Former USSR GDP (PPP) in 2019. Source: reddit.com.

Former USSR GDP (PPP) in 2019. Source: reddit.com.

Conference papers Conference reports Roundtable USSR 30 years: Post-Soviet Economies: From the Myth of Transition to State Capitalism and Beyond

The economic development in four Post-Soviet countries; Russia, Belarus, Ukraine and Kazakhstan were compared and discussed during this Roundtable. From the late 1990s new opportunities for growth emerged, but this growth was both temporarily and unstable is here argued. The role of the state is also elaborated.

Published on balticworlds.com on April 15, 2021

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The post-Soviet countries’ economic performances have been diverse since the 1990s. Comparing four countries – Russia, Belarus, Ukraine, and Kazakhstan – Belarus have had the most impressive development, in terms of annual change in GDP per capita, with an explosive growth in the 90s and 00s. This was concluded by Ilja Viktorov, Research Fellow at Stockholm University, in his introduction to the Roundtable “Three Decades of Post-Soviet Economies: From the Myth of Transition to State Capitalism and Beyond”. The Roundtable was arranged in March 22 by Ilja Viktorov as one in a series by CBEES to commemorate the 30 years since the dissolution of the Soviet.  Speakers at the event was Yuko Adachi, Viachaslau Yarashevich, Yuliya Yurchenko, and Yelena N. Zabortseva.

Viktorov explained further that this explosive growth in Belarus mainly is due to the fact that Belarus did not lose its industrial legacy, from its Soviet past. However, during the last decade there has been a stagnation in Belarus. Kazakhstan have had a more dynamic growth without any visible stagnation. Nevertheless, there have been a substantial increase in Kazakhstan’s foreign debt during the last years, so they might have a delayed stagnation induced by the repayment of their debt. Russian barely recovered from the transition in the 1990s and have had a stagnation from 2012. The worst affected country is however Ukraine, which never recovered from the 1990s transition.

Viktorov described the transition in the 1990s as “a destruction of a developed industrial society and a quick transformation of former post-Soviet republics into a number of developing countries”. From the late 1990s new opportunities for growth emerged, but this growth was both temporarily and unstable. During the 1990s, Belarus and Kazakhstan started to rely on increased state presence in the economy and state dirigisme. Russia followed the same pattern in 2000 when Putin took power. Russian economics and think thanks present this return of the state in economy as a highly positive development, where the country will be reindustrialized by using elements of planning inherited from its Soviet past, which in turn will lead to new opportunities for economic growth. Viktorov, on the other hand, argued that this is not true, instead he expressed that the countries have adapted something called state capitalism, which should not be confused with a developmental state. While private entrepreneurs are suppressed in state capitalism, the developmental state promote private initiatives and are based on the existence of dense networks between the government and private industries.

There exist several definitions for state capitalism but Viktorov defined it as “an economic system where the state owns key assets and controls the main financial flows while state-owned business entities act like one independent market players with the primary purpose of profit maximization.” The state will also compensate these state-owned businesses when they make losses, so even though they pretend to be a market economy, they are not one in reality. Other key features of state capitalism identified by Viktorov are large domestic markets, corporate governance characterized by domination of national capital, corporate finance reliance on state owned banks, state-led innovation with limited spending on research and development, and a low wage regime.

Yuko Adachi, Professor at the Sophia University in Tokyo, focused on Russia’s development during Putin’s regime. Since early 2000 there has been an expansion of Russia’s state-owned sector and in 2006 the share of this sector was approximately 38 percent of Russian GDP. This process was further accelerated by the global financial crisis of 2008, where the state-owned sector grew from approximately 40-45 percent in 2008 to 50 percent in 2009. Looking at the top 500 companies in Russia, 81 companies were state-owned in 2019 and together these 81 accounted for 41 percent of the total sales, out of these 500 enterprises. The idea behind state-owned businesses is that the Russian state should guide the capitalist development. Putin’s system of governance can be defined as Sistema which Adachi explained as “methods of informal governance that are applicable when institutions or formal channels do not work, the leadership steps in and uses workable means like networks, informal power, and relations in order to fix things and achieve some objectives.”

Adachi expressed that informal governance based on Putin’s network has become an operational principle in Russia, both in politics and the economy, with many of these state-owned companies being controlled by people considered to be part of Putin’s inner circle as well as the business elite. Adachi concluded that excessive state intervention in the economy can have a damaging impact on entrepreneurs and business groups. She mentioned several reasons for this, two of which I address here. The first reason is that efficiency can fall as profit motives and political motives might differ and the second one being that rent seeking and corruption can rise as opportunities for collusion between the state and companies increases.

