Paradoxes of Capitalism: Market Building in Central Asia

Sarah Dixon Klump

"Recent financial scandals and economic distress in the United States and Western Europe have demonstrated how deep the paradoxes of capitalism extend in the most advanced forms of free market capitalism" stated Gul Berna Ozcan, Senior Lecturer in Corporate Governance and International Business, School of Management of Royal Holloway College, University of London; Associate Fellow, Enterprise LSE, London School of Economics; and Fellow, Woodrow Wilson Center. "Those who have advocated the virtue of free markets and economic liberalism are now in the forefront of interventionist policies," she observed, "and for those in the post-Soviet region, western capitalism appears all the more perplexing and confusing." At a January 26, 2009 Kennan Institute lecture, Ozcan analyzed the 20 year experience of three Central Asian states—Kazakhstan, Kyrgyzstan, and Uzbekistan—of market building and private enterprise development. Ozcan explained why these efforts, which were guided by international organizations and foreign advisors, have paradoxically resulted in oligarchic markets, consolidated authoritarian regimes, and a wary engagement with western institutions.

The dissolution of the Soviet Union triggered an unexpected crisis of legitimacy for the new states of Central Asia, stated Ozcan. All three countries inherited largely resource-driven economies with scattered and obsolete heavy industries in mining, armaments, and mechanical engineering. These industries were functionally dependent on far-flung regions of the USSR. Introducing market economics proved to be impossible without several key ingredients: policy determination, responsible civic leadership, and social capital. All these elements, Ozcan put forward, were lacking in Central Asia. "Decades of social engineering, political purges, and economic isolation left the region with weak civic capabilities and almost none of the entrepreneurial stock that was needed for market transition," she argued. Despite political decolonization from the 1960s onward, the national leaders and party officials opposed the dissolution of the USSR. "Thus," Ozcan explained, "they found themselves mostly unprepared for their accidental statehood."

Regardless, Central Asian leaders and nomenclature were initially enthusiastic about market capitalism, unaware of the extent of their ignorance about the steps that would need to be taken. Likewise, Ozcan asserted that the International Monetary Fund (IMF), the World Bank, and other international organizations knew little of the capabilities of the general population and their governments. International institutions which promoted free market economics used analogies with Eastern Europe and Russia and often applied the same prescriptions. "Consequently, ephemeral and disjointed policies led to confusion and a crippling lack of focus," Ozcan remarked. The absence of any credible international engagements analogous to the role played by the European Union in Eastern Europe left the region without an anchored vision or concrete incentives for transition, she argued.

The region's political and economic elites followed different paths towards market transition. Kyrgyzstan implemented big bang shock therapies most enthusiastically, Ozcan noted. Throughout the 1990s, Uzbekistan promoted a policy of gradual developmentalism – something Ozcan called "a clear euphemism for minimum reform." Kazakhstan followed hybrid policies and in the long run, its ruling elite demonstrated greater ability in managing their rich oil and mineral resources than their neighboring states.

Privatization and deregulation under authoritarianism allowed presidential families, their associates, and private groups to dominate the market. They emerged as controllers of major economic assets and key natural resources. Alongside new business groups and oligarchs they took advantage of dismantling Soviet state assets. Self-governing syndicates flourished and filled the gaps. Such syndicates established alternative governance regimes and businesses, taking advantage of weak property rights and an arbitrary rule of law. Oligarchic markets deepened the resource dependencies in the region. "As a result," Ozcan surmised, "the fate of these economies rests uneasily on fluctuating international prices."

"The paradoxes of capitalism have become entrenched in the region," Ozcan said. Uzbekistan has stabilized by means of a suppressive hierarchy, while Kazakhstan has invented its own form of progressive diversification by extending many tentacles of the state. For the foreseeable future, Kyrgyzstan will have to cope with paralyzing chaos. "These are not conditions of economic transition," Ozcan declared. As such, scholars no longer look at these structures and events through the lens of transition theory, but rather suggested that they recast the theoretical perspective of development economics and pay more attention to the dynamics between social conditions and the management of economic assets.

Ozcan concluded by identifying the need for a new direction in policymaking as well. As deep economic and financial disruption of western capitalism unfolds, new questions about economic development emerge. In Central Asia, she predicts that a new era of state intervention and a weak international financial regime is likely to slow down market reforms, hinder outward-looking trade regimes, and deepen oligarchic control of markets. Overall, a general lack of enthusiasm towards western prescriptions indicates that the region is likely to chart its own course for a while, looking instead to countries like China and Russia. Turkey as a secular model remains appealing and balances the influence of unstable regimes like Pakistan and Afghanistan. Economically successful authoritarian models, such as Singapore's, look attractive to the region's leaders. "Western democracy and market capitalism," she claimed, "are no longer aspirations."

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