institutional interrelations among the state, business and civic sector in kyrgyzstan presentation...

Institutional interrelations among the State, Business and Civic sector in

Kyrgyzstan

Presentation for PhD seminar (part of PhD thesis)

Marat Djanbaev, PhD student

Supervisor: Prof. PhDr. Martin Potůček

General information about Kyrgyzstan

Population:5,189,800 GDP (PPP):$ 9.4 billion USD GDP growth – 3,1% GDP per capita: $ 1813 USD Area:198,500 sq km. Borders:China 858 km,

Kazakhstan 1,051 km, Tajikistan 870 km, Uzbekistan 1,099 km

Government and legal system:Republic, Civil Law Major cities:Bishkek, Osh, Talas, Karakol, Jalal-Abad Significant economic sectors:Agriculture, textiles,

processing and mining Major trading partners: Russia, China, Kakakhstan,

Turkey, EU

Basic information on thesis

• Title: “Institutional interrelations among the State, Business and Civic sector in terms of improving business environment and investment climate in the Kyrgyz Republic ”

• Classification of the actors or stakeholders: State - the President, Government (ministries and agencies), Parliament and Courts; Private commercial sector - mainly by business and professional associations, Civic sector and society – non – governmental, non – profit organizations and informal actors (clans, religious

movements).

Structure of presentation

• Purpose and objectives of the thesis• Research questions• Theoretical dimension of the thesis

– Theoretical hypotheses

• Methodological approach• Delimitation of the research problem• Outcomes of the empirical research in Kyrgyzstan

– Tax reform– Law on Inspections– Improving Kyrgyzstan’s standings at international ratings

• Conclusion• References

Purposes and objectives

The main purposes of the PhD thesis:• Analyzing interactions among the Government,

Business and Civic Sector in Kyrgyzstan

• Proposing effective models of institutional interrelations between public and private sectors in Kyrgyzstan

Objectives

• Learning theoretical approaches to institutional interrelations between public and private sectors

• Profound studying of the main theories and concepts on such regulators as: the State, Market and Civic sector

• Using appropriate methodological approach for doing comprehensive research

• Delimitation of the research problem in order to focus on narrower issue

Research questions

1. What are the main actors on policy arena who define policy agenda and format of interrelations between public and private sectors in Kyrgyzstan?

2. Do political system, regime and legislative background allow effective interactions between public and private sectors in Kyrgyzstan?

3. What are the factors inducing and influencing interrelations among the Government, Business and Civic sector in Kyrgyzstan?

4. What values and theories are more applicable in designing better models of interrelations between public and private sectors in Kyrgyzstan?

Theoretical dimension

• Theory of the Government, Market and Civic Sector as regulators of society (Lindblom)

• Multi – Dimensional Concept of Governance (Potůček)

• Theory of Neo - Corporatism (Schmitter, Streeck)

• Actor – Centered Institutionalism (Scharpf)

• Concept of New Public Management (Osborne, Gaebler)

Hypothesis of Theory of the Government, Market and Civic Sector (Lindblom)

Functioning of global societies should be analyzed on the basis of definitions of the following elementary political and economic mechanisms which influence and condition human lives and societies: 1) government as the expression of political power, 2) the market as a medium of exchange; and 3) indoctrination (ideology, civil society)

Source: Wolfenden Commission 1978

Table 1. Types of Sector Regulating Human Activity

Two models of Society (Lindblom)

Two models of Society as a holistic concept of environments where regulators interact with each other.

