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OSKANIAN ON THE IMPACT OF THE GLOBAL CRISIS ON THE SOUTH CAUCASUS
PRESS RELEASE
The Civilitas Foundation
One Northern Avenue, Suite 30
Yerevan, Armenia 0002
+37410.500119; +37494.800754
www.civilitasfoundation.org
Info@civ ilitasfoundation.org
YEREVAN -- President of the Board of the Civilitas Foundation Vartan
Oskanian authored a piece on the IMPACT OF THE GLOBAL CRISIS ON THE SOUTH
CAUCASUS. The article appeared in the monthly online journal CAUCASUS
ANALYTICAL DIGEST, published by the Heinrich Boll Foundation in Tbilisi, the
Research Centre for East European Studies at the University of Bremen, the
Jefforson Institute in Washington DC and the Center for Security Studies at
ETH Zurich. The Caucasus Analytical Digest analyzes the political, economic
and social situation in the three South Caucasus states within the context
of international and security dimensions of this region's development.
The South Caucasus: Rethinking Development and Democracy
By Vartan Oskanian, Yerevan
Abstract
Just when formerly communist countries had begun to accept that capitalism
brings with it inequalities and harsh competition, the financial meltdown
that turned into a global economic crisis pushed the developed world itself
to question the premises, excesses and dangers of laissez-faire capitalism. The
crisis brought on soul-searching everywhere. The key question to consider
here in the Caucasus is whether the crisis is, at its core, solely economic
or actually political.
The International Context
The G20 first tackled the global economic crisis through a summit aimed at
developing a unified strategic vision for addressing the problems in the
world's real and financial sectors, discouraging the growth of national
protectionism through a recommitment to free-trade, tightening banking and
financial regulation, and creating aid packages for poorer countries.
This holistic approach offers hope to our new free market economies because
we continue to be seriously impacted by the G20 countries' journey from boom
to bust and hopefully to boom again. In the Caucasus, we are greatly
dependent on Russia, Europe and the US, and we would welcome their efforts
to shore up devalued currencies and fallen stock prices, enable
competitiveness to prevent a rise in protectionism, strengthen banks and
regulate excesses.
But relying on international review and restructuring won't save us in the
Caucasus, or in other former east bloc countries. If we had the strong
democratic institutions of the G20, we could dare the tough questions and
grasp the tough answers about our own development paths. If we had the
initiative or the opportunity for a G20 type conclave for our own
transitional, dependent, fragile, often unstable countries, we would benefit
from strength in numbers and shared experiences. If we had the political
courage to sit together, we could look at each other's systems to address
our internal crises, to help ameliorate consequences, and to prescribe
long-term and even similar solutions.
>From development to democratization, this crisis offers the opportunity and
imposes the imperative to rethink essential - and erroneous - premises
upon
which our political and economic evolution has been based. In other words,
we could use the crisis, as the G20 has done, to pinpoint the weak points in
our individual systems, and in our regional economic system, and to consider
taking the risky, responsible steps to eradicate them. In our developing
countries, we have fundamental premises to rethink. After all, we were the
subjects of an unprecedented experiment, and two decades later, we have
something to say about that experiment.
Rethinking Development and Democracy
Even before the crisis, in the countries of the former Soviet Union, it was
becoming clear that the challenge to our growth is not just economic. Today,
in the midst of the crisis, economic problems are not the only threats. It
is the other crisis - a crisis of ideology and outlook - that is actually
more consequential and that has been brought to the fore because of the
stresses of the economic meltdown. There are four fundamental premises to
rethink if we are to benefit from this crisis.
First, we who have embarked on new, liberal, free-market development have
misunderstood `development' and its ensuing challenges and seen them as
merely economic in nature. Development is a political process, not an
economic one. It requires political changes in society and an organized
process of engaging both elites and public, without threatening one or
discouraging the other. Development doesn't mean spending money on
infrastructure alone; it means infrastructures that are designed and
maintained by a responsive state apparatus with functioning governance
systems. Developing into a modern economy requires the provision of fair,
transparent public services. Access to the sea, and endless barrels of oil
do not add up to a functioning economy. Only political will and a change in
political thinking can bring that about. Our countries must develop
politically in order to develop economically.
