year
-2.5
-28.8
-5.7
1.0
-3.7
-4.5
-2.1
-22.0
-20.0
-1.0
-10.0
-12.0
1.1
-10.7
12.0
Exports, $bn
15.6
18.6
18.6
14.3
13.5
13.7
6.1
3.5
3.2
10.9
10.8
11.4
7.9
6.4
6.1
Imports, $bn
17.4
14.7
18.8
17.1
19.0
16.5
3.8
5.2
3.9
12.4
12.6
11.3
10.0
8.9
6.5
Inflation rates, %
251
684
80
1.4
15.0
40.0
1.1
27.0
130.0
17.5
28.2
36.0
6.4
26.3 200.0
Unemployment
rates, %
0.3
6.1
7.3
0.0
1.0
2.8
0.0
0.0
3.6
0.5
1.6
2.9
0.0
1.6
2.7
Trade balance, $bn
-1.8
3.9
-0.2
-2.8
-5.5
2.8
2.3
1.7
0.7
-1.5
-1.8
-0.1
-2.1
-2.5
0.4
Exchange
rate
per
$
1,439
9,500
11,392+
15.0
18.2
29.0+
14.5
34.7
60.01
59.1
63.2
75.01
0.86
2.15
18.0+
*Forecast tAugust, 1991. Sources: PlanEcon; DECD
fastest growth. Unfortunately, applying this recipe
decades or more to catch up with the European
to Eastern Europe is impossible.
Community (EC), the wholesale disposal or liqui-
Unlike most developing countries, Eastern Eu-
dation of thousands of state enterprises has begun
rope is already highly industrialised-and nearly
to seem less urgent. Selling even a handful of the
all the inefficient factories dotting its polluted
best enterprises to foreigners has taken much
landscape are owned by the government. Every day
longer, and proved to be much more difficult, than
millions of people trudge to the wrong job in the
expected. For most state-owned businesses there
wrong place to produce the wrong goods. The di-
are no buyers. Others will remain in state hands for
lemma facing reformers is that, to create an econ-
years to come even if the most ambitious privatisa-
omy free to respond to orthodox strategies for
tion targets are met. So, runs the argument, the gov-
growth, they first have to intervene on a gigantic
ernment has no choice but to start picking winners,
scale to privatise factories, farms and shops.
and funnelling money to them. After all, plenty of
Officials throughout the region agree that, with-
western governments do precisely the same thing.
out owners, the market will never function prop-
It sounds plausible. But this survey will argue
erly and the economies will not grow. And yet there
that the growing acceptance of such gradualism is
are no precedents for such vast privatisations. West-
the greatest peril now facing the countries of East-
ern economists have leapt at this new problem with
ern Europe. Governments will, indeed, be forced to
relish, pouring out a continuous stream of often-
take some action to stave off the collapse of state-
conflicting advice. They have produced many use-
owned companies. Thousands of these firms are
ful ideas, but they have also confirmed that there is
now drifting in the limbo between a command
no single route to privatising on such a large scale.
economy without commands and a market econ-
Understandably daunted, East European gov-
omy still lacking the spur of private ownership.
ernments have hesitated. While still paying lip ser-
This makes rapid privatisation more, not less,
vice to rapid privatisation, many officials have qui-
urgent. Without it the danger is not a return to com-
etly begun to advocate a more gradualist approach.
munism, but economic stagnation and political in-
Most have been horrified by the collapse of indus-
stability as various interest groups compete for
try in the former East Germany, once considered
state-controlled resources. The nascent private sec-
the most industrially advanced country in Eastern
tor, starved of capital and customers, will be
Europe. Others naturally worry about how much
stunted. Continued state ownership of the bulk of
more upheaval an already moody and dispirited
enterprises is also politically dangerous. It invites a
populace can tolerate. Though quickly rejecting the
return of authoritarian (if non-communist) govern-
communists, voters have not yet given any East Eu-
ment to impose the discipline to keep enterprises
ropean government a clear mandate. All are, in
functioning. Eastern Europe has embarked on a
some sense, divided.
difficult journey towards liberal democracy and a
As it has dawned on many people that, even on
market economy. The faster it goes for that goal, the
the most optimistic assumptions, it could take two
better its chances of getting there.
Catch-22
M
UCH of the debate among economists, both
nil. In fact, all the chart means is: do everything at
Reformers face a
in Eastern Europe and the West, about how
once and do not be surprised if it takes ten years to
series of chicken-
to manage the transition to a market economy con-
complete the changes. This is undoubtedly good
cerns the "sequencing" of reforms. The World
advice. Because all the required reforms are so in-
and-egg dilemmas
Bank thinks it has a plan that reflects the greatest
terlinked, trying to identify the best sequence was
consensus among experts about when to do what
always a phoney goal. No single measure can bring
(see chart 3 on next page). The chances of any gov-
much benefit without at least some progress to-
ernment being able to follow this game-plan are
wards the other reforms. Nevertheless, it is worth
THE ECONOMIST SEPTEMBER 21ST 1991
6 SURVEY BUSINESS IN EASTERN EUROPE
those who argue that private owners will revive ail-
Simple, really
Key:
ENTENSIVE
CONTINUING
3
ing industries faster and more efficiently than any
Phasing of reform
Time in years
0
1
2
3
4
5
6
7
8
9
10
government can do. Rapid privatisation is also
Macrostabilisation
supposed to cut the ground from bureaucrats,
workers and managers with an interest in opposing
Price and market reform
further reforms. Those opposing hasty privatisa-
Goods and services:
Price reform
MOSTGDOBS
tion argue that its inevitable unfairness will under-
SOME NECESSITIES (INCLUDING HOUSING)
REMOVE QUOTAS
mine public support for economic reforms and de-
Trade reform
ADJUST TARIFFS TO MODERATE LEVELS
prive governments of much-needed revenues. All
PRIVATISATION, DEMONOPOLISATION
Distribution
five East European governments have promised
DEREGULATE
rapid privatisation. Various mass-privatisation
Labour market
HIRING AND FIRING
AIRE
RAUSES
OF
schemes, examined later in this survey, are being
Autoriomous
banking system
PREPARATION
MENTADON
prepared in Poland and Czechoslovakia to accom-
Other financial markets
PREPARATION
IMPLEMENTATION
plish this. And yet the view that slower privatisa-
tion may be more prudent is gaining support.
Restructuring and
Should reform of the financial system precede,
privatisation
Small-scale privatisation
or accompany, the privatisation and restructuring
and private-sector
development
of other enterprises? This could be the most intrac-
REVISE REGULATIONS
Foreign investment
table issue of all. Those who argue that financial re-
Large scale
Corporate governance
form must come first rightly point out that only a
Restructuring and
smoothly functioning financial system-efficient
privatising
EVALUATION
IMPL IMENTATION
banks or stockmarkets or both-can allocate capital
to the right enterprises as a great reshuffling of busi-
Redefining the role of the state
nesses takes place, whether through privatisation or
Legal reforms
PROPERTY AND
state-directed restructuring. After all, investing in
Institutional reform
TAX
ADMINISTRATION
the wrong businesses is one of the most visible fail-
ures of central planning. But opponents rightly
Unemployment insurance
EMERGENCY
INSTITUTIONALISATION
point out that creating an efficient banking indus-
Other social areas
try is impossible as long as the existing banks hold
Source: World Bank
so many dud loans. Identifying which loans are the
duds is impossible because nobody can be sure
briefly reviewing the debates about sequencing to
which enterprises are genuinely profitable or will
understand the difficult choices facing reformers.
survive privatisation. Creating a competitive bank-
Should prices be freed and inflation brought un-
ing industry, goes this argument, can only be done
der control before, or after, state enterprises are
gradually as enterprises themselves are privatised,
privatised or restructured? Before, say those who ar-
restructured or closed.
gue that judging which enterprises are worth saving
Poland, Czechoslovakia and Hungary have all
and which are doomed is impossible without real
created state-owned commercial banks from the
prices, set by supply and demand. And without
single national bank that once allocated credits to
bringing inflation under control through strict con-
enterprises, as well as permitting private banks.
trol of government spending, the future remains
These are moves in the right direction. But the bulk
too uncertain to attract the investment needed to
of lending is still done by the new state-owned
privatise or restructure. After, say those who argue
banks, not the tiny private ones. By western stan-
that freeing prices while most enterprises remain
dards the state-owned commercial banks them-
state monopolies guarantees excessive profits, re-
selves are bankrupt. No country has yet found the
wards existing inefficiencies and makes it difficult
answer to the chicken-and-egg puzzle posed by
to impose restraints on wasteful spending by the
bankrupt companies' indebtedness to bankrupt
enterprises or government. All East European gov-
banks. This survey will return to that issue too.
ernments have believed the first argument.
Should trade barriers be lowered before, or after,
Not so friendly neighbours
enterprises have been restructured? Before, say
In practice, East European reformers have not wor-
those who argue that the sudden introduction of
ried much about the sequence of reforms; they have
freer trade offers domestic monopolies compe-
improvised as circumstances have dictated, often
tition from abroad and introduces world prices,
tackling the easiest problems first. All five countries
helping to correct the price distortions inherited
have turned abruptly westward and are relying on
from central planning. After, say those who argue
developed countries to help them make the diffi-
that the introduction of foreign competition,
cult transition to a market economy. Unlike the So-
though necessary, can be too sudden to allow lum-
viet Union, all belong to the International Mone-
bering domestic enterprises to adjust, threatening a
tary Fund (IMF), World Bank and General
general collapse of output and employment like
Agreement on Tariffs and Trade (GATT).
that seen in East Germany. Poland lowered barriers
These and other international institutions have
quickly and now has one of the lowest tariff regimes
been generous with technical help, and also pro-
in the world. Czechoslovakia and Hungary have
vided some money. But the EC has failed miserably
eliminated most import quotas, though they have
to lend a hand on trade. Worried about its own pro-
retained high tariffs on some products.
ducers and still struggling to agree on cuts in its
Should the privatisation of large enterprises be
own huge farm subsidies, the EC has refused to re-
rapid, even if this requires rough-and-ready meth-
lax restrictions on imports of food, textiles and
ods, low prices or even giving them away? Yes, say
steel, the three industries in which East Europeans
THE ECONOMIST SEPTEMBER 21ST 1991
BUSINESS IN EASTERN EUROPE SURVEY 9
are convinced they are most competitive.
vertible for businesses, though in-
"This is absurd," says Leszek Balcerowicz, Po-
dividuals' access to hard currency
land's embattled finance minister and the architect
remains restricted. Private busi-
of its economic reforms. "Through exports we can
nesses still account for less than 2%
help ourselves. We believe in free trade and that is
of GDP. About 6,000 state shops
why we have opened our market. But here at home
have been sold at auction, with
our own farmers, even foreign investors, are push-
11,000 more to be sold soon.
ing in the direction of protectionism and import
Privatisations of large firms and
substitution. The EC is providing a terrible exam-
sales of stakes to foreign investors
ple." Half of Poland's exports to the EC confront
have moved slowly. Plans for a
some kind of restraint. "And this is at a time when
stockmarket have yet to be agreed.
we are urged to go in the direction of the market. We
A mass-privatisation scheme using
need the EC to lower barriers now, not in four or
vouchers is planned for early next
five years' time," he adds. Mr Balcerowicz's com-
year. Trade barriers have been low-
plaints are echoed throughout Eastern Europe.
ered, though relatively high tariffs
still exist on many imports that
The scorecard
compete directly with local goods.
A summary of progress so far:
Hungary, always the leading
Poland has attracted the most attention with its
reformer under the communists,
"big bang" of January 1990. When the country's
already had private businesses, a
first Solidarity government took over in September
rudimentary stock exchange, state-
1989, it inherited an economy crippled by
owned commercial banks and a
hyperinflation, shortages, a large trade deficit,
large number of small, private
nearly depleted foreign-exchange reserves and
businesses by the time the commu-
heavy debts to the West. Mr Balcerowicz's strategy
nists fell in 1989. The private sector
was to eliminate most price controls, make the cur-
contributes roughly one-third of
rency almost fully convertible, and lower trade
GDP. Most prices have been freed.
barriers.
Hungary has attracted more direct
This year the private sector, its growth helped by
investment (about $1 billion so far)
the sale or lease of some 60,000 state shops, may
than any other country in Eastern
contribute as much as 40% of GDP. Nearly two-
Europe. But it is also the most
Give Balcerowicz a break
thirds of private businesses are in retailing, distri-
heavily indebted. The currency is
bution and transport. Most restrictions on foreign
convertible for most business uses, but not for indi-
investment have been abolished. Warsaw's stock
viduals (though regulations are only loosely en-
exchange began weekly trading in April and now
forced). Trade barriers have been lowered, but tar-
has seven companies listed. Privatisation is being
iffs remain higher on certain imports that compete
pursued through liquidations, management
with domestic products. The privatisation of shops
buyouts, joint ventures and sales to foreigners, but
and big firms is going slowly and the government is
is going more slowly than expected. To speed it up,
divided about how to proceed.
a mass-privatisation scheme has been announced.
Romania began its economic reforms late last
In April western governments agreed to a grad-
year. Rents and the prices of energy and many es-
ual write-off of 50% of Poland's $33 billion of gov-
sential goods remain fixed. The currency is not con-
ernment-to-government debt. The same month the
vertible and trade controls still exist. Farm workers
IMF agreed to provide a $1.7 billion adjustment
have been given small plots of land. An ambitious
loan, though Poland will fail to fulfil many of the
privatisation law was passed in August, but so far
conditions attached to the loan and is asking the
no companies have been sold. Over 50,000 private
IMF to relax them. Despite continuing inflation, ex-
businesses have been registered, mostly one-or-two
pected to be 80% this year to December instead of
man operations in service industries. The country
the hoped-for 36%, the government has been under
has no problems with external debt because
intense domestic pressure to ease monetary restric-
Nicolae Ceausescu's government foolishly reduced
tions and allow bigger wage rises in state-owned
the country to penury to repay most of it.
companies. Strikes have been common. The gov-
Bulgaria launched a "baby bang" in February
ernment's budget deficit is out of control, and crit-
t.
of this year: prices of most goods were freed, the ex-
ics regularly charge it with leading the country to-
ceptions being 13 essential food items and public
wards a general economic collapse. Mr Balcerowicz
transport; the exchange rate was unified and al-
S.
may well not be a member of the government
lowed to float, though convertability is still limited;
formed after next month's election. At the end of
state-owned commercial banks have been estab-
g
August the prime minister, Jan Krzysztof Bielecki,
lished. The number of registered private businesses
another liberal economist, threatened to resign in a
has risen from 20,000 at the end of last year to well
tussle for power with a recalcitrant parliament still
over 100,000, but most are tiny. Restrictions on im-
dominated by communists. Amid corruption scan-
ports and foreign investment have been relaxed,
dals and mounting economic problems, reform
though tariffs remain high. Privatisation is
has ground to a halt.
planned, but legislation has yet to be passed. The
Czechoslovakia raised administered prices last
government's biggest problem is reducing its own
year, partially compensating consumers with
budget deficit, a colossal 13% of GDP last year. Its
higher wages. About 85% of prices were freed in Jan-
target for this year is a still-high 3.5% of GDP. If it
uary 1991 and more have been freed since then. At
does not reach it, hyperinflation looms.
the same time the Czech currency was made con-
a
THE ECONOMIST SEPTEMBER 21ST 1991
10 SURVEY BUSINESS IN EASTERN EUROPE
Owners are the only answer
I T IS hardly suprising that East European govern-
productivity and feather bedding. But in market
ments have concentrated first on freeing prices
economies there are market-clearing prices and
and then on trying to rein back the resulting infla-
plenty of private firms with which to compare both
tion. Not only are these essential steps, encouraged
the products and performance of state enterprises.
by the IMF and the World Bank; they are also in
Losses can be identified, if not always curbed.
many ways the easiest. The control of government
Under communist regimes, opportunities for
Between the plan
budgets and inflation is well understood, if not al-
workers to extract value were restricted, though not
and the market lies
ways achieved, in both the developing and devel-
eliminated, by central planners who set wages, out-
oblivion
oped world. There are precedents galore.
put targets and investments. On the other hand,
Precedents for privatising state-owned compa-
central planners also destroyed any incentive for
nies also exist, but as Eastern Europe has discov-
managers to increase efficiency, or even their abil-
ered over the past two years, they are not always rel-
ity to measure it, by arbitrarily setting the volume of
evant or encouraging. This is because no country
a firm's output, the prices of its products, its costs
has ever tried to privatise on such a scale. In the
(ie, the prices of a supplier's products), and fre-
mid-1980s state-owned companies in Eastern Eu-
quently its debts and "profit margin" as well. Taxes
rope accounted for more than 80% of total value-
were levied haphazardly as a means of confiscating
added, a measure of an economy's wealth creation,
any surpluses generated by the more efficient firms
compared with 17% or less in the EC and America
to subsidise the least efficient-one of many good
(see table 4). The growth of the private sector in Po-
reasons to be inefficient. Loans and subsidies were
land and Hungary has reduced this figure some-
handed out freely, or even forced on firms. In re-
what, but the state is still huge.
turn, the state guaranteed everyone's job so long as
Britain's much-heralded privatisation pro-
a firm came anywhere near its output targets, what-
gramme under Margaret Thatcher involved only
ever the quality of its goods.
about 20 firms, accounting for a mere 5% of value-
After 1968 Hungary, and then in the early 1980s
added; and this was in an already existing market
Poland, tried to reform this system by letting man-
economy boasting one of the world's most sophisti-
agers, rather than central planners, make more de-
cated stockmarkets. The biggest privatisation effort
cisions. The Hungarians are proud of their early re-
in history has been Chile's disposal of 470 enter-
forms, claiming that they gave Hungarian
prises, producing 24% of the country's value-added
managers more experience of markets than others
and employing 5% of its workers, between 1973 and
in Eastern Europe. This is partially true. But the
1989. Even this was accomplished only because
economic benefits of such reforms were largely illu-
many of the firms were simply handed back to pre-
sory. By one estimate, even under Hungary's re-
vious owners, who had lost them when Salvador
formed socialism only about a fifth of the invest-
Allende's socialist regime nationalised many com-
ment decisions affecting firms were made by
panies. Between 1980 and 1987, a period when the
managers. And the decentralisation of control, ac-
vogue for privatisation reached its peak, fewer than
celerated everwhere after the toppling of commu-
1,000 firms were privatised throughout the world,
nist regimes in 1989, meant the state effectively ab-
according to the World Bank.
rogated its role as the owner of state-owned
By comparison, Hungary has about 2,300 state-
companies. Enterprises in Eastern Europe are now
owned firms, Poland 7,500, Czechoslovakia 4,800,
controlled jointly by their workers and managers,
Bulgaria 5,000 and Romania 40,000. The last two
who through various methods are chosen or ap-
countries are still struggling to formulate a privati-
proved by the workers themselves.
sation plan, but the three leading reforming coun-
This has had perverse effects. With no central
tries aim to privatise about half of their state-owned
planners looking over their shoulders, managers
Stately
4
assets by 1994. If successful, this would be a gigantic
and workers in self-managed firms have even more
State-owned sector as share
achievement. At their current pace, they will be
opportunity to take value out of their firms through
of value-added in mid-1980s
lucky to reach that goal in 30 years, never mind
high wages, excess employment or outright theft.
Czechoslovakia
97
three. In practice, selling state-owned firms has
Unfortunately this is true even though prices have
East Germany
97
proved time-consuming, fustrating and expensive.
been freed and arbitrary confiscation of profits has
Soviet Union
96
So why set such ambitious targets? To under-
been replaced by regular tax regimes. Workers find
Yugoslavia
87
stand why rapid privatisation has been stressed in
that denying themselves today to help their firm
Hungary
86
all five countries, consider the behaviour of state-
prosper tomorrow, for example by restraining
Poland
82
owned enterprises. Under state ownership, both
wages or cutting jobs to boost investment, is risky
France
17
managers and workers have strong incentives to
for them. They may not be working for the firm
Italy
14
"decapitalise" the enterprises which employ
when the investment pays off, or share in the re-
them-in other words, extract as much wealth as
turns it generates even if they are still around. Pay-
West Germany
11
Britain
11
they can for themselves. They have little or no in-
ing their own household bills understandably
centive to increase the value of the firm through
seems more urgent than sacrificing for a corporate
Denmark
6
making wise investments, increasing productivity
future that may never arrive.
United States
1
or restraining wages and employment, because
The extreme example of managers appropriat-
Source: Branco Milanovic,
"Liberalisation and Entrepre-
they have little chance of sharing in the firm's future
ing value for themselves was the series of "sponta-
neurship; Dynamics of Reforms
in Socialism and Capitalism".
prosperity. The same is true in the West, where
neous" privatisations soon after the communist re-
New York, 1989
many nationalised industries are notorious for low
gimes fell in 1989. Encouraged by laws giving them
THE ECONOMIST SEPTEMBER 21ST 1991
BUSINESS IN EASTERN EUROPE SURVEY 13
new powers to strike deals, managers literally stole
discipline of possible bankruptcy on large firms,
the firms from the state. They sold or leased their
because if one firm goes under it could provoke a
assets to shell-companies owned by friends, or to
cascade of bankruptcies.
joint ventures set up with foreign partners, in
Ironically, the threat of bankruptcy, considered
which they had some kind of stake or guarantee of
a crucial financial discipline after decades of corpo-
employment. Spontaneous privatisation took off
rate profligacy, has increased the incentive for East
fastest in Hungary but, to some extent, happened
European managers and workers to grab what they
everywhere. The spectacle of managers, mostly for-
can today. Most managers do not want to alienate
mer members of the Communist Party, enriching
the workers who elected them by cutting their firm's
themselves at the state's expense provoked an out-
bloated payrolls. In Poland a punitive tax on wage
cry. Governments moved quickly to stop the pro-
rises that are more than 60% of the inflation rate,
cess, though many officials are being forced to rec-
called the popiwek, has lowered real wages consid-
ognise that the best they can hope to do is to control
erably. Elsewhere in Eastern Europe workers them-
it in the interests of fairness. Some even claim it
selves have restrained their wage demands or
may be the only route to rapid privatisation. In any
agreed to work part-time as money has dried up.
case, the theft of state assets through joint ventures
But such moderation is only stretching out a firm's
and other deals continues, albeit at a much slower
losses, not making it more competitive. Investing
pace.
for the future is risky at the best of times. In the mid-
Under these conditions, managers of enter-
dle of a recession, when the government says it
prises still firmly in state hands are tempted to bor-
plans to make many firms bankrupt and privatise
row as much as they can, for as long as they can.
others, it takes a heroic manager to deny his own
Poland, Czechoslovakia and Hungary have re-
workforce in order to make a long-term investment.
strained enterprise borrowings by rationing new
Operating under these conditions, many state-
credits through their state-owned banking systems,
owned firms in Poland and Hungary have per-
which are also charging a high real interest rate.
formed small miracles in redirecting exports away
Many enterprises have been prevented from bor-
from the collapsing Soviet market towards the
rowing new money. Enterprises first responded by
West. Hungary's exports to OECD countries rose by
extending credit to each other, sometimes in cash
26% last year, and Poland's by 44%. Many firms re-
but usually by continuing to ship goods to custom-
ported a profit, boosting government tax revenues.
ers when they had not been paid for earlier deliver-
Although encouraging, this export boom was tem-
ies. Inter-firm credit soared last year. Officials in
porary. Some exports came from selling inventories
Poland and Hungary now claim that enterprises
swollen by earlier hoarding under the communists,
have stopped extending credit to each other be-
and were offered at bargain prices. Even where ex-
cause they realise that bankruptcy is a real possibil-
ports represented real production, firms were al-
ity. That may be true, but nobody knows for sure.
most certainly running down their stock of equip-
The very existence of large inter-firm debts also
ment without calculating full replacement costs.
makes it difficult for the government to impose the
This is a recipe for gradual liquidation. Eventu-
ally such firms will either stop producing altogether
or require massive new investment. "While show-
ing substantial profits, many state enterprises are
really making losses," argues Marton Tardos, one of
Hungary's leading economists and a spokesman
for the Free Democrats, the country's largest oppo-
sition party. "They are continually eroding state as-
sets. The state budget is getting revenues from tax-
ing profits, and so is also benefiting from this
erosion. Investment is collapsing."
Many East European firms are also "value
subtractors"-that is, at world prices the value of the
resources they consume is worth more than what
they produce. Nurtured on cheap Soviet oil and
gas, they sold their products to captive customers
either at home or in other East European countries.
Now both cheap energy and captive customers are
gone. Such firms can never make a real profit, no
matter how much they cut wages or the size of their
workforce. Most are probably doomed. According
to one recent study,* 20-25% of manufacturing in-
dustries in Poland, Czechoslovakia and Hungary
could be value subtractors. The study's authors
think Czechoslovakia's food industry, as well as its
tobacco and leather companies, belong in this cate-
gory. So, they say, do Hungary's iron and steel in-
dustry as well as Poland's basic chemical, cement
and non-ferrous metallurgy industries. But the lack
Paul Hare and Gordon Huges, Centre for Economic Policy Re-
They don't want to produce junk any more
search, London; discussion paper 543
THE ECONOMIST SEPTEMBER 21ST 1991
14 SURVEY BUSINESS IN EASTERN EUROPE
of real accounting means that no one, least of all the
Jerzy Kedzierski, the firm's general manager,
managers or bureaucrats who run these companies,
has struggled to come up with a strategy to save the
knows for certain which firms add or subtract
company. Last year he established a handful of
value.
small affiliates, owned jointly by himself, the
Floundering between state ownership and
workforce and Polamp, to make or service some of
management-worker control, many firms are
Polamp's products. Most of these are now being
slowly disintegrating. One example is the Warsaw-
wound up, either because they failed or because the
based Polamp. It was once the head of a national
Ministry of Industry declared the firms illegal in an
cartel that made all of Poland's light bulbs (and
attempt to stop Mr Kedzierski and his workers from
many out-of-date components, such as vacuum
plundering Polamp's assets. Earlier this year an
tubes used in the old black and white TVS in most
American charitable foundation paid for Mr
Polish homes). The company lost its biggest export
Kedzierski to attend a five-week management
market in the Soviet Union last year. After Poland
course at Wharton, one of America's top business
opened its borders to imports in January 1990, it
schools. Exhilirated by the chance to rub shoulders
also lost the domestic market for vacuum tubes
with managers from around the world, Mr
overnight as Poles either preferred to buy modern
Kedzierski returned with a plan to slash Polamp's
televisions from abroad or stopped spending. So-
costs, sell its workers' holiday homes and other pe-
viet factories, desperate to stay in business them-
ripheral assets and turn its 6.8-acre site in central
selves, are selling poor-quality fluorescent bulbs in
Warsaw into a technology park and duty-free pro-
Poland at half of what it costs Polamp to make
cessing zone for other companies. The plan also in-
them. The company still has a domestic monopoly
volved the loss of 700 jobs. Two days after Mr
on mercury bulbs, but these too will eventually at-
Kedzierski submitted his plan to officials at the in-
tract competition from imports. Polamp's 1,700
dustry ministry in late June, Polamp's workers'
workers are getting 60% of their normal wage-rate
council, appalled at the prospect of so many job
and working half-time. Even so, much of the fac-
losses, sacked him. He is now working out his four-
tory's drastically reduced output cannot find buy-
months' notice period, confident that he will be
ers and is going straight into the warehouse.
able to find another job with a foreign firm.
Too many firms, too few buyers
Even where there is
T
HE chaos at Polamp is all too characteristic of
nesses, with remarkable success. According to Po-
a will to privatise,
what is going on everywhere in Eastern Europe.
land's tax authorities, the country has 1.2m offi-
finding a way to do
To function properly, firms need an "advocate for
cially registered private businesses, employing
capital", an economic agent determined to get as
2.7m people. About 70% of retail trade is now in pri-
it is difficult
high a return as possible for the money invested in
vate hands, with 60,000 state shops either leased or
the business-in other words, someone who will
sold, often to the shop staff. Similar "small"
care about its efficiency, profitability and long-
privatisations have also begun in Czechoslovakia,
term health. The obvious candidate is a single
though in Hungary they have so far flopped be-
owner, that bogeyman of communist demonology
cause of a dispute about who owns the shops. Nev-
known as a capitalist. Large numbers of private
ertheless thousands of new private companies,
shareholders can also act as "advocates of capital",
some of them manufacturers or assemblers as well
as they do in the West. Theoretically, there is no rea-
as service companies, have sprung up in Hungary,
son why the state itself could not act as agent, but
where they have been allowed since the early 1980s.
for 40 years it failed miserably to do so.
The longer that companies stay in state hands,
Privacy respected
the greater the state's eventual liabilities for their
Thousands of joint ventures with foreign partners
losses. To cover such losses, the government will ei-
have also been established (see table 5), though
ther print money, or stand by as the economy col-
many of these are tiny or exist only on paper. Some
lapses. The former option leads to the mayhem of
progress has been made in selling small and me-
hyperinflation, as it is currently doing in the Soviet
dium-sized businesses. Jacek Bukovsky, in charge
Union and has done in the past in Yugoslavia and
of this programme at Poland's Ministry of Owner-
Poland. No government could survive the latter
ship Changes (the privatisation ministry), claims to
option.
be liquidating or privatising 20 such enterprises a
Acutely aware that even the strictest anti-infla-
week, mostly through management buyouts first
tion programme will unravel in an economy domi-
agreed by local authorities or ministries and sup-
nated by state ownership, reformers immediately
ported in many cases by five-seven year, low-cost
set out to encourage the growth of private busi-
leases. This amounts to state-approved spontane-
ous privatisation.
Joint ventures
5
According to some estimates, the private sector
Poland
Czechoslovakia
Romania
Hungary
Bulgaria
may now account for as much as 25-30% of Hunga-
1989
867
22
5
180
30
ry's economy and up to 40% of Poland's. And yet
even if such optimistic guesses are correct, a lively
1990
2,799
1,550
1,502
4,400
140
private sector of small service firms cannot offset
1991*
4,000
1,318
2,665
2,420
366
the dead weight of thousands of big manufacturing
Source: PlanEcon *First quarter
companies remaining in state hands. Most large
THE ECONOMIST SEPTEMBER 21ST 1991
BUSINESS IN EASTERN EUROPE SURVEY 17
companies have yet to look for a buyer. Estimates
vary, but 75-90% of industrial output remains in
state ownership in Poland, Czechoslovakia and
Hungary. There are no buyers for most firms. For
example, it has been estimated that Poland's stock
of personal savings is equivalent to only 10-15% of
the book value (the value of fixed assets stated in the
official accounts) of Polish industry. Even at rock-
bottom prices, Poles do not have enough money to
buy their own industry back from the government.
The same is true in Czechoslovakia and Hungary.
That leaves foreign buyers, who are sought for
their technology and managerial expertise as well
as their money. The number of firms in each coun-
try in which a controlling stake has been sold to for-
eign investors is still in single figures. Undoubtedly
sales to foreigners will continue. But many of the
most promising firms, those with a recognised
brand name such as Skoda, the Czech car maker
sold to Volkswagen, have already been snapped up.
One day all this could be his
Even wild optimists expect only 15-20 firms a year
to be sold to foreign investors.
them are already having their own talks with for-
eign partners about the sale of a stake.
