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Transition Report 2013 Stuck in transition?

CH2 180sq

Facts at a glance

70% Global proportion of countries which had democratic institutions in 2012, compared with 30 to 40 per cent from 1960 to 1990.

INCOME IN 1992 is correlated with levels of democracy in 2012 in a global sample.

Cover 180sqV2

 

94% of countries with average per capita income above US$ 10,000 held free and competitive elections in 1999.

BY 2000 all constituent democracies of the former Yugoslavia had become full democracies.


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Markets and democracy

Case studies

The following country case studies illustrate many of the key factors driving democratic development in the transition region. They have been selected to highlight particular questions, such as why certain countries are less democratic than might be expected given their level of economic development.

Belarus

At the start of the transition process, from 1991 to 1994, Belarus was classified as a democracy or a partial democracy. Following the collapse of the Soviet Union, Belarus put in place political institutions that constrained the executive and, in principle, respected democratic rights, with a strong legislature and no president at first.

However, many of the general prerequisites for a stable democracy were not in place. Belarus had weak political, economic and legal institutions, no sizeable middle class and an underdeveloped civil society. The adoption of a strong presidential system in the 1994 constitution may have further contributed to the country’s tilt towards a more state-led development model. Belarus’s path to democracy was not secure and it has, in some respects, stagnated or even regressed since then.

Today, however, the country has many of the attributes described in the preceding sections as key determinants for democratic transition and consolidation: the population is highly educated; per capita GDP, at nearly US$ 16,000 in purchasing power parity terms, is among the highest in eastern Europe and Central Asia; along with the neighbouring Baltic states, Belarus has the largest middle class (defined in terms of both education and income) in the former Soviet bloc;1 petty corruption and inequality are low; the state has a comparatively high administrative capacity; and the country has several democratic neighbours along its northern and western borders.

Given these attributes, it would be reasonable to expect Belarus to have made greater progress with democracy after more than 20 years of transition. Why has socio‑economic modernisation not led to better-functioning democratic institutions? The following four factors have most likely played a role.

Rentier state

Although Belarus has limited natural resources of its own – primarily potash and wood – its socio-economic model fits the description of a rentier state. However, rather than tapping into its own natural resources, the Belarusian rentier state depends on large transfers from Russia in the form of heavily discounted oil and gas, as well as direct financial assistance. These rents, combined with the state’s dominant role in the economy, allow the authorities to redistribute subsidies to the population, maintaining a relatively high standard of living. This, in turn, dampens bottom-up demand for political change.

Social contract

Under the Belarusian social contract the authorities provide stability, order, modernity and low levels of income inequality. In return, the electorate remains politically quiescent – although there have been incidents of dissent, which the authorities have acted to contain. Media control (see below) reinforces this contract and shapes people’s choices.

Nevertheless, independent surveys show that a large proportion of the population – although not a majority – values order over freedom. This is not because people are unfamiliar with the choices available in a free society. Belarus has the highest proportion of Schengen visas per capita of any country in the world, and Belarusians routinely travel to neighbouring Lithuania and Poland (both of which are EU Member States with democratic political orders). However, memories of the instability of the early 1990s remain strong, as does the belief that democratisation and market liberalisation led to dramatic increases in corruption and a decline in public governance in neighbouring Russia and Ukraine.

State control of the media

The third key reason that Belarus is not a well-functioning democracy is the lack of media freedom. The country has few independent newspapers, which have limited circulation figures, and no independent domestic television stations. With limited channels for critical opinion, the national political discourse is constrained. Belarusians do not actively engage in open debate on alternative political and economic policies, and demand for change is therefore muted.

State employment and higher education

The state’s role in the economy and higher education can shape voters’ preferences. Around 70 per cent of economic activity and employment are in public services or SOEs in Belarus. There is also only limited private provision of higher education, which gives the authorities in state-run higher education establishments significant influence over their students.

This can have two separate – but related – impacts on the continuity of the political system. First, employees of the state or state-owned firms may have a stronger interest in the maintenance of the status quo and the continued rule of the incumbent authorities. Second, managers in the state sector and university officials may use their authority over their employees and students to encourage loyalty and discipline in political behaviour.2 These disincentives to political engagement effectively demobilise those segments of the population that in other contexts tend to be the most politically active and reform-minded.

Russia

Russia’s transition from communism started with Mikhail Gorbachev’s reforms of the mid to late 1980s (glasnost, perestroika and “new thinking”). These gave rise to social movements challenging the Communist Party’s monopoly on power, to the first contested elections in 1989, which elected a new legislature with real powers, and to the democratic election of President Boris Yeltsin in 1991.3 Yeltsin was supported by the “Democratic Russia” party, which included liberals and democrats from the intelligentsia and representatives of the emerging entrepreneurial class.

