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Can Mirziyoyev’s Reforms Bring About a Real Free Market Economy in Uzbekistan?

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Can Mirziyoyev’s Reforms Bring About a Real Free Market Economy in Uzbekistan?

The hope that reforms will ultimately bring about free market capitalism with accompanying democratic politics is utmost naivety. 

Can Mirziyoyev’s Reforms Bring About a Real Free Market Economy in Uzbekistan?
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It has been almost four years since Uzbek President Shavkat Mirziyoyev embarked on a modernization mission through a series of political and economic reforms to repair his country’s poor global reputation as repressive and isolated country. By 2019, Mirziyoyev’s political opening aimed at shaking up corrupt officials, releasing some political prisoners, and easing restrictions on the media led The Economist to name Uzbekistan its “country of the year.” However, although such observations raise hopes for an Uzbek success story, such reforms will not succeed in building a free market economy with democratic pluralism so long as they remain subject to the old authoritarian framework.

Following the death of Uzbekistan’s first president, Islam Karimov, in 2016, Mirziyoyev’s attempts to integrate the country into the global economy through finance and trade marked a radical break. Karimov’s long exalted “Uzbek Model” of economic development dragged Uzbekistan into political and economic isolation. The introduction of reforms following Mirziyoyev’s rise to power was in part driven by a desire to develop his own brand of state-building that can lend him popular support and reinforce his position. Also, his effort to reach out to the international community for capital and investment was necessary to recover from the economic downturn that underlying structural problems during the Karimov era created. 

Karimov’s refusal to embrace potentially destabilizing market reforms and his desire to preserve the assets under his control bequeathed independent Uzbekistan a Soviet-style autarkic economy with excessive state dominance that lived on subsidies and cheap credits for decades. State enterprises were dominated by various political missions and private interests. This introduced economic distortions and generated a system propagated by massive rent-seeking. Unwanted government interference and bureaucratic predation by corrupt officials made the economy an inhospitable ground for the private sector and incoming foreign investment. This in turn generated the conditions that prompted a massive outflow of labor from the country. Against this background, by launching reforms, Mirziyoyev’s rationale was to make the economy more efficient by introducing a market mechanism along with attractions foreign investment. 

Yet, sheer ambition does not always match the reality on the ground. While Mirziyoyev’s enthusiasm in promoting reforms and attracting foreign investment deserves credit, the hopeful expectation that embracing a targeted set of reforms will ultimately bring about free market capitalism with accompanying democratic politics is utmost naivety

As long as the current regime aims to preserve its power with the nature of politics and economics inextricably interwoven, the ongoing changes only serve the Uzbek elite. By modernizing Uzbekistan’s enduring authoritarian system and adopting a new political-economic order — market authoritarianism — reforms will enable the power of markets to be merged with the stability of authoritarian rule, not usher the latter from existence.

What does market authmoritarianism entail in the new regime that Mirziyoyev has constructed? In essence, market authoritarianism will act as a new economic order in Uzbekistan in the coming years in which the state reasserts its control over important assets and increases their efficiency to ensure stability, while allowing more scope for certain tenets of the liberal market and private sector. This will call for an adoption of interconnecting changes to build a competent system. In economics, market authoritarianism requires the state to adopt selective liberal economic policies such as free foreign exchange, an efficient tax system, low regulatory burdens, and investment friendly environment to tackle inefficient economic practices. In governance, it gives sizable room for incoming technocrats with expertise who are tasked with gradually overhauling old Soviet-style inefficient administration. Indeed, Mirziyoyev’s invitation for young experts to return home during his foreign visits can attest to the shortage of expertise within Uzbekistan. In the political realm, this process eased political restrictions on free speech and breathed fresh air into the media, but, at the same time, kept a firm grip on courts, security and the overall flow of information

Two features are inherent in Uzbekistan’s current authoritarian system which will reinforce the trend toward market authoritarianism. First, regardless of sweeping economic liberalization, the current regime is still penetrated by a powerful system of informal authority, dubbed as patronage networks or clans that wield real power in Uzbekistan. The backbone of political survival is sustained by an informal arrangement whereby Mirziyoyev provides these networks patronage wealth in government positions and economic sectors in exchange for their political support and loyalty. These entrenched networks will always attempt to neutralize market forces and become enablers of market authoritarianism in seeking to retain their access to discretionary rents.