• Model 1 – intellectually guided society with optimistic view of human’s intellectual capacities (Cuba, North Korea, former U.S.S.R)

• Model 2 – it postulates other forms of guidance for society due to scarcity of human’s intellectual abilities (Western Europe, the USA and pacific Asian states)

Verification of Theory of the Government, Market and Civic Sector (Lindblom)

• Regulators in Kyrgyzstan

• Kyrgyzstan belongs to Model 2 which implies institutional interactions between regulators

State The President, Government, Parliament, Court

Private commercial sector (business)

Business – associations, trade – unions, private entrepreneurs

Civic sector NGO’s and international organizations

Private informal sector (society) Clans and tribes, religious movements, crime

Hypothesis of Multi – Dimensional Concept of Governance (Potůček)

• Dimension 1: Vertical layers of Governance• Dimension 2: Regulators – market, state, and civic

sector

• Dimension 3: Actor’s networks and networking

Potůček, 2008

Verification of Multi – Dimensional Concept of Governance (Potůček)

• Dimension 1: Vertical layers of Governance in Kyrgyzstan

Traditional bureaucratic “Top – down” scheme of governance represented by the Government, oblast administration (regional units on macro level), rayon administration (regional units on micro level) and aiyl okmotu (local administration)

• Dimension 2: Regulators – market, state, and civic sector

see table with regulators in Kyrgyzstan on the slide 11


• Dimension 3: Actor’s networks and networking

Horizontal layer of cooperative ties between regulators emerged as a response to definite issue

1) Constitutional Council of the Kyrgyz Republic between 2005 – 2007

2) Working group on elaborating new version of Tax Code between 2004 – 2008

3) Public Council under Custom Service of the Kyrgyz Republic

4) Advisory Council under the Ministry of Economic Development and Trade of the Kyrgyz Republic


Working group(drafts project of Constitution)

26 members

NGOs, business community, political parties – 57 members

The Government (10), Parliament (37), Constitutional and Supreme Court (10) – 57 members

Scheme 1. Structure of Constitutional Council in Kyrgyzstan between 2005 - 2007Constitutional Council – 114 members

Constitutional Council – 114 members

Hypothesis of Neo – Corporatism (Schmitter, Streeck)

• Unlike the sharp division in liberal democratic theory between hierarchical state authority and the voluntary organization of civil society, corporatist theory and practice blur the boundary between state and society as the state shares authority with private interest associations, using the latter as agents of public policy by coordinating their behavior or delegating public functions and decisions to them (Schmitter, Streeck)

Verification of the Concept of Neo – Corporatism (Schmitter, Streeck)

Public Chamber of the Kyrgyz Republic• Established in December 2008 by the President with involvement of

civic organizations, informal movements and leaders, business – associations for defining policy agendas and monitoring of their implementation

Investment Council under the President of the Kyrgyz Republic• The Council includes the President, Prime - Minister, key economic

ministers, leading business associations and parliament deputies for elaborating policies and monitoring their implementation in business regulatory reforms. Its decisions and directives possess mandatory power to all Government bodies

Methodology

• Public policy analysis of the chosen theoretical concepts and relevant literature (polity, politics, policy framework by Schubert and Fiala 2000)

• Primary and secondary analysis of policy documents and national legislation.

• Interviews with the main actors• Event and content analysis of the actor’s speeches and

interviews related to issue• Comparative analysis with international experience, case

– study• Survey on business environment and investment climate

Delimitation of the research problem

• Regulatory reform and its importance for business environment and investment climate in Kyrgyzstan was defined as a narrower subject or dimension of research problem

• The research problem was delimitated in the framework of the institutional interrelations among the State, Business and Civic sector in Kyrgyzstan

• Choosing the research problem was based on my professional experience and access to relevant empirical data in Kyrgyzstan

Defining the business environment

Source: Supporting business environment reforms; practical guidance for development agencies/ www.businessenvironment.org

Indicators of regulatory reform

• Simplifying business registration and licensing procedures

• Improving tax policies and its administration• Improving labor legislation and its administration• Improving the overall quality of regulatory governance• Simplifying and speeding up access to commercial

courts and alternative dispute resolution mechanisms• Broadening public – private dialogue through public

policy standards• Improving access to market information and access to

finance

Why does Kyrgyzstan need to de – regulate the business environment?

