Kazakhstan: Economic Transformation and Autocratic Power

Mercatus Policy Series, Country Brief No. 4

48 Pages Posted: 19 Jul 2009 Last revised: 20 Jul 2009

See all articles by Jürgen Wandel

Jürgen Wandel

Leibniz Institute of Agricultural Development in Central and Eastern Europe (IAMO)

Botagoz Kozbagarova

affiliation not provided to SSRN

Date Written: July 15, 2009

Abstract

Kazakhstan is a major success story in Central Asia, having experienced double-digit growth rates between 2000 and 2007. The country has made significant market-oriented reforms and large amounts of foreign investment. However, following the maxim adopted by many successful countries in Southeast Asia, 'First the economy and then politics,' political reform in Kazakhstan has lagged. The key challenge is ensuring broad-based sustainable economic development in order to avoid the 'resource curse' — the problem of countries with abundant natural resources paradoxically lagging in development. When the global financial crisis reached Kazakhstan in 2007, additional challenges became managing problems associated with the banking and construction sectors as well as securing macroeconomic stability, in particular lowering inflation. Inspired by the examples of Malaysia, Singapore, and South Korea and on the advice of Harvard Business School’s Michael Porter, the Kazakhstani government tries to promote economic diversification through an active industrial policy based on clustering and supporting companies that the government thinks will succeed. This has led to a mix of liberal and interventionist economic policies. Much of Kazakhstan’s future success will depend upon whether it implements liberal or illiberal economic policies going forward. Given historical and cross-country evidence, additional government involvement in the market process may hamper Kazakhstan’s economic potential. With this in mind, this Country Brief recommends the following policy directions: - Refrain from top-down diversification programs, short-term rescue programs for ailing banks and construction firms, and price controls to fight inflation. - Tighten monetary policy to curb credit growth. - Concentrate government spending on infrastructure building and human capital formation. - Separate the commercial and public functions of national industries and expose them to competition and the accountability rules of private firms. - Continue to improve business regulations. - Continue to modernize the political system and establish the rule of law. If the political decision makers in Kazakhstan recognize entrepreneurship as the market’s driving force and focus on the institutional prerequisites to growth, Kazakhstan could unleash great economic potential.

Keywords: Kazakhstan, Central Asia, CIS, former-Soviet, economic reform

Suggested Citation

Wandel, Jürgen and Kozbagarova, Botagoz, Kazakhstan: Economic Transformation and Autocratic Power (July 15, 2009). Mercatus Policy Series, Country Brief No. 4, Available at SSRN: https://ssrn.com/abstract=1434522 or http://dx.doi.org/10.2139/ssrn.1434522

Jürgen Wandel (Contact Author)

Leibniz Institute of Agricultural Development in Central and Eastern Europe (IAMO) ( email )

Theodor-Lieser-Str.2
Halle, D-06120
Germany

Botagoz Kozbagarova

affiliation not provided to SSRN ( email )

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