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Work and Production in Post-Soviet Belarus
Sergei Lukin
Aliaksei Smolski
Unlike many other countries of the
Commonwealth of Independent States (CIS), the Republic of Belarus
has seen, for an extended time period, high rates of economic
growth, a low unemployment rate, along with limited social
stratification within society, as well as achieving a number of
other goals through socio-economic policy. As there is no
universally recognized theory of a transition economy, disputes
among policymakers and economists continue regarding which countries
of the former socialist camp have followed a better path than others
through the transition period. Belarus has opted for the creation of
a socially-oriented market economy where the state takes a leading
role, and has achieved a number of successes on this path. However,
any success has its cost, which we here attempt to determine, having
examined the tendencies within the socio-economic transformation of
Belarusian society1.
Some general tendencies in the transformation of the
Belarusian economy
Being a part of the united economic complex of the USSR, the economy
of Belarus was characterized by all the features of the soviet
economy: domination by government, militarization, a monopolized
economy, a high level of concentration in production, a general
deficit, hidden inflation and unemployment, along with a
communally-oriented and paternalist psychology among the people.
At the same time, Belarus had a well-qualified population, as well
as an economically-favourable geographic position, a great deal of
labour, land, water, wood and some mineral resources. Occupying 0.9%
of the territory of the USSR, Belarus in 1990 had a share of 3.6% of
its total population and 3.4% by value of its fixed assets, while it
produced 4% of its GNP, 4.5% of its industrial output and 5.6% of
its agricultural production (1, 2). Within the frameworks of the
division of labour among the members of the Union, Belarus achieved
the following production shares in its areas of specialization:
mineral fertilizers – 18.9% (of which potash – 55.5%), chemical
fibres and threads – 30.7%, tractors – 20.3%, metal-cutting machines
– 9.8%, trucks – 5.4%, TV sets – 12.3%, bicycles – 14.4%, woven flax
and silk fabrics – 10.3%, meat – 5.9%, milk – 6.9%, potatoes –
13.5%, flax fibre – 21.2%. Export of light industrial goods outside
the republic accounted for about 40% of production, though in the
case of tractors, trucks, forging and pressing machines, as well as
computers, this figure rose to about 80%.
Belarus was one of the most developed republics of the Soviet Union,
since much manufacturing industry had been situated on its
territory. This allowed it to achieve one of the highest levels of
GNP per capita in the USSR; in 1990, it exceeded the average by
13.8%. The republic has a surplus in its budget of 2.6% of GNP (2,
8-9).
The rupture in territorial and economic relations after the
disintegration of the USSR in 1991 was especially difficult for the
economy of Belarus, in which a significant decline in production was
registered from 1991 to 1995.
Since 1996, the situation started to stabilize as a result of
government measures aimed at recovering control of the economy, and
major macroeconomic indicators improved considerably. This has
served as a basis for the continuation and reinforcement of policies
founded on significant intervention by the government in the
economy.
At the same time, some basic problems with production indicators
should be noted. For instance, according to official measures, the
growth in industry output in comparable prices in 2003 as contrasted
to 1990 was 119%. However, in many branches there had been a decline
in output quantity. In the chemical and petrochemical industry, for
instance, there had been a significant decline in the production of
all significant products, excepting glass-fibre-reinforced plastics
and articles thereof. The same situation had occurred in the
machinery sector, for although new kinds of goods had appeared -
trolleybuses, personal computers, mini-tractors and electric
vacuum-cleaners - only the production of excavators, refrigerators
and freezers, washing machines and electric irons had increased. In
logging, woodworking, pulp and paper industries, there were
production increases only in wood, chip board and pulp; in the
building materials industry, only the production of cement,
enamelled wall tiles and ceramic sanitary articles was increased; in
light and food industries, increases only took place in the
production of dried fruit, granulated sugar, mineral water and
alcoholic beverages was increased. From production indicators on
more than 118 basic goods tracked statistically, only in 22 cases
have new kinds of goods been introduced.
