2.Fading innovation

A lack of spending on research and development, innovation funds that are sometimes not used for their intended purpose, and an overall lack of stimulus for the development of innovation keep Belarusian exporters from focusing on reducing costs and boosting quality in an effort to improve their competitiveness. For example, the share of expenses devoted to R&D by Belarusian exporters (the Minsk Tractor Works, BelAZ) is several times lower than that of their competitors (John Deer, Caterpillar). In absolute dollar terms, they are outspent thousands of times over. Moreover, Belarusian companies invest in imported technology, while their foreign competitors invest in their own technology. Firms in Belarus purchase high

**71**

*State Capitalism in Belarus: Behind Economic Anemia DOI: http://dx.doi.org/10.5772/intechopen.93606*

and 62 aged 50–54, and 114 and 112 aged 55–59 [21].

3.Low labor productivity

systemic and operational measures.

productivity was held to only 14% growth.

ual versus corporate, for instance—explain the difference.

quality, if imported equipment that needs to be update 5–10 years later, meaning that they have to again spend the money to purchase foreign tech. That all intensifies the Belarusian race to improve on old technology and leaves no room for companies to create new, cutting-edge technology of their own. Technological progress, in short, stalls. The level of R&D expenditures to GDP is rather low. It declined from 0.96% in 2007 to 0.49% in 2015 and the increased to 0.6% in 2018.

The situation with innovation in Belarus has also devalued how people look at research and scientists by chronically underfunding them and leaving their skills unneeded and unwanted. Young doctors of science in Belarus are few and far between. In 2011 and 2012, there was not a single one in the country under the age of 29. There were 3 and 4, respectively, under the age of 39, 39 and 29 aged 40–49, 71

The IT industry's popularity in Belarus neither compensates for the lack of innovation in the real sector nor contributes to overall labor productivity. Instead, the flow of qualified workers moving to IT from the manufacturing industry sacrifices productivity in the latter without a corresponding boost for the former. But IT as the self-sufficient and export-oriented industry (separated from the rest of the economy) provides rather successful case in Belarus. In 2017, new legislature reloaded High-Tech Park with new tax benefits and state guarantees. As the result, in 2019 IT sector contributed 6.5% to GDP, and 5.2% to total export of goods and services.

Salary growth over the long term in Belarus exceeds labor productivity growth multiple times over. For example, from 2000 to 2014, real wages grew 4.8 times, while productivity only grew 2.2 times. From 2010 to 2014, real wages grew 45%;

Admittedly, labor productivity at Belarusian state-owned firms is lower than at their private and foreign competitors. In 2013, revenue per employee at the joint venture MAN factory was 360,000 dollars compared to 64,300 dollars at the Minsk Automobile Plant (6 times higher); at John Deer it was 11 times higher compared to the Minsk Tractor Works; at foreign owned Olivaria Brewery it was 190,700 dollars compared to 85,000 dollars at state-owned Krinitsa (half as much); at private Santa Bremor it was 115,900 dollars compared to 83,700 dollars at state-owned Belryba. It is worth noting that the difference in productivity goes beyond technology, a metric according to which state enterprises are comparable to their competitors after modernization; different management systems—man-

Belarus can therefore get away from the "middle-income trap" by utilizing

a.Systemic measures, which wield a long-term effect, include altering the country's economy structure, accelerating innovative development, and taking steps to boost labor productivity, primarily at state-owned firms. Management systems could be improved, for example, by implementing IT in the manufacturing industry. The necessity of maintaining living standards for Belarusians makes it imperative to compete with other countries for international capital by improving the institutional and entrepreneurial environment rather than cutting labor costs.

b.Operational measures, which enlarge the labor pool in the short term, include pension reform, getting more women and disabled people into the economy,

*Public Sector Crisis Management*

**3.2 The "middle-income trap"**

1.An export-oriented economy

2.Fading innovation

effect of entrenching their competitiveness.

were wars between the UK and Egypt in 1882, the UK and Turkey in 1876, the US and Venezuela in the middle of the 1890s, and the US and Haiti in 1915. The primary objective in each of those cases was to establish military control over

