Immobile Capital and the Politics of Corruption: An Interview with Lawrence Markowitz

In April 2015 we had the opportunity to speak with Dr. Lawrence Markowitz, Assistant Professor of Political Science & Economics at Rowan University. Dr. Markowitz has researched and published extensively on the politics of state failure and authoritarian rule in Central Asia and the former Soviet Union. He is the author of State Erosion: Unlootable Resources and Unruly Elites in Central Asia (Cornell University Press, 2013)

SD: Succession in countries like Uzbekistan, Tajikistan and Kazakhstan is a topic that is now being discussed with increased frequency. While these countries will likely differ in how they attempt to carry out power transition, what commonalities might exist between the three of them, and how might they differ from a country like Kyrgyzstan?

Markowitz: There are certainly some commonalities between the three countries because each of their leaders is relatively old. The leaders of Kazakhstan and Uzbekistan are each in their 70s and the Tajik president is in his 60s and not a particularly healthy individual. With that in mind, it’s hard to judge their longevity.

That aside, my research into succession has been focused on the question of economic resources. Particularly, I’ve examined how the leaders of these countries may or may not pass on or bequeath power. The ability to bequeath power in these countries does not stem from just the passing on of resources. Instead, it’s about the passing on of the institutions that control those resources. That is, the institutional apparatuses that control their extraction and are responsible for taking them to market. Political control over the institutions that extract and distribute resources in these countries can be either concentrated or diffuse.

Kyrgyzstan, for instance, is far more diffuse because its central leadership does not have a commanding control over the wide range of resources found in the country. The number of involved parties is varied; for example, in parliament there are actors that have control over certain resources and are in fact in parliament partially because of this. In that regard, Kyrgyzstan may be better situated due to the dispersed nature of its power brokers.

Tajikistan is somewhere in the middle, as its resources are neither concentrated with one body nor spread out across a great number of them. Resource control in Kazakhstan shares some similarities with Tajikistan in that regard.

In Uzbekistan, however, resources are concentrated to a much greater degree, which represents a serious problem. Political control over its economy is structured around its centralized, autocratic system. Its regime is not friendly to free trade, and much of the country’s wealth that flows from its resources is channeled upwards through its central leadership. While some wealth is returned to local and regional elites in return for their support of the regime, the country’s leadership retains control over a significant portion of that wealth. This makes the leadership the focal point. To some, Uzbekistan looks like a stronger state from the outside because there has been limited domestic upheaval and there aren’t as many concerns with regards to extremism. However, my belief is that the country’s concentration of power is a much greater challenge that is worthy of more skepticism and concern than some of its neighbors.

Some other factors that are important in evaluating these countries are what type of resources they possess, i.e. agricultural resources (such as cotton) or hydrocarbons, and the country’s capital mobility. That is, the degree to which these resources generate capital that is easily accessed by the central government without having to work with or barter with a range of local elites. Capital divisibility is also important. For instance, a reasonable division of resources among the involved parties is preferential to a winner-take-all approach that could lead to greater conflict.

A great deal of the wealth in Uzbekistan comes from agricultural development; it is an agrarian-based economy. That wealth is not very mobile because cotton or grain is simply too large and too bulky to smuggle or convert into illicit income without patronage and protection from the state officials. Much of the allegiance of local elites depends on how the central leadership manages the extraction and redistribution of wealth in localities. As a result, and getting back to the question of succession, it will be very difficult to find someone to take the reins of power who can control and demand the allegiance of the local elites that are required to generate that wealth. Whoever comes into power will have to manage Uzbekistan’s massive farming operations and the local elites that are tied to it. The same could be said of Tajikistan, which has significant cotton production in its southwest and north.

With regards to oil and gas, the capital there is often seen as indivisible, with a winner-take-all dynamic because it concerns wealth that is very concentrated, not diffuse. In the hydrocarbons rich countries in Central Asia the wealth coming from these resources will flow straight to the various government ministries and officials that oversee it. In some sense, Uzbekistan is worse off in that regard than both Tajikistan and Kyrgyzstan, because this concentrated indivisible wealth in Uzbekistan may exacerbate political conflict over succession. Indivisible wealth raises the stakes in the succession process.

