Satybaldieva and Sanghera: “When addressing regional inequality, we must remember class”

Vlast spoke with academic researchers Elmira Satybaldieva and Balihar Sanghera, who wrote the book “Rentier Capitalism and its Discontents: Power, Morality and Resistance in Central Asia”, published by Springer in 2021. In this interview, the authors explore the causes of regional inequality in Kazakhstan through the lens of class stratification and propose alternative development strategies.

What is the scale and depth of inequality among the regions of Kazakhstan? Can we properly measure it?

Sanghera: When we talk about inequality, we often mean income inequality. But inequality can also take other forms, in terms of housing, health care, education, credit burden, life expectancy, and the environment. [Inequality concerns] what and for whom the economy functions. When we talk about regional disparity, we also need to look at other important indicators that capture the massive imbalances that exist in Kazakhstan.

Income inequality masks class inequality. And this is the key point. We should not only look at regional inequalities, because this suggests that the regions themselves are responsible for these inequalities. Instead, it is uneven relationships between people that are to blame for many types of inequality: capitalists and workers, bankers and creditors, landowners and tenants, rich corporations and ordinary citizens. The dominant parties are the rentier class, and it is they who are responsible for inequality.

Satybaldieva: To this day we do not know the precise figures for inequality, either class or regional. This is because inequality is not on the Kazakhstani government's agenda. We still do not have relevant studies that could tell us about the extent and depth of inequality. However, from the overall figures, we know that inequality in the country is extremely deep.

To a certain extent, however, we can assess income inequality in Kazakhstan. The problem is that we do not know the real incomes of the upper strata of the population, the rentier class. And this is because, when evaluating them, no one takes into account the volume of controlled assets. That is, it is not the income that matters, but the ownership of assets. Such an analysis is very difficult because asset ownership is hidden.

Reports on regional disparity exist, but they are all produced by the architects of neoliberalism, (the current economic order), which is the cause of inequality. These are the Asian Development Bank, the World Bank, the OECD, and others. These studies measure inequality in a classical way, looking at gross regional product (GRP) and/or the Gini coefficient. These numbers are highly misleading. The GRP will not show us the real degree of inequality in the regions, because western regions - like Atyrau or Mangistau - are among the richest in Kazakhstan in terms of the size of their economies. But we know that the population of these regions actually lives in extreme poverty. They do not have equal access to all kinds of economic benefits, and we see how they have become the source of mass discontent and protests.

By following this World Bank-led analysis, you simply fail to understand what causes inequality and why protests spark in these areas. The recommendations that these organizations offer to overcome inequality are essentially inadequate and misleading.

So, does class inequality also cause regional inequality?

Sanghera: Why does regional inequality get so much attention? I suspect it is because it distracts away from class inequality. By mentioning regions, you don't focus on class relationships. You don't look at the very rich or the very poor. It's a convenient rhetorical tool by the elites to deflect attention from the real nature of wealth and inequality. This ensures a continued legitimacy of the regime and its capitalist structures.

Satybaldieva: Inequality is understood as something natural, inevitable in these economic reports. The authors of the studies say: in some regions there is oil, so they are doing well, and in some regions there are no natural resources, so there is no one to blame. These reports cannot explain the causes of real poverty and low productivity in agricultural regions, such as, Zhambyl and Turkistan.

Estimates of regional inequality push forward arguments that certain areas lack equipment, technology, and “quality human capital.” But they never mention what led to the impoverishment of these regions, namely the privatization and shock reforms that were carried out in the 1990s. These regions were not so poor during the Soviet era. They became poorer with the collapse of the USSR, while labor productivity fell sharply after the privatization reforms of the 1990s. These reforms were the cause of high unemployment and the outflow of the population from these regions to the so-called "centers of economic growth".

Therefore, if we really want to understand why there is inequality in Kazakhstan - be it class or regional - we must critically assess the last 30 years of the country's neoliberal development.

In your book, you write that since the collapse of the Soviet Union rent extraction, rather than wealth creation, became a mantra in Central Asian countries. Isn’t this also true across the regions of each of these countries?

Sanghera: You have correctly pointed out this key difference between wealth creation and income/rent extraction. These are two very different concepts. Earned income is based on the production and sale of goods, that is, you create wealth. Rent extraction, sometimes referred to as unearned income, comes from owning assets. You do not need to do any work, because owning money or assets (be it natural resources or financial instruments) allows you to earn more.

Atyrau, Mangistau, Pavlodar, Karaganda and other regions have vast mineral resources. There, the focus is on developing the mining industry, that is, the extraction of oil, gas and other minerals. There are also more agricultural regions, such as Zhambyl and Turkistan, whose inhabitants are busy with the hard work of plowing fields and harvesting.

