I am afraid that – unintentionally and not to my great joy – I will play the role of an iconoclast here today. My country, the Czech Republic, is “a net energy importing country” which more or less predetermines our position. We have coal mines and nuclear power plants (and are not ready to give them up). Until now, we have had an electric energy surplus. By contrast, we practically fully import oil and natural gas, mostly from the East – 50 % of oil and 96.5 % of gas from Russia and 16 % of oil from Azerbaijan (plus 18 % from Kazakhstan).
We are, therefore, in favour of the maximum continuity of international trade with oil and gas at meaningful prices, reflecting their true economic substance – both its supply and demand sides. As a former Minister of Finance, former Prime Minister and former President, I am – at least I hope – able to make a few remarks on the general aspects of the energy situation. As a non-acting politician, I am neither able, nor willing to comment on short-term policy issues, on daily early morning news.
Our today’s reality is quite simple, but frustrating: the rapidly growing energy prices and the overall inflation represent a fundamental, for generations unknown, problem for both Czech consumers and businesses.
As an economist, who decades ago wrote his doctoral dissertation on inflation and who – by writing it – tried to understand the logic and mechanics of demand-pull and cost-push types of inflation, and as a politician, who after the fall of communism and its central planning liberalized prices and eliminated all kinds of subsidies, I am very much in favour of free markets and, consequently, against manipulation with prices. I will never become an exponent of a policy of price freezes or price caps. We, who lived in the communist era, know how destructive to the functioning of markets such measures are.
Human beings are socially conscious and I don’t have a problem accepting that, but our social consciousness shouldn’t blur our thinking. We should take this idea as a starting assumption. Without prices reflecting the economic scarcity, we can’t have a functioning economic system.
We should, therefore, strictly differentiate the domains of economic and social policies. The economy must be as autonomous as possible. It mustn’t be masterminded by political decisions. This conclusion may sound obsolete. It is not politically correct and progressive or progressivistic enough but I have to insist on it. The citizens of former communist countries are happy that they don’t have to live with central planning, five-year plans and irrational prices anymore.
Some of us are, however, frustrated now, thirty years after the fall of communism, that we did not protest loudly enough when a post-modern, extensively centrally administered economy slowly, piece by piece, began to be reintroduced in the last two decades. Today’s system is again based on many non-economic, aprioristically imposed imperatives, connected mostly with the growing role of green ideology. It destroys the rationality of the system of economic incentives and leads us astray.
The tragic Ukraine war and the associated price hikes and cuts in energy supplies we are now experiencing now did not fall from the heavens and didn’t come in an economically healthy moment. By saying that, I don’t just mean the Covid pandemic. The war came after years of global warming panic and – especially for us in Europe – after the passing of an economically totally flawed project called the Green Deal. The huge energy price increases in countries of Central and Eastern Europe in the recent weeks and months are the inevitable consequence of such a playing with markets. It started long before the Ukraine war.
In the document of the Forum, which we received in advance, the organizers raised the question: “What steps should natural gas and oil producing countries take”? I am not so ambitious as to dare give advice to sovereign countries, but it is evident that these countries should have no problem with the growing energy prices. They should use this moment as a historic window of opportunity to economically strengthen their countries and to prepare them for an uncertain future. The always existing uncertainty has been radically increased by the irresponsible war on Ukraine’s territory.
The gas and oil producing countries could – for the sake of their own development – benefit from the worldwide excess demand which is the result of a more than a decade-long quantitative easing and huge budget deficits in Western countries. That guarantees the continuing demand for energy supplies. The countries which are on the supply side will be the winners. We – on the demand side, especially the small European countries – tend to be the losers. The irresponsibly created inflationary imbalance will block our chances to restart our economic growth. Unfortunately, we deserve it. We didn’t sufficiently try to block the inflationary policies.
The purpose of gatherings such as the already 9th Global Forum Baku is to bring people together, to openly discuss urgent issues and arising challenges, to seek for mutual understanding. I am glad to be here and to be part of it.
Václav Klaus, IX Global Baku Forum, Panel 3: “Today’s Threats to Energy: Their Nature, Scope and the Need to Address Them in New, Wise Ways”, Baku, Azerbaijan, June 16, 2022.
