"Ask not only what your government has done for you, but ask also what you have done for yourself."
When Armenian Prime Minister Nikol Pashinyan riffed, on his Facebook page, on John F. Kennedy’s famous saying, to many Armenians it neatly encapsulated the emerging ideological orientation of the country’s new government: a pull-yourself-up-by-your-bootstraps ethos that puts the onus on Armenians to improve their own situation.
Among the economic policies Pashinyan and his government have proposed so far include a flat income tax, reducing welfare benefits for citizens able to work, and trimming the rolls of government workers.
“The government should not be a meddler, but a partner,” Hovhannes Igityan, a member of parliament for Pashinyan’s My Step faction, told Eurasianet. “The government should not be seen as a giver of work; rather, its role is to create the conditions for a person to succeed.”
That philosophy is embodied in the new government’s five-year policy program, published in February, which Pashinyan promised would amount to nothing less than an “economic revolution” to follow the political revolution that brought him to power last year.
The program has broad, uncontroversial goals: to revitalize the Armenian economy, decrease poverty, eliminate corruption, and generally improve the lives of the Armenian population. But the program’s means to bring about those ends – heavy on individual initiative and reliance on markets – recall the 90’s-era economic theory, known as the Washington Consensus, that has more recently fallen out of favor.
The single largest reform in the program is the introduction of a flat tax rate in which the poorest Armenians are expected to bear the same tax burden as the richest. Under the proposal, all Armenians would be subject to a tax of 23 percent of their income. Five years after implementation, that would fall to 20 percent. (The current system is progressive, in which the lowest bracket is taxed at 23 percent and the highest at 36 percent.) Moreover, to spur the development of small businesses, enterprises with a yearly turnover of less than $50,000 will be exempted from taxation.
While the ostensible goal of these reforms is to widen the tax base by removing incentives to evade taxes, some analysts, like Armenian economist and statistician Hrant Mikaelian, have criticized the planned reform for its outdated macroeconomic thinking.
“’Reaganomics,’ built on similar principles in the United States during the early 1980s, led to increased inequality and social stratification, which was not only not overcome, but continues to this day,” Mikaelian wrote in a recent blog post. “Considering that inequality is one of the reasons why a revolution occurred, the government is taking a big risk.”
The government is also aiming for an “optimization” of the government bureaucracy, said Igityan, the parliamentarian: “Many departments were doubled” under previous governments, he said. “They ping-ponged responsibilities between each other. And this lowered the responsibility felt by a given department below what it would and should feel if it operated unilaterally.” He said it was not yet possible to predict how many people would be laid off as a result.
Pashinyan and other members of his government have repeatedly framed the country’s economic problems, and the solutions required, in moral and psychological terms.
In the speech he gave to introduce the program, Pashinyan said that “poverty is in people’s minds.” He added that “the numerical parameters of the economic revolution actually depend on how many Armenian citizens will respond to our call to become activists of the economic revolution and how many will decide to take advantage of the opportunities of the same revolutionary platform.”
Igityan explained the reforms in similar terms. “It’s not about whether GDP growth is 3 percent or 5 percent,” he said. “What is fundamental is how Armenian citizens relate toward the law and toward personal responsibility.”
Another proposed economic reform is the reduction of welfare payments made to those who are capable of work, even if they are unemployed. Government aid should instead be “targeted” to “the pensioner, the child, the incapacitated person,” Pashinyan said in a November speech in parliament. “We will encourage our citizens to stand up, straighten their backs, and believe in their own strength.” The proposal has yet to be introduced as legislation, but a proposal to increase the minimum pension (from 16,000 AMD to 25,500 AMD, about $33 to $52) is currently under discussion in parliament.
The government’s emphasis on self-reliance has drawn criticism.
“It’s textbook neoliberalism,” Armine Ishkanian, a lecturer at the London School of Economics, told Eurasianet. “[Pashinyan doesn’t] look at structural and institutional factors.” she said. “The poor are blamed for being poor. They are called lazy.”
Where it’s been tried before, this individualistic, market-based approach has failed at delivering development, Ishkanian argued: “In all the countries where we’ve seen neoliberal policies implemented we’ve seen a growth in poverty and income inequality.”
But Pashinyan has little choice but to implement these kinds of neoliberal programs, argued political analyst Alexander Iskandaryan. “A social government is for the rich. To redistribute you must first earn,” he told Eurasianet. “In Germany you can subsidize agriculture, renewable energy, etc. In poor countries, this is if not impossible, incredibly difficult. A Dickensian capitalist rhetoric is used in Armenia, because the reality of capitalism in Armenia is Dickensian.”
There are, however, some counterbalances to the market-based approach in the government’s early economic agenda. The government also is seeking to transform the country’s mostly private healthcare system into a single-payer universal system by 2021.
“One of the biggest challenges