In terms of the viability of institutions, Uzbekistan does have a relatively well-developed institutional structure. Its coercive apparatus, or the combination of the SNB (Uzbekistan’s equivalent of the KGB), the Ministry of Internal Affairs, the tax inspectorate, and the prosecutor’s office, is sufficiently well-developed and pretty well-funded which is not the case in Tajikistan or Kyrgyzstan.

I would say that Kyrgyzstan certainly differs from Tajikistan and Uzbekistan. In Kyrgyzstan there is more of a rotation of elites, as officials have seemingly been rotating in and out of parliament and other state offices. One of the main differences with regards to Kyrgyzstan is that in Kyrgyzstan and to some extent Kazakhstan there has been a degree of privatization. As a result, wealth has been created independent of the state, which has translated into a level of autonomy that doesn’t really exist in Uzbekistan and Tajikistan.   In Uzbekistan, if someone has significant wealth, it is because he or she has connections to the regime; it cannot be generated independently. In Tajikistan it is possible, albeit under very limited circumstances.

In short, Uzbekistan and Kazakhstan have stronger institutional apparatuses, whereas in Tajikistan and Kyrgyzstan the institutions are less stable. That said, the political economy of these countries does not favor transition, especially in Uzbekistan but also in Kazakhstan, because the wealth is largely immobile and is characterized by indivisibility. Immobility requires the central leadership to rely on regional and local elites, especially for agricultural production which requires a certain amount of expertise, and in oil and gas it is indivisible, which makes it very difficult to share the wealth across multiple separate parties.

Lastly with regards to coercion, in Uzbekistan the coercive apparatus is well-developed. Thus, whoever takes over will not only have to be able to command the regional economies and divide up the oil and gas wealth, but also exercise significant control over the coercive apparatus, which has held considerable sway in the country essentially since the country’s independence in 1991. At present, I don’t know of any person that can successfully manage all of those things. There are individuals that may be adept at handling one or two of those things, but not all of them. For example, figures that enjoy credibility in economic circles lack it with regards to the coercive apparatus, and vice versa.

SD: The leaders of Tajikistan and Uzbekistan have managed to maintain relative order despite rifts between dueling factions of elites. Their means of accomplishing this have, presumably, been different. How would you characterize these differences, particularly as they relate to “immobile capital?”

Markowitz: Tajikistan provides a great example of how the concept of immobile capital works. Northern Tajikistan, near Khujand province, and southwest Tajikistan are cotton growing areas. The eastern part of the country is largely mountainous, and although a limited amount of fruits and vegetables are grown there, it is largely devoid of any economic value. As that region is approximately 90% mountainous, even if one were to develop an industry there or cultivate crops or other agriculture, it would be almost impossible to get it to market from there.

The main challenge for Tajikistan’s president and the country’s elite in Dushanbe has been to rein in the local elites in control of cotton growing areas. They need them to produce the cotton, take the cotton to market, as well as to mobilize the labor force. As long as the export of cotton makes up a significant portion of the Tajik economy, Dushanbe has no choice but to rely on local elites that control it and generate its production for official export instead of smuggling it out of the country in large amounts. To that extend, order on the ground must be maintained and some of the wealth generated by cotton cultivation must be returned to the local elites, either through rents and side payments, or by allowing them to cheat a certain extent on the accounting. This has to be done so that the local officials buy in and collaborate with the government.

In the eastern part of the country, however, this is not necessary because the economic output is minuscule; the government does not need its elite to mobilize a rural labor force and extract large crop yields. As a result, the government has been free to take a more confrontation approach in these regions, and there were clashes in 2008, 2010 and 2012 between these elites and government forces in the Rasht Valley and in Gorno-Badakhshan. On one hand, this represents ongoing instability that could pose a threat to the government at some point in the future. But not as an immediate threat – those clashes and the local elites, some of whom are tied to drug trafficking and in some cases have a past associated with insurgent activities, cannot challenge the regime. There have been various clashes, but if the regime does not need them to produce anything, as long as they cannot pose a threat outside their region and the regime can continue to strengthen its military and internal security apparatus, little by little it can isolate them and to some extent maintain political order, albeit at a lower level. So, there may be continued clashes between the two sides, and the government may send in military under certain circumstances, but my belief is that the eastern region does not present a threat to order at this point.

