Tuesday, May 13, 2008

Business environment, banditocracy style.

One of the basic preconditions for a healthy business environment is law and order. Law and order are essential for the everyday life but they are important in making sure that businesses are able to conduct day to day operations and make money and in the process employ people, generate economic activity and help the society prosper. The developed countries have mature legal systems. Armenia has a mature banditocracy. As far as I can tell, banditocracy is not as beneficial as law and order when it comes to the general business environment in the country. It certainly benefits the business entities that are in the banditocracy circle (be it active participants and shapers of the system or the smaller entities that adapt to the situation). It does not benefit the business entities that try to stay within the confines of the law.

Below is a letter from the owner of the soon to be defunct defunct Parisian Cafe highlighting this problem.
Այսօր, ես տխուր եմ: Տասներեք տարի առաջ, ես որոշեցի թողնել Ֆրանսիան, իմ երկրորդ հայրենիքն ու տեղափոխվել Հայաստան` հայրենիքում ներդրում անելու նպատակով` ստեղծելով Փարիզյան սրճարանը: Ես ներդրեցի իմ ժամանակ, էներգիան, առողջությունն ու գումարները, որպեսզի Աբովյան փողոցի վրա լուսավորվի փարիզյան փոքրիկ սրճարանը, որ եղել է գործարար, ընկերական ու հանգստի հանդիպումների վայր: Սակայն այնպես է ստացվել, որ փոքրիկ երազանքս ինձ համար վերածվել է անվերջանալի մղձավանջի:

Չանդրադառնալով իմ անձնական խնդիրներին, ուզում եմ պարզապես նշել, որ իմ, թերևս ոչ տեղին, մարդահավատության պատճառով, ես պարտք տվեցի մի մարդու, ով իբր չէր կարողանում, բայց իրականում հրաժարվում էր այն ինձ վերադարձնել, իսկ երբ իմ մեծահոգությունն ինձ ստիպեց, որ այդ մարդուն ներգրավել իմ բիզնեսում, ես հասկացա, որ նա պարբերաբար թալանում է ինձ` իրեն հավատարիմ դարձրած որոշ ծառայողների հետ, որոնք իրենց հովանավորի պես դարձել են մեկը մյուսից կոռումպացված: Կարող եք ասել, որ սովորական պատմություն է, որին հնարավոր է ամեն տեղ հանդիպել: Բայց ամեն տեղ գործում է ժայռի նման ամուր արդարադատությունը, որ պաշտպանում է մարդու իրավունքներն ու հետաքրքրությունները: Արդարադատությունն ու դատարանը նրա համար է, որ բռնի գողի ձեռքը… սակայն դա այդպես է ամենուր, բացի իմ սիրելի Հայաստանից, որտեղ արդարադատությունը կոռումպացված է ոսկորներից ու արմատից, որտեղ այն բանակցում է մեղավորի հետ, որտեղ այն թույլից վերցնում է ունեցվածքը, որ բաժանի ուժեղի հետ, որտեղ այն ճշմարտությունից ավելի փողն է նախընտրում:

Սա է իմ տխրության պատճառը, տխուր եմ, որ իմ ու ձեր սրտերի համար թանկ Հայաստանը դադարում է գործելուց, տխուր եմ, որովհետև այսպես շարունակվելու դեպքում ես ստիպված եմ փակել Փարիզյան սրճարանն ու վերադառնալ Ֆրանսիա:

ՎԱԼԵՐԻ ԳՈՐԾՈՒՆՅԱՆ

27 comments:

Anonymous said...

Business environment, banditocracy style. (Armenia 1991-2008)

nazarian said...

The date range is not quite true. During the Soviet times there was a department called OBKhSS as part of the KGB that concerned itself with collecting bribes from people who had their little business on the side, shopkeepers, restaurant workers and everybody else who stole from the state. So this system has been there for a long time.

