5th Six Weeks

4/18/2011

Emmaline Smith

[THESIS 5]
Political change is an ongoing process for all countries at all levels of development.

Policy and institutional changes occur in a state when that government can no longer fulfill its capacity to rule. When a government cannot fulfill its obligations to the people, the people will demand change or the government will be forced to reform to stay in place. Outside elements can also cause a government to make political reforms, especially to policy and institutions. When the world economy suffers, a country may need to change its economic policy in order to cope with the loss of revenue export cuts. A nation must be dynamic, and change in response to stimuli from inside its borders. There are an infinite number of factors that produce political change, including but not exclusive to social, economic, and environmental issues. The Chinese government has gone through the process of continually reforming its government in order to create sustainable development and secure legitimacy. There are many important issues or problems that face China today, each influencing policy change immensely. The reform era witnessed the emergence of large economic reforms due to a rapidly growing economy as well as the emergence of market failure in the form of environmental pollution and the boom of a rapidly aging population. All of these social or economic factors are the guiding force behind policy and institution reform. China has experienced unprecedented and exponential growth over the last two decades, and is now the worlds second largest economy only next to the United States (Chou). Most of this economic overdrive can be attributed to Deng Xiaopings profitable decision to adopt freemarket reforms in 1978 (Kristof). In November, 1993 China made a landmark decision to transition to a market economy (Kristof). This decision caused a ripple effect leading to several major reforms like the unification of exchange rates and the overhaul of the tax and fiscal system as well as a reorganization of the central bank and some privatization started to occur in small-

scale state owned enterprises (United States). Both private ownership and the rule of law were formally incorporated into the Chinese Constitution in March 1999 and in 1997 the CPC issued a policy that made state-owned companies subject to mergers and bankruptcy (Chou). There was a major tax-sharing reform introduced in 1994 that made a clear distinction between local and national taxes in order to make it difficult for local government to erode national taxes as they had done in the past. In 1994 the new Budget Law took effect as well, it prohibited the central government from borrowing from the central bank. The 1994 tax and fiscal reforms are the most profound and comprehensive institutional transformation made in the time period (Kristof). As of 2008 in response to the global crisis, the government announced a financial stimulus of about four trillion Yuan spent over two years. The stresses of economic growth without large efforts to reconcile it with environmental support have had negative effects on many aspects of Chinese life. Serious environmental threats face China, from a growing reliance on coal, increasing environmental pollution, and climate change. It is clear that Chinas worsening environmental problems are due to the extremely rapid economic growth experienced over the last two decades. In 2006 the Chinese government said that pollution had degraded Chinas environment to a critical level, threatening health and social stability. Similarly, Economy (2004) reported that in 2000, China had 16 out of the top 20 most polluted cities in the world. There has been many reformed and new legislation and policies to try and combat this pollution. For example, the National Environmental Protection Agency (NEPA) and the State Planning Commission (SPC) jointly proposed Chinas Environmental Action Plan for 1991-2000 (Managi). More recently, an example of environmental policy is that as of January 2007, the State Environmental Protection Agency banned four major power firms and four highly polluted cities from embarking on new

developments until existing projects comply with environmental standards. Radical reform of government institutions was conducted by the Ninth National Peoples Congress in 1998 when the environmental protection agency was upgraded to ministerial status and renamed as the SEPA (Managi). After the 1998 reforms, many ministries were abolished, and several were recreated as bureaus under the State Economic and Trade Commission (SETC). The environmental problems are worsened by the immense population in mega cities like Beijing and Shang-Hi which generate massive traffic. This massive traffic is due to Chinas immense population, accounting for about 20% of the total world population. In an effort to limit population size, China implemented the one-child policy in 1979 (Chou). In order to stop female infanticide a policy was created in 1994 that prohibited prenatal sex screening, so parents could not abort female babies in favor of having male children (Maidment). Yet now that the population is growing old, China is struggling to find a solution. By 2050, Chinas seniors alone will likely constitute a larger nation than all Americans today (Maidment). In an interesting turn of event, Shanghai is breaking ranks with Chinas one-child policy, and encouraging couples to have a second child in an attempt to slow population aging. There are several exceptions to the law as well, for instance in 20008 after the Sichuan earthquake, a new policy was created that created an exception for parents who had lost children in the earthquake (Maidment). Due to the policy, the Chinese government estimates that it had three to four hundred million fewer people in 2008 than it would have had (Kristof). Chinese authorities consider the policy as a great success in helping implement Chinas current economic growth. The collapse of the Soviet Union was the greatest geopolitical catastrophe of the 20th century as said by Vladimir Putin, and it is the beginning of the turbulent Russian

