The Adam Smith Address: Adam Smith's Legacy and Economic Transformation of Czechoslovakia

By Klaus, Vaclav | Business Economics, January 1993 | Go to article overview

The Adam Smith Address: Adam Smith's Legacy and Economic Transformation of Czechoslovakia


Klaus, Vaclav, Business Economics


IT IS MOST intellectually stimulating for me to have this unique opportunity to speak here today and, in addition, to be somehow related to the name of the rounding father of economic science, Adam Smith.

As is well known and already taken for granted, Czechoslovakia and other former Communist countries have suffered for many decades under an extremely inefficient, centrally planned and administered system. This was a wasteful system, a system not reflective of human wants and desires. It is not necessary to try to add anything new to the criticism of such a system, because the task of our time today is to replace such a system with a well-functioning, efficient, market economy based on private property and private initiative.

Such a system should have a small government and be fully integrated into the world economy. In this respect, Adam Smith's message is crucial and very relevant. My experience tells me that the real understanding or nonunderstanding of Smith's message is what distinguishes a successful or unsuccessful transformation of post-communist countries in our part of the world.

VISIONS AND REFORM STRATEGIES

I am convinced that Adam Smith supplies us with a vision of where to go that needs no correction. Laissez-faire, market economies (as I always say without any qualifying or perhaps disqualifying adjectives), small government, liberty and responsibility represent the catchwords of our thinking. It may be trivial to you, but it is not trivial in our part of the world. We live in a world where the concept of entrepreneurship and business private property was unknown and even dangerous to advocate.

Adam Smith teaches us that the role of an entrepreneur is crucial; that to follow one's own interest is the best and the only available way to maximize the welfare of all members of society. In our part of the world, we tried to invent and to introduce utopian motives for human action, whereas Smith knew that for the smooth, efficient functioning of an economic and social system, we have to make use of "the strongest, rather than the highest" motives of human behavior. This idea was heresy in eighteenth century England and is heresy now in the contemporary post-communist world. Smith explained to us that the strongest motive is "the uniform, constant and uninterrupted effort of every man to better his conditions." He knew as well that the wealth of a nation grows only when the individuals are getting richer.

All of that is of utmost importance in our part of the world just now because you will still be able to find that there are dreams of a paternalistic state, together with open or hidden suspicions that getting richer is always at the expense of somebody else and that the creation of wealth is a zero-sum game.

Adam Smith's message is important for us not only in the rather esoteric world of ideas and visions, but I am convinced that he -- at least implicitly -- gives us clear instructions regarding overall reform strategy. This is a very pragmatic issue.

Adam Smith knew that the market and its evolution is a spontaneous process that can't be planned, organized, or constructed, because it is the outcome of millions of individual human actions and not of an ambitious single act, based on constructivistic human design (to use the famous dictum of Hayek).

We are, in our part of the world, under permanent pressure to create markets first and to "use" them after that. Everybody (especially our opponents) wants to see perfect reform blueprints based on a detailed sequencing of individual reform measures first. They do not want to participate actively in the often difficult and traumatic transformation process. They used to think in terms of "building socialism" and now they want to "build" markets. They want, therefore, to introduce the invisible hand of the market by means of a visible and omnipotent hand of a government bureaucrat.

The Adam Smith message is, however, clear: We have to liberalize, deregulate, privatize at the very early stage of the reform process, even if we are confronted now and will be confronted with rather weak and, therefore, not fully efficient markets. …

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