The dynamic that exists in the cotton growing areas of Tajikistan with regards to local elites is writ larger across Uzbekistan. That order is not only a consequence of having a more developed security apparatus in place, but really because the allegiance of local elites is won by granting them some access to wealth in exchange for their commitment to managing cotton and grain production in their respective regions.

The concept of immobile capital is that these regional elites are not producing conflict diamonds that they can smuggle out of the country in the pocket of their vest in order to become rich. A bale of cotton is large, bulky, about 500 pounds, and brings about a dollar a pound at market (which means it is neither feasible nor profitable to smuggle without government patronage). The fact that capital in Tajikistan and Uzbekistan is immobile forces them to work within the system; each party has the other on the hook: the elites has the regime on the hook because the regime needs them to produce the cotton or grain, and the regime has the local elites on the hook because those regional elites have a lot of cotton under their direct personal command but they can’t do anything with it, so they have to work within the system in order to create wealth.

SD: Documents disseminated by WikiLeaks and other sources in 2010 indicate that corruption in Tajikistan is apparent on every level of society. If this is the case, is corruption accepted as a fact of life by the Tajik populace, or, as in Uzbekistan, is fear of torture and potential prison time the reason why public dissent is uncommon?

Markowitz: So, the first question there is why people don’t object, and the second is why the populations of these countries largely participate in corruption.

The answer to the first question is that there is no doubt that if there were an open expression of dissent in Tajikistan, Uzbekistan and in Turkmenistan, especially one that identified senior members of the political establishment, it would not be countenanced and security officials would quickly put an end to the demonstration. That is not only because the government does not want a demonstration about corruption; it’s because the government doesn’t want any type of demonstration, because they’re worried that it could snowball into something greater. In reality, it is not that complicated of an issue. At one point during my field research I was in the Fergana Valley in the early 2000s, and asked someone who lived there why he and his associates did not step forward or speak out against the government.

Now, these were people that were clearly unhappy with the situation and in a different environment may have been active opponents of the government. However, their response was that “the first one that stands up is the first to be cut down.” So, it’s not a very deep rationale: there’s fear of torture, there’s fear of the terrible conditions of an Uzbek prison, and there’s a fear that they would never get out of prison. On occasions, when a public official is arrested and imprisoned, he may be released in a nominal amount of time and not face overly harsh prison conditions. Dissidents, on the other hand, without political contacts or any type of affiliation with the government, will face longer terms of incarceration and will be more likely placed in prisons where conditions are poor.

In addition to that, the fact of the matter is that approximately 65% of the populations of these countries still lives in rural areas, and 75% of the poor are in rural areas.   So, most people have limited access to political power, and they are spread across rural areas with few options for consistent transportation. And theories of mobilization generally suggest that lower levels of economic development, lower levels of urban concentration, lower levels of infrastructure development, etc., all of those things equal less likelihood of mobilization.

Even in the case of the rural mobilization that did take place in Kyrgyzstan, local and parliamentary elites were often at the head of the upheaval. They were able to do this partially because they mobilized people who were dependent on them for political favors and kickbacks. Scott Radnitz of the University of Washington wrote a great book on mobilization at the local level in Kyrgyzstan during the 2005 Tulip Revolution.

With regards to the question of why people participate in corruption, Kelly McMann of Case Western University wrote another great book on the topic called “Corruption as a Last Resort,” which came out earlier this year. Her answer, in essence, is that everyday people have no other option. There is no other way to ensure that you can get a bank loan, secure employment, that your child passes elementary, middle and high school, or secures admission into a university, without the provision of certain small gifts. In higher-end corruption in the public sector there is often no way to secure professional advancement without paying for a promotion and then collecting bribes from junior employees and passing those upwards.