If you can point to it, flog it
Overseeing this process is a government bu-
To sell a state-owned company, the government
reaucracy already stretched to the limit by so many
first has to seize control back from its managers and
changes. Final approval for thousands of
workers, who own it in all but legal name. This
privatisations rests with agencies created from
amounts to the renationalisation of thousands of
scratch. Poland's Ministry for Ownership Changes
companies, a task beyond the ability of Eastern Eu-
has only 200 employees, Hungary's State Property
rope's already over-burdened governments. As they
Agency 120 and the Czech Republic's Ministry of
have come to realise this, most reformers have had
Privatisation a mere 60. The most such agencies can
to moderate their distaste for giving a substantial
hope to do is veto egregious examples of fraud or
stake to the workforce, a form of ownership that has
collusion between managers and government offi-
rarely worked in the West and has been a disaster in
cials. Under these conditions, many bureaucrats
Yugoslavia. But without the co-operation of manag-
have found that approving any deal can be politi-
ers and workers, selling most companies will take
cally fraught. "I cleared one joint venture and then
decades. By then there may be little left to sell. Pri-
found everyone-workers, members of parliament,
vatisation efforts everywhere now rely heavily on
journalists-demanding that I justify the decision,"
existing managers to formulate a plan.
recalls one Czech official. "I thought the deal made
Even with the co-operation of managers, just
sense, but I couldn't defend it."
identifying a company's assets is proving difficult.
Western-style valuations of EastEuropean busi-
"You never know when the enterprise or the gov-
nesses, even where there is a determined western
ernment begins or stops," complains Eva Klvacova,
buyer willing to pay the fees of international ac-
a senior official in the Ministry of Privatisation of
counting firms, are largely guesswork. With no real
the Czech Republic, the half of Czechoslovakia
asset valuations, cash-flow analysis or marketing
with most of the country's industry. Property rights
plan, nobody has a clue as to what individual busi-
have been blurred for so long that many companies
nesses are worth. Proper audits can take up to six
cannot be clearly distinguished from the morass of
months and cost $100,000 or more. Western-style
suppliers, local-government services and enter-
stockmarket flotations are only practical for a
prise-supplied amenities in which they operate.
handful of firms. For example, the flotation of
Central planning has also left many enterprises ir-
Swarzedzkie, a furniture maker, on Warsaw's stock-
rationally organised: too vertically integrated to be
market in May, though an excellent model for fu-
economically viable; too reliant on a single, mo-
ture flotations, was only possible after advisers
nopoly supplier for most components or raw ma-
from the International Finance Corporation (IFC),
terials; or so concentrated in one spot that any fac-
an affiliate of the World Bank, led a team of western
tory closure will devastate the local economy.
experts who spent eight months restructuring the
Many East European companies have only just
company from top to bottom.
begun identifying assets, drawing up business-like
Hungary's approach to privatisation shows
balance sheets, reorganising into units with some
many of the difficulties of selling companies one-
chance of surviving on their own, and assuming the
by-one. Because Hungary has the biggest external
legal structure of a joint-stock company, a process
debt per head in Eastern Europe, the government is
known as "corporatisation" or "commercialisa-
determined to get as much as it can from such sales,
tion". As it proceeds, this is likely to increase dra-
though it wants to privatise quickly. Achieving both
matically the number of companies to be
goals looks impossible. Lajos Csepi, managing di-
privatised. For example, the managers of CKD,
rector of the State Property Agency, admits to being
Czechoslovakia's giant machinery-maker, have re-
disappointed with progress so far. His agency has
cently divided their company into 18 units. Each
the task of privatising 2,180 companies, half of
one may be privatised separately, and some of
them by the end of 1994. It has approved 360 trans-
THE ECONOMIST SEPTEMBER 21ST 1991
18 SURVEY BUSINESS IN EASTERN EUROPE
actions worth a total of 300 billion forints ($400m).
Mr Csepi is now hoping to accelerate this pro-
This sounds impressive, but only two companies
cess by inviting outsiders to bid for companies over
have been completely sold; about 90 are still wholly
the heads of the existing management, and by al-
owned by the government and have merely been
lowing some 800 firms with 300 employees or
corporatised. The rest now have some private
fewer to make their own deals as long as they are
shareholders, usually foreign investors, though the
cleared by an approved western accounting-firm.
government still controls many of them. Every deal
But there may be no way to privatise companies
must be approved by an 11-strong panel including
one-by-one any more quickly. Joint ventures and
representatives of all political parties in
flotations have taken just as long in Poland.
parliament.
The State Property Agency's slow progress has
Especially discouraging has been the agency's
touched off a noisy political debate in Hungary,
plan to sell 20 of the country's biggest and most suc-
and the government is deeply divided about how to
cessful companies. Last September western invest-
proceed. Calls are growing for the government itself
ment banks were invited to tender for the job of
to become more active in restructuring, closing
privatising these firms. More than 50 bid for the
down the worst loss makers and investing money
work. It took the agency until the end of December
in firms with a chance of surviving. At the other end
to select the winners. Then more months passed as
of the spectrum, the finance minister, Mihaly
investment bankers and accountants struggled to
Kupa, has made a bid to take control of privatisa-
untangle the financial and legal structures of the
tion out of the agency's hands with a vague plan to
firms. "We never thought it would take them so
relax restrictions on spontaneous privatisations
long to learn Hungarian conditions," says Mr
and have them supervised by his own ministry. No
Csepi. The first company, a plastics manufacturer
one in Hungary's government is yet willing to con-
called Pannonplast, was floated on the Budapest
sider one of the solutions proposed by the opposi-
stock exchange in July. Two more companies are
tion Free Democrats and now being pursued in
expected to be sold this autumn. Even if that hap-
both Poland and Czechoslovakia: giving compa-
pens, 17 of the 20 will still be wallflowers.
nies away to the public.
Voucher power
Giving companies
A
MASS give-away of state-owned companies
huge gamble. Designing such schemes has been a
away is better than
has always attracted the most radical reform-
most entertaining thought-experiment for the
keeping them in
ers in Eastern Europe. Such schemes have gone
growing army of economists, aid specialists, con-
from being an esoteric hobby-horse of academics to
sultants and investment bankers advising govern-
state hands
a political priority as the inequities of spontaneous
ments in Eastern Europe. The permutations are
privatisation and the painfully slow pace of one-off
endless, the policy trade-offs a delight for armchair
sales have become more apparent. After all, goes the
theorists. But one thing is certain: with so little con-
reasoning, citizens themselves are the notional
sensus on what is to be achieved, no scheme can be
owners of state enterprises; giving them shares in
perfect. And for the countries of Eastern Europe,
these enterprises seems fair. More important, it
free distributions are a desperate act to solve a des-
looks like the only sure way to sever the gordian
perate problem.
knot entwining industry and the government.
After nearly a year of intense debate, Poland
In practice, even giving away companies is a
and Czechoslovakia are on the brink of launching
mass privatisation plans that are diametrically op-
posed in both mechanics and intent. Poland has
adopted the approach which commands the widest
support among experts in the West: the free distri-
bution to all adults of shares in large investment
funds, which in turn are given ownership in hun-
dreds of state-owned companies. There are many
possible variations on this model, but essentially
the funds are meant to mimic the institutional in-
vestors in developed market economies. To over-
haul Eastern Europe's ailing companies, the funds
are also meant to exercise their ownership rights ac-
tively, not only trading shares with each other but
restructuring, merging, expanding or closing com-
panies. Individuals should impose a market disci-
pline on the funds themselves by trading their
shares. Citizens become the ultimate owners of the
companies through the funds.
The Polish scheme follows this general outline.
Between five and 20 funds will be created. Though
officially controlled by boards of Polish directors,
they will be managed by western fund-managers.
Poland's new stock exchange: more braces than shares
Roughly 400 large companies, representing about
THE ECONOMIST SEPTEMBER 21ST 1991
BUSINESS IN EASTERN EUROPE SURVEY 19
25% of Poland's industrial output and about 12% of
the ultimate fate of the funds. Mr Lewandowski
its industrial employment, will be given to the
prefers forcing them to liquidate themselves after
funds early next year. A third of each company's
five-seven years, perhaps through a final distribu-
shares will be allocated to a single investment fund,
tion of company shares to the funds' own share-
giving that fund effective control, another 27% will
holders. But this point has not yet been decided. If
be distributed equally among the other investment
the funds are self-liquidating, Poland loses an
groups, and 10% will be given free to employees.
opportunity to establish large financial institutions
The remaining 30% will be kept by the government,
similar to those in the West. But liquidation could
which will remain a strictly passive shareholder un-
help to avoid a great danger: that the funds become
til its stake can be handed over to a national pen-
immensely powerful holding companies, with a
sion fund. Every adult Pole will receive an equal
vested interest in growing as large as possible. Em-
number of shares in all the investment groups, but
ploying so many industrial workers, the funds
will not be able to trade shares in the funds until the
could bully the government into rescuing them if
summer of 1993. By then, it is hoped, there will be
they run into trouble. They could also become vehi-
enough information about the performance of the
cles for political patronage and perpetual govern-
funds to make trading their shares rational.
ment meddling, like Italy's giant, inefficient state-
"We are privatising privatisation," explains
owned industrial-holding companies.
Janusz Lewandowski, the Minister of Privatisation.
Czechoslovakia's plan avoids these perils, but at
"We are under great pressure to prove that some-
first glance looks even riskier. Big companies are
thing is happening. At the same time, I want to be
supposed to be privatised in two waves. By the end
prudent, to smoothe the way towards greater west-
of October the 1,776 companies chosen for the first
ern engagement in this economy, both in terms of
wave have to submit a privatisation plan. It is as-
capital and expertise." Funds will have the freedom
sumed that most will not find a western buyer or be
to borrow money, issue new shares and make new
able to raise the money for a management buyout.
investments in Poland. Anyone, including foreign-
Most companies will join, either voluntarily or on
ers, will be able to buy the shares. Mr Lewandowski
the orders of the government, a give-away scheme
hopes that the funds will accelerate, not delay, sales
based on investment vouchers. These will go on
of companies to foreign investors, who should find
sale in October to all adult citizens for the nominal
it easier to deal with western fund-managers than
sum of 1,000 koruna ($32), about one week's salary.
with Polish bureaucrats.
Surveys indicate that about 2m people will buy
vouchers at that price. Shares of all the companies
Sharing out the shares
in the scheme, perhaps 1,000-1,500 firms, will be
There are many details yet to be settled and the
sold for the vouchers in a single giant auction next
devil is in these details. Success or failure depends
January. Voucher holders, who will all begin with
crucially on whether Poland's privatisation minis-
the same number of vouchers, will use them to bid
try can recruit enough western investment banks or
for as many shares of any company they want to
fund-management companies to run the funds.
buy. Those firms attracting too many, or too few,
This is by no means certain. Management contracts
bids will have their price in terms of vouchers ad-
will have to last for many years. Few western fund
justed and sold in subsequent auctions until all the
managers know anything about Poland. Running a
shares are gone. Late next year the process will be
fund successfully will require a range of skills-ven-
repeated for another 1,118 firms. Private investment
ture capital, asset management, investment bank-
funds approved by the government will also be able
ing, management consulting, to name a few-that
to solicit vouchers, which they will then use to bid
are beyond the abilities of most western firms,
for shares on behalf of their own newly acquired
which tend to specialise. And nobody is certain that
shareholders, though such funds are unlikely to
Poles will tolerate the transfer of so much power to
play much of a role at first. As soon as voucher hold-
foreigners, even if western fund-managers try to
ers receive their shares, they will be able to trade
train large numbers of Poles to help them (as they
them.
are supposed to do). Collusion between fund-man-
Dusan Triska, the Ministry of Finance official
agers and other western investors at the expense of
in charge of the voucher scheme and its most enthu-
individual Polish shareholders is a real possibility.
siastic proponent in the Czech government, reports
How foreign fund-mangers will be compen-
that the computers, advertising campaign and
sated has yet to be thrashed out. Polish officials ac-
voucher booklets are all ready to go. But there are
cept that they will have to pay a flat sum to cover
legions of sceptics. Many people in the government
managers' costs, but they want most of the foreign-
itself think the voucher scheme either will not work
ers' fee to be related to their success in increasing
or is unwise.
the value of the fund. Concocting such a formula
They have a number of objections. The scheme
will be difficult, because determining the starting
introduces no new capital or expertise into trou-
value of the fund is almost impossible. The chosen
bled companies. Many firms could quickly go bust,
formula will also determine the behaviour of
discrediting the idea of shareholding and private
funds. If paid an annual percentage of the fund's
ownership. If bankruptcies are on a big enough
estimated initial value, managers are most likely to
scale, the government may have to re-acquire hun-
act like passive asset-managers and the funds will
dreds of companies to save jobs. With such wide
become similar to western unit trusts (mutual
dispersal of shares, company managers will not be
funds). If paid in shares of the fund itself, they are
answerable to responsible owners, making firms
more likely to behave like risk-taking venture cap-
vulnerable to the kind of looting and fraud associ-
italists.
ated with the spontaneous privatisation of state-
The biggest question hanging over the scheme is
owned companies. With so little information avail-
THE ECONOMIST SEPTEMBER 21ST 1991
20 SURVEY BUSINESS IN EASTERN EUROPE
able about most companies, insider trading will be
shares in their own firm, especially if they believe it
rife. In fact, trading at all will be difficult, because
has a chance of surviving. This will result in a kind
plans for a stock exchange are bogged down and
of workers' buyout of many firms; not the best form
there are no rules for trading shares. Setting up a
of ownership, but infinitely better than leaving
stock exchange, as Poland and Hungary have done,
firms in state hands. Most other companies may
is complicated and time consuming.
have about 4,000 shareholders. If the majority of
Mr Triska, an articulate and engaging econo-
these are passive, then even small groups of share-
mist, has answers to all these points. Privatisation is
holders will have the power to exercise oversight or
not about raising capital, he argues, but about
even control through elected boards. In any case,
changing ownership. It is up to the new owners of
companies will be subject to market disciplines as
enterprises to find the money and expertise needed
soon as they try to borrow money or issue new
to make their businesses thrive. The government
shares.
will not step in to save companies. If large numbers
The advantage of the Czech scheme is that it is
of companies go bust, that is because they were
fast and does not rely heavily on foreigners. The ad-
bankrupt under state ownership as well. At least
vantage of the Polish scheme is that it is based more
their land, buildings and equipment will then be
closely on the pattern of corporate ownership that
auctioned off to entrepreneurs who can make bet-
already works in the West. The risks of both
ter use of them. Voucher holders will be warned
schemes are high and they could yet be stopped by
from the beginning that they will be paying their
domestic political opposition to such radical mea-
small fee to play in a risky game, not receiving a
sures. Meanwhile Poland and Czechoslovakia will
share in the family silver, as they are being led to
also continue to pursue case-by-case privatisations
believe in Poland.
and sales to foreigners.
Mr Triska is also unconcerned about the lack of
But advocates of mass privatisation are correct.
a stock exchange or the dangers of insider trading
Relying solely on traditional sales methods will
and fraud. "It will be wild west," he admits. "It
take decades. At that rate, privatisation will fail and
happened in America in the 1920s. Why shouldn't
a properly functioning market economy remain an
it happen here?" Market institutions, audits, a busi-
elusive goal. The gamble of giving away thousands
ness press and a regulatory framework will all de-
of firms is worth taking, even if initially it looks cha-
velop rapidly because there will be demand for
otic. "Our government is in too much disarray to
them from millions of shareholders.
manage so many deals," says Mr Triska. "Our econ-
The wide dispersal of shares will not be such a
omy will never recover if most companies stay in
problem either, claims Mr Triska. He expects many
state hands. The only things governments can pro-
managers and workers to bid all their vouchers for
duce are bottlenecks."
The end of the lending merry-go-round
Debt write-offs are
E
VEN if the Polish and Czech mass-privatisation
problems facing reformers. Understandably, per-
schemes are wildly successful, they will not cre-
haps, they have taken an ad hoc approach. Over the
the only solution to
ate a genuine market-economy on their own. The
past few years they have carved state-owned com-
Eastern Europe's
missing element will be an efficient financial in-
mercial banks out of the single bank that once allo-
banking mess
dustry, the heart of modern capitalism. This is no
cated credit to state enterprises according to plans
mere technicality. Without proper
drawn up by the central bureaucracy.
financial institutions, new busi-
There are now 13 of these banks in Czechoslo-
nesses will be stillborn or stunted.
vakia, 11 in Poland and 20 in Hungary. Many of the
Even existing companies capable
Hungarian banks have private shareholders
of thriving after privatisation will
though the banks themselves remain state-con-
be starved of capital, while failing
trolled. With the help of the IFC, the World Bank's
companies may be expensively
affiliate, Poland is "twinning" many of its banks
propped up by bankers with little
with western ones which it hopes will take minority
incentive to cut off credit to old
stakes along with Polish investors. All three coun-
friends. Stock exchanges are still
tries have also allowed the establishment of private
tiny in Warsaw and Budapest, and
banks-13 in Hungary, 36 in Poland and eight in
likely to remain so for many years.
Czechoslovakia. But the private banks are still
They do not exist at all elsewhere in
small. Ironically, most will lend only to state-
Eastern Europe. So the job of mar-
owned enterprises, viewing the many small new
shalling domestic savings and then
companies in Eastern Europe as too risky. The bulk
allocating capital to the right busi-
of deposits and lending remains with the state-con-
nesses will rest largely with the
trolled banks.
banks. Unfortunately Eastern Eu-
Setting up the infrastructure of a modern bank-
rope's state-owned banks labour
ing network-laws, telecommunications systems,
under an even greater burden from
accepted accounting rules-will be a challenge.
the past than do their clients.
Skills are in short supply. Even in developed coun-
Clearing up the banking mess
tries regulating banks is difficult, as is illustrated by
left over from 40 years of commu-
America's thrifts saga, the massive international
Here are your savings, madam
nism is one of the most intractable
fraud at the Bank of Credit and Commerce Interna-
THE ECONOMIST september 215T 1991
BUSINESS IN EASTERN EUROPE SURVEY 23
tional and Japan's recent banking scandals. East-
ern Europe's governments have barely begun or-
ganising the supervisory machinery needed for a
modern banking business. In August the head of
Poland's central bank was sacked and his deputy
and five other bankers were arrested, because of
their alleged role in a suspected fraud worth an esti-
mated $130m. The affair involves unsecured loans
by Poland's biggest savings bank, the state-owned
PKO BP, to a private Polish company established in
1989. The scandal has shaken people's faith in both
the government and economic reform. It may slow
Poland's stuttering efforts to set up a commercial-
banking business.
Despite the risks of more such frauds, the only
way to introduce commercial incentives into bank-
ing is to privatise the banks, just as it is for other
industries. All three countries are planning step-by-
step bank privatisations later this year. So far the
plans do not address the unique problem facing
Crying all the way to the bank
Eastern Europe's banks: what to do with the huge
number of bad loans to state-owned enterprises on
state firms even before they are privatised, encour-
their books.
aging them to believe that all credit is guaranteed by
Privatising the banks without cleaning up their
government. Writing off debts would also magnify
portfolios is almost certain to fail. In the past loans
the inherent unfairness of worker buyouts or gov-
were made at the direction of central planners, not
ernment-approved spontaneous privatisations. It
on any commercial basis. Money followed the
would not only reward some citizens lucky enough
plan. Banks were not required, or allowed, to de-
to be working in valuable enterprises at the expense
cide which borrowers could pay back a loan, or
of millions who do not, but give them the assets
what interest rate reflected the degree of risk. Loans
debt-free as well.
were not secured. Many will now never be repaid.
What would happen to the banks themselves?
Others involve such low interest rates or such long
Wiping their old portfolios clean would leave them
terms that they are losing the banks money even
with no income to pay interest on deposits, and no
when the borrower can service the debt. Even if
assets to repay depositors who withdrew their
bankers are able to make new loans to credit-wor-
money. Governments, already struggling to con-
thy borrowers, they will have to charge them inordi-
tain budget deficits, would have to repay depositors
nately high interest to cover the losses on their port-
themselves. The only way to do this would be to
folio of old loans. This will be subsidising loss-
raise taxes steeply, taking with one hand what the
making clients at the expense of profitable ones-
government was repaying with another and deflat-
just the opposite of what Eastern Europe needs. As
ing the economy even further in the middle of a
the extent of the losses in banking portfolios be-
deep recession. An equally unpalatable alternative
comes clearer, governments will have to bail the
would be to print the money needed to repay de-
banks out. Managers at the banks will know this
posits, which would lead quickly to hyperinflation.
from the beginning, which will cancel the benefits
There is no painless way out of this dilemma.
of privatising them in the first place.
Reformers have generally chosen to place limits on
Privatising companies with their existing debts,
new bank lending and leave it to the state-con-
which is what officials throughout Eastern Europe
trolled banks to recover past loans as best they can.
prefer, will also cause damage. Because of the arbi-
In practice this means debts are written-off as com-
trary nature of past borrowing and fixed prices un-
panies are privatised, either formally or by
der central planning, there is little correlation be-
liquidating the state-owned firm and selling the as-
tween insolvency and inefficiency. Many of the
sets-an increasingly common method in Poland.
companies with the heaviest debts could also be
In deals with foreign buyers, where debts remain
among those best able to survive in a free market,
on the balance sheets of state companies being sold,
and vice versa. Left to sink or swim under the
the sales price necessarily reflects this. In effect, the
weight of the past, many of the wrong firms will
government is forced to reduce the price by the
sink. By contrast, many privatised companies with
value of the company's debts. This may seem more
little chance of long-term survival but lucky enough
convenient than writing off the debt, but it
to be privatised with few debts will float, until sub-
amounts to the same thing.
merged by new losses.
The ideal solution would be to wipe the slate
Too much prudence could be dangerous
clean. To do this, the government would have to
Leaving the banks to sort through their loans case
write off all the existing loans made by state-owned
by case looks the most prudent course. For one
banks to state-owned enterprises and then privatise
thing, they may be able to recover more of them
both banks and enterprises at once. Nobody in
than pessimists believe. But this could be a danger-
Eastern Europe is yet willing to consider such a rad-
ous delusion. Privatised companies will need to
ical move. They have good reason to hesitate. Many
borrow new money immediately. Few East Euro-
reformers are convinced that a general write-off of
pean bankers have much experience in assessing
debt would send the wrong signal to managers of
credit risk. And even the most experienced western
THE ECONOMIST SEPTEMBER 21ST 1991
24 SURVEY BUSINESS IN EASTERN EUROPE
banker would not be able to make skilled credit
out" team in a western bank. This is the strategy
judgments amid the tangle of Eastern Europe. If
adopted in the former East Germany. But as the
privatisation accelerates, the number of bad loans
Germans are discovering, this is much the same as
will soar. In fact, managers of recently privatised
writing off loans. And it sacrifices some of the bene-
but heavily indebted firms will have a strong incen-
fits of allowing companies to start with a clean bal-
tive to perform a manoeuvre similar to earlier
ance sheet.
spontaneous privatisations, shifting assets to newly
Moreover, the inflationary impact of a debt
registered companies and letting their original
write-off may be exaggerated. The deposits in state-
firms go bust to escape old obligations.
owned banks are clearly government obligations,
Governments might do better to bite the bullet
especially those held by individuals or private com-
and write off all debts incurred under the old re-
panies. But in the crazy logic of communism, the
gime. Assessing the risk on new loans to companies
debts incurred by companies through bank bor-
would still be difficult, but the task would be greatly
rowing are also government obligations. The com-
simplified for Eastern Europe's neophyte bankers.
panies were, after all, state-owned. Since these gov-
One formula for writing off old loans would be to
ernment obligations already exist, a write-off of old
replace them in the banks' portfolios by 20-year
enterprise-debts to state banks is merely recognis-
government bonds. The interest on the bonds
ing them, not increasing them. The only new
would give the banks the income needed to pay in-
money created, and so the only cause of inflation,
terest to their depositors. The value of the bonds
would be the interest paid on the government
would balance the deposits themselves. Instead of
bonds given to the banks to replace old debts.
being written off, old loans could also be trans-
Though this would be inflationary, it may be a price
ferred to a new fund, which would then have the
worth paying: the government would be free, once
responsibility of recovering as much money as it
and for all, from assuming the burden of new losses
could from borrowers, in the manner of a "work-
made by inefficient companies still in state hands.
Catalysts, not saviours
The role of foreign
W
HEN foreign businessmen first arrived by
especially in Poland and Hungary. But many East
the planeload in newly liberated Eastern Eu-
Europeans will be disappointed. Foreign invest-
investors is
rope, the opportunities they found seemed intoxi-
ment can play a useful role in resurrecting the re-
important, but it is
cating. Before them lay a market of tens of millions
gion's economies, but it cannot be their salvation.
being exaggerated
of long-deprived consumers, with the aspirations
To catch up with average incomes in the EC in
and appetites of West Europeans. Everything
the next ten years, the six countries of Eastern Eu-
needed fixing. Competition was feeble, the scope
rope (including Yugoslavia) would require $420
for improvement vast; western companies had the
billion a year of investment, some two-thirds of
skills required. Capitalists were about to remake
their current output, according to one recent
Eastern Europe from the rubble of communism.
study.* To achieve annual growth rates of 7%, the
Who could fail to make money?
pace attained by South Korea and Taiwan over the
They have now sobered up. A number of big
past 20 years, would require almost as much. Such
companies have bought stakes in state firms and
calculations can only be rough guesses, as the
promised to invest large sums in them (see table 6
study's authors admit. But other economists have
on next page). Foreign investment has increased in
come to similar conclusions, and these estimates
each of the past two years. New deals are an-
do at least indicate the scale of the investment
nounced almost daily. But the flow of investment
required.
from abroad has been more of a steady trickle than
the expected flood. Western investors have found
Don't call us
doing business in Eastern Europe bureaucratic and
It won't come from abroad. Even on the most op-
time-consuming. Confusion over new laws and
timistic assumptions, Eastern Europe will attract
questions of ownership has hampered many nego-
only $7 billion a year of direct investment by 1995,
tiations. Faced with these uncertainties, business-
and a total of $21 billion in loans from both aid
men are now hesitating.
agencies and private banks (see table 7 on next
Despite their hesitation, many of Eastern Eu-
page). It could be much less. This year direct invest-
rope's managers are still counting on a foreign part-
ment is expected to reach only $1 billion and lend-
ner to save their companies. One explanation for
ing from both official and private banks just $13
the surprising export success last year of some Pol-
billion.
ish and Hungarian enterprises was the desire of
In fact, the bulk of investment in Eastern Eu-
their managers to gain hard currency to pay for
rope will be financed by domestic savings, as it is in
trips to Europe and America to look for a saviour-
other countries. A study by the World Bank of 14
or for a job for themselves. They are being encour-
developing countries indicated that, on average, in-
aged to do this by government officials desperate to
flows of foreign capital were equivalent to less than
privatise state-owned companies by selling them to
10% of domestic savings. Even industrialised coun-
foreign buyers. Attracting western investors has be-
come something of an obsession. Governments
Susan Colins and Dani Rodrik. "Eastern Europe and the Soviet
have moved quickly to relax or abolish controls on
Union in the World Economy". Institute for International Econom-
foreign investment and the repatriation of profits,
ics, Washington DC, May 1991, pp76-80
THE ECONOMIST SEPTEMBER 21ST 1991
BUSINESS IN EASTERN EUROPE SURVEY 25
and extremely low wages.
Big deals
6
The first has attracted most of the foreign invest-
Investor
Partner
Industry
Amount
ment so far. Together, the five countries of Eastern
committed
Sm
Europe covered in this survey have a population of
Volkswagen
SKODA, BAZ
cars
6,630
almost 100m. For relatively small amounts of
(Germany)
Czechoslovakia
money, producers of basic commodities-soap,
CBS France
Tourinvest
hotels
175
processed food, glass, cars-can upgrade existing
Czechoslovakia
East European factories and quickly capture a large
GE US
Tungsram
lighting
150
Hungary
chunk of the local market. Recent examples of this
GM US
Raba
engines
150
strategy are Proctor & Gamble's and Unilever's al-
Hungary
cars
most simultaneous acquisitions of Czech and Pol-
Pilkington
HSO Sandomierz
glass
140
ish detergent companies in June.
Britain
Poland
Although Eastern Europe's wages are low
Guardian US
Hungarian Glass
glass
120
Hungary
enough to compete with many developing coun-
Suzuki Japan
Autokonzern
cars
110
tries (see table 8 on next page), few companies have
(partnership with
Hungary
yet made substantial investments to exploit this ad-
C. Itoh and Int.
Finance Corp.)
vantage. At first this looks puzzling. Eastern Eu-
Linde Germany
Technoplyn
gases
106
rope's low wages should make it an ideal site for
Czechoslovakia
supplying the lucrative market next door in the EC.
Electrolux
Lehel
appliances
83
The snag is that its productivity is abysmal. Labour
Sweden
Hungary
costs represent only about one-fifth of the total costs
Hamburger
Dunapack
packaging
82
Austria
Hungary
of most manufactured products. And many inves-
Ford US
New plant
car
80
tors find it hard to believe that wages in Eastern Eu-
Hungary
components
rope will remain so far below those in the EC be-
Sanofi France
Chinoin
pharmaceuticals
80
yond the next five years. They point to eastern
Hungary
Germany, where wages have soared 60% since uni-
Oberoi India
Hungarhotels
hotels
80
Hungary
fication, despite unemployment rising to 30%
US West US
Government
telephones,
80
(when short-time workers are counted).
(partnership with
Czechoslovakia
Switches
This comparison is wrong. The other East Euro-
Bell Atlantic)
peans will have no choice but to temper their expec-
Sara Lee US
Compack
food
60
Hungary
processing
tations. Unlike the East Germans, they cannot mi-
ABB
Zamech
turbines
50
grate in large numbers to the EC and they have no
Switzerland
Poland
compatriots next door willing to rescue their econo-
Siemens
Electromagnetica
telecommunications
35
mies with massive infusions of cash (transfers from
Germany
and Rom Post
Telecom Romania
the western half of Germany are estimated to have
Ilwa Italy
Salgotarjau Iron
steel
25
been $30 billion so far this year). Eastern Europe's
Hungary
wages will remain low for a decade or more.
Siemens
Tesla Karin
telecommunications
15
Exploiting this advantage is not always easy. Af-
Germany
Czechoslovakia
ter acquiring control of Tungsram, the Hungarian
Bau Holding
Nyiregyhaza
construction
11
Austria
Hungary
light-bulb maker, in 1989, General Electric has had
Watmoughs
Reval Printing
publishing
7
to overhaul the company. It has reduced the
Britain
Hungary
house
workforce by 4,000 workers to 14,000, halfway to its
Source: Business International
goal of 10,000. Layers of management between the
shopfloor and the top have been reduced from nine
tries with easy access to international capital mar-
to three. George Varga, a GE executive who now
kets and a long history of direct foreign investment
heads Tungsram, praises many of the production
rely on domestic savings to finance the bulk of in-
workers but has little good to say about the manag-
vestment. Economic growth requires the efficient
ers he found running the company.
transfer of domestic savings into productive invest-
The fact that Mr Varga himself is a Hungarian
ment. That underlines how vital it is to reform the
who fled his country in 1956 and returned as a suc-
banking system and establish other financial inter-
cessful manager has undoubtedly made it easier for
mediaries, such as insurance firms and
stockmarkets.
