Rethinking Development and Democracy
Analysis / Caucasus
by Vartan Oskanian, Caucasus Analytical Digest

Thursday, 28 May 2009 23:02

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 networ
ks,
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 ti
me 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.