Vienna After Communism

Back then, there were fewer than half as many cars on the road in Czechoslovakia as in Austria. Fuel was very expensive for us, so cars spent more time parked than being driven. We all crowded onto public transport – a veritable paradise for today's green progressives.

Compared with the cars in Austria, ours were dreadful: poorly built, technically shoddy and outdated. Their designs dated from the 1960s. My friends and I got stuck in a traffic jam in Vienna in a Skoda we had borrowed from our parents – the first traffic jam of my life.

I was happy. Surrounded by all those beautiful, modern cars in every imaginable color, I could barely take it all in. Thank God it was freezing cold, and our Skoda had a homemade manual switch for the cooling fan to keep the engine from overheating. Newspaper vendors threaded their way between the stationary cars, selling the Kronen Zeitung.

You could immediately spot fellow Slovaks in Vienna by their poor-quality winter jackets. You could tell at a glance where people came from by the cut and vivid colors of their clothes. What I remember most, though, is the color. For the first time in my life, I saw Advent decorations in the streets. The buildings in the city center had been renovated, unlike those in Bratislava or Trnava at the time. I did not know where to look: the streets and storefronts were full of color and advertising. Today, progressives call this “visual smog”. They want it gone from the streets – along with the cars. Along with freedom.

It was a harsh realization: although I had been part of the middle class in Czechoslovakia, by Austrian standards I was incredibly poor. In 1989, nominal gross domestic product per capita in Czechoslovakia, measured in dollars, was about one-fifth of Austria's. In terms of purchasing power parity, the gap was somewhat smaller.

At home, an average salary bought us less than half of what an average Austrian salary could buy. This comparison does not take into account the vastly different quality of the products available. Yet in 1948, the average Czechoslovak was more than a fifth wealthier than the average Austrian.

I know this experience cannot really be conveyed. When I try to describe it to my adult children, they respond with knowing, slightly ironic smiles. As a good father, I hope they never have to experience it. But I fear they will when they travel outside Europe – to the US, for example, though probably not to quite the same extent.

Rich Countries, Poor Countries

I noticed a marked difference when crossing from Andalusia, Spain, into Gibraltar. It was nowhere near as stark, however, as the contrast between Vienna and Bratislava in December 1989. I had a similar experience entering the Republic of San Marino from Italy, near Rimini, and again in Monaco – even though I arrived there from the Côte d’Azur in southern France, itself an expensive destination for millionaires.

Anyone who has seen the contrast between North and South Korea, Singapore and neighboring Indonesia, or Hong Kong and mainland China when Hong Kong was still a British colony will know the feeling.

I have also experienced the opposite sensation – the immense joy of being a foreigner who is only passing through. I felt it in communist Romania in 1981, then ruled by the Carpathian vampire Nicolae Ceausescu. I remember packs of stray dogs, children begging by the roadside and completely empty stores. No meat.

My mother walked into a pastry shop, left immediately and said: “Never in my life.” The only bright colors I remember from Romania then were those on the enormous portraits of Ceausescu. Bucharest was utterly devastated. Thank God today's Romania is completely different.

Why did Czechoslovakia, which in 1948 was richer and more developed than Austria, fall to less than half of Austria's standard of living within 40 years? Why was East Germany incomparably poorer than West Germany? Why is South Korea incomparably richer than its northern neighbor?

Why are small states and territories such as Switzerland, Liechtenstein, Luxembourg, Monaco, Gibraltar, Singapore, Taiwan and – at one time – Hong Kong so much wealthier than their surrounding territories? Yet many of them have few natural resources. Why is Romania today incomparably richer than it was in 1981? Why has the US maintained virtually the same share of global nominal GDP since 2004, while the EU – even if we include the UK, which has since left – has lost 7% of its share over the same period?

What Makes the Difference?

The key difference lies in the degree of freedom people enjoy.

I once thought of capitalism and socialism as two completely opposing economic systems. Then I came to realize that the only difference lies in the degree of freedom people have within them. Under capitalism, you can start a business. You can pursue personal gain. You can do business with people you choose – and who choose you.

You can produce goods, trade in them or provide services of your choice. You can hire people or lay them off. In doing so, you face competition. This leads to innovation. Entrepreneurial innovation has given us an extra 40 years of life and means that we no longer have to visit so many of our children's graves. We owe it hot showers and flush toilets, medical devices, anesthetics and other medicines, cars, airplanes and smartphones, full refrigerators, beach vacations and ski trips.

In short, we owe our entire modern standard of living to it. We also owe modern science to it. The West did not become rich thanks to science. Nor did it become rich by plundering the colonies – a fairy tale Lenin spun in January 1919 which, unfortunately, many people still believe today.

