Command Economy: Belarus' Centralized Control Explained

Belarus is a post-Soviet transition economy that has retained centralised political and economic controls by the state and rejected privatisation efforts. The country has a highly centralised economy that emphasises full employment and a dominant public sector, with the private sector playing a limited role. Belarus has been described as a welfare state or market socialist economy.

Since the collapse of the Soviet Union in 1991, Belarus has maintained government control over key industries and eschewed large-scale privatisation. The country's economic growth has slowed since its peak in 2011, and it now faces the need to implement far-reaching market-oriented economic reforms and macroeconomic stabilisation.

The highly regulated Belarusian labour market still retains elements of the central-planning system. The country has a low official unemployment rate of less than 1%. However, unregistered unemployed people in Belarus try to avoid registration due to obligatory public works. The real unemployment rate is estimated to be much higher than the official rate, with some sources placing it at 10% or even 24%.

The authoritarian regime in Belarus, led by President Alexander Lukashenko, has been reluctant to lose control over the economy and population, which makes the prospect of large-scale market reforms unlikely.

Belarus's economy is largely state-controlled, with the public sector dominating the economy

The Belarusian economy is an upper-middle-income mixed economy. Belarus was among the few post-communist countries to resign from comprehensive market reforms and instead attempted to improve the efficiency of the economy through administrative means, leaving market mechanisms in only an auxiliary role. The 'Belarusian economic model' has undergone several revisions of a de-statisation and de-regulation kind, but the state still dominates the economy.

The Belarusian economy is no longer just a simple copy of the Soviet economic system. The private sector produces a substantial part of Belarusian GDP, although its distribution across sectors of the economy is highly uneven. Such an ownership structure of the economy is a clear result of delayed privatisation and the discriminatory policies applied to the private sector. Belarusian authorities have managed to keep control over the overwhelming majority of 'old' enterprises inherited from the Soviet period. This domination of state ownership in industry, construction and transport, combined with the hundreds of thousands of people employed in public administration, state-owned education and the healthcare system, allowed the government to keep direct economic and political control over the majority of the population.

Private enterprises, in their turn, have had to develop in new niches that emerged after the fall of communism and were not occupied by Soviet industrial giants. Private firms, which are predominantly domestic, are mainly concentrated in services and the information industry – e.g. in retail, public catering, consulting, advertising and computer programming. Foreign direct investments (FDI) form just a tiny part of the Belarusian economy: foreign-owned companies contribute merely 3.5% of the gross value added.

The greatest changes in agriculture in the first half of the 1990s were a decline in the amount of land under cultivation and a significant shift from livestock to crop production because crops had become a great deal more profitable than before. The sales price for crops generally increased more than production costs, while inputs for livestock (such as imported fodder) increased in price beyond livestock sales prices.

The Belarusian labour market is highly regulated. Important elements of the central-planning system are still in place. In principle, the decision to determine wages is left to firms, but the government can affect the structure of wages through the so-called tariff system, a type of centrally determined wage grid. The private (so-called self-financing sector) sector, representing, as already noted, only a small share of employment, has little autonomy.

The Belarusian economy was relatively less impacted by the COVID-19 pandemic, caused by relatively light and delayed COVID-19 lockdown and quarantine measures.

The country has a centralised planned economy, with the state retaining control over key industries

Belarus has a centralised planned economy, with the state retaining control over key industries. This is a remnant of the Soviet era, where the economy was largely controlled by the state. Since the fall of the Soviet Union, Belarus has been slow to implement market reforms and has instead focused on improving the efficiency of its economy through administrative means. The state continues to play a dominant role in the Belarusian economy, with the public sector remaining at its core.

The Belarusian economy is highly centralised, with the state controlling key industries such as manufacturing, services, and agriculture. The government sets economic targets and plans, which are implemented by state-owned enterprises. These enterprises are required to meet specific targets for output, exports, and wage growth. The state also provides subsidies and financial support to these enterprises, ensuring their dominance in the market.

The Belarusian economic model has evolved over time, moving away from a strictly command economy to a more flexible hybrid model. However, the state still plays a significant role in the economy, with many key industries remaining under state control. This dominance is maintained through a combination of written and unwritten rules, which favour state-owned enterprises over the private sector.

The state's control over the economy extends beyond ownership and regulation. It also influences wage structures and labour markets, with important elements of the central planning system still in place. While firms have the principle of determining wages, the government can influence wage structures through a centrally determined wage grid, known as the tariff system. This system is binding in the budget sector, including enterprises and organisations primarily financed and subsidised by the state and/or local budgets. The private sector, which accounts for a small share of employment, has limited autonomy.

The Belarusian labour market is highly regulated, with elements of the central planning system still in place. While firms have the principle of determining wages, the government can affect wage structures through a centrally determined wage grid, known as the tariff system. This system is binding in the budget sector, including enterprises and organisations primarily financed and subsidised by the state and/or local budgets. The private sector, which accounts for a small share of employment, has limited autonomy.

Overall, Belarus's centralised planned economy prioritises full employment and a dominant public sector. The state's control over key industries and economic activities has been a defining feature of the country's economy, even as it has evolved from a strictly command economy to a more flexible hybrid model.

Belarus's economy is export-oriented, with a focus on manufacturing, services, and agriculture

Belarus is an export-oriented country with a focus on manufacturing, services, and agriculture. It has a well-developed industrial sector, which accounts for around 26% of the country's GDP. Some of its main industries include tractors, agricultural equipment, and automotive manufacturing, including dump trucks and earth movers. Belarus also has a strong electrical equipment and household appliances sector.

