20 Leaders Magazine II 2009 Professor Jan Švejnar 1952 is a renowned economist author and editor of numerous academic articles books and studies His academic interests are in the areas of economic development and transition labour economics and behaviour of the fi rm He is Director of the International Policy Center at the Gerald R Ford School of Public Policy the Everett E Berg Professor of Business Administration and Professor of Economics and Public Policy at the University of Michigan Before joining the faculty at the University of Michigan Jan Švejnar was a professor at the University of Pittsburgh and at Cornell University He received his B S from Cornell University and his MA and Ph D in Economics from Princeton University He is also the founder and Chairman of CERGE EI in Prague He served on board of several companies ČSOB GE Capital Czech Republic SPT Telekom and as an advisor to President Václav Havel in 1994 2003 His involvement in Czech political life culminated in 2008 when he ran for the presidential post against Václav Klaus At the moment he is devoting most of his energy to the project of establishing a major non partisan multi issue think tank in the Czech Republic THE CRISIS NOBODY KNOWS WHAT IS GOING ON An interview with Professor Jan Švejnar Renowned Economist Photo Vladimír Weiss How long do you expect the current economic and financial crisis to take Nobody really knows how long and how deep it is going to be because it is very unusual In a way it is the most profound financial crisis since the Great Depression the economic crisis is not so deep yet but we don’t know how far into it we are It seems to go in phases the most recent one is happening in Central and Eastern Europe and it is causing repercussions worldwide The financial crisis itself is still unfinished and that brings about a new level of heightened uncertainty nobody quite knows what is going on The impact of the financial crisis on real economy will be felt around the world even in countries that have not been involved yet like the Czech Republic Everybody is affected My prediction is that we will see a deeper crisis in the United States than elsewhere but probably also a shorter one In Europe with many social stabilizers that are in place the crisis is not going to be as deep but it may last longer Beyond that it is very hard to say what will happen Do you expect the economic policy of the new US administration to help US economy to recover quickly Yes it will help but the question is whether it is enough

Leaders Magazine II 2009 21 The scale of intervention is virtually unprecedented in modern history when you look at the spending that is envisioned it is going to exceed 10 of GDP which is unheard of in Europe It is a massive infusion of government spending and yet many people think that it may be not sufficient The problem is an issue of expectations many people are assuming that things are going to get worse and act accordingly which is a self fulfilling prophecy Right now we are in a downward spiral and the question is whether Obama’s administration and coordinated actions around the world may manage to break those expectations and turn them from negative to positive once this happens we can see a quick increase in the United States Do you see the US Chinese relations as the crucial piece of puzzle solving the crisis Yes I do China is a large economy now and it is an economy that has been built on exports to the US primarily but around the world as well but they have been buying a lot of intermediate products so they are large importers too The figures we are getting from China point to a major fall in exports but they are reducing imports even more So in a way the Chinese demand for products is going down even more than the demand for Chinese products worldwide Right now China is unfortunately pulling the world economy down and the question is what is going to happen next Do you expect any major economic deals between the US and China I think they will continue dealing together as they have been until now Whether there will be something more in terms of a coordinated government action I am not sure It would be difficult to orchestrate but I wouldn’t rule out any kind of deals because everybody realizes the situation is so complicated and difficult that any coordination at a global level can be only positive Do you also see a danger in the possible spill over of the current crisis into the state obligations and bonds market Yes one problem is that some countries are simply not doing well enough A related problem is that the capital markets are not providing credits in situations where they previously were There are number of countries that will need to refinance part of their debt which is normally a routine operation but suddenly the capital markets will not be able to provide financing It can happen to Greece Italy and now there are worries about the CEE region not so much about the Czech Republic but about other countries So if a country suddenly cannot get financing one possibility would be that other strong European countries like Germany might come to the rescue and provide financing It goes against the principles of the EU but it could be done In some sense the smaller countries would not be such a big problem but imagine a large economy like Italy once the problem of refinancing would start coming to countries that are sizeable then I think nobody has a solution How would you evaluate the measures offered on the level of EU and the European politicians for example by Mr Sarkozy Do you think we can still label these politicians on the basis of right left cleavage It stops being a question of left and right it is question of being nationalist versus being internationalist Some of the statements that Mr Sarkozy made are very dangerous equally dangerous was the original formulation in the Congressional version of the US stimulus bill where you could find preferences for buying the US steel and so on It is really very important for everybody to stick to the open economy and free trade idea because our experience from the Great Depression is that to a large extent it was brought about by the countries erecting protectionist barriers Without trade the demand goes down so much that the economies collapse How do you see the role of the Czech EU Council Presidency in solving the issue at the European level If there is something to be critical about it is that the Czechs should have been and should be much more active and assertive Once you are presiding the crisis is booming and we have clearly seen it coming the activities and concerted actions that would have been trying to fight it should have been organized If you compare the measures adopted in Europe to those in the US Europe has employed nation specific steps as opposed to overarching type of initiatives and that’s where the Czech Presidency acting together with some of the strong countries should have taken leadership and coordinated because especially when it comes to stimulating demand it ought to be done at a Europe wide level in order to save the whole continent And the Czechs should be the first to push for it because we are one of the most open economies we depend on foreign trade Stimulating demand within Europe is in our primordial interest Otherwise on the routine level the Czechs are proving to be capable administrators