CPC - Caspian Policy Center


economic growth — one result of 30 years of diplomatic ties

Economic Growth — One Result of 30 Years of Diplomatic Ties

Image source: Foreign Policy

This article is part of a series by former ambassadors, retired members of the Armed Forces, and academics who we have asked to share their perspectives on the evolution of U.S.-Caspian relations 30 years after the establishment of diplomatic ties.

Looking back to 30 years ago to when the United States established diplomatic relations with all the countries of Central Asia and the South Caucasus, the scope and magnitude of the changes are immediately apparent. What is not always so apparent is the determination, sacrifices, and initiative that made these changes happen.

Posted in 1988 - 1992 as First Secretary in the Economic Section of the U.S. Embassy in Vienna, part of my portfolio was monitoring the trade and other economic developments in the then Communist countries.  At the end of the eighties, the economic stagnation, shortages, and worsening living conditions in the Soviet bloc were apparent and concerning.  The calls for reform in those countries paired democracy and economic prosperity as the chief aspirations of the people there.  For the United States and other western countries, there came a responsibility to help the people of Central and Eastern Europe and of Central Asia to realize these aspirations as they took charge again of their national destinies.

Nothing was automatic.  Simply wanting the prosperity enjoyed in free market economies was not enough; tough changes were essential.  Moreover, while the line so often repeated in 1990 or ’91 or ’92 was that in five years there would be no difference between the states on either side of the old line that divided Europe, the transitions proved harder than expected and they required persistence and support on the part of the West as well as persistence and determination in the East.

Changes in the east made the United States and others analyze what had been responsible for their own economic success and then to look at how those factors could be established in the countries looking to emerge from the centrally-planned, statist systems that existed during Communist party rule.  We came to realize western standards of living were the result of certain principles and practices that needed to be followed.  Cutting corners on the reform process might seem to translate into short-term domestic political points, but in actuality they resulted in  losses in prosperity and national well-being.  These principles included letting markets function to set prices and show what goods and in what quantities were desired in a country.  Rule of law, a fair and effective judiciary, sound institutions whose operations were predictable, of transparency, and fighting corruption, nepotism, and cronyism were all essential as well for an economy to grow and serve the people of a country.  Entrepreneurs had to be encouraged and celebrated to create needed new businesses and jobs.  Bloated state enterprises needed to be broken up, sold-off, forced to operate and compete under free market rules.  Laws needed to be written to provide for bankruptcy as well as for the creation of new businesses.  Barriers to trade and investment needed to go.  Competition needed to be accepted, with provisions made so that the playing fields were fair and governments refrained from trying to pick winners. 

Interestingly, as we examined our western economies with an eye towards  what needed to be done as countries shook off Communist era state-planning and controls, we saw more clearly areas where western economies also needed to improve.

Implementing changes was not easy and governments took different paths or pursued reforms at different paces.  Unemployment, for example, grew, and currencies that had been unrealistically over-valued fell.  There were certainly questions about whether the economic reform programs were worth it just as there were examples of backsliding.

Supporting economic reforms and growth was a key aspect of U.S. diplomatic engagement with the region.  In addition to discussions on actions to open and expand the economies of Central Asian and Caucasus states, U.S. diplomatic engagement with the region looked at ways to boost commercial and investment ties, including support for U.S. companies coming into the region.  The United States also engaged through international financial institutions, such as the World Bank, which funded projects in these countries.  In addition, the United States helped establish the European Bank for Reconstruction and Development in 1991 to foster the region’s prosperity, including through a specific focus on the private sector and entrepreneurship.  Another key area of U.S. engagement with the states of the South Caucasus and Central Asia was the development of the region’s oil, natural gas, and other resources.  This diplomatic engagement had clear beneficial impacts, whether in the opening and growth of new businesses and the jobs that accompanied them or the realization of projects such as the Baku-Tbilisi-Ceyhan oil pipeline or the Southern Gas Corridor.

Today, however, the situation on the ground bears out the reasons for taking on the challenges of becoming market economies and the reasons for doing so.  The Heritage Foundation’s 2021 Index of Economic Freedom ranks Georgia as number 12 in the world, just below Canada, Denmark, and Iceland.  Armenia is ranked 32, slightly behind Germany at 29th.  Kazakhstan comes in at 24 and Azerbaijan at 38.  (The ranking also puts the United States at 20, Turkey at 76, and Russia at 92.) 

While different, the World Bank’s Ease of Doing Business Rankings also show the progress many countries that were part of the Soviet Union in 1991 have made.  The Bank ranks according to a number of different categories, such as the ease of starting a business, of getting electricity, and of registering property, to come up with a score that shows how conducive the environment in a country is to starting and operating a firm.  The rankings released in 2021 place Georgia at number 7, right behind the United States at number 6.  Kazakhstan is ranked at 25, Russia at 28, and Azerbaijan at 34.  For comparison’s sake, this World Bank index puts Germany 22nd, Canada 23rd, and Japan 29th.

True, international rankings do not tell the whole story, and making and keeping a country competitive and attractive to investors and other businesses is an on-going process.  However, they also suggest the progress that has been achieved over the past decades.

Economic reforms and restructuring are processes that need to continue if a country — or a company, for that matter — is going to succeed in the global economy.  The COVID pandemic and the disruption of global supply chains have only served to underline this reality still further.  Still, what many countries that were once part of the Soviet Union have achieved shows what can be done and the benefits these efforts yield in terms of better lives for their citizens.

Related Articles

Energy and Economy Program (EEP)

Central Asian Countries Left with the Burden of Keeping Afghanistan’s Lights On

Afghanistan is unable to pay its electricity bill to its northern neighbors and both Tajikistan and Uzbekistan are beginning to feel the pinch.

Energy and Economy Program (EEP)

Georgia’s Agricultural Sector Feels the Pinch of Russia’s Foreign Policy

In the initial days of Russia’s war in Ukraine, the Georgian government’s refusal to implement bilateral sanctions against Russia sparked controversy