The utilization of production capacity has also decreased, which, on
selected industrial products (forging machines and presses,
anti-friction bearings, prefabricated ferroconcrete structures and
units, TV sets, motorcycles, woollen and cotton fabrics, footwear,
knitwear articles and meat) fell between 24% to 50% of 1990 levels.
One of the basic characteristics of the economic situation in
Belarus over the last 14 years has been a high level of inflation.
At the beginning of this period this was largely caused by processes
of adjustment in internal and world prices, but by the second half
of the 1990s, it was due more to an expansionary monetary policy and
to excessive emission of credit, especially for house construction
and agriculture. Since 1996, government-administered price controls
have been reinforced, the basic idea of which is to limit prices to
a "fair" level from the government point of view, according to the
social significance of the goods and the profitability of
enterprises. Despite this, the inflation level remains one of the
highest among countries of Eastern Europe and the CIS.
Conditions of operation and the state of enterprises in
Belarus
Here we should note the importance of defining the factors needed
for attaining stability and growth. It is possible to consider the
increase of government control over the economy as a resource, but
at the same time its efficiency is rather bounded. There are also
other factors which could affect the operation of enterprises both
positively and negatively. In other words, there is a question about
the price or cost of the growth model adopted and its consequences
for particular enterprises.
As a result of demands made by the government administration on
enterprises to show annual increases in output over and beyond those
possible objectively from sales, the financial performance of a
significant number of them throughout the whole period of
transformation has remained difficult.
The share of business profit in GDP since 1995 has decreased, so
that by 2005 it was about 1/3 of its early 1990 share. This means
that businesses have fewer possibilities for development and growth
using their own resources. A tendency towards significant growth in
the number of unprofitable enterprises is observable; in the first
half of. 2003, they exceeded 50% of all enterprises. The reliability
of the recent significant decrease in this indicator has been
questioned, with doubts raised about methods used to obtain the
result (The Ministry of Finance allowed enterprises to use funds
from the revaluation of fixed assets against losses sustained on
January 1 2004, with the resulting balance showing up in 2003.
Meanwhile, in 2005, the government gave the task of decreasing the
number of loss-making enterprises to all ministries). Significant
improvement in the structure of the balance sheets of enterprises,
and thus the formal improvement of this indicator of the economic
state of the country, has been achieved by the simple movement of
digits from one balance sheet to another, under pressure from the
administration.
If one looks at the variation in share value for loss-making
enterprises, the especially difficult situation in agriculture
becomes clear (despite huge support of this sector - about $1.2
billion annually, meaning about 20% of the government budget
excluding the Population Social Security Fund, rendered at
significant cost to other branches of the economy and to consumers),
as well as in housing and communal services. The situation in
industry and transport has also become worse. The high share of
loss-making enterprises in trade and catering would seem especially
surprising, unless one was aware of the special attention that
government regulation gives to this sphere.
Overall, then, profitability is stably low, at about 10% of the
economy as a whole and at similar levels in industry and
construction (in agriculture, housing, communal services and
personal services profitability in recent years has been in single
figures or negative). As already mentioned, such levels of
profitability, in the conditions of inflation and of the durable
production cycle in Belarus, testifies to the absence of
possibilities to use even nominal profit for development. Real
profitability, corrected according to the consumer price index and
the duration of the turnaround in current assets, has been negative
in recent years, not only at the level of the national economy, but
also within all sectors (3, 6).
Serious problems can be observed with regard to the solvency of
enterprises. Growth rates of their credit liabilities and debts over
more than 10 years has surpassed the growth rates of sales and
profit, i.e. there has been an accumulation of indebtedness, a
decrease in the likelihood of debt collection, and thus a worsening
of the problem of non-payment. The share of overdue credit
liabilities and debt receivables as a percentage of total
liabilities is too high. Credit liabilities constantly exceed debt
receivables by 1.2-1.5 times. More than 60% of enterprises have
overdue credit liabilities (4, 21).