The more freedom you have and the less the state intervenes, the better the information available to you about the market and the better the decisions you can make. That is because you have a brilliant tool at your disposal: prices, which reflect the decentralized wisdom and intelligence of all market participants.

No planner's wisdom comes close to the collective wisdom of the market. If you make sound, informed investments over the long term, you will become significantly wealthier than someone who does not invest at all or invests poorly because planners mislead them.

My mother once asked me why her pension was lower than that of an Austrian woman. After all, she had worked her whole life just as the Austrian woman had. I told her that many – though not all – people in socialist Czechoslovakia had worked just as hard as Austrians. But her generation, following orders from the party and the planners, had been forced to make the wrong investments.

Imagine spending your entire life digging a hole and filling it in again. You would be exhausted, but all you would leave behind would be a hole dug and refilled a thousand times. An Austrian, with the same effort, built a house. Today, he makes a living by renting it out.

Regulation After Regulation

No country has ever experienced pure capitalism. State intervention in the economy, bans and mandates have existed to some degree even in the freest economies in history. The principle still holds: the more freedom people enjoy, the wealthier the country.

This is especially evident today in the contrast between the US and EU economies. Despite Asia's growth, the United States has largely maintained its share of global nominal GDP. The EU's obsession with regulation, green fanaticism and the desire of its elites to rule a bureaucratic empire are the main reasons Europe is gradually fading from the global economic stage – much like Czechoslovakia after 1948, only more slowly.

Friedrich August von Hayek predicted this in his book The Road to Serfdom. Ludwig von Mises described the spiral of intervention in Interventionism: An Economic Analysis, while Joseph Alois Schumpeter argued in Capitalism, Socialism and Democracy that capitalism would ultimately collapse precisely because it had showered the world with unprecedented prosperity.

You do not have to destroy a thriving capitalist economy rapidly, as Benes and Gottwald did through bans and regulations between 1945 and 1949. You can also suffocate it slowly over decades: regulation by regulation, step by step toward socialism.

The socialism I experienced in Czechoslovakia was, in fact, nothing more than regulation taken to its ultimate extreme. Everything that could create wealth and a competitive economy was banned. If current trends in the EU continue, we will have Czechoslovak socialism back here in about 20 years.

The high priests of the climate religion make no secret of the fact that they hate private enterprise. Yet even if private enterprise were to survive in Europe, regulation would effectively prevent technological breakthroughs that could make Europeans richer. Degrowth, as promoted by progressives – the halting of growth and, in effect, the deliberate impoverishment of society – is impossible without total bureaucratic control of the economy.

Two Visions of Europe

Under socialism, everything depends on the state. On bureaucracy. On regulators. Why is this a problem?

Economist Herbert Simon writes in his book Administrative Behavior that a characteristic weakness of bureaucracy is that decision-makers are often reliant on information controlled by their subordinates.

Hierarchical organizations with many layers of management tend to become trapped in a double asymmetry of power and information. Those who make decisions wield enormous, unconstrained power. Yet they receive only narrowly selected and often distorted information.

Those lower down the power pyramid have better information, but the further down they are, the less power they have to act on it and bring about change.

This is a fundamental problem of bureaucratic empires. The larger the entity you govern, the more layers of management – that is, bureaucracy – you need. You issue decisions and laws that apply across the entire empire. They benefit some and harm others, yet you make them without information flowing up from below.

At the same time, the larger the entity bureaucrats manage, the less contact they have with those they govern and the less directly accountable they are to them. A bureaucratic empire thus inevitably breeds inefficiency. In the economy, that inefficiency translates into poverty for the population. History also teaches us that even the size of the market – which should have the opposite effect – will not save you. The story of China is very instructive.

Three German economists – Wilhelm Röpke, Alfred Müller-Armack and Ludwig Erhard, who served as economics minister, vice chancellor and later chancellor – are considered the architects of the German economic miracle. They also played a significant role in shaping the early stages of European integration through the mid-1960s. In their view, the European project could take one of two paths.

Both involved a common market. The “Greater Switzerland” path would lead to political decentralization, a ban on protectionism and competition among states. The question would be which country could offer a better life and better opportunities for entrepreneurs and employees alike.

The “Greater France” path would mean political centralization and protectionism – a path toward a large bureaucratic empire. The architects of the German economic miracle unequivocally preferred “Greater Switzerland”. They knew their history. Radical political decentralization was one of the main reasons Europe became wealthy.

Roughly 65 years have passed since these ideas were formulated. Judge for yourself which direction European integration has taken since then. That is the main reason I do not want to live in a European empire. And I will do everything in my power to fight against it.

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