Business Magazine

Democracy and the Role of Private Sector

Posted on the 21 December 2011 by Center For International Private Enterprise @CIPEglobal
Democracy and the Role of Private Sector

Russians voted in parliametary elections earlier this month. (Photo: AFP/Getty Images)

When the Soviet Union ceased to exist twenty years ago, fifteen separate countries emerged from the fall, each embarking on its own path to democracy and a market economy. The expectations were high that the transition period would be relatively short since these countries had the freedom to choose their leaders and policies.

After the Fall: 20 Years of Post-Soviet Reform
Twenty years later, citizens of many post-Soviet countries question the benefits of democracy, as they feel it has not delivered a better life and equal opportunities. These countries suffer from weak institutions that are unable to protect citizens’ rights (including property rights), widespread corruption, and the concentration of economic power in the hands of elites.

According to Transparency International’s 2010 Corruption Perception Index, citizens in most of these countries depict a rather gloomy picture, with Kazakhstan and Moldova ranking at 105, while Russia, Tajikistan, Kyrgyzstan, Turkmenistan and Uzbekistan rank between 154 and 172 out of 178 countries in the survey.

As experience in Central Europe, including the Baltic states, has shown, strong grassroots participation in the decision-making process is necessary to achieve long-lasting political and economic reform. The private sector, including representatives of  small and medium businesses, needs to join forces to push for change.

The World Bank’s Doing Business Survey reveals that in Latvia, Estonia, and Lithuania where the private sector is active, important reforms to reduce barriers to economic and business development took place, with these countries ranking between 21 and 27 out of 183 countries surveyed. Kazakhstan, Armenia, Azerbaijan, Belarus, Kyrgyzstan and Moldova, where the private sector is in its initial stages of engagement in policymaking, made moderate progress, ranking between 47 and 81. Russia, Ukraine, Tajikistan and Uzbekistan still have a long way to go to make it easier for businesses to operate, ranking between 120 and 166.

The private sector, through independent business associations and chambers of commerce, is slowly realizing its role and taken the lead to promote rule-of-law, transparency in policymaking, and government accountability. CIPE has helped build the voice of business in Armenia through a Business Advocacy Network uniting 25 associations; in Moldova through a National Business Agenda Network of over 30 organizations; in Kyrgyzstan through a National Alliance of Business Associations uniting 33 organizations, and other countries across the region.

The private sector’s collective action has started to make inroads in reducing corruption by improving legislation and clarifying regulations affecting business in Moldova, Ukraine, Belarus, Armenia, and Russia. Associations across the region that engaged in an open policy dialog provided a public platform to discuss the need to improve property rights and reduce administrative barriers to small business.

Looking forward, there is a continuous need to strengthen the capacities of associations throughout the region to become strong advocates for their business members. They also need to focus more efforts on increasing government accountability and closing the “reality gap” between adopted laws and actual implementation, thus further reducing corruption risks for business.

CIPE is working with coalitions in 18 regions in Russia to develop methodologies for assessing the quality of government services to citizens and businesses. In Moldova, CIPE is supporting a network of business associations to monitor government implementation of their policy proposals put forward in an annual National Business Agenda.

While there is tremendous work to be done to realize the dreams of 1991, one lesson is clear: the private sector has a stake in the process, as democratic systems are more likely to refrain from arbitrary seizure of property, receive input on economic reform, and strive for a prosperous economy for all.

This post is part of a series on the fall of the Soviet Union, the 20 years of reforms that followed, and the challenges that lie ahead.

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