Curious American Views on Private Property Ownership
by Dr. Ljubo Sirc

The US government has moved heaven and earth to persuade European Community governments that they consent to a "potentially historic agreement to protect private property rights worldwide by inhibiting and deterring investment in property expropriated without compensation contrary to international norms". The undersecretary for International Trade, Steuart E. Eizenstat rightly celebrates this agreement concerning Cuba as a great achievement (WSJ, April 21, 1997), but then adds ominously that further such agreements "can be designed so as not to impede investment in Central Europe and the newly independent states of the former Soviet Union". Does this passage mean that the US government is throwing to the wolves the property rights of communist victims in Eastern Europe, some of them American citizens, and giving the green light to communists' successor parties so that they will be finally allowed to disposses their opponents and appropriate all for themselves?

The American investors can make a dollar or two by purchasing the property of communist victims. But, they will function in a very unsympathetic environment, lacking the infrastructure of hundreds of thousands of small and medium size enterprises which exist in the normal market economies. (Hungary has been mainly relying on such grand foreign investment which accomplished very little for Hungarians, while the Czech Republic, which had returned property to its rightful owners, is booming).

The American advisors to East European governments, such as Professor Jeffrey Sachs and his Harvard colleagues, have been successful in macroeconomics, but strangely misleading in their microeconomic advice. Their approach with free share distribution to all comers, with investment funds to mediate, failed to help with restructuring as recently pointed out in the OECD assessment of Slovenia. The Harvard and MIT advisors indulged in mechanistic economics and appear never to have read Adam Smith or Joseph Schumpeter on the role of entrepreneurs. Had they done so, they would have recommended the restitution of property to entrepreneurial families persecuted by communists.

As things now stand, the United States and its allies could substantially contribute to the revival of the European East if they insisted on the restitution of property to the rightful owners. In this way they would also strengthen the legal security for investment, which, according to Ambassador Eizenstat, the US government hankers after.

The reasons for this recommendation are as follows:
  • Moral and legal: private ownership is a human right which can prevail only if it is enforced everywhere. As soon as one starts making exceptions, i.e., in Eastern Europe, lax attitudes will soon travel West.
  • Economic: artificial private ownership on a big scale will not do. All East European countries - with the exception of the Czech Republic - are struggling because they lack real entrepreneurship.
  • Political: the former communists are denying ownership to previous entrepreneurial owners and are distributing it among themselves. This arrangement leaves most political levers in their hands. But there is more to it than that - the former communists may not be given the property as individuals but act as trustee-owners on behalf of some latent communist party. What the communists are scheming to do next is difficult to know, but amongst them are fanatics with very little understanding of real life. A fundamental article of communist faith is that deception is a legitimate tool of political activity, so that no former communist can be trusted unless he clearly denounces communism and shows his conversion in his deeds.

It is playing with fire to admit into NATO or EU the countries where former (?) communists still dominate. If the West is not vigilant, Europe may eventually be run by the far left. If Poland, Hungary and Slovenia are admitted to NATO, this organization will have a communist South-East flank, potentially reinforced by Italian communists. What will the function of NATO be then? And the communists will consider their admission to NATO the absolution of their parties from former crimes and a license to carry on their activities in disguise.

Slovenia is in a situation that is hard to believe: five years ago the parliament passed all laws necessary for the restitution of property, but the communist successor party, the so-called Liberal Democrats led by Janez Drnovsek (former president of socialist Yugoslavia) are preventing their implementation, thus violating the country's Constitution and valid legal Acts. Of the other countries in question, only the Czech Republic is on the right path. The Russian Federation's leaders would be only too glad to return confiscated property but have real problems because the Russian revolution began eighty years ago. The Czech example shows that throughout the rest of Eastern Europe, a restitution of property to its enterpreneurial owners or their families would definitely improve the economies and political balance of these countries. Without such firm foundations in place, security treaties of the United States and Europe with Eastern European countries will weaken rather than strengthen NATO.

Dr. Ljubo Sirc was an Earhard Fellow at the Hoover Institution, is a Senior Research Fellow at the University of Glasgow, Member of the Mont Pelerin Society and the Director of CRCE, London. He is an editor of the journal Communist Economies and Economic Transformation. (CRCE fax 44-171-233-1050)