My point is that instead of progressing, Armenia is driving itself further down into a corrupt third world country. While there was hope during the years immediately after the war in Karabakh was over, this hope was been extinguished during the Kocharian years. Worse, it has become a little fiefdom with a small number of families controlling the lions share of the business activities in the country.

Anonymous said...

///this hope was been extinguished during the Kocharian years.///

How do you separate LTP & Kocharyan years and make such statement? Is there any analysis, surveys?

nazarian said...

Year after year Armenia ranks at the bottom of the business friendly countries in different lists. Kocarian had 10 peaceful years to do something about it but didn't do anything.

Are you saying that the business environment has improved during those 10 years? Any surveys, analysis to back that?

Anonymous said...

Ahoy, there mateys! Here's Business Environment, Armenian style news from today!

From Information Week Daily

Software Piracy On The Rise, Study Finds

Rates of pirated software ranged from a high of 93% in Armenia to a low of 20% in the United States, according to the 2007 BSA and IDC Global Software Piracy study.

reflective said...

to echo the comment by anonymous (may 14 1:05):

other than people who had sweetheart deals under LTP (ie no taxes, monolpoly on this cigarette brands or coffee or what have you), who had "hope" then, that doesn't now.

It must be hard to be forced to follow the law and pay taxes and allow competitors when you are used to a decade of tyranny.

It is funny, that most sober supporters of the current administration agree that there are problems, but when pro-Levon people talk about the LTP years, it is like some kind of collective amnesia takes over. The business environment was worse then, by almost every measure.

If you don't like the opinion of all 3rd party sources, just look at the investments (after all, investors don't care much other than where can they make their money). FDI during Kocharian's time was consistently MUCH higher than post-war LTP.

reflective said...

sorry for the typos.
in the 1st paragraph, i meant:

other than people who had sweetheart deals under LTP (ie no taxes, monopoly on this cigarette brand or coffee or what have you), who had "hope" then, that doesn't now???

nazarian said...

The past is irrelevant. You can't do business based on what the environment was 10-15 years ago. What's important is the present and the future. You can beat the dead horse as much as you want but they will remain empty words.

What is being done to give credibility to the rule of law now? The answer is: nothing.

R said...

Nazarian,

As far as Armenia being at the bottom of business friendly lists every year, Armenia actually does surprisingly well on most of those lists. For example, the Index of Economic Freedom 2008 published by the Heritage Foundation and the Wall Street Journal has Armenia ranking 28th, up from 32nd in 2007.
(Hong Kong is 1st, Georgia is 32nd, Turkey is 74th, Azerbaijan places 107th).
http://www.heritage.org/index/countries.cfm

Similarly, the Fraser Institute's Economic Freedom of the World 2007 Annual Report, has Armenia at 32nd ot of 149 countries.
http://www.freetheworld.com/cgi-bin/freetheworld/getinfo.cgi

reflective said...

r - how dare you post something positive about Armenia?!!!??!

Nazarian - the past does matter. Because people falsely build up this lie about Armenia being so perfect and business-friendly and fair and tolerant 10 years ago only to be overrun by the foreign-Karabakhtsi mafiosos.

It is just being delusional.

The fact is that there is more FDI, more foreign owned business, a non-Neanderthal-era airport, and some semblance of a court system: none of which existed 10 years ago.

You may argue that things are getting worse; I would disagree. But my argument is that your line "hope was extinguished during the Kocharian years" is simply inaccurate. What hope existed right before Kocharian?

nazarian said...

r, thanks for the links for the rankings. To tell you the truth, I am surprised at the high rankings. I have talked a few entrepreneurs (both diasporans and locals) in Armenia and there was one thing that was common to their stories - feeling unprotected from the tax authorities and the need to pay bribes in order to stay operational.

The legislation may be helpful and be the 28-th in the world according to the Heritage foundation but on the ground the laws do not matter much.

nazarian said...

reflective, past matters only for history books. It does not matter for current affairs.

