The rise of the oligarchs, the decline of the nation
Published: Thursday November 05, 2009 in Living in Armenia
Yerevan - Only those people who have everything and don't need to make money should be involved in politics. This is what Gagik Tsarukyan, one of Armenia's most powerful businesspeople told reporters a few days ago in Yerevan. The leader of the Prosperous Armenia Party, a member of the ruling coalition with four ministerial posts in Armenia's government, stated, "The Armenian economy has not been effectively monopolized by a handful of oligarchs."
It seems that the fine line between business interests and politics in Armenia is invisible. Here business and politics go hand in hand. Businesspeople have made their fortunes and maintained direct involvement in the political life of the country. What the country has an abundance of, relative to its size, is oligarchs and monopolies.
Countries of the former Soviet Union have much of their recent history in common. For most of the 20th century they lived in a centralized planned economy and a totalitarian political regime. These conditions left a deep imprint on the psychology, values, and political, social, and economic systems of these countries, and that can still be felt almost 20 years after the collapse of the communist system.
While most countries in Central and Eastern Europe have been relatively successful in confronting issues of social justice, freedom of speech, and protection of human rights, post-Soviet countries like Armenia are still tackling crippling problems such as a lack of democratic values and political and economic instability.
With the global economic downturn, the lack of diversification of Armenia's economy, and a reliance on transfers - which had reached $2 billion last year but have declined sharply as a result of the downturn - Armenians are struggling to survive in a lagging economy. One of the challenges that must be overcome is that lucrative business opportunities have been monopolized by a small number of families.
The problem of oligarchs and monopolies is not unique to Armenia. They were not invented following the collapse of the Soviet Union, although the communist nomenclature did transform itself into present-day oligarchs in Russia, Ukraine, Azerbaijan, and elsewhere. In Armenia's case, it could be argued that the present-day oligarchs have nothing to do with the nomenclature of Soviet Armenia.
Bulgaria is an interesting case in point. According to the Center for the Study of Democracy, the World Bank has found corruption in the Bulgarian tax administration to be higher than corruption levels in most of the Balkans and the former Soviet republics.
The lessons of history
Amassing great personal fortune while pursuing unfair business practices has a long history. The robber barons of the United States - the Rockefellers, the Carnegies, and others - were influential families that had amassed personal fortune while pursuing unfair business practices.
In 1890 the U.S. Congress passed the Sherman Antitrust Act, which sought to curb cartels and monopolies in the country. The act was named after Senator John Sherman, the chairperson of the Senate Finance Committee. This act and other antitrust acts in the future sought to oppose the combination or merging of entities that could possibly harm competition by creating monopolies or cartels, and placed the responsibility of investigating or pursuing trusts, companies, and organizations suspected of violating the act on the U.S. federal government.
So, over a hundred years ago, the United States sought to reign in the growing power of a few influential businesspeople.
The Sherman Act, while progressive, was a vague law. The meaning of "monopolize" and other terms were ambiguous at the time. Because the law didn't have any teeth, it was mostly ignored, as was evident by the growing number of mergers at the end of the 19th century in the United States.
The first famous implementation of the Sherman Act was in 1911 against Standard Oil, which was owned by John D. Rockefeller. The U.S. Supreme Court ruled that Standard Oil was in violation of the Sherman Act and it ordered the breakdown of the company into several smaller ones. At the time, Standard Oil was the largest oil refiner in the world and one of the first and biggest multinational corporations.
Some argue that in order to appease voters while not antagonizing major corporations, the U.S. Congress knowingly adopted a vague law. However, while the act was weak, the role of the courts in the United States increased significantly. The courts in the early part of the 20th century needed a guideline to determine whether a company was acting like a monopolist; therefore they focused on the structure of the industry to determine whether there was a monopolist power in that industry. That is why the case against Standard Oil in 1911 is interesting. The company owned about 90 percent of the oil refineries and that information was enough for the Supreme Court to find the company guilty of violating the antitrust law.
In the 1930s the Supreme Court changed its guideline and instead of focusing on the structure of the industry, they starting focusing on the conduct of the company to determine whether they were violating the antitrust law. This implies that a company could control 90 percent of the market, but if the company was not abusing its market power and was not artificially reducing the quantity available in the market and was not artificially raising the market price, then the company would not be guilty.
One argument that those of a more conservative persuasion would use in order not to implement antitrust laws is that the market is no longer domestic, but global. In order for companies to compete in the world market, they must be large even if they are dominating the domestic market.
Expanding into foreign markets?
This argument could have some validity in the case of Armenia. Armenia's domestic market is very small. In order for an Armenian company to compete in the world market, that company might be very large relative to Armenia's market. In this case the focus of antitrust laws should be on the "conduct" of those monopolies that exist in the country.