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. Last Updated: 07/27/2016

Klaus Debunks Welfare State

PRAGUE -- Czech Prime Minister Vaclav Klaus, touting the success of his monetarist reform formula for Eastern Europe, has warned post-communist countries to avoid the Western European welfare state as an economic model.


Klaus, the architect of the Czech post-communist transformation, said that it was now Western Europe that was burdened with over-regulation and over-control.


"The Welfare State, with its generous transfer payments unconnected to achievement, undermines the basic work ethic and thus individual responsibility," Klaus wrote in the current edition of the British weekly The Economist.


An economist who has preached supply-side post-communist reforms using the economic model of former British Prime Minister Margaret Thatcher, Klaus criticized Western European states for protectionist trade policies and heavy bureaucracy.


"The visible manifestations of Western Europe's failure to reform include a wasteful and socially explosive rate of unemployment -- and one which seems, moreover, to respond little to changes in the rate of economic growth and in the business cycle," Klaus said in the article.


Once a gadfly analyst for the former communist Czechoslovak State Bank, Klaus now points to the Czech Republic's low unemployment -- 3.2 percent in July -- and relatively low inflation -- 9.7 percent year-on-year in July -- as evidence of the success of his reform mixture of fast privatization, balanced budgets and reduced subsidies.


He frequently refers to his country's comparative advantage over Western Europe in costs and regulations -- Czech industrial wages are up to 15 times less than states in the European Union -- and workplace rules that allow for non-stop operation of factories.


Czech companies, under a government mandate, must prove that wage increases above the rate of inflation are matched with increases in output, or face fines.


The country's tax burden is still one of the highest in Europe. However, Klaus and his government remain solidly popular.