When RK came to power, the first thing he did was to go to Germany and promote Armenia as a great place to invest. Not a single German company paid attention to the personal endorsement of the president.

Does it matter today that he went to Germany? Not really.

spm said...

Nazarian, is Reflective you sidekick? some kind of antipode? I suspect his whole existence is reduced to the task to respond to all posts in your blog criticizing current armenian regime and state that during LTP it was worse. He never proves or argues anything about the topic, just quickly transforms whatever is said to LTP's contra. Sometimes I even think it is some sort of automated answering machine, that uses a few words from the posts and converts it into demagogic accusation.
I am tired of him. Can you put some sort of disclaimer in small fonts somewhere in your blog saying that whatever problem is discussed here is rooted in LTP's administration according to Reflective and free us of his boring persisting posts after each comment?

reflective said...

nah, sorry spm. But you can consider my posts as illuminating the dark side of Armenia's past that everyone seems so happy to ignore.

Lists where Armenia has low ranks: worthy of full posts, insulting titles.

Lists where Armenia is praised for a relatively healthy business environment: worthy of ridicule and "disproved" by talking to "a few entrepreneurs" who disagree.

convincing.

BTW, for what it is worth, the largest tax payer in Armenia is German-owned, isn't it? Copper-molybdenum mining company in Zangezur.

Anonymous said...

Nazarian, I suspect [your] whole existence is reduced to the task to [write] posts in your blog criticizing current armenian regime and state that during LTP it was [better]. [you] never proves or argues anything about the topic, just quickly transforms whatever [happened] [against RK/SS]. Sometimes I even think it is some sort of automated [writing] machine, that uses a few words from the [events] and converts it into demagogic accusation.
I am tired of [you]. Can you put some sort of disclaimer in small fonts somewhere in your blog saying that whatever problem is [posted] here is [not] rooted in LTP's administration according to [you] and free us of [your] boring [labeling to RK/SS] posts after each [wrongdoings in Armenia]?

[spm style]

spm said...

Anonymous at 4:02, thats funny but not true. Discussion here and some other related blogs is about CURRENT appalling state of affairs: political, economical, international etc. To understand the current state and project into future one to be able to evaluate objectively the past, and not only past 15 years, but our entire history.
Now, if you find the current state Ok or think the only part of out history that been wrong is 1988-1996 then I don't find anything to discuss with you or Reflective.

Let me sum up in a few words the recent history:
in 1991 Armenia gained independence on the wake of collapse of Soviet Union and subsequently of armenian economy and the increasing hostilities with Azerbaidjan, soon turning into a full scale war.
The first government of Armenia succeeded:
1. to win Russia's military backing (unlike 1918) without loosing financial and international support from western powers.
2. to keep Turkey neutral and Iran's tacit support
3. to stay out of trouble with Georgia and even help her to stop civil war (something not well known to public)
4. to actually win the war in relatively short time with relatively low losses.
5. to avoid civil war and banditism in a chaotic first years, when every other soviet republic was swamped with racketeering.
6. to privatize land and put the foundations of market economy by painful but quick reforms.
7. to become and INDEPENDENT STATE

but it failed to:
1. disassemble the soviet system completely by keeping the KGB in place and not exposing all people who collaborated with KGB during soviet times.
2. to create an independent judicial system.
3. to avoid mass exodus of population from blockaded energetically republic.
4. to eliminate corruption in conditions where state had no revenues.
5. to not to turn into racketeering state itself.
6. to create independent mass media.
7. to avoid protectionism and favoritism.
8. to ensure transparency in governing, executing and prosecuting.

Now you evaluate the latest years....

Anonymous said...

