Main page arrow Articles arrow Weathering the Storm: A commentary on Armenia and the Economics of Power

Weathering the Storm: A commentary on Armenia and the Economics of Power


Friday, 20 February 2009

Image Richard Giragosian, Research Associate of the Institute of Global Security (IAGS)

In most countries economics and politics far too often intertwine, with a nation’s wealthy elite holding too much power and influence. The dangers from such a close relationship between economic and political power have long been understood, and have even been reflected in the historical maxim that “power corrupts, and absolute power corrupts absolutely.” russian...   armenian...

Recognizing the threat posed by the combination of wealth and political power, democratic reformers have sought to construct “checks and balances” designed to counter such power. And although there were many times when a small wealthy elite was able to acquire and exercise too much power, the institutional system of checks and balances always tended to restore a natural balance over the longer term.

But for countries without resilient democratic institutions, there is little recourse, as they lack the capability to check or balance the power of the rich. This problem is also evident in the case of the post-Soviet states, whose transition to market economies and pluralistic democracies has been beset with profound obstacles. These post-Soviet countries also face a deeper paradox, whereby essential political and economic reforms are susceptible to being thwarted by the very same wealthy elite that they seek to curb and control.

Moreover, the weakness of the rule of law in such transition states further impede the early stages of reform, exacerbating the inherent vulnerability to the influence of such elites, well before the establishment of a durable democracy.

The Economics of Power

For a small country like Armenia, the disparities of wealth and power become only more apparent, and much harder to correct. And in the case of Armenia, the economic system has been distorted, with commodity-based cartels and monopolies garnering a dangerous degree of power and position within the economy.

In recent years, the convergence of economic and political power became even further consolidated, as a new “oligarchic elite” was formally elected to the Armenian parliament. The emergence of such a dominant and exclusive body raises obvious concerns over the integrity of governance and public policy in Armenia. More specifically, the longer term worry is demonstrated by the clear conflicts of interests and dubious ethics inherent in allowing powerful “businessmen” to be responsible for formulating and legislating economic and political reform.

Lifestyles of the Rich and Infamous

Once the wealthy elite acquired a new, formal role in Armenian politics, a virtual culture of impunity became even more firmly entrenched. At the same time, governance in Armenia was increasingly expressed through a new “arrogance of power,” where the state abdicated its responsibility to serve and protect the public. Naturally, this only fostered a greater sense of apathy and disengagement among ordinary Armenian citizens.

Against this backdrop, the current Armenian government faces a number of external challenges, ranging from a decline in remittances from Armenians working abroad to an economic downturn that seems to only be getting worse. Yet even though these challenges pose serious threats to the Armenian economy, they stem from the broader global economic crisis that all countries are now weathering.

What is more destructive for Armenia’s long-term economic health is the set of unique problems only associated with the distortions of the country’s economic system. These internal problems include deficiencies in tax collection, an inadequate customs regime, an artificial “bubble” in the real estate market, and insufficient job creation. But the deeper danger stems from structural shortcomings, with economic growth over-reliant on limited sectors, such as the service industry or diamond-polishing, for some examples, and economic survival over-dependent on money coming into the country from abroad.

The Power of Economics

It is the very same relationship between power and economics that holds the key to weathering the crisis now facing Armenia. More specifically, the inverse of the “economics of power” linkage – the “power of economics” – is the most effective avenue toward correcting the Armenian crisis. The “power of economics” offers a new sense of “creative destruction” capable of overcoming the economic power and influence of the oligarchic system.

And the power of economics is multifaceted, including the “shocks” to the closed system from, first, an internal budget crisis driven by low tax collection and the need to rein in corruption and fight monopolies.

A second shock to the system would come from an open border with Turkey and the subsequent competition that an open border would bring to the Armenian marketplace.

Third, and most significant, is the realization that the Armenian state can no longer maintain the current economic system. Weathering the economic crisis necessitates an end to the state’s reliance on the twin evils of corruption and oligarchic cartels and monopolies. Faced with an already apparent shortage of political legitimacy, the Armenian state can no longer sustain the closed economic system that has deformed and distorted the country in recent years.

Thus, as the impact of the global economic crisis worsens, it is increasingly clear that simply in order to stay in power, the Armenian government will have to adopt even bolder reforms and tackle the powerful “vested interests” who have accumulated such a dangerous degree of wealth and power.

Richard Giragosian is the director of the Yerevan-based Armenian Center for National and International Studies (ACNIS), and has worked as a consultant for various international organizations including the OSCE, World Bank, and regularly contributes to Jane’s, RFE/RL, and Newsweek International, among other publications. Giragosian is a former professional staff member of the US Congress. “Weathering the Storm” is a weekly column exclusively for ArmeniaNow.

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