A new system is crawling from the Soviet wreckage
Robert Skidelsky
The Times | Saturday, October 16, 2004

TOMORROW the people of Belarus will be asked to approve a constitutional change allowing their President, Alexander Grigoryevich Lukashenko, a third term. No one doubts the result. As Joseph Stalin once said: “It’s not how people vote that matters, it’s who counts the votes.”
Why should anyone mind? Belarus is a small, Soviet-style republic of ten million inhabitants, carved out of the old Soviet Union, and squeezed between Russia, Poland, two Baltic states and Ukraine. With a “repressed” economic and political system, it is a pariah in Europe and a seeming embarrassment to its sponsor, Russia. Its importance lies not in its eccentricity, but in the fact that it is a pacemaker for a half-conscious attempt to re-create the Soviet Union.
The rationale for this project arises from the highly interconnected character of the old Soviet economy, based not on the economics of comparative advantage, but on the politics of central planning. Belarus was the Soviet Union’s chief energy-guzzling assembly plant, supplying it with vehicles (cars and tractors), electronic components and appliances, textiles, petrochemicals and engineering machinery. When the Soviet economy collapsed Belarus lost its main market, without any natural resources to fall back on. In 1995 its Government decided against restructuring its economy for integration into the European market. Instead it maintained the inherited industrial structure — and the politics of central planning — till better times returned.
The defence of this policy is that it saved the economy from collapse. Output and employment were maintained by directed credits from the National Bank, even though much of the output was unsold and the workforce therefore “redundant”. But capacity and skills were conserved and the Soviet-era enterprises gradually modernised under public ownership. Russia helped by continuing to supply Belarus with energy at well below the world market price. The cost of not restructuring was very high inflation, partly suppressed by wage and price controls, but this was deemed less destructive than the liquidation of the country’s physical and human capital.
What may have started off as a survival strategy became the official ideology of a “socially orientated market economy”, based on a philosophy of income equality, a “strategic” state sector, and a wide array of free or heavily subsidised social services. The Chernobyl disaster of 1986, whose consequences still absorb a quarter of the state budget, gave the social strategy a green, anti-globalist flavour. Belarus has avoided the obscene extremes of wealth and poverty which disfigure its giant neighbour. Wages and pensions are paid more or less on time, crime and corruption are minimal, and social cohesion has been well maintained.
In effect, Belarus took a gamble on Russia, and so far it has paid off. Its output is now greater than it was in Soviet times. For the past four years real GDP has grown at an average of 5 per cent a year, and inflation has dropped from more than 100 per cent to 25 per cent. This year’s results are expected to be even better. The National Bank has stopped printing money to cover government expenses. But the better times have been highly dependent on the oil-fuelled growth of Russia, which absorbs 62 per cent of Belarus exports and supplies two thirds of its imports. Moreover, trade with Russia has been growing faster than total trade. In short, Belarus is reconstituting itself as part of the Russian economic system, but at the expense of integration into the European or global market. Most of its goods remain uncompetitive in hard currency markets, its industrial plant is rapidly deteriorating and foreign investment is minimal.
Belarussian officials are eager to discuss and justify their economic policy, but fall silent when it comes to politics. Democracy in Belarus today is in a sense more fraudulent than it was in Soviet times, with the personal dictatorship of the President replacing the collective dictatorship of the Communist Party. Parliament has been emasculated (it is allowed to meet for less than half a year) and the President’s decrees have the force of law. The Government represses the opposition, the NGOs, the independent media and religious groups. Prominent opposition leaders are imprisoned, disappear, or are forced abroad. This is not Stalinist terror, but administrative intimidation — the directed use of the law to make it difficult or impossible for opposition to organise or obtain a hearing.
Belarus’s political system is a provocation to the European Union, but it is increasingly becoming a model for President Putin. His recent proposals to abolish local elections for governors, end constituency representation in the Duma, and appoint half the members of the Constitutional Court are modelled on the Belarussian Constitution approved in the 1996 referendum. President Lukashenko never bothered to change the name KGB. Now it seems that Mr Putin is bent on re-creating the KGB state in Russia, based on the “vertical chain of command” which Lukashenko has practised in Belarus. Where Lukashenko leads, Putin follows.
The European Bank of Reconstruction and Development “remains seriously concerned about the slow pace of transition to democracy and market economy” in Belarus. But there is no “transition” going on, fast or slow. What is emerging from the wreck of the Soviet system is a new type of political economy — a dictatorship with democratic elements, a controlled economy with market elements. It has not yet gelled into an ideological system, and indeed may never do so. Powerful forces of globalisation stand in the way. But talk of the triumph of the West is premature. The East is fighting back.