Book Discussion: Building States and Markets: Enterprise Development in Central Asia

The shift from Soviet-era economics to market style capitalism has created a new class of entrepreneurs in Central Asia, said Gül Berna Özcan, Reader in International Business and Entrepreneurship, School of Management of Royal Holloway College, University of London; Associate Fellow, London School of Economics, and Former Fellow, Woodrow Wilson Center. At a 5 May 2010 Kennan Institute talk, Özcan presented this and other findings in her new book, Building States and Markets: Enterprise Development in Central Asia, which explores the characteristics and impact of the emerging entrepreneurial middle class in Central Asia.

Current literature on Central Asia mainly falls into three categories: cultural and political analyses, international and strategic studies, and the economics of transition. Özcan's book focuses on issues conspicuously absent from this literature, namely, the emerging entrepreneurial class in the state-market axis and its implications on the future direction of Central Asia. From 2004 to 2007, Özcan traveled throughout Kazakhstan, Kyrgyzstan and Uzbekistan studying over 200 small and medium-sized businesses and conducting interviews in order to gain insight into the tangible experiences of people transitioning from Soviet structures to capitalist markets. Özcan's research focused on the social, moral and political character of these middle class entrepreneurs.

To analyze the dynamics of state-market relationships and social stratification, the author likened her conceptual framework to the game of pick-up sticks called Mikado, which mimics the rounds of allocation and re-appropriation that repeatedly occur in Central Asian economies and provide new ownership and opportunity structures. There are five players to the game in Central Asia: the president and his ruling family, the oligarchs and courtiers, the protégés and apparatchiks, the entrepreneurial middle class, and the underprivileged.

"Entrepreneurs, the most numerous and important group in the new middle class, are residual beneficiaries of the dissolution of Soviet enterprises and land privatization," said Özcan. They constantly negotiate to solidify their domain and expand market opportunities. This group has multi-ethnic and urban character with high educational attainments. Indeed, almost 60 percent of all entrepreneurs Özcan surveyed had a university education.

One major finding of the book is that the relationship between this middle class and state institutions is fraught and uncertain. Most entrepreneurs do not trust the legal system and its arbitrary law enforcement practices, and therefore try to solve their business problems outside of it. Moreover, arbitrary taxation and corruption hamper the abilities of their businesses to flourish. This has two effects: entrepreneurs tend to support authoritarian regimes because they provide at least some measure of political stability, and are further forced to engage in corrupt practices themselves (such as bribery) in order to be competitive in the market.

Overall, low civic engagement with associations and extensive use of personal networks, as well as Soviet habits of using "getting by" tactics, indicate that entrepreneurs do not intend to challenge strong interests in the upper strata. Instead, they use self-governing syndicates as mediators between them and the state when they need to. Entrepreneurs widen their opportunities in relation, and not in opposition, to the upper strata.

Özcan also analyzed the moral dilemma posed by new entrepreneurial activity, an aspect her fellow panelists praised as another unique contribution to the literature on Central Asia. She found three fundamental patterns of discontent that emerge due to the clash between morals and business activity: social status anxiety, daily moral dilemmas and guilt, and the moral vacuum of post-Soviet materialism. "Widespread corruption damages societal trust whilst the Mikado game's ruthless rounds of opportunity allocation intensify the moral confusion," said Özcan.

For now, it is uncertain whether these emerging groups will remain dependent and
ineffectual due to market inhibitors reinforced by the ruling elite or whether they will emerge as a powerful pressure group. Özcan reported that the entrepreneurial middle stratum does not yet have a clear agenda for its own advancement and, given its ideological and moral paucity, it is tied to the Mikado game. Their "quiescent stance" comes from a deep sense of mistrust in collective action and a political apathy that makes them suspicious of the value of political activism. However, the middle stratum does periodically seek to change the Mikado game's order in an attempt to acquire more market power, often by aligning their interests with the dispossessed masses and mobilizing them against their governments.

Özcan stressed that while an empowered middle class and democratization cannot be automatically linked in Central Asia, middle class support will be essential for sustaining future democratic governance in this region.

Henry Hale, Associate Professor of Political Science and International Affairs and Director, Institute for European, Russian and Eurasian Studies, George Washington University, praised the book as a niche account of Central Asian political economy. He stressed the problems of collective action in this region and the "syndrome" of clientilism. Those on the bottom end of the client-patron relationship have little incentive to resist corrupt activity because it would completely exclude them from all economic activity in general. Hale added that entrepreneurs do not necessarily see their actions as corrupt if that behavior is expected of them and also necessary for their families' survival.

Barbara Junisbai, Title VIII-Supported Research Scholar, Kennan Institute, extolled the research as engaging, informative, and applicable to other countries in the post-Soviet space as well as developing countries with corrupt and under-institutionalized governments. Junisbai also found the chapter on the moral aspect of business interaction to be a new and worthwhile contribution to the literature.

Erica Marat, Research Fellow, Central Asia-Caucasus Institute and Silk Road Studies Program, Johns Hopkins University, pointed out that although the chapter on morality focuses on men, over half of Ozcan's interviewees were women, and she wondered whether gender has an effect on an individual's conception of moral dilemmas. Indeed, Ozcan replied that the women she spoke to seemed to consider any illegal considered it less of a dilemma than many of the men Ozcan interviewed.

Blair Ruble, Director, Kennan Institute