Moneybags
7
Come soon, come often
Long-term financing prospects ($bn)*
distribution
Nevertheless, Eastern Europe's obsession with for-
under rapid reforms
in 1995 of
eign investors is not entirely mistaken. They can act
medium and long-
1991
1992
1993
1994
1995
term financing %
as a catalyst, accelerating development by transfer-
ring business skills or new technology and boosting
Long-term debt
financing
12.6
11.0
12.6
14.7
17.4
87.8
trade. For foreign companies, Eastern Europe's at-
tractions can also be considerable. Using the area as
Multilateral
8.9
5.4
5,3
5.9
6.8
34.1
a gateway to the potentially gigantic Soviet market
Bilateral
2.0
3.1
4.1
4.8
5.7
28.9
was one of the first reasons given by many western
Private
1.7
2.5
3.2
4.1
4.9
24.7
companies to explain their interest. This now looks
Equity financing
0.9
1.6
1.9
2.2
2.4
12.2
less appealing, as turmoil in the Soviet Union has
Total
13.5
12.5
14.5
16.9
19.8
100.0
grown and trade with its former allies has col-
*For Poland, Czechoslovakia, Hungary, Bulgaria, Romania and Yugoslavia
lapsed. But countries in Eastern Europe also have
Source: Financing Eastern Europe, Richard Debs, Harvey Shapiro, Charles Taylor;
more permanent lures: their own domestic markets
Group of Thirty, Washington, DC June 1991
THE ECONOMIST SEPTEMBER 21ST 1991
28 SURVEY BUSINESS IN EASTERN EUROPE
him to get employees to accept painful changes. But
putes about how to compensate or give back prop-
he still has not worked out what to do with the com-
erty confiscated by the communists to former own-
pany's vast array of social services, including kin-
ers. New governments have been keen to correct
dergartens, schools, holiday homes and even three
past wrongs and to prove their commitment to
professional sports teams. Despite an increase in
property rights. Instead the attempts at restitution
output of 25%, the company is not profitable. Nev-
have dangerously blurred those rights. Some coun-
ertheless the acquisition probably makes long-term
tries, such as Poland and Czechoslovakia, seem
sense for GE. Tungsram, one of the few East Euro-
closer to resolving the restitution issue than others,
pean firms with a brand name and market share in
such as Hungary. The sooner, the better.
the EC, presented the American company with a
The central issue for foreign investors will be the
rare opportunity to establish itself in the European
speed of transition to a market economy. About
Cheapest
8
lighting market.
$700m of investment funds earmarked for Hun-
in Warsaw
Few foreign firms will be able to spare the re-
gary alone is sitting idle in western banks because
sources or expertise that GE can lavish on
suitable opportunities cannot be found. If govern-
Hourly pay in manufac-
turing, (1990 US=100)
Tungsram. Other early investors, like Schwinn, an
ments can stabilise prices, exchange rates and their
American bicycle-maker, have found it even
own finances, they will remove the uncertainties
United States
100
tougher to turn former state companies around. Pe-
which are the biggest barriers for foreigners. If gov-
Germany
138
ter Vadasz, the founder of Microsystem, one of
ernments can accelerate privatisation, they will cre-
France
98
Hungary's most successful private companies, says
ate opportunities to invest in existing businesses
Japan
82
he has no interest in acquiring a state-owned firm.
and, by forcing loss-makers into bankruptcy, free
Spain
72
"I know how they work. I would rather recruit my
land, buildings and workers for investors in new
own people," he says.
businesses.
Portugal
20
Another stumbling block for foreign investors is
Privatisation will also open the door to new-
Korea
24
the still-rudimentary legal framework securing pri-
comers by eliminating (or at least reducing) the pos-
Taiwan
24
vate property and enabling firms to recover claims
sibility of government support for existing monop-
Singapore
19
from other businesses. This will take some time to
olies and dominant firms. As the market grows, it
Mexico
12
complete. But one thing governments could do
will gradually begin to rule, and Eastern Europe's
quickly is clear up the growing mess created by dis-
true comparative advantages will emerge.
Poland
6
Source: Reform in Eastern Europe,
Blanchard, Dornbusch et al
Be deaf, be determined
Make it simple,
A
PARADOX confronts Eastern Europe's eco-
tary by-elections in Hungary.
do it fast
nomic reformers: to reduce the role of the
"After 18 months of change, this country is so
state, they must take unprecedented state action.
tired, especially because the light at the end of the
Not only must they build from scratch a reasonable
tunnel is not that visible," says Mr Bielecki, Po-
facsimile of the market economies that have
land's prime minister. "This is why you have to be
evolved over decades in the West, but they have to
very honest. You have to explain that a miracle can-
do it while tearing down an equally complex cen-
not happen." A professional economist, Mr
trally planned economy. A series of external shocks
Bielecki knows the transition could take a decade.
and slow growth in the world economy have made
He also knows this is an unpalatable message for
their job harder.
any politician offer to voters. Impatience is grow-
Given the intricacies of their task, reformers are
ing throughout Eastern Europe. So is fear, as unem-
repeatedly forced to choose between making
ployment rises. For many workers and managers in
changes quickly and making them prudently. They
doomed companies, painful reforms designed to
began correctly by choosing speed over prudence,
create a market economy which they have never
knowing that mistakes in building a new economic
seen can look uncomfortably similar to the discred-
system could be more easily rectified later. But their
ited social engineering of totalitarian governments,
original preference for speed has run up against an-
with which they are all too familiar.
other paradox: the need for bold action certain to
Calls for a slowere transition to the market are
disrupt the lives of millions of citizens coincides
growing, both within governments and among op-
with the birth of a boisterous democracy, the big-
position parties. Advocates of a dash to the free
gest obstacle to such boldness.
market are being denigrated as ideologues. Gradu-
As various groups within these troubled soci-
alists are presenting themselves as moderates. The
eties find their voice, the euphoric consensus that
growth of a visible and lively private sector is cited
supported a dash to the free market is fading. Most
as proof that rapid reforms are unnecessary. Cer-
people still accept that the transition will be pain-
tainly the sudden appearance of thousands of re-
ful, but want someone else to suffer most of the
tailers, traders and small manufacturers is a hope-
pain. The mood everywhere in Eastern Europe is
ful sign. But it is not enough. Developing countries
confused and depressed. Opinion polls gyrate
are full of street traders and small factories. They are
wildly. The most trusted institutions in Poland, ac-
also poor.
cording to recent polls, are the army and the police,
Maybe it is too much to expect democratically
a disturbing result in a country ruled by martial law
elected politicians not to listen to such opposition.
only eight years ago. Voter turnouts at elections
But Eastern Europe's only hope of achieving the
have plummeted. Only a quarter of voters have
prosperity and stability of the industrialised world
bothered to cast a vote at some recent parliamen-
depends on how deaf, and determined, the region's
THE ECONOMIST SEPTEMBER 21ST 1991
30 SURVEY BUSINESS IN EASTERN EUROPE
reformers will be over the next year or two.
almost as costly, leaving ownership confused and
Changes have to be fast enough and funda-
resources wasted.
mental enough to create a constituency whose in-
What should help reformers maintain or even
terest in the new system is bigger than that favour-
accelerate the pace of changes is the knowledge that
ing the old ways. If reform falters now, Eastern
Eastern Europe has significant advantages over
Europe's most likely course is that of many develop-
many equally poor countries elsewhere. The atten-
ing countries-intrusive government repeatedly hi-
tion of the West is on Eastern Europe. With the EC
jacked by groups determined to grab as big a slice of
just next door, this will not change as long as eco-
the economic pie as possible. Down that road lie
nomic reform continues, despite fears that a re-
inflation, corruption and political instability, as
forming Soviet Union could prove distracting. In-
Latin America has shown.
ternational institutions such as the World Bank,
For countries with such huge state-owned in-
IMF and the new European Bank for Reconstruc-
Reprints
dustrial sectors, gradualism holds other dangers as
tion and Development are stumbling over each
For information on re-
prints of surveys or arti-
well. With the state the ultimate employer of so
other to offer technical help, as well as some kinds
cles in this or any issue of
many workers, it is in a distressingly weak position
of financial aid. Western governments are willing
The Economist, please
to resist wage demands, which will inevitably ex-
to pay for training. Hundreds of consultants and
contact:
plode as inflation remains high, fuelling still more
business schools are competing to provide it. Be-
Bradley Cleaton,
The Economist Newspa-
inflation. Politicians are already finding it difficult
cause workers and managers in Eastern Europe are
per Group, Inc, 111 West
to shut companies making the biggest losses or cut
already well educated, this mass transfer of skills
57th Street,
jobs in those worth saving. In late July Mr Bielecki
promises to bring results faster than anywhere else,
NewYork, NY 10019.
was horrified to discover, on a visit to the giant
but only if the right incentives are in place-which
Tel (212) 541-5730
Ursus tractor factory in Warsaw, that the firm had
means, above all, private ownership of most
Fax (212) 541-9378
no money to pay its 22,000 workers and was about
companies.
to collapse. Within days he sacked the industry
If reformers are to move rapidly enough, they
minister and 12 other top officials and spoke an-
have to resist the temptation to search for a painless
grily of sabotage. Shutting the firm, the biggest trac-
route to the market or for once-and-for-all solu-
tor producer in Europe, makes the most economic
tions. They do not exist. Market economies in de-
sense. But even Poland's prime minister finds it dif-
veloped countries are far from perfect. Laws are of-
ficult to do that. About 100,000 workers at 300 sup-
ten revised. Debates about economic policy are
plier factories could also be affected.
fierce. East European countries will also have
plenty of time to revise laws and institutions once
Fix it later
their economies begin to recover. For now they
The decisions will only get tougher. As time passes,
should opt for simplicity and speed, even if the re-
the government will face a simple choice: once
sult is rough justice for many citizens. And they
again impose strict controls on state firms, or watch
should concentrate first and foremost on one task:
them slowly crumble as spontaneous privatisation
cutting the state's ties to the economy. Every swing
revives. The first course would be a step back to the
of the knife will be risky. Because the alternative is
central planning of the past. The second would be
so bleak, the risks are worth taking.
Now back to work
THE ECONOMIST SEPTEMBER 21ST 1991
EUROPE
The summit of 2001
FROM OUR SPECIAL CORRESPONDENT IN PRAGUE
New technology has enabled Eurobuzz to do a random search of future is-
be written into the treaties (it has risen
sues of The Economist. It reveals this report from ten years ahead
from 1% to 3% over the past ten years), Mr
Patten agreed. Mr Rühe in turn backed his
T
HE first ever Prague sum-
defence wing of the European
demand-prompted by pressure from the
mit this week celebrated the
Union (only Ireland, Finland
Scottish and North England assemblies-
arrival of Poland, Hungary and
and the three new members do
that regional observers should be allowed
Czechoslovakia into the Euro-
not belong). The East Europe-
to speak in the Council of Ministers.
pean Union. The event opened
ans worry about the revival of
When attention turned to the mone-
with a stroll across Prague's his-
Russian power and want the ex-
tary union, Italy's prime minister, Mario
toric Charles Bridge. The
tra security the WEU could pro-
Segni, looked glum. Mr Segni is one of
crowds showed more interest in the
vide. They had the support of the French
those who rues the day in 1997 that Marga-
stately lady in royal blue than in the 19
president, on the ground that the sooner
ret Thatcher was appointed Eurofed pres-
heads of government. As was customary,
the Union and the WEU had the same
ident. But when Karl-Otto Pöhl chose to
the president of the Eurofed (Europe's
members, the sooner they could merge.
stay on Wall Street, Germany had insisted
central bank) had come from Bonn to
But Chris Patten, Britain's newly elected
that no one else would be tougher on in-
present her annual report on the mone-
Christian Democratic prime minister,
flation or better able to resist political
tary union.
fears that a merger could leave the Atlan-
pressure.
The main business of the summit was
tic alliance without a role. He was backed
Mrs Thatcher recommended that,
to look ahead to next year's negotiation on
by Germany's chancellor, Volker Rühe. As
with a budget deficit running at 9% of
constitutional reform, the third in ten
so often, the combination of Britain and
GDP, Italy should not be allowed to join
years. Pressure is mounting for a fur-
the single currency. France and Spain
ther expansion of the Union. Malta
wanted Italy in, hoping this would
and Cyprus are already negotiating
soften slightly the Eurofed's monetary
entry; Bulgaria, Romania and Slove-
policy. But the northern block of Ger-
nia have just applied; and the three
many, Britain, Holland, Austria and
Baltic states plus Croatia plan to do so
their Nordic allies outvoted the south-
soon. All nine are no longer content to
erners. Italy was told to try harder.
remain affiliates, living by some bits of
The summiteers decided that Ger-
the rulebook, but with no say in mak-
man would become the Union's third
ing the rules. Long-suffering Turkey
official language, alongside English
says it will re-apply for full member-
and French. Jose Maria Aznar, Spain's
ship: third time lucky, it hopes.
prime minister, had argued that Span-
The union's leaders accepted that
ish should have equality with German.
there will have to be far fewer exemp-
But he withdrew his veto when Mr
tions from majority voting, if deci-
Gonzalez promised another 1 billion
sion-making is not to come to a halt.
ecus ($3 billion) for the regional funds
But they could agree on little else. Jac-
Our Lague
assigned to Spain. Mr Delors asked for
ques Delors, the president of France,
Arabic to be made one of the Union's
called for governments to wrest the
"recognised" languages for treaties
leadership of the Union back from the
and legal texts. But while appreciating
European Commission. The commis-
Germany carried the day.
Mr Delors's domestic problems-the Ma-
sion's recent ruling that Nissan should be
The newcomers liked the decisions on
ghrebian Front had threatened to quit
free to buy Peugeot-Renault, despite the
next year's budget better. Regional aid
France's Socialist-led coalition-the other
French government's attempt to block the
will rise to 60% of the total, of which a
leaders turned him down.
deal, was, he said, contrary to the princi-
large chunk will be earmarked for them.
Mr Delors then suggested that Algeria,
ple of subsidiarity.
One new item appears in the budget: the
Tunisia and Morocco should be encour-
President Delors argued that a perma-
Union Frontier Police (UFP), which is al-
aged to become affiliate members of the
nent council of deputy prime ministers
ready replacing national customs and im-
Union. The northern countries de-
should take over the commission's main
migration officers.
murred, but agreed to make the Maghreb
tasks. Felipe Gonzalez, the commission's
Environmental Protection Officers
eligible for regional funds. The
president (puffing his habitual cigar, de-
(EPOS), formerly known as small farmers,
summiteers hoped that in the long run
spite the pan-European ban on smoking
won a 10% rise in the fee they are paid for
such aid would help to limit the numbers
in public buildings), countered that the
looking after land and not cultivating it.
of North African boat people. As for the
Union would lose momentum if the com-
That pleased Mr Delors, but when he
thousands who try to cross the Mediterra-
mission were squeezed out. "Without a
called for a new fund to subsidise food ex-
nean each week, they ordered the WEU to
vigorous commission, would the Union
ports to the poorest parts of the third
step up naval patrols off North Africa.
have created the Eurofed in 1997 or agreed
world he got short shrift from Mr Patten
For the first time, the proceedings
to phase out the common agricultural
and Mr Rühe, who accused him of trying
were carried live on EuroSat television.
policy in 1998?" he asked.
to revive the CAP through the back door.
The experiment was judged a success by
What the three Central European
The Anglo-German alliance appeared
newcomers wanted most was member-
in fine fettle. When Mr Rühe proposed
surveys showed that only 5% of European
the politicians, but not by the
ship of the Western European Union, the
that a Union budget ceiling of 4% of GDP
households bothered to tune in.
THE ECONOMIST SEPTEMBER 28TH -
60
BUSINESS
Eastern Europe and the world
crease the supply of global savings by
roughly $55 billion-just enough to fi-
nance the best-guess flow to Eastern Eu-
rope and the Soviet Union.
How will the transformation in Eastern Europe affect the global economy?
Migration. With lower living standards
than in the West for many years, citizens
I F THERE had ever been doubt about
of the reforming countries will have a
the difficulty of transforming socialist
ECONOMICS FOCUS
powerful incentive to migrate. Different
economies into market economies, Po-
studies have found that the quality of
land and its fellow reformers have re-
equally well with Eastern Europe? True,
Eastern Europe's "human capital" is
moved it. The scale of the task and the
the task of adjustment will be more de-
high-on a par with that of countries such
costs of the transition have become pain-
manding if the Soviet Union, or many of
as Spain and Greece, better than that of
fully clear. But a different aspect of the
its republics, also become bold economic
Portugal and Turkey. Many East Europe-
revolution has been neglected: how will
reformers. Market-friendly economics is
ans could raise their incomes many times
the collapse of communism affect the rest
catching on in the third world, too. But
over by emigrating.
of the world economy?
trade expansion in the third and ex-com-
Often economic commentators sim-
Learned papers have started to trickle
munist worlds is likely to be slower than it
ply take it for granted that immigration is
forth. The most detailed study so far has
was in East Asia, allowing plenty of time
a threat. Mr Blackhurst thinks the matter
come from the Institute for International
for the West to adjust. Also, remember
is not so clearcut. He points out that, be-
Economics (IIE) in Washington, DC*. A
that rapid export growth goes hand-in-
tween 1840 and 1920, immigrants arrived
paper sponsored by Britain's Centre for
hand with rapid import growth (as in East
in the United States at annual rates rang-
Economic Policy Research has also ven-
Asia); trade expansion, in other words,
ing from 5.3 per thousand of the host
tured some predictions¹. At a conference
need not be at your partners' expense.
population to 10.4 per thousand. (Most of
organised by the Kiel Institute of World
Capital flows. On this, the IIE study is
these immigrants went to the cities; by
Economics on June 26th-28th, Richard
the most thorough. It first asks how much
and large, they were not filling up Ameri-
Blackhurst, director of economic research
foreign capital would be needed to raise
ca's vast empty spaces.) America's experi-
at the GATT, surveyed the literature to see
the amount of productive capital per
ence was a great success-yet those figures,
worker in Eastern Europe and the Soviet
TABLE 1. Eastern Europe and the tigers
Union to that of the West within ten years.
TABLE 2. Capital flows to:
Czechoslovakia,
The answer is a lot-about $112 trillion a
Eastern Europe and the Soviet Union
Hungary and
Hong Kong, South Korea,
year. The study then asks how much the
($ billions, annually)
Scenario
Poland
Singapore and Taiwan
region can expect to receive.
(a)
(b)
(c)
The authors look at the various sources
1988
1970
1990
Eastern Europe*
12
18
24
1980
(governments, the IMF, the World Bank,
Soviet Union
-4
2
6
Population (m) 64.7
52.5
63.2
71.2
commercial lenders, direct investors and
Eastern Germany
22
35
60
Share in world:
so on) and make guesses based on past be-
Total
30
55
90
Exports*
1.4
2.0
3.8
7.7
haviour and many assumptions. Com-
"Bulgaria, Czechosiovakia, Hungary, Poland, Romania, Yugoslavia
Imports*
1.2
2.7
4.2
7.4
bining all the pessimistic assumptions,
Note: Scenario (a) combines the authors' most pessimistic assump-
Source: Adapted from R. Blackhurst *merchandise trade
tions, scenario (c) their most optimistic. Scenarlo (b) is their best est-
the study comes up with a flow of $30 bil-
imate.
Source: Adapted from Collins and Rodrik.
lion a year; on the most favourable as-
where economists currently stand.
sumptions, the figure is $90 billion; the
scaled to Western Europe's present popu-
The changes in Eastern Europe will
"best guess" is $55 billion. Such sums are
lation, are equivalent to between 1.9m
spread their economic effects through
tiny in relation to the gap that will eventu-
and 3.7m immigrants a year. Amid the
four main channels:
ally need to be filled. Moreover, the lion's
present uncertainties, it would be rash to
Trade. If reform succeeds, the countries
share of the money will go to eastern Ger-
advocate large-scale immigration as de-
of Eastern Europe will become largish
many. According to the most pessimistic
liberate policy-and Mr Blackhurst cer-
partners in trade with the West. This may
scenario, the flow to the Soviet Union is
tainly does not do so. But history suggests
cause friction. The more Eastern Europe
actually negative (see table 2).
that Western Europe's fears may be
succeeds as an exporter, the more likely it
The new flow of capital to Eastern Eu-
exaggerated.
is to encounter protectionism.
rope must mean either a diminished flow
Ideas. This could be the most important
Mr Blackhurst takes the point, but of-
to the third world or an increase in global
channel of all-impossible though it will
fers encouragement. He draws a parallel
interest rates-assuming that the balance
be to measure the effects. Many third-
between the region's three leading re-
of supply and demand for capital in the
world governments opted for socialist
formers (Poland, Hungary and Czecho-
industrial countries stays the same. The
planning in the 1950s and after. The Gha-
slovakia) taken together, and the "tigers"
authors reckon that real interest rates will
nas and Indias of the world attest to the
of East Asia (Hong Kong, South Korea,
rise by between one and three percentage
cost in human and economic terms. Their
Singapore and Taiwan). The two groups,
points if flows to the third world are un-
model now stands discredited and re-
roughly the same in population, also look
changed. If, instead, flows to the develop-
pudiated. The lesson is sure to sink in.
similar with respect to trade-except, that
ing countries shrink to the full extent
Throughout the third world, the prospects
is, for a 20-year gap. In 1970 the share of
(leaving interest rates unchanged), devel-
for market-friendly reforms are much im-
the tigers in world merchandise exports
oping-country investment will fall by be-
proved. For this, give thanks.
was rather larger than the share of the
tween 0.8% and 2.3% of GDP.
three East Europeans in 1988. Over the
In all this, the biggest single uncer-
*Eastern Europe and the Soviet Union in the World
next 20 years the tigers increased their
tainty concerns the supply of savings in
Economy. By S. Collins and D. Rodrik. Monitoring Eu-
share nearly fourfold (see table 1).
the industrial countries. As Mr Blackhurst
ropean Integration: the Impact of Eastern Europe. By D.
The world economy coped all right
points out, an increase of one percentage
Begg and others. Implications of the Changes in East-
em Europe for the World Economy. To be published
with the tigers, so why should it not cope
point in America's savings rate would in-
later this year by the Kiel Institute of World Economics.
THE ECONOMIST JULY 6TH 1991
69
BUSINESS
duce 80% of the country's food, the least effi-
lines, disused goods yards and long grass.
cient 40% should have left the business by
The land is not only adjacent to three fine
2000 if the Swedish plans work, according
old (British-built) railway terminals, but is
to Hans-Erik Uhlin of Uppsala University.
also cheek-by-jowl with the capital's long-
Highly subsidised grain farms will revert to
distance bus terminal, the city bus terminal,
being traditional dairy farms.
an underground station, the docks and the
Alas, this admirable effort at farm re-
Avenida Libertador, one of the city's main
form is threatened by Sweden's application
arteries. Profits on the development of this
to join the EC. Swedish farmers may be
land should be more than enough to cover
tempted to weather the hard years in the be-
the railways' losses and still produce a
lief that the CAP will come to their rescue in
healthy profit. By October, hopes the gov-
the late 1990s. If this happens, it would be
ernment, investors will be convinced
an expensive disappointment. A much bet-
enough to submit bids.
ter outcome would be for the Community's
Argentina comes third among the
politicians to learn how to reform agricul-
privatisers of Latin America after Chile and
ture the Swedish way.
Mexico, which have almost run through
their lists of companies to be sold. Argen-
Tasty but subsidised
tina has already sold its telephone com-
Argentina's privatisation plans
pany, state airline, two TV stations, oil and
the CAP more obvious, which is a good
thing, but they will also further shift the bur-
On the rails
gas concessions, 6,200 miles of road-main-
tenance condessions and the railway that
den of support from rigged prices to the EC
takes grain to the port of Bahia Blanca. It has
budget. Because most people are far less
raised around $8.5 billion and hopes to
aware of the budget than they are of the cost
S
MUCH bad news has been heard
raise another $1.7 billion by next June 1992.
of food, this could diminish the demand for
about Argentina's economy that it may
The government is now studying offers
reform. More seriously, the price cuts will
be understandable if the one bit of good
for one of its shipyards, the capital's race-
not have much effect on the EC'S over-pro-
news has been ignored. Despite
track, more oil rights and state-owned grain
duction (despite farmers' obligation to set
hyperinflation, budget deficits and comi-
silos. Next on the block will be a steel mill
land aside) because the new guaranteed
cally frequent currency reforms, Argentina
and the capital's electricity company and
prices will probably remain higher than the
has somehow managed to keep its privatisa-
waterworks, to be followed by natural gas,
marginal cost of production for the most ef-
tion programme going, partly because the
petro-chemicals, the mint, a shipping line
ficient farmers. The plan will also be so
government has been uncharacteristically
and some banks.
complicated to administer that fraud (al-
innovative Its latest piece of ingenuity is de-
So far so good. But Argentina's privati-
ready a $10-billion-a-year problem) stands
signed to sell ten-year concessions/ to run
sation express will screech to a halt if infla-
to become even worse.
Buenos Aires's underground and suburban
tion becomes hyper again. For the moment,
Sweden, by contrast, has pledged to es-
overground railways, even though they will
at least, inflation is declining: the monthly
tablish a free market within its borders. By
probably always make a loss.
rate was down to 2.6% in July. The Interna-
1995 there will be no price supports and no
To ure investors from aboard, the gov-
tional Monetary Fund has approved a $1.04
government money to mop up oversupply.
ernmenthas linked the railway concessions
billion standby loan, unlocking a further
Prices of beef, pork and milk are already set
to the right to develop 50 hectares of prime
$325m from the World Bank. More good
freely by the market (they have fallen by
land, now mostly occupied by rusty railway
news.
about 20% since the beginning of July and
will fall further). Price supports for cereals
will be phased out over the next five years.
East European statistics
18% are state-owned, and 8% are undergoing
The one source of protection (and it is a mas-
sive one because Sweden's costs are high
Looking for clues
renovation. Foreigners are still a baffling
novelty, however, and only 2% take credit
compared with other countries') will be the
cards. On the pedestrian bit of Vaci Utca in
variable levies that block imports. Accord-
Budapest there are 57 retail shops, of which
ing to Sture Astrom from the ministry of ag-
WARSAW, PRAGUE AND BUDAPEST
57% are private, 42% are state-owned, and a
riculture, these will be lowered to keep pace
N
OT SO long ago, the production fig-
big 35% take credit cards; not only is Buda-
with falling domestic prices.
ures gushing out of the central-plan-
Like their EC rivals, Swedish farmers
ning bureaucracies of Eastern Europe were
will get direct payments to compensate
Not the whole story
5
uniformly optimistic and uniformly unreli-
Real GDP
them for the change, but these will be small-
able. These days, the same figures are uni-
% change on a year earlier
er than the EC'S and-if the government has
formly pessimistic, but not necessarily more
the nerve to keep its word-they will last for
Poland
accurate than those in the old five-year
Hungary
Czechoslovakia,
0
only three years. Farmers can also gain a far
plans. This is because statisticians are not
larger one-off payment for shifting to non-
yet measuring the growth of Eastern Eu-
food crops, already an unexpectedly popu-
rope's fast-growing private sector. The
lar choice. A total of SKr13.6 billion ($2.1 bil-
gloom painted by official statistics (see
lion) is available, after which payments
chart) is undoubtedly real. The region is in a
5
stop. In this way, the money finds its way
fearful recession. But it may not be quite as
into farmers' pockets rather than inflating
black as it looks.
land values. Cheaper land should, accord-
1989
Consider some unofficial statistics gath-
1990
ing to Mr Astrom, both discourage intensive
ered by The Economist in strolls down the
1991 (forecast)
10
farming and also help to promote the
equivalent of Fifth Avenue in Warsaw,
restructuring of farm holdings.
Prague and Budapest. On Warsaw's Nowy
Of the 25,000 full-time farmers who pro-
Swiat are 82 retail shops; 73% are private,
Source: The Economist Intelligence Unit
58
THE ECONOMIST AUGUST 10TH 1991
BUSINESS
pest full of foreign tourists, but Hungarians
rooted, it takes a month (for compa-
can also have Visa cards these days. On
nies only) and an official payment of
Wenceslas Square in Prague, by contrast, lit-
$1,250. In Prague the official cost is
tle has changed. There are 66 retail shops, of
$66, the bribe is up to $600, and the
which a mere 15% are private, 84% are state-
time is two months. Once you have
owned and 10% take credit cards. There is
your second telephone, it will take 20
still a long way to go, even if things are better
minutes to call London from War-
than two years ago.
saw, or four hours to call New York.
Despite Prague's relatively poor show-
Calling London from Prague requires
ing, western businessmen are not ignoring
a wait of between only five and 30
Czechoslovakia. Office rents in Prague start
minutes and calling New York only
at $80 per square metre in the centre of
ten minutes. Calling London from
town, compared with $50 in Warsaw and
Budapest takes a mere five minutes
$45 in Budapest, though this may have as
and New York only two.
much to do with Prague's inelastic supply of
The cost of living in the three
office space as with rising demand. Occu-
countries does not seem to vary
The market at work
pancy rates show that hotels catering to
greatly, though purchasing power
businessmen in all three cities are still doing
may be lowest in Czechoslovakia, the coun-
Foreigners, whose living costs are higher
well. The Prague Palace's occupancy rate is
try the furthest behind in economic reform.
because they have to pay market rents, can
running at 75%, Warsaw's Marriott at 70%
The same basket of food-one loaf of bread,
no longer save much by changing money on
and Budapest's Forum a healthy 84%.
one packet of butter, one litre of milk, 150
the black market. There is no gap between
Business conditions still vary a lot. Get-
grammes of ham, one imported Swiss choc-
official and unofficial exchange rates in Po-
ting a second telephone-line installed in
olate bar and four bottles of domestic beer-
land, although there remains a 7.5% gap in
Warsaw takes a month, even with the help of
costs $4.15 in Hungary, $5.40 in Poland and
Hungary and a 3% gap in Czechoslovakia.
a $400 bribe. Without a bribe it takes be-
$4.46 in Czechoslovakia. The average wage
Real, and relatively stable, exchange rates:
tween six months and forever. In Budapest,
is $150 a month in Hungary, $145 in Poland
now, there's a piece of good news.
where business culture is more firmly
and $110 in Czechoslovakia.
From someone whom loves you
versational language "more meaningful".
For instance, most of them say they al-
ways prefer the word "who" to the word
KANSAS CITY
"whom" in greeting cards even when it is
M
ID-WAY between Father's Day
(and their parents) cope with growing up.
ungrammatical.
(June 16th) and Halloween (Octo-
Such cards include "Would a hug help?";
Hallmark is so encouraged by the suc-
ber 31st), this is the worst of times for
"Divorce won't change a thing between
cess of these cards that it has produced a
American publishers of greeting cards.
us"; "Sorry I made you feel bad"; and
series of 520 non-occasion cards for
Despite their success in speckling the cal-
"You're perfectly wonderful-it's your
adults. Some seek to deepen friendships
endar with "occasions" (Mother-in-law's
room that's a mess."