Second, pretense at democratization is dangerous and counterproductive. It
distorts the relationship between government and the governed, raising
expectations that can't be met, obstructing progress that could be taking
place elsewhere in society. There are many prosperous countries in the world
which are not democratic, and don't pretend to be. Singapore is one example
of a thriving country where democratic rights are largely suspended; the
United Arab Emirates is another. If the elites in our countries really only
want economic development, then there should not be a show about
democratization. Governments who repeat the predictable democratic
formulations but don't have sufficient trust in their people to respect the
electoral process, or to govern openly, force citizens onto the streets --
either episodically as in Armenia, or chronically as it seems in Georgia.
The frustrations born of fake elections persist and draw a wedge between
segments of society and between government and society. Such explosions
divert energy and resources from all sectors, including the economy.
Citizens avoid paying taxes to a government they don't trust; government
refuses to loosen the tax burden on rebellious citizens. The alternative, an
autocracy - not unlike what Azerbaijan seems to have institutionalized with
its recent constitutional amendment removing term limits for the inherited
presidency of the current president - is after all, much more predictable,
transparent and direct. This may be a cynical conclusion, but it remains an
option for some. On the other hand, if the peoples of our countries really
want democratization, which I believe is the unquestionable choice, then
they must actively, genuinely, patiently, consistently work to make that
happen. It will not come with repeated revolutions as in Georgia, or with
petulant street protests as in Armenia.
Third, the Soviet-era definition of power continues to distort the modern
concept of legitimate authority. World leaders like Mahatma Gandhi and
Nelson Mandela had no power but operated from a position of authority. They
accomplished things that changed the world. Except for a brief period
immediately after independence, our societies have not experienced
governments who enjoy the consent of the governed. Hard power, exclusive and
brute power, hereditary power, can continue to be exercised, but that will
not assure our leaders the authority they require to bring about
significant, lasting political or economic change. Economic growth, and
change, depends foremost on confidence and trust. The greatest threats to
confidence are silence and untruthfulness. In times of economic upheaval,
silence leads to speculation, aggravates insecurity and further deteriorates
trust. Unfortunately, the leadership in all three countries has chosen
either not to talk about the causes and effects of this global challenge, or
to talk about it in rosy, general, superficial terms. Even in societies
where the government controls the major broadcast media, however, rising
unemployment, weakened currencies, decreased investments, falling
remittances and inevitable inflation are realities that no amount of
`spinning' can mask.
Finally, even before the crisis we could see that our adherence to the wild,
textbook capitalism that we adopted as we tore away from communism is not
working. We can, and must consider a more modern, compassionate form of
public-private partnership that will allow the state to intervene where
necessary to support strategically important sectors and enable economic
growth, and not just in a time of crisis. Unfortunately, in the absence of
unshakable rule of law, public-private has sometimes come to mean using
public resources to help private friends. Instead, it must become government
offering individuals and businesses a hand up, not a handout. In other
words, if certain entities in the private sector sink rather than swim, it
must not be because the government has not done its part to create an
enabling economic environment. If Armenian or Georgian or Azerbaijani
farmers are unable to earn a living, it cannot be because governments in the
Caucasus have shirked their responsibility to share costs and risks, while
governments in France and the US have not.
Bottlenecks to Democratization and Economic Growth
The fundamental bottleneck that impedes change in all these spheres is the
absence of institutions and an across-the-board acceptance of rule of
law. Although
the developed world has been able to transfer support and assistance, it has
not succeeded in transferring strong institutions. All three countries in
the South Caucasus lack strong institutions, although the reasons are
different in Armenia, Georgia and Azerbaijan.
Economist Milton Friedman, just a decade after the fall of the Soviet Union,
explained that if in the early days of independence, his appeal to all the
new states was before and above all else, to privatize, a decade later, he
had come to the realization that possibly it is rule of law that is more
basic. Frances Fukuyama, in his State Building refers to this conclusion
of Friedman's as an important consideration for governments seeking economic
growth and efficiency.
Armenia was the first to privatize on a massive scale, but it did not
succeed in equally spreading the rule of law. Thus, the firm, integrated
personal networks of power centers in government and in big business are a
huge roadblock to the country's development. Regardless of who is the
country's political leader, power continues to be shared among the
business-government elite. Over three presidents and three administrations,
the elites have remained more or less the same - in make-up and in the way
they work. Government agencies - from tax and customs to courts - develop
policies and implement programs always looking over their shoulder for
direction. In normal times, this prevents public engagement in the reform
and perfection of public institutions for fear of stepping on important
toes. In times of crisis, this thwarts the will and necessity to act. If the
public were willing to go along with massive, radical change in one or
another area - in income tax, educational requirements, land ownership
- the
existence of such an interdependent and reciprocated power network stands in
the way of risky, innovative changes since the elite's interests are sure to
be affected. Those making the decisions - about monopolies, taxation,
personal property, access to services - would be the ones whose personal
and
political power would be affected. Thus where the presence of strong
institutions should have buffered the shock of major but essential change,
instead, institutions remain personalized and partisan, and block, rather
than enable, change.