Even those that are engaged in private sector business have to pay off people in the state apparatus who conduct real or falsified inspections or make it difficult for them to obtained necessary licenses or block them from taking their products to market. As a result people participate in corruption because it has become so pervasive that it is nearly impossible to thrive without paying bribes in any of the Central Asian countries, at least to some degree; it’s almost become a standard way of doing businesses. There are of course many reasons for this; for instance, the rate at which public officials are paid is very low and is generally encouraging of corruption. Moreover, there is no credible use of these countries’ regulatory frameworks and systems of accountability, which would allow one area of government to monitor or sanction another.

SD: You mentioned that professional advancement in the public sector is contingent on bribes. Is this also true in the private sector?

Markowitz: Bribes are certainly not as necessary for a position in the private sector, especially a junior one. To give an example, one may not have to pay a bribe to secure a position as a teller or a loan officer in an Uzbek or Tajik bank. These more junior positions are often based, at least in part, on merit. To be the director of a bank would however be another story – one would need some type of political connection to secure a director-level position in either country.  Not all positions in the public sector are filled through nepotism, bribery or other forms of corruption. The administrative apparatuses in these countries are very well-developed in the sense that they are heavily regulated and highly bureaucratic. These apparatuses would not function without the skilled technocrats that manage them. While on one hand there are a lot of individuals with political influence and certain wealth, there are a lot of people that perform functions that are well-trained, in their 30s and 40s, that are very capable, and those are the individuals that run the majority of the administrative offices in the country.  So, while corruption is pervasive it is not uniform, and there are many offices in the public and private sectors alike that function effectively.

SD: In Tajikistan it is widely known that President Rahmon and his family pocket a significant portion of revenues generated by state-owned enterprises such as Talco and the National Bank of Tajikistan. Is corruption on this scale as straight forward as is suggested by cables leaked in 2010? Does Rahmon keep the majority of his funds in the country, or does he use tax havens and other locations to hide revenues obtained from state-run companies?

Markowitz: The governments of these countries do avail themselves of offshore accounts, although obviously not for tax purposes because oftentimes the government controls or possesses a significant stake in whatever the country’s tax authority is. In Tajikistan, for example, the tax inspectorate and the other offices that are in charge of collecting taxes and enforcing taxes are tied to the council of ministers that works under the president. While the cables leaked suggest a pattern of leaders diverting significant revenues, we really don’t know precisely where these countries send their funds or by which channels. [I removed a few lines here that were not relevant.] The sales of cotton and other commodities generate significant amount of capital that is presumably kept in the West and never makes its way back to Tajikistan as again it’s probably held in accounts somewhere in the West. It’s really not clear how these processes work.

SD: Uzbekistan’s cotton crop makes up approximately 20% of the country’s exports. In order to produce such a quantity of the crop, Tashkent relies on the Amu-Darya and the Syr-Darya, from which it inefficiently apportions water to irrigate its cotton crops. Some have indicated that modernizing techniques could eliminate the need to filter such a quantity of water into the crop, as well as reduce tensions with neighboring Tajikistan. Does Tashkent resist modernization in order to appease elites that collaborate with the government and reap financial gains from the harvest, or is there some other motive?

Markowitz: Logically speaking, as a major cotton producer Uzbekistan in particular would benefit from modernizing its water supply and irrigation systems, as it’s dependent on Tajikistan and to some degree on Kyrgyzstan too.  The fact that they have not fits with the modus operandi of the Uzbek government with regards to its political economy. It is not seeking to integrate into the regional or global economy, and is in fact using an approach similar to that used by a number of South American and African countries in the 1970s that espoused the belief that they could develop all of their own productive capacities domestically. That is the approach that Uzbekistan has been taking.

