Friday, August 15, 2008

The Mongolian Economy: the True Cause of Mongolia's post-Election Violence

In many ways, Mongolia seems like a country rooted in the past. Much of its people still herd animals astride their horses, living the same, nomadic lifestyle that their ancestors had lived for millennia.[1] Even the steppes over which they herd seem unchanged, with little infrastructure or development puncturing their vast reaches.[2] Any settlements are spread far apart from one another: it is no wonder, then, that Mongolia is the most sparsely populated country on Earth.[3]

Perhaps most telling of all, the ancient, 800 year-old persona of Genghis Khan remains the most prominent figure – and the biggest celebrity – in Mongolia: his image can be found on a host of products, and there are many monuments in his name. Even a side of a hill is adorned with his image. This larger than life figure, who began the conquest of what became the largest contiguous empire in history, embodies the proud past of the Mongol people; a time when they were the rulers of nearly all the known world; a time when nomads were still widespread across the earth, defying the steady advance of sedentary civilization.[4]

For the Mongols, this glorious past seems far better than the present reality they find themselves in, with their country being slow to develop and one of the poorest in Asia, not to mention being sandwiched between two, giant, powerful neighbors: Russia and China.

And yet, in the present global scene, Mongolia finds itself hailed as a hallmark for the future: the United States has referred to Mongolia’s peaceful transition from Communism to a relatively successful democracy as a model of what the post-Cold War era should look like. Even as many of the former Soviet bloc countries in Eastern Europe and Central Asia have struggled to implement true democracy and are starting to flounder under renewed Russian influence and even as newly established democracies in Iraq and Gaza have struggled, Mongolia’s democracy has remained relatively fair and functioning, which has made Mongolia attract significant praise – and foreign aid – from the United States.

This past July, though, Mongolia’s acclaimed democracy showed perhaps its first sign of considerable strain when the Democratic Party accused the Mongolian People’s Revolutionary Party (MPRP) (the former Communist Party) of election fraud in the parliamentary elections that month that were won by the MPRP. These allegations prompted a protest in Ulaanbaatar, the Mongolian capital, which soon degenerated into an angry mob that began vandalizing and looting nearby buildings and even set several buildings on fire, including the headquarters of the MPRP. The Mongolian authorities responded in full force, declaring a state of emergency and deploying the police and the military to restore order in Ulaanbaatar.[5]

This post-election saga came as a surprise to many in Mongolia and abroad given the performance of Mongolia’s young democracy up to that point. Indeed, the Democratic Party’s accusations do not seem entirely substantiated: international election observers disagreed with any such allegations.[6]

It is likely that the main trigger of the violence was not anything to do with the election dispute but rather the poor economic condition of Mongolia, with the election dispute acting as the catalyst for unleashing such frustration. Given the state of Mongolia’s economy, it is easy to see where the frustration stems from. Less than 1% of Mongolia’s land is fit for farming,[7] most of it being barren steppe and desert, forcing its people to herd animals for food (which, indeed, has been going on ever since Mongolia has been inhabited by people). While deeply rooted in tradition, such a nomadic lifestyle is unforgiving, which has prompted many to move to the cities, particularly Ulaanbaatar. Often, though, they end up in shantytowns outside the city, having exchanged one life of poverty for another.[8]

The lack of infrastructure across the vast steppes and deserts has remained a hindrance to further economic development. Although the former Communist rulers sought to modernize Mongolia and did have some impact, there is still less than 2,000 km of paved roads in Mongolia, which has an area about the size of Alaska.[9]

Mongolia hopes that its saving grace can be its vast, largely untapped deposits of minerals such as copper, gold, and coal. Unfortunately, the government has had a hard time regulating its nascent mining industry, and foreign companies still see most of the profits. Only a few Mongols reap the benefits while much of the rest of the Mongols remain poor.[10]

Perhaps the most telling example of the public frustration over the mining industry and the government’s inability to effectively regulate such mining is a 2006 windfall tax passed by the Mongolian parliament that would tax gold and copper profits at up to 68%. The Mongolian parliament passed this sweeping law in response to popular dissatisfaction with the foreign mining companies culminating in the burning of an effigy of Robert Friedland, then the head of Ivanhoe Mines Ltd, during a popular protest. The Mongolian government hoped that the new tax would enable the Mongolian people to profit more off of the gold and copper mining that has been undertaken by foreign companies.[11]

Unfortunately, the move seems to have backfired, partly because of the poor timing and execution of the Mongolian parliament: the tax was proposed and then enacted so swiftly that the mining companies had virtually no time to adjust, which alienated many and drove them away from current and future investment in Mongolia’s mines. Those that did stay had to rework contracts and delay new investments so that they could compensate financially for the sudden taxing change. The drop in mining from the foreign companies ultimately offset the higher tax rate, causing Mongolia’s revenue to decrease.[12]

Although not very well received by the public, Mongolia has had to rely on such foreign investment for a long while given its barren soil, harsh climate, its lack of development, and other economic handicaps. Such foreign aid dates back to the days of the Cold War when the Communist government in Mongolia received aid from the Soviet Union: indeed in the immediate aftermath of the Cold War the Mongolian economy fell on hard times after the Soviet aid stopped flowing into the country.[13] In recent years, other foreign companies and governments, particularly those of the United States, Japan, and China, have filled the void left by the Soviets.

Indeed, China has become perhaps the most important trading partner of Mongolia in recent years. The raw resources of Mongolia have helped China sustain its surging economic growth, while Chinese manufacturing and agricultural products have found a needy market back in Mongolia.[14]

The continued hardships of Mongolia’s economy have yet to translate into a change from democracy to another political system. That does not mean that there have not been grumblings, though. Some people long for the sort of socialist welfare programs that existed in the Communist regime but have since fallen out of favor since the introduction of capitalism and democracy.[15] Last month’s violence in Ulaanbaatar was a troubling sign of such dissatisfaction that the Mongols have with their daily lives. If the lives of the Mongols do not start to show signs of improvement soon, it may lead to a desire to try another form of government. It is such popular dissatisfaction with their lives rather than corruption or allegations of election fraud that the United States and other proponents of democracy should be most worried about with regard to Mongolia.

It is in the hands of the Mongol leaders, then, to help improve the state of the Mongol people to ensure their own success – and the success of the political system they head. In turns of immediate action, instituting some of the welfare policies that Mongolia is lacking may not be such a bad idea if for no other purpose than to alleviate some of the poverty.

Economically, greater regulation of mining and other industries would be a good move for the government so as to instill confidence in investors and to maximize output in such industries. Too much foreign investment may be unpopular and harmful in the long run, but at the moment it may be a necessary evil for Mongolia so as to generate some sort of economic activity. In the meantime, the government should focus on building up the country’s infrastructure and education systems so as to create a solid foundation from which Mongolian society may one day be able to sustain itself more through its own businesses as opposed to foreign ones.

If the Mongolian government implements such measures and continues to uphold its democratic form, then perhaps the Mongols will not erupt into an angry mob at the slightest bit of strain. Perhaps the Mongols will have lasting faith in their government. Perhaps the Mongols will look forward to the future rather than to seek solace in the past.

With democracy and established democratic nations faltering somewhat worldwide, whether it be the chaos in Iraq or Russia’s sound defeat of Georgia, never more has the fate of Mongolia meant so much for the United States and for the spread of democracy in general.


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1 comment:

Simmons said...

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