The first part of the book deals with the five countries' common features, determined by geography and their role in the Soviet division of labor, which left many parts of the region heavily dependent on a cotton monoculture and facing serious environmental problems (notably the shrinking of the Aral Sea and contamination from nuclear testing). The author goes on to deal with the countries as national economies. Finally, he examines common problems facing the countries since they gained independence in late 1991. These last chapters focus on the immediate economic problems of 1992 and 1993 (economic transition and the decision whether to remain within the ruble zone), as well as long-term development issues and international economic relations.
Originally published in 1995.
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The Economies of Central Asia
By Richard Pomfret
PRINCETON UNIVERSITY PRESSCopyright © 1995 Princeton University Press
All rights reserved.
Nineteen ninety-one was a momentous year for Central Asia. In March all of the Central Asian republics (CARs) of the Soviet Union voted in favor of a renewed Union treaty. In August the failure of the coup in Moscow signaled the end of the USSR as it had been, and the Central Asian republics began to declare independence. In December, following the decision of the three Slavic republics to form a new union, the CARs initiated the negotiations that led to the creation of the Commonwealth of Independent States (CIS). By the end of the year, the CIS was in place, the USSR had ceased to exist, and the CARs were all independent countries.
The next years were crucial because the governments were making decisions that would mold the new countries' futures in a once-in-a-lifetime situation. Although constrained by past development and external conditions, the governments had a wide range of options to choose from as they set out in novel political and economic directions. By 1993, it was already evident that the CARs were establishing different political and economic structures. The analytical aim of this book is to determine the main reasons for the different outcomes.
The book is about the economies of the CARs. Table 1.1 provides basic data on these countries' size, income levels, and life expectancies. Part One describes the historical background, which is best seen from a regional perspective. Part Two considers the countries individually, with emphasis on their post-1991 policy decisions and development. Part Three reverts to the regional perspective to analyze some common issues facing the CARs during the 1990s.
THE CONCEPT OF CENTRAL ASIA
Kazakhstan, Kyrgyzstan, Tajikistan, Turkmenistan, and Uzbekistan form a natural unit because of their common history and geography. Other neighboring countries share some of these characteristics, but differ in vital respects: the population of Mongolia is primarily Buddhist and the country has been formally independent since 1921, Afghanistan has never been part of Comecon, and the Caucasus countries differ significantly in their pre-Soviet history and in their resource base. Some parts of the Russian Federation (for example, Tatarstan) have an affinity with Central Asia, but are difficult to analyze as separate economic units. Xinjiang (eastern Turkestan) has many similarities, especially to Kazakhstan and Kyrgyzstan, and at times its history has been closely linked to that of the five CARs, although it has now been under continuous Chinese rule for roughly as long as Kazakhstan was under Russian and Soviet rule; thus Xinjiang will be covered in Chapter 2 and in the discussion of China's relations with the CARs in Chapter 12, but will not feature in the main body of the book.
The dominant physical feature of Central Asia is its aridity; on physical maps it is the brown splotch in the middle of Eurasia, which continues northeast to the Gobi and southwest to Mesopotamia. Annual rainfall never exceeds twenty-five centimeters, and this evaporates in the long hot summers; the continental climate also features cold winters, during which the Aral Sea freezes for four to five months. In this arid area the great river system that flows from the high mountains on the northwestern frontier of the Indian subcontinent into the Aral Sea is of fundamental importance; in the past it has sustained pockets of high civilization based upon irrigation and upon location along the overland route across Asia, and even today much of the region's population is concentrated in the oases along the river system. In the east and north of Central Asia, where rainfall is slightly higher, the mountains and steppelands supported nomadic pastoralism, with quite different economic conditions from those of the sedentary agriculturalists and city dwellers of the south.
Despite the split between sedentary and nomadic lifestyles, the region has always had a unity. The cities flourished when the nomads were militarily strong and unified enough to provide peace in the region. In recent centuries the riverine areas were mostly settled by Turkic, formerly nomadic groups; linguistically, the Turkmen, Uzbeks, Karakalpak, Kazakhs, Kyrgyz, and Tatars are closely related. The Tajiks, with their Persian language, and more recent Slavic, German, or Koretin immigrants are the main non-Turkic groups. Table 1.2 illustrates the cultural mosaic and location of ethnic groups in the Central Asian countries.
The region has a unity, but its boundaries are not easily defined by the usual geographical features of rivers, seas, and mountains. In the west and southwest the Caspian Sea and the Kopet Dag Mountains dividing Turkmenistan from Iran provide clear boundaries, but the physical boundary between Central Asia and Afghanistan is less distinct. In the southeast and east the Pamir and Tianshan mountains divided Russian from Chinese Turkestan, but since the major ranges rim east-west rather than north-south, these inhospitable regions provided a natural buffer, split by several access routes, rather than a well-defined border. To the north, the limit of Central Asia is even vaguer as the Kazakhstan steppes fade imperceptibly into the Siberian steppes.
