24 January 2021, Sunday, 14:35
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Leanid Zlotnikau: Belarusian Economic Model Has Run Aground

Leanid Zlotnikau: Belarusian Economic Model Has Run Aground

It is not capable of development.

Economist Leanid Zlotnikau predicted the crash of the Belarusian economy since the very beginning of building the "Belarusian economic model". He did not give up his opinion even during the "honey" years, when the Belarusian economy was growing by 9% a year, refuting the opponents of the socialist system. Today Leanid Zlotnikau states that he was right.

In his opinion, the failure of the Belarusian model was obvious: it is not capable of development.

Leanid Zlotnikau tells the Belarusians and the Market correspondent about the "glorious way" of the Belarusian economic model and its disgraced end.

- How did it happen that Belarus turned into a place to continue the unprecedented social experiment?

- After the collapse of the USSR, it turned out that the high living standard of Belarusians was ensured by the price disparity that existed in the USSR. It was believed that the economy was good here and that the republic was well supplied. But it turned out that such an economy cannot survive under the market conditions, let alone provide the usual standard of living. The prices of goods exported by the BSSR to Russia were 2.5-3 times higher than the world market prices, while the prices of goods supplied from Russia, on the contrary, were lower. After the collapse of the Soviet Union, prices began to level off, approaching the world market, and it turned out that in the past, it was enough to sell two pairs of Belarusian sandals to buy a ton of oil, but now you have to sell several dozens of pairs of sandals for one ton of oil.

The standard of living in Belarus began to fall faster than in other former Soviet republics, and by 1994 it had fallen by 40-45 percent compared to 1990. The population was dissatisfied, and the factories, which were considered the pride of Belarus, slid down - it turned out that they not only produce products at inflated prices, but also the ones of poor quality; it was possible to buy goods cheaper and better abroad. Enterprises started to run down, primarily the factories that produce electronics.

- But the same thing was happening in other republics. Why was the closure of our enterprises very sensitively perceived by the population here?

- Since the 70-80s of the last century, Belarus was rapidly urbanizing. The population was moving from villages to cities, getting jobs at factories, receiving apartments, and living standards and quality of life were growing. Then, all of a sudden, it was placed in jeopardy. And then in 1994, at the very bottom of this recession, a president-populist was elected. He promised to continue those methods of management, the vector of economic development that was in the USSR. His main promises were "firm prices" and "starting-up of plants". This policy has been carried on ever since. Such an economy cannot exist without external support.

- That's when "special relations" with Russia came into play?

- All these years, the Belarusian economy has been existing due to Russia's support. Now it is believed that over all these years Belarus has received about $100 billion of subsidies from Russia concerning energy resources and other areas. In 2010, Russian communists came to the All-Belarusian People's Assembly, and their leader Gennady Zyuganov said that the Belarusians had proved to the world that a socialist economy could be effective.

Yes, Belarus was among the countries with the highest growth rates at that time, but nobody associated that growth with low oil prices, and then with a rapid increase in debt. But after 2012, the growth began to decline, and now the authorities can't even provide salaries equivalent to $500, the lowest in the region.

- What is the result of this "support"?

- The economy has slowed down, the last 8-10 years the standard of living has not been growing if we look at the level of consumption. There is only one reason: an attempt to manage the economy with command methods. Now the Belarusian economy is moving away from socialism, but most of it still remains Asian, when tasks are lowered down via the vertical, everything is controlled, goals are set, which cannot be achieved. Such an economy cannot function, and it was clear to me from the very beginning. It was obvious that it would end badly, that the second attempt in history to preserve an ineffective socialist system would fail.

The main reason for the decline of the Belarusian economy was the move away from the market, and market relations were crushed in the bud. For example, the First Investment Fund was created where people deposited their "Property" checks so that the fund could handle them, because in those years people could not yet effectively deal with checks. This fund started, as in the West, accumulating cheques in order to take part in privatizing enterprises and then to sell them with profit, paying people their income. Lukashenka, having understood what it was, closed down that fund and it was almost the first thing he did.

Several unsuccessful attempts to freeze prices were made. It is impossible to regulate prices at the micro level. This can only be done without understanding what the economy is and how complicated it is. They continued to insist on unachievable goals. For example, once the president issued a decree: to reduce the self-cost at all enterprises by 25% within three years. But it is impossible: each enterprise has its own situation, some of them can reduce it by 5%, others - by 25%, and most of them cannot do it at all. The companies failed to meet the plans to increase exports, without taking into account their situation. Once enterprises were instructed to increase exports three months before the end of the year, and the district executive committee even sent this instruction to the address of a foreign embassy, which showed me this instruction with surprise. It is clear that such management does not allow business to develop, but only confuses the directorate of state enterprises. The absence of reforms was covered by caring about the people: we take care of our people, we do not want people to have difficulties and we will not hurry with these reforms.

A model of the state was built when power and property are in one hands. An enterprise can be called private, a joint stock company, but when they are told from above what to do, how much to produce, it is clear that this is an Asian model in form. Such economies are not effective, they do not develop, they lag behind the progress. And this is what we see in Belarus.

- Recently, there have been many accidents at enterprises. Do you attribute this to an inefficient management system?

- Administrative managing of enterprises is impossible because of its complexity. They are given a system of objectives and then hurry to implement them. If there was no such system, the "vertical" would have nothing to do. Such a system - give more tomorrow, give more tomorrow, even if the enterprise has no capacity - does not allow the enterprise to renew fixed assets, change equipment, otherwise the plan will not be fulfilled. And the plans have always been hard.

The state structures have always been suspicious of the directorate, they believed that the directors were stealing. Therefore, in the course of modernization and after it, the enterprise was endlessly checked by various controlling bodies to see if anything had been stolen. And we have a great number of such structures. Those who inspect inspectors demand as well: if you haven't uncovered a crime, it means you are covering for the criminal yourself. Therefore, something has to be discovered. They need to fulfill the plan on disclosing the violations.

The case of the MZKT chief engineer, who spent about 50 months in detention under investigation, but his guilt remained unproven in court, is still fresh in memory.

The Shklousk Paper Mill, during the construction of which there was a struggle with the directors - "investment robbers" - was also a household word for a long time. Dozens of inspectors were brought to the plant, and the courts kept imprisoning people. As a result, the plant's management buys the cheapest equipment at the Kondopoga factory (Russia), which was once filed away in storage there. It's okay that it's already worn out and inefficient, but nobody will come and put you in jail.

Lukashenka did not understand this, but he was always demanding and demanding. He said that the main problem was to find people, those decent people who would fulfill the plan. There were facts when the directors could not cope with the "plans" and ended up committing suicide.

That is, the ideas of the country's leadership about the work of production are very superficial. Hence the accidents: the equipment is worn out or the cheapest.

Nowhere in the world nowadays does the state dictate how much and what to produce. There is nothing to be done, large systems cannot be controlled. The economy is controlled by prices, and prices are the force of nature, they change under the influence of people's needs, which no authorities can influence. This is a very complex mechanism, which cannot be regulated by administrative methods.