Economics and Politics of Free Market in Afghanistan

Article by Sanjar Qiam:

Does the open market economy of Afghanistan takes into estimation extra-market conditions, including history?

Afghanistan economy has always been open market; in the sense, it was never regulated. Non-market institutions and forces have been determinants of trading in Afghan economy. The strength of informal market forces has been stronger than market forces. The creation of informal markets is a resultant of market adjustment to operate under the shadow of political forces. Informal markets and patterns of trading that have developed over many years and operate according to well-established patterns. Market performance depends on extra-market conditions, including history and non-market institutions. The influence of political forces on the market combines market performance elements to exclude many from taking part and enjoying the benefits of participation. Some aspects which could result in exclusion are social and economic structures, gender relations, ethnic identities and spatial patterns of production. In the present condition this pattern of market performance is reinforced and they have the potential to destabilise the country politically.

The booming non-formal economy is highly regulated by informal institutions and is said not to be free. The appearance of economic dynamism hides the fact that informal social regulation actively restricts competition and participation. This lack of competition means that the distribution of the benefits of markets (and therefore of economic growth) is skewed towards those who are already wealthy and powerful.

The way markets are currently functioning is also having a negative effect on political governance and “state-building.” There are close, mutually beneficial links between big business and political and military power holders. Businessmen receive security, tax exemption, credit and in some sectors (such as construction), access to lucrative contracts. For power holders, the linkages provide a means of investment and the potential for money laundering. The accrual of benefits from these markets provides them with the resources to strengthen their military and political power still further.

The costs of these trends to social equity, further growth, political stability and environmental protection are considerable.
A close look at; how Are Markets Run? Who is doing business? What sorts of market tactics are deployed? What sort of business are they doing? How are markets regulated? Despite their usual description as “informal,” markets are heavily regulated by “non-state” forms of regulation. Many of these regulations are embedded in social and ideological norms and institutions. How are government attempts to regulate markets effecting?

The keys areas across Afghan major market sections are: The construction business: a growing sector controlled by a politically-connected oligopoly. this business is highly lucrative. Contracts worth billions of dollars have been assigned to afghan construction companies to build NATO basis, garrisons for afghan armed forces, road construction and many reconstruction projects. Second; The carpet market: a growing sector, but with benefits for whom? And third; Raisin exports: government bureaucracy and bribe-taking, but no quality control or support. Fourth; the aviation industry. Several companies have started their operation in the last couple of years. Carrying passengers internally and internationally. And fifth is the oil business; companies like gas group with close link to the northern alliance have started to operate in the last few months.

The Negative Reality of Afghan Markets

There are four major reasons why the issues identified here matter:

Inequality is worsened by the skewing of benefits from markets. Many of those who emphasise the importance of growth, also recognise that it is not just the quantity of growth that is important, but also the quality. How would the current business environment effect inequalities?

Future growth is constrained: Private sector led development is considered the key to Afghanistan’s longer-term economic development. However, discussions about private sector activities are often based on an assumption that markets in Afghanistan are open and all that is needed is the stimulation of “entrepreneurship” among Afghans. In the current non-competitive environment, those opportunities that are provided are not open to all, but are captured by those who are in a position to do so, creating a self-reinforcing pattern of exclusion.

Existing patterns of political and military control are reinforced and “state-building” diminished. The operation of markets in Afghanistan is closely linked to broader political economy issues. Insecurity reigns throughout the country and the disarmament of warlords and militias in Kabul and elsewhere has been impeded by internal and external politics. The military and political control exerted by regional and local commanders is underpinned by financial resources that come from a variety of licit and illicit sources, including the narcotics trade, customs revenues, revenues from mines in some regions, and unofficial taxation.

The failure to understand linkages between political power (both inside and outside central government) and the economy sometimes leads to an assumption by policy makers of an inherently mutually positive relationship between economic growth and “good governance,” with a lack of clarity about the direction of causality. The realities of the Afghan political economy are that while improved governance may improve the distribution of economic benefits, economic growth will not necessarily lead to improved political governance. Indeed, unless there are concurrent changes in the ways that markets function and in the distribution of the benefits of economic growth, the chance of genuine democratic change and increased security may actually decrease with further economic growth.