Notes on the Fourth Astana Economic Forum

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Written by Kairat Moldashev

The Fourth Astana Economic Forum brought together Nobel Prize Laureates and many influential people from around the world. Among them Robert Mundell who calls for basket of currencies instead of dollar in world monetary system, Finn E. Kydland known for his works on business cycles and gold standard, and John Nash who is the major contributor to the Game theory. Also the one of the striking features of the Forum was the speech of the Mr. Nazarbayev speech which worth mentioning because it is the first time the President publicly challenges neoliberal strategies and market fundamentalism by well prepared arguments. Also the speech contains the reasons behind the economic policies being implemented in Kazakhstan and it helps to understand the expectations of Astana from regional integration initiatives on post-Soviet area[1].

 

The President was very critical of existing global financial system where financial sector functions autonomously from production sector. The recent changes in regulative framework of financial system in Kazakhstan when the functions of Agency of the Republic of Kazakhstan on regulation and supervision of financial market and financial organizations (AFN) were delivered to the National Bank can be viewed as the tightening of control over financial market. The concept of “minimum state” which is promoted by such international institutions such as World Bank and IMF proved to be weak with the emergence of global crisis. The states showed more responsibility than private actors and the most striking example of the need for state intervention was the case of BTA Bank.

The mainstream economic thought which argues for limited role of state in economics and for free capital movements empowers global financial institutions and companies to decide on the destinies of the countries and on the people welfare. This kind of economic liberalization is often associated with the democracy promotion. However, the hyper-liberalization of markets means delivering important welfare issues from state which is somehow accountable for its policies to totally unaccountable private sector driven by self-interest. The unregulated financial market resulted in significant growth of short term speculative capital flows and foreign exchange operations. Millions of people are involved in FOREX and Stock Exchange speculations but the winners are huge financial institutions who have resources for better predictions and for influencing the prices of currencies and stocks. This global involvement in gambling reduces the incentives for investments in long-term productive sectors. According to triennial survey of the Bank for International Settlements the average daily volume of foreign exchange in April 2010 was about $4.0 trillion[2].

The issues of innovation based development and of “fair” trade were mentioned together in the presidential speech. Mr. Nazarbayev provided the examples of protectionist measures used by US and Britain in their development stage. This issue is discussed in development economics[3]. In historical perspective the developed countries used protectionist strategies for advancing of their industries but now the developing countries are advised or even forced by the rules of WTO to eliminate barriers to free trade. Starting from 1970s the economic liberalization strategies based on Washington Consensus are strongly promoted as the only alternative for developing countries.

From the speech it is made clear that the establishment of Customs Union among Belarus, Kazakhstan, and Russia is the logical outcome of the resistance to uneven development on the global scale and the attempt to increase competitiveness through free trade among partners with equal level of economic development before joining the WTO.

The neoliberal strategies that were implemented in most of the post-Soviet countries in the 1990s have not resulted in economic growth but deepened the inequality and weakened the social security of the majority of their population. The market fundamentalism of 1990s brought decrease in government expenditures, limitations in subsidies for industrial development, and mass privatization of public property.  The change of government policies in Kazakhstan and also in Russia occurred at the beginning of 2000s when their paid back IMF loans ahead of schedule and chose the state-led industrialization. In case of Kazakhstan the investments in infrastructure, industrial development and in project of building new capital city have created employment opportunities for many people and contributed to the economic growth in 2000s. The economy is still far from being diversified and the natural resources sector continuous to be a major contributor to GDP but the development strategies lead to step by step industrialization.

The IV Economic Forum and particularly the speech of the President show that Kazakhstan may avoid the extreme of “market fundamentalism” which is as dangerous for society as the extreme of command economy. The critical studies on neo-liberalism or “market fundamentalism” in the industrialized countries showed that this ideology leads to accumulation of capital in the hands of few people and negatively influences the middle class and the poorest in the society[4]. Moreover, neo-liberalism challenges the principles of democracy as it emphasizes the separation of economics from politics or in other words it promotes the delegation of decision making on the important issues of development and social welfare from elected public institutions to the self-interested private individuals instead of addressing the issue of improving the policy-making[5].