However, democratic consolidation, which required public support for sustained reforms, did not ensue. Moreover, Democratic Russia’s early reforms failed to deliver prosperity and opportunities to most Russians. A small group of politically connected oligarchs reaped the benefits of a flawed privatisation process, which in turn raised questions about the legitimacy of property rights and the rule of law.4

Yeltsin’s commitment to democratic principles was called into question in 1993, when he used force against his opponents in the legislature and promoted a new constitution which created strong presidential powers, while offering weak checks and balances. By the mid-1990s Russia’s political transition had been partially reversed, with the new political system dominated by powerful interest groups. The 1996 presidential elections were flawed and were followed by four more years of instability, lawlessness and economic collapse – including Russia’s 1998 debt default.

It was therefore unsurprising that Yeltsin’s handpicked successor, Vladimir Putin, was elected in 2000 on a “law and order” agenda. He succeeded in bringing about political stability and economic growth, based on a model of state capitalism, and he enjoyed consistently high public approval ratings. During his first two terms in office Russia’s GDP per capita more than doubled, dramatically raising the prosperity of ordinary citizens.

Under the new “sovereign democracy” system, regular elections continued and parliament retained multi-party representation, but political pluralism was effectively curtailed. The state regained its dominant role in politics and the economy through the establishment of a “power vertical”, entailing the growth of the United Russia party and powerful state companies.

Although Russia is classified as a democracy by Polity (albeit in the middle of the scale), it faces challenges in strengthening its democratic practices and values. At the same time, the country has grown rapidly over the past 15 years, has made progress in developing market institutions, and has a large middle class. Three structural factors help to explain why Russia’s democratisation has not progressed as fast as the country’s transition to a market economy: the nature of its middle class, its demographic structure and the role of oil and gas revenues.

State-dominated middle class

Most people assume that the middle class is the key bulwark of pluralistic political systems. However, it has not been a strong driver of democratisation in Russia. Since the mid-2000s the Russian middle class has increasingly comprised bureaucrats and employees of state-owned corporations.5This group tends to favour political stability, support the ruling United Russia party and generally does not prioritise political competition or democratic values. The number of entrepreneurs within the Russian middle class has been declining in recent years, as many Russian small and medium‑sized enterprises face a more challenging economic environment.

Socio-demographics

Russia’s slow pace of democratisation may also be linked to its population structure, with four demographic categories displaying differing levels of support for democratic reform and responding to differing incentives.6

  • Large cities with over one million inhabitants – including Moscow and 12 other cities: This category, which represents 21 per cent of the population, has progressed furthest towards acceptance of the market economy and has the largest share of entrepreneurs and members of the middle class. It is the most politically active sector of the population, with the highest levels of education and internet use. Large cities were at the centre of the 2011-12 political protests. However, it is important to note that their populations are ageing and include many employees of state-owned companies and public sector workers.
  • Medium-sized industrial towns with between 100,000 and 250,000 inhabitants: This stratum represents 25 per cent of the population and underpins the political status quo. Dominated by the state sector and the Soviet industrial legacy, this category has a much smaller middle class. It is the one most likely to have been negatively affected by structural reforms and would only press for political change if the state subsidies decline. Backing for leftist and nationalist forces is high in these locations.
  • Rural populations, small towns and settlements: This category has experienced a significant demographic decline in the last decade. However, it still represents 38 per cent of the population, spread across the entire country, and is especially representative of the central and north-western regions, the Urals, Siberia and the Caucasus. These people display minimal desire or potential for political mobilisation, even in the event of an economic crisis.
  • Ethnic republics – mostly in the northern Caucasus and southern Siberia: This segment cuts across all three previous categories. These regions, which have large grey economies and high levels of unemployment and corruption, depend mostly on federal budget transfers. The state has been unable to improve their economic situation, but will continue to subsidise them even in the event of an economic crisis, as they provide the highest level of support for the ruling party, which received over 90 per cent in many republics in the 2011 elections.

Rentier state

A third barrier to Russia’s further democratisation may be the country’s dependence on natural resources. This presents opportunities for corruption and reduces incentives for administrative transparency. It also reduces electoral pressure to keep government accountable, because hydrocarbons – rather than tax revenues – represent at least half of the state’s budget revenues. This enables the authorities to maintain public support through higher social benefit payments and the subsidisation of state-sector employment – especially in the more dependent demographic categories.