But, importantly, Kazakhstan also has the cities of Almaty and Astana, which are places of extraction, not of minerals, but of financial resources, such as remuneration from bank loans. Almaty is the financial capital. Here, most of the income is generated using interest on cash loans. At the same time, Almaty and Astana experienced a huge boom in housing construction. Especially in Astana, where you can see the huge impact of real estate purchases by government and civil servants, as well as diplomats moving to the city. In Almaty, a similar contribution is made by entrepreneurs and employees of various business sectors.

If you look at the regions where subsoil resources are mined, they provide 42% of the national wealth. While Astana and Almaty, where the financial and real estate sectors are developed, generate 32% growth.

An important point in the context of regional inequality is transfer payments. That is, how money is moved or redistributed from one part of the country to another, from one social group to another. In essence, the neoliberal reforms of the 1990s equated profits from speculation, exploitation, and misappropriation with hard-earned income. All these different things are known by the name “income”.

Another important difference is between productive and unproductive labor. In the Soviet Union, rentier income was criminalized because it was useless. Neoliberal reforms have decriminalized such incomes, and over the past 30 years they have become the norm, part of the natural economic landscape.

Satybaldieva: Capitalism has its stages of development. When Central Asian elites talk about capitalism, they often refer to Adam Smith, as if today’s regional capitalism is similar to 18th century Europe. Instead, since this is a late stage of its development, capital accumulation is achieved through new means. Following the logic of late capitalism, some countries in the region, including Kazakhstan, are moving away from the “industrial economy” structure.

Around the world, capitalism tends to rely on rent extraction rather than wealth creation. Kazakhstan is integrated into the global capitalist economy, so it moves along with everyone and is not unique in this regard. We are playing the same game of rentier capitalism that everyone else is playing, and its driving force is actually located in the global North, especially the United States.

Sanghera: The argument goes that unproductive regions benefit from rich regions. The infamous "trickle down" effect. But in reality we don't see it. Why? Because the rentier class - extremely rich people - were able to withdraw their money abroad, to tax havens to buy real estate in London, Paris, New York.

For them It's easy to put money in the bank or invest in real estate, then wait a couple of years and see how it grows. The risk is minimal. It is, as Adam Smith and John S. Mill said, almost like “making money in your sleep,” that is, without making any effort. Instead, doing productive, capital-intensive, and more creative things is certainly riskier. And I think that this is a fundamental point in the problem of regional inequality in Kazakhstan.

According to the existing narrative about Kazakhstan’s regions, they are resource basins, rather than place to live a full life. Why is this logic so popular?

Sanghera: It is important to remember that there are different classes in Kazakhstan. Most often, we only mention the poor and the elite. But there is another group of people - this is the middle class. This class has greatly benefited from the transformation that has taken place. Whether you are a middle or high-ranking civil servant in government, or a small shopkeeper or store manager, you benefit from this neoliberal environment.

You benefit either from the ability to buy a house at a government-subsidized interest rate, or to send your children abroad under the Bolashak program. Many of them live in cities like Almaty and Astana and are enjoying the huge gains they have made over the past two decades. Think, for example, of Nazarbayev University: it received around 40% of the budget for higher education. And Nazarbayev intellectual schools are organized in a similar way. Take even the EXPO-2017 project, the middle class won again from the money that went to build the entire infrastructure.

It was the educated middle class who saw the benefits in the current neoliberal moment. If their children can go to a prestigious school or university like KIMEP - not to mention foreign educational institutions - they will succeed in the market. It's just a culture of achievement promoted by the elite: if you study hard and work hard, the market will reward you. But we know for sure that it does not reward everyone equally.

How does the system of legitimation of regional inequality work? Why does the state follow this policy?

Sanghera: The state is not an independent entity, is it? It includes the business classes, corporations, foreign investors, domestic elites, non-governmental organizations and the middle class. All these interest groups seek to control the state, which is why it is a place of struggle of various social forces.

I think that your question should be reformulated as follows: who are the social groups that seek to legitimize the current order? We see, for example, international corporations seeking to deregulate oil, mining, and financial policies. This allows them to get more money with less political interference and risk.

Companies seek to bribe akims [regional governors - ed.], local executive authorities, and representative bodies. And the latter can get a good commission if, for example, they approve the construction of new luxury apartments. And this group of interests is also part of the state. It also represents the interests of engaged trade unions, various politicians, business owners. They have property, shares of banks, securities of various companies. They are interested in the development of the real estate sector, retail trade and all the necessary infrastructure for this.

Most of them are what we call plutocrats, that is, rich people with wide powers.

Why is everything like this? Partly because the citizens of Kazakhstan were convinced that there was no alternative to the capitalist development of the economy. But we know that things can be arranged differently, that the economy can be well regulated, as it used to be in Europe and the other countries of the Global North.

Satybaldieva: The legitimization of inequality is fundamental to the survival of capitalism. It is no coincidence, therefore, that extensive research on inequality does not exist. Nobody wants to draw attention to it. The only time inequalities were discussed was during the bloody events of January last year. But then, the theme of inequality was not sufficiently articulated. It was mixed with other issues. And after the January events, changes were only implemented on paper.

