Galim Khussainov
Inflation and the tengeBankingLending and mortgagesTaxationEconomy and public policyManagement

Economy and public policy · 3 min read

Institutions, Not Manual Control: What Kazakhstan Needs for a Real Breakthrough

Translated from Russian with the help of AI. Original: Russian version

Kazakhstan is an average developing country run by manual control, and without working basic institutions (human rights, private property, independent courts, free elections) it cannot make a breakthrough like the Asian tigers. Building such institutions is difficult and frightening, but without them any progress depends on individuals rather than on a system.

A friend and I recently recorded a podcast on a range of topics, and it will be released soon. One of the episodes was devoted to the future of Kazakhstan. The question was what awaits us in the near and distant future, and how we can make a leap forward. This is the question I would like to describe in more detail.

Viewed from a bird's-eye perspective, we are by and large an average developing country run by manual control, and, it must be said, one that is more or less normal and acceptable. That is enough for us to live reasonably well and move gradually upward. But other countries ranked above us are moving even faster, or at about the same pace. So we will, on the whole, live better than we did yesterday, but compared with others we are unlikely to climb much higher. There are many reasons for this, and without serious tectonic effort they will be extremely hard to eliminate. The main reason is that we are trying to build a manually managed economy instead of building institutions. Unfortunately, without working basic institutions, any economic construction is doomed to lack durability, and one unfortunate day, the arrival in power of some short-sighted person could destroy it all overnight.

Building institutions is extremely hard, because it requires accepting that a person within the system begins to lose power and becomes subject to the system's control, no matter what position that person holds: minister, chief justice, prosecutor or even President.

In my view, there are not that many important institutions.

The first and most important is the institution of human rights. It means that human rights come above everything else, and anyone who violates them will inevitably be punished. Unfortunately, our record on human rights is far from perfect, ranging from domestic violence to convictions of people whose crimes were never proven.

The second most important is the institution of private property. A person cannot be deprived of private property if it was lawfully acquired and a court has not proven otherwise.

In both cases, these institutions work only if there is a functioning judicial system, and ours is criticized by practically everyone. Without a functioning judiciary, it is extremely hard to defend one's rights. For courts to really work, they must be independent, well motivated and selected through highly competitive recruitment. Lawyers know better than I do how to build a proper judicial system.

The judiciary can be independent only if there is a functioning electoral institution. Only when all elections in the country are transparent, open and impartial will there be a chance that many institutions become independent.

And the list goes on: institutions of corporate law, law enforcement, civil society, independent media, political parties, and so on.

Building all of these institutions so that they genuinely work is very difficult and, above all, frightening. Here lies another cornerstone: is our society ready to tell black from white? The first reforms that must be made are very painful, and not everyone can picture their own future for the better as a result of one reform or another. Clearly, a politician who promises everyone higher wages or loan write-offs will win far more votes than one who says he will cut budget spending and raise the base rate, making loans more expensive. Yet the first politician will bring high inflation and even greater impoverishment, while the second simply won't be elected, because people want results here and now. Turkey is a telling example: before the elections Erdogan offered highly populist solutions, but as soon as he won, he began market reforms.

And of course, for all these institutions to start working, we need a plan and a clear understanding that we must first create civil society institutions, then build independent media, then build political parties, and only then move on to the electoral process and the formation of higher-level institutions.

Unfortunately, without genuinely working institutions, making a leap like the Asian tigers is practically impossible, and any manual methods of governance will have only a local effect and will depend heavily on individuals rather than on a working system.

More on this topic

Unpacking the Link Between GDP Growth and Real Incomes

An analysis of how GDP growth relates to real household incomes, covering the deflator, productivity and tradable sectors. The author responds to the ongoing debate among economists and to the post by the Deputy Prime Minister and Minister of National Economy.

Developing the Almaty Agglomeration

The Almaty agglomeration is home to more than 3.5 million people and is likely to reach 4 million by 2030. The author argues that sustaining its growth will require expanding the city's boundaries and investing in transport, utility networks, social infrastructure, renovation and integrated residential development.

Thoughts on the 2024 Address

Galim Khussainov shares his views on the 2024 Presidential Address: the progressive PIT, the postponement of the Tax Code, the tax on bank dividends and the plan to invest the National Fund inside the country.