CIC Occasional Paper No 6 - Kazakhstan’s Emerging Middle Class: a Factor for Stability

November 2004


“A new elite and middle class have emerged, which is now demanding political reform from the president, and a greater say in the country's development.”
The Economist, 23rd September 2004

“First and foremost, the state must represent the interests of the middle class.”
Nursultan Nazarbayev, 1998.


Introduction

Historically, the middle class has generally favoured piecemeal rather than radical political reform and, except when its economic interests have been directly threatened, it has acted as a brake on change of an extreme or revolutionary kind. Throughout the democratic world it is the class most closely linked to notions of civic responsibility through its participation in voluntary, charitable and local organizations, and it is the one most keenly associated with the political virtues of moderation and stability.

Kazakhstan’s political future – like that of other transitional states - depends to a very considerable extent upon the emergence of a responsible and self-confident middle class. Is such a class emerging in Kazakhstan and what will be its role?

In its coverage of the September 19th elections to the Majilis, the Kazakh lower house, The Economist suggested that the inter-play of political forces in Kazakhstan is now largely a struggle between an authoritarian and conservative-minded president and an aspiring middle class demanding political reforms. Empirical evidence, including the results of September 19th elections, would seem to suggest the situation is very different: that an emergent middle class, which is only now beginning to assert itself, is broadly supportive of the President’s goals and is unwilling to jeopardize Kazakhstan’s present stability and prosperity by supporting radical alternatives. In this respect, Kazakhstan would appear to resemble states such as India and Japan in which a single party or faction remained in power for decades after emerging from a long period of authoritarian rule and the introduction of competitive elections.

Moreover, although Kazakhstan’s emerging middle class firmly favours a continuation of the democratic reform process, it is also evident that it has lost none of the respect for strong leaders that exists throughout CIS countries. That it is prepared to back Nazarbayev is suggested not only the by the 60 per cent share of the popular vote achieved by his Otan (Fatherland) Party in the elections to the Majilis, but also by the derisory vote given to the parties most critical of his policies. As the country experiences its fifth year of double digit economic growth following decades of stagnation under soviet communism, its members are unlikely to line up with those condemning Nazarbayev for a lack of reformist zeal.

For his part, the President has grasped that the support of the middle class is crucial to his reputation as the founding father of independent and modern Kazakhstan. The references in his speeches to the stabilizing influence of middle class and its function as the exemplar of particular virtues are too numerous to simply dismiss as mere rhetoric.


A home-grown Kazakh model

It does not follow that Kazakhstan’s changing social profile will eventually correspond to Western norms. The country’s clan system survived 70 years of Soviet rule despite numerous attempts to destroy it and, as in other Central Asian countries, it reasserted itself following Soviet collapse. It continues to exist as a source of patronage and influence. Since independence there has been a renaissance in Kazakh culture and a renewal of interest in all aspects of Kazakh language, folklore and custom. Kazakh traditions have become an important element in building a sense of nationhood. Given its powers of survival, the clan system is more likely to find an accommodation with civil society and the new non-governmental bodies that have recently sprung up than to simply fade away.

It is clear that, as in most Western countries, class is not merely defined by incomes or wealth and that being middle class implies adherence to particular attitudes and norms. A survey carried out this year by Polyton, a Kazakh NGO, found agreement on two points: Firstly, that the Kazakh middle class is still in the process of emerging; and, secondly, that such a class is not only defined by income but also by a particular mentality or psychology. On the basis of the survey findings the pollsters reported: “Characteristic features of this mentality are a sense of responsibility for one’s life, a deep sense of individualism, comprehension of educational and professional values as a guarantee of one’s prosperity and [a desire] to pass on these values to one’s children.” Above all, being middle class meant taking responsibility for one’s own destiny. One prominent Kazakh lawyer who took part in the survey provided the following definition: “Middle class people are neither multi-billionaires nor beggars. They secure themselves. There is a disposition to be master of his/her life and fate, which is shown by their activity and income.” According to the pollsters, being middle class was also related to the idea of self-government and the participation of the middle classes in public life constituted “an important mechanism [that will] impact on the political decision making process of Kazakhstan.” The middle class was also associated in the minds of those polled with the idea of stability in “a nation of self-managing citizens.”


Pillars of the Middle Class

Underlying and reinforcing the emergence of this class have been a number of important social and political changes which have led to a diminution of economic dependency on the state and the growth of middle class values such as thrift, independence and civic responsibility.

Pension reform

A bold and far-reaching pension reform law was enacted in 1997 when the old Soviet style pay-as-you-go system was tottering on the brink of bankruptcy and a highly ambitious fully funded system was introduced a year later backed by the World Bank and the Asian Development Bank. Designed in Kazakhstan, the new scheme at first appeared doomed to failure as computer software seemed incapable of handling the barrage of data which was fed into the system. But a spirit of professionalism took hold among a new breed of regulators and administrators, with the result that nearly six million people, accounting for almost eighty per cent of the economically active population, now participate in the scheme – a fifty per cent increase since 1st January 2002.

