How to achieve prosperity?

In the previous article, we noted that GDP growth, including per capita, is not a measure of the welfare growth. So, why do economists around the world primarily pay attention to these indicators? Only because these indicators show how steadily and predictably countries develop.

Over the past 3 years, we have achieved GDP growth through quantitative stimulation of growth, in other words, by increasing the volume of financing of industries that were supposed to pull the development of other sectors of the national economy. However, the social effectiveness of these measures was questionable. What is it?

For people, well-being is a slightly different dimension, and not only material. Economists are almost resigned to the fact that the price of goods and the amount of its consumption is the main criterion for assessing well-being. Such measurements in the context of different social groups, with different income levels give an idea of how this well-being is distributed among members of society.

We believe that welfare, in the end, should imply not only our current state, but also the prospects of our existence in the near and far future, on the scale of concepts such as people, country, humanity. The price of development of society-that’s what comes to the fore as the level of well-being of society.

Accordingly, it is equally important for us to know where we are and what awaits us in the future, what will happen to our children. Indicators of development are as important as they provide permanence, sustainability.

What is the price of development?

For example, it is very important for any country to know at what cost the rulers achieve sustainable development of the country? Here again, measuring and monitoring all indicators of depletion of natural resources (soil, water, forests, mineral resources, non-renewable energy sources, air quality, etc.) is very important. If the older generations ensure their own well-being, regardless of these sacrifices, these peoples condemn themselves to complete extinction in the future 50-100 years.

Thus, indicators of depletion of natural resources are the measure and answer to the question, what sacrifices are we willing to make for our own well-being? And this is a very difficult question.

For example, the Republic is rich in hydrocarbon resources. According to experts of the State Committee on Geology, 60% of the territory of Uzbekistan contains huge reserves of hydrocarbons. Uzbekistan has proven oil reserves of more than 594 million barrels. More than 190 hydrocarbon deposits have been identified in the Republic, including 94 gas and gas condensate fields. At the same time, 47% of the fields are in development, 35% are prepared for development, the rest are still being explored.  Today we have long-term contracts for the supply of natural gas with Chinese companies Sinopec and CNPC and with the Russian company LUKOIL and Gazprom. At the same time, the estimated reserves of natural gas are equal to 1.86 trillion m3 and Uzbekistan is among the 15 countries with the largest reserves of natural gas (3rd in the CIS).

Until recently, the only thing that held us back from widespread natural gas exports was the lack of adequate gas transportation infrastructure and investment opportunities for production and transportation.

Russia has taken great advantage of this situation and has successfully applied so-called leverage, acting as an intermediary between production and transportation in Uzbekistan and consumption in Europe and Asia. Russian companies, as a rule, agree that 75% of the total volume of gas produced in Uzbekistan goes to the Russian Federation, and the rest is distributed among the Central Asian countries under the brand name of Russian gas. Naturally, at other prices.

Of the 16 billion m3 of natural gas exported with Gazprom, 71% is supplied to Russia, 19% to Kazakhstan, 5.1% to Kyrgyzstan and 4.4% to Tajikistan.

This was all good for Uzbekistan until the development of our industry was squeezed by the vice of absence and limitation of external contact. Now, after the opening of the conversion, the situation is completely different. And how effective is it today to export natural gas in such volumes, while domestic consumption, including due to the growth of commercial consumption, is increasing in the country and the industrial potential of the country is growing? Wouldn’t it be better to channel these resources inward to push for more value added instead of calling for coal burning?

Neither the government nor society is paying due attention to the key issues of the effectiveness of the chosen model, because the most important issue has not been solved: the achievement of a minimum level of well-being of the people, which would itself give impetus to further development.

Meanwhile, the researchers suggest another clarifying concept called “optimal development”. What if consumption grows by the destruction of vital resources, or even by the calculation of their compensation at the expense of the interests and resources of other territories and peoples? Optimization of development implies a reasonable compromise between the level of development/consumption and the price of such development, taking into account the tasks of stability, sustainability of development in the future.

How to focus social policy?

Many economists in assessing the level of development of society like to use such an indicator as gross household income, which in most countries is implemented as an indicator of the assessment of the material standard of living of citizens. It is a certain amount of wages, interest from investments, including equity firms and other financial income, income from property net financial transfers (including from relatives abroad), the cost of the provided free government services (education, health, maternity, etc.) and other goods and services provided by non-profit organizations, net of taxes of all types.

However, again, the purely material approach to assessing the well-being of citizens is also quite limited, since it does not take into account such universally recognized values as the preservation of public security, the elimination of external threats, the creation of conditions for recreation and life, meaning the creation and maintenance of urban, agricultural infrastructure and communications. That is, the feeling of full happiness and security can not be measured only by material values. For example, if there is a retraining infrastructure in the country, these services help us to find the desired job, develop new human connections and feel more fully realized.

That is why observing the structure and proportions of GDP also gives a certain general idea of how the government understands and implements the country’s development priorities.

In some countries, studies are conducted on the level of happiness of people and there is even an index of happiness. Uzbekistan on this indicator, meanwhile, is on the 41st line of the rating. However, to rely entirely on this indicator would also be wrong, because in such studies there are a lot of questions that relate to the subjective feeling of satisfaction with one’s own life. People answering various questions about their own feelings, often emphasize the given answers: “very satisfied”, “rather satisfied than not satisfied”, etc. And, as studies show, people’s feelings of happiness have little to do with the level of material well-being and growth rates of GDP. And so, when a resident of Uzbekistan expresses his feeling of happiness, a resident of Canada and Germany looks at it very skeptically.

What to do?

Looking back at the first results of the modernization of our society, achieved in 3 years, we believe that the time for correcting previous mistakes has passed and it is time to develop our own agenda for building a new society, achieving a new quality of development. While our social achievements are not so obvious and it is clear that we have to go through more than one busy year.

Issues such as the promotion of accelerated urbanization, the construction of alternative sources of energy generation in the form of nuclear power plants, the export of basic national wealth, the efficiency of subsoil use, water resources, human resources should be discussed with experts and with representatives of various sectors of society in more detail, outlining all the pros and cons. It is clear that there is no time for unnecessary chatter either. However, the risks of not making informed decisions are still higher, at a time when public support and consent are becoming a more significant factor in moving forward.

Focusing on outdated concepts and methods of GDP growth at any cost should not be an end in itself and we already see the first negative consequences of this. We urge our government to engage in greater dialogue with the people to determine the development prospects of our society, to discuss the alternatives to the development of the country and the use of the country’s subsoil, land, water and human resources. Without a constant dialogue with the expert community and holding public discussions, we are doomed to failure, as happened with many countries that won sovereignty in the 60s.

Abdulla Abdukadirov

Economist

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