Download BELARUS´ ECONOMY: SURVIVAL OR DEVELOPMENT

BELARUS’ ECONOMY IN TRANSITION:
HOW DIFFERENT IS IT FROM RUSSIA AND UKRAINE?
Guest lecture at the University of Perugia, 29 April 2013
Viachaslau Yarashevich
Belarusian State University
TRANSITION OR TRANSFORMATION?
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In the academic literature “transition” usually refers
to reforms that started in Eastern Europe and former
Soviet Union in the early 1990s
It is commonplace to distinguish between “shock
therapy” and gradual modes of transition, but it
seems more justified to juxtapose neo-liberal and
social-democratic models of reforms in the region
Whether it is “transition” at all is still not clear, as
most postcommunist countries developed their own
peculiar political economies that often differ from
Western ones – so maybe it is “transformation”?
WHY BELARUS IS IMPORTANT?

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A relatively small economy of 9.5 million people and
60 bn USD GDP (2012), located in the geographical
heart of Europe, it has rejected neoliberalism and
“shock therapy”
Before the global economic crisis this looked odd,
but not anymore – the world in general and eurozone
in particular are increasingly deviating from
mainstream neoliberalism
Despite its unusual policies, Belarus performs better
than its former USSR peers, including Russia and
Ukraine, on many economic and social indicators
Some background to Belarus’
economic history prior to 1991



Before the Revolution of 1917 Belarus’ economy was
virtually non-existent – 97% of people lived in rural
areas and only less than 1% worked in industry, mostly
small and medium enterprises
Between the wars limited investment was carried out
both in the eastern and western parts of the divided
nation (my hometown of Maladzechna as an example)
But it was not until after the WWII that Belarus’
economy was created, literally from scratch, as the
Germans destroyed not just two thirds of the
population, but four fifths of the physical infrastructure
(see Vakar 1956)
Some background to Belarus’
economic history prior to 1991 (cont.)



The bulk of investment was made in the 1960s and
1970s – it was also the time when Belarus urbanized
(in the early 1950s nearly 80% lived in the
countryside, whereas in the late 1980s two thirds
lived in the cities)
Within USSR’s economic system/ division of labor
Belarus specialized in high-value-added
manufacturing: machine-building, chemical industry,
military equipment (Ioffe 2004)
Indeed, by late 1980s Belarus’ economy was clearly
based on two industrial pillars, complementing each
other: machine-building and chemical sectors
(Shevtsov 2006)
In 1991...


Belarus was the fourth most advanced republic of
the USSR after the Baltics, with Human
Development Index of 0.8, enough to put it in the
top development category by UN standards)
Belarus was also one the most industrialized
economies in the world despite virtual lack of
natural resources, with nearly a third of its workingage population working in industry (World Bank
1997)
In 1991... (cont.)


‘When Belarus became independent in 1991, it was the
richest of the twelve republics of the Commonwealth of
Independent States (CIS) in terms of per capita
income, a status reflecting the republic’s steady growth
during the 1970s and early 1980s’ (World Bank 1997)
‘Belarus’ industry was the most technologically
advanced in the entire Soviet Union. The worn-out
phrase that Belarus was an assembly workshop of the
USSR was not exactly accurate. Belarus’ specialisation
was on R&D and assembling high-tech products. The
important feature was that almost all the personnel for
R&D were trained within Belarus…’ (Ioffe 2004)
Economic developments in the early 1990s
20
Industrial output
15
10
5
Agricultural output
0
Per cent change
-5
-10
1970 1972 1974 1976 1978 1980 1982 1984 1986 1988 1990 1992 1994
Capital investment
-15
-20
-25
Household incomes
-30
-35
Retail turnover
-40
-45
-50
New homes built
Economic developments in the early 1990s
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
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From 1991 to 1995 Belarus’ GDP fell by a third; real
wages – by almost a half; and investment – by 60%
Hyperinflation wiped out dozens of billions of savings
Prices doubled every month (at ~2000% annual rate)
Wages hovered around 20$ a month
Unemployment, non-existent in the Soviet era,
reached nearly 3% by official counts, unofficially it
was several times higher
Lukashenka phenomenon


