Post-crisis economic transformation in Kyrgyzstan

It is the first time, the world experiences such a process. Therefore, there are no ready made answers available to the question what this complex process must or could look like and what are the most effective ways for achieving its goals. Each of the post-soviet countries formed its own model of transformation according to its own understanding of the goals and ways of achievement.

The most important challenge in the transformation process from planned to market economies was that while economic theory could justify the need, it wasn’t able to identify the structure and sequence of the transformation process. This is hardly surprising, since the understanding of the necessity of radical reforms itself formed at the same time as the transformation process.

We could agree with the assertion of such scientists as A.A. Porohovskiy, K.A. Hubiev from Moscow State University that “The theory of transformation from one socio-economic system to another was presented in the frame of political economy in its wider meaning […] Neo-classical theory, they write, highlights the functional relations of the market economy in the most developed countries […] Neither the content of these recipes, nor the content of the theory on which these recipes were based, did reflect the essence and specific features of the country that received recommendations. Reforms in Russia didn’t have adequate scientific justification and support”. Only today, after a certain period of time, having suffered from and having received an unlimited number of bumps and bruises, the experience of reforms allows us to draw some conclusions about patterns of this transformation process.

Firstly, we can distinguish a sequence in the reforms. During the first years of post-soviet reforms, one of the most important questions was the sequence of the transformation process; should economic reforms follow political ones or should they precede the democratic processes of the society? There are two possible variants: 1) the priority of political reforms (Poland, Kyrgyzstan), 2) the priority of economic reforms (China). There is no distinctive trend that helps to establishment the success of these different choices; failures and achievements are possible in either approach.

The second principle of systematisation of approaches during the transformation is the speed of reforms, their magnitude and depth. Differences between major models of economic reform are connected with diverging final goals of the transition period. The representatives of “shock therapy” see the forming of a new class, which is materially interested in the final results of own labour of new economic entities as the goal of reforms. They believe that the possibility of fall in output is permissible for the sake of the final objective. The supporters of gradual approach believe the transformational recession itself as the most dangerous feature. In their opinion, the essence of the economy is in the “processing” - i.e. in the cycle of extended reproduction of all kinds of recourses. This approach believes that the most dangerous thing for the transition economy is the decline in economic growth. It is therefore logic that they conclude that it is necessary to prevent transformational recession and that they argue for a progressive development of transformation processes.

The supporters of the third approach see the major essence of reconstruction in formation and strengthening of the institutional framework for market . The first supporters of this approach appeared in 1990 at the UN Economic Commission for Europe. The sequential, unhurried, gradual development process of the formation and strengthening of market institutions is a key element of reforms. The consolidation of all these approaches reveals the essence of transformation processes and the necessity of achieving them all. However, in real life, to consolidate all at once is impossible since the second and third approaches directly confront the first. In reality, the objectives of building a market, choosing broad, rapid and deep reforms are incompatible with a stable rate of economic growth. The experience of the post-soviet countries affirms that it is practically unattainable.

* * *

The full article can be found in the publication “Rethinking these Foundations of the State” (forthcoming 2010)