• To enable businesses compete better in domestic and international markets by reducing the cost of doing business

• To increase employment opportunities• To promote public and private governance that leads to

economic growth• To reduce corruption and unfair monopoly• To transform the use of personal contacts and patronage

systems to systems that are based on a market – neutral set of rules to enable entry and market competition

Main pillars of the business environment• Policy framework

Improving national policies that promote competition, open markets and the general conditions for doing business

• Legal and regulatory reform Improving national laws and regulations that affect the

establishment, operation and closure of businesses Business regulations: tax legislation and administration, labor

laws and regulation, trade regulations, custom administration

• Institutional arrangements Public – private dialogue or partnership Regulatory Governance Capacity Building

Regulatory reform in improving business environment in Kyrgyzstan

• Reforming national Tax Code• Adopting single Law on Inspections to business

enterprises and entrepreneurs• Private property protection – research on

“Raiding; problems of hostile takeovers of private property in the Kyrgyz Republic”

• Improving Kyrgyzstan’s standings at international ratings: DoingBusiness, Economic Freedom

Reforming national Tax legislation(position of business)

– Joint efforts of business and civic sector transformed into single coalition “For Fair Taxation” with 23 business – associations and NGOs all over Kyrgyzstan

– The Coalition asked simplification of Tax Code with clear tax administration; reduce VAT from 20% to 10%, introduce presumption of innocence for tax payers and tax incentives for exporters, business beginners and non – profit organizations;

– The Coalition conducted survey among businesses and entrepreneurs in order to show imperfection of tax administration and its burden on private sector

Reforming national Tax legislation

8%16%

52%

24%

0%

10%

20%

30%

40%

50%

60%

I am completely

satisfied

I am rather satisfied

I am not rather satisfied

I am not completely

satisfied

Figure 1. Are you satisfied by Tax System in Kyrgyzstan?

Source: survey of Bishkek Business Club, 2005


Tax inspections 1

Departments of Interior Affairs (Police) 2

Departments of licensing 3

Custom services 4

Local Public Administrations 5

Certification departments 6

Sanitary – epidemiological departments 7

Fire control departments 8

Labor force control departments 9

Table 1.What kind of Governmental bodies is the most corruptive?

Source: survey of Bishkek Business Club, 2005


Figure 2.Public services that extort bribes

Source: “Review of the investment climate”, 2005

Reforming national Tax legislation(position of the Government)

– The Government was aware of imperfect Tax legislation adopted in 1996 which caused complexity of the legislation and corruption

– The Government established official working group on elaborating new version of the Tax Code with involvement of ministers (economy and trade, finance), members of Parliament, international tax consultants by IMF and WB and very few representatives from private sector

– The Government insisted on having more comprehensive Code with 400 articles instead of existing 200

Law on Inspections(position of business and the Government)

The Government conducted 23918 inspections and spent roughly 2,2 million USD from the state budget and collected only 80 thousand USD in 2006

Effectiveness of the overall inspections by the Government in 2006 was – 2,2 million USD or – 0,067 % to GDP

On 29.05.07, President signed the Law on Inspection and approved single legislation to regulation of business environment in Kyrgyzstan

Kyrgyzstan’s standings at international ratings

Impressive shift of Kyrgyzstan from 99th to 68th position in Doing Business 2009

The Kyrgyz Republic is the most advanced country in Central Asian region and among the top 3 reformist economies according to Doing Business ranking of 2009 (see table 2)

Enactment of Moratorium to all kinds of inspections toward business in 2008


Such internationally recognized ratings as “Doing Business” by the World Bank and “Index of Economic Freedom” by the World Heritage Foundation are guides for attracting foreign direct investments (FDI) to national economy

Methodology of these ratings promotes main principles of the democratic society and free market economy (see next table for details)


• Definition by Heritage Foundation Economic freedom is the fundamental right of every human to control his or her own

labor and property. In an economically free society, individuals are free to work, produce, consume, and invest in any way they please, with that freedom both protected by the state and unconstrained by the state. In economically free societies, governments allow labor, capital and goods to move freely, and refrain from coercion or constraint of liberty beyond the extent necessary to protect and maintain liberty itself.

