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Central Asia: Kazakhstan and Uzbekistan Weigh Haste Versus Gradualism

London, 17 April 1998 (RFE/RL) -- A conference in Britain on the transitional economies of Central Asia raised the question: Has Uzbekistan's slow approach to economic reform yielded more positive results than the more rapid approach of Kazakhstan?

The two countries have faced similar problems since declaring independence from the Soviet Union in 1991: high inflation, a fall in industrial output and a growth in poverty.

However, Kazakhstan has adopted faster and more extensive market reforms than Uzbekistan whose gradualist philosophy was summed up in the title of a book by President Karimov: "Don't knock down the old house before you have built the new one."

Richard Pomfret of Adelaide University, Australia, said Uzbekistan has gone more slowly in freeing its prices and reforming its enterprises, and it exerts more overt control over the economy.

He says Uzbekistan offers a kind of "regulated paternalism" that creates a more stable environment, but not one that favors the emergence of new private enterprises or entrepreneurial behavior.

In contrast, Kazakhstan offers what he calls "unrestrained crony-capitalism" in which government officials often use their position to benefit themselves, and where privatization has largely benefited "insiders" without bringing obvious gains in efficiency.

What's been the effect on the 'man in the street"? Pomfret says Kazakhstan has seen widening inequality, while public spending on education and health has been severely cut.

In contrast, Uzbekistan has been the most successful Central Asian country in minimizing cuts in health and education and protecting the weakest in society.

Uzbekistan has seen the smallest decline in its reported gross domestic product (its total output of goods and services) of any former Soviet republic. According to official figures, in 1996, it produced more than four-fifths (84%) of what it produced in 1989 -- a much better figure than Kazakhstan where the figure was less than half (45%).

Does this mean that the gradual approach to reform is to be preferred to the "faster track" approach? Not at all. The Central and East European countries have pursued privatization and other reforms faster (albeit from a much more advanced base) than the Central Asians, and, in general, their transition process is far ahead.

Moreover, critics say Kazakhstan has made so many mistakes due to mismanagement and other reasons that it has failed to produce the right framework for a successful market economy.

Analyst Yelena Kalyuzhnova says from 1991 the Kazakhstan government has "stumbled from one economic program to another" and has "not achieved much from the rapid and chaotic changes in its industrial policy." She says Kazakhstan needs to produce a more coherent industrial policy, and to halt bureaucratic changes.

Kalyuzhnova, formerly a member of an economic panel that advised Kazakh President Nursultan Nazarbayev, is the author of a book on the Kazakh economy to be published in London next month.

Kalyuzhnova notes that Uzbekistan adopted its dual-track approach -- starting reforms while retaining central planning in some economic sectors -- in a bid to minimize economic decline.

But, she says, Uzbekistan faces big obstacles if it is to achieve successful reforms, including the need to curb a powerful bureaucracy and to introduce clear fiscal and monetary policies.

She says Uzbekistan needs to give more day-to-day freedom to newly-privatized enterprises; to seek ways of lifting its stringent foreign exchange controls; and to educate the owners of privatized industries in corporate finance, marketing and other disciplines.

Could Kazakhstan, for all its problems, yet show that a rapid transition is the way to lay the foundation for growth? Analysts say one heartening sign is that its banks are ignoring their own government by refusing to lend to risky, small-scale enterprises, showing an independent resolve to break away from the state.

Andrew Apostolou of Oxford University, contrasted the more open, reforming economies of Central Asia with what he called its "more closed, dictatorial unreforming economies." And he said it would be wrong to reach the "perverse conclusion" that "anti-market reforms well-implemented" in Uzbekistan are preferable to "pro-market reforms poorly implemented in Kazakhstan."

The debate was conducted at the Center for Euro-Asian Studies at Britain's University of Reading.