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Economy
Saturday, September 1, 2007
A tale of two cities

This is a tale of two cities: socialist Prague and post-socialist Prague – visited eight years apart. On my first visit in 1991, Prague was beginning to awaken from a long socialist Rip von Winkle slumber. It was desolate, grey and downright dilapidated, seemingly defying the expectations of its western neighbours in late twentieth century Europe. The Ambassador hotel in which I stayed on Wenceslas Square was crumbling and its employees did not appear to understand the meaning of service. Yet the wonderful buildings, then in various states of decay, provided evidence that this had once been a magnificent city.

In 1998, as I disembarked from the plane, I could scarcely believe my eyes as I noted the changes to Ruzyni airport. In 1991, it had appeared to be little more than a glorified shed. Now it was beautiful. Nothing could have prepared me for the spectacle of an incredibly revived Prague, a city that was now vibrant with economic activity, the shops bursting with goods. Indeed, a man-made miracle. Even more incredible was the state of the hotel in which I was staying. The quality of service was second to none. Incredibly, this was the Ambassador Zlata Husa Hotel, the one in which I had stayed in 1991 consolidated with the hotel next door. Wenceslas Square was now breathtakingly, poetically beautiful, the beneficiary of a free economy.
It is noteworthy that few South Africans, if any, talk about economic freedom these days. The struggle against apartheid was about securing freedom for the oppressed, which included their emancipation from the fascist embrace of the apartheid economy. Freedom, as it was understood then, was seen as a multifaceted concept embracing, among others, freedom of expression, freedom of association and economic freedom, understood to exclude the use of force or fraud in the pursuit of economic goals.
Our new SA constitution reflects these various aspects of the concept of freedom.  However, constitutions can be ignored or violated by both government and citizens. Perpetual vigilance is required in order to prevent violations by either party. It is therefore encouraging that in SA today the conduct of the public sector and civil society is continually measured against the constitution, making it the litmus test of acceptable political conduct. However, there does not appear to be the same level of support for the protection of economic freedom. Yet economic freedom is intimately connected to and underscores all the other freedoms we so value.
Freedom of trade – the right to buy and sell and enter into commercial contracts free from force or fraud or other coercive interference – requires and gives substance to freedom of choice, freedom of movement, freedom of thought, freedom of expression and freedom of association. The right to the ownership and possession of private property free from arbitrary deprivation is, in turn, an indispensable condition of free trade. It underpins the ability of individuals to resist state violations of other key rights and freedoms, such as the right to freedom and security of persons, the right to privacy, the right to make political choices and the right to freedom of conscience.
All these rights are entrenched in the Constitution and we are vocal in their defence. Yet when Parliament passes laws that impinge upon freedom of trade or encroach upon the right to private property, one hears few voices raised in protest. This is unfortunate, since these economic freedoms are the guarantors of flourishing economic activity.
It is part of the fundamental nature of human beings to constantly seek to make improvements in their socio-economic circumstances. They are propelled by their diverse wants and needs to become entrepreneurs or offer their labour for sale. The socialist economies of Eastern Europe imploded because they failed to recognise this simple yet immutable law. The system was not compatible with human nature. It ignored the fundamental elements of economic freedom, denying individuals the right to own private property, to put such property to work for their own account, and to trade on their own account without outside interference.
When Czech’s gained their freedom they were indeed fortunate to have brilliant economist Václav Klaus, the current President of the Czech Republic, to guide their economic fortunes. He persuaded his fellow citizens to support the transfer of government enterprises and investment from the state to the people; from virtual 100% state ownership, the Czech’s are down to 18%. In the same time SA has reduced from 42.2% state ownership to 32%. Not surprisingly, the Czech Republic is now above SA in the economic freedom rankings. Russia has not been as fortunate, needing many more reforms to rid its people of the heavy hand that continues to deny its people true freedom.
I visited Moscow in 1991 after my stay in Prague. There it was a great relief to find a pocket of informal trade after having passed long queues of people with grey and sullen faces outside shops, waiting for goods that they were not sure were available or might arrive. A trader was selling bread from the back of a truck. The following day I found the same trader charging more for the same bread. Did he not care about his fellow humans? Why was he exploiting them? Did the change in price have anything to do with the fact that he had more customers than he did the day before? Chuckling, he answered my barrage of questions in one sentence, “I don’t know; I just find myself doing it.”
The baker had not been educated in the laws of demand and supply. He was doing what people, left to their devices, always do. They engage in trade and follow rules of generally acceptable moral conduct. This manifestation of the spirit of enterprise confirmed to me that these traders would contribute to a flourishing economy if only they were allowed space to exercise their entrepreneurial talents. The Czech transformation was added confirmation.
The contrast between Prague’s depressed state under a socialist regime and its astonishing transformation after the fall of socialism brings the individual’s role in economic events into sharp focus. Command economies assume that the state and its agencies know best. The baker selling his bread off the back of a truck in a Moscow street showed how humans are at their most productive when the instinct for freedom is unleashed.
Socialist Prague left me depressed and disenchanted with human behaviour under authoritarian rule. A free Prague left me exhilarated, enchanted and convinced.  Economic freedom delivers! By Temba A Nolutshungu, a director of the Free Market Foundation.
 

Copyright © Insurance Times and Investments® Vol:20.8 1st September, 2007
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