[Marxism] College Econ Report on Belarus

["Hal Smith" <rakovsky@xxxxxxxxxx>]

Here's a college economics report I just wrote on Belarus. I did not focus on 
the political aspects. The president is not a member of the Communist Party. 
The CP has the largest number of parliament seats, and is divided into 2 
parties, the larger of which is in opposition.

   There have been accusations against Lukashenko in the Western Press about 
government measures against the opposition. According to my professor, "the 
World Bank doesn't like him because he's slow on reform" -that is, economic 
motives behind US policy. It should be noted that the government allows big 
public signs of opposition from the nationalists. So it looks like there is 
more civil liberties than in the Soviet period, but much less control in the 
political realm. Therefore Lukashenko's system could be described as Stalinist, 
in contrast to Gorbachev and Khrushchev; indeed he admires Stalin.

I really don't know the political situation there.

   In any case my report was on economics. And whatever the opinion on 
politics, Trotsky wrote approvingly of the USSR's economic growth under Stalin, 
because of its Socialist basis.

I got an A and the teacher was impressed!



Hal Smith

Socialist Economics

and Transition Class

              The Economic Growth of Belarus

     After the Soviet Union collapsed, most of its former states used a ?big 
bang? approach and quickly established the fundamentals of a capitalist 
economy. Belarus, on the other hand, moved only slowly in the direction of a 
capitalist economy. While much of the command economy was removed, the state 
continues to play a central role in the Belarusian economy. How can the 
nation?s normal economic growth be explained, in contrast to Russia?s failing 
economy? While Russia underwent massive privatization and economic collapse, 
Belarus maintained robust economic growth and GDP levels due to the stability 
of its economic structure. The state?s retention of enterprises prevented 
business failure and asset stripping. High taxes maintained the infrastructure 
while a market price system was introduced.

     The result of Belarus?s market socialism is economic stability. The 
nation?s market socialism means the state owns key sectors of production, 
allows limited private ownership of secondary sectors, and that the market 
generally determines prices. The country maintains a GDP similar to its initial 
level. Real GDP in 2000 as a percent of 1990 GDP is 89%, which is the 2nd best 
in the Commonwealth of Independent States (The CIS refers to the 15 regions 
which were once part of the Soviet Union and are now independent states). For a 
further comparison, the CIS average is 62%. In 1992, GDP growth was -9.64% and 
in 1995 it was -10.4%. But that year Alexander Lukashenko was elected president 
and announced an economic policy of market socialism. The GDP grew by 2.8% in 
1996 and made up for its previous setbacks with a growth rate of 11.4% in 1997, 
and 8.4% in 1998. Its 2001, 2002, and 2003 growth rates were 4.7%, 4.7%, and 
6.1% respectively.  Similarly, Per Capita GDP in US dollars was $1,021 in 1995, 
$1,504 in 1998, $1,239 in 2001, and $1,437 in 2002. Thus, the economic 
structure of Belarus has been able to foster strong economic growth, especially 
when compared with other CIS nations.

     Inflation also fell considerably, from 971% in 1992 to 293.8% in 1999 and 
then to 34.8% in 2002. Annual average consumer prices changed from a rate of 
709.3% in 1995 down to 42.6% in 2002. And producer prices changed from a rate 
of 462% in 1995 to 40.0% in 2002. Thus the nation?s economic policies have 
strongly reduced inflation from its overblown initial level in 1992. Tight 
fiscal policies undertaken in 1999 were vital in bringing down inflation to its 
current level.

     In addition, income equality remained at the same level relative to other 
CIS nations. Belarus?s GINI income inequality coefficient was: .23 in 1990, .28 
in 1994, and .26 in 1998. The corresponding average CIS indicators were .28, 
.36, .46 respectively. A nation?s GINI coefficient measures how much income 
disparity exists between its rich and poor. The World Bank estimates that less 
than 2% of Belarus?s population is in poverty. Thus not only is the nation?s 
wealth evenly distributed, but its healthy growth rates mean that there is 
enough to go around and provide for everyone?s basic needs.

Belarus has the 5th highest UN Human Development Index (HDI) of the CIS 
countries- after the Baltic states and Russia- although it outranks them all in 
literacy (99.7%). The United Nation?s HDI measures the well being of a nation?s 
population, based on standards such as poverty, education, child welfare, and 
health. A lower HDI value signifies a higher rank. Belarus?s HDI value is .790, 
whereas the average value for Central and Eastern Europe is .796. Thus 
Belarus?s economic system successfully provides for its citizens? well-being, 
compared with other CIS nations.

      What makes Belarus?s economic structure unique among CIS nations is the 
strong role of the public sector and state institutions continue to play. If 
the level of government revenues is used as an indicator of the strength of 
public institutions, Belarus comes up with a high value; the percent of general 
government revenue to GDP in 1996 and 2002 was 40.8% and 44.0% respectively. 
The CIS average was 24.2% and 26.6% respectively. Belarusian government 
expenditures as a percent of GDP in 1996 and 2002 were 42.4 and 42.0% 
respectively. The average CIS figures were 29.8% and 27.6% respectively. Not 
only are government expenditures a high percent of GDP, but the government?s 
budget balance is improving from -2.7% of GDP in 1995 to -1.8% in 2002. The 
strong public infrastructure provides a good framework for economic growth. The 
mix of strong public institutions and few big private interests decrease the 
role of a big mafia and its corruption of the government through financial 
means.

