Institutional interrelations among the State, Business and Civic sector in Kyrgyzstan

1
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 Potucek

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General information about Kyrgyzstan

• Population5,189,800
• GDP (PPP) 9.4 billion USD
• GDP growth 3,1
• GDP per capita 1813 USD
• Area198,500 sq km. BordersChina 858 km,
  Kazakhstan 1,051 km, Tajikistan 870 km,
  Uzbekistan 1,099 km
• Government and legal systemRepublic, Civil Law
• Major citiesBishkek, Osh, Talas, Karakol,
  Jalal-Abad
• Significant economic sectorsAgriculture,
  textiles, processing and mining
• Major trading partners Russia, China,
  Kakakhstan, Turkey, EU

3
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).

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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 Kyrgyzstans standings at international
  ratings
• Conclusion
• References

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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

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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

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Research questions

• What are the main actors on policy arena who
  define policy agenda and format of interrelations
  between public and private sectors in Kyrgyzstan?
• Do political system, regime and legislative
  background allow effective interactions between
  public and private sectors in Kyrgyzstan?
• What are the factors inducing and influencing
  interrelations among the Government, Business and
  Civic sector in Kyrgyzstan?
• What values and theories are more applicable in
  designing better models of interrelations between
  public and private sectors in Kyrgyzstan?

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Theoretical dimension

• Theory of the Government, Market and Civic Sector
  as regulators of society (Lindblom)
• Multi Dimensional Concept of Governance
  (Potucek)
• Theory of Neo - Corporatism (Schmitter, Streeck)
• Actor Centered Institutionalism (Scharpf)
• Concept of New Public Management (Osborne,
  Gaebler)

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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)

Table 1. Types of Sector Regulating Human Activity
Source Wolfenden Commission 1978
10
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 humans intellectual
  capacities (Cuba, North Korea, former U.S.S.R)
• Model 2 it postulates other forms of guidance
  for society due to scarcity of humans
  intellectual abilities (Western Europe, the USA
  and pacific Asian states)

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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 NGOs and international organizations
Private informal sector (society) Clans and tribes, religious movements, crime
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Hypothesis of Multi Dimensional Concept of
Governance (Potucek)

• Dimension 1 Vertical layers of Governance
• Dimension 2 Regulators market, state, and
  civic sector
• Dimension 3 Actors networks and networking

Potucek, 2008
13
Verification of Multi Dimensional Concept of
Governance (Potucek)

• 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

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Verification of Multi Dimensional Concept of
Governance (Potucek)

• Dimension 3 Actors networks and networking
• Horizontal layer of cooperative ties between
  regulators emerged as a response to definite
  issue
• Constitutional Council of the Kyrgyz Republic
  between 2005 2007
• Working group on elaborating new version of Tax
  Code between 2004 2008
• Public Council under Custom Service of the Kyrgyz
  Republic
• Advisory Council under the Ministry of Economic
  Development and Trade of the Kyrgyz Republic

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Verification of Multi Dimensional Concept of
Governance (Potucek)
Constitutional Council 114 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 - 2007 Constitutional
Council 114 members
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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)

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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

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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 actors
  speeches and interviews related to issue
• Comparative analysis with international
  experience, case study
• Survey on business environment and investment
  climate

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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

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Defining the business environment
Source Supporting business environment reforms
practical guidance for development agencies/
www.businessenvironment.org
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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

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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

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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

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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 Kyrgyzstans standings at international
  ratings DoingBusiness, Economic Freedom

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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

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Reforming national Tax legislation
Figure 1. Are you
satisfied by Tax System in Kyrgyzstan?
Source survey of Bishkek Business Club, 2005
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Reforming national Tax legislation
Table 1.What kind of Governmental bodies is the
most corruptive?

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
Source survey of Bishkek Business Club, 2005
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Reforming national Tax legislation
Figure 2.Public services that extort bribes

Source Review of the investment climate,
2005
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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

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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

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Kyrgyzstans 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

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Kyrgyzstans standings at international ratings

• 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)

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Kyrgyzstans standings at international ratings

• 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

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Kyrgyzstans standings at international ratings
Source Heritage Foundation Annual Reports,
http//www.heritage.org/Index/Explore.aspx?viewby
-region-country-year
35
Kyrgyzstans standings at international ratings

• 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

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Kyrgyzstans standings at international ratings

• Dynamic of Kyrgyzstans development in Doing
  Business between 2008 - 2009

Source Doing Business Report 2009, the World Bank
37
Kyrgyzstans standings at international ratings

• The 10 top reformers in 2007/2008

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

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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

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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. 3rd 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.
•  

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References

• Books 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.
•  
• Potucek, M. Musil, J. Mašková, M. (2008)
  Strategické volby pro ceskou spolecnost
  teoretická východiska. (Strategic Choices for the
  Czech Society Theoretical Points of Departure.
  In Czech with the English summary) Praha,
  Sociologické nakladatelství.
• Potucek, M. (1999). Not only the market. Central
  European University Press.
•  
• Potucek, M. (2005). Verejná 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.
•  

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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.
• ???????????? ??????-?????????? ??????????
  ?????????? (??????-??????? 2006).?????? ????????
  ? ???????????. ?????? 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.
•  

43
References

• Legal 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

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