The fund now amounts to US$2.3 billion or eight per cent of GDP. As a consequence, Kazakhstan can expect to avoid the acute economic problems faced by European countries such as Germany and Italy as a result of huge unfunded pension liabilities.

An independent study recently concluded that the Kazakh reforms could be at least as successful and as far reaching in their social implications as the ground-breaking pension reform programme carried out in Chile in the 1980s.

Already, substantial progress has been made in achieving the declared aims of the new scheme – the first fully-funded scheme to be introduced in the CIS. These are to promote self-sufficiency, to reduce government expenditure, to encourage savings and to promote the development of the capital market and to eliminate poverty.

Along with the development of a banking system that approaches Western standards of efficiency and the creation of the National Fund - a stabilization fund to protect the Kazakhstan economy against external shocks - the scheme has added to the country’s reputation for inventiveness in creating financial institutions that answer to its own particular needs. It is a reputation that accounts in part for the country’s ability to attract much higher levels of foreign inward investment than its neighbours.

Privatisation

The process of privatisation began very cautiously in 1993 with the auction of a small number of shops in Almaty. The process was then extended across the country, including trading companies, food suppliers and other services. As part of a parallel process, a private housing market was created through the mass privatization of apartments. A second phase in the privatization programme involved the sale of large state enterprises.

By 1996 privatisation of private companies accounted for around 80 per cent of the economy. In agriculture, private firms and new forms of private ownership accounted for 97 per cent, in industry 80 per cent, construction 82 per cent and in transport 48 per cent. In some instances, as elsewhere in the former Soviet Union, public monopolies were simply replaced by private monopolies with little or no immediate improvement in efficiency or consumer choice. But overall the trend has been towards an extension of competition and choice as well as of private ownership.

The growth of civil society

Not all of Kazakhstan’s non-governmental organizations would be recognised as such in the West. Many depend on state funding; others were created with the help of outside agencies such as USAID. In order to operate, non-governmental organizations must register with the state, although the process has recently been eased and the cost of registration reduced. Gradually, however, through the creation of large numbers of NGOs it is possible to discern the development of civil society as the state distances itself from areas of social and cultural life which it previously controlled. According to the Kazakh government, there are now more than 3,500 non-governmental organizations employing 35,000 individuals, 50,000 temporary workers and supported by 100,000 volunteers. Such bodies cover a diverse range of issues from the environment and ecology to women’s rights, consumer protection and the problems of single mothers.

Perhaps the most dramatic and profound consequence of political and social change has the revival of organized religion without tensions between faiths. At Independence in 1991, there were a total of 25 mosques in a state that had been militantly atheistic for more than 50 years. By 2003 the number had risen to 1,408, an increase which has been matched by the growth of other religions.

Public service reform including the introduction of competitive entrance examinations

Major institutional reforms under the Civil Service Law of 1999 included the separation of political appointees from professional civil servants. The latter, who number 66,000, are now appointed on merit through competitive examinations and are required to attend programmes whose aim is to modernize attitudes, orientation and status.


Conclusion

The opening-up of the Kazakh economy has not only produced a new class of risk-taking entrepreneurs, it has also brought into being a new class of managers, professionals and administrators whose attitudes are recognizably different from those who filled such positions during Soviet days. In much of the Kazakh economy the old attitude of “they pretend to pay us, so we pretend to work,” which was common throughout the communist bloc, has been replaced by an impressive work ethic. Although it is possible to find traces of former attitudes, especially among older workers in the lower grades of the public service, Western companies report little difficulty in persuading staff to retrain, to work late or to do overtime. At the same time, reform of the country’s financial institutions, especially in the sphere of pensions, has further reduced dependency on the state and encouraged attitudes of economic independence and personal initiative.

The parallel growth of civil society has fostered a new social climate which encourages the decentralization of decision-making in areas where monopoly state power formerly held sway, thus encouraging the middle class virtues of personal and civic responsibility.

Such attitudes appear to go hand in hand with a reluctance to put at risk the economic and political advances made since Independence. Some younger professionals may identify with Dariga Nazarbayeva, leader and founder of the Asar party, more readily than with her father (although her party polled less well than expected in the September 19th election). But the difference between them is largely a matter of style and image rather than political substance: significantly, no fundamental policy differences emerged between the Asar and Otan parties during the course of the 19th September election campaign.

All the indications are that Kazakhstan’s emerging middle class is characterized by the same caution and moderation that it has displayed at most other times and places and that it will come to exert the same stabilising influence as in other democracies.