TCS Daily

Communistan, Inc.

By Meelis Kitsing - May 16, 2003 12:00 AM

It was two years ago that the totalitarian president of Kazakhstan, Nursultan Nazarbaev, canceled his scheduled lecture at the London School of Economics at the last moment. Nazarbaev had learned that a group of students and faculty were planning to walk out of his lecture in protest. But his traditional tools of state-sponsored violence were not available for silencing the protesters in London. In this forum he had no recourse for demonstrating his non-existent tolerance of diversity but to back off.

Even more interesting than whatever Nazarbaev might have had to say at that lecture was the subsequent student discussion about the treatment of dictators. "Collaborators" argued that by shutting out opportunities for leaders of undemocratic regimes, the dialogue, and hence possibilities for influencing the thinking of such despots, would disappear completely. "Fundamentalists" argued that lectures and dialogue, such as the one planned with Nazarbaev, could be considered acts supportive of despots and would only contribute to their credibility at home.

Students graduate, and the debate extends off campus. Collaborators join the international financial organizations and try to work with the despots. Fundamentalists join the human rights organizations and criticize the collaborators. While this statement might sound like an extreme simplification, the decision of the European Bank for Reconstruction and Development (EBRD) to hold its annual meeting in Uzbekistan early this May - a decision met with criticism from human rights groups - is a case in point.

Unlike Nazarbaev, Uzbekistan's president Islam Karimov would not even bother to bolster his own credibility by lecturing at Western universities or sending students to the Sorbonne and the LSE. The Uzbek transition has been more one of regression than progress - a move backwards from the Gorbachev era toward the ways of Stalin. The state of civil liberties is worse today than it was in the second half of the 1980s, the years of heralded perestroika and glasnost in the Soviet Union. The Financial Times reports that there are 6,500 political prisoners in Uzbekistan. The United Nations Special Rapporteur has concluded that torture is "systematic" in the country.

The dreadful record of human rights abuses makes it understandable that the most diplomatic way for human rights advocacy groups to describe the EBRD decision is to call it "controversial" - and that is exactly what Kenneth Roth, executive director of Human Rights Watch, did. The collaborators have also become more diplomatic. The EBRD aims to kill two birds with one stone: EBRD President Jean Lemierre made expansion of the organization's activities to Uzbekistan contingent on the improvement of human rights conditions; in particular, he urged the Uzbek leadership to put an end to torture.

The consideration given by the EBRD to the broader picture is commendable given that aims of various Western organizations often conflict with one another. Last year the Export-Import Bank of the United States wanted to loan the Uzbek government $5 million for the purchase of filtering technology for monitoring and blocking Internet traffic. Lobbying by domestic and international Internet activists played a key role in the collapse of the deal at the final hour. Rightfully so, as such narrowly defined "economic development support" on the part of a government organization representative of the Land of the Free would have contributed to economic regression, not to mention aiding in the repression of civil liberties.

Hence, the EBRD followed the logic of Harvard University professor Michael Ignatieff, who argues that economic and political rights are a precondition for economic development. Speaking at the annual meeting, Ignatieff remarked: "Some people believe rights are what you can afford when you become rich. But rights are what make countries rich."

Certainly, improving the "rules of the game" in society (or institutions, as more sophisticated people prefer to call it) reduces the transaction costs for any undertaking, be it one of a business or a human rights NGO. In the words of Douglass North, Nobel Prize winner in economics: "...the costs of transacting are the key to the performance of economies."

However, this general recognition does not help improve the conditions in Uzbekistan unless due attention is focused on the cause-effect relationship that leads to institutional change. Deal-making between the EBRD and Uzbek government - in which ending torture and giving freedom to political prisoners are achieved in exchange for infrastructure projects - may not lead to sustainable change. The end result may well be a "Potemkin village" where some minuscule improvement in the most nightmarish of conditions is touted, with the real situation still devoid of any fundamental commitment. There is no question that the improvement of civil liberties is an imperative goal. But it must be achieved through a process of economic opening, not by pushing through an agenda that seems to achieve all grand goals simultaneously.

Political instability in Central Asia, drug trafficking out of Afghanistan, and Muslim extremism - these are the threats echoing throughout the rhetoric of the Uzbek leadership that make human rights and the country's internal security seen as tradeoffs. Even the mention of human rights puts leaders on the defensive and may cause potential commitment - not only to human rights agendas, but also to economic reforms - to fall apart. At the EBRD meeting, Uzbekistan's first deputy minister, Vladimir Norov, argued that torture "is not systematic." Uzbek President Islam Karimov, speaking before the EBRD Board of Governors, failed to condemn the use of torture.

The real difficulty lies in the fact that Uzbekistan's communist leadership reigns not only over the political sphere of the country with an iron grip, but also over the economic sphere. Former communist apparatchiks of the Soviet era have turned the country into incorporated communism. Uzbekistan is the worst kind of corporatist nightmare, one in which any big economic transaction benefits its leaders personally.

The rest of society follows this example by engaging in widespread rent-seeking. Papers are needed for every move. Streets and roads are full of militia checkpoints. For many, it is better to wait in the long bank lines to exchange money at the official rate and then sell it at the market rate than to engage in any productive undertaking.

The effects of extreme protectionism are most visible on the streets of Tashkent. Wealthier people all drive the same locally-assembled Daewoo cars; the less fortunate rely on old cars left from the days of Soviet Union. The protectionist policies make it too expensive for anyone to import cars from outside the country.

The starting point for reform should be economic opening, which will lead to the emergence of new interest groups and prevent money from being pocketed by the elite trying to strengthen its position. In this sense, the EBRD's current focus on small and medium enterprises is good. The larger loans should be made conditional on changes in economic policy, such as replacing failed import-substitution policies.

Economic opening can have a profound impact, as increased exchanges will lead to fundamental changes in relative prices. The Uzbek people will have more choices, and possibilities for rent-seeking will decrease. Changes in relative prices will imply an improvement in the living conditions of the common man. Such an improvement will lead to changes in bargaining power for different groups, and will create incentives for participation in the political and economic arena and for seeking to alter the existing economic and social contract.

Obviously, in the age of the militant NGO movement, the EBRD does not want to be labeled by some human rights activists as the "European Bank for Repression and Dictatorship." If the aim is to help the people of Uzbekistan, then perhaps being called names isn't the worst of their worries. False perception creates false realities.

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