The myth of meritocracy is also used for the legitimization of inequality in general. This separates hardworking people from lazy ones. Similarly, there are productive regions and regions with low productivity. Nothing can be done about this, and therefore the market will fairly reward hardworking people and productive regions, and punish the lazy and unproductive.

Another legitimation tool of inequality used in the post-Soviet space, is the blaming and pathologizing the local culture and history under the Union. By that token, all troubles are caused by your past or your culture. Conversely, the West has always praised the spirit of entrepreneurship and encouraged innovation, the refrain goes.

They have been weakened to the point that we can no longer hear them. The so-called intellectual class fails to question this dominant neoliberal discourse. And this actually helps the rentier class to legitimize it. So, in a way, the intelligentsia is in solidarity with the rentier class.

Sanghera: On this last point, I would like to add that the NGO sector is also not so active in articulating labor issues and questions of social rights. Truly, their work is important and necessary: who, for example, would be against the mainstreaming of gender-based violence or LGBT rights? These are all important questions, and they must be adequately addressed in any society.

But all too often these problems obscure other issues, such as economic redistribution between different social groups. Unfortunately, all issues of identity - sexuality, gender, ethnicity, and race - are something that capitalism can easily digest. It can embrace the idea of democracy, the greater representation of its critics, or the empowerment of minorities. But what it cannot accept is a fairer economic redistribution. If NGOs raise these issues, they will face backlash from the donor class.

Against regional inequality we are essentially offered a manipulative tactic: on the one hand, the government subsidizes part of the cost of utilities, and on the other hand, it scares people that any changes could mean higher costs. The current order also tries to survive through an illusory redistribution. But you say there are no real intentions to change the situation. What could be an effective alternative?

Satybaldieva: It all depends on how radical are the changes you want. You can introduce measures that will only mitigate some of the inequalities, or you can fundamentally transform the system. Since Kazakhstan is integrated into the global capitalist economy, it has room for structural adjustment. Measures for this restructuring should include the nationalization of strategic industries and even canceling the policy of privatization.

But this is unlikely to happen soon, because such a turn requires strong public pressure and broad class coalitions. Today it is mostly the precariat, the working class, and the poor who can demand change. But it should be a broader coalition of various forces. Other social groups should join them. However, we do not see this happening in Kazakhstan. And since you don't have that kind of pressure, the rentier class and the political elite won't do anything. Why would they change the status quo? Most likely, they will do the bare minimum. Therefore, everything remained at the level of rhetoric a year after the January events.

Less radical, but still effective measures could be taken in the realm of taxation. This is one of the simplest steps that Kazakhstan can take. You can tax the rent. Corporate tax doesn't have to be that low either.

I recommend reading the 2018 book ‘From Triumph to Crisis: Neoliberal Economic Reform in Postcommunist Countries’ by economists Hilary Appel and Mitchell Orenstein. They give a very detailed description of the neoliberal policies that Kazakhstan has pursued since independence and explain that they were not needed. Even the World Bank opposed Kazakhstan’s choice for a flat taxation system. This, and the low corporate tax were against the interests of Kazakhstan, but these policies were introduced in an effort to attract foreign investment.

But these policies can be revoked, it doesn’t have to be always like this. I would suggest introducing a progressive taxation scale, high corporate taxes, and restrictions on the concentration of resources into a few hands. As for a regional policy, I would recommend investing in agricultural regions and subsidizing agriculture. In Western countries, farmers receive significant support from the state. Subsidies make up about 50% of farmers' income, so they don't have to deal with market distortions and product price fluctuations. At the same time, the architects of neoliberalism recommend to us what neither the US nor the EU countries do in their own countries.

In Kazakhstan, economic growth is still largely dependent on oil prices. The country still plays the role of a supplier of cheap raw materials for the whole world. Now everyone is talking about diversification, but I do not see any real efforts in this direction.

The situation requires the creation of a completely different economy. This will be very difficult. Before you get started, it's important to answer difficult questions. For example, what is the economy for? The answer here is obvious: it should benefit the people of Kazakhstan, and not fulfill the desires of the Global North. At present, Kazakhstan simply serves the needs of developed countries and does not respond to its own economic needs.

Another point concerns the class struggle. It doesn’t work when people are just sitting around waiting for the authorities to put them out of their misery. We must be involved in politics. We all need to answer two questions. First, who should be blamed for the economic crisis? Second, what can we do? In answering we are faced with the difficult tasks of not only forming class solidarity within the country, but also at the international level. What we need at this stage is global solidarity, which is precisely what can reverse the destructive effects of capitalism. Without this, it is impossible to expect fundamental changes.

Elmira Satybaldieva is a Senior Research Fellow at the Conflict Analysis Research Centre, University of Kent.

Balihar Sanghera is a Senior Lecturer in Sociology at the University of Kent.

This interview was originally published in Russian.