Given that the primary source of the "debt trap" facing the Belarusian economy

The "middle-income trap," also called the "development trap"—term introduced by the World Bank economists I. Gill and H. Kharas [15]. This trap occurs when rising salaries no longer lead to country-fast development as measured by GDP per capita (GNI per capita, Atlas) and the country finds itself trapped on par with other middleincome countries. The borders of the "middle-income trap" start from 1006 USD till 12,235 USD of GNI per capita [16]. Others use nominal GDP per capita to estimate "middle-income trap" in the limits of 10,000 dollars to 15,000 USD [17] or real GDP per capita (purchasing power parity) from 5000 USD to 10,000 USD [18]. There is also the method to compare developing countries' GDP per capital with the same US' indicator and to use it as the share from 5 to 45% to make conclusions about the pitfall [19]. Using Atlas methodology, it was found out that Belarus got into the "middleincome trap" since its independence and has been there for almost three decades. In 2007, Belarus moved from the group of lower middle-income countries to the group of upper middle-income countries with GNI per capita more than 3956 USD. But it did not go out and made reverse from the exit in 2014, staying in this upper level trap already more than 10 years [20]. The other countries which got into "middleincome" pitfall have been staying there more than 5 years (39 out of 55 countries in the period from 1989 till 2016), and more than 20 years (15 out of 55 countries in the same period). The cases of Russia, Croatia, and Equatorial Guinea prove that countries can go back to the "middle-income trap," even if they left it before.

There are several reasons why Belarus is trapped in the "middle-income" pitfall.

From 2009 to 2018, 31.3% of manufactured goods and services were exported, with that number climbing to 36.6% for 2016 and 36.1% in 2018 [10]. At the same time, the rising cost of labor resources has cut into profits and sabotaged Belarusian competitiveness as compared to countries coupling similar technology with cheaper labor. More importantly, however, those countries themselves are undergoing structural reforms, improving their markets, and developing their institutions, with the

A lack of spending on research and development, innovation funds that are sometimes not used for their intended purpose, and an overall lack of stimulus for the development of innovation keep Belarusian exporters from focusing on reducing costs and boosting quality in an effort to improve their competitiveness. For example, the share of expenses devoted to R&D by Belarusian exporters (the Minsk Tractor Works, BelAZ) is several times lower than that of their competitors (John Deer, Caterpillar). In absolute dollar terms, they are outspent thousands of times over. Moreover, Belarusian companies invest in imported technology, while their foreign competitors invest in their own technology. Firms in Belarus purchase high

customs in order to collect currency as payment for foreign debt.

is the state capitalism system, opening up the economy to foreign capital and

stimulating private investment is the way out of this pitfall.

**70**

quality, if imported equipment that needs to be update 5–10 years later, meaning that they have to again spend the money to purchase foreign tech. That all intensifies the Belarusian race to improve on old technology and leaves no room for companies to create new, cutting-edge technology of their own. Technological progress, in short, stalls. The level of R&D expenditures to GDP is rather low. It declined from 0.96% in 2007 to 0.49% in 2015 and the increased to 0.6% in 2018.

The situation with innovation in Belarus has also devalued how people look at research and scientists by chronically underfunding them and leaving their skills unneeded and unwanted. Young doctors of science in Belarus are few and far between. In 2011 and 2012, there was not a single one in the country under the age of 29. There were 3 and 4, respectively, under the age of 39, 39 and 29 aged 40–49, 71 and 62 aged 50–54, and 114 and 112 aged 55–59 [21].

The IT industry's popularity in Belarus neither compensates for the lack of innovation in the real sector nor contributes to overall labor productivity. Instead, the flow of qualified workers moving to IT from the manufacturing industry sacrifices productivity in the latter without a corresponding boost for the former. But IT as the self-sufficient and export-oriented industry (separated from the rest of the economy) provides rather successful case in Belarus. In 2017, new legislature reloaded High-Tech Park with new tax benefits and state guarantees. As the result, in 2019 IT sector contributed 6.5% to GDP, and 5.2% to total export of goods and services.