Belarus’ economy as it looks today is due
largely to policies of the country’s first (still)
president Aliaksandr Lukashenka who was
elected in 1994
Born and grown-up in the countryside, this
man followed his intuition for the most part of
his political career and sought his support
mostly from the grassroots, rejecting
neoliberalism and liberalism in general
Lukashenka’s economic agenda


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Price stabilization
State control of economy
Investment resumption
State support of agriculture and industry
Active social policy
(‘Otvesti narod ot propasti’ [To turn away people from
abyss], Narodnaya Gazeta, 14 June 1994)
Lukashenka’s economic agenda
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
‘…[Lukashenka’s] rule is a logical outcome of the population’s
entrenched Soviet mentality and widespread nostalgia for the
relative prosperity and stability of the old system’ (Mihalisko
1997)
‘Lukashenka stopped voucher privatisation… and secured
subsidised transport and utilities and free health care and
education. By that time (1995), most industrial workers worked
barely 2-3 days a week...but they could perhaps eke out a living
for a year or so at the most with the aid of their own kitchen
gardens. In about a year (by 1996) most industrial giants had
resumed their full capacity work schedule, mostly due to the
restored ties with Russia. That was what Lukashenka had been
voted for in 1994, and that was what he made good on’ (Ioffe
2004)
THE TRANSITION
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In postcommunist countries, transition meant
foremost liberalization, privatization and
restructuring aimed at reducing the role of
the state and fostering private enterprise
Belarus, Russia and Ukraine were no
exception – all three embarked on transition
path in 1991, but five years later Belarus
deviated
LIBERALIZATION



