Why did Kazakhstan attempt to depart from the soviet economic model?

Abstract. Unexpected collapse of USSR led Kazakhstani economy to the totally unpredicted challenges to transit from a centrally planned to a market-based economy. In the first stage of our research we attempted to clarify if Kazakhstan radically went away from the legacy of Soviet economic model or not. And through extensive research we obtained the answer; however, now there is more interesting question concerning the causality: why Kazakhstan attempted to depart from Soviet economic legacy? In this report evaluating the transition economic reforms of Kazakhstan in the first 5 years of independence we will conclude it by suggesting the main reasons for Kazakhstan‘s effort of departure from the Soviet economic legacies. 

To evaluate the transition process of Kazakhstani economy we wanted our sources to be reliable ones. As a result of searching amount of different sources we chose two popular books about Kazakhstan as the main foundation of our project. The author of the first of them is Nursultan Nazarbayev, president of Kazakhstan who knows all the truth about the way of independent Kazakhstan than anybody else and his famous book is called ―Kazakhstan way‖. In his book, consisted of nine chapters, the head of the state describes the brightest and the most difficult periods of independent Kazakhstan. Dividing different historical processes into different sections, Nazarbayev analyses all reforms individually, starting from economic transition to change of the capital. Writing this book he aimed the young generation to be aware of the initial difficult steps of independent Kazakhstan in building the bright future. The author of the second book is Martha Olcott, who is a leading U.S. expert on Central Asia and the Caspian. Her objectively written book about Kazakhstan is called ―Kazakhstan: Unfulfilled promise‖. In her book Olcott, as a famous political critic, analyses the challenging way of Kazakhstan in creating the independent state till the present days. She also shows her own view about the president of Kazakhstan and the present role of Kazakhstan among other countries. The reason why we have taken these sources is that initially we preferred to compare the two books‘ arguments about economic transition of Kazakhstan, since they had been written by two different points of view. Basically, it might be expected that, the attitude of Nazarbayev‘s arguments might be written less critically toward the past governmental policy of Kazakhstan and some facts might be missed and Olcott‘s viewpoints would be significantly converse in some cases. However, on the contrary, in fact, Olcott‘s arguments about the transition in Kazakhstan after independence complete the Nazarbayev‘s analysis.

Analyzing the arguments of the aforementioned sources about the transition period of independent Kazakhstan, we decided to mainly focus on the Soviet economic legacies: industry and currency changes, as well as the governmental accepted economic new reforms in the beginning of the independence. First, it is important to consider the economic condition of Kazakhstan during the Soviet period that Kazakhstan was the one of main industrial suppliers of the USSR; there were a lot of Soviet industrial and agricultural centers in the Kazakhstani territory, which showed good results during the period. However, after the independence they all had to be closed and stop working, because after independence Russia took back most of the Soviet industrial tools to Russian territory. Although in his book, Nazarbayev does not mention anything about the reasons for the closure of Soviet factories after independence, Olcott argues that it was because, during the Soviet period more than half of the exports were directly transferred to Russia and after breakdown of USSR the supply and demand links were disrupted and the states lost their connection with each other, the result of which led to the consumers‘ absence of the products that produced in these industrial centers. Olcott indicates that the initial departure of Kazakhstan from Soviet legacy started from this mass closure of Soviet factories, which was as a response to economic necessity.

Furthermore, as the financial reserve of Kazakhstan was still in Moscow, Kazakhstan initially had to follow the economic reforms of Russia. During the USSR the central government owned all the enterprises and factories that placed in the territory of the Union, in order to transform to market economy it was necessary to make all the state industries to be private. Then in Kazakhstan agricultural, collective enterprises were privatized by selling in auctions by cash sale. According to Olcott, in this period there was the most corrupt stage of privatization in Kazakhstan. There were some claims among ordinary people seeing officials driving high cost cars and living in penthouses in Almaty. They suspected that most of the officials invisibly purchased the big companies. Furthermore, she argues that Russians, Ukrainians have bought most of the big factories and Kazakh nations were particularly suffered during this privatization, because other nations had ability in trading, and among other nations there were more leaders of factories than among Kazakhs. Before most of Kazakhs used to work in collective firms and after privatization they stayed just as employees or even some of them lost their employments. Thus due to privatization process the general economic rate of population had declined. To sum up, the initial Kazakhstan‘s usage of privatization together with Russia indicate that Kazakhstan initially had frustration from Russia and had to follow its transition reforms, however, specifically the reform of privatization was one of the way of departure from Soviet legacy, since all Soviet centers sold to individual enterprisers.

