In a short space of time, a popular revolt has erupted in Belarus, long known as “Europe’s last dictatorship” for President Alexander Lukashenko’s oppressive 26-year rule. Having cheated his way to declaring victory in last Sunday’s presidential poll, Lukashenko is now cracking down hard on the popular protests provoked by his brazen stealing of the election.
The short-term situation is unpredictable. But we do know that the choices of Lukashenko himself, members of his regime and the opposition take place (as will those of any post-Lukashenko government) against a background of important economic facts and forces that structure Belarus’s political economy.
First, while it may no longer be Europe’s last dictatorship given autocratic developments elsewhere, Belarus is certainly Europe’s last Soviet economy. Much of the economy is state-owned or state-controlled; old economic structures were never really reformed or liberalised like in neighbouring countries. On the positive side, it means Belarus has avoided the emergence of an oligarch class or the extreme inequality of Russia. But it also means economic stagnation, and confining Belarusians to the indignities of poverty. The contrast between Poland and Belarus, displayed on the chart below, is not missed on Belarusians.
So far, many Belarusians have tolerated Lukashenko’s regime as better than what they see in Ukraine and Russia. But like in Poland in the 1980s, and more generally across the eastern bloc then, economic failure can make people give up on the regime. Without fundamental economic change, Lukashenko’s hold on power will continue to be undermined by his inability to deliver economically. No crackdown can change that, and may even hasten the process as it saps his legitimacy further.
Second, one economic factor in particular is accelerating this. Among the surviving legacies of the Soviet economy is Belarus’s role in refining Russian-produced oil. Until recently, Belarus has been allowed to buy oil at the Russian domestic price, which is below global market levels because of an export tax. Since the refined products can be sold at the international price, this scheme constitutes a subsidy paid for by Russians. But that subsidy is now being phased out as a consequence of tax reforms by Moscow.
The effect is substantial. Sergei Guriev, a professor at Sciences Po in Paris and former chief economist of the European Bank for Reconstruction and Development, told me that the loss of revenue to Minsk’s budget from the full effect of the reforms could amount to 4 per cent of Belarusian national income. How Lukashenko plans to fill that hole is anyone’s guess, but he is running out of time.
Third, paradoxically enough, Belarus has also managed to nurture one highly modern sector: exports of IT services. The presence of a digital sector plays straight into the political confrontation of the day. Not content with persecuting journalists, Minsk has been shutting down the internet to make it harder for protesters to organise. But this cannot be sustained for very long because it bleeds money. According to a model by NetBlocks, a group tracking internet disruptions, shutting down the internet completely for 24 hours costs Belarus $56m. It also amounts to a further intrusion into the everyday wellbeing of an online population.
Fourth, a digitally tuned-in population is just one illustration of the enormous economic potential Belarus could expect from reforms. As Guriev succinctly puts it, “this is a well-educated population next to Europe”. Greater integration with the richer economic bloc to the west of it would deliver massive gains. But Belarus is not even a member of the World Trade Organization, in part because the regime permits a thriving business of contraband tobacco.
All these features of the economic context will shape the long-term outcomes. In the short run, what matters is how far Lukashenko and his goons take their documented brutality. They have arrested about 6,000 people, beaten up protesters and journalists, and fired live bullets against crowds. This is a leader capable of worse still: two of his political opponents were disappeared 20 years ago, murdered by the regime according to near-contemporaneous accusations, later corroborated by an alleged accomplice in the crimes.
Civilised governments must make clear the violence must stop, and use sanctions to back up their demands. Both Europe and the US now have the ability, through their Magnitsky-style laws, to target individually those orchestrating the crackdown. They should use it to try to limit the bloodshed in the short run, while making clear the benefits that await the country over time if it can find a way to liberalise both its politics and economics.
In my latest FT column, I say EU economic policymakers should prepare for the worst, to avoid a false dawn in the post-coronavirus recovery.
Britain lost one-fifth of its economic output in the second quarter, the deepest recession among comparable countries. Some have tried to explain this by saying that the UK economy has a particularly large share of “social consumption”. But this claim seems wrong: the share of services that require physical presence, such as retail, food and hospitality, is actually lower in the UK than in most European economies. Instead, the deep downturn should be attributed to the length and intensity of the lockdown.