Procurement in some sectors using current assets is consistently
lower than would normally be expected. From 1998 to 2005 there was a
decrease in the current liquidity ratio of 9.2 points. This means
that, for current expenditure, enterprises are increasingly obliged
to use not only profit and loans, but also a part of the funds
intended for the replenishment of current assets. One poll of
industrial enterprises shows that about 46% allocate less than 10%
for depreciation on capital investments, about 16% allocate from 10
to 30% and only 22% allocate more than 80% for depreciation.
Furthermore, the same poll found that 100% of agricultural
enterprises, 56% in light industry, and about 50% in fuel, chemical
and petrochemical, logging, wood-working, pulp and paper industry,
machinery and metalworking allocate practically nothing towards
depreciation on capital investments (5, 19-20).
As a result, the wear rate on fixed assets constantly grows,
undermining the basis not only for development but even for the
normal operation of the enterprises hereafter. Wear rates of fixed
assets in the national economy as a whole increased from 1991 by 17
points and at the present time exceed 50%. In industry, the wear
rate of fixed assets has increased between 1990 and 2005 from 46.9%
to 63.4%, Meanwhile, the replacement rate has fallen from 6.5% to
3.1%. Degradation of industrial potential is characterized also by
wear of an active part of basic production assets, which is more
than 80% and is increased annually on average by 3-5%. More than 50%
of the technologies in use are more than 15 years old; 80% are
referred to as “traditional” and only 10% are deemed to be high
technologies (6, 11).
It is also possible to observe the decrease in economic efficiency
through the growth of the share of productive consumption in real
GDP. From 1990 to 2005, this increased by 5 percentage points to
58.1%.
The resource base of 32 Belarusian commercial banks at the beginning
of 2007 was $11.9 billion. The banking system is practically
completely under the control of the government (both by means of the
possession of a significant share of property in the majority of the
largest banks - the government share in the charter capital of banks
in the system as a whole is about 88% - and by the direction that
the government administration gives to banks to service particular
programmes or enterprises). In practice, the banks do not tender
significant resources on long terms. In general, the potential of
the banking system is not sufficient to handle the country’s
industrial potential. On international measures, the banks can be
seen at best to be middle-sized, while many enterprises are large.
The resources of the largest bank in the country are little more
than $2 billion, and that of the following five banks ranges from
$0.3 billion to $1 billion (7, 10).
The analysis of exported and imported goods shows a stable decrease
in the competitiveness of Belarusian enterprises on the world market
and its relatively stable position within the markets of the CIS
(basically, with regard to Russia’s market, since the latter
accounts for about 90% of Belarusian trade with the CIS). A decrease
in the share of high technology products among the imports from
countries outside the CIS can also be observed. At the same time, on
this classification, the structure of imports from countries of the
CIS remains relatively stable. Belarus actually has maintained the
basic export and import markets of the former USSR, which are now
CIS and, first of all, Russia. This has meant the non-alternative
binding of its economy to Russia’s and the impossibility of ensuring
development by investment or imports from other countries, as well
as from export of its goods to these countries.
Accumulated foreign capital in the Belarusian economy stands at $2.4
billion (about $243 per capita - almost 7 times lower than the
average of the world economy). The share of Belarus in total
worldwide direct foreign investment is about 0.03%. As regards the
efficiency of direct foreign investment, Belarus occupies 87th
place, and on the index of potential for attracting such investment,
it lies at the 63rd place in world, though in the early 1990s it was
at 28th place. A poll of foreign investors working in Belarus shows
that about 80% of them do not find the existing investment climate
suitable, while 20% consider the investment climate as very bad. As
to the basic problems encountered, they mention unstable and
complicated legislation; absence of sufficient guarantees for
property rights; an excessively complex system of taxation and
customs registration; frequent inspections; problems of the country
in its mutual relations with international organizations, and the
negative attitude of the government towards private business (8,
11).
Therefore it is likely that decisions about investment will be made
largely using internal sources of funds, not least because of
government reluctance to share property. As a result the amount
invested in fixed capital has decreased and its share in GDP is low.