Since the creation of the USSR, the Central Asian republics have been closely integrated. Although the CARs each had separate republic status, the planners in Moscow treated the USSR as a single unit in determining location of economic activity, transport networks, and water policy. Formal Soviet definitions, however, excluded Kazakhstan from Central Asia, in recognition of its more diversified economic (and ethnic) base. Kazakhstan is included in this book because its similarities to the other four countries outweigh the differences, and in particular its post-1991 history has evolved under similar conditions.
TRANSITION AND DEVELOPMENT
In the 1990s the CARs face two major economic challenges simultaneously: transition and development. Both of these terms have become widely accepted, although neither is a precisely defined concept and there is no unanimity about the best approach to either transition or development (although there is greater agreement over what constitute false steps).
Transition is the shorthand term for the process of moving from a centrally planned economy to a market-oriented economy. The precise starting point varies, as not all centrally planned economies had identical systems, and the endpoint will vary, as all market-oriented economies are mixed economies with varying degrees of government involvement. Nevertheless, there is some agreement over what constitutes the set of transition economies, and all of the former Soviet republics certainly belong to it.
The major debates in the literature on transition have been over the speed of economic reform and the sequencing of individual reforms. Western economists have advocated a Big Bang approach to reform, emphasizing the interrelatedness of the components of a market economy and the potential for resource misallocation in a partially reformed economy. The paradigm for Big Bang reforms was the Polish package introduced in January 1990. Policymakers elsewhere in Eastern Europe were initially more cautious, fearing the disruption and especially the unemployment associated with drastic reform, but in some countries (the Czech Lands and Hungary), they have come to accept the logic of the Big Bang argument.
Even a government committed to rapid reform will take time to formulate and implement its program, so the question of priorities is always relevant. Where policymakers are committed to gradualism, the sequencing of reforms is even more critical. The theoretical literature on sequencing is diffuse, but the majority view favors early emphasis on macroeconomic stabilization and on liberalizing transactions in the current account of the balance of payments (Fischer and Gelb 1991). In practice there have been many varieties: agriculture-first in China, immediate adoption of world prices (or at least West German prices) in the former German Democratic Republic, privatization-first in Mongolia, and so on.
A major difficulty in evaluating the transition debates is the paucity of empirical evidence. The reform measures introduced in Eastern Europe since 1989 have been in place for too short a period to make a complete judgment of success or failure in individual cases, while the pre-1989 reforms there or in the USSR were too limited to provide lessons for the 1990s. The longest-running reform program is that of China, which began with the agricultural reforms and open door policy introduced in the late 1970s, but there is little agreement over the lessons from China's experience for Eastern Europe or the former USSR. In Chapter 101 will argue that the lessons from China are about development rather than transition, and have limited relevance to the CARs' situation.
"Economic development" is also a term that everybody understands, but is imprecisely defined. It encapsulates the idea of long-term economic change, usually with a positive connotation. It is closely related to economic growth, but also implies some structural changes in the economy.
The literature on economic development is far more extensive than that on transition, and includes a substantial body of empirical work. The subject originated during the 1940s and 1950s, and initially came close to equating development with industrialization. Early development economists also tended to distrust the market mechanism, especially in international markets, whose operation was seen as often working against the less developed countries.
The conventional wisdom on economic development underwent a major revision during the 1970s, largely based on the evidence of shortcomings in inward-oriented industrialization strategies and the economic success of the export-oriented economies of East Asia. The new orthodoxy reemphasized the role of the price mechanism as the best method of allocating resources among productive activities. For most economies the appropriate relative prices are world prices, so trade policy is important because a neutral trade policy will lead to appropriate domestic prices rather than the distorted prices resulting from the discredited protectionist policies. Associated with this has been a general rehabilitation of more market-friendly policies, and distrust of government intervention at the microeconomic level. The remaining role for government in the economic sphere is to provide a framework within which market activities can flourish (including appropriate macroeconomic policies) and direct action in some social spheres (particularly in targeting assistance to people in poverty).
The new orthodoxy in the development literature involves considerable overlap in the policy implications of transition and development. Both require greater openness to the world economy and more reliance on market mechanisms, but they are not synonymous. Transition is a short- to medium-term task, and the challenge is to achieve this transformation of the economy and to set in place new governmental functions, without undermining long-run economic development.
ECONOMICS AND POLITICS
This is a book about economics, but politics cannot be excluded. Domestic politics interact with economics in a two-way causality. This interaction was highlighted by the power struggles in the USSR and Russia in the early 1990s, as debates over the role of the Communist party, the existence of the Soviet Union, and so forth were played out simultaneously with debates over economic policy. Similarly, in the CARs the personalities of the presidents, who came to power for reasons unrelated to economics, have played a significant role in determining (and differentiating) economic policy. Political considerations, especially fears of creating unaccustomed unemployment and income inequality, have also restrained policymakers who recognize the economic logic of more thoroughgoing or faster economic reforms.