("You're more than a friend, you're just
Day is October 27th), people send fewer
The chatty style of the sentiments is
like family") or simply to keep in touch
cards now than at any other time of the
carefully calculated. Researchers have in-
("Do you realise we've been friends for
year. Hallmark Cards, the leader with a
formed the creative staff of Hallmark and
more than half our lives"). Others address
44% share of a market worth almost $5 bil-
its rivals that correct grammar makes
almost every conceivable calamity, from
lion a year, is striving to change that by
cards harder to sell. Americans find con-
loss of a job to alcoholism ("This is hard
reviving an old habit.
to say, but I think you're a much neater
Just as illiterate people in some poor
person when you're not drinking") or
countries still pay scribes to write letters
for them, Hallmark is trying to persuade
your Best New Wishes
mental illness.
There is even a card to send to a pro-
today's too-busy-to-write Americans to let
spective lover for those worried about
it express their sentiments for them. That
Congratulations
contracting AIDS. "It isn't easy for me to
is how this private company, based in
bring this up, but I think we need to talk
Kansas City with 15,000 employees, is get-
about our past relationships. It used to be
ting people to send cards even on days
that the past wasn't very important. But in
when there is no "occasion". This latest
today's world it really matters
So let's
marketing ploy is designed to boost sales
in a maturing market that threatens to
stop growing for the first time since 1945.
Some industry insiders trace the birth
BRCOME CITIZEN
talk before we go any further."
Hallmark's two biggest competitors-
American Greetings with 30% of the mar-
ket and Gibson Greetings with 8%-have
of Hallmark's so-called "non-occasion"
followed Hallmark's lead. Non-occasion
cards to a death-of-a-pet card the firm's
700-strong creative staff produced in 1984.
AS YOU
cards now account for more than 10% of
the 7.3 billion greeting cards sold in Amer-
Examples of non-occasion cards include a
ica each year. Nobody knows how big
new line of adult-to-child cards, called
non-occasion cards can become. But they
"To Kids With Love", which Hallmark in-
too will eventually reach saturation. Per-
troduced in January 1989. The number of
haps the industry's next marketing fron-
cards in this series has grown to 125. They
tier will be to get consumers to send cards
are supposed to help children aged 7 to 14
to themselves.
THE ECONOMIST AUGUST 10TH 1991
63
II II WHO is HAVEL
Political Essays
OPEN
LETTERS
Selected Writings
1965-1990
by
Václav Havel
Selected and Edited by Paul Wilson
ALFRED A. KNOPF
New York
1991
THIS IS A BORZOI BOOK
PUBLISHED BY ALFRED A. KNOPF, INC.
Preface and translations copyright © 1985, 1988, 1991 by Paul Wilson
Preface
"On the Theme of an Opposition," "Letter to Alexander Dübček,"
be
"Farce, Reformability, and the Future of the World,"
Acknowledgments
br
copyright © 1991 by A. G. Brain.
All rights reserved under International and Pan-American
Copyright Conventions. Published in the United States by
Alfred A. Knopf, Inc., New York. Distributed by
Second Wind
fn
Random House, Inc., New York.
ul
Published simultaneously in Great Britain by
On Evasive Thinking
Faber & Faber, Limited, London.
N
On the Theme of an (
Czech originals copyright by Václav Havel. All rights reserved.
a:
Letter to Alexander Di
t]
This edition published by arrangement with
Rowohlt Verlag GmbH, Reinbek bei, Hamburg.
"Dear Dr. Husák"
Grateful acknowledgment is made to the following for permission
to publish these previous English translations:
"It Always Makes Sens
"Thinking About František K.," "Testing Ground," and "A Word
The Trial
(
About Words," copyright c 1988, 1989, 1990 by A. G. Brain.
"Six Asides About Culture" and "Anatomy of a Reticence,"
copyright c 1985 by Erazim Kohák.
Article 202
"Politics and Conscience," copyright © 1985-by
Erazim Kohák and Roger Scruton.
Article 203
"I Take the Side of Truth': An Interview with Antoine Spire"
The Power of the Powe
and "Meeting Gorbachev," copyright c 1983, 1988
by George Theiner.
Reports on My House
Library of Congress Cataloging-in-Publication Data
Havel, Václav.
Two Letters from Priso
Open letters : selected writings 1965-1990 / by Václav Havel ;
selected and edited by Paul Wilson.
"I Take the Side of Tru
P. cm.
Includes index.
Politics and Conscience
ISBN 0-679-40027-3
1. Czechoslovakia-Politics and government-1968- I. Title.
Six Asides About Cultu
DB2241.H38A5 1991B
943.704'3-DC20
Thriller
90.53561
CIP
Manufactured in the United States of America
Anatomy of a Reticence
First American Edition
Two Notes on Charter :
328
Preface
351
Id
355
I am unwilling to believe that this whole civilization is
363
no more than a blind alley of history and a fatal error of
373
the human spirit. More probably it represents a necessary
phase that man and humanity must go through, one that
377
man-if he survives-will ultimately, and on some higher
39°
level (unthinkable of course without the present phase),
transcend.
-Václav Havel, "Thriller"
397
407
T
HE IDEA of putting together a selection of Václav
Havel's nondramatic writing seemed at first like a simple
enough proposition. The purpose was, and remains, for this
to be a companion volume to Letters to Olga, Disturbing the
Peace, and his plays. Open Letters will round out the picture
these other works give us of Václav Havel as dramatist, writer,
thinker, and future statesman.
The problem, however, was that many of Havel's major es-
says and articles had already been translated and published,
and some, like "The Power of the Powerless"-Havel's most
penetrating analysis of the totalitarian system and how peo-
ple resist it-had been widely reprinted. It still made sense to
bring these essays together in a single volume, but the risk
was that such a volume might not have given readers who had
been following Havel's work much that was new.
Thinking about this problem, I realized that the distinction
between major and minor works in what I was trying to do
was misleading. Havel's lesser-known pieces-his speeches,
letters, newspaper articles, his samizdat reports meant mainly
for friends, the profiles of people he admired, the conversa-
tions and interviews-provide us with the humus of his think-
ing and give us glimpses of the man that are sometimes
vii
Preface
missing from his more substantial works. Therefore, they be-
long in a book that intends to present the reader with Havel
the man, not just Havel the dissident thinker.
FOR READERS as yet un
The twenty-five items assembled here cover Václav Havel's
be worth reviewing,
nondramatic writing from 1965-when he was a young play-
passed in this volume
wright with the Theatre on the Balustrade in Prague-to his
led invasion of Cze
New Year's Address to Czechoslovakia on January 1, 1990,
immediate aftermath,
shortly after he had become the country's president. The
wright, and only occa
chronological arrangement (with the exception of the first
active in public life, i
item, "Second Wind") comes naturally out of the book's pur-
member of the editori
pose. Havel is, in the best sense of the word, an occasional
ber of the Union of
writer; he responds, in his writing, to events, experiences, in-
was not so much comi
sights, arguments, states of mind. When his pieces are assem-
communism, that "pec
bled in the order in which he wrote them, they become a
which suggested that W
chronicle both of his intellectual life, and, implicitly, of his
that Marx conceived, I
times as well.
a fury could be tame
Many of Havel's essays were, in fact, agents of history. I
to the Writers' Union
don't know whether his private letter to Alexander Dubček
with remarkable pres
in 1969 influenced the agonizing decision Dubček had to
edy that result when
make at the time, but I remember clearly the deep transfor-
reality, when thought
mation in the mood in Prague brought about by "Dear Dr.
when writers avoid P
Husák," Havel's widely circulated open letter to the Czecho-
texts. Later, his quarre
slovak president in 1975. This essay raised the hope that
cific. "On the Theme
Husák's regime would one day end, made that end seem
Prague Spring of 1968
inevitable, and thus brought it closer. But the best testimony
that viewpoint.
to the power of Havel's prose comes from the Polish politi-
In the 1970s, along
cian and former Solidarity activist Zbygniew Bujak. In the late
adversaries, Havel bec
1970s, when Bujak was a young activist trying to organize
senter. As a dramatist
resistance to the communist bosses in the Ursus factory near
plays (some of his be:
Warsaw, he became discouraged at the lack of response and
his impact as a playwr
began to doubt the meaning of what he was doing. Then he
Inside Czechoslovakia
came across a copy of "The Power of the Powerless," by Havel.
power as an essayist. ]
"Its ideas," he told me, "strengthened us and persuaded us
sion, examining its eff
that what we were doing would not evaporate without a trace,
Dr. Husák"), on the W
that this was the source of our power, and that one day this
ticle 202," and "Articl
power would manifest itself. When I look at the victories
political politics" in \
of Solidarity and of Charter 77, I see in them an astonishing
the power of truth ("I
fulfillment of the prophecies contained in Havel's essay."
founding member and
viii
Preface
FOR READERS as yet unfamiliar with Havel's other work, it may
be worth reviewing, briefly, the phases of his life encom-
passed in this volume. In the earliest stage, up to the Soviet-
led invasion of Czechoslovakia in August 1968 and its
immediate aftermath, Havel was known mainly as a play-
wright, and only occasionally an essayist. When he became
active in public life, in the mid-1960s, he spoke chiefly as a
member of the editorial board of Tvár magazine and a mem-
ber of the Union of Czechoslovak Writers. His chief target
was not so much communism as it was the ideology of reform
communism, that "peculiar dialectical dance of truth and lies"
which suggested that with certain minor adjustments, the beast
that Marx conceived, Lenin unleashed, and Stalin goaded into
a fury could be tamed and domesticated. In an early speech
to the Writers' Union ("On Evasive Thinking") Havel talks,
with remarkable prescience, about the destruction and trag-
edy that result when language and ideology turn away from
reality, when thought becomes disengaged from the world,
when writers avoid problems by putting them in false con-
texts. Later, his quarrel with the reformers becomes more spe-
cific. "On the Theme of an Opposition," written during the
Prague Spring of 1968, is his most openly political clash with
that viewpoint.
In the 1970s, along with many of his old reform communist
adversaries, Havel became an outcast and later an active dis-
senter. As a dramatist without a stage, he continued to write
plays (some of his best, in fact, come from this period), but
his impact as a playwright was now almost exclusively abroad.
Inside Czechoslovakia his influence now came through his
power as an essayist. He dissected aspects of the new repres-
sion, examining its effect on culture and everyday life ("Dear
Dr. Husák"), on the way laws were applied ("The Trial," "Ar-
ticle 202," and "Article 303"), and on the growth of an "anti-
political politics" in which dissidents of all hues harnessed
the power of truth ("The Power of the Powerless"). He was a
founding member and spokesman of the human rights "initia-
ix
Preface
tive" Charter 77 and the Committee to Defend the Unjustly
I HAVE excluded far more
Prosecuted, and he published his own samizdat series of
cluded. The most painful
books called Edice Expedice. These activities, as well as his es-
youthful essays, "The Anato
says, landed him in prison in 1979 where, in a remarkable
Metaphysics," because they
series of letters to his wife Olga, he was compelled by circum-
and two of his later essays C
stances and the prison censor to dig deeply into his own per-
much the same things else
sonality and beliefs and explore their broader, more
cluded none of Havel's in
philosophical implications.
anthologies, and only one 0
The essays Havel wrote on his return from prison in 1983
colleagues ("Thinking Abo
reflect this deeper view of things. In "Politics and Con-
than just a reminiscence).
science," for instance, he returns to his old themes, but in a
tions, protests, and brief p'
broader context this time, arguing that the problems the
too occasional and too sligh
world faces are rooted in "the irrational momentum of anony-
of the several statements he
mous, impersonal and inhuman power," and that while the
mostly because the texts W
crisis is deepest and most acute in communist countries, it is
Havel's own hand, but rat
a worldwide phenomenon. In the meantime, Havel had be-
cured transcriptions. As he
come an international cause célèbre, which meant that he spent
asked for, and granted, ma
a good deal of his time talking to journalists, intellectuals,
vide excellent surveys of h
and activists from the West. This gave him the opportunity
reason they are repetitive; t
to reflect, as he does in "Anatomy of a Reticence," upon why
were excluded. Finally, in tl
there were such deep misunderstandings between people on
olution" of 1989, Havel wa
either side of the Iron Curtain, when they should find them-
derground (now legal) news
selves natural allies. Finally, when Mikhail Gorbachev, about
as these articles are histori
whom Havel was initially skeptical, becomes head of the So-
tied to specific events.
viet Union, a period begins in which Havel can see the end
If there is one class of
of communism, or at least its gradual transformation into some-
include, it is Havel's polei
thing more tolerable. All his writing from the mid-eighties
away from a good debate,
on is strongly colored by this conviction. In one of the last
alienating a colleague or dis
pieces in this book, "A Word About Words," he returns to an
ter 77 community. One im
early theme: the destructive power of language, this time to
Kundera in late 1968 over
examine the words that have contained the hopes and the
tance to the Soviet invasion-
horrors of this century. By now he has the experience of the
Czechs and Slovaks view th
dissident movement behind him, and he writes as someone
late 1970s, was a debate wit
who knows, at first hand, about "the mysterious power of
over the kinds of activities
words in human history."
tences for. In both cases, I
publish Havel's side of the F
texts he was responding to.
X
Preface
I HAVE excluded far more of Havel's prose than I have in-
cluded. The most painful omissions were two of Havel's
youthful essays, "The Anatomy of a Gag" and "On Dialectical
Metaphysics," because they were too long and too abstract,
and two of his later essays on theatre, because Havel had said
much the same things elsewhere, more forcefully. I have in-
cluded none of Havel's introductions to samizdat books or
anthologies, and only one of his many profiles of friends and
colleagues ("Thinking About František K.," which is more
than just a reminiscence). Havel drafted countless declara-
tions, protests, and brief public speeches, most of which are
too occasional and too slight to use. Nor have I included any
of the several statements he made in his own defense in court,
mostly because the texts we have are not necessarily from
Havel's own hand, but rather based on clandestinely pro-
cured transcriptions. As he became better known, Havel was
asked for, and granted, many interviews. Some of these pro-
vide excellent surveys of his thought, but precisely for that
reason they are repetitive; thus, with two exceptions, they too
were excluded. Finally, in the year and a half before the "rev-
olution" of 1989, Havel was a regular contributor to the un-
derground (now legal) newspaper Lidové noviny. As interesting
as these articles are historically, I felt they were too closely
tied to specific events.
If there is one class of items I regret not being able to
include, it is Havel's polemical articles. Havel never shied
away from a good debate, not even when he ran the risk of
alienating a colleague or disturbing the solidarity of the Char-
ter 77 community. One important exchange was with Milan
Kundera in late 1968 over the meaning of the popular resis-
tance to the Soviet invasion-and more broadly, over how the
Czechs and Slovaks view their own history. Another, in the
late 1970s, was a debate with Ludvík Vaculík and Petr Pithart
over the kinds of activities that were worth risking jail sen-
tences for. In both cases, I felt it would have been unfair to
publish Havel's side of the polemic without also including the
texts he was responding to.
xi
Preface
Acknow
As I WRITE this preface, more than a year has elapsed since
the miraculous and sudden collapse of communism in Cen-
tral Europe. The euphoric hopes of a year ago seem damp-
ened, though not extinguished, by the stark economic
difficulties faced by the new democracies, by the resurgence
D
URING my work on thi
of old, hard-line habits of rule in the Soviet Union, and by
deal, as always, to ma
the war in the Middle East and its aftermath. It is a tribute to
Knopf and Faber & Faber
the vitality and depth of Václav Havel's writing that, though
were solidly behind this pro
these essays were written in a different world and a different
me invaluable advice, sup
time, they still illuminate the present. For did not Havel warn
help was a sine qua non. I
that the damage to individuals and societies left behind by
at The Idler magazine, Davi
totalitarianism would be worse than even its victims could
der Szemberg, and Mirosla
imagine, and take a long time to repair? Did he not point out
in matters of editing and ti
that the root cause of war does not lie in the weaponry that
for their patience and un
each side deploys against the other, but in the political real-
from work. David Schmalz
ities of a divided world, and that the greatest danger-one
hotel in Walkerton, Ontaric
that should be clearly foreseeable-comes from willful indif-
treat there pleasant and pr
ference to regimes that humiliate and oppress and silence
don Skilling and Josef Skvo
their own citizens in the name of some expediency, or grand,
and obscure bits of informa
utopian scheme? And does he not remind us, both in his
book.
words and by his example, that the starting point for change
I owe a special debt of gr
must be the human conscience at work in the "hidden sphere"
of the Documentation Cent
of society, and that not to believe in its power, despite all the
dent Czechoslovak Literati
forces arrayed against it, is at the very least a matter of bad
Prečan assembled and edito
faith?
nondramatic writings: Václa
covers 1969-79, and Václav
PAUL WILSON
ering the period 1983-89. N
Toronto, March 1991
book was translated from th
on his excellent bibliograp]
my own notes and comme
rendered in communicating
vate secretary, Vladimír Hai
I owe more than I can say
Jake, for tolerating my abse
of ways when I needed it.
xii
The
OPEN LETTERS
what we were doing. Shouldn't we be coming up
with other methods, other ways?
A
SPECTER is haunt
"Then came the essay by Havel. Reading it gave
in the West is c
us the theoretical underpinnings for our activity. It
maintained our spirits; we did not give up, and a
peared out of thin a
year later-in August 1980-it became clear that the
quence of the prese
party apparatus and the factory management were
haunting. It was borr
afraid of us. We mattered. And the rank and file
sand reasons, can no
saw us as leaders of the movement. When I look at
brutal, and arbitrary
the victories of Solidarity, and of Charter 77, I see
pressions of noncon
become so ossified P
in them an astonishing fulfillment of the prophe-
for such nonconform
cies and knowledge contained in Havel's essay."
Translated by Paul Wilson, "The Power of the
structures.
Who are these S
Powerless" has appeared several times in English,
foremost in The Power of the Powerless: Citizens
point of view come 1
What is the signific:
Against the State in Central-Eastern Europe, edited by
which "dissidents" C
John Keane, with an Introduction by Steven Lukes
initiatives have of S1
(London: Hutchinson, 1985). That volume includes
sidents" as an oppo
a selection of nine other essays from the original
Czech and Slovak collection.
position within the
do? What role does
on what are they ba
dents"-as a catego
lishment-to have
social system? Can 1
I think that an ex
nation of the poter
with an examinatio
stances in which th
OUR SYSTEM is most
or, more precisely,
cracy over a societ
cial leveling. I ai
regardless of how
126
The Power of the Powerless
I
A
SPECTER is haunting Eastern Europe: the specter of what
in the West is called "dissent." This specter has not ap-
peared out of thin air. It is a natural and inevitable conse-
quence of the present historical phase of the system it is
haunting. It was born at a time when this system, for a thou-
sand reasons, can no longer base itself on the unadulterated,
brutal, and arbitrary application of power, eliminating all ex-
pressions of nonconformity. What is more, the system has
become so ossified politically that there is practically no way
for such nonconformity to be implemented within its official
structures.
Who are these so-called dissidents? Where does their
point of view come from, and what importance does it have?
What is the significance of the "independent initiatives" in
which "dissidents" collaborate, and what real chances do such
initiatives have of success? Is it appropriate to refer to "dis-
sidents" as an opposition? If so, what exactly is such an op-
position within the framework of this system? What does it
do? What role does it play in society? What are its hopes and
on what are they based? Is it within the power of the "dissi-
dents"-as a category of subcitizen outside the power estab-
lishment-to have any influence at all on society and the
social system? Can they actually change anything?
I think that an examination of these questions-an exami-
nation of the potential of the "powerless"-can only begin
with an examination of the nature of power in the circum-
stances in which these powerless people operate.
II
OUR SYSTEM is most frequently characterized as a dictatorship
or, more precisely, as the dictatorship of a political bureau-
cracy over a society which has undergone economic and so-
cial leveling. I am afraid that the term "dictatorship,"
regardless of how intelligible it may otherwise be, tends to
127
OPEN LETTERS
The Po
obscure rather than clarify the real nature of power in this
their lack of historical ro
system. We usually associate the term with the notion of a
more than historical fre
small group of people who take over the government of a
fortuitous social process
given country by force; their power is wielded openly, using
the same cannot be said !
the direct instruments of power at their disposal, and they
though our dictatorship
are easily distinguished socially from the majority over whom
pletely from the social 1
they rule. One of the essential aspects of this traditional or
authenticity of these mc
classical notion of dictatorship is the assumption that it is
proletarian and socialist
temporary, ephemeral, lacking historical roots. Its existence
tury) gives it undeniable
seems to be bound up with the lives of those who established
solid foundation of sort
it. It is usually local in extent and significance, and regardless
came the utterly new S(
of the ideology it utilizes to grant itself legitimacy, its power
which has become so ir
derives ultimately from the numbers and the armed might of
the modern world. A fe
its soldiers and police. The principal threat to its existence is
the "correct" understan
felt to be the possibility that someone better equipped in this
from which those origin
sense might appear and overthrow it.
at the very core of this
Even this very superficial overview should make it clear that
genetic disposition tow
the system in which we live has very little in common with a
teristic of its subsequer
classical dictatorship. In the first place, our system is not lim-
And in any case, this el
ited in a local, geographical sense; rather, it holds sway over
climate of that time ai
a huge power bloc controlled by one of the two superpowers.
origin there as well.
And although it quite naturally exhibits a number of local
One legacy of that '
and historical variations, the range of these variations is fun-
third peculiarity that m
damentally circumscribed by a single, unifying framework
modern dictatorships:
throughout the power bloc. Not only is the dictatorship ev-
precise, logically struc
erywhere based on the same principles and structured in the
in essence, extremely f
same way (that is, in the way evolved by the ruling super-
ness and completeness
power), but each country has been completely penetrated by
fers a ready answer to a
a network of manipulatory instruments controlled by the su-
be accepted only in pa
perpower center and totally subordinated to its interests. In
plications for human ]
the stalemated world of nuclear parity, of course, that circum-
existential certainties a
stance endows the system with an unprecedented degree of
being uprooted and a
external stability compared with classical dictatorships. Many
what this world means
local crises which, in an isolated state, would lead to a change
hypnotic charm. To W
in the system, can be resolved through direct intervention by
mediately available ho
the armed forces of the rest of the bloc.
suddenly everything b
In the second place, if a feature of classical dictatorships is
new meaning, and all
128
The Power of the Powerless
is
their lack of historical roots (frequently they appear to be no
a
more than historical freaks, the fortuitous consequence of
a
fortuitous social processes or of human and mob tendencies),
ng
the same cannot be said so facilely about our system. For even
ey
though our dictatorship has long since alienated itself com-
pletely from the social movements that give birth to it, the
or
authenticity of these movements (and I am thinking of the
is
proletarian and socialist movements of the nineteenth cen-
ice
tury) gives it undeniable historicity. These origins próvided a
ed
solid foundation of sorts on which it could build until it be-
ess
came the utterly new social and political reality it is today,
ver
which has become so inextricably a part of the structure of
of
the modern world. A feature of those historical origins was
is
the "correct" understanding of social conflicts in the period
his
from which those original movements emerged. The fact that
at the very core of this "correct" understanding there was a
hat
genetic disposition toward the monstrous alienation charac-
h a
teristic of its subsequent development is not essential here.
im-
And in any case, this element also grew organically from the
ver
climate of that time and therefore can be said to have its
ers.
origin there as well.
cal
One legacy of that original "correct" understanding is a
un-
third peculiarity that makes our systems different from other
ork
modern dictatorships: it commands an incomparably more
ev-
precise, logically structured, generally comprehensible and,
the
in essence, extremely flexible ideology that, in its elaborate-
ber-
ness and completeness, is almost a secularized religion. It of-
1 by
fers a ready answer to any question whatsoever; it can scarcely
su-
be accepted only in part, and accepting it has profound im-
In
plications for human life. In an era when metaphysical and
um-
existential certainties are in a state of crisis, when people are
e of
being uprooted and alienated and are losing their sense of
any
what this world means, this ideology inevitably has a certain
nge
hypnotic charm. To wandering humankind it offers an im-
1 by
mediately available home: all one has to do is accept it, and
suddenly everything becomes clear once more, life takes on
OS is
new meaning, and all mysteries, unanswered questions, anxi-
129
OPEN LETTERS
The Powe
ety, and loneliness vanish. Of course, one pays dearly for this
ership and central directic
low-rent home: the price is abdication of one's own reason,
This gives the power struc
conscience, and responsibility, for an essential aspect of this
trollable capacity to inves
ideology is the consignment of reason and conscience to a
reaucracy and the police,
higher authority. The principle involved here is that the cen-
for that structure, as the
ter of power is identical with the center of truth. (In our case,
day-to-day existence of all
the connection with Byzantine theocracy is direct: the highest
Finally, if an atmospher
secular authority is identical with the highest spiritual au-
oism, dedication, and boi
thority.) It is true of course that, all this aside, ideology no
acterizes classical dictators
longer has any great influence on people, at least within our
atmosphere have vanishe
bloc (with the possible exception of Russia, where the serf
time now this bloc has cea
mentality, with its blind, fatalistic respect for rulers and its
from the rest of the deve
automatic acceptance of all their claims, is still dominant and
cesses occurring in it. To
combined with a superpower patriotism which traditionally
integral part of that large
places the interests of empire higher than the interests of
the world's destiny. This
humanity). But this is not important, because ideology plays
hierarchy of values existin
its role in our system very well (an issue to which I will return)
West has, in essence, appe
precisely because it is what it is.
of co-existence with the и
Fourth, the technique of exercising power in traditional
In other words, what we }
dictatorships contains a necessary element of improvisation.
the consumer and indust
The mechanisms for wielding power are for the most part
social, intellectual, and P
not established firmly, and there is considerable room for
possible to understand t
accident and for the arbitrary and unregulated application of
properly without taking t
power. Socially, psychologically, and physically, conditions
The profound differen
still exist for the expression of some form of opposition. In
the nature of power-an
short, there are many seams on the surface which can split
by dictatorship, a differe
apart before the entire power structure has managed to sta-
quite superficial compar
bilize. Our system, on the other hand, has been developing
some term appropriate 1
in the Soviet Union for over sixty years, and for approxi-
poses of this essay. If I
mately thirty years in Eastern Europe; moreover, several of its
totalitarian" system, I am
long-established structural features are derived from Czarist
the most precise term, b
absolutism. In terms of the physical aspects of power, this has
one. I do not wish to in
led to the creation of such intricate and well-developed mech-
system is no longer totali
anisms for the direct and indirect manipulation of the entire
it is totalitarian in a way
population that, as a physical power base, it represents some-
sical dictatorships, differ
thing radically new. At the same time, let us not forget that
ally understand it.
the system is made significantly more effective by state own-
The circumstances I h
130
The Power of the Powerless
ership and central direction of all the means of production.
This gives the power structure an unprecedented and uncon-
trollable capacity to invest in itself (in the areas of the bu-
reaucracy and the police, for example) and makes it easier
for that structure, as the sole employer, to manipulate the
day-to-day existence of all citizens.
Finally, if an atmosphere of revolutionary excitement, her-
oism, dedication, and boisterous violence on all sides char-
acterizes classical dictatorships, then the last traces of such an
atmosphere have vanished from the Soviet bloc. For some
time now this bloc has ceased to be a kind of enclave, isolated
from the rest of the developed world and immune to pro-
cesses occurring in it. To the contrary, the Soviet bloc is an
integral part of that larger world, and it shares and shapes
the world's destiny. This means in concrete terms that the
hierarchy of values existing in the developed countries of the
West has, in essence, appeared in our society (the long period
of co-existence with the West has only hastened this process).
In other words, what we have here is simply another form of
the consumer and industrial society, with all its concomitant
social, intellectual, and psychological consequences. It is im-
possible to understand the nature of power in our system
properly without taking this into account.
The profound difference between our system-in terms of
the nature of power-and what we traditionally understand
by dictatorship, a difference I hope is clear even from this
quite superficial comparison, has caused me to search for
some term appropriate for our system, purely for the pur-
poses of this essay. If I refer to it henceforth as a "post-
totalitarian" system, I am fully aware that this is perhaps not
the most precise term, but I am unable to think of a better
one. I do not wish to imply by the prefix "post-" that the
system is no longer totalitarian; on the contrary, I mean that
it is totalitarian in a way fundamentally different from clas-
sical dictatorships, different from totalitarianism as we usu-
ally understand it.
The circumstances I have mentioned, however, form only
131
OPEN LETTERS
The Po
a circle of conditional factors and a kind of phenomenal
message. Verbally, it m
framework for the actual composition of power in the post-
greengrocer XY, live he
totalitarian system, several aspects of which I shall now at-
have in the manner exp
tempt to identify.
and am beyond reproacl
the right to be left in pe
III
addressee: it is directed
and at the same time it
THE MANAGER of a fruit-and-vegetable shop places in his win-
cer from potential info
dow, among the onions and carrots, the slogan: "Workers of
therefore, is rooted firn
the world, unite!" Why does he do it? What is he trying to
reflects his vital interest
communicate to the world? Is he genuinely enthusiastic about
Let us take note: if th
the idea of unity among the workers of the world? Is his en-
display the slogan "I a
thusiasm so great that he feels an irrepressible impulse to
ingly obedient," he wou
acquaint the public with his ideals? Has he really given more
semantics, even though
than a moment's thought to how such a unification might
The greengrocer would
occur and what it would mean?
such an unequivocal sta
I think it can safely be assumed that the overwhelming ma-
shop window, and quite
jority of shopkeepers never think about the slogans they put
and thus has a sense 0
in their windows, nor do they use them to express their real
complication, his expre
opinions. That poster was delivered to our greengrocer from
a sign which, at least 0
the enterprise headquarters along with the onions and car-
of disinterested convict
rots. He put them all into the window simply because it has
say, "What's wrong wit
been done that way for years, because everyone does it, and
Thus the sign helps the
because that is the way it has to be. If he were to refuse, there
the low foundations of
could be trouble. He could be reproached for not having the
cealing the low founda
proper decoration in his window; someone might even accuse
the facade of something
him of disloyalty. He does it because these things must be
Ideology is a specious
done if one is to get along in life. It is one of the thousands
human beings the illus
of details that guarantee him a relatively tranquil life "in har-
morality while making
mony with society," as they say.
As the repository of so
Obviously the greengrocer is indifferent to the semantic
it enables people to dec
content of the slogan on exhibit; he does not put the slogan
true position and thei
in his window from any personal desire to acquaint the pub-
the world and from th
lic with the ideal it expresses. This, of course, does not mean
the same time, an app
that his action has no motive or significance at all, or that the
what is above, below, a
slogan communicates nothing to anyone. The slogan is really
people and toward Go
a sign, and as such it contains a subliminal but very definite
ings can hide their OW
132
The Power of the Powerless
message. Verbally, it might be expressed this way: "I, the
greengrocer XY, live here and I know what I must do. I be-
have in the manner expected of me. I can be depended upon
and am beyond reproach. I am obedient and therefore I have
the right to be left in peace." This message, of course, has an
addressee: it is directed above, to the greengrocer's superior,
and at the same time it is a shield that protects the greengro-
cer from potential informers. The slogan's real meaning,
therefore, is rooted firmly in the greengrocer's existence. It
reflects his vital interests. But what are those vital interests?
Let us take note: if the greengrocer had been instructed to
display the slogan "I am afraid and therefore unquestion-
ingly obedient," he would not be nearly as indifferent to its
semantics, even though the statement would reflect the truth.