In Georgia, the same roadblock exists. There, too, consistent, predictable
state institutions are absent, but for another reason. The Rose Revolution
tore down old institutions, but did not replace them with new ones. Although
reformed government agencies have become more responsive in matters of
everyday life, nearly eliminated petty corruption, and provide tangible
benefits and visible improvements in infrastructure, at the state level,
personal power networks, allegiances and political dependencies have
replaced neutral, continuous, independent state institutions. The new
government's revolutionary mindset seems to prefer immediate results and
change over time-consuming, and often unpredictable (and uncontrollable)
legislative and institutional processes. The ruling team came to power by
revolution and when its legitimacy and power are under threat, it continues
to promise not gradual, difficult and pervasive evolution, but a second
revolution.
In Azerbaijan, the ruling regime appears to have decided that just as it
doesn't need a diversified economy, it also doesn't need democratic
institutions. Checks and balances, transparency, accountability and
predictability are not associated with oil-centric economies, with one or
two notable exceptions. According to international indexes, Azerbaijan is
not one of them. The hereditary presidency and an entitled government have
substituted for the continuity, accountability and even-handed governance
that institutions provide. Oil income causes economic growth numbers to
rise, but the real picture in Azerbaijan's chemical, aluminum and
metallurgical industries demonstrate that the economic institutions are not
at all solid. This will become a crucial problem as oil revenues decline
within a decade. Until then, oil wealth funds the personal institution of
the president, but not the social institutions necessary for a viable state,
and especially one in a time of crisis.
Unless the economic crisis and its twin political crisis lead to
substantive, public debate on these fundamental issues of political
direction and social and economic responsibility, we will veer further from
the already-difficult path toward stability, development and democracy,
regardless of what the G20 says and does, or how much assistance our friends
offer.
Vartan Oskanian, Armenia's Minister of Foreign Affairs from 1998 until
April 2008, is the founder and president of the board of the Yerevan-based
Civilitas Foundation.
PRESS RELEASE
The Civilitas Foundation
One Northern Avenue, Suite 30
Yerevan, Armenia 0002
+37410.500119; +37494.800754
www.civilitasfoundation.org
Info@civ ilitasfoundation.org
YEREVAN -- President of the Board of the Civilitas Foundation Vartan
Oskanian authored a piece on the IMPACT OF THE GLOBAL CRISIS ON THE SOUTH
CAUCASUS. The article appeared in the monthly online journal CAUCASUS
ANALYTICAL DIGEST, published by the Heinrich Boll Foundation in Tbilisi, the
Research Centre for East European Studies at the University of Bremen, the
Jefforson Institute in Washington DC and the Center for Security Studies at
ETH Zurich. The Caucasus Analytical Digest analyzes the political, economic
and social situation in the three South Caucasus states within the context
of international and security dimensions of this region's development.
The South Caucasus: Rethinking Development and Democracy
By Vartan Oskanian, Yerevan
Abstract
Just when formerly communist countries had begun to accept that capitalism
brings with it inequalities and harsh competition, the financial meltdown
that turned into a global economic crisis pushed the developed world itself
to question the premises, excesses and dangers of laissez-faire capitalism. The
crisis brought on soul-searching everywhere. The key question to consider
here in the Caucasus is whether the crisis is, at its core, solely economic
or actually political.
The International Context
The G20 first tackled the global economic crisis through a summit aimed at
developing a unified strategic vision for addressing the problems in the
world's real and financial sectors, discouraging the growth of national
protectionism through a recommitment to free-trade, tightening banking and
financial regulation, and creating aid packages for poorer countries.
This holistic approach offers hope to our new free market economies because
we continue to be seriously impacted by the G20 countries' journey from boom
to bust and hopefully to boom again. In the Caucasus, we are greatly
dependent on Russia, Europe and the US, and we would welcome their efforts
to shore up devalued currencies and fallen stock prices, enable
competitiveness to prevent a rise in protectionism, strengthen banks and
regulate excesses.