• Methodology of the Index of Economic Freedom (freedoms)Business Freedom Investment Freedom

Trade Freedom Financial Freedom

Fiscal Freedom Property Rights Freedom

Government Size Freedom from Corruption

Monetary Freedom Labor Freedom


Source: Heritage Foundation Annual Reports, http://www.heritage.org/Index/Explore.aspx?view=by-region-country-year


• Methodology of Doing Business (indicators)– Starting a Business– Dealing with Construction permits– Employing Workers– Registering Property– Getting credit– Protecting Investors– Paying Taxes– Trading across Borders– Enforcing Contracts– Closing a Business


Dynamic of Kyrgyzstan’s development in Doing Business between 2008 - 2009

Source: Doing Business Report 2009, the World Bank


The 10 top reformers in 2007/2008

Source: Doing Business Report 2009, http://doingbusiness.org/Documents/FullReport/2009/DB_2009_English.pdf

Conclusions• Verification of the proposed theoretical

concepts

• Delimitation of the research problem to the issue of regulatory reform and its importance for business environment in Kyrgyzstan

• Theoretical dimension, delimitation of the research problem and outcomes of the empirical research helped me in answering cognitive questions

Conclusions• I have not reached second purpose in proposing effective

models of institutional interrelations between public and private sectors in Kyrgyzstan

• There is a need for definite variables and indicators that evaluate results of interaction processes between public and private sectors (share of SME in employment rate, share and growth of FDI in GDP)…

• Hypothesis I: a shift from pluralist to corporatist model of interactions improved business environment and investment climate in Kyrgyzstan by such variables as growth of FDI in the share of GDP and national economy

References• Books and articles• Axelrod, R.M. (1984). The Evolution of Cooperation. New York: Basic Books.

• Axelrod, R.M. (1997). The Complexity of Cooperation: Agent – based model of competition and collaboration. Princeton: Princeton University Press.

• Cawson A. (1986). Corporatism and Political Theory. Basil Blackwell Ltd.

• Dahrendorf, R. (1985). Law and Order. London: Stevens.

• Hill, M. (1997). The Policy Process in the Modern State. 3 rd edition. Cornwall: Prentice Hall.

• Lane, J.E. (1993). The Public Sector. Concepts, Models and Approaches. London: Sage.

• Lindblom, Ch.E. (1977). Politics and Markets. New York: Basic Books.

• Lindblom, Ch.E. and Woodhouse, E. (1993). The Policy – Making Process. Englewood. Cliffs (NJ); Prentice Hall.

• Managerial public administration: Strategy and structure for a new state. Luiz Carlos Pereira. Journal of Post Keynesian

Economics; Fall 1997.

• Okun, A.M. (1975). Equality and Efficiency. The Big Tradeoff. Washington: The Brookings Institution.

• Ornstein, N.J. and Elder, S. (1978). Interest Groups, Lobbying and Policymaking. Washington (DC): Congressional

Quarterly Press.

ReferencesBooks and articles• Osborne, D and Gaebler, T. (1993). Reinventing Government. How the Entrepreneurial Spirit is Transforming the Public

Sector. Reading: Addison – Wesley Publishing Co.

• Politt, Ch. Managerialism and the Public Service. Oxford: Blackwell, 1990.

• Popper, K. (1994). Open Society and Its Enemies.

• Potůček, M. – Musil, J. – Mašková, M. (2008) Strategické volby pro českou společnost – teoretická východiska.

(Strategic Choices for the Czech Society – Theoretical Points of Departure. In Czech with the English summary) Praha, Sociologické nakladatelství.

• Potůček, M. (1999). Not only the market. Central European University Press.