Second, the lack of an effectively organized state bureaucracy gravely undermines serious efforts to construct free markets. The weak state and arbitrary nature of governance in Uzbekistan is unable to provide legal framework for guaranteeing property rights and enforcing contracts and such a state will ultimately leave the economic management once more to the hands of an incompetent bureaucracy that serves the special interests of powerful clans. Finally, the absence of a strong private sector capable of acting as agents of the market will only serve to strengthen the role of old clan elites in the economy.

But for the elite, market reforms mean a lot. 

Reforms underlying market authoritarianism intend to solve two perennial problems for the regime. First, presenting an open market stamp to Uzbekistan, the economic opening invites like-minded investors to buy stakes in state enterprises with the aim of improving their performance and thus state pecuniary capacity. For example, last year the government announced it would fully or partially privatize around 240 enterprises and reduce the state-owned enterprises (SOEs) by 50 percent. This restructuring also enabled the elites to redistribute certain assets through dubious privatization, as was demonstrated in the sale of “Uzbekcoal” shares to an unknown company based in Russia. 

Second, in permitting certain economic freedom to private businesses, the changes effectively depoliticize the population that have long accumulated grievances from economic injustice and persecution. As a result of this new politico-economic order, the regime can establish a tacit social contract with people through which it attempts to improve their living standard and open up some free space for discussion in return for overall continued authoritarian rule. 

These market policies that the regime desperately needs are not, of course, simply of Mirziyoyev’s own making. Geographic proximity and cultural affinities with neighbors that share similar political institutions and venues for discussion facilitated the diffusion of such a model. Dr. Mariya Y. Omelicheva at Kansas State has mentioned that Uzbek officials were considering emulating the examples of Asian tigers and Chinese state capitalism, in particular, which enabled the country to achieve remarkable prosperity within a short period of time without compromising the regime’s grip on power

Apart from the Chinese example, there are homegrown practices of state-controlled capitalism in illiberal regimes of Russia and Kazakhstan that reserves huge prerogatives to the state in managing the economy. The average share of state-owned companies among top ten companies, 96 percent in China and 81 percent in Russia, demonstrates the overarching tentacles of the Leviathan state in these economies. Although close observance of these examples could have already convinced Mirziyoyev of the viability of soft authoritarianism with selective liberal market principles, the consequences of the ongoing pandemic are likely to make him an absolute convert. 

But can the new economic system really bring prosperity? Extant literature shows that unless subject to institutional constraints in democratic politics, the authoritarian nature of state capitalist economies will invite systemic cronyism and corruption that corrode the efficiency of the economy. Russia can be a good example. The kleptocratic nature of state-led capitalism that Vladimir Putin molded, in fact, exacerbated the weaknesses of Russia’s energy dominated economy.

Thus, Mirziyoyev’s optimism that his development model will bear fruit in the near future might be short-lived. Even though he is still on the journey to complete the foundation of a new political-economic order of market authoritarianism that can modernize the authoritarian regime and solicit enough support from both the elite and the people, it is unclear if such an order can gush fresh blood into the moribund economy and polity. Existing corruption within elite circles and the incompetent state bureaucracy that serves them might surely retard Mirziyoyev’s ambition to construct a new Uzbek model.

Bekzod Zakirov is a PhD candidate at the Graduate School of Public Policy, the University of Tokyo, Japan. He is a visiting scholar at the Institute for European, Russian and Eurasian Center at George Washington University, Washington DC.