        At the same time, Belarus has an exceptionally low Cumulative 
Liberalization Index (CLI), which measures the amount of capitalist reforms. 
Specifically, CLI is the sum total of all the Liberalization Index values for a 
nation since 1989. A nation?s Liberalization Index refers to the amount of 
flexible and free market prices, along with the amount of private ownership. 
The more of these two elents, the higher the CLI value will be. Belarus?s CLI 
in 1992, 1995,  and 1997 was .38, 1.55, and 2.54 and respectively. In that same 
period, Russia went from .67 to 4.32.  Thus the size of Belarus?s public 
sector, as measured by government revenue, and the structural character of the 
public sector, represented by its CLI, show both strength and little change. 
The stability of the nation?s public sector has been accompanied by successful 
economic growth. But in most other CIS nations, the public sector has been 
dramatically reduced.

      Therefore economic structural stability and economic growth are strongly 
related. Especially Russia,  among the CIS countries, experienced a decline in 
the role of state institutions compared to the economy as a whole, as measured 
by government revenues as a percent of GDP. And its economy collapsed. Estonia 
followed Russia in taking huge steps towards a capitalist economy, but 
maintained a stable level of government revenues. Consequently it maintained a 
normal growth rate. Belarus differed from both countries by avoiding hasty 
economic changes, while maintaining its public sector. Likewise, Estonia 
experienced normal growth. By 2002, Estonia, Uzbekistan, and Belarus had the 
smallest amount of change in government revenue during transition, and became 
the ?top performers,? while Russia?s economy collapsed. Thus the economist 
Vladimir Popov writes, ?To sum up, there is enough evidence that differing 
performance during transition, after factoring in initial conditions and 
external environment, depends mostly on the strength of institutions and not so 
much on the progress in liberalization per se.?

         Nevertheless it is important to realize possible weaknesses in 
Belarus?s economic system, stemming from the fact that it has not strongly 
reformed its economy or privatized. In 1990, 1994, and 1999, the private sector 
made up 5%, 15%, and 20% of GDP respectively. In addition, small business 
growth is sluggish because of high taxes and regulations. Small Enterprises 
make up 37.7% of all enterprises in Belarus. In Russia the number is 56.3% and 
in the Ukraine it is 69.2%.

As a result, Belarus?s growth might not be sustainable in the long run. 
According to Zuzana Brixiova, the IMF representative to Belarus, ?around 40 
percent of industrial enterprises- and over 60 percent of agricultural firms- 
are loss making.? These firms are buoyed up by state subsidies and cause 
inflation. Thus, while inflation has decreased drastically, it is still the 
highest among CIS nations.

       Another problem is that heavy trade regulations mean low trade with 
non-CIS countries. As a result, from 1993-1998 Belarus experienced a real 
export growth of -3.2%.  The CIS average is 3.2%) Another result of the 
nation?s trade policy is that among CIS nations, the vast majority of it is 
with Russia. As for Belarus?s major export partners, 57.2% of its export went 
to Russia, Germany received 4.7%, and France 3.9%. The government?s subsidies 
and high tariffs are not an essential part of market socialism because they 
only hinder the market and neither are they part of government ownership per 
se. While the subsidies and tariffs could be abolished without significantly 
altering Belarus?s economic structure, it is questionable how many weak 
businesses could survive in their absence.

      Another disadvantage is that Belarus?s Democracy Index (DI) in 1994 was 
.50. It dropped to .17 in 2000. In contrast, the DI of the CIS nation with the 
best economic growth, Estonia went from .75 to .92. A nation?s democracy index 
measures a people?s civil rights and its power in government. The weak 
democratic control over state decisions in Belarus means that the country could 
eventually experience resource misallocation similar to that which caused the 
economic breakdown of the Soviet Union. Such serious resource misallocation due 
to lack of popular involvement in the Soviet Union included bloated military 
budgets, overemphasis on heavy industry, and little attention to consumer 
needs. With an underdeveloped small business sector, these problems might 
resurface in spite of market prices.

       Hence, although Belarus is experiencing positive growth it comes at the 
price of an uncertain future. The scarcity of small businesses and losses 
incurred by firms are particularly troubling. Although a mafia?s corruption of 
the government does not develop to the same extent as in Russia, economic 
decisions made by a powerful bureaucracy will be less efficient than those made 
with democratic involvement and oversight.

       Overall however, Belarus changed successfully from a command economy to 
a market economy characterized by limited price fixing. At the same time it 
maintained economic stability and normal economic growth. These benefits 
outweigh any supposed disadvantages from the slower pace of changes. It is true 
that the current structure may be unsustainable in the long run. But 
institutions remain strong and stave off a large-scale collapse in the short 
term. In the meantime the necesary changes can occur at a healthy pace. The 
Belarusian economy can benefit from observing mistakes made in the hasty 
privatization of other CIS countries. In conclusion Belarus avoided a 
large-scale economic collapse in the short run by preserving important aspects 
of the state economy, maintaining strong public institutions, and prolonging 
the process of transition.















Bibliography



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<http://www.belarusembassy.org/economic/>



Brixiova, Zuzana. ?Economic Transition in Belarus: Achievements and 
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<http://www.imf.org/external/country/BLR/rr/pdf/060904.pdf>



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<http://www.nbrb.by/engl/publications/report/2003/2003_1.pdf>



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<http://lnweb18.worldbank.org/eca/eca.nsf/2656afe00bc5f02185256d5d005dae97/8ec2dc1ef03aed3e85256d5d0067dc90?OpenDocument>







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