Liberalization has been the cornerstone of
postcommunist reforms
For neoliberals, it meant foremost
liberalization of internal pricing, as well as of
foreign trade and currency exchange
On all these accounts, Belarus, Ukraine and
Russia started with similiar vigour, but
Belarus slowed down and even reversed the
process in the mid-1990s
LIBERALIZATION (cont.)
4.5
4
3.5
3
Belarus
2.5
Russia
2
Ukraine
1.5
1
0.5
0
1991
1996
2001
2006
2010
PRIVATIZATION
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Privatization was perhaps the single most important
reform which determined the whole course of transition
While laws on privatization were adopted in all three
countries at about the same time, their implementation
was different
In Belarus privatisation was very sluggish yet under
Kebich administration (1991-4), and was virtually
stopped by president Lukashenka (1995-?)
In Russia and Ukraine, by contrast, privatisation
became a very loud affair, with its own national heroes
and anti-heroes (e.g. Boris Berezovskiy, Mikhail
Khodorkovskiy, or Roman Abramovich – treat them as
you like)
PRIVATIZATION (cont.)
4
3.5
3
2.5
Belarus
2
Russia
Ukraine
1.5
1
0.5
0
1991
1996
2001
2006
2010
PRIVATIZATION (concl.)
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It seems that progress with privatization in Russia and
Ukraine led to more reform dynamism there. Notably,
private owners of privatized and brand new private
companies demanded rapid liberalization of price
regulation, tax cuts, less administrative regulation, free
trade regimes and other measures associated with
market reforms. Labour laws were relaxed, private
companies allowed to bid for public projects, and in
Russia even the pension system was reformed
according to Western neo-liberal recommendations
As there was no mass privatization in Belarus, so there
was no significant internal pressure to liberalize the
economy
RESTRUCTURING
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In transition economies, restructuring meant
discipline and encouragement
Discipline the state sector, so that it goes
bankrupt and releases capital and labour to
encourage the nascent private sector
Easy in theory, in practice progress was far
less impressive than with privatization
RESTRUCTURING (cont.)
2.5
2
1.5
Belarus
Russia
1
Ukraine
0.5
0
1991
1996
2001
2006
2010
SO?
Overall GDP performance in Belarus has been better
than in Russia or Ukraine despite less progress with
transition
200
180
160
140
1995
120
2000
100
2005
80
2010
60
40
20
0
Belarus
Russia
Ukraine
In per capita terms…
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Russia has been the richest among the three Slavic
countries throughout the transition, which may be justified
by its rich natural resource endowment
But Ukraine’s lagging behind Belarus is odd
Year
1991
1996
2001
Belarus
1747
1452
1239
Russia
3427
2651
2101
Ukraine
1490
873
781
RU>BY
2.0
1.8
1.7
BY>UA
1.2
1.7
1.6
2006
2011
3798
5715
6947
12890
2303
3697
1.8
2.3
1.6
1.5
What about wages and pensions?
GDP is certainly a
favourite indicator
for economists, but
for the rest relative
economic success
is measured in
terms of incomes here Belarus again
lags behind Russia
but is ahead of
Ukraine (top –
monthly wages in
USD, bottom –
pensions
Year
1995
2000
Belarus
66
89
Russia
104
79
Ukraine
50
43
2005
2010
215
409
303
688
157
281
1995
34
53
26
2000
46
29
16
2005
98
90
79
2009
153
195
128
INEQUALITY
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But of course GDP and income levels matter little if
their distribution is unequal – it is important both for
social justice and labour incentives
As a rule, developing countries are more unequal than
developed ones, and among the latter Nordic countries
are both economically more successful and more equal
than others
Among the three Slavic countries Belarus has been the
most equal one throughout the transition as measured
by Gini (0 – absolute equality, 1 – absolute inequality)
INEQUALITY (cont.)
0.5
0.45
0.4
0.35
0.3
0.25
0.2
0.15
0.1
0.05
0
Belarus
Russia
Ukraine
1995
2000
2005
2009
EDUCATION AND HEALTH CARE
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Belarus has consistently ranked higher in UN Human
Development Index which takes into account
education and health status
This was due to both higher spending levels and
better management (on average 4-6% of GDP
compared to 3% for Russia and Ukraine)
As a result, Belarus has had higher enrolment ratios
at all levels of education (including pre-primary) and
lower incidence rates for major diseases
So can one call Belarus
a postcommunist welfare state?
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Belarus has the lowest income inequality
(~0.25 GINI), infant mortality (less than 5 per
thsd) and poverty (~6%) in the former USSR
It also has the lowest unemployment, highest
enrolment and lowest disease levels in the
region
Belarus has not increased retirement age (55
for women and 60 for men), and also has flat
income tax of 12%
CONCLUSIONS
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The comparative analysis of post-communist socioeconomic development in Belarus, Russia and Ukraine
leads to a number of conclusions, key among which is
the fact that Belarus has outperformed Russia and
Ukraine on many counts despite lack of reforms
Critics would say that Belarus’ socio-economic
achievements are only due to lasting discounts on natural
gas and oil sold by Russia
But although the scale of Russia’s economic aid to
Belarus is indeed significant, viewing it as an opportunity
cost or Russia’s lost profit is not without blemish
CONCLUSIONS (cont.)
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Surely Russia has not acted out of goodness of heart
towards Belarus
Belarus is Russia’s only full-fledged ally. There are no
customs on their border, there are two Russian military
bases in Belarus, for which Russia pays no fees, scores
of Belarusian military personnel study in Russian schools,
and all of the Belarusian army’s ammunition is either
Russian made or a product of Russia-Belarus industrial
cooperation
Finally, by contrast to Ukraine Belarus has never irritated
Russia with NATO or EU aspirations, instead being
consistently committed to the Union State between two
countries, the CIS, as well as the Customs Union and
Single Economic Space
CONCLUSIONS (final)
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Belarus’ transition (or transformation) has clearly been
different from that of Russia’s and Ukraine’s
Instead of following neoliberalism as both Russia and
Ukraine did, Belarus opted for its own welfare state
model
Instead of seeking closer links with the West, Belarus
integrated eastwards, thus preserving its traditional
markets for resource imports and manufactured exports
Perhaps Belarus’ experience may be useful for other
postcommunist countries (and beyond) in tackling the
global economic crisis?