People seek for understanding. It is in the human nature to
understand, aspire to understand what is happening with him or her. Economics,
like politics, deals with all and everyone. Both economics and politics are
formed of things that we altogether make, produce, exchange and consume.
Classical liberal theories teach us that people are able to know and understand
just what they make themselves, and that the market will adjust everything
else. In accordance with entrepreneurship theories some people are able to understand
also what other people do, want and consume; undertaking active measures on the
basis of this understanding one can obtain excess profit as an award for the
correct prediction. Socialistic theories are based on the belief that all
things can be calculated and planned in economics, and that good managers are
able to control economy properly and for the common benefit. However, none of
the theories copes with economic crisis. Classical theories are able to explain
easily the aftermath of the causes of a crisis and to describe its dynamics.
Socialistic theories are always ready to respond to a crisis by an action plan,
and all these plans add up to a standard set of state regulations,
nationalization and distribution. Entrepreneurship theories will analyze and
describe experiences of successful managers and entrepreneurs who are able to use
the crisis for their own advantage. However every employee, customer and
business owner wants to understand what is happening to him, with his
enterprise, his salary, his consumer demands, with his business. What, when and
how much to sell and to buy? Where should he store his savings, where should invest
his money? In response to such questions both theorists and official
authorities are at a loss. Especially if economy behaves itself paradoxically,
and current economic factors demonstrate movements in a variety of directions.
Belarusian economy is paradoxical. It sometimes shows growth when
it cannot be expected, and survivability, when a collapse seems inevitable.
However it is in stagnation, when all conditions for rapid development are at
place. Unsurprisingly economists of the Research Center IPM qualified
macroeconomic regime established in Belarus, a «suppressed development regime», as opposed to the «sustainable
development». Suppressed development in conjunction with paradoxes cause a
number of naive questions.
The main paradoxical question recently is whether is it possible
for Belarus to establish zones of free trade simultaneously with both Russia (plus
a customs union with Kazakhstan) and the European Union? One can move to the North
or to the West or even put together all efforts and move to the North-West. However
one cannot move to the East-West. These directions are mutually exclusive. Russia considers the Belarusian-European approach to be a betrayal of
the main course by Belarus. It might be true however why the Russian Prime Minister
convinces then that gas for Belarus would be supplied at the old rates, which
are although higher than domestic, nevertheless much lower than the common
European prices. Previously it was clear, gas was supplied to the nearest and the
most loyal ally at low prices as a sign of friendship and hope for the UnionState. Practically future deliveries to themselves. Therefore why now? Why
should there be benefits for a «traitor»?
If we recall that the Russian Prime Minister makes such a
statement with the background of a still continuing «milk war», then everything
becomes more interesting. Why does Russia stand up to Belarusian imports of cheap milk at the market,
although its cheapness is largely conditioned by the same cheap gas that Russia exports to Belarus? Why is commercial milk of a greater macroeconomic importance
than the traded gas? Russian economy thinking looks no less paradoxical and
mysterious than Belarusian one. Several years ago analysts in Moscow tried to persuade us and the whole world that the Kremlin
established a pragmatic regime and that all the Russian oil-gas conflicts with Belarus and Ukraine had no political background that it was due to economic and
pragmatic calculations only. No one wanted to believe it back then. It is also impossible
to believe that now.
However neither Russian, nor Belarusian actions are deprived of
pragmatism. Belarus needs Russian market very much to export milk and other
agricultural goods. It is understandable and pragmatic it is easy to see trade
and social interests there too. However why does Russia oppose to this? Is protectionism being the main reason? Could Belarusian
milk undermine Russian producers and they exert influence on their government?
This would be understandable too. However it seems that pressure put upon the
government came from completely other side. Belarusian milk conflicts with the
interests of those Russian importers, who prefer importing milk from both the
nearest Finland and a very distant New Zealand. They are becoming unprofitable due to cheap Belarusian milk, not
the Russian peasants, who still do not satisfy the demands of the Russian
market. In «milk war», therefore, economic arguments do not count, it is rather
a PR action. One doesn’t speak of profitability, benefits, disadvantages, rather
about the health standards, quality of milk products, impurities and additives.
Naïve consumers are informed exactly about these points, and therefore the Chief
Sanitary Doctor became the main actor in the «milk war”, not the Minister of Economy.
The technique worked out well in Russia too. For example, they used the argument of counterfeit wines while
putting pressure on Georgia. One can look into this and can understand the specific sort of
pragmatism, not of economic nature, but of imperial-political one.
What about gas? What about the denial to provide credits that made
the Belarusian government to apply for loans to Europe? Is it easier to
provide loans that are necessary to keep Belarus stabile and to refund expenses by increasing gas prices? Belarus,
that needs money currently would be paying back for several years, even taking
into account the debt emerging from time to time. It may be that Russia has no money for loans right now. However why they waste money
for a nuclear power plant construction then. Indeed, Russian economic mind cannot
be understood by brains only!