of the EU in many other areas Why in your opinion the Czech Presidency didn’t have a handful of initiatives and proposals for solving the economic crisis when it was clear it was going to be the issue It is surprising The US economy always shows you in advance what’s going on so the fact the Czech Prime Minister and Minister of Finance were saying until late last fall that we were an island of stability and not going to be greatly affected was naïve Given that they have had enough time to get prepared to be leaders of Europe they should have started some actions planning economic summits coordinating with the US and other large economies etc There are lots of questions why the Czech government has not been more assertive but it is probably linked to the whole approach of how to handle the task and the domestic political circumstances Turning to the domestic remedies offered how do you regard the recently published plan of the National Economic Council Overall it is not bad it is a question of where you place the emphasis My own thinking is that there is not much use for stimulating domestic demand there is much use in stimulating the overall European demand and that should be handled within the EU Presidency If one were to stimulate domestic demand in the Czech Republic it should be in those sectors that really have major linkages to other sectors within the domestic economy Those sectors happen to be construction food and wood processing the automobile industry doesn’t have major linkages because it imports substantial intermediate inputs from elsewhere Overall trying to stimulate demand by going in a targeted way after certain industries doesn’t make too much sense We should place more emphasis than suggested by the Council on relieving the tax rates and social security contributions that are levied on labour make labour cheaper because then the firms have less of an incentive to lay off workers That has two positive effects to it first the employed workers add to the GDP and pay taxes second by not being unemployed they don’t collect unemployment benefits and hence do not cost the rest of the taxpayers anything Preventing or minimizing unemployment is very beneficial yet many people don’t fully realize it The policy recommendations offered by the Council members place some emphasis on this area but they should have put even more eggs into this basket Looking at the composition of the National Economic Council one can be surprised there are only economists there Do you think the team should have been composed in a more multidisciplinary way I have not taken part in the creation of the group so I cannot give an answer It is true the crisis is multifaceted and that in some sense you need an integrated broader approach I know that there has been some criticism Martin Bursík for instance stated that this was not a government team but rather a PM’s team Of course we don’t know everything the PM may have experts at other levels that he is using I personally would have thought that with the Czech EU Presidency coming it would have made sense to put the group together half a year earlier and have not only local but the best experts from around the world involved and use the group to solve both domestic and European problems There were some rumors you were considering a candidacy for the European Parliament What are your plans I always consider all options because I think one should but after the presidential elections I decided the best way for me to contribute to the development of the Czech Republic was not by entering politics but rather remain active in public life make sure I am in the media and share my views and advice with whoever is interested I also realized that very often there is a lack of information that is viewed as being unbiased independent information on which the political discourse could be fruitfully based I realized that we don’t have strong independent think tanks here sizable institutions that would gather facts and perform analyses that everybody could use People and political parties would naturally argue what the policy should be like according to their philosophical views but everyone would be better off if the arguments were based on carefully and independently generated facts and analyses I have therefore decided to devote a fair amount of my time to talking to few hundred people in the Czech Republic people who are either in business or personally wealthy and have broad horizons in terms of thinking whether we as a country are at a stage when we could put together significant amount of money to endow a think tank that would be independent and that would provide for everybody who is interested information of the type I mentioned I am guardedly optimistic in the sense that the preliminary discussions that I have had show that we should be able to generate some resources The question is whether it will be enough in order to establish a strong think tank in part because of the financial and economic crisis The think tank should be primarily oriented on economic issues It should be broader than that it cannot do everything but few important topic areas should be selected like energy and environment the EU and the Czech Republic in the EU socioeconomic reforms or quality of governance The institute should also have the ability to react quickly to breaking news the capability to respond and provide imminent quick summaries of what we know in a given area and offer politicians and the public background that they can base their decisions on I believe doing this through a network of both local and international experts would really contribute to the improvement of the quality of political discourse and decision making here From the experience it seems that the non partisan think tanks in the Czech Republic have problems both with the project based financing and activities which does not allow for quick response to emerging issues but being nonpartisan also means the access to the decision making and an ability to impact the policy development is rather limited or very complicated How do you plan to prevent this You are right There are two aspects in my idea that by design should help to accomplish the goal first is that by being large and influential the think tank cannot be ignored If you establish an institution which is omnipresent always commenting reacting organizing events and seminars it will be difficult to exclude it completely and also if the citizens have access to all information they can ask why it was not used Second I would be using my convening power to make sure that a number of political stakeholders would like to see the think tank here given it is not going to be pushing an ideological message that it will be up to them to seize its products and use them in a way their philosophy tells them to I believe such an institution could gradually change the receptivity of the public policy establishment both at the national and regional level It may happen we are not ripe enough yet as a country to go for it I always point out that even for the Rockefellers or Carnegies it took a while to become philanthropists so there may be ten years of work ahead of us but I thought this would be definitely something worthwhile trying By Věra Řiháčková českou verzi naleznete na www leadersmagazine cz

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