But for all that, the investment structure over a number of years
has remained relatively stable. About 26% of funds are invested by
government, about 46% by the enterprises, about 15% by the banks,
about 7,9% by the general population, about 1.4% by foreign
investors and 3,5% by other investors.
Meanwhile, discrepancies between various pieces legislation, the
resolution of which is always made in favour of the government,
result in the majority of enterprises being caught for infringing
financial discipline. According to the data of the Ministry for
Taxes and Dues, in the first 10 months of 2004, 72% of legal persons
and 60% of entrepreneurs who were audited were found to have
breached tax laws.
After 15 years of economic reform, up to 80% of all assets in the
economy continue to remain in government hands. Water, wood,
assignation of agricultural terrain and other natural resources
remain in the hands of the government. The share of “reformed”
enterprises, as a proportion of the total number of state
enterprises that are subject to privatization, is 48.2%. We may
distinguish processes of “corporatisation” (transformation of the
enterprises into public joint-stock companies) and privatization
(sale of enterprises, shares, other objects of a state property).
While corporatisation still goes on, it would be possible to say
that privatization has been dying since 1997. Between 1991 to 2005,
4054 state enterprises were transformed: 48.2% became joint-stock
companies, 17.7% were redeemed by the workers and 34.1% were sold or
auctioned. In many joint-stock companies the government remains the
main holder of shares. The situation regarding government regulation
of economic activity means that there is little motivation in state
organizations to move towards corporatisation and subsequent
privatization.
The development of small and medium enterprises (SMEs) has been
closely linked with the processes of privatization, since the latter
were carried out predominantly in relation to small state
enterprises. SMEs can be described as undeveloped: they account for
2.8 of every 1000 enterprises, while their shares of aggregate
employment and of GDP are 9%, and about 6% respectively. Basic
reasons for the weakness of SMEs include unstable legislation,
heavy-handed government intervention in the activity of enterprises,
administrative barriers, difficulties with obtaining credit,
complexity and unpreditability of the tax system, and the weakness
of legal defences for SMEs.
The processes of privatization, re-structuring and SME development
should have resulted in the “demonopolization” of the economy and in
the growth of competitiveness, but that has still not taken place in
major branches of the economy. The industry of Belarus is
characterized by a high level of concentration: 90% of GDP is
created by 350 enterprises, the majority of which were set up to
service the needs of the economy of the former USSR. Even after
years of reforms, the production concentration ratio has increased
in the electric power industry, fuel industry, machinery and
metalworking industry, industry of building materials, glass,
porcelain and faience, light and even food industries; it has
decreased by a very small amount in ferrous and non-ferrous
metallurgy, in the chemical and petrochemical industry, and also in
the logging, woodworking, pulp and paper industries.
The growth of GDP and in the cost indicators of production is
achieved in many respects by means of administrative pressure by the
government on enterprises. This clashes with market approaches to
planning and organization of their activity. Thus, the meaning of
some concepts changes. For instance, the forecasting of
socio-economic development in practice is transformed into directive
planning of enterprise activity without dependence on demand for
their goods, nor on the need for them or the possibility of growth
in their production. Indicators of forecast socio-economic
development for the country, which are approved annually by the
decrees of the President of the Republic of Belarus, are detailed by
sector, while ministries and departments at regional and local
levels bring these targets to bear on particular enterprises.
The scale of government intervention in the economy is reflected in
its share of final consumption expenditures in GDP, which from 1990
to 2005 decreased slightly from 23.8% to 20.4%, and also by the
share of net taxes on goods and services in GDP, which for this
period has increased from 2.6% to 18.8%. The greatest part of tax
collections is in indirect taxes, the share of which in budget
income was increased from 41.7% in 1993 to 56.0% in 2005; the share
of direct taxes for this period has decreased from 38.9% to 25.7%.
