The Ukrainian crisis has focused the world on Russia, bringing back memories of the Cold War. By extension, attention is centred on the Baltic States, the former Soviet republics and the countries of Eastern Europe. In the process, the magnifying glass is on the paths these countries have chosen since their independence, their political evolution and ultimately to the state of their economies today.
The day the Soviet Union collapsed, the economies of Ukraine and Poland were on similar footing. Both countries’ GDP per capita was the same few thousand dollars. Today, Poland’s is nearly $14,000 per head, more than three times that of Ukraine’s approximately $4,000.
The ratios of the three Baltic republics today, compared to the three Caucasus republics, is the same, if one compares Estonia, Lithuania and Latvia with Georgia, Armenia and Azerbaijan, minus the latter’s oil revenues.
Books and studies providing insight into discrepancies between rich and poor nations, successful and failed, offer reasons which abound from geography to natural resources, and ethnic conflicts. But increasingly, the new research narrows the reasons to two: good governance and institutions.
Paul Collier in his ground-breaking The Bottom Billion and more recently Daron Acemoglu and James Robinson in Why Nations Fail point out that nations thrive when they develop “inclusive” political and economic institutions, and they fail when those institutions become “extractive” and concentrate power and opportunity in the hands of only a few.
Healthy and sustainable development
Let me add my own picks to these reasons for the current state of nations in the former Soviet republics. In my experience in and out of government, we must rethink four fundamental notions if we are to put our countries on the track to healthy and sustainable development.
First, we who have embarked on new, liberal, free-market development have misunderstood “development” and its ensuing challenges and have seen them as merely economic in nature. Development is a political process, not an economic one. It requires political changes in society and an organised 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.
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 and 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, pretence at democratisation is dangerous and counterproductive. It distorts the relationship between government and the governed, raising expectations that can’t be met, and 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 democratisation. 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.
Third, the Soviet-era definition of power continues to distort the modern concept of legitimate authority. World leaders like Mahatma Gandhi, Nelson Mandela and Martin Luther King 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, depend foremost on confidence and trust.
Wild, textbook capitalism
Finally, 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.
Unfortunately, in the absence of rule of law, public-private has sometimes come to mean using public resources to help private friends. 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.
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. Even 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 privatise, a decade later, he had come to the realisation that possibly it is rule of law that is more basic.
Indeed, we have to rethink these fundamental ideas. After all, we were the subjects of an unprecedented experiment, and more than two decades later, we have to graduate from the laboratory and shape our own destiny.
In this high-stakes geopolitical tug of war that has begun to play out in Ukraine, our understanding of the importance of institution-building and good governance will very much determine whether we will be able to make the right choices and go after those who have demonstrated the efficacy of good governance and institution building.
Vartan Oskanian is a member of Armenia’s National Assembly, a former foreign minister and the founder of Yerevan’s Civilitas Foundation.