Hi spm

first of all Thank you for constructive feedback

you said//Now, if you find the current state Ok or think the only part of out history that been wrong is 1988-1996 then I don't find anything to discuss with you or Reflective.///

1. I don't find the current state ok
2. I think that there were failures and succesess in all years and
3. I don't like separating history of Armenia before and after any year and abuse such separation for labeling others

Now my history

1988-1994 - years of anarchy both from Government side and from the people

1995-1996 - chance to consolidate state - constitution is established, elections are ruined, people become less anarchic and understand that they should obey to the laws and rules but some 'elite' enjoys full freedom

1997-1998 - start of new reforms aimed at consolidating state, thugs are forced to pay taxes which creates high tension in 'elite'.

1998 - major legislative reforms, almost all major state institutions are established. Democracy somehow works because of existence of some check and balance mechanisms /President and Government are changed but the parliament is old /hhsh is there/ plus some freedom of media


1999 - hard to explain but the major year of changes. Government and Parliament represent one body, while president is neutralized. The majority of mayors belong to single party

end 1999 - 2000 uneasy months. the state is near to fail, tensions are high

2001-2007 The years of consolidating state by the means of dictatorship. Good for the state, but bad for the democracy. tensions are lowered but political stagnation starts. Armenia is no more a failed state but future is uncertain.

PS
this simplified synopsis is half. One should not only compare years but also situations. Soviet legacy is here and causes to many problems. Comparison with other Soviet legacy countries /except baltics/ is necessary to understand all picture. You asked me to describe last years. In short - we were better in comparison to any post-soviet country in political terms/

spm said...

Anonymous, I see your praise, did not find any criticism. So it turns out that everything is fine. Even emergence of dictatorship you count as a "good for state". Thats incredible Soviet style phrase.... Who the hell is the state? Why the fuck the state must benefit when citizens are suffering? Where and when in the history you seen dictatorship as a good? Stalin? Pinochet? Maybe Castro?
I mean I am trying to put myself in your shoes and think of dictatorship as a good thing... hmm, ok lets say its good for "great" states, meaning large and populous, like Russia. Is it really? does the continuous enslavement of russian element over 1000s of years do any good to a Russia? I don't think so. In case of a small country like Armenia, the dictatorship, can never ever be a good thing. It is precisely a central-asian feudal yoke. You probably believe that Uzbekistan or Turkmenistan are good examples of not failed states. You are wrong my friend. In order to like such state you must be either someone who lives far a way or are part of inner circle of the dictator who rips the country for self enrichment.

Now let me cut short and tell you... the most horrible result of RK/SS rule is not corruption or political stagnation. The problem is that Armenia is loosing its independence. These persons are not presidents of the country, they are local governors serving to the Russian Empire. Even Russians are not sure if they got their empire back, but we already have people who are ready to cater to them. Our economy is firmly in russian hands (thanks to RK). Not in hands of private Russian investors, but STATE (ha ha you may like this). Our foreign policy tickles to ZERO. We just do as Moscow pleases and we placed the faith of Kharabakh and Armenia itself in their hands. I mean of course, for now everything goes fine. Just fine. But a few days from now when you celebrate Sardarapat battle, just think a little how we ended up there, where was the Russian army to protect us from genocide and invasion and why for God's sake you expect the Russians to protect our interest, when they got their own interests and they not always coincide.

nazarian said...

BTW, for those interested, here is how a failed state can be defined according to Wikipedia:

A state could be said to "succeed" if it maintains a monopoly on the legitimate use of physical force within its borders. When this is broken (e.g., through the dominant presence of warlords, militias, or terrorism), the very existence of the state becomes dubious, and the state becomes a failed state.

The term is also used in the sense of a state that has been rendered ineffective (i.e., has nominal military/police control over its territory only in the sense of having no armed opposition groups directly challenging state authority; in short, the "no news is good news" approach) and is not able to enforce its laws uniformly because of high crime rates, extreme political corruption, an extensive informal market, impenetrable bureaucracy, judicial ineffectiveness, military interference in politics, cultural situations in which traditional leaders wield more power than the state over a certain area but do not compete with the state, or a number of other factors.