The greengrocer would be embarrassed and ashamed to put
such an unequivocal statement of his own degradation in the
shop window, and quite naturally so, for he is a human being
and thus has a sense of his own dignity. To overcome this
complication, his expression of loyalty must take the form of
a sign which, at least on its textual. surface, indicates a level
of disinterested conviction. It must allow the greengrocer to
say, "What's wrong with the workers of the world uniting?"
Thus the sign helps the greengrocer to conceal from himself
the low foundations of his obedience, at the same time con-
cealing the low foundations of power. It hides them behind
the facade of something high. And that something is ideology.
Ideology is a specious way of relating to the world. It offers
human beings the illusion of an identity, of dignity, and of
morality while making it easier for them to part with them.
As the repository of something suprapersonal and objective,
it enables people to deceive their conscience and conceal their
true position and their inglorious modus vivendi, both from
the world and from themselves. It is a very pragmatic but, at
the same time, an apparently dignified way of legitimizing
what is above, below, and on either side. It is directed toward
people and toward God. It is a veil behind which human be-
ings can hide their own fallen existence, their trivialization,
133
OPEN LETTERS
and their adaptation to the status quo. It is an excuse that
freedom, the pos
everyone can use, from the greengrocer, who conceals his fear
uniformity, and (
of losing his job behind an alleged interest in the unification
new and improba
of the workers of the world, to the highest functionary, whose
contrives to force
interest in staying in power can be cloaked in phrases about
of the system rev
service to the working class. The primary excusatory function
troversion, a mov
of ideology, therefore, is to provide people, both as victims
and unreservedly
and pillars of the post-totalitarian system, with the illusion
influence is conti
that the system is in harmony with the human order and the
people only to th
order of the universe.
serve it. Anything
The smaller a dictatorship and the less stratified by mod-
leads people to
ernization the society under it, the more directly the will of
garded by the sy
the dictator can be exercised. In other words, the dictator can
respect it is corre
employ more or less naked discipline, avoiding the complex
genuine denial 0
processes of relating to the world and of self-justification
the inner aim of
which ideology involves. But the more complex the mecha-
ervation of powe
nisms of power become, the larger and more stratified the
to be the case at
society they embrace, and the longer they have operated his-
of self-preservati
torically, the more individuals must be connected to them
kind of blind auf
from outside, and the greater the importance attached to the
what position inc
ideological excuse. It acts as a kind of bridge between the
are not consider
regime and the people, across which the regime approaches
themselves, but (
the people and the people approach the regime. This ex-
automatism. For
plains why ideology plays such an important role in the
is admissible onl
post-totalitarian system: that complex machinery of units, hi-
direction of the
erarchies, transmission belts, and indirect instruments of ma-
Ideology, in C1
nipulation which ensure in countless ways the integrity of the
tem and the ind
regime, leaving nothing to chance, would be quite simply un-
the system and 1
thinkable without ideology acting as its all-embracing excuse
ments of the sys
and as the excuse for each of its parts.
is a world of ap]
The post-total
IV
but it does so W
in the system is
BETWEEN the aims of the post-totalitarian system and the aims
lies: governmen
of life there is a yawning abyss: while life, in its essence, moves
ment; the worki
toward plurality, diversity, independent self-constitution, and
ing class; the (
self-organization, in short, toward the fulfillment of its own
presented as his
134
The Power of the Powerless
ie that
freedom, the post-totalitarian system demands conformity,
is fear
uniformity, and discipline. While life ever strives to create
cation
new and improbable structures, the post-totalitarian system
whose
contrives to force life into its most probable states. The aims
about
of the system reveal its most essential characteristic to be in-
nction
troversion, a movement toward being ever more completely
ictims
and unreservedly itself, which means that the radius of its
lusion
influence is continually widening as well. This system serves
ad the
people only to the extent necessary to ensure that people will
serve it. Anything beyond this, that is to say, anything which
mod-
leads people to overstep their predetermined roles is re-
will of
garded by the system as an attack upon itself. And in this
or can
respect it is correct: every instance of such transgression is a
mplex
genuine denial of the system. It can be said, therefore, that
cation
the inner aim of the post-totalitarian system is not mere pres-
necha-
ervation of power in the hands of a ruling clique, as appears
ed the
to be the case at first sight. Rather, the social phenomenon
ed his-
of self-preservation is subordinated to something higher, to a
them
kind of blind automatism which drives the system. No matter
to the
what position individuals hold in the hierarchy of power, they
in the
are not considered by the system to be worth anything in
aches
themselves, but only as things intended to fuel and serve this
is ex-
automatism. For this reason, an individual's desire for power
n the
is admissible only in so far as its direction coincides with the
its, hi-
direction of the automatism of the system.
of ma-
Ideology, in creating a bridge of excuses between the sys-
of the
tem and the individual, spans the abyss between the aims of
ly un-
the system and the aims of life. It pretends that the require-
:xcuse
ments of the system derive from the requirements of life. It
is a world of appearances trying to pass for reality.
The post-totalitarian system touches people at every step,
but it does so with its ideological gloves on. This is why life
in the system is so thoroughly permeated with hypocrisy and
aims
lies: government by bureaucracy is called popular govern-
noves
ment; the working class is enslaved in the name of the work-
1, and
ing class; the complete degradation of the individual is
; own
presented as his ultimate liberation; depriving people of in-
135
OPEN LETTERS
The Pow
formation is called making it available; the use of power to
If ideology was originall
manipulate is called the public control of power, and the as-
the individual as an indivi
bitrary abuse of power is called observing the legal code; the
this bridge it becomes
repression of culture is called its development; the expansion
10 the system and the indivic
of imperial influence is presented as support for the op
That is, if ideology origina
pressed; the lack of free expression becomes the highest form
the constitution of power
of freedom; farcical elections become the highest form of de-
cuse, then from the mom
mocracy; banning independent thought becomes the most sci-
inwardly, I
entific of world views; military occupation becomes fraternal
assistance. Because the regime is captive to its own lies, it
a
that power: It begication that power: It begication z
must falsify everything. It falsifies the past. It falsifies the pres-
The whole power struct
ent, and it falsifies the future. It falsifies statistics. It pretends
its physical articulation) (
not to possess an omnipotent and unprincipled police appa-
not a certain metaphysica
ratus. It pretends to respect human rights. It pretends to per-
together, interconnecting
secute no one. It pretends to fear nothing. It pretends to
uniform method of accot
pretend nothing.
operation of all these com
Individuals need not believe all these mystifications, but
is, with certain regulation
they must behave as though they did, or they must at least
metaphysical order is fun
tolerate them in silence, or get along well with those who
out, the entire power stri
work with them. For this reason, however, they must live
tion system and makes F
within a lie. They need not accept the lie. It is enough for
transfer of information a
them to have accepted their life with it and in it. For by this
collection of traffic signa
very fact, individuals confirm the system, fulfill the system,
process shape and struct
make the system, are the system.
antees the inner coheren
ture. It is the glue holdin
V
the instrument of its disc
ture as a totalitarian stru
WE HAVE seen that the real meaning of the greengrocer's slo-
tegrate into individual at
gan has nothing to do with what the text of the slogan actually
another in their unregul
says. Even so, this real meaning is quite clear and generally
nations. The entire pyrar
comprehensible because the code is so familiar: the greengro-
of the element that binds
cer declares his loyalty (and he can do no other if his decla-
itself, as it were, in a kin
ration is to be accepted) in the only way the regime is capable
As the interpretation o
of hearing; that is, by accepting the prescribed ritual, by ac-
ology is always subordina
cepting appearances as reality, by accepting the given rules
structure. Therefore, it 1
of the game. In doing so, however, he has himself become a
itself from reality, to cr
player in the game, thus making it possible for the game to
come ritual. In societies
go on, for it to exist in the first place.
for power and therefore
136
The Power of the Powerless
If ideology was originally a bridge between the system and
the individual as an individual, then the moment he steps on
to this bridge it becomes at the same time a bridge between
the system and the individual as a component of the system.
That is, if ideology originally facilitated (by acting outwardly)
the constitution of power by serving as a psychological ex-
cuse, then from the moment that excuse is accepted, it con-
stitutes power inwardly, becoming an active component of
that power. It begins to function as the principal instrument
of ritual communication within the system of power.
The whole power structure (and we have already discussed
its physical articulation) could not exist at all if there were
not a certain metaphysical order binding all its components
together, interconnecting them and subordinating them to a
uniform method of accountability, supplying the combined
operation of all these components with rules of the game, that
is, with certain regulations, limitations, and legalities. This
metaphysical order is fundamental to, and standard through-
out, the entire power structure; it integrates its communica-
tion system and makes possible the internal exchange and
transfer of information and instructions. It is rather like a
collection of traffic signals and directional signs, giving the
process shape and structure. This metaphysical order guar-
antees the inner coherence of the totalitarian power struc-
ture. It is the glue holding it together, its binding principle,
the instrument of its discipline. Without this glue the struc-
ture as a totalitarian structure would vanish; it would disin-
tegrate into individual atoms chaotically colliding with one
another in their unregulated particular interests and incli-
nations. The entire pyramid of totalitarian power, deprived
of the element that binds it together, would collapse in upon
itself, as it were, in a kind of material implosion.
As the interpretation of reality by the power structure, ide-
ology is always subordinated ultimately to the interests of the
structure. Therefore, it has a natural tendency to disengage
itself from reality, to create a world of appearances, to be-
come ritual. In societies where there is public competition
for power and therefore public control of that power, there
137
The 1
OPEN LETTERS
also exists quite naturally public control of the way that power
affair (the pretenders h
legitimates itself ideologically. Consequently, in such condi-
sonable legitimacy, the
tions there are always certain correctives that effectively pre-
confrontations of nake
vent ideology from abandoning reality altogether. Under
tem power is passed o
totalitarianism, however, these correctives disappear, and thus
to clique, and from ger
there is nothing to prevent ideology from becoming more
more regular fashion.
and more removed from reality, gradually turning into what
"king-maker" takes par
it has already become in the post-totalitarian system: a world
rely on ritual, to fulfi
of appearances, a mere ritual, a formalized language deprived
were, to be borne alof
of semantic contact with reality and transformed into a sys-
in the post-totalitarian
tem of ritual signs that replace reality with pseudo-reality.
far more brutal than
Yet, as we have seen, ideology becomes at the same time an
not open, regulated by
increasingly important component of power, a pillar provid-
control, but hidden be
ing it with both excusatory legitimacy and an inner coher-
a single instance in wh
ence. As this aspect grows in importance, and as it gradually
munist Party has beer
loses touch with reality, it acquires a peculiar but very real
and security forces be
strength. It becomes reality itself, albeit a reality altogether
gle, however, can nev
self-contained, one that on certain levels (chiefly inside the
threaten the very esse
power structure) may have even greater weight than reality as
most it will shake up
such. Increasingly, the virtuosity of the ritual becomes more
quickly precisely beca
important than the reality hidden behind it. The significance
remains undisturbed.
of phenomena no longer derives from the phenomena them-
succession is only po
selves, but from their locus as concepts in the ideological con-
the framework of a cc
text. Reality does not shape theory, but rather the reverse.
denying that ritual.
Thus power gradually draws closer to ideology than it does
Because of this dic
to reality; it draws its strength from theory and becomes en-
becomes clearly anon
tirely dependent on it. This inevitably leads, of course, to a
in the ritual. They al
paradoxical result: rather than theory, or rather ideology,
and frequently it seei
serving power, power begins to serve ideology. It is as though
from obscurity into t
ideology had appropriated power from power, as though it
of the post-totalitaria
had become dictator itself. It then appears that theory itself,
hierarchy, individual
ritual itself, ideology itself, makes decisions that affect people,
faceless people, pup
and not the other way around.
rituals and routines
If ideology is the principal guarantee of the inner consis-
The automatic op
tency of power, it becomes at the same time an increasingly
manized and made a
important guarantee of its continuity. Whereas succession to
tal automatism of thi
power in classical dictatorship is always a rather complicated
the diktats of this au
138
The Power of the Powerless
affair (the pretenders having nothing to give their claims rea-
sonable legitimacy, thereby forcing them always to resort to
confrontations of naked power), in the post-totalitarian sys-
tem power is passed on from person to person, from clique
to clique, and from generation to generation in an essentially
more regular fashion. In the selection of pretenders, a new
"king-maker" takes part: it is ritual legitimation, the ability to
rely on ritual, to fulfill it and use it, to allow oneself, as it
were, to be borne aloft by it. Naturally, power struggles exist
in the post-totalitarian system as well, and most of them are
far more brutal than in an open society, for the struggle is
not open, regulated by democratic rules, and subject to public
control, but hidden behind the scenes. (It is difficult to recall
a single instance in which the First Secretary of a ruling Com-
munist Party has been replaced without the various military
and security forces being placed at least on alert.) This strug-
gle, however, can never (as it can in classical dictatorships)
threaten the very essence of the system and its continuity. At
most it will shake up the power structure, which will recover
quickly precisely because the binding substance-ideology-
remains undisturbed. No matter who is replaced by whom,
succession is only possible against the backdrop and within
the framework of a common ritual. It can never take place by
denying that ritual.
Because of this dictatorship of the ritual, however, power
becomes clearly anonymous. Individuals are almost dissolved
in the ritual. They allow themselves to be swept along by it
and frequently it seems as though ritual alone carries people
from obscurity into the light of power. Is it not characteristic
of the post-totalitarian system that, on all levels of the power
hierarchy, individuals are increasingly being pushed aside by
faceless people, puppets, those uniformed flunkeys of the
rituals and routines of power?
The automatic operation of a power structure thus dehu-
manized and made anonymous is a feature of the fundamen-
tal automatism of this system. It would seem that it is precisely
the diktats of this automatism which select people lacking in-
139
OPEN LETTERS
The Pow
dividual will for the power structure, that it is precisely the
thing that transcends the
diktat of the empty phrase which summons to power people
thing that dominates it
who use empty phrases as the best guarantee that the autom-
therefore, tends to assure
atism of the post-totalitarian system will continue.
the pillars of the system's
Western Sovietologists often exaggerate the role of individ-
ever, is built on a very uns
uals in the post-totalitarian system and overlook the fact that
It works only as long as P
the ruling figures, despite the immense power they possess
lie.
through the centralized structure of power, are often no more
than blind executors of the system's own internal laws-laws
they themselves never can, and never do, reflect upon. In any
case, experience has taught us again and again that this au-
WHY IN FACT did our gre
tomatism is far more powerful than the will of any individual;
display in the shop windo
and should someone possess a more independent will, he
sufficiently in various int
must conceal it behind a ritually anonymous mask in order
union meetings, after all,
to have an opportunity to enter the power hierarchy at all.
He had always taken part
And when the individual finally gains a place there and tries
in elections like a good ci
to make his will felt within it, that automatism, with its enor-
Charter." Why, on top of
mous inertia, will triumph sooner or later, and either the in-
his loyalty publicly? Afte
dividual will be ejected by the power structure like a foreign
window will certainly no
organism, or he will be compelled to resign his individuality
cer's opinion, the worke
gradually, once again blending with the automatism and be-
fact of the matter is, they
coming its servant, almost indistinguishable from those who
can be fairly assumed th
preceded him and those who will follow. (Let us recall, for
ask a woman who had st
instance, the development of Husák or Gomulka.) The neces-
saw in the window, she
sity of continually hiding behind and relating to ritual means
they had tomatoes toda
that even the more enlightened members of the power struc-
noticed the slogan at all,
ture are often obsessed with ideology. They are never able
It seems senseless to re
to plunge straight to the bottom of naked reality, and they
loyalty publicly. But it I
always confuse it, in the final analysis, with ideological pseudo-
nore his slogan, but they
reality. (In my opinion, one of the reasons the Dubček lead-
found in other shop win
ership lost control of the situation in 1968 was precisely
in apartment windows,
because, in extreme situations and in final questions, its
where, in fact. They for
members were never capable of extricating themselves com-
life. Of course, while the
pletely from the world of appearances.)
aware of that panoram
It can be said, therefore, that ideology, as that instrument
greengrocer's slogan bu
of internal communication which assures the power structure
backdrop to daily life?
of inner cohesion is, in the post-totalitarian system, some-
The greengrocer had 1
140
The Power of the Powerless
thing that transcends the physical aspects of power, some-
thing that dominates it to a considerable degree and,
therefore, tends to assure its continuity as well. It is one of
the pillars of the system's external stability. This pillar, how-
ever, is built on a very unstable foundation. It is built on lies.
It works only as long as people are willing to live within the
lie.
VI
WHY IN FACT did our greengrocer have to put his loyalty on
display in the shop window? Had he not already displayed it
sufficiently in various internal or semipublic ways? At trade
union meetings, after all, he had always voted as he should.
He had always taken part in various competitions. He voted
in elections like a good citizen. He had even signed the "anti-
Charter." Why, on top of all that, should he have to declare
his loyalty publicly? After all, the people who walk past his
window will certainly not stop to read that, in the greengro-
cer's opinion, the workers of the world ought to unite. The
fact of the matter is, they don't read the slogan at all, and it
can be fairly assumed they don't even see it. If you were to
ask a woman who had stopped in front of his shop what she
saw in the window, she could certainly tell whether or not
they had tomatoes today, but it is highly unlikely that she
noticed the slogan at all, let alone what it said.
It seems senseless to require the greengrocer to declare his
loyalty publicly. But it makes sense nevertheless. People ig-
nore his slogan, but they do so because such slogans are also
found in other shop windows, on lampposts, bulletin boards,
in apartment windows, and on buildings; they are every-
where, in fact. They form part of the panorama of everyday
life. Of course, while they ignore the details, people are very
aware of that panorama as a whole. And what else is the
greengrocer's slogan but a small component in that huge
backdrop to daily life?
The greengrocer had to put the slogan in his window, there-
141
OPEN LETTERS
The
fore, not in the hope that someone might read it or be per-
confirm thereby the I
suaded by it, but to contribute, along with thousands of other
first place. Quite simp
slogans, to the panorama that everyone is very much aware
Both are objects in a :
of. This panorama, of course, has a subliminal meaning as
they are its subjects as
well: it reminds people where they are living and what is ex-
tem and its instrumen
pected of them. It tells them what everyone else is doing, and
If an entire district
indicates to them what they must do as well, if they don't want
one reads, it is on the
to be excluded, to fall into isolation, alienate themselves from
secretary to the regio
society, break the rules of the game, and risk the loss of their
more: a small example
peace and tranquility and security.
at work. Part of the e:
The woman who ignored the greengrocer's slogan may well
that it draws everyone
have hung a similar slogan just an hour before in the corridor
may realize themselve:
of the office where she works. She did it more or less without
render their human i
thinking, just as our greengrocer did, and she could do so
system, that is, so the
precisely because she was doing it against the background of
general automatism a)
the general panorama and with some awareness of it, that is,
so they may participa
against the background of the panorama of which the green-
so they may be pullec
grocer's shop window forms a part. When the greengrocer
Mephistopheles. More
visits her office, he will not notice her slogan either, just as
their involvement a g
she failed to notice his. Nevertheless, their slogans are mutu-
to bear on their fell
ally dependent: both were displayed with some awareness of
learn to be comfortal
the general panorama and, we might say, under its diktat.
with it as though it 1
Both, however, assist in the creation of that panorama, and
and, ultimately, so the
therefore they assist in the creation of that diktat as well. The
to treat any non-invol
greengrocer and the office worker have both adapted to the
as an attack on then
conditions in which they live, but in doing so, they help to
society. By pulling eve
create those conditions. They do what is done, what is to be
totalitarian system ma
done, what must be done, but at the same time-by that very
totality, the auto-total
token-they confirm that it must be done in fact. They con-
Everyone, however,
form to a particular requirement and in so doing they them-
only the greengrocers
selves perpetuate that requirement. Metaphysically speaking,
positions in the hiera
without the greengrocer's slogan the office worker's slogan
of involvement: the g
could not exist, and vice versa. Each proposes to the other
extent, but he also ha
that something be repeated and each accepts the other's pro-
naturally, has greater
posal. Their mutual indifference to each other's slogans is
deeply involved. Both
only an illusion: in reality, by exhibiting their slogans, each
somewhat different W
compels the other to accept the rules of the game and to
ment, therefore, is nc
142
The Power of the Powerless
confirm thereby the power that requires the slogans in the
first place. Quite simply, each helps the other to be obedient.
Both are objects in a system of control, but at the same time
they are its subjects as well. They are both victims of the sys-
tem and its instruments.
If an entire district town is plastered with slogans that no
one reads, it is on the one hand a message from the district
secretary to the regional secretary, but it is also something
more: a small example of the principle of social auto-totality
at work. Part of the essence of the post-totalitarian system is
that it draws everyone into its sphere of power, not so they
may realize themselves as human beings, but so they may sur-
render their human identity in favor of the identity of the
system, that is, so they may become agents of the system's
general automatism and servants of its self-determined goals,
so they may participate in the common responsibility for it,
so they may be pulled into and ensnared by it, like Faust by
Mephistopheles. More than this: so they may create through
their involvement a general norm and, thus, bring pressure
to bear on their fellow citizens. And further: so they may
learn to be comfortable with their involvement, to identify
with it as though it were something natural and inevitable
and, ultimately, so they may-with no external urging-come
to treat any non-involvement as an abnormality, as arrogance,
as an attack on themselves, as a form of dropping out of
society. By pulling everyone into its power structure, the post-
totalitarian system makes everyone an instrument of a mutual
totality, the auto-totality of society.
Everyone, however, is in fact involved and enslaved, not
only the greengrocers but also the prime ministers. Differing
positions in the hierarchy merely establish differing degrees
of involvement: the greengrocer is involved only to a minor
extent, but he also has very little power. The prime minister,
naturally, has greater power, but in return he is far more
deeply involved. Both, however, are unfree, each merely in a
somewhat different way. The real accomplice in this involve-
ment, therefore, is not another person, but the system itself.
143
The P
OPEN LETTERS
Position in the power hierarchy determines the degree of re-
manity supports this sy
sponsibility and guilt, but it gives no one unlimited respon-
plan, as a degenerate
sibility and guilt, nor does it completely absolve anyone. Thus
record of people's own
the conflict between the aims of life and the aims of the sys-
The essential aims of
tem is not a conflict between two socially defined and sepa-
son. In everyone there i
rate communities; and only a very generalized view (and even
dignity, for moral integ
that only approximative) permits us to divide society into the
a sense of transcenden
rulers and the ruled. Here, by the way, is one of the most
the same time, each pe
important differences between the post-totalitarian system
degree, of coming to 1
and classical dictatorships, in which this line of conflict can
person somehow SUCCU
still be drawn according to social class. In the post-totalitarian
inherent humanity, an
system, this line runs de facto through each person, for every-
is some willingness to 1
one in his own way is both a victim and a supporter of the
to flow comfortably al
system. What we understand by the system is not, therefore,
life. This is much moi
a social order imposed by one group upon another, but rather
identities. It is someth
something which permeates the entire society and is a factor
very notion of identity
in shaping it, something which may seem impossible to grasp
In highly simplified
or define (for it is in the nature of a mere principle), but
totalitarian system has
which is expressed by the entire society as an important fea-
historical encounter b
ture of its life.
society. Is it not true
The fact that human beings have created, and daily create,
living a lie and the e
this self-directed system through which they divest themselves
have some connectio
of their innermost identity is not therefore the result of some
consumption-oriented
incomprehensible misunderstanding of history, nor is it his-
tainties for the sake C
tory somehow gone off its rails. Neither is it the product of
rity? With their willin
some diabolical higher will which has decided, for reasons
faced with the trivializ
unknown, to torment a portion of humanity in this way. It
With their vulnerabil
can happen and did happen only because there is obviously
ence? And in the end
in modern humanity a certain tendency toward the creation,
of life in the post-tota
or at least the toleration, of such a system. There is obviously
ture of modern life in
something in human beings which responds to this system,
(although in the exter
something they reflect and accommodate, something within
behind) as a kind of W
them which paralyzes every effort of their better selves to re-
latent tendencies?
volt. Human beings are compelled to live within a lie, but
they can be compelled to do so only because they are in fact
capable of living in this way. Therefore not only does the
system alienate humanity, but at the same time alienated hu-
144
The Power of the Powerless
manity supports this system as its own involuntary master-
plan, as a degenerate image of its own degeneration, as a
record of people's own failure as individuals.
The essential aims of life are present naturally in every per-
son. In everyone there is some longing for humanity's rightful
dignity, for moral integrity, for free expression of being and
a sense of transcendence over the world of existence. Yet, at
the same time, each person is capable, to a greater or lesser
degree, of coming to terms with living within the lie. Each
person somehow succumbs to a profane trivialization of his
inherent humanity, and to utilitarianism. In everyone there
is some willingness to merge with the anonymous crowd and
to flow comfortably along with it down the river of pseudo-
life. This is much more than a simple conflict between two
identities. It is something far worse: it is a challenge to the
very notion of identity itself.
In highly simplified terms, it could be said that the post-
totalitarian system has been built on foundations laid by the
historical encounter between dictatorship and the consumer
society. Is it not true that the far-reaching adaptability to
living a lie and the effortless spread of social auto-totality
have some connection with the general unwillingness of
consumption-oriented people to sacrifice some material cer-
tainties for the sake of their own spiritual and moral integ-
rity? With their willingness to surrender higher values when
faced with the trivializing temptations of modern civilization?
With their vulnerability to the attractions of mass indiffer-
ence? And in the end, is not the grayness and the emptiness
of life in the post-totalitarian system only an inflated carica-
ture of modern life in general? And do we not in fact stand
(although in the external measures of civilization, we are far
behind) as a kind of warning to the West, revealing to its own
latent tendencies?
145
OPEN LETTERS
The
VII
tism and self-defense
mitted a simple, in
LET US now imagine that one day something in our greengro-
uniqueness, but some
cer snaps and he stops putting up the slogans merely to in-
breaking the rules of
gratiate himself. He stops voting in elections he knows are a
such. He has exposed
farce. He begins to say what he really thinks at political meet-
world of appearances
ings. And he even finds the strength in himself to express
He has upset the pow
solidarity with those whom his conscience commands him to
it together. He has do
support. In this revolt the greengrocer steps out of living
lie. He has broken th
within the lie. He rejects the ritual and breaks the rules of the
and exposed the real,
game. He discovers once more his suppressed identity and
that the emperor is 1
dignity. He gives his freedom a concrete significance. His re-
fact naked, something
volt is an attempt to live within the truth.
his action, the greeng
The bill is not long in coming. He will be relieved of his
enabled everyone to ]
post as manager of the shop and transferred to the ware-
everyone that it is p
house. His pay will be reduced. His hopes for a holiday in
within the lie can con
Bulgaria will evaporate. His children's access to higher edu-
The principle must er
cation will be threatened. His superiors will harass him and
are no terms whatsoe
his fellow workers will wonder about him. Most of those who
within the truth, and t
apply these sanctions, however, will not do so from any au-
denies it in principle
thentic inner conviction but simply under pressure from con-
This is understanda
ditions, the same conditions that once pressured the
fronted with reality, i
greengrocer to display the official slogans. They will perse-
long as living a lie is n
cute the greengrocer either because it is expected of them, or
perspective needed to
to demonstrate their loyalty, or simply as part of the general
as the alternative app
panorama, to which belongs an awareness that this is how
istence of appearance
situations of this sort are dealt with, that this, in fact, is how
are, both their essence
things are always done, particularly if one is not to become
same time, it is utterl
suspect oneself. The executors, therefore, behave essentially
alternative occupies: it
like everyone else, to a greater or lesser degree: as compo-
attributes but in the lig
nents of the post-totalitarian system, as agents of its automa-
and on its unstable f
tism, as petty instruments of the social auto-totality.
was a threat to the S
Thus the power structure, through the agency of those who
actual power he had,
carry out the sanctions, those anonymous components of the
self, because it illumi
system, will spew the greengrocer from its mouth. The system,
because of the incalc
through its alienating presence in people, will punish him for
tion. In the post-totali
his rebellion. It must do so because the logic of its automa-
the truth has more tha
146
The Power of the Powerless
tism and self-defense dictate it. The greengrocer has not com-
mitted a simple, individual offense, isolated in its own
uniqueness, but something incomparably more serious. By
breaking the rules of the game, he has disrupted the game as
such. He has exposed it as a mere game. He has shattered the
world of appearances, the fundamental pillar of the system.
He has upset the power structure by tearing apart what holds
it together. He has demonstrated that living a lie is living a
lie. He has broken through the exalted facade of the system
and exposed the real, base foundations of power. He has said
that the emperor is naked. And because the emperor is in
fact naked, something extremely dangerous has happened: by
his action, the greengrocer has addressed the world. He has
enabled everyone to peer behind the curtain. He has shown
everyone that it is possible to live within the truth. Living
within the lie can constitute the system only if it is universal.
The principle must embrace and permeate everything. There
are no terms whatsoever on which it can co-exist with living
within the truth, and therefore everyone who steps out of line
denies it in principle and threatens it in its entirety.
This is understandable: as long as appearance is not con-
fronted with reality, it does not seem to be appearance. As
long as living a lie is not confronted with living the truth, the
perspective needed to expose its mendacity is lacking. As soon
as the alternative appears, however, it threatens the very ex-
istence of appearance and living a lie in terms of what they
are, both their essence and their all-inclusiveness. And at the
same time, it is utterly unimportant how large a space this
alternative occupies: its power does not consist in its physical
attributes but in the light it casts on those pillars of the system
and on its unstable foundations. After all, the greengrocer
was a threat to the system not because of any physical or
actual power he had, but because his action went beyond it-
self, because it illuminated its surroundings and, of course,
because of the incalculable consequences of that illumina-
tion. In the post-totalitarian system, therefore, living within
the truth has more than a mere existential dimension (return-
147
OPEN LETTERS
The P
ing humanity to its inherent nature), or a noetic dimension
gerous. The complex fe
(revealing reality as it is), or a moral dimension (setting an
on in semidarkness, an
example for others). It also has an unambiguous political di-
the light of day as an as
mension. If the main pillar of the system is living a lie, then
system, it is usually too
it is not surprising that the fundamental threat to it is living
fashion. Thus they crea
the truth. This is why it must be suppressed more severely
confounded, invariably
than anything else.
in inappropriate ways.
In the post-totalitarian system, truth in the widest sense of
It seems that the prim
the word has a very special import, one unknown in other
in the widest possible se
contexts. In this system, truth plays a far greater (and, above
opposition in the post-t
all, a far different) role as a factor of power, or as an outright
truth. The confrontation
political force. How does the power of truth operate? How
the powers that be, of (
does truth as a factor of power work? How can its power-as
sentially different from
power-be realized?
classical dictatorship. I
take place on the level
VIII
power which relies on t
on a different level alto
INDIVIDUALS can be alienated from themselves only because
ness and conscience, the
there is something in them to alienate. The terrain of this
of this special power Ca
violation is their authentic existence. Living the truth is thus
ples, voters, or soldiers,
woven directly into the texture of living a lie., It is the re-
column of social consci
pressed alternative, the authentic aim to which living a lie is
human beings' represse
an inauthentic response. Only against this background does
tal rights, for the realiza
living a lie make any sense: it exists because of that back-
interests. Its power, the
ground. In its excusatory, chimerical rootedness in the hu-
of definable political
man order, it is a response to nothing other than the human
strength of a potential, 1
predisposition to truth. Under the orderly surface of the life
of society, including th
of lies, therefore, there slumbers the hidden sphere of life in
ciety. Therefore this pc
its real aims, of its hidden openness to truth.
own, but on the soldier
The singular, explosive, incalculable political power of liv-
say, on everyone who is
ing within the truth resides in the fact that living openly
struck at any moment (i
within the truth has an ally, invisible to be sure, but omni-
(or who, out of an instir
present: this hidden sphere. It is from this sphere that life
may at least adapt to tha
lived openly in the truth grows; it is to this sphere that it
so to speak, utilized wh
speaks, and in it that it finds understanding. This is where
vilian to disarm an enti
the potential for communication exists. But this place is hid-
ticipate in any direct st
den and therefore, from the perspective of power, very dan-
influence felt in the obs
148
The Power of the Powerless
gerous. The complex ferment that takes place within it goes
on in semidarkness, and by the time it finally surfaces into
the light of day as an assortment of shocking surprises to the
system, it is usually too late to cover them up in the usual
fashion. Thus they create a situation in which the regime is
confounded, invariably causing panic and driving it to react
in inappropriate ways.
