None of the aforementioned models, however, could dominate national development due to a number of the objective constraints. Although being capital-intensive, the first model of a commodity orientation is a more easily negotiable area for the inflow of foreign investors, due
to high returns per capital invested within a short period. In addition, the liquid staples could be easily sold on the world markets at any time. Yet equally, this approach is inconsistent and short-sighted in terms of the rapid exhaustion of domestic opportunities after it has been kickstarted. The question is also quite relevant with regard to the efficiency in using the natural resource base which most probably may simply become a second-background issue in this case. Moreover, the impact of exogenous factors, such as the volatility of prices in the world commodities markets, high costs of foreign borrowings in coupe with the running-out capacities of the mining and energy sectors, is huge. Consequently, domestic policy becomes fully related to the influence of external factors to determine the fate and consequences of domestic reforms and national welfare.
Since Uzbekistan is a country with an explicit labor excess, the development of labor-intensive industries would have good prospects foreseen by Model 2. The majority of population has already private agricultural plots and historically and traditionally is linked to agriculture as the main source of their income. Moreover, their agricultural output may be demanded not only on domestic market, but also beyond national borders, both in Central Asia and in the CIS. The established network of domestic light industry also creates pre-requisites for the intensification of inter-sector supply schemes from which both sides could benefit. This could make local population as the primary beneficiary from growing income and job opportunities. Then private investments into manufacturing would provide some diversification of export structure with real steps towards the output of more finished goods contributing to the evolutionary industrialisation of the country. Another advantage is in that the republic may avoid substantial external borrowings reducing the risks of drowning in unsustainable foreign debts problems. Yet the most important assumption is that the aforementioned processes may occur provided that appropriate policy measures and environment would be set up. The latter will obviously a time-consuming process with the necessity of a complex approach to the solution of the contemporary problems in the republic.
The most time-consuming and costly developments are expected to take place within the Model of Industrial Development (Model 3). Although the Korean experience could serve as a pertinent case,211 Uzbekistan’s position, however, is challenged by some domestic
211 This idea was especially popular in Uzbekistan in the mid-1990s, when the South Korea’s experience was seen as a successful pattern to pursue domestic industrialisation. The case of Korea was referred as to reinforce a central role of state in pursuing the reforms. However, South Korea’s success in this particular case was mostly ensured by drastic measures on the structural reforms in the real sector through massive privatization of large-scale enterprises. In other words, the fact that these enterprises had become private and thus could negotiate on an independent footing the strategy of target support by the Korean government. And the central role of the Korean government was in skillful coordinating of the activities of the main state institutions, and appropriate
constraints. First and foremost, since domestic resources are limited, this scenario’s viability should be considered in relation to the external sources of sustainable funding. There are two possible ways in this regard: either to borrow on the world capital markets on commercial terms, or promote sustainable foreign capital inflows, in particular FDI, in priority areas of the local economy. As the first way is very costly and exerts a serious pressure, both economic and political, on modern and future generations, the second alternative if succeeded is much more preferable. But the dilemma for the state is in that on the one hand, the policy intends to improve ownership and management in large-scale industrial enterprises through incorporatisation and privatisation, but understandably will retain its majority stake in equity capital for strategic and national security reasons. On the other hand, the state will need foreign capital to support its privatisation process and subsequently contribute to the industrialisation process too. Yet for foreign capital, investments into exploration and development of mineral base is most probably a more attractive deal than in those units whose profits could be a matter of much longer run. Even when decisions in favor of the non-mining and non-energy enterprises have been made, the majority stake in overtaking of large scale local enterprises may become a critical issue for foreign capital.
This will thus require from the government to undertake some crucial measures on the elimination of administrative barriers, the simplification of organizational procedures and gain the sufficient creditworthy in order FDI to take more active part in the domestic structural reforms, including large-scale privatization and industrialisation initiatives in years to come.
Transparency, sustainability and irreversibility of the government actions towards better business environment through a set of adequate foreign exchange policy, foreign trade reforms, simplification of customs procedures and creation of favorable investment climate are expected to be essential in this model. In other words, the state has to balance between the intensification of multi-edged reforms on privatisation, modernisation, improvement in financial situation in industries, and the enhancement of foreign capital to mitigate limited financial opportunities for the implementation of such measures.
It is worth noting that the aforementioned models are different in that they concern their specific elements, such as the role of the government, private sector, both domestic and
adjusting a set of macroeconomic tools, such tax, budget, monetary, investment and foreign economic policies for the common goal. This common goal was the creation of effective incentives for modernization in different industries, promotion of their products in external markets. At the same time, one developed financial mediation, financial and industrial groups, which served as the main intermediates for capital flows from the state to private sector playing the role of classical price mechanism in a market economy. The point of some authors about the Korean economic success also emphasizes strong land reform and upgrading of knowledge which had crucial role in complementing subsequently general government policies. See more: Chung H.Lee The Economic Transformation of South Korea: Lessons for the Transition Economies, OECD, 1995.
foreign, social impact, investment priorities, policy tools, etc. But it does not necessarily mean that they may not overlap or even follow each other. On the contrary, the models or some elements may be intertwined and reflect a particular stage of the development. For example, an emphasis on the export-oriented industrial development (Model 3) may take place simultaneously with the improvement of conditions for agricultural and entrepreneurship development (Model 2) which would lead to the general improvement of business climate.
The question only whether the resources, both domestic and foreign, may be available on the sustainable basis. Besides, much will depend on how well the long-run benefits in the most progressive Model 3 could be perceived by the society comparing to a more direct impact from the implementation of Model 2.