Anonymous said...

Hi spm

///Why the fuck the state must benefit when citizens are suffering? ///

1. Armenia is still in transition and the day when citizens=state has not been reached yet

2. Imagine prisoners who claim to destroy the prison itself if the director of prison do not transform the prison into their home. prison = Armenia, failed state = prisoners destroy the prison which otherwise would become home

3. And again, compared with other CIS countries, our "prison" is better, the opportunity to transfor the prison into home is higher

4. the ultimatum to destroy the walls of prison if the director is not changed closes this opportunity for years

5. talking about Russia is like opening pandora box. When there are two masters /lets say the West and Russia/ and you want to make a deal to change one, then the cost of this change may be higher. Lets look at fresh revolutions: Serbia --> the price was Kosovo; Georgia --> the price may become the loss of S. Ossetia and Abkhazia, Ukraine -->Krim became an instrument after dividing Ukrainian nation. International relations are much tougher than some may think. And in international relations non-failed states have more power than failed-so-called-democratic states.

6. I didn't mention 2008. However, after 2008 events Armenia will be ranked as more failed state compared to 2007. Indeed the harm will be less than it was registered in Georgia after revolution. So even semi-revolution costed Armenia high. However todays crisis opened also many doors which "prisoners" do not want to use. They want another director.

spm said...

// 1. Armenia is still in transition and the day when citizens=state has not been reached yet//

its been 16 years already.... how long the transition should last? We already have a generation of young people who dont really know what Soviet Union was about.
Dont you see that the prison is getting reinforced, walls getting thicker and less transparent and the prison ward nastier?

//5. talking about Russia is like opening pandora box. When there are two masters /lets say the West and Russia//

but avoiding talking about it is like sticking head into the sand.... And actually when there are two masters it gives one a luxury to balance and keep both in check. Which was successfully done till 2000 approximately. Then RK surrendered the republic to Russia in order to keep his chair. By the way, the first president of Armenia when rigged elections in 1996 relied purely on internal forces Vano and Vazgen. And he also resigned from the post. These two are backed by external forces and apparently would rather die than resign ever.

There is always price to pay. When I say being independent I don't mean existing in a vacuum, I mean that each country should decide what price to pay and for what. We have issues with Turks and Azerbaidjan, we have to pay the price. But we should decide that price ourselves, not let Moscow decide for us. And when you think of it, you come to the conclusion that LTP is right, we must talk to Azerbaidjan, we must talk to Turkey, we must find some way of living in the neighborhood where we live, without relying 100% on uncle Sam or Medved.
We should talk to them we should teach them, we should learn, convince them and compromise with them. Otherwise one wonderful spring day (say April 24), Russia may collapse as it did in 1905-1920 and leave us unprotected, or it may find common language with Azerbaidjan (as it did with Kemal Ataturk) and betray us.

I would like to add also that in my humble opinion, Georgia has a lot to offer to Abkhasia, and Abkhasia if comes to a compromise with Georgia will be much better off within Georgian federation, than Russian federation. Which may be not so true in case of Kharabakh and Azerbaidjan, since very deep and old animosity lies there. However if one day the south Caucasian republics become democracies, they might as well form a union of European kind and live in happiness. The Kharabakh wars were brutal but not as bloody as World Wars instigated by rivalry of Germany and France.

Anonymous said...

I think one of the biggest issues is that no one has broke the news of Armenian independence to Robik /Serzhik. They still operate under the assumption that Armenia is a distant, backwards province of Russia . Hence, Serzh publicly thanking Putin for pre and post election support. Hence, Gazprom has a 72% stake in Hayrusgazard, and the Armenian Energy ministry has about 28%. Hence, every strategic sphere in general is dominated by Russia.

And then people say Levon is going to sell off Armenia. Everyone should relax; there's nothing left to sell.

nazarian said...

Please watch the language... SPM dropped the F bomb earlier.

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