But relying on international review and restructuring won't save us in the
Caucasus, or in other former east bloc countries. If we had the strong
democratic institutions of the G20, we could dare the tough questions and
grasp the tough answers about our own development paths. If we had the
initiative or the opportunity for a G20 type conclave for our own
transitional, dependent, fragile, often unstable countries, we would benefit
from strength in numbers and shared experiences. If we had the political
courage to sit together, we could look at each other's systems to address
our internal crises, to help ameliorate consequences, and to prescribe
long-term and even similar solutions.
>From development to democratization, this crisis offers the opportunity and
imposes the imperative to rethink essential - and erroneous - premises
upon
which our political and economic evolution has been based. In other words,
we could use the crisis, as the G20 has done, to pinpoint the weak points in
our individual systems, and in our regional economic system, and to consider
taking the risky, responsible steps to eradicate them. In our developing
countries, we have fundamental premises to rethink. After all, we were the
subjects of an unprecedented experiment, and two decades later, we have
something to say about that experiment.
Rethinking Development and Democracy
Even before the crisis, in the countries of the former Soviet Union, it was
becoming clear that the challenge to our growth is not just economic. Today,
in the midst of the crisis, economic problems are not the only threats. It
is the other crisis - a crisis of ideology and outlook - that is actually
more consequential and that has been brought to the fore because of the
stresses of the economic meltdown. There are four fundamental premises to
rethink if we are to benefit from this crisis.
First, we who have embarked on new, liberal, free-market development have
misunderstood `development' and its ensuing challenges and seen them as
merely economic in nature. Development is a political process, not an
economic one. It requires political changes in society and an organized
process of engaging both elites and public, without threatening one or
discouraging the other. Development doesn't mean spending money on
infrastructure alone; it means infrastructures that are designed and
maintained by a responsive state apparatus with functioning governance
systems. Developing into a modern economy requires the provision of fair,
transparent public services. Access to the sea, and endless barrels of oil
do not add up to a functioning economy. Only political will and a change in
political thinking can bring that about. Our countries must develop
politically in order to develop economically.
Second, pretense at democratization is dangerous and counterproductive. It
distorts the relationship between government and the governed, raising
expectations that can't be met, obstructing progress that could be taking
place elsewhere in society. There are many prosperous countries in the world
which are not democratic, and don't pretend to be. Singapore is one example
of a thriving country where democratic rights are largely suspended; the
United Arab Emirates is another. If the elites in our countries really only
want economic development, then there should not be a show about
democratization. Governments who repeat the predictable democratic
formulations but don't have sufficient trust in their people to respect the
electoral process, or to govern openly, force citizens onto the streets --
either episodically as in Armenia, or chronically as it seems in Georgia.
The frustrations born of fake elections persist and draw a wedge between
segments of society and between government and society. Such explosions
divert energy and resources from all sectors, including the economy.
Citizens avoid paying taxes to a government they don't trust; government
refuses to loosen the tax burden on rebellious citizens. The alternative, an
autocracy - not unlike what Azerbaijan seems to have institutionalized with
its recent constitutional amendment removing term limits for the inherited
presidency of the current president - is after all, much more predictable,
transparent and direct. This may be a cynical conclusion, but it remains an
option for some. On the other hand, if the peoples of our countries really
want democratization, which I believe is the unquestionable choice, then
they must actively, genuinely, patiently, consistently work to make that
happen. It will not come with repeated revolutions as in Georgia, or with
petulant street protests as in Armenia.
Third, the Soviet-era definition of power continues to distort the modern
concept of legitimate authority. World leaders like Mahatma Gandhi and
Nelson Mandela had no power but operated from a position of authority. They
accomplished things that changed the world. Except for a brief period
immediately after independence, our societies have not experienced
governments who enjoy the consent of the governed. Hard power, exclusive and
brute power, hereditary power, can continue to be exercised, but that will
not assure our leaders the authority they require to bring about
significant, lasting political or economic change. Economic growth, and
change, depends foremost on confidence and trust. The greatest threats to
confidence are silence and untruthfulness. In times of economic upheaval,
silence leads to speculation, aggravates insecurity and further deteriorates
trust. Unfortunately, the leadership in all three countries has chosen
either not to talk about the causes and effects of this global challenge, or
to talk about it in rosy, general, superficial terms. Even in societies
where the government controls the major broadcast media, however, rising
unemployment, weakened currencies, decreased investments, falling
remittances and inevitable inflation are realities that no amount of
`spinning' can mask.