• Potůček, M. (2005). Veřejná politika. Praha: Sociologické nakladatelství (SLON).

• Pressman, J.L. and Wildavsky, A. (1984). Implementation. Berkeley: University of California Press.

• Robert A. Dahl. (1961). Who Governs? Democracy and Power in an American City.

• Robert A. Dahl. (1971). Polyarchy. New Haven, Conn.: Yale University Press.

• Rosenbloom, D.H. (1993). Public Administration – understanding management, politics and law in the public sector.

New York: Mc Graw – Hill.• Sabatier, P. (1986). Top – Down and Bottom – Up Approaches to Implementation Research. Journal of Public Policy,

6, p.21 – 48.

References• Stiglitz, Joseph E.(1995) “Role of Government in the Contemporary World”. Paper presented to the conference

sponsored by the International Monetary Fund, “Income Distribution and Sustainable Growth”. Washington, DC.

• Streeck, W and Schmitter, P.C. (1985). Private Interest Government. Beyond Market and State. London: Sage.

• Scharpf F. (1997). Games real actors play: actor – centered institutionalism in policy research. Boulder. Westview

Press.

• Uphoff, N. (1993). Grassroots Organizations and NGO in rural Development: Opportunities with Diminishing States

and Expanding Markets. World Development, 21, # 4. p.607 – 622.

• Weber, Max. Economy and Society. Berkeley: University of California Press, 1978.

• Wilensky, H.L. and Turner, L. (1987). Democratic Corporatism and Policy Linkages. Berkeley: University of California,

Institute of International Studies. Research Series # 69.

Assessments and Surveys• Survey of Bishkek Business Club on Tax Code and its administration in Kyrgyzstan. Bishkek 2004.• Research of Bishkek Business Club “Strengthening advocacy of business associations and improving entrepreneurial

climate in Kyrgyzstan”. Bishkek 2004.• ИССЛЕДОВАНИЕ БИЗНЕС-АССОЦИАЦИЙ КЫРГЫЗСКОЙ РЕСПУБЛИКИ (январь-февраль 2006).Центра

Тренинга и Консалтинга. Бишкек 2006.• Research of Bishkek Business Club and Institute for Constitutional Policy “Raiding: problems of hostile takeover of

private property in the Kyrgyz Republic”. Bishkek 2008.• Research of Bishkek Business Club and International Business Council “Impact of inspections to business

enterprises in Kyrgyzstan”. Bishkek 2007.

ReferencesLegal materials•Constitution of the Kyrgyz Republic. 1993 (amended in 2006, 2007).•Civil Code of the Kyrgyz Republic. 1996 (amended in 2009).•Law on non – governmental organizations of the Kyrgyz Republic. 1999.•Law on social partnership in the area of labor regulation in the Kyrgyz Republic. 2003.•Decree of the President of the Kyrgyz Republic on Investment Council under the President of the Kyrgyz Republic. 2007•Law on Inspections of business enterprises of the Kyrgyz Republic. 2007•The Government decree and program “100 days toward improving business environment and investment climate in the Kyrgyz Republic”. 2007•Law on social contracts and order of the Kyrgyz Republic. 2008•Tax Code of the Kyrgyz Republic. 2009•Decree of the President of the Kyrgyz Republic on Public Chamber of the Kyrgyz Republic. 2009.

Statistical data•Data on the number of NGOs and business – associations. Ministry of Justice of the Kyrgyz Republic 2006.•Data on number of inspections of business enterprises in the Kyrgyz Republic. Statistical Committee of the Kyrgyz Republic.

Internet sources

www.akipress.org www.president.kg

www.bdk.kg www.martinpotucek.cz

www.businessenvironment.org www.ibc.kg

www.ceses.cuni.cz www.ipp.kg

www.cipe.org www.gov.kg

www.doingbusiness.org www.investment.kg

www.24.kg www.heritage.org

www.naba.org.kg

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