Employment and incomes; attitudes toward business and work
The unemployment rate (as a percentage of the economically active
population) has increased from 0.05% in 1991 to 3.1% in 2003, though
recently it has been reduced to 1.5%. At the same time, the low
unemployment rate is achieved by maintaining inefficient employment
and by accumulating hidden unemployment, which was 7% of the monthly
average number of workers in 2005, and appears in short working days
(or weeks), or periods of vacation organised on the initiative of
the administration. Excess employment in a particular industry may
reach 25% - 30%, while at the level of particular enterprises it may
even be 50% (9, 13). Besides, more than 1.7 million people, or 28%
of the aggregate labour force, are officially not considered now as
involved in economic activity or unemployed, and their share
constantly grows. This is evidence of a widely developed shadow
economy, as well as the migration of members of the working
population abroad.
In order to satisfy the paternalistic expectations of the
population, large social transfers are made, in total, 18.1% of GDP
in 2004 (in 1990 – 16.2%). At the same time, the share of property
income decreased (1.4% in 2004 as against 2.4% in 1990), having
remained level since 1985, the year when "perestroika" began. The
share of entrepreneurial and other income has grown considerably,
although this jump took place in the early 1990s, and from 1997 the
share of this income is stable at 28% - 34%.
In conditions of transformation of the socio-economic system, the
problem of effective management within enterprises is aggravated.
The practice of managing in a market system produces a number of
instruments of internal and external control that corporate
management can use to facilitate system operation. However, in
Belarus these instruments cannot be applied in practice, due to the
limited development of corporations, the continued control of the
overwhelming part of property by the government, and complications
associated with striving for social equality. The government, having
not allowed a system of corporate management to develop, takes upon
itself the functions of management control, and, hence,
responsibility for the results of enterprises.. The order and
conditions of the wage of the officials of state is established and
controlled by the government, and their earnings can not exceed, as
a rule, more than in 3.5 times the enterprise average wage.
In such conditions, many officials are more concerned to minimize
the effort required of them to manage a business, or they aim to
obtain illegal advantages by criminal means. As a result, although
the powerful government machinery officially controls enterprises,
there is no internal motivation for managers to increase the
efficiency of enterprises.
After more than ten years of transformation, the Belarusian economy
continues to be based on inefficient enterprises with a high
likelihood of bankruptcy, thanks to the excessively large size of
many enterprises, their technological, technical and organizational
backwardness, that significant cutting of expenditures on defence,
negative relations between government and business, the freezing of
privatizations and the stock market, poor management traditions, as
well as the education, mentality and working conditions of many
people where they are seen workers hired to serve the government.
The transition to a market economy which began after the
disintegration of the USSR presupposed both a disavowal of the
government monopoly on property and the appearance of many property
owners who could set up their own businesses, being personally
liable for their results. In this regard, privatization and
bankruptcy should have played a major role in the creation of a
market infrastructure. However, since the mid 1990s, other
priorities and directions for socio-economic development have been
established in Belarus. Many features form a pattern that is
reminiscent of a socialist system, and can be characterised as
follows:
1. dominant role for the government sector in the economy;
2. strict government regulation of the economic activity of
enterprises, including administrative demands for annual increases
in output;
3. conservation of the majority of enterprises existing in 1990;
4. lack of development and sometimes the absence of particular
elements of market infrastructure;
5. low profitability and lack of profitability on the part of a
significant share of enterprises;
6. shortage of internal resources and unfavorable conditions for
attracting external investment into the economy;
7. degradation of technical and technological potential, decrease of
efficiency and competitiveness in the economy;
8. a high level of shadow unemployment and informal employment;
9. continuing paternalistic expectations among the general
population and the enforcement of social equality.
The authors maintain that the price being paid for current rates of
economic growth in Belarus is excessively high. These rates are
possible by using up capital accumulated before the changes, coupled
with a revival of socialist approaches to the management of the
economy and the conservation of patriarchal and communal patterns of
societal organization. These decisions shift the issue of dealing
with the currently increasing problems onto the shoulders of future
generations.
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NOTES
[1] In
article the data of Ministry of Statistics and Analysis of the
Republic of Belarus used (if other isn't indicated) as a basis
reference for calculations of (Краткий статистический
ежегодник "Республика Беларусь в цифрах,
2005". – Мн.: Министерство
статистики и
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