Finally, even before the crisis we could see that our adherence to the wild,
textbook capitalism that we adopted as we tore away from communism is not
working. We can, and must consider a more modern, compassionate form of
public-private partnership that will allow the state to intervene where
necessary to support strategically important sectors and enable economic
growth, and not just in a time of crisis. Unfortunately, in the absence of
unshakable rule of law, public-private has sometimes come to mean using
public resources to help private friends. Instead, it must become government
offering individuals and businesses a hand up, not a handout. In other
words, if certain entities in the private sector sink rather than swim, it
must not be because the government has not done its part to create an
enabling economic environment. If Armenian or Georgian or Azerbaijani
farmers are unable to earn a living, it cannot be because governments in the
Caucasus have shirked their responsibility to share costs and risks, while
governments in France and the US have not.
Bottlenecks to Democratization and Economic Growth
The fundamental bottleneck that impedes change in all these spheres is the
absence of institutions and an across-the-board acceptance of rule of
law. Although
the developed world has been able to transfer support and assistance, it has
not succeeded in transferring strong institutions. All three countries in
the South Caucasus lack strong institutions, although the reasons are
different in Armenia, Georgia and Azerbaijan.
Economist Milton Friedman, just a decade after the fall of the Soviet Union,
explained that if in the early days of independence, his appeal to all the
new states was before and above all else, to privatize, a decade later, he
had come to the realization that possibly it is rule of law that is more
basic. Frances Fukuyama, in his State Building refers to this conclusion
of Friedman's as an important consideration for governments seeking economic
growth and efficiency.
Armenia was the first to privatize on a massive scale, but it did not
succeed in equally spreading the rule of law. Thus, the firm, integrated
personal networks of power centers in government and in big business are a
huge roadblock to the country's development. Regardless of who is the
country's political leader, power continues to be shared among the
business-government elite. Over three presidents and three administrations,
the elites have remained more or less the same - in make-up and in the way
they work. Government agencies - from tax and customs to courts - develop
policies and implement programs always looking over their shoulder for
direction. In normal times, this prevents public engagement in the reform
and perfection of public institutions for fear of stepping on important
toes. In times of crisis, this thwarts the will and necessity to act. If the
public were willing to go along with massive, radical change in one or
another area - in income tax, educational requirements, land ownership
- the
existence of such an interdependent and reciprocated power network stands in
the way of risky, innovative changes since the elite's interests are sure to
be affected. Those making the decisions - about monopolies, taxation,
personal property, access to services - would be the ones whose personal
and
political power would be affected. Thus where the presence of strong
institutions should have buffered the shock of major but essential change,
instead, institutions remain personalized and partisan, and block, rather
than enable, change.
In Georgia, the same roadblock exists. There, too, consistent, predictable
state institutions are absent, but for another reason. The Rose Revolution
tore down old institutions, but did not replace them with new ones. Although
reformed government agencies have become more responsive in matters of
everyday life, nearly eliminated petty corruption, and provide tangible
benefits and visible improvements in infrastructure, at the state level,
personal power networks, allegiances and political dependencies have
replaced neutral, continuous, independent state institutions. The new
government's revolutionary mindset seems to prefer immediate results and
change over time-consuming, and often unpredictable (and uncontrollable)
legislative and institutional processes. The ruling team came to power by
revolution and when its legitimacy and power are under threat, it continues
to promise not gradual, difficult and pervasive evolution, but a second
revolution.
In Azerbaijan, the ruling regime appears to have decided that just as it
doesn't need a diversified economy, it also doesn't need democratic
institutions. Checks and balances, transparency, accountability and
predictability are not associated with oil-centric economies, with one or
two notable exceptions. According to international indexes, Azerbaijan is
not one of them. The hereditary presidency and an entitled government have
substituted for the continuity, accountability and even-handed governance
that institutions provide. Oil income causes economic growth numbers to
rise, but the real picture in Azerbaijan's chemical, aluminum and
metallurgical industries demonstrate that the economic institutions are not
at all solid. This will become a crucial problem as oil revenues decline
within a decade. Until then, oil wealth funds the personal institution of
the president, but not the social institutions necessary for a viable state,
and especially one in a time of crisis.
Unless the economic crisis and its twin political crisis lead to
substantive, public debate on these fundamental issues of political
direction and social and economic responsibility, we will veer further from
the already-difficult path toward stability, development and democracy,
regardless of what the G20 says and does, or how much assistance our friends
offer.
Vartan Oskanian, Armenia's Minister of Foreign Affairs from 1998 until
April 2008, is the founder and president of the board of the Yerevan-based
Civilitas Foundation.