It seems that the primary breeding ground for what might,
in the widest possible sense of the word, be understood as an
opposition in the post-totalitarian system is living within the
truth. The confrontation between these opposition forces and
the powers that be, of course, will obviously take a form es-
sentially different from that typical of an open society or a
classical dictatorship. Initially, this confrontation does not
take place on the level of real, institutionalized, quantifiable
power which relies on the various instruments of power, but
on a different level altogether: the level of human conscious-
ness and conscience, the existential level. The effective range
of this special power cannot be measured in terms of disci-
ples, voters, or soldiers, because it lies spread out in the fifth
column of social consciousness, in the hidden aims of life, in
human beings' repressed longing for dignity and fundamen-
tal rights, for the realization of their real social and political
interests. Its power, therefore, does not reside in the strength
of definable political or social groups, but chiefly in the
strength of a potential, which is hidden throughout the whole
of society, including the official power structures of that so-
ciety. Therefore this power does not rely on soldiers of its
own, but on the soldiers of the enemy as it were-that is to
say, on everyone who is living within the lie and who may be
struck at any moment (in theory, at least) by the force of truth
(or who, out of an instinctive desire to protect their position,
may at least adapt to that force). It is a bacteriological weapon,
so to speak, utilized when conditions are ripe by a single ci-
vilian to disarm an entire division. This power does not par-
ticipate in any direct struggle for power; rather, it makes its
influence felt in the obscure arena of being itself. The hidden
149
OPEN LETTERS
The P
movements it gives rise to there, however, can issue forth
workers' strike, from a
(when, where, under what circumstances, and to what extent
tion, from refusing to V
are difficult to predict) in something visible: a real political
an open speech at som
act or event, a social movement, a sudden explosion of civil
strike, for instance. If t]
unrest, a sharp conflict inside an apparently monolithic power
complex process, and i
structure, or simply an irrepressible transformation in the
nipulation of all expres
social and intellectual climate. And since all genuine prob-
every free expression
lems and matters of critical importance are hidden beneath
totalitarian system poli
a thick crust of lies, it is never quite clear when the proverbial
to which, in other socia
last straw will fall, or what that straw will be. This, too, is why
potential political sig
the regime prosecutes, almost as a reflex action preventively,
power.
even the most modest attempts to live within the truth.
The Prague Spring is
Why was Solzhenitsyn driven out of his own country? Cer-
two groups on the lev
tainly not because he represented a unit of real power, that
maintain the system as
is, not because any of the regime's representatives felt he
it. It is frequently forg
might unseat them and take their place in government. Sol-
merely the final act an
zhenitsyn's expulsion was something else: a desperate attempt
drama originally playe
to plug up the dreadful wellspring of truth, a truth which
and the conscience 0
might cause incalculable transformations in social conscious-
beginning of this dra
ness, which in turn might one day produce political debacles
willing to live within t
unpredictable in their consequences. And so the post-
worst. These people h
totalitarian system behaved in a characteristic way: it de-
aspire to it. The sphe
fended the integrity of the world of appearances in order to
was not necessarily ev
defend itself. For the crust presented by the life of lies is
equally have been po
made of strange stuff. As long as it seals off hermetically the
nary citizens who wer
entire society, it appears to be made of stone. But the moment
Today it is naturally
someone breaks through in one place, when one person cries
which hidden, windi
out, "The emperor is naked!"-when a single person breaks
influenced a given IT
the rules of the game, thus exposing it as a game-everything
it slowly spread throu
suddenly appears in another light and the whole crust seems
causing it to disin
then to be made of a tissue on the point of tearing and dis-
clear: the attempt at
integrating uncontrollably.
society's reawakening
When I speak of living within the truth, I naturally do not
reawakening.
have in mind only products of conceptual thought, such as a
I think the presen
protest or a letter written by a group of intellectuals. It can
light of this experie
be any means by which a person or a group revolts against
sand Chartists and tl
manipulation: anything from a letter by intellectuals to a
to be politically hop
150
The Power of the Powerless
workers' strike, from a rock concert to a student demonstra-
nt
tion, from refusing to vote in the farcical elections to making
al
an open speech at some official congress, or even a hunger
strike, for instance. If the suppression of the aims of life is a
complex process, and if it is based on the multifaceted ma-
he
nipulation of all expressions of life, then, by the same token,
b-
every free expression of life indirectly threatens the post-
totalitarian system politically, including forms of expression
al
to which, in other social systems, no one would attribute any
ny
potential political significance, not to mention explosive
power.
The Prague Spring is usually understood as a clash between
two groups on the level of real power: those who wanted to
it
maintain the system as it was and those who wanted to reform
it. It is frequently forgotten, however, that this encounter was
merely the final act and the inevitable consequence of a long
drama originally played out chiefly in the theatre of the spirit
h
and the conscience of society. And that somewhere at the
beginning of this drama, there were individuals who were
S
willing to live within the truth, even when things were at their
worst. These people had no access to real power, nor did they
aspire to it. The sphere in which they were living the truth
was not necessarily even that of political thought. They could
S
equally have been poets, painters, musicians, or simply ordi-
nary citizens who were able to maintain their human dignity.
Today it is naturally difficult to pinpoint when and through
which hidden, winding channel a certain action or attitude
influenced a given milieu, and to trace the virus of truth as
it slowly spread through the tissue of the life of lies, gradually
causing it to disintegrate. One thing, however, seems
clear: the attempt at political reform was not the cause of
society's reawakening, but rather the final outcome of that
reawakening.
I think the present also can be better understood in the
light of this experience. The confrontation between a thou-
sand Chartists and the post-totalitarian system would appear
to be politically hopeless. This is true, of course, if we look at
151
The
OPEN LETTERS
it through the traditional lens of the open political system, in
real pressure to bear
which, quite naturally, every political force is measured chiefly
fact to have a certain
in terms of the positions it holds on the level of real power.
they always carry wit
Given that perspective, a mini-party like the Charter would
origins. Therefore it S
certainly not stand a chance. If, however, this confrontation
dissident movements
is seen against the background of what we know about power
constantly bearing in
in the post-totalitarian system, it appears in a fundamentally
which they emerge.
different light. For the time being, it is impossible to say with
any precision what impact the appearance of Charter 77, its
existence, and its work has had in the hidden sphere, and
how the Charter's attempt to rekindle civic self-awareness and
THE PROFOUND crisis o
confidence is regarded there. Whether, when, and how this
within a lie, a crisis wl
investment will eventually produce dividends in the form of
certainly possesses a
specific political changes is even less possible to predict. But
among other things, a
that, of course, is all part of living within the truth. As an
son who has been se
existential solution, it takes individuals back to the solid
whose identity is diss
ground of their own identity; as politics, it throws them into
ments of mass civilizat
a game of chance where the stakes are all or nothing. For this
of being, no sense of 1
reason it is undertaken only by those for whom the former is
his own personal surv
worth risking the latter, or who have come to the conclusion
tem depends on this (
that there is no other way to conduct real politics in Czecho-
projection of it into SC
slovakia today. Which, by the way, is the same thing: this con-
Living within the tn
clusion can be reached only by someone who is unwilling to
forced position, is, on
sacrifice his own human identity to politics, or rather, who
trol over one's own sei
does not believe in a politics that requires such a sacrifice.
is clearly a moral act, n
The more thoroughly the post-totalitarian system frustrates
for it, but principally
any rival alternative on the level of real power, as well as any
may bring rewards in
form of politics independent of the laws of its own automa-
the situation, or it ma
tism, the more definitively the center of gravity of any poten-
ously, it is an all-or-not
tial political threat shifts to the area of the existential and the
ine a reasonable perso
pre-political: usually without any conscious effort, living
because he reckons tha
within the truth becomes the one natural point of departure
morrow, be it only in
for all activities that work against the automatism of the sys-
way, the representative
tem. And even if such activities ultimately grow beyond the
with those who live with
area of living within the truth (which means they are trans-
utilitarian motivations
formed into various parallel structures, movements, institu-
wealth-and thus they
tions, they begin to be regarded as political activity, they bring
own world, the world
152
The Power of the Powerless
real pressure to bear on the official structures and begin in
fact to have a certain influence on the level of real power),
they always carry with them the specific hallmark of their
origins. Therefore it seems to me that not even the so-called
dissident movements can be properly understood without
constantly bearing in mind this special background from
which they emerge.
IX
THE PROFOUND crisis of human identity brought on by living
within a lie, a crisis which in turn makes such a life possible,
certainly possesses a moral dimension as well; it appears,
among other things, as a deep moral crisis in society. A per-
son who has been seduced by the consumer value system,
whose identity is dissolved in an amalgam of the accouter-
ments of mass civilization, and who has no roots in the order
of being, no sense of responsibility for anything higher than
his own personal survival, is a demoralized person. The sys-
tem depends on this demoralization, deepens it, is in fact a
projection of it into society.
Living within the truth, as humanity's revolt against an en-
forced position, is, on the contrary, an attempt to regain con-
trol over one's own sense of responsibility. In other words, it
is clearly a moral act, not only because one must pay so dearly
for it, but principally because it is not self-serving: the risk
may bring rewards in the form of a general amelioration in
the situation, or it may not. In this regard, as I stated previ-
ously, it is an all-or-nothing gamble, and it is difficult to imag-
ine a reasonable person embarking on such a course merely
because he reckons that sacrifice today will bring rewards to-
morrow, be it only in the form of general gratitude. (By the
way, the representatives of power invariably come to terms
with those who live within the truth by persistently ascribing
utilitarian motivations to them-a lust for power or fame or
wealth-and thusthey try, at least, to implicate them in their
own world, the world of general demoralization.)
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OPEN LETTERS
T
If living within the truth in the post-totalitarian system be-
activity. They were
comes the chief breeding ground for independent, alternative
position with politic
political ideas, then all considerations about the nature and
ticians expelled fro
future prospects of these ideas must necessarily reflect this
given every opportu
moral dimension as a political phenomenon. (And if the rev-
the principles of li
olutionary Marxist belief about morality as a product of the
undisturbed by the
"superstructure" inhibits any of our friends from realizing
ent course. Despite
the full significance of this dimension and, in one way or
their case had a very
another, from including it in their view of the world, it is to
yet given up hope. M
their own detriment: an anxious fidelity to the postulates of
mood had begun to
that world view prevents them from properly understanding
athy and of skeptic
the mechanisms of their own political influence, thus para-
People were "tired (
doxically making them precisely what they, as Marxists, so
stagnation, the inact
often suspect others of being-victims of "false conscious-
things might improv
ness.") The very special political significance of morality in
final straw. Many gr
the post-totalitarian system is a phenomenon that is at the
then had remained
very least unusual in modern political history, a phenomenon
operate, or which
that might well have-as I shall soon attempt to show-
made cooperation
far-reaching consequences.
powerful realization
derstood that an at
X
was an attack on a
something that in f
UNDENIABLY, the most important political event in Czecho-
attack on the very I
slovakia after the advent of the Husák leadership in 1969 was
real aims of life. Th
the appearance of Charter 77. The spiritual and intellectual
stood as a human fi
climate surrounding its appearance, however, was not the
as the freedom to e
product of any immediate political event. That climate was
flection, the freedo
created by the trial of some young musicians associated with
defend the various
a rock group called "The Plastic People of the Universe."
People were inspired
Their trial was not a confrontation of two differing political
the young musicians
forces or conceptions, but two differing conceptions of life.
ing up for the freed
On the one hand, there was the sterile puritanism of the post-
their means of creat
totalitarian establishment and, on the other hand, unknown
rendering one's own
young people who wanted no more than to be able to live
equality before the
within the truth, to play the music they enjoyed, to sing songs
law without freedom
that were relevant to their lives, and to live freely in dignity
a new and characteri
and partnership. These people had no past history of political
portant implications
154
The Power of the Powerless
activity. They were not highly motivated members of the op-
position with political ambitions, nor were they former poli-
ticians expelled from the power structures. They had been
given every opportunity to adapt to the status quo, to accept
the principles of living within a lie and thus to enjoy life
undisturbed by the authorities. Yet they decided on a differ-
ent course. Despite this, or perhaps precisely because of it,
their case had a very special impact on everyone who had not
yet given up hope. Moreover, when the trial took place, a new
mood had begun to surface after the years of waiting, of ap-
athy and of skepticism toward various forms of resistance.
People were "tired of being tired"; they were fed up with the
stagnation, the inactivity, barely hanging on in the hope that
things might improve after all. In some ways the trial was the
final straw. Many groups of differing tendencies which until
then had remained isolated from each other, reluctant to co-
operate, or which were committed to forms of action that
made cooperation difficult, were suddenly struck with the
powerful realization that freedom is indivisible. Everyone un-
derstood that an attack on the Czech musical underground
was an attack on a most elementary and important thing,
something that in fact bound everyone together: it was an
attack on the very notion of living within the truth, on the
real aims of life. The freedom to play rock music was under-
stood as a human freedom and thus as essentially the same
as the freedom to engage in philosophical and political re-
flection, the freedom to write, the freedom to express and
defend the various social and political interests of society.
People were inspired to feel a genuine sense of solidarity with
the young musicians and they came to realize that not stand-
ing up for the freedom of others, regardless of how remote
their means of creativity or their attitude to life, meant sur-
rendering one's own freedom. (There is no freedom without
equality before the law, and there is no equality before the
law without freedom; Charter 77 has given this ancient notion
a new and characteristic dimension, which has immensely im-
portant implications for modern Czech history. What Sláde-
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OPEN LETTERS
The Power
ček, the author of the book Sixty-eight, in a brilliant analysis,
totalitarian system is found
calls the "principle of exclusion," lies at the root of all our
dent, every free human act
present-day moral and political misery. This principle was
live within the truth, must
born at the end of the Second World War in that strange
the system and, thus, as SOI
collusion of democrats and communists and was subsequently
cellence. Any eventual politi
developed further and further, right to the bitter end. For
that grow out of this "pre-I
the first time in decades this principle has been overcome, by
It develops and matures as
Charter 77: all those united in the Charter have, for the first
tation with the system, an
time, become equal partners. Charter 77 is not merely a co-
political program, project,
alition of communists and noncommunists-that would be
Once again, the events of
nothing historically new and, from the moral and political
politicians who were trying
point of view, nothing revolutionary-but it is a community
ward with their program I
that is a priori open to anyone, and no one in it is a priori
perienced a mystical enlig
assigned an inferior position.) This was the climate, then, in
led to do so by continued a
which Charter 77 was created. Who could have foreseen that
of life that had nothing to
the prosecution of one or two obscure rock groups would
sense of the word. In fact,
have such far-reaching consequences?
to solve the social conflicts
I think that the origins of Charter 77 illustrate very well
between the aims of the
what I have already suggested above: that in the post-
almost every level of societ
totalitarian system, the real background to the movements
had been thinking about
that gradually assume political significance does not usually
Backed by this living reso
consist of overtly political events or confrontations between
and artists had defined th
different forces or concepts that are openly political. These
and students were deman
movements for the most part originate elsewhere, in the far
The genesis of Charter
broader area of the "pre-political," where living within a lie
cal significance of the mo
confronts living within the truth, that is, where the demands
tioned. Charter 77 would
of the post-totalitarian system conflict with the real aims of
that powerful sense of
life. These real aims can naturally assume a great many forms.
groups, and without the S
Sometimes they appear as the basic material or social inter-
sible to go on waiting an
ests of a group or an individual; at other times, they may
be spoken loudly and C(
appear as certain intellectual and spiritual interests; at still
certainty of sanctions ano
other times, they may be the most fundamental of existential
sults in the immediate fu
demands, such as the simple longing of people to live their
suffering for," Jan Patoč
own lives in dignity. Such a conflict acquires a political char-
think that Chartists unde
acter, then, not because of the elementary political nature of
acy, but also as the best e
the aims demanding to be heard but simply because, given
do.
the complex system of manipulation on which the post-
Seen from the outside
156
The Power of the Powerless
totalitarian system is founded and on which it is also depen-
dent, every free human act or expression, every attempt to
live within the truth, must necessarily appear as a threat to
the system and, thus, as something which is political par ex-
cellence. Any eventual political articulation of the movements
that grow out of this "pre-political" hinterland is secondary.
It develops and matures as a result of a subsequent confron-
tation with the system, and not because it started off as a
political program, project, or impulse.
Once again, the events of 1968 confirm this. The communist
politicians who were trying to reform the system came for-
ward with their program not because they had suddenly ex-
perienced a mystical enlightenment, but because they were
led to do so by continued and increasing pressure from areas
of life that had nothing to do with politics in the traditional
sense of the word. In fact, they were trying in political ways
to solve the social conflicts (which in fact were confrontations
between the aims of the system and the aims of life) that
almost every level of society had been experiencing daily, and
had been thinking about with increasing openness for years.
Backed by this living resonance throughout society, scholars
and artists had defined the problem in a wide variety of ways
and students were demanding solutions.
The genesis of Charter 77 also illustrates the special politi-
cal significance of the moral aspect of things that I have men-
tioned. Charter 77 would have been unimaginable without
that powerful sense of solidarity among widely differing
groups, and without the sudden realization that it was impos-
sible to go on waiting any longer, and that the truth had to
be spoken loudly and collectively, regardless of the virtual
certainty of sanctions and the uncertainty of any tangible re-
sults in the immediate future. "There are some things worth
suffering for," Jan Patočka wrote shortly before his death. I
think that Chartists understand this not only as Patočka's leg-
acy, but also as the best explanation of why they do what they
do.
Seen from the outside, and chiefly from the vantage point
157
OPEN LETTERS
The Pow
of the system and its power structure, Charter 77 came as a
political" confrontation
surprise, as a bolt out of the blue. It was not a bolt out of the
enough, thus increasing i
blue, of course, but that impression is understandable, since
this is frequently due to
the ferment that led to it took place in the "hidden sphere,"
army who, because they
in that semidarkness where things are difficult to chart or
political thought in the f:
analyze. The chances of predicting the appearance of the
the right moment enrich
Charter were just as slight as the chances are now of predict-
their own political thinki
ing where it will lead. Once again, it was that shock, so typical
dence for this process in (
of moments when something from the hidden sphere sud-
were political prisoners.
denly bursts through the moribund surface of living within a
ently been made to suffe
lie. The more one is trapped in the world of appearances, the
efforts to work politically
more surprising it is when something like that happens.
moralized society, belong
active Chartists. In Chart
XI
lier sacrifices is valued,
ment with their experie
IN SOCIETIES under the post-totalitarian system, all political
thinking.
life in the traditional sense has been eliminated. People have
And yet it seems to n
no opportunity to express themselves politically in public, let
those friends who have 1
alone to organize politically. The gap that results is filled by
and who are always read
ideological ritual. In such a situation, people's interest in po-
bility very often suffer fr
litical matters naturally dwindles and independent political
understanding of the 1
thought, insofar as it exists at all, is seen by the majority as
totalitarian system as a Si
unrealistic, farfetched, a kind of self-indulgent game, hope-
little understanding of 1
lessly distant from their everyday concerns; something admi-
typical for this system 2
rable, perhaps, but quite pointless, because it is on the one
importance of direct po
hand entirely utopian and on the other hand extraordinarily
Moreover, they fail to ap
dangerous, in view of the unusual vigor with which any move
those "pre-political" eve
in that direction is persecuted by the regime.
living humus from whi
Yet even in such societies, individuals and groups of people
springs. As political acto
exist who do not abandon politics as a vocation and who, in
cal ambitions-they fre
one way or another, strive to think independently, to express
political life left off. Th
themselves and in some cases even to organize politically, be-
may have been appropr
cause that is a part of their attempt to live within the truth.
stances and thus, withou
The fact that these people exist and work is in itself im-
an outmoded way of th
mensely important and worthwhile. Even in the worst of
gories, and notions to 1
times, they maintain the continuity of political thought. If
new and radically diff
some genuine political impulse emerges from this or that "pre-
thought to the meaning
158
The Power of the Powerless
political" confrontation and is properly articulated early
enough, thus increasing its chances of relative success, then
this is frequently due to these isolated generals without an
army who, because they have maintained the continuity of
political thought in the face of enormous difficulties, can at
the right moment enrich the new impulse with the fruits of
their own political thinking. Once again, there is ample evi-
dence for this process in Czechoslovakia. Almost all those who
were political prisoners in the early 1970s, who had appar-
ently been made to suffer in vain because of their quixotic
efforts to work politically among an utterly apathetic and de-
moralized society, belong today-inevitably-among the most
active Chartists. In Charter 77, the moral legacy of their ear-
lier sacrifices is valued, and they have enriched this move-
ment with their experience and that element of political
thinking.
e
And yet it seems to me that the thought and activity of
those friends who have never given up direct political work
and who are always ready to assume direct political responsi-
bility very often suffer from one chronic fault: an insufficient
understanding of the historical uniqueness of the post-
IS
totalitarian system as a social and political reality. They have
little understanding of the specific nature of power that is
typical for this system and therefore they overestimate the
ie
importance of direct political work in the traditional sense.
ly
Moreover, they fail to appreciate the political significance of
ve
those "pre-political" events and processes that provide the
living humus from which genuine political change usually
le
springs. As political actors-or, rather, as people with politi-
in
cal ambitions-they frequently try to pick up where natural
ess
political life left off. They maintain models of behavior that
e-
may have been appropriate in more normal political circum-
1.
stances and thus, without really being aware of it, they bring
m-
an outmoded way of thinking, old habits, conceptions, cate-
of
gories, and notions to bear on circumstances that are quite
If
new and radically different, without first giving adequate
re-
thought to the meaning and substance of such things in the
159
The Pou
OPEN LETTERS
new circumstances, to what politics as such means now, to
political reality and more
what sort of thing can have political impact and potential,
done under the circumsta
and in what way. Because such people have been excluded
There is no way aroun
from the structures of power and are no longer able to influ-
ternative political model
ence those structures directly (and because they remain faith-
"hidden sphere," inspire
ful to traditional notions of politics established in more or
litical ferment. The real
less democratic societies or in classical dictatorships) they fre-
post-totalitarian system i
quently, in a sense, lose touch with reality. Why make com-
cruel tension between th
promises with reality, they say, when none of our proposals
and the aims of life, tha
will ever be accepted anyway? Thus they find themselves in a
beings to live, to a certa
world of genuinely utopian thinking.
themselves, that is, to liv
As I have already tried to indicate, however, genuinely far-
iated by their superiors
reaching political events do not emerge from the same sources
watched by the police, to
and in the same way in the post-totalitarian system as they do
to find an outlet for the
in a democracy. And if a large portion of the public is indif-
and so on. Anything th
ferent to, even skeptical of, alternative political models and
thing that relates to this
programs and the private establishment of opposition politi-
ing tension, will inevital
cal parties, this is not merely because there is a general feel-
for an ideal political or
ing of apathy toward public affairs and a loss of that sense of
to anything like the sai
higher responsibility; in other words, it is not just a conse-
because everyone know
quence of the general demoralization. There is also a bit of
ceeding, but also becau
healthy social instinct at work in this attitude. It is as if people
litical policies are deriv
sensed intuitively that "nothing is what it seems any longer,"
and now and the more
as the saying goes, and that from now on, therefore, things
"someday," the more
must be done entirely differently as well.
forms of human ensla
If some of the most important political impulses in Soviet
totalitarian system kno
bloc countries in recent years have come initially-that is,
whether one or several
before being felt on the level of actual power-from mathe-
these parties define ano
maticians, philosophers, physicians, writers, historians, ordi-
tance than the question
nary workers, and so on, more frequently than from
like a human being.
politicians, and if the driving force behind the various dissi-
To shed the burden
dent movements comes from so many people in nonpoliti-
habits and open onese
cal professions, this is not because these people are more
istence and then to dra
clever than those who see themselves primarily as politicians.
ing analyzed it: this is
It is because those who are not politicians are also not so
at the same time, from
bound by traditional political thinking and political habits
affairs," politically mo
and therefore, paradoxically, they are more aware of genuine
found, and lasting cha
160
The Power of the Powerless
political reality and more sensitive to what can and should be
done under the circumstances.
There is no way around it: no matter how beautiful an al-
ternative political model can be, it can no longer speak to the
"hidden sphere," inspire people and society, call for real po-
litical ferment. The real sphere of potential politics in the
post-totalitarian system is elsewhere: in the continuing and
cruel tension between the complex demands of that system
and the aims of life, that is, the elementary need of human
beings to live, to a certain extent at least, in harmony with
themselves, that is, to live in a bearable way, not to be humil-
iated by their superiors and officials, not to be continually
watched by the police, to be able to express themselves freely,
to find an outlet for their creativity, to enjoy legal security,
and so on. Anything that touches this field concretely, any-
thing that relates to this fundamental, omnipresent, and liv-
ing tension, will inevitably speak to people. Abstract projects
for an ideal political or economic order do not interest them
to anything like the same extent-and rightly so-not only
because everyone knows how little chance they have of suc-
ceeding, but also because today people feel that the less po-
litical policies are derived from a concrete and human here
and now and the more they fix their sights on an abstract
"someday," the more easily they can degenerate into new
forms of human enslavement. People who live in the post-
totalitarian system know only too well that the question of
whether one or several political parties are in power, and how
these parties define and label themselves, is of far less impor-
tance than the question of whether or not it is possible to live
like a human being.
To shed the burden of traditional political categories and
habits and open oneself up fully to the world of human ex-
istence and then to draw political conclusions only after hav-
ing analyzed it: this is not only politically more realistic but
at the same time, from the point of view of an "ideal state of
affairs," politically more promising as well. A genuine, pro-
found, and lasting change for the better-as I shall attempt
161
OPEN LETTERS
The Pou
to show-can no longer result from the victory (were such a
ocratic societies often see
victory possible) of any particular traditional political concep-
it possible to talk serious]
tion, which can ultimately be only external, that is, a struc-
the system or merely ref
tural or systemic conception. More than ever before, such a
which we live, this is a ]
change will have to derive from human existence, from the
being there is simply no
fundamental reconstitution of the position of people in the
We are not even clear ab
world, their relationships to themselves and to each other,
begins. We know from a
and to the universe. If a better economic and political model
neither reform nor chang
is to be created, then perhaps more than ever before it must
We know that ultimately
derive from profound existential and moral changes in soci-
not the system in which
ety. This is not something that can be designed and intro-
doctrine, appears chang
duced like a new car. If it is to be more than just a new
whether we can live with
variation of the old degeneration, it must above all be an
serves people rather than
expression of life in the process of transforming itself. A bet-
to achieve this with the I
ter system will not automatically ensure a better life. In fact,
it makes sense to employ
the opposite is true: only by creating a better life can a better
the political banalities il
system be developed.
proach as overly legalist
Once more I repeat that I am not underestimating the im-
revolutionary, bourgeois
portance of political thought and conceptual political work.
left-wing. But this is the
On the contrary, I think that genuine political thought and
genuinely political work is precisely what we continually fail
to achieve. If I say "genuine," however, I have in mind the
kind of thought and conceptual work that has freed itself of
ONE CONCEPT that is a (
all the traditional political schemata that have been imported
because it has been im]
into our circumstances from a world that will never return
circumstances that are e
(and whose return, even were it possible, would provide no
opposition. What exac
permanent solution to the most important problems).
totalitarian system?
The Second and Fourth Internationals, like many other po-
In democratic societies
litical powers and organizations, may naturally provide sig-
tem of government, pol
nificant political support for various efforts of ours, but
political force on the le
neither of them can solve our problems for us. They operate
a party or coalition of
in a different world and are a product of different circum-
government. It offers an
stances. Their theoretical concepts can be interesting and in-
ambitions to govern, ar
structive to us, but one thing is certain: we cannot solve our
the government in powe
problems simply by identifying with these organizations. And
life of the country. It see
the attempt in our country to place what we do in the context
means, and competes fo
of some of the discussions that dominate political life in dem-
legal regulations.
162
THE WHITE HOUSE
Office of the Press Secretary
For Immediate Release
October 22, 1991
REMARKS BY THE PRESIDENT
AND PRESIDENT VACLAV HAVEL OF CZECHOSLOVAKIA
UPON ARRIVAL
The South Grounds
10:12 A.M. EDT
THE PRESIDENT: Today we welcome a man whose moral
authority makes him a hero not simply in his own land, but everywhere
that people cherish freedom: President Vaclav Havel. (Applause.)
I suspect the life of Vaclav Havel, President, would tax
even the imagination of Vaclav Havel, playwright. Yet your life
inspires us precisely because it shows that greatness begins with
small acts of conscience and personal decency -- acts that each one
of us can perform.
Confronted with a wall of lies, you summoned the courage
to "live in truth:" to shun the silence that allows the lie to live
-- to speak out and risk the consequences. That courage sustained
you through five long years in prison, as an outcast in your own
country -- to the chill autumn night two years ago when the people of
Czechoslovakia came to Wenceslas Square. At first, a few candles
flickered in the night sky. In time, the square was ablaze with
light -- the Velvet Revolution had begun.
Long before that night, you had written about "the power
of the powerless." In the Revolution of '89, the world saw the Czech
and Slovak people break their chains -- the world witnessed once more
the awesome power of the democratic idea.
Today, the electricity of revolution has given way to
the sober business of democracy building. Your federal republic
faces the challenge of three revolutions: First, an economic
revolution, to replace the failed command system with the free
market. Second, a political revolution, to replace the totalitarian
travesty with democratic government and the tyranny of men with the
rule of law, so that Czechs and Slovaks, working together, can build
a secure future. And third and most important, you face a moral
revolution -- the need to build public trust and tolerance, to trade
the cynicism that helped people survive the old regime for the
idealism that will help you build a new one.
For 40 years, the ruling regime fed your people nothing
but lies: a steady diet of quotas fulfilled, record harvests,
unanimous votes and unending progress -- an elaborate fantasy that
fooled no one. Today, Mr. President, you lead a people who know that
being free means facing the truth -- preferring fact to fiction, no
matter how hash the truth may be.
Your struggle is far from over. Everywhere across your
country you feel the strains, the dislocations and depressed standard
of living. And I know the transition has hit particularly hard in
Slovakia.
MORE
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Yet your country has made impressive progress. You've
taken decisive steps to privatize state enterprises, to liberalize
trade and investment, to lift restrictions on private enterprise.
