Book Review: New Volume Examines Central Asia’s Economic Development
Thierry Malleret: 6/8/01

Central Asia and the New Global Economy
Edited by Boris Rumer, 2000
M.E. Sharpe, Armonk, New York, London, England
288 p.

Reading Central Asia and the New Global Economy is a must for anybody who professes an interest in this particular region. The book does a superb job at exploring two themes - the dissimilarity among the Central Asian republics on the one hand, and the region’s lack of a sustainable economic framework on the other. However, it falls short of answering some of the core questions regarding globalization’s effects in the region.

Central Asia does not constitute an homogeneous entity. As Boris Rumer puts it in the preface of the book, "it is becoming increasingly apparent that an approach to Central Asia as an integrated region is simply irrational and groundless." Indeed, relations between states in the region are tense, and are becoming increasingly so. This intra-regional tension in turn affects the situation in the individual countries. More and more, the quest for stability is pursued to the detriment of democracy and the rule of law.

In addition, the ten years of transition undergone by the five Central Asian republics have not laid the foundation for sustainable development. Even if most of the countries recorded rapid growth last year, barriers to long-term growth exist in all five countries. Deep structural reforms, large-scale privatization and much improved law enforcement will be needed to unleash their potential.

However, having digested these two dimensions, a reader may be frustrated by the book. Central Asia and the New Global Economy is too often on the verge of giving wrong approximations and says very little about the globalization process itself. Herein lies the book's primary limitation: it is too descriptive, and not analytical enough. On the rare occasion that it does become analytical, the analysis leads to statements which are hard to swallow. Too many false premises tend to blur the analysis. For example: "a realistic scenario for the next five to ten years cannot envision Kazakhstan turning into a major oil exporter" (p. 160) and "Uzbekistan has a set of preconditions that would allow it to enter upon a trajectory of efficient market development" (p. 162). In both cases, this is precisely the opposite of what is actually happening. The author would have been wiser to give these a second thought.

At times, the analysis is plainly wrong. For example, on page 192 we read that "the top-priority goal of national states consists in reducing the negative current account of the balance of payments." This is nonsense. In reality, a successful transition economy would be expected to run a current account deficit along its transition path, simply because a current account is in deficit either when investment is high or saving is low (based on the familiar accounting identity M-X = I-S: imports minus exports = domestic capital formation minus total domestic saving). As the past ten years of transition have demonstrated, successful transition economies tend to be associated with high investment and high consumption (or low saving). Therefore, finding a transition economy that persistently balances its current account would be surprising, as a surplus simply indicates that savings exceed investment – obviously the wrong course for an economy in dire need of capital. This does not mean, of course, that any level of current account deficit is acceptable. At 9.2 percent in 2000 and 9.3 percent in 2001 (projection), the current account deficit of Kyrgyzstan is unsustainable.

Several chapters have been written by Stanislav Zhukov, a senior research associate at IMEMO in Moscow who occasionally lapses into an often awkward Soviet style of writing. His chapters are full of astonishing sentences such as: "The active intervention of the state into the economic process is an absolute necessity…The experience of Kazakhstan and especially Kyrgyzstan, demonstrate that blind adherence to the principles of laissez-faire does not hold out good prospects" (p. 171). Kazakhstan is the region's best performer, and this is due to a substantial extent to the strong reform credentials of the government and the National Bank. But laissez-faire? Where in Central Asia has Stanislav Zhukov identified a single laissez-faire policy? In all transition economies, in fact, too much state has proved to be a greater obstacle to reform than anything else.

The book's core proposition is that countries in Central Asia are heading south. This is certainly possible; but again, this may be true for some, but not all: Kazakhstan might prove to be a pleasant surprise. The idea that the "new global economy" relates to external balances permeates the book, and this limited assumption tells the reader very little about globalization and the way in which it will affect the development of these countries. Globalization is difficult to define, but it is mostly about open markets and free trade. It also entails more openness, transparency and greater accountability. It therefore goes much further than the economy in the strictest sense, and this is precisely what the book is lacking: an explanation of what the massive implications of globalization are going to be for businesses and societies.

Globalization is cumulative, creating a very brutal trade-off between quicker prosperity and greater insecurity. Also, it exercises pressure by accentuating both the benefits of good economic policy management and the costs of inappropriate policies. Will globalization deliver the goods in Central Asia? Probably not – the governance structure is against it. Unfortunately, the book tells us next to nothing about this.

Editor’s Note: Thierry Malleret is the director for Europe and Central Asia of the World Economic Forum. The views expressed in this book review do not necessarily reflect those of the World Economic Forum.

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Posted June 8, 2000 © Eurasianet
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