However we are interested in the Belarusian economic thinking and
the Belarusian governmental measures that are taken for stabilization and for coming
out from the economic crisis. For a long time the growth of the Belarusian economy
was being ensured by an orientation to the Russian consumption market. Russian economy
was growing. Belarus was selling its industrial products in Russia, receiving circulating
assets and was supporting afloat industry and agriculture of the former USSR. However
Russian market was open to cheap and low quality Belarusian products, while Russia itself was poor. Russian consumers have been changing their
behaviour with the growth of their income. The middle class started consuming
higher quality and more expensive goods, whereas China has been dominating in the segment of cheap and low-grade
production for a long time. Therefore the growth of the Russian economy caused
reduced opportunities for Belarusian exports. To stay in the Russian market, it
was necessary to modernize the Belarusian industry, which demanded a great deal
of investment. Also the growing economy of Russia had available investment resources however Russian investors
demanded privatization of Belarusian enterprises. The Belarusian government
kept till to the uttermost, sometimes limited privatization was announced but
never started. Those segments of the Russian market, where Belarusian goods were
competitive, declined. There was a need in other markets. The situation
aggravated to even a greater extent with the beginning of the global economic
crisis. The Russian market was closing now not only for the cheap goods, but also
for others too. The paradox of the orientation of the Belarusian exports to the
Russian market is that the Belarusian export to Russia “feels bad” when the Russian economy is both on the rise and in
crisis. Belarus needs not merely look for new markets for its goods however also
change its orientation on Russia as the main external partner.
Searching for new markets, Belarus first appealed to those countries, where consumers are as not
demanding to the quality of goods, as in Russia i.e. to the developing countries of the third world. The Belarusian
policy focused on the countries of the Middle East and Latin America for several years. However soon it became clear that those
markets could not meet the requirements of Belarusian exporters. Moreover there
are no free investment resources available in all in these countries, while such
resources are necessary to modernize the Belarusian economy. Investment
resources are available in the developed countries only. However Belarus ruined relations with all the developed countries.
Only the counter-movement of the European Union
in the framework of the Eastern Partnership opens an opportunity to attempt to
attract Western investment to Belarus. However this attempt faces a new paradox. Export-oriented
Belarusian economy can not be merely realigned from the Russian market to the European
one - consumer standards and quality criteria are too divergent. Western
investment could come to Belarus only if the companies, which receive the investment money, continued
selling their products to Russia. However the Russian market is shrinking. To produce goods for
consumption in Europe, one needs a lot more investment. However who will give more, if
even the less risky projects find too few investors? In order to enter European
markets is not enough to improve quality within the existing technologies one
also needs to change the technologies entirely. Moreover technologies are not
the only thing to be changed but also social relations in production and
consumption area.
Another way of attracting investment is an increase in domestic
consumer market. Domestic consumption should be developed and the dependence on
exports of the Belarusian economy should be reduced. However growth in the consumption
in the country depends on the quality of life. A living standard in a country
where public sector dominates is dependable directly on wages. The growth of
wages leads to higher cost of manufactured goods that can be sold nowhere.
Therefore a vicious circle is formed. While providing with loans, IMF requires freezing
the growth of wages. It is a reasonable requirement because cheap labour force
is the main factor of competitiveness of goods produced in the developing
countries. So far a country receives an IMF credit, it cannot reckon on rapid
growth of the living standards and, hence, domestic consumption. The IMF loans
are not investments in modernization, they are resources for relative
stabilization. Therefore only private investments may be involved in upgrading.
Can private investment go into the state sector of economy? Very
negligible and, most often, in the extractive raw material industries, not in the
industrial production or agriculture. So, once again privatization is on the agenda.
An investor will come only in the private sector. And where is it in Belarus? Where is private sector in Belarus? What is its share in the economy?
Collective farms dominate in agriculture. The same situation is
with the food production. There are rare private businesses that exist in industry
that are of interest of investors. However this interest can be lost quickly.
Belarusian economic thinking has no competitors in this field. It is worth
merely to deprive private enterprises of their private initiative, for example,
to deny the possibility of distribution of their profit.
Privatization is a complex matter indeed. Accordingly, the Belarusian
economic thinking is very difficult. For example, in Belarus there is no single view what is public and what is private. How
else one can understand a statement of an official, “If a company has at least
a small share owned by the state, it belongs to the public (sector)”? Of
course, the state may have a portion in a private enterprise, and a private
person can have a share in the state enterprise. But what did the official
mean?
It is nearly impossible to understand. However it
is likely that Belarusian officials are saying that bearing in mind the best
intentions. A State enterprise will always be supported by the state in a
crisis situation. The state will ensure survival of a bankrupt state owned property.
This might be considered to be a signal for the European investors, “if you
invest in companies with state ownership you will never be out of business in Belarus”! One might even find investors who believe it. However there will
be no modernization on the condition of such investments.
It
is worth understanding at least something about the Belarusian economy in order
to be able to think about the future, about the
nearest future at least.