In the Belarussian situation it is not the concept of state capitalism but the welfare state that is relevant, according to Viachaslau Yarashevich, Humboldt visiting Researcher at Ludwig-Maximilians Universität in München. Belarus differs from the other countries discussed during the Roundtable when it comes to redistribution of wealth. Comparing the data from the four countries Belarus is reported to spend a higher share of its’ GDP on public education, health care, and pensions. Further, since 1990, Belarus have had the lowest infant mortality rate and the highest life expectancy, among these countries. Both infant mortality and life expectancy are good measurements of the performance of the health care sector and public health care. Yarashevich still argued that all four countries have high level of human development, according to the Human Development Index 2019 from United Nations Development Programme (UNDP) and thus they are all countries with a welfare state, even though the degree of welfare differs between the countries. Yarashevich also emphasized that it is important to remember that these countries are different from other countries or country groups in that they share a common legacy from the Soviet Union and it is therefore important to take the history, geographical closeness, and economical links into account when analyzing the four countries’ economic development.

Yuliya Yurchenko, Senior Lecturer in Political Economy, University of Greenwich, London, commented that in terms of welfare provision there is a sort of envy in Ukraine of what is going on in Belarus, as Ukrainian state and policy makers have been neglecting its population. But how did Ukraine go from being highly industrialized and educated at the time of transition to being one of the poorest countries in Europe? Yurchenko explained part of this development by four myths. The first one is the myth of transition, meaning that it is a myth that transition to capitalism is necessary and that this transition is required to always happen in the same way. The second myth is the myth of democracy, with the myth being that democracy will emerge once elections are institutionalized. For Ukraine there has instead been a hijacking of the democratic process, where criminals turn oligarchs, forms their own political parties, and become members of parliament. The third myth is the myth of “two Ukraines”, that people in the East want one way of development, economic life, and socioeconomic conditions, while people in the West want something else and have a completely different mentality. Yurchenko explained that there of course are regional differences, as in many countries, but for these differences to lead to armed conflict something more must happened or be added. Yurchenko argued that this something else in this case was the oligarchs going into power pitching different parts of electorates against each other as part of their electoral strategy. The final myth is the myth of “others”, where the oligarchs stayed in power by labeling anyone that did not agree with their militarized version of neoliberal kleptocracy regime as the “other” and the enemy of Ukraine.

Yelena N. Zabortseva, Associate Professor at University of Sidney, focused on Kazakhstan but showed indicators for all the Central Asian economies. When looking at the Word Economic Forum (WEF) Global Competitiveness Index, Kazakhstan is ranked 55 out of 141 countries. However, Zabortseva emphasized that although overall ranking is meaningful it is also important to also look at sub indicators. For example, when looking at subcategories of the global competitiveness index Kazakhstan are ranked at the 25th position concerning the labor market. In the labor market category corporate governance and shareholder governance are included, where Kazakhstan is ranked at 12th and 1st position, respectively. Other subcategories for labor market are workers rights and reliance on professional management, and here the rankings for Kazakhstan are much lower; 93rd and 105th, respectively. So, there can be a high variety in a country’s rankings in different subcategories. Zabortseva also explained that Kazakhstan is the most advanced of the Central Asian economies when it comes to digitalization trends. But even though access to e-government is high in the former and new capital there are still problems with low IT-literacy and accessibility to computers in all areas.

The seminar was concluded with a question from the audience regarding if the social and economic reality of post-Soviet nations are best described by state capitalism or if the concept of welfare state or the power/ownership concept are more applicable. Adachi stated that it can be beneficial to incorporate another concept as an additional lens but simultaneously maintaining the concept of state capitalism. Although, she was unsure if the concept of a welfare state would be the right one to use. Yarashevich, however, pointed out that state capitalism is not relevant when applied to Belarus, as even if the country has elements of capitalism that is not the mainstream model. He further argued that because of the elements of welfare provision mentioned earlier in his talk, the concept of welfare state is more applicable to all four countries than the concept of state capitalism. Zabortseva added that although state capitalism is not entirely applicable to Kazakhstan, it is to some elements. Thus, one conclusion could be that while neither of the concepts fully explains the countries or their development, a combination of different concepts could be used to see trends and common features as well as the influence of the legacy of the USSR.

  • by Alexandra Allard

    PhD student in Economics at Södertörn University, with affiliations to Örebro University as well as the Research Institute of Industrial Economics (IFN). Her main academic interests are environmental economics, with a focus on marine environments, and behavioral economics.

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