The country's economic growth has been impressive, recording sustained growth until recently. Belarus's economy is an upper-middle-income mixed economy, with a focus on centralised political and economic controls by the state. It is often described as a welfare state or market socialist.

The service sector in Belarus is also well-developed, with IT and computer services playing a significant role. The country has actively promoted its IT industry, with the High-Tech Park in Minsk hosting over 140 companies and employing thousands of workers. The service sector has shown resilience to global economic shocks, with exports growing by 28% between 2016 and 2020. Transport services and computer services account for a significant portion of the country's service exports.

Agriculture is another important sector in Belarus, with chief agricultural products including potatoes, flax, hemp, sugar beets, rye, oats, and wheat. Dairy and beef cattle, pigs, and chickens are also raised. Belarus has a significant production and economic potential in agriculture, exceeding the needs of its domestic market.

Belarus's favourable geographical position has contributed to the dynamic development of its logistics sector. The country serves as a transport and logistics hub, connecting the West and the East. It is also a member of the Eurasian Economic Union (EAEU), which provides access to advanced scientific and educational resources, a developed industrial base, and rich human potential.

The country has a high rate of exports, with 61% of its products being exported. Belarus maintains good trade relations with over 200 countries, with its main trading partners being Russia, the European Union, and individual countries such as Poland, Lithuania, Germany, and the United Kingdom.

The country has a high degree of economic dependence on Russia, its EAEU neighbour

Belarus has a high degree of economic dependence on Russia, its EAEU neighbour. This dependence has increased since Russia's invasion of Ukraine in February 2022, with Belarus relying heavily on economic and financial support from Moscow, which is provided in exchange for a commitment to further economic integration with Russia. The main areas of dependence include subsidised energy imports, other bilateral trade, transit for exports, and capital inflows, often on preferential terms.

Traditionally, Belarus has imported subsidised oil and gas exclusively from Russia. Russian energy subsidies played a significant role in Belarus's economic growth in the early 21st century, allowing the country to save about $5 billion per year, or 15% of GDP, on energy imports on average between 2000 and 2008. Gas imports are crucial, as Belarus used to produce 90% of its electricity and heat from gas. Each increase in gas prices has significantly affected the competitiveness of Belarusian state-owned enterprises, highlighting the country's heavy dependence. Since 2011, Russia has controlled Belarus's entire gas infrastructure through Gazprom, which also owns the gas storage facilities.

In addition to energy imports, Belarus also relies heavily on Russia for bilateral trade. Over 40% of its total exports and 55% of its imports were linked to Russia until 2022. This dependence intensified after the outbreak of the war, with Belarusian exports to Russia soaring to over 60% by 2023, facilitated by Western sanctions against Russia and the loss of the Ukrainian market. Belarusian companies benefited from filling open niches in the Russian market. However, they now face growing competition from other foreign producers on the Russian market, affecting the sales of goods such as household appliances, machinery, and transport vehicles.

Sanctions have also forced Belarus to rely more heavily on Russian logistics, as they have lost access to EU and Ukrainian ports. Most non-Russian exports are now dependent on Russian railways, ports, and banks, increasing costs and creating logistical challenges, particularly for fertilisers and oil products. In 2023, Belarus used 20 Russian ports, doubling its reliance on Russia for transit, and saw a 130% year-over-year growth in exports through these ports.

Furthermore, since August 2020, Belarus has lost access to international capital markets and major financial institutions, leaving Russia as its primary creditor. By the end of 2022, the Belarusian government owed $10.2 billion to the Russian government, Russian bondholders, and the Eurasian Development Bank (EDB) controlled by the Russian authorities, comprising nearly 60% of its total government debt. Many Belarusian state-owned enterprises borrow from Russian banks, and the total debt owed to Russia is well over $11 billion.

As of January 1, 2018, 55% of all foreign direct investment (FDI) in Belarus came from Russian investors, who have significant holdings in the energy, telecommunications, and banking sectors. Despite a change in statistical reporting in 2019 that lowered the reported Russian FDI figures, Russia remains the largest foreign investor, especially as Western investors are held back by sanctions and political risks. Russia's influence has grown in sectors such as retail and real estate, and in 2023, over 60% of FDI inflows to Belarus came from Russia, highlighting the deepening economic dependence.

Belarus's economic dependence on Russia is expected to deepen further if the war continues, due to continued sanctions and limited access to alternative markets and financial resources. This growing dependence poses serious risks to Belarus's sovereignty and economic stability, making it vulnerable to any political and economic changes in Russia.

Belarus's economy has been described as a welfare state or market socialist

Belarus has been described as a welfare state or market socialist system. The country's economy is largely non-market and centrally planned, with the state retaining control over key industries and eschewing privatisation efforts. The Belarusian economy emphasises full employment and a dominant public sector.

Since the collapse of the Soviet Union in 1991, Belarus has maintained centralised political and economic controls, rejecting most privatisation efforts. This has resulted in a highly regulated labour market, with important elements of the central-planning system still in place. The private sector has little autonomy and is subject to administrative restrictions and hostile government propaganda.

The country's social policy prioritises effective employment, with the right to work enshrined in the Constitution of Belarus. The country also offers a range of social services and benefits, including support for elderly and disabled citizens, financial assistance for low-income citizens and families, and benefits for those with young children.

In terms of market socialism, Belarus has a mixed economy, with a limited role for the private sector. While price controls remain extensive, there has been some movement towards market reforms, such as the introduction of a free exchange market session in 2011 to determine the market value of the ruble. However, the country still faces challenges in transitioning to a fully market-based economy, including the need to dismantle remnants of the command system, privatisation, and improving its business and governance image.

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