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Oskanian on the Impact of the Global Crisis on the South Caucasus

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  • Oskanian on the Impact of the Global Crisis on the South Caucasus

    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.
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