At the same time, shoring up and making more efficient its water systems would seemingly fit with this approach, and one would expect Tashkent to do that given what it has done in other parts of its economy and the generally hostile relations it has historically had with Tajikistan in particular. But it is also important to think about rural cotton and grain production not only as an economic resource for producing rents, wealth, etc., but also as an apparatus that connects and controls 65% of the country’s population. If that dynamic starts to shift, or if something fundamental changes, the government runs the risk of upsetting an established balance by dismantling a system that, while unsustainable in the long-term, keeps the population spread out, diffuse and subjugated, even though they are impoverished. Although it is a highly inefficient system, for purposes of social stability the government is not likely to meddle with it. My belief is that is a major countervailing factor, and that there is a government focus on stasis, on social stability, at least at present. The government did experiment with privatizing ownership of farmland in the four major corners of the country – Xorazm, Samarkand, Fergana and Surxondaryo – during the early 2000s. The government experimented with privatization but there’s been little indication that the government has pushed forward with this effort.

SD: Tajikistan and Uzbekistan have never undertaken a transition of power. This considered, how do you foresee power transitions being carried out in these countries? Are existing institutions strong enough to survive a transition, particularly in Tajikistan and Uzbekistan?  How will themes of nationalism and differing foreign policy orientations factor into eventual transitions?

Markowitz: Nationalism and foreign policy issues are not likely to factor into transitions, unless the transitions become protracted and drawn out, and different ethnic groups begin to make claims. There is a minority of Tajiks in Uzbekistan and a minority Uzbek population in Tajikistan, etc., however for nationalism to emerge a fairly long transition process would be requisite. It is not likely that this will take place.

SD: Is it possible that nationalism could emerge as a government-sponsored means of galvanizing support for a successor government?

Markowitz: There are efforts by governments to cultivate an ideal of nationalism for purposes of social cohesion and government legitimacy, but in these countries nationalist movements have historically been weak, if compared to other parts of the Soviet Union. If you look at mobilization during Glasnost and Perestroika, for example, you’ll see that these are the countries that mobilized the least and the latest; they were the followers, not the leaders. My belief is that nationalism will remain fairly weak as a mobilizing force, partially because even if it were to manifest itself it would be subject to internal divisions as well.  If there were some type of external threat, then maybe things would be different, but in the absence of that there is likely to be a significant amount of intra-ethnic division and not a lot of cohesion around nationalism or any other foreign policy cause in these countries.

In terms of the institutions, I would say that the formal institutions offer one of the long-term avenues for ameliorating the difficult situation that these countries are in.  Investing money and power both into a parliamentary system that can serve as a check to the executive and into an independent and powerful judiciary could provide some cause for optimism. This is the only way these countries are going to move away from a concentration of power and wealth currently held by the executive branch. Aside from that long-term, ethereal hope, it’s not likely that existing formal institutions are going to stop or fundamentally alter forthcoming power struggles that are undoubtedly going to be at the center of these transitions.

In the case of Turkmenistan, although the transition there appeared seamless, the death of Niyazov left a power vacuum. The heads of the Turkmen security services collectively decided to appoint Gurbanguly Berdimuhamedow, but most of the decision making was carried out behind the scenes. Someone else, Owezgeldy Ataew, the head of the supra-legislative force Halk Maslahaty was, according to the existing constitution, the legal successor of the president, but he was pushed out and ultimately imprisoned by the government.

This demonstrates just how little of a role formal institutions play; what will matter during the transition is who has control over the security apparatus or the “power vertical,” who has control over the economic apparatus and major industries such as cotton or oil and gas, and to an extent who can resolve regional disputes, although that last issue isn’t as significant as the others. Those are the individuals that are going to matter. My belief is that the individual in charge of the coercive apparatus will have an upper hand in places like Uzbekistan, Kazakhstan and Tajikistan.

SD: There has been some talk of the head of the SNB taking the reins in power once Karimov dies or steps down…

Markowitz: There has indeed been speculation about a future role for [SNB Head] Rustam Inoyatov, but he is probably too old and has expressed very little interest in becoming president. The other two individuals who are typically put forward are Prime Minister Shavkat Mirziyoyev and Finance Minister Rustam Azimov. Those are the three that are most often discussed, although as I said previously I don’t believe any of them can easily control and balance both the coercive and the economic bases of power and wealth in the country. Those are the factors that matter in Uzbekistan, not the formal rules of succession and the institutions that implement those rules.

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