Tuesday, May 05, 1998

Klaus delivers third annual Stigler lecture

Klaus delivers third annual Stigler lecture
The Chicago Maroon
By Pamela Appea

In the late 1980s, Czechoslovakia was still under Soviet rule. Those in power viewed the theory and practice of free market economics to be irrelevant or even dangerous. During this epoch, Vaclav Klaus came to visit the University of Chicago.

After years of secretly reading and discussing the ideas of famed Chicago economists such as George Stigler and Milton Friedman, Klaus had come full circle. Shortly after this visit, Klaus was ready to put economy theory into practice in his own country after 40 years of Communist rule.

Although Klaus was never formally trained in Chicago, he enthusiastically claims wherever he goes that the strong spiritual connection is just as important as a degree

Klaus, former prime minister of the Czech Republic and chair of the Civic Democratic Party, spoke to a full crowd at Mandel Hall in the Reynolds Club on Monday, May 4.

President Hugo Sonnenschein and Robert Hamada, dean on the Graduate School of Business (GSB) made the opening remarks. Klaus’ speech, entitled “The Preaching of George Stigler, Communism and Its Transformation” was the U of C’s third annual George Stigler lecture.

Klaus addressed the issue of economic reform in the post-Communist Czech Republic.

“I do not believe in the possibility of a [totally] smooth economic transition. We are not in a brave new world of perfect markets or perfect government,” Klaus said.

“The market economy flourishes now … We know that the best way to discourage monopolistic practices is to encourage domestic and foreign investors.”

In a light moment, Klaus joked, “There is an American expression, there is no free lunch, and there is no free reform [either,]” he said.

Klaus detailed the difficulties of transforming a Communist state into a democracy. “The non-zero cost of reform meant that there was a heavy price to be paid,” he said.

According to Klaus, after 40 years of administered prices under Communism, the return to a normal pricing system in the Czech Republic did not go smoothly. He felt it was necessary to rapidly privatize as many businesses as possible during the beginning of his tenure as prime minister.

Klaus related the story to his audience: “In the early days, [in] 1990, American businessmen came knocking on my door asking, “When do you plan on privatizing Czech Telecom, the country’s telephone company?”

Klaus explained that every single business, including the first grocery store and the first hairdresser, needed immediate attention in the process of privatization. He stated that Western investors at the time did not understand how basic changes had to be implemented.

The second stage of economic reform is more classical. In the years to come, Klaus believes that more attention will be paid to privatization of banks and Telecom.

“The citizens expect a visible, tangible change,” said Klaus.

“In the past few years, it is difficult to explain the gradual process of transformation and implementation of a viable economy in the Czech Republic,” he said.

Klaus discussed the importance of economic theory in the revitalization of the Czech economy. “Without theories, it would be a hopeless endeavor,” he said.

Klaus praised Stigler’s economic theory and social scientific research. He stated that Stigler’s ideas have made an important impact for the international community.

Attendees enjoyed the lecture.

“I think he is a very interesting figure. He stands for George Stigler’s ideas and represents the importance of the market and the role of the government,” said Carlos Perez-Verdia, a fourth-year graduate student in Economics. Perez-Verdia went on to add that Klaus has demonstrated to the world that economic theory put into practice does work.

“I think Vaclav Klaus is a great politician because he made a huge socio-economic transformation [of his government.] I admire his respect of individual freedom, freedom of ideas, and democratic rule,” said Tomas Serebrisky, a third year Economics graduate student.

“I research capital markets in central Europe. He is the one who transformed the market in the Czech Republic. In history, he is a very important person,” said Marnie Gracey, a first-year student in the GSB.

Klaus has a degree from the Prague School of Economics, where he studied international economic relationships and economic trade. He also studied Economics in Italy and at Cornell University.

Former George J. Stigler lecture speakers include George Schulz and Milton Friedman. The event is sponsored by the George G. Stigler Center for the Study of the Economy and the State. Funds for speakers’ honorariums are provided by the Lynde and Harry Bradley Foundation, Inc.

Originally published Tuesday, May 5, 1998