transformation. The unsuccessful coup dtat in 1991, political collapse of the Soviet Union, and severe macroeconomic crisis created the basis for this transition. This transformation has been littered with obstacles for Russia, some of the most evident ones being corruption, poverty, a struggling economy, and a shrinking population. Corruption has become a commonplace theme in the Russian economy. The anticorruption NGO Transparency International has persistently rated Russia as one of the most corrupt nations in the world. In the 2009 Corruption Perception Index, Russia was ranked 146th out of 180 nations. There have been attempts for political change to fight against corruption in the past. In 1992, the president issued a decree on fighting against corruption in the state service system. (White & Zvi) But because of the absence of mechanisms for its implementation, this proved to be one of the most neglected decrees in Russia. Measures that sought to restrain corruption in law enforcement were adopted. The Federal Security Service, the Ministry of Internal Affairs, the State Customs Committee, and the Federal Service of Tax Police were all institutions given their own departments. In 1997, the president of the Russian Federation announced a transition to open tenders for state procurement orders, and he also announced that budgetary discipline was to be strengthened (Rosefielde & Stefan). The 1998 budget stipulated an increase of 48% in the financial resources allocated to the judicial system in order to help prosecute more cases against corruption. Measures aimed at constraining corruption prove to be either symbolic or fragmentary. Corruption is also a factor in the failing Russian economy, as it weakens the government budget. Economic reforms started in 1990 in order to achieve stability and restructure the countrys economic framework. Difficulties in implementing fiscal reforms aimed at raising government revenues lead to a financial crisis in 1998, the result was a rapid and steep decline in

the value of the ruble and a breakdown of the banking system (Rosefield & Stefan). Due to important economic reforms in tax, banking, and labor as well as a tight fiscal policy the economy bounced back quickly. Inflation and exchange rates stabilized due to a fiscal policy in which Russia ran a budget surplus from 2001-2008 (Rosefield & Stefan). Yet again in 2008 Russia faced another economic crisis due to the global economic crisis. In 2009 Russia was the worlds largest exporter of natural gas and the second largest exporter of oil (United States). The reliance on oil and gas exports made Russia vulnerable to the world market. Since 2007 the government has tried to reduce dependence on exports by an ambitious program but with little results so far. When oil prices plummeted in 2008 the foreign credits that Russia relied on also dried up. The Central Bank of Russia spent $200 billion to slow the devaluation of the ruble (White & Zvi). The economic decline leveled out in 2009 and in 2010 Russia experienced growth. However, a severe drought and fires in central Russia forced the government to ban grain exports so the people did not starve. The shrinking workforce of Russia also puts strain on the economy, as more working age men die and the population dwindles. Heart disease, cancer, traffic accidents, alcoholism, lung cancer, and violence are major contributors of death among working men. In response, in 2007 Putins administration approved the concept for demographic policy for the years 2008-2025 (White & Zvi). This is expected to increase life expectancy, reduce mortality, and increase birthrate. The government instituted the National Priority Health Project in order to slow population decline as well. Iran has had to face significant economic and social difficulties in the last two decades, entering into the 1990s because of major war damage and a floundering economy. Iran is another nation which has incredible dependence on oil, accounting for over 80% of total

government revenue (Mehrabi). The Oil Stabilization Fund (OSF) was created in 2001 to smooth economic vulnerabilities associated with oil price fluctuations (The Populists Problem). Oil hit a peak in 2008 but then prices fell again leaving Irans economy bruised. The high prices encouraged Mr. Ahmadinejad to spend liberally, injecting billions into the economy though cheap loans and hand-outs. Now this is coming back to bite, with inflation running high and the cost of food and housing extremely high. A gas rationing policy was implemented in 2007 to reduce consumption, yet was very unpopular and produced rioting (Rashid). Irans economy has also been hurt by economic sanctions applied by the United States, which have discouraged investment. In order to stimulate the economy, Iran began privatization in the early 1990s, yet by 2006 most industries still remained state-owned (Rashid). Unemployment puts a further strain on the economy of Iran. Iran official unemployment is stated to be 13% but economists estimate that the real figure hovers closer to 20% to 30% (The Populists Problem). Unemployment is especially common in women and youths, causing a brain drain in Iran. Rising unemployment is also behind other social ills such as the drug problem. Iran wanted an army of 20 million, and encouraged pregnancy, so the population rate has doubled in the last25 years. This increase was far from what the economy could absorb and has created a situation with too many people for too little employment (Mehrabi). To combat the unemployment and help the economy Iran has issued several five-year economic plans in order to shift its economy to a more market oriented economy. During the Khatemi administration from 1997 to 2005, the government introduced some structural reforms such as tax policy changes (Rashid). Policies under Ahmadinejad have been more expansive, the government provides extensive subsidies on gasoline, food, and housing. His policies have been cited for worsening the poverty and unemployment that troubles Iran (Mehrabi).

In China, Iran, and Russia all were experiencing a transitional period. Trying to move their economies to a market oriented model and trying to cope with changing social and economic values. In all of these nations, political reform was spurred by different yet important factors. The economy was the most common force that produced lasting policy and institutional change in a nation. Yet where China has to cope with a booming population, Russia must face a dwindling work force. China faces serious environmental concerns due to its rapid economic growth and population boom. Iran and Russia face oil dependency problems, and have suffering economies which contrasts to Chinas economic success. All of these countries have gone through monumental political changes which can be traced back to important issues they have or are facing.

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