Internationally the new states enjoy sovereignty, but they cannot avoid being the object of great power competition. During the nineteenth century Central Asia was where spheres of influence clashed, and although the CARs were firmly within the Russian sphere from the 1870s until 1991, they are once more the board upon which a Great Game will be played. The outcome of this game will undoubtedly influence their economic future. Incorporation into the tsarist Russian Empire inevitably oriented Central Asian trade northwards, but unpredictably led to the collectivization of agriculture and central planning sixty years later. In the 1990s outside advisers encourage diversification of the CARs' trade, and neighboring countries vie for this new trade, but Russia views such talk with a jaundiced eye.
OUTLINE OF THE BOOK
This book seeks to achieve a balance between treating Central Asia as an economic unit with common features and identifying distinctive characteristics of the individual countries (and in some cases, of regions within countries). Part One analyzes the regional economy up to the collapse of the USSR. Part Two describes each Central Asian national economy separately, focusing on their history (emphasizing national heritage and divergences from the general picture presented in Chapter 2), economic structure, economic performance in the late 1980s and early 1990s, and economic policies since independence. Part Three reverts to the regional perspective in order to analyze some common problems and to assess future prospects.
Chapter 2 surveys Central Asia's pre-Gorbachev history, emphasizing the fundamental determinants of the region's economic development. The first section takes up the theme of the sedentarists and nomads, relating the rise and fall of the great cities (Bukhara, Samarkand, Khiva) to the symbiotic relationship between the nomad warriors and the merchants; when the nomads acted as bandits, trade declined, but when they established large unified empires, trade flourished. The overland route was, however, doomed after the discovery of ocean routes from Europe to China and Central Asia went into long-term economic decline.
The region was brought back to international attention in the nineteenth century, when expanding European empires (and stagnant Asian empires) clashed in what was known as the Great Game. The outcome for Central Asia was absorption into the Russian Empire. This reoriented the region's trade northward, and in the twentieth century led to the establishment of Soviet central planning. The role of Central Asia in the Soviet division of labor was primarily as a supplier of cotton, and much of the region became devoted to monoculture based on irrigation systems.
Chapter 3 takes a structural rather than historical view of the regional economy. The main section analyzes the nature of the irrigation economy and its wide-reaching consequences, including such dramatic environmental disasters as the drying up of the Aral Sea. Major environmental problems also are associated with the space center and the nuclear testing facility in Kazakhstan, and systemic environmental problems have been experienced throughout the USSR.
Chapter 4 analyzes the demise of the USSR, emphasizing the economic forces behind the collapse. The Soviet economy was in decline by the late 1970s, and neither Brezhnev nor his caretaker successors did anything to reverse the decline. Gorbachev was more dynamic, but ultimately failed on the economic front. A key question is whether he failed because he adopted the wrong policies or whether the Soviet economy was unsalvageable; my argument is that it probably was unsalvageable, but Gorbachev did not adopt useful economic policies. Chapter 4 also describes the economic performance of the CARs during the early 1990s and analyzes the main issues facing them in the transition to more market-oriented economic systems.
Chapters 5 through 9 emphasize the differentiating features of the individual economies. The most important forces are resource endowment and the policy choices made since independence. Kazakhstan has a diversified resource base, and Turkmenistan is rich with natural gas, but Kyrgyzstan and Tajikistan have little in the way of readily exploitable resources. The postindependence government of Turkmenistan is highly personalized and authoritarian, and Uzbekistan appears to be headed in the same direction, while Kyrgyzstan and Kazakhstan are more open politically; Tajikistan has had a civil war since independence.
Excerpted from The Economies of Central Asia by Richard Pomfret. Copyright © 1995 Princeton University Press. Excerpted by permission of PRINCETON UNIVERSITY PRESS.
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Table of Contents
- FrontMatter, pg. i
- Contents, pg. v
- List of Illustrations, pg. ix
- List of Tables, pg. xi
- Preface, pg. xiii
- List of Abbreviations, pg. xv
- CHAPTER 1. Introduction, pg. 3
- CHAPTER 2. History: From Silk Road to Cotton Fields, pg. 19
- CHAPTER 3. Common Economic Features of the Region, pg. 28
- CHAPTER 4. The Economic and Political Collapse of the Soviet Union, pg. 41
- CHAPTER 5. Uzbekistan: Oriental Despotism, pg. 63
- CHAPTER 6. Kazakhstan: Wild West in the East, pg. 75
- CHAPTER 7. Tajikistan: Civil War, pg. 98
- CHAPTER 8. Kyrgyzstan: The Switzerland of Asia, pg. 106
- CHAPTER 9. Turkmenistan: The Kuwait of Asia, pg. 119
- CHAPTER 10. The Choice of Development Strategy, pg. 131
- CHAPTER 11. Macroeconomic Problems: The Hyperinflationary Ruble Zone, pg. 140
- CHAPTER 12. Regional Relations: The Great Game, Part Two, with New Players, pg. 152
- CHAPTER 13. Regional Problems and National Economic Differentiation, pg. 163
- APPENDIX 1. National Income Comparisons for the Soviet Union and Its Successor States, pg. 171
- APPENDIX 2. Ten Economic Lessons from the Former Soviet Union, pg. 177
- Notes, pg. 181
- References, pg. 207
- Index, pg. 211
- About the Author, pg. 217