Each barrier you sweep away unleashes the energies of
free enterprise -- liberates the Czech and Slovak people to pursue
their ideas and ideals.
America stands with you in this effort. Our Trade
Enhancement Initiative aims at opening American markets to your
products. We seek through a special review to expand your benefits
under our Generalized System of Preferences. Our Enterprise Fund
will channel capital to Czech and Slovak entrepreneurs ready to put
it to work. OPIC -- the U.S. government's Overseas Private
Investment Corporation -- has just completed a mission to
Czechoslovakia, the largest mission OPIC has ever led to any country.
During your visit, our governments will sign the new
Bilateral Investment Treaty -- assuring an attractive investment
climate for American firms that do business in your country.
A few days ago, I signed a document exempting the Czech
and Slovak Federal Republic from the requirement of an annual
Jackson-Vanik review. I hope for early congressional action to grant
your country permanent Most Favored Nation status. And to aid
Czechoslovakia in its efforts to join the global economy, I call on
the World Bank and the European Bank for Reconstruction and
Development to provide assistance to pipeline projects already under
consideration.
As your Federal Republic transforms itself within, it
also has claimed its place in the councils of Europe. Mr. President,
as a founder of Charter 77, you lived through the days when the
secret police ransacked homes for papers related to the Helsinki
Accords. You must marvel that Prague now serves as home to the
permanent Secretariat of the CSCE.
Nearly one year ago when I addressed your Federal
Assembly, sir, I spoke of America's enduring role in Europe and of
our vision of a new commonwealth of freedom. I know you share that
vision and I value your strong conviction that the U.S. should remain
in Europe as a guarantor of security.
Together, on both sides of the Atlantic, we can work as
partners in a growing community of free nations to extend the values
of democracy, free enterprise, and the rule of law.
Your country knows better than most the harsh lessons of
history -- what happens when aggression goes unchecked. When Iraq
invaded Kuwait, the Czech and Slovak people stepped forward to take
their place in the coalition against the aggressor. Even as it
struggled to secure its own fragile independence, your country came
to the defense of a nation in need.
You led the way in showing a new Europe that the
security of one state is inseparable from the security of all. I
welcome the opportunity to reaffirm today my country's commitment to
your success -- to the promise of democracy and independence.
Once again, Mr. President, welcome to the White House.
And may God bless the Czech and Slovak people. (Applause.)
PRESIDENT HAVEL: Mr. President, ladies and gentlemen.
Let me, on behalf of the whole Czechoslovak delegation, thank you for
your warm welcome. I have a good feeling that we are coming to
friends with whom we share the same attitude toward the principal
values of life, and who, therefore, understand our problems and
needs.
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- 3 -
Our friendship has deep roots and has gone through a
difficult test of time. In the hearts and minds of our people, it
survived the adversity of the long decades of the totalitarian era to
be given a new dimension by the freedom reborn in my country two
years ago. The legacy of the fathers of Czechoslovak-American
cooperation -- the founder of our state, Tomas Garrigue Mazaryk, and
President Woodrow Wilson -- has thus been fulfilled.
It makes me happy to feel that I can regard you, Mr.
President, as a friend of Czechoslovakia and as my personal friend.
This is not the first time when I have an opportunity to step on the
soil of your country. I shall never forget the reception accorded to
me during my last year's visit when I came here for the first time in
the capacity of head of state. Today, I am starting my first
official state visit to your country, and I am looking forward to
seeing it unfold no less successfully.
It will certainly be a breakthrough in our relations as
significant documents are to be signed on this occasion. A permanent
place among them will be held by the declaration on the relations
between our countries in which we shall express our resolve to work
together for the advancement of our cooperation. In SO doing, we
shall make a contribution, even if a limited one, to the
strengthening of the traditional partnership between the United
States and Europe.
We do see in this partnership a guarantee of our own
stability and security. It is my conviction that our visit to your
country, for which we prepared with utmost care, will achieve its
purpose and confirm what I have said with much pleasure a number of
times already -- namely, that relations between Czechoslovakia and
the United States have never been as good as they are now.
Thank you. (Applause.)
END
10:25 A.M. EDT
Week Ending Friday, February 23, 1990
ement, letter-277
message-277
arms control
Remarks Following Discussions With
And that was the Revolution of '89, and
President Vaclav Havel of
our task now in the 1990's is to move for-
ntion, message-297
Czechoslovakia
ward from revolution to renaissance, to-
agencies
February 20, 1990
wards a new Europe in which each nation
and every culture can flourish and breathe
nemorandum-277
President Bush. Well, welcome to every-
free, a Europe whole and free.
body. And it's been my great pleasure to
President Havel, Czechoslovakia has
-276
welcome to the White House a man of tre-
turned to you to lead the way, and is it not
support program-
mendous moral courage, one of the heroes
fitting for a nation that each day writes a
of the Revolution of '89, the President of
new page in its history to have elected a
Czechoslovakia, Vaclav Havel.
playwright as its President?
-296
Mr. President, your life has been one of
And I am pleased that we've had this
Reading-293
miraculous transformations from the world
opportunity to meet, to speak together
12
of drama to the world of dissent, from the
about the changes that are taking place
life of the artist to the life of the activist,
from Prague to Moscow, and about Czecho-
and of course in the space of just 1 short
slovakia's place in the heartland of the new
r President José
year, the most miraculous journey of all,
Europe now emerging. We know there is
no room for illusions. Difficult work lies
from prison to the Presidency. And of
lential
course it's possible to measure profound
ahead. The damage of four decades of fear
change in more personal terms. For years,
and repression cannot be repaired in a day.
th President
as a dissident subject to arrest and imprison-
But we know something more: We know
on with Prime
ment at any time, you could never go out
that the people of Czechoslovakia have
waited long enough and they know it's time
astern Europe-298
without your toothbrush in your pocket.
to move forward to freedom.
But now, as President, you can never go out
Czechoslovakia and Europe are at the
without one of these neckties. [Laughter]
threshold of a new era. And I know I can
dent-304
And many years ago you made a choice.
ress releases-304
speak for all Western leaders when I say
e announcements-
You chose to live your life in keeping with
that the Atlantic alliance will continue to
your conscience not for others but for your-
play a vital role in assuring stability and
he Senate-303
self. But others drew strength from the life
security in Europe at this great and historic
you lead, and your life was a tribute to the
moment. And America will continue to play
difference one man can make, powerful
its part, including a strong military pres-
proof of the democratic idea. On the one
ence for our security and for Europe's.
side stood the state with its prisons and
Mr. President, you've not asked for Amer-
secret police; and on the other, Vaclav
ican economic aid, and you made it clear
Havel, one man alone but with the strength
that democratic Czechoslovakia wants the
of his convictions, always free with the free-
opportunity to do business on an equal foot-
dom that comes from living in truth. First
ing. And in that regard, I am pleased to
one man, and now millions.
announce that I signed today letters notify-
President Havel never stopped believing
ing our Congress that I am waiving the
in what he called this unbelievable thought:
Jackson-Vanik amendment for Czechoslova-
Committee of the Federal
7 FR 23607; 1 CFR Part
that any one of us can shake the Earth.
kia. Today our trade representatives began
Shake the Earth, Mr. President, and part
negotiating a trade agreement. Pending
Superintendent of Docu-
the Iron Curtain. Shake the Earth and
passage by your Parliament of new liberal
ashington, DC 20402. The
knock down the Berlin Wall. Shake the
cuments will be furnished
emigration legislation, these measures will
5.00 per year ($96.00 for
Earth and set in motion a process of change
permit us to extend the most-favored-nation
ibers for $68.75 per year,
from Budapest to Bucharest, from Warsaw
status to Czechoslovakia without the re-
ments, Government Print-
charge for a single copy is
to Wenceslas Square.
quirement of an annual waiver, granting
ublication of material ap-
residential Documents.
275
Feb. 20 / Administration of George Bush, 1990
Memorandum on T
your country the most liberal access to the
you, and may God bless the people of
Czechoslovakia
American market possible under United
Czechoslovakia. We are pleased to have you
States law.
here.
February 20, 1990
Mr. President, you've also explained the
President Havel. Mr. President, I am
Presidential Determinat
enormous tasks that you face in rebuilding a
very moved by your speech. I thank you
democracy on the ruins of the one-party
very much for this drawing. I promise you
Memorandum for the
state that you inherited. And you've identi-
it will be very soon back in our castle.
fied several areas where help is needed,
We had with Mr. Bush very important
Subject: Determinatic
and we are ready to respond. Let me just
negotiations. We had very warm, very
402(c)(2)(A) of the Tra
mention two specifics. First, in response to
open, very friendly discussions. I am very
Czechoslovakia
your request, I am asking Peace Corps Di-
glad that I had the opportunity to be here
Pursuant to sectic
rector Paul Coverdell to take the initial
to explain what happened in Czechoslova-
steps to bring the Peace Corps to Czecho-
Trade Act of 1974
kia, to explain our viewpoint, our policy.
slovakia by this fall. And second, I am de-
2432(c)(2)(A)) I deter
And thank you very much that we could be
lighted that we will soon reopen our consul-
the application of sul
here. Thank you for the invitation. And of
ate in Bratislava, as well as new cultural
section 402 of the
course I invite you to us in Prague, in
centers there and in Prague.
Czechoslovakia will
Czechoslovakia. And you will see this nice
Mr. President, I assure you the United
drawing in my office on Prague Castle.
the objectives of secti
States will be part of your nation's demo-
You are authorized
President Bush. Thank you, sir. God-
cratic rebirth. Everything I've seen this past
lish this determinatio
speed.
year tells me that Czechoslovakia can meet
ter.
the challenges ahead. And as you've said in
Note: President Bush spoke at 1:35 p.m. at
your first address as President on New
the South Portico of the White House. Prior
Year's Day, so many times we've heard poli-
to their remarks, the two Presidents met pri-
tics defined as the art of the possible; and
vately in the Oval Office and with U.S. and
this year has taught us something new,
Czechoslovak officials in the Cabinet Room,
something more: It taught us, as you put it,
and then attended a luncheon in the Old
that politics can be the art of the impossi-
Family Dining Room.
ble.
Message to the Con
Mr. President, before you leave us today,
Czechoslovakia
I would like to present you with a litho-
February 20, 1990
graph of your illustrious predecessor,
Executive Order 12702-Waiver Under
Czechoslovakia's first President and author
the Trade Act of 1974 With Respect to
To the Congress of the
of your nation's Declaration of Independ-
Czechoslovakia
Pursuant to subse
ence, Thomas Masaryk. This portrait was
February 20, 1990
Trade Act of 1974
done in Prague Castle and kept by Presi-
2432(c)(2)), I have det
dent Masaryk until his death, when he gave
By the authority vested in me as Presi-
of the application of
it to his successor at Charles University's
dent by the Constitution and laws of the
of Section 402 with r
department of philosophy, President Jan
United States of America, including section
kia will substantially ]
Kozak.
402(c)(2) of the Trade Act of 1974 (19 U.S.C.
of section 402. A copy
In 1939, at the time of the Nazi invasion,
2432(c)), which continues to apply to
is enclosed. I have al
Professor Kozak had 2 hours to pack his
Czechoslovakia pursuant to section 402(d),
ances with respect to
belongings and to flee Czechoslovakia.
and having made the report to the Con-
tices of Czechoslovak
Among the items he took with him, this
gress required by section 402(c)(2), I hereby
402(c)(2)(B) of the Act
portrait of his friend. Professor Kozak set-
waive the application of subsections (a) and
Pursuant to section
tled in Ohio at Oberlin College, and so did
(b) of section 402 of said Act with respect to
an Executive Order V
this portrait until today. And now, with
Czechoslovakia.
of subsections (a) anc
freedom returning to Czechoslovakia, so,
George Bush
the Act with respect t
too, should this portrait of President Masa-
ryk, Czechoslovakia's first President and
The White House,
champion of freedom.
February 20, 1990.
Once again, Mr. President, it has been
The White House,
my privilege to welcome you to Washington
[Filed with the Office of the Federal Regis-
and to the White House. And God bless
ter, 4:47 p.m., February 20, 1990]
February 20, 1990.
276
Administration of George Bush, 1990 / Feb. 20
Memorandum on Trade With
Letter to the Chairmen of the Senate
IS the people of
Czechoslovakia
Finance Committee and the House
eased to have you
February 20, 1990
Ways and Means Committee
Transmitting a Report on the Canada-
President, I am
Presidential Determination No. 90-10
United States Free-Trade Agreement
ech. I thank you
ig. I promise you
Memorandum for the Secretary of State
February 20, 1990
1 our castle.
1 very important
Subject: Determination under Section
Dear Mr. Chairman:
402(c)(2)(A) of the Trade Act of 1974-
Pursuant to section 103 of the United
ery warm, very
sions. I am very
Czechoslovakia
States-Canada Free-Trade Agreement Im-
tunity to be here
plementation Act of 1988 (Public Law 100-
Pursuant to section 402(c)(2)(A) of the
I in Czechoslova-
499), I am pleased to submit the attached
Trade Act of 1974 (the "Act") (19 U.S.C.
oint, our policy.
report and related documents pertaining to
that we could be
2432(c)(2)(A)) I determine that a waiver of
a proposed action to accelerate elimination
nvitation. And of
the application of subsections (a) and (b) of
of duties on designated products under the
IS in Prague, in
section 402 of the Act with respect to
United States-Canada Free-Trade Agree-
Czechoslovakia will substantially promote
ment.
will see this nice
ague Castle.
the objectives of section 402.
Sincerely,
: you, sir. God-
You are authorized and directed to pub-
George Bush
lish this determination in the Federal Regis-
ter.
Note: Identical letters were sent to Lloyd
e at 1:35 p.m. at
George Bush
Bentsen, chairman of the Senate Finance
'hite House. Prior
Committee, and Dan Rostenkowski, chair-
residents met pri-
man of the House Ways and Means Com-
nd with U.S. and
mittee.
he Cabinet Room,
heon in the Old
Message to the Congress on Trade With
Czechoslovakia
Nomination of E.U. Curtis Bohlen To
February 20, 1990
Be an Assistant Secretary of State
-Waiver Under
February 20, 1990
7ith Respect to
To the Congress of the United States:
Pursuant to subsection 402(c)(2) of the
The President today announced his inten-
Trade Act of 1974 (the Act) (19 U.S.C.
tion to nominate E.U. Curtis Bohlen to be
2432(c)(2)), I have determined that a waiver
Assistant Secretary of State for Oceans and
in me as Presi-
of the application of subsections (a) and (b)
International Environmental and Scientific
and laws of the
of Section 402 with respect to Czechoslova-
Affairs. He would succeed Frederick M.
including section
kia will substantially promote the objectives
Bernthal.
f 1974 (19 U.S.C.
of section 402. A copy of that determination
Since 1981 Mr. Bohlen has served as
S to apply to
is enclosed. I have also received the assur-
senior vice president of World Wildlife
0 section 402(d),
ances with respect to the emigration prac-
Fund in Washington, DC. He served as a
ort to the Con-
tices of Czechoslovakia required by section
consultant to World Wildlife Fund and vice
02(c)(2), I hereby
402(c)(2)(B) of the Act.
president of Eastern Environmental Con-
bsections (a) and
Pursuant to section 402(c)(2), I shall issue
trols, Inc., in Chestertown, MD, 1979-1981,
it with respect to
and as a consultant on the Committee on
an Executive Order waiving the application
Merchant Marine and Fisheries at the
of subsections (a) and (b) of section 402 of
George Bush
the Act with respect to Czechoslovakia.
House of Representatives in Washington,
DC, 1977-1978. In addition he served in
several positions at the Department of the
George Bush
Interior from 1969 to 1977 in Washington,
DC, including Assistant to Secretary Cecil
The White House,
le Federal Regis-
D. Andrus, Chairman of the Alaska Plan-
1990]
February 20, 1990.
ning Group, Acting Assistant Secretary for
277
Administration of George Bush, 1990 / Feb. 21
pean Democracy
Statement by Press Secretary Fitzwater
rector of the Office of Southern Europe,
on President Bush's Meeting With
1974-1976; Deputy Director of the Office
79, hereinafter re-
and section 301 of
President Vaclav Havel of
of Central Europe, 1972-1974; Berlin desk
Czechoslovakia
officer, 1970-1972; senior watch officer,
States Code, it is
February 21, 1990
1969-1970; second secretary at the U.S.
Embassy in Bonn, 1964-1969; consul at the
gram Coordinator.
The President and President Vaclav
U.S. consulate in Enugu, Nigeria, 1962-
by Title VII of the
Havel of Czechoslovakia met for approxi-
) the Congress are
1964; African language training program,
mately 45 minutes today in the Oval Office.
Coordinator of the
1961-1962; vice consul at the U.S. consulate
This was a continuation of their discussions
rdinator is author-
in Georgetown, Guyana, 1957-1961; and an
yesterday. They talked at some length
ility for particular
analyst at the Bureau of Intelligence and
about the future of Europe and agreed to
appropriate agen-
Research, 1957-1959.
stay in close touch at this time of rapid
change. Both expressed their support for
Mr. Ledsky graduated from Western Re-
gency for Interna-
President Gorbachev's reforms and his en-
serve University (B.A., 1951) and Columbia
e functions con-
couragement of peaceful change in Eastern
University (M.A., 1953). He was born Sep-
t by section 201 of
Europe, and both agreed that the presence
tember 30, 1929, in Cleveland, OH. Mr.
erprise Funds for
of American troops is a factor for stability
Ledsky is married, has three children, and
hereby delegated
and security in Europe. Although it was an-
resides in Bethesda, MD.
the United States
ticipated that economic issues would be dis-
Development. The
cussed, most of the conversation focused on
lt, as appropriate,
political and East-West issues.
icies in exercising
gated.
f Commerce. The
the President by
garding the estab-
Nomination of LeGree Sylvia Daniels
formation Center
To Be a Member of the Board of
with the Govern-
Governors of the United States Postal
Nomination of Nelson C. Ledsky for
ingary are hereby
the Rank of Ambassador While Serving
Service
try of Commerce.
as Special Cyprus Coordinator
February 21, 1990
ercised in consulta-
February 21, 1990
gram Coordinator
The President today announced his inten-
other agencies as
The President today announced his inten-
tion to nominate LeGree Sylvia Daniels to
tion to nominate Nelson C. Ledsky, of
be a Governor of the United States Postal
the Treasury. The
Maryland, a career member of the Senior
Service for the term expiring December 8,
the President by
Foreign Service, Class of Minister-Counsel-
1998. She would succeed John Lathrop
egarding debt re-
or, for the rank of Ambassador during his
Ryan.
uropean countries
tenure of service as Special Cyprus Coordi-
Since 1987 Mrs. Daniels has served as As-
the Secretary of
nator.
ry shall consult, as
sistant Secretary for Civil Rights at the De-
Since 1989 Mr. Ledsky has served as Spe-
levant agencies in
partment of Education in Washington, DC.
cial Cyprus Coordinator at the Department
herein delegated.
Prior to this, she served as a staff assistant
of State. He served as Deputy Senior Direc-
to former Senate minority leader Hugh
tor and then Senior Director for the Nation-
George Bush
Scott; chairman of the Pennsylvania State
al Security Council, 1987-1989. In addition,
Tax Equalization Board; commissioner of
he served in various capacities at the De-
the Pennsylvania Bureau of Elections; and
partment of State, including Deputy Direc-
deputy secretary of the Commonwealth of
tor of the Policy Planning Staff, 1985-1987;
Pennsylvania.
U.S. Minister in Berlin, Germany, 1981-
the Federal Regis-
1985; Director of the State Department's
Mrs. Daniels attended Temple University
1990]
Olympic Boycott Office, 1980-1981;
and Central Pennsylvania Business School.
r was released by
Deputy Assistant Secretary of Congressional
She was born February 29, 1920, in Den-
ecretary on Febru-
Relations, 1978-1980; Director of the Office
mark, SC. Mrs. Daniels is married, has three
of Southern Europe, 1976-1978; Deputy Di-
children, and resides in Harrisburg, PA.
281
Nov. 17 / Administration of George Bush, 1990
Statement by Press Secretary Fitzwater
States have strong views, but cooperate
Remarks to th
on the President's Meetings With
comfortably with the Federal Government.
Prague, Czech
National Leaders in Prague,
President Bush also spoke of the need for
November 17,
Czechoslovakia
stability in Czechoslovakia as they deal with
November 17, 1990
private investors from the United States.
President Ha
President Bush also raised the matter of the
ing us with su
President Bush and President Havel met
environment, saying that pollution is a high
Chairman Dubi
at 10 o'clock this morning at Hradcany
cost that we must be concerned about.
really warm a
Castle in the first meeting of the visit.
May I salute 1
President Havel welcomed President Bush
Slovak Leaders
Czech and Slov
on this historic occasion, the first-year anni-
of the Assembly
versary of the revolution. The two leaders
President Bush met at approximately
of Czechoslovak
discussed the economic development of
11:30 with Slovak leaders. He wished them
first American
Czechoslovakia, including the need to get
success and emphasized the need for stabili-
country, to brii
U.S. investment. President Bush said the
ty. The Slovak leaders commented on the
American peop
United States is concerned about the inter-
United States as a melting pot that has ac-
sary of Czechos
national oil situation. President Bush said
cepted nationalities from all over the world.
One year ag
there is a disruption in supply, but it is the
They pointed out they are working hard to
squares of this
speculation about the Persian Gulf that has
get private investment and asked if more of
gathered, first b
driven up prices. President Havel said their
their people could come to the United
by thousands-
economy depends on an uninterrupted flow
States for training in various production
chill; in their n
of oil from the Soviet Union, and that has
skills.
20 years past.
been a problem in the current situation.
President Bush said "our vision is a
begun.
The two leaders discussed the CSCE
That revolut
Europe whole and free." President Bush re-
[Conference on Security and Cooperation
single shot. You
marked on the warm welcome of the
in Europe] and the prospects for locating a
rior to any in th
crowds that lined the streets on the way
new Secretariat in Prague. Both leaders
of force, you de
stressed the interest in seeing a successful
into Prague from the airport.
ple. Against a W
CSCE meeting, particularly on issues of
truth. Out of a
arms control and human rights.
Dubček
Czech and Slov
Its message: Th
At approximately 12:15 President Bush
freedom home 1
Federal Leaders
called on Alexander Dubček, President of
Your revoluti
the Federal Assembly, and greeted him
newal of the (
President Bush met at approximately
10:40 with Federal leaders to discuss eco-
warmly, acknowledging his historic role in
bind my coun
the move towards freedom in Czechoslova-
nomic conditions. The President said the
America, to yo
kia. President Dubček recalled his visit to
talks with the IMF [International Monetary
your Declaratic
the United States and said that President
in the United S
Fund] and World Bank are progressing
well. They also discussed oil supplies and
Bush's visit constitutes a most prominent
saryk, your firs
their impact on this country. They empha-
day for U.S.-Czechoslovak relations. Presi-
fanik, proud SI
sized the important role of private invest-
dent Bush and President Dubček discussed
spired by the
ment in improving the economy of Czecho-
the role of the Federal Assembly and its
Thomas Jefferso
slovakia.
important role in the building of democra-
ago.
cy. President Bush concluded the meeting
In my homel
by signing a large, brown leather guest
put into practi
Czech Leaders
book, giving the signing pen to President
Constitution an
President Bush met with Czech leaders at
Dubček. President Bush signed: "With
night, I carried
as we flew fro
approximately 11 a.m. They emphasized
great happiness and warm best wishes,
that they wanted to help themselves eco-
George Bush, November 17, 1990."
copies that I gu
nomically as much as they can. One of the
as you came in
leaders quoted Mark Twain by saying "a
Note: In the morning, President Bush ar-
toric time, as y
helping hand is usually found at the end of
rived at Ruzyne Airport, where he was ac-
your own feder:
offer them to
your arm." President Bush spoke of the
strength of the U.S. system in which 50
corded honors. a formal welcome with full military
common princij
peoples have loi
1850
Administration of George Bush, 1990 / Nov. 17
but cooperate
al Government.
Remarks to the Federal Assembly in
Generations of Americans, Czechs, and
of the need for
Prague, Czechoslovakia
Slovaks sustained these common bonds. In
S they deal with
November 17, 1990
the battle to defeat Nazi tyranny, America
United States.
stood with the courageous Czech and
ne matter of the
President Havel, thank you, sir, for greet-
Slovak partisans fighting for freedom.
llution is a high
ing us with such warmth today. And to
Through the long dark decades after 1948,
ned about.
Chairman Dubček, thank you, sir, for that
we, like you, refused to accept Europe's di-
really warm and generous introduction.
vision. Through Radio Free Europe and the
May I salute the Prime Ministers of the
Voice of America, we held aloft the ideal of
Czech and Slovak Republics; the Members
truth, and we spoke a common language of
approximately
of the Assembly; and most of all, the people
hope.
e wished them
of Czechoslovakia. It is an honor for me, the
At long last, the grip of the dictators
need for stabili-
first American President ever to visit your
weakened; Czechoslovakia seized its chance
mented on the
country, to bring you the greetings of the
to rise up, to reclaim your rights as a free
pot that has ac-
American people on this, the first anniver-
people and as a sovereign nation.
over the world.
sary of Czechoslovakia's return to freedom.
working hard to
One year ago today, in the streets and
Today, as fellow citizens of free govern-
ments, we share the fruits of our common
asked if more of
squares of this city, the people of Prague
gathered, first by twos and threes, and then
resolve. Europe, East and West, stands at
to the United
ious production
by thousands-in the night air, an autumn
the threshold of a new era: an era of peace,
chill; in their minds, memories of a spring
prosperity, and security unparalleled in the
20 years past. The Velvet Revolution had
long history of this continent. Today Eu-
ur vision is a
begun.
rope's long division is ending. Today, once
esident Bush re-
That revolution succeeded without a
more, Czechoslovakia is free.
elcome of the
single shot. Your weapons proved far supe-
Czechoslovakia's revolution is over, but
ets on the way
rior to any in the state's arsenal. In the face
its renaissance has just begun. Your work
of force, you deployed the power of princi-
and ours is far from complete. Your nation,
ple. Against a wall of lies, you advanced the
like your neighbors to the north and south,
truth. Out of a thousand acts of courage,
faces the unprecedented task of building a
Czech and Slovak, emerged a single voice.
stable, democratic rule and a prosperous
President Bush
Its message: The time had come to bring
market economy on the ruins of totalitari-
ek, President of
freedom home to Czechoslovakia.
anism. I am here today to say that we will
d greeted him
Your revolution was also a renewal: a re-
not fail you in this decisive moment. Amer-
historic role in
newal of the deeply held principles that
ica will stand with you to that end.
in Czechoslova-
bind my country, the United States of
America stands ready to help Czechoslo-
alled his visit to
America, to yours; principles enshrined in
vakia realize the progress and prosperity
I that President
your Declaration of Independence, issued
now within reach. Today our two countries
most prominent
in the United States in 1918 by Tomás Ma-
will conclude agreements giving Czechoslo-
relations. Presi-
saryk, your first President, and Milan Sta-
vakia the fullest access to American mar-
ubček discussed
fanik, proud Slovak patriot; principles in-
kets, American investment, and American
ssembly and its
spired by the ringing words of our own
technology. To help unleash the creativity
ing of democra-
Thomas Jefferson more than two centuries
and drive of the Czechs and Slovak people,
led the meeting
ago.
I will urge our Congress to authorize a $60-
1 leather guest
In my homeland, those principles were
million Czechoslovak-American Enterprise
en to President
put into practice when we adopted our
Fund. In addition, to help build your pri-
Constitution and its Bill of Rights. And last
vate sector, the United States will extend
signed: "With
night, I carried copies of those documents
prompt economic assistance from the $370
m best wishes,
as we flew from Washington to Prague,
million now committed to central and east-
1990."
copies that I guess were passed out to you
ern Europe for the coming year.
as you came in today. And during this his-
We also welcome the active involvement
sident Bush ar-
toric time, as you consider the adoption of
of the American private sector. I am
here he was ac-
your own federal system and bill of rights, I
pleased to see that yesterday your govern-
ith full military
offer them to you in friendship, for the
ment entered into a promising, multimil-
common principles and common bonds our
lion-dollar joint venture with Bell Atlantic
peoples have long shared.
and U.S. West to modernize your country's
1851
Nov. 17 / Administration of George Bush, 1990
communications network. I am sure this
shoulder, President Havel-let me draw on
men and won
will be the first of many large-scale invest-
those just to make my point. Several years
to enjoy the
ments in the future of a free Czechoslova-
ago, Mr. Havel wrote about the Western
the rule of lav
kia.
visitors who came to see your so-called dissi-
nations.
In response to this region's severe energy
dents, asking how they could help your
The United
problems, we expect the IMF [International
cause. He wondered about that question,
mocracies of
Monetary Fund]-at our initiative-to lend
wondered why visitors from the West
fully into the
up to $5 billion in 1991 to central and east-
couldn't see that your cause was their cause,
moral commu
ern Europe, and the World Bank will
too. Mr. Havel wrote, and I quote: "Are not
free ideals. 1
commit an additional $9 billion over the
my dim prospects or my hopes his dim
Soviet Union
next 3 years.
prospects and hopes as well? Is not the de-
forms, as diffi
In addition to these economic initiatives,
struction of humans in Prague a destruction
They will find
we seek to renew the free and open ex-
of all humans? Is not indifference to what is
come them ar
change denied our peoples for so many
happening here a preparation for the same
commit thems
years. I am pleased to announce the re-
kind of misery elsewhere?"
of freedom.
opening of the American consulate in Bra-
Dissident Havel-now President Havel-
Every new
tislava in the Republic of Slovakia and, just
spoke then of a shared destiny, spoke out of
common value
yesterday, the selection of a site for our
a sure sense that the fate of all mankind is
the ranks of
new cultural center in Prague. Our newly
linked. Czechs and Slovaks understand this
dom, advances
established International Media Fund prom-
vision and the challenge. For half a century,
world order, a
ises to contribute expertise and encourage-
your struggle for freedom was cut short not
force gives wa
ment to your nation's free and independent
by one but by two of the cruelest tyrannies
rule of law. Th
media. And I am gratified that your govern-
history has ever known. You know what it
plete without
ment and my country's Institute for East-
means to live under regimes whose vision
the boundaries
West Security Studies will soon open a Eu-
of world order holds no place for freedom.
unity is within
ropean Studies Center in Stirin, an impor-
tant partnership of the intellect between
As heirs of Jan Hus, whose statue stands just
for our vision
European and American scholars.
a few blocks from us, as countrymen of Co-
of this continer
The princip]
And let me say once again: Prague should
menius, the son of Moravia, whose name
be the home to the permanent Secretariat
graces your great University of Bratislava,
the principles
of the Conference on Security and Coopera-
you have always looked to the far horizon
tions, are not (
tion in Europe. In Paris, I am confident that
to take your bearings from principles that
alone. These p1
are universal. As small nations, whose very
in the love of 1
I will find unanimous support for this initia-
tive. It is right that this city, once on the
existence demands constant vigilance, you
Now, after 1
fault line of cold war and conflict, now at
have always understood that your future de-
cold war, we :
the heart of the new and united Europe,
pends not only on your own heroic actions
promise; and y
play a central role as the CSCE seeks to
here but on the broader principles that
of people ev
expand the frontiers of freedom in Europe.
govern the greater world in which you live.
threat from re{
At the Paris summit of the CSCE, the
We must recognize that no people, no con-
man and rule
nations of North America and Europe will
tinent, can stand alone, secure unto itself.
that is why our
sign historic documents: a treaty to provide
Our fates, our futures are intertwined.
the Persian G
deep reductions in conventional armed
That, you see, is why Europe's celebra-
crisis there is a
forces in Europe, a CSCE summit declara-
tion of freedom brings with it a new re-
as to Europe t
tion charting the future role of CSCE in
sponsibility. Now that democracy has
somehow isolat
ending Europe's division. The Atlantic alli-
proven its power, Europe has both the op-
lenges. Iraq's
ance, the foundation of European stability,
portunity and the challenge to join us in
Kuwait is a ruc
has pledged itself to the same goal.
leadership, to work with us in common
can remain seci
Working together, we can fulfill the
cause towards this new commonwealth of
unchecked.
promise of a Europe that reaches its demo-
freedom.
