State Capitalism in Belarus: Behind Economic Anemia

*Kiryl Rudy*

### **Abstract**

Belarus' economic model looked rather successful in the late 1990s and in the 2000s with its economic growth above 7% per year. But during the last decade, Belarusian annual economic growth has fallen at the average level around 1% per year. This chapter reveals the rarely known case of state capitalism in this post-Soviet country with its specific indicators, and instruments behind economic anemia. It also outlines several traps on the way of Belarusian economic growth: "debt trap," "middleincome trap," "social burden trap," "resource curse trap," "conflict neighbors trap," and "forceful pressure trap." These pitfalls lead to the long-term economic slowdown in the Republic of Belarus. The consequences of such economic anemia bring to another discussion about the role of public values in support of state capitalism in Belarus.

**Keywords:** transition economy, economic development, growth

### **1. Introduction**

Belarus is the former Soviet Union republic with the inherited economic structure and un-reformed government management. In the 1990s, this medium-sized European country took its first steps on its own, and it has spent the intervening decades sticking closely to the choices it made then. The Belarusian economy was naturally evolving. The private sector was developing, and small business as well as the service industry was growing. On the other hand, the efforts being made to preserve old state-owned manufacturing and the mobilization model were limiting the economy's flexibility.

In the last decade, Belarusian economy skidded to a near-complete halt. Budget spending, devaluations, and debt no longer help fuel economic growth. The system of incentives in place for state-owned enterprises is holding back initiative and innovation, and the continuous flow of state capital conceals mistakes in management. But the problem runs deeper: the consistently preferential treatment enjoyed by the public sector drives costs higher and keeps market resources out of the hands of the private sector, strangling its development as well. All of that saps energy and enthusiasm in the country and throws it to the long-term economic anemia.

State capitalism in Belarus has its own logic, a clear desire to keep (even by force) the inherited structure and system of management. That gives a mental support point, instills self-confidence, and permissiveness. Currently, there are no economic reforms to boost growth in political agenda. Manual management of the economy is so overwhelming that it leaves neither strength nor time for strategic decisions, and with the new generation has come a shift from nostalgia—a tendency to look for the future in the past—to uncertainty. The lack of reforms is also explained by an unwillingness to take responsibility for the social fallout. That psychological barrier

can only be overcome by recognizing the inevitability of transformation; it is selfawakening that will illuminate the path forward for reforms.

This chapter includes several parts. The next one provides overview of state capitalism in Belarus, its indicators, and instruments. Another one describes pitfalls faced by state capitalism in Belarus and the reasons behind its economic anemia. The last one shows how Belarusian state capitalism is supported by the public during economic growth, and how public values are transformed during economic anemia.