One more thing to be mentioned, the first phase of the independence Kazakhstan still used ruble, the currency of Russia, because the government suggested due to common currency with Russia there will be a financial stability in the country and it will be convenient for commercial relations with former Soviet countries. However, soon Kazakhstan government finally changed its currency from ruble to tenge. Why? It is because, according to claims of both Nazarbayev and Olcottt, Russia by supplying Kazakhstan with Russian currency, would have a power over Kazakhstan and the economy of Kazakhstan would completely depend on Russia. Nazarbayev mentions the fact of economic pressure of using ruble that ―Sometimes we could not give people their wages and pensions on time, because in most cases Moscow had been late to deliver it to our country‖. Actually, such inconveniences with Russian ruble led to steed decline of people‘s economic condition. Russia did not discussed about reforms that related ruble with other former Soviet countries at all. For example, according to Olcott, in November of 1993 Russia stated one more its condition, that Kazakhstan should transit all of its gold reserve to Russia. Finally such problems with Russian ruble exactly enforced Kazakhstan to create its own currency – tenge on 15th of November 1993 in order to depart from Russian influence on the state‘s economic policy.

In our point of view, all of the foresaid arguments of both authors about economic transition period indicate that although Kazakhstan, as a sovereign country, initially attempted to depart from Soviet legacy by closing the Soviet industrial centers and privatizing the Soviet enterprises, in the beginning of its independence Kazakhstan could not radically go away from the economic legacy of USSR. For example, it can be shown from its usage of ruble, the currency of Soviet Union, for the initial two years. However, the question why Kazakhstan had to keep the ruble as its national currency in the beginning can be more appropriately answered from the side of politics than economics, because after the collapse of USSR Kazakhstan like any young country faced with completely new challenges of governmental reconstruction. And after the independence it was risky to radically accept new currency, whereas all of the former Soviet states were remained with ruble. From the one hand after breakdown of Soviet Union the common currency for all former USSR states was considered as a guarantee of financial stability for the countries in the ruble zone, because it would be convenient for trading with one common currency among these countries. However, after 2 years of independence Kazakhstan and other former Soviet states accepted own currencies and refused the ruble.

So what forced Kazakhstan to move from ruble to tenge? There are several causes of the changing currency. Economic pressure in the initial phase of independence is one of the main causes that enforced Kazakhstan to such attempts of departure from the Russian economic power and to accept its own currency, because as the fact has been pointed in the archives of the first president that ―Republic is experiencing a critical situation with the provision of cash, and this step of creating tenge is the only way to provide the population with cash‖. At the same time, as the foresaid Olcott‘s arguments state, the acceptance the new currency was necessary to move away from Russian economic influence, which is the cause of governmental policy. Furthermore, Nazarbayev indicates that the creation of tenge is the symbol of national identity, since every independent country should have their symbols of independence such as own currency, language and so on. The role of tenge was both ideological and economic important, since tenge was the symbol of an independence of both nationalism and economics.

To sum up, evaluating the economic transition process of Kazakhstan government, it was realized that Kazakhstan did not radically depart from Soviet economic legacy. However, it is the fact that Kazakhstan attempted to go away from the legacy gradually. And the next question is why Kazakhstan embarked to depart from the Soviet economic model. After the detailed analysis of all main economic transition events that include the closure of Soviet factories, mass privatization and the change of the currency, it can be concluded that there were two main reasons for the gradual attempt of Kazakhstan to depart from Soviet legacy, which include the causes of economic pressure and governmental policy; Moreover, this conclusion leads to the interesting supposition that both of the aforementioned reasons for Kazakhstan‘s effort of departure from the Soviet economic model directly point to one important conclusion: the frustration from Russian and attempt to go away from Russian influence led to the gradual attempt of the departure of Soviet economic legacies, because keeping the legacy of USSR meant keeping the power of Russia over the Kazakhstan.

Actually, giving the detailed evaluation particularly for the economic transition of the whole country is extremely difficult, since in the economic aspects there are usually different factors that influenced on its consequence. However, in our case, the topic of the project is about the general Soviet Union legacy in Kazakhstan‘s political and economic structure. Answering the question if the Soviet legacy remains in Kazakhstan after independence, the answer from both politics and economics was not similar i.e. as far as it is stated Kazakhstan radically went away from the Soviet political legacy, however, in the case of Kazakhstani economics, it is difficult to answer directly, because, although Kazakhstan attempted to go away from the Soviet legacy by closing and privatizing the Soviet enterprises, in the initial period of the independence Kazakhstan had to keep Soviet economic model and did not radically departed from the Soviet economic legacy. And consequently, more question raised which concerns about the causality. Consequently, although it is suggested that the Soviet legacy was radically departed from the political structure of Kazakhstan, it could be departed from the Kazakhstan‘s economic policy and structure gradually, but not radically.

 

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Year: 2014
City: Almaty