I have this f
cratic destiny, a Europe that is truly whole
This commonwealth rests on shared prin-
peoples unders
and free. But this continent's reconciliation
ciples, upon four cornerstones that consti-
in the Gulf tha
is only part of the larger vision for our
tute our common values: an unshakable
know from your
world, a vision which I ask you to share.
belief in the dignity and rights of man and
the world canno
Let me draw on the life and writings of
the conviction that just government derives
sion. You know
the gentleman that is sitting over my right
its power from the people, the belief that
that aggressors
1852
Administration of George Bush, 1990 / Nov. 17
men and women everywhere must be free
the tragic consequences when nations con-
-let me draw on
to enjoy the fruits of their labor and that
fronted with aggression choose to tell them-
nt. Several years
the rule of law must govern the conduct of
selves it is no concern of theirs, just a
out the Western
nations.
"quarrel in a faraway country between a
ur so-called dissi-
The United States welcomes the new de-
people of whom we know nothing."
could help your
mocracies of central and eastern Europe
We Americans, too, have learned. We
it that question,
fully into the commonwealth of freedom, a
know the costs, to ourselves and to the
from the West
moral community united in its dedication to
whole of Europe, of our isolationism after
was their cause,
free ideals. We wish to encourage the
the First World War. We know that Amer-
[ quote: "Are not
Soviet Union to go forward with their re-
hopes his dim
forms, as difficult as the course may seem.
ica must resist the temptation to consider
II? Is not the de-
They will find our community ready to wel-
our work complete. We must remain com-
mitted to the cause of freedom in the
gue a destruction
come them and to help them as they, too,
commit themselves to this commonwealth
world.
erence to what is
:ion for the same
of freedom.
And more and more, the Soviet Union is
Every new nation that embraces these
demonstrating its commitment to act as a
resident Havel-
common values, every new nation that joins
constructive force for international stability.
tiny, spoke out of
the ranks of this commonwealth of free-
More and more, the United Nations is func-
of all mankind is
dom, advances us one step closer to a new
tioning as its creators intended it: free from
S understand this
world order, a world in which the use of
the ideological confrontation that frustrated
'or half a century,
force gives way to a shared respect for the
collective action, rendered impotent the
was cut short not
rule of law. This new world will be incom-
peacekeeping function of that body.
cruelest tyrannies
plete without a vision that extends beyond
From this first crisis of the post-Cold War
You know what it
the boundaries of Europe alone. Now that
era comes an historic opportunity: the op-
mes whose vision
unity is within reach in Europe is no time
portunity to draw upon the great and grow-
lace for freedom.
for our vision of change to stop at the edge
ing strength of the commonwealth of free-
statue stands just
of this continent.
dom and forge for all nations a new world
ountrymen of Co-
The principles guiding our two nations,
order far more stable and secure than any
via, whose name
the principles at work in our two revolu-
we have known.
sity of Bratislava,
tions, are not Czech or Slovak or American
to the far horizon
alone. These principles are universal, rooted
Today I am very proud to join Czechoslo-
m principles that
in the love of liberty and the rights of man.
vakia as it celebrates a year in freedom. I
tions, whose very
Now, after four decades of conflict and
salute you for your courage and your vision,
ant vigilance, you
cold war, we are entering an era of great
for all that you have endured, and for all
at your future de-
promise; and yet our freedom, the freedom
you are destined to achieve. And I chal-
wn heroic actions
of people everywhere, remains under
lenge you, as you take your rightful place in
er principles that
threat from regimes for whom the rights of
the center of Europe, to look beyond the
in which you live.
man and rule of law mean nothing. And
confines of this continent to join with your
no people, no con-
that is why our response to the challenge in
neighbors in Europe and in North America
secure unto itself.
the Persian Gulf is critical. The current
to build a true commonwealth of freedom
intertwined.
crisis there is a warning to America as well
so that the peace and prosperity you seek-
Europe's celebra-
as to Europe that we cannot turn inward,
the peace and prosperity we shall share-
with it a new re-
somehow isolate ourselves from global chal-
will be the peace and prosperity of all man-
democracy has
lenges. Iraq's brutal aggression against
kind.
e has both the op-
Kuwait is a rude reminder that none of us
Once again, thank you for this warm wel-
enge to join us in
can remain secure when aggression remains
come, and may God bless the people of
h us in common
unchecked.
Czechoslovakia.
commonwealth of
I have this feeling in my heart that no
peoples understand better what is at stake
sts on shared prin-
in the Gulf than Czechs and Slovaks. You
stones that consti-
know from your own bitter experience that
Note: The President spoke at 12:36 p.m. in
es: an unshakable
the world cannot turn a blind eye to aggres-
the Federal Assembly Hall. In his remarks,
rights of man and
sion. You know the futility and vain hope
he referred to Alexander Dubček, Chairman
;overnment derives
that aggressors can be appeased. You know
of the Federal Assembly.
ple, the belief that
1853
Nov. 17 / Administration of George Bush, 1990
Harvard Univers
was this topic on
Remarks and a Question-and-Answer
is of most import to Czechoslovakia is in-
in Czechoslovakia
Session With Reporters Following
creased support from the IMF [Internation-
President Busi
Discussions With President Václav
al Monetary Fund] and the World Bank.
And I made clear to President Havel that
the first part.
Havel in Prague, Czechoslovakia
We didn't disc
November 17, 1990
we will be very supportive in that connec-
I am convinced t
tion.
I tried to say this
President Havel. Dear friends, let me
In addition, the thing that would be of
session-has an €
welcome you to this brief meeting with our
most benefit to Czechoslovakia and to the
want to see C2
honored guest, President Bush, and myself.
United States would be increased invest-
Hungary off in S
We are ready to answer your questions. But
ment and increased private-sector help.
Thus, we did
before doing so, perhaps I should briefly
And that we've discussed; and then that, I
rangements. It is
explain what President Bush and I have
think we both agree, would be the best
the Czechoslova
been discussing.
answer-certainly long-range answer-for
itself-that some
We have touched up on a number of dif-
the vitality and growth of Czechoslovakia.
CSCE process W
ferent matters, but we focused primarily on
President Havel. I think we should give
ty of Europe ano
the following subjects. We have presented
an opportunity, also, to the Czechoslovak
kia in the dec
our information on the present situation in
media.
Europe.
Czechoslovakia, and possibilities of possible
Q. Mr. President Bush, have you spoken
assistance or cooperation on the part of the
to Mr. Havel about American assistance in
Persian Gulf Cr
United States have been discussed. Second-
the science and technology fields and espe-
Q. President I
ly, we have dwelled upon the future of
cially in education of the people? Would
liament, you sai
Europe in the light of the forthcoming
you be more concrete?
stand better tha
CSCE [Conference on Security and Coop-
President Bush. We didn't discuss S&T as
waiti situation.
eration in Europe] summit in Paris and
much. We did talk about educational ex-
similar happens
upon the future of the Helsinki process.
And on that score, we have found that our
changes, but we did not dwell on the sci-
What attitude
views there are very close to each other, if
ence and technology. Certainly, I would say
have no oil here
we would be ready to cooperate in every
President Bus
not even identical. And sadly, we have
talked at some length about the situation in
way in that field, however.
because one thi
that what Sad
the Persian Gulf.
Soviet Union and Eastern Europe
Iraq] has done i
You can ask us questions that shall be
Q. President Havel, can I ask you about
astating to tl
answered alternately by President Bush and
the situation in the Soviet Union, as you
Europe, say not
myself, with me being the one to answer
watch it-the tensions that we see that Mr.
West and ever
the first question.
Gorbachev is facing? What concerns do you
This naked ag:
U.S. Assistance for Czechoslovakia
have about the breakup of the Soviet Union
clearly had an
and how that would affect central Europe-
mies of every S
Q. President Havel, are you satisfied with
the assistance you're getting? You seem to
an countries?
disproportionat
not be saying that your views are identical
President Havel. The fact that the Soviet
assigned to ene
on that subject with the President.
Union is currently undergoing the most
it is not simply
countries in th
President Havel. President Bush shows a
sweeping, the most far-reaching changes in
lot of understanding for our problems, and
its entire history is more than evident, but
by Saddam Hu
that means in 1
he has already pledged certain forms of as-
it is not yet clear what the future arrange-
sistance in the statement he delivered in
ment of the Soviet Union will be. But it is
every country
the Federal Assembly, which you have sud-
our firm belief that the changes may be
Eastern Europ
denly had.
accomplished in a rapid and peaceful way
Your questio
Q. President Bush, even though you did
without any bloodshed and that they may
pothetical for
under some }
outline some assistance today in your
give the individual Republics and the peo-
speech, proportionately it's fairly miniscule
ples of the Soviet Union the measure of
can guarantee
ue to stand ag
compared to what Czechoslovakia needs.
autonomy which they desire.
our level-best 1
Are you prepared to consider further direct
Q. President Bush, what's your opinion
resolutions are
U.S. assistance?
on the plan of economic help to U.S.S.R.
President Bush. Well, I think we've
through eastern Europe which was pro-
ly, in a peacef
sein has got to
spelled out what we can do in terms of
posed by Minister Dienstbier [Foreign Min-
direct assistance right now. The thing that
ister of Czechoslovakia] in his speech at
1854
Administration of George Bush, 1990 / Nov. 17
Harvard University earlier this year? And
echoslovakia is in-
out condition, and the legitimate leaders
was this topic on the program of your talks
IMF [Internation-
have to be restored, and the hostages-and
in Czechoslovakia?
the World Bank
Czechoslovakia has some, and so does the
President Bush. I'm sorry, I didn't hear
United States-must be freed. This inhu-
sident Havel that
the first part.
e in that connec-
mane treatment of hostages is unaccept-
We didn't discuss that in great detail, but
able. And then there must be a stable order
I am convinced that the United States-and
in the Gulf.
that would be of
I tried to say this in our speech to the joint
So, these objectives will be fulfilled. And
vakia and to the
session-has an enormous stake. We do not
my little few hours I've had here on this
increased invest-
want to see Czechoslovakia, Poland, and
visit convinced me that it's everybody that's
vate-sector help.
Hungary off in some kind of no man's land.
being hurt by this aggression.
and then that, I
Thus, we did discuss future security ar-
ould be the best
Q. President Havel, do you agree with
rangements. It is my view-and I would let
President Bush's views on the Gulf, and do
nge answer-for
the Czechoslovakian Government speak for
f Czechoslovakia.
you believe the United States is acting re-
itself-that some more active role in the
sponsibly in the Gulf?
K we should give
CSCE process will contribute to the stabili-
President Havel. Czechoslovakia has
the Czechoslovak
ty of Europe and fully include Czechoslova-
made it very clear on a number of occasions
kia in the decisions that lie ahead for
that it is necessary to resist evil, that it is
have you spoken
Europe.
necessary to resist aggression, because our
ican assistance in
Persian Gulf Crisis
own history has taught us ample lessons
/ fields and espe-
people? Would
Q. President Bush, in your speech in Par-
about the consequences of appeasement.
liament, you said we Czechoslovaks under-
Dear friends, unless you want the winds to
stand better than any other nation the Ku-
carry us away, you have to accept the situa-
it discuss S&T as
waiti situation. Suppose that something
tion that there is room for one more question
educational ex-
dwell on the sci-
similar happens in our part of the world.
only. [Laughter]
tinly, I would say
What attitude U.S. would adopt since we
Q. President Havel, do you fear that the
have no oil here?
Gulf situation is taking too much money
operate in every
President Bush. I'm glad you raised that,
away from the kind of problems that it
because one thing that is very clear to me is
could solve in Eastern Europe?
Europe
that what Saddam Hussein [President of
President Bush. -talking about oil
I ask you about
Iraq] has done in taking over Kuwait is dev-
prices?
t Union, as you
astating to the economies of eastern
President Havel. It is my opinion that all
we see that Mr.
Europe, say nothing of the economies of the
the resources that are expended on resisting
concerns do you
West and every other part of the world.
aggression anywhere in the world finally
the Soviet Union
This naked aggression against Kuwait has
turned to the good of all humankind.
central Europe-
clearly had an adverse effect on the econo-
President Bush. Thank you very much.
mies of every single country because of the
You heard our host.
t that the Soviet
disproportionate amount of the GNP that is
President Havel. Thank you all for your
going the most
assigned to energy. So, I am very clear that
attention.
:hing changes in
it is not simply the United States and other
Q. President Bush, there is some feeling
an evident, but
countries in the West that are getting hurt
that you are too much in a hurry. What do
future arrange-
by Saddam Hussein's aggression and what
you think of a moratorium that's being
will be. But it is
that means in terms of higher oil prices but
called for, in terms of hostilities in the Gulf,
hanges may be
every country as well. Clearly, this is true in
by Mubarak [President of Egypt] and other
Eastern Europe.
leaders?
d peaceful way
that they may
Your question, other than that, is too hy-
President Bush. Mr. Mubarak and I see
CS and the peo-
pothetical for me to say what we might do
eye to eye on this situation in the Gulf.
the measure of
under some hypothetical situation. But I
can guarantee you, we are going to contin-
Note: President Havel spoke at 2:48 p.m. in
ue to stand against this aggression and do
t's your opinion
the Music Room at Hradcany Castle, his
our level-best to see that the United Nations
elp to U.S.S.R.
residence and the seat of the national gov-
resolutions are fully implemented-hopeful-
which was pro-
ernment. Following the question-and-
ly, in a peaceful manner. But Saddam Hus-
r [Foreign Min-
answer session, President Bush met with
sein has got to withdraw from Kuwait with-
his speech at
Cardinal Tomasek at the Archbishop's
1855
Nov. 17 / Administration of George Bush, 1990
A thousand miles
Palace. A tape was not available for verifi-
came here bearing candles against the dark
commonwealth of fr
cation of the content of these remarks.
night, answering the call of Comenius to
rible test. Czechosl
follow "the way of light." These brave
first nations to cond
flames came to symbolize your fiercely
Persian Gulf, one of
burning national pride.
magnitude of the W
A year ago, the world saw you face down
name of territorial a
Remarks in Prague, Czechoslovakia, at
totalitarianism. We saw the peaceful crowds
dence that appeaser
a Ceremony Commemorating the End
swell day by day in numbers and in resolve.
a century ago shoul
of Communist Rule
We saw the few candles grow into a blaze.
understand that the
November 17, 1990
We saw this square become a beacon of
wrong, there is good
hope for an entire nation as it gave birth to
there are sacrifices \
Thank you, Mr. President, and thank you,
your new era of freedom.
There is no ques
my Czech and Slovak friends. It is a tre-
mendous honor to me to be the first sitting
This victory owes its heart to two great
our nations, and
heroes. Alexander Dubček-22 years ago,
common cause. The
American President to visit this proud and
he led this nation in its first sweet taste of
ours is a just cause
beautiful country and to be able to join you
on the first anniversary of the extraordinary
liberty. His are the will and compassion that
vail. The darkness i
Velvet Revolution. What a powerfully
are the living Czechoslovakia. And then
stand against the wa
President Havel, a man of wisdom, a man
courageous Presider
moving sight it is.
of fremendous moral courage. In the dark
saying that Saddam
There are no leaves on the trees, and yet
it is Prague Spring. There are no flowers in
years, on one side stood the state; on the
Iraq] aggression mus
bloom, and yet it is Prague Spring. The cal-
other side, Havel. On one side, tyranny; on
Earlier today I to
endar says November 17th, and yet it is
the other, this man of vision and truth.
know this is a difficu
a time of extraordi
Prague Spring.
Among the first was Havel, and now there
undertake political
Your Declaration of Independence pro-
are millions.
claims: "The forces of darkness have served
Today a Europe whole and free is within
know one thing: Am
this decisive mome
the victory of light. The longed-for age of
our reach. We've seen a new world of free-
humanity is dawning." Today the freedom-
dom born amid shouts of joy; born full of
with you. We will (
mapped out by ou:
loving people of the world can bear witness
hope, barreling with confidence toward a
70 years ago, a ro
that this age of humanity has now finally
new century; a new world born of a revolu-
scribed by Woodr
and truly dawned on this splendid nation.
tion that linked this square with others-
peace and safety to
Seven decades ago, an unprecedented
Gdansk, Budapest, Berlin-a revolution that
the world itself at la
partnership began between two Presidents:
joined together people fueled by courage
For the past 70 y
the philosopher, Tomás Masaryk, and the
and by humanity's essential quest for free-
Independence has
idealistic scholar, Woodrow Wilson. It was a
dom.
cherished in our Lil
partnership as well among Czechs and Slo-
For four decades, our two nations waited
it is time for Ma:
vaks to join together in federation. And,
across the divide between East and West,
home. And as hum:
yes, it was a long, hard road from their
two peoples united in spirit, in vision, and
to Czechoslovakia,
work on your Declaration of Independence
yet separated by conflict. Today the United
ured document.
to this magnificent celebration today. I am
States and Czechoslovakia stand together,
On behalf of the
proud to walk these last steps with you as
united once more in our devotion to the
States, I am proud
one shared journey ends and another
democratic ideal.
people of Czechos
begins.
Now, with the division of Europe ending
year that freedom
Our countries share a history. We share a
and democracy ascending in the East, the
slovakia; 1990 will I
vision. And we share a friendship, a friend-
challenge is to move forward. In Czechoslo-
ration of Independe
ship Masaryk described to Czech-American
vakia: from revolution to renaissance, across
golden city of Prag
soldiers 70 years ago. He said: "Do not
this continent toward a new Europe in
generations a remin
forget that the same ideals, the same princi-
which each nation and every culture can
our nations and the
ples ever unite us. Do not forget us as we
flourish and breathe free. On both sides of
humanity.
shall never forget you." That is why I'm
the Atlantic: toward a commonwealth based
In 1776, when o
here today. We have not forgotten.
on our shared principles and our hopes for
pendence was first
The world will never forget what hap-
the whole world, a commonwealth inspired
tolled to proclaim t
pened here in this square where the history
by the words of your great Comenius writ-
moment. That bell-
of freedom was written-the days of an-
ten three centuries ago: "Let us have but
Liberty Bell-has fc
guish, the days of hope. So many times, you
one end in view: the welfare of humanity."
1856
Administration of George Bush, 1990 / Nov. 17
against the dark
A thousand miles to the south, this new
our nation's deepest dedication to free-
of Comenius to
commonwealth of freedom now faces a ter-
dom-dedication like your own. Inscribed
These brave
rible test. Czechoslovakia was one of the
on this bell are the words: "Proclaim liberty
:e your fiercely
first nations to condemn the outrage in the
throughout all the land." We want to help
Persian Gulf, one of the first to measure the
you proclaim your new liberty throughout
W you face down
magnitude of the wrong committed in the
all this proud and beautiful land, and so
peaceful crowds
name of territorial ambition. It is no coinci-
today we give to you our last replica of the
rs and in resolve.
dence that appeasement's lonely victim half
Liberty Bell. You know, one of our patriotic
:ow into a blaze.
a century ago should be among the first to
songs proclaims, "Sweet land of liberty-
me a beacon of
understand that there is right and there is
from every mountainside, let freedom
S it gave birth to
wrong, there is good and there is evil, and
ring."
there are sacrifices worth making.
And so, when bells ring in Wenceslas
art to two great
There is no question about what binds
Square or in Bratislava or anywhere in this
-22 years ago,
our nations, and so many others, in
glorious country, think of this bell and know
st sweet taste of
common cause. There is no question that
that all bells are tolling for your precious
compassion that
ours is a just cause and that good will pre-
liberty, now and forever. And so, now I am
akia. And then
vail. The darkness in the desert sky cannot
proud to ring this bell three times. Once for
wisdom, a man
stand against the way of light. I salute your
your courage, once for your freedom, and
age. In the dark
courageous President when he joins us in
once for your children.
he state; on the
saying that Saddam Hussein's [President of
side, tyranny; on
Iraq] aggression must not be rewarded.
[At this point, the President rang the bell.]
ision and truth.
Earlier today I told your Parliament, we
May God bless Czechoslovakia. Thank
know this is a difficult time for you, but also
, and now there
you all very much.
a time of extraordinary optimism. As you
undertake political and economic reform,
nd free is within
Note: The President spoke at 4:13 p.m. in
know one thing: America will not fail you in
W world of free-
Wenceslas Square: Prior to his remarks, he
this decisive moment. America will stand
joy; born full of
participated in a wreath-laying ceremony at
with you. We will continue along the road
dence toward a
the St. Wenceslas Memorial. A tape was not
mapped out by our Presidents more than
born of a revolu-
available for verification of the content of
70 years ago, a road whose goal was de-
these remarks.
e with others—
scribed by Woodrow Wilson: "to bring
a revolution that
peace and safety to all nations and make
eled by courage
the world itself at last free."
1 quest for free-
For the past 70 years, your Declaration of
Independence has been preserved and
Statement by Press Secretary Fitzwater
o nations waited
cherished in our Library of Congress. I say,
on the Czechoslovakia-United States
East and West,
it is time for Masaryk's words to come
Trade Agreement
it, in vision, and
home. And as humanity and liberty return
November 17, 1990
'oday the United
to Czechoslovakia, so, too, will this treas-
stand together,
ured document.
The United States and Czechoslovakia
devotion to the
On behalf of the people of the United
today exchanged diplomatic notes bringing
States, I am proud to be able to tell the
into force the trade agreement signed by
F Europe ending
people of Czechoslovakia: 1989 was the
the two Governments last April. The agree-
in the East, the
year that freedom came home to Czecho-
ment extends most-favored-nation (MFN)
d. In Czechoslo-
slovakia; 1990 will be the year your Decla-
tariff treatment to Czechoslovak exports to
naissance, across
ration of Independence came home to the
the United States and U.S. exports to
new Europe in
golden city of Prague. May it be for future
Czechoslovakia. President Bush expressed
ery culture can
generations a reminder of the ties that bind
his hope that the mutual extension of MFN
On both sides of
our nations and the principles that bind all
tariff treatment will "provide the impetus
nonwealth based
humanity.
for greatly expanded trade between our
d our hopes for
In 1776, when our Declaration of Inde-
two countries and the first step toward a
wealth inspired
pendence was first read in public, a bell
normalization of our bilateral trade rela-
Comenius writ-
tolled to proclaim the defiant thrill of that
tions." The exchange follows approval of
Let us have but
moment. That bell-we call it, at home, the
the agreement on November 16, 1990, by
e of humanity."
Liberty Bell-has for 200 years symbolized
the Czechoslovak Federal Assembly. The
1857
Nov. 17 / Administration of George Bush, 1990
Exchange With R
U.S. Congress approved the extension of
thank you for inviting me to visit your
Force One
MFN on October 23.
country. Barbara and I are delighted to be
November 18, 19
The agreement, along with its side letters
here, and I'm flattered that you invited me
on trade and financial matters, intellectual
to join you in this weekly radio talk.
Chancellor Helmu
property, and tourism, contains important
I spent a marvelous and moving day here
guarantees for American businesses, includ-
The President. -
in Prague. I met the new leaders of
ing the right to nondiscrimination in rent-
save it all for Gerr
Czechoslovakia, both Federal and Republic.
ing office space, paying for local goods, and
Arabia.
And I spoke before your Federal Assembly,
establishing bank accounts. Through this
that hall that has now sprung to life in
Q. Why?
agreement, the Czechoslovak Government
The President.
building your new democracy. And on
has also committed to upgrade substantially
asked—
Wenceslas Square, I joined you in celebrat-
its protection of intellectual property rights,
Q. You called K
ing the first anniversary of your Velvet Rev-
bringing its intellectual property regime to
was that about?
olution. And it's really been among the
a level on a par with that of other industri-
The President. C
alized nations.
most thrilling days of my life.
Q. In the last few
The implementation of this agreement
The ties between our two countries are
The President. N
coincides with the next phase of Czechoslo-
unique, going way back to the creation of
Q. Yesterday?
vakia's concerted efforts at market reform
the Czechoslovak state. And Americans feel
The President. N
and trade liberalization. The Government
a special attachment to your Czech and
Q. What about
of Czechoslovakia has announced plans to
Slovak federation.
ment on Tariffs a
activate a number of important reform
Our peoples were cut off from each other
was asking Marlin
measures in January 1991, including price
for most of the Communist period, and
whether or not y
liberalization through the delinking of retail
we've now begun making up for what we
that up today.
and wholesale prices, internal currency con-
Mr. Fitzwater. I
missed through those two generations. And
vertibility, and the privatization of large
I regret that I was unable to visit Slovakia
weeks since you ca
state enterprises through the establishment
The President.
during this brief visit, so let me extend a
of joint ventures with foreign entities.
him today. Mark
special word or greeting to the people of
President Bush praised Czechoslovakia's
Slovakia and say how delighted I am that
Soviet Union/Pers
reform efforts as "impressive initiatives,
the United States will soon reopen its con-
Q. What do you
heralding a new age in Czechoslovakia's re-
sulate there in Bratislava.
in the Soviet Unior
lations with the international trading
system." The President also expressed his
And let me say to all the citizens of the
The President. \
hope that Czechoslovakia's reforms would
Czech and Slovak Federal Republic: We re-
a chance to talk to
continue to move the country towards full
joice with you in your liberty, and we
of that.
trade liberalization.
pledge that we will not fail you in this deci-
President Václav I
Combined with the current and planned
sive moment of your history.
But this visit wa
reforms in Czechoslovakia, the extension of
President Havel, once again, sir, my
emotional and ver
MFN should result in the threefold in-
thanks to you for allowing me to join you
what Havel said y
crease in bilateral trade over the next few
on the airwaves of free Czechoslovakia. God
noted around the V
years, setting the stage for a strong trade
bless you all.
rations for his own
relationship between our two countries.
as it related to a
Note: The address was recorded at 6:40 p.m.
East, because this
it means to be tal
on November 17 at Hradcany Castle in
dinner and afterwa
Prague, Czechoslovakia, and was broadcast
the patriots there,
as a part of President Havel's weekly radio
conviction that ag
Radio Address to the People of
program at 2 p.m. on November 18. Follow-
I think he answer
Czechoslovakia
ing the recording session, President Bush
rectly to one of yo
November 17, 1990
attended a reception at the castle hosted by
very, very forceful.
Indeed, it is an honor for me to be here
President Havel. Later, President Bush went
Q. Everybody
on the first anniversary of your Velvet Rev-
to the U.S. Ambassador's residence, where
olution. And I'm doubly honored to be the
he stayed overnight. A tape was not avail-
The President.
first American President ever to visit
able for verification of the content of the
Q. late Jar
Czechoslovakia. And, President Havel, I
address.
1858
Administration of George Bush, 1990 / Nov. 18
me to visit your
re delighted to be
Exchange With Reporters Aboard Air
The President. -resolutions will pre-
Force One
vail. I'm convinced of it.
nat you invited me
radio talk.
November 18, 1990
Q. So what about Bennett [former Direc-
tor of National Drug Control Policy]-
d moving day here
The President. And I was very pleased
new leaders of
Chancellor Helmut Kohl of Germany
with the support yesterday that I saw in
leral and Republic.
The President. here's why. I want to
that-I think it was your poll, wasn't it?
Federal Assembly,
save it all for Germany or France or Saudi
ABC? Its strong support for what we're
sprung to life in
Arabia.
doing-very strong. You can write the story
nocracy. And on
Q. Why?
one way; but when you analyze the results
ed you in celebrat-
The President. Why? That's what I
of the poll, why, it was very, very positive. I
f your Velvet Rev-
asked
think some were frustrated we haven't
been among the
Q. You called Kohl this morning? What
moved sooner, and some are frustrated we
life.
was that about?
may be moving too fast. But if we add it all
The President. Called him?
two countries are
up, there is strong support for what the
Q. In the last few days?
to the creation of
United States is doing at home, and I think
The President. No.
nd Americans feel
there's strong support for what we're doing
Q. Yesterday?
around the world. I'm sure of it in Czecho-
your Czech and
The President. No.
slovakia. I can guarantee you that.
Q. What about GATT [General Agree-
Q. Do you consider that a green light?
ff from each other
ment on Tariffs and Trade]? Yesterday I
The President. I consider it a solid front.
unist period, and
was asking Marlin about GATT and about
Q. A what?
g up for what we
whether or not you were going to bring
The President. A solid front. Because I
I generations. And
that up today.
think this: What we learn here today is just
e to visit Slovakia
Mr. Fitzwater. I think it's been a couple
one more affirmation that the United Na-
let me extend a
weeks since you called Chancellor Kohl.
tions is correct in its resolutions.
to the people of
The President. Yes. I haven't talked to
Q. Are you planning a TV speech when
lighted I am that
him today. Mark that: Did not call Kohl.
you get back to the States?
on reopen its con-
Soviet Union/Persian Gulf Crisis
The President. Haven't planned it, but
Q. What do you think about the changes
there may well be one.
he citizens of the
in the Soviet Union?
Q. How close are you to getting enough
I Republic: We re-
The President. Very interesting. I'll have
votes in the U.N. to go for a
liberty, and we
a chance to talk to Mr. Gorbachev about all
The President. We're not discussing that
il you in this deci-
of that.
now. We're just doing a little consultation.
ry.
President Václav Havel of Czechoslovakia
William J. Bennett
: again, sir, my
But this visit was very moving and very
Q. Did you really pick Bennett to head
g me to join you
echoslovakia. God
emotional and very good. And I thought
the-
what Havel said yesterday should be well
The President. We're not discussing that
noted around the world, not just on his aspi-
now.
rations for his own country but what he said
Q.
Republican National Committee?
orded at 6:40 p.m.
as it related to aggression in the Middle
The President. I don't know-a lot hap-
idcany Castle in
East, because this country has learned what
pens when I leave. We've got to wait and
nd was broadcast
it means to be taken over. And all during
do a little-[laughter]-
bel's weekly radio
dinner and afterward, talking to the people,
Q. This happened without your knowl-
ember 18. Follow-
the patriots there, why, it just redoubles my
edge?
, President Bush
conviction that aggression can't stand. And
The President. Yes. Isn't that amazing?
2 castle hosted by
I think he answered that question very di-
Q. Shocking.
sident Bush went
rectly to one of you all yesterday which was
very, very forceful.
Arms Reduction Agreements and the
residence, where
Q. Everybody thinks you're going to
Conference on Security and Cooperation
De was not avail-
le content of the
war
in Europe
The President. The United Nations
Q. Are you intending for the Gulf to
Q. late January.
make everybody forget about CSCE?
1859