Tunisia

Although democracy spread widely during the “third wave” from the mid-1970s to the early 1990s, not one Arab country made the transition. Explanations for this exception to the global trend include the natural resource wealth of the Gulf states, a weak civil society, the absence of a democratic culture, the relative lack of democratic neighbours, and the ability of autocratic states to deter people from pressing for change through coercion and selective repressive tactics.7

The revolution in Tunisia in December 2010/January 2011 broke the mould. Many of the precursors for a democratic breakthrough were already in place, but they needed a trigger. That trigger was the self-immolation of a young small-business entrepreneur, who was living in an increasingly urbanised environment with virtually no access to the state-controlled social support system. Mohammed Bouazizi was emblematic of trends that had been developing in Tunisian society for years.

Private sector growth

Over the last decade, the private sector’s contribution to national investment has increased to around 60 per cent. Over 70 per cent of Tunisians work in this sector. The economy is diversifying, with tourism in gradual decline at 14.3 per cent of GDP in 2011. New service industries are emerging, whose revenue streams do not depend on the state or the patronage of a political elite. Entrepreneurial spirit has seen conspicuous growth – particularly in financial services and, to a lesser extent, in the retail and hospitality industries.

Private sector growth has revitalised Tunisia’s civil society. Several business associations sprang up in the years prior to the uprising, which in turn strengthened other representative organisations, such as labour unions. Similar trends were evident in higher education institutions, especially within student unions. With a national literacy rate of 80 per cent and close cultural links to Europe, the Tunisian education system has been one of the best performers in the Arab world for decades.

Relative to many other Arab countries, Tunisia also has a much better gender balance in the educational system, the labour force and civil society, reflecting the statutory protection of women’s personal rights since the 1950s.

Impact of demographics

Demographics have been central to the country’s socio-political change, given that 40 per cent of the country’s population of 10.5 million are under 25 years of age. With internet and mobile phone penetration standing at 36.8 and 91.6 per cent respectively in 2011, young Tunisians are rapidly becoming exposed to the world in a way that no previous generation has ever been. These technologies also provided young activist groups with innovative means of eluding the security apparatus of former President Ben Ali’s regime. Although mainstream media faced severe restrictions in the two decades leading up to 2011, the emergence of pan-Arab and international satellite channels that could bypass state control helped to revitalise the Tunisian political environment.

Tunisia’s economy grew steadily at an average annual rate of 4.4 per cent between 2005 and 2010. However, widespread corruption and consistent predatory economic behaviour by key centres of power led to a concentration of asset ownership and an acute rise in inequality in terms of personal income, access to jobs and infrastructure – particularly between the urbanised northern coastal zone and the rest of the country. At the same time, acute youth unemployment (which averaged 29 per cent between 2006 and 2010) and internal migration exacerbated social tensions and inequality in the larger cities.

Perhaps most importantly, President Ben Ali increasingly withdrew from decision‑making because of ill health prior to 2011. This resulted in conflicts of interest between the security establishment and new aspiring centres of power (made up of Ben Ali’s family). The security establishment became increasingly detached from the top echelons of the regime, who were preparing to inherit power from the ailing president.

Several historical and political factors relating to the structure of the state, the solidity of state institutions and the lack of political legitimacy were crucial in creating the momentum for the events of January 2011 and the wave of transformations that the Arab world has undergone over the past two and a half years. Nevertheless, one fundamental contributory factor in Tunisia was the rise of the middle class. This almost doubled in size between 2005 and 2010 and increasingly cemented its influence as a new generation voiced political discontent using new technologies. Against this backdrop, the control mechanisms used by the Ben Ali regime slowly disintegrated.

Tunisia’s transition process is far from complete and faces considerable challenges. However, the underlying steady growth of the private sector and the middle class, combined with the empowerment of both civil society and young people, illustrates the wider aspiration in Arab countries to political systems with governmental accountability and respect for political and civil rights. Arab countries and their partners in the international community should focus on ways to address the obstacles blocking their transition to well-functioning markets and democracy.

 

  1. See EBRD (2007). [back]
  2. See Frye et.al. (2013) [back]
  3. See Brown (2001). [back]
  4. Opinion polls indicate that only 8 per cent of Russians are prepared to fully accept the results of the privatisation of the 1990s, while 22 per cent want to fully reconsider the results of that privatisation, regardless of how private companies perform now (www.levada.ru/archive/gosudarstvennye-instituty/vlast-i-biznes/s-kakoi-iz-sleduyushchikh-tochek-zreniya-v-otnoshen). [back]
  5. State-owned enterprises still account for 50 per cent of the Russian economy. [back]
  6. See Zubarevich (2012). [back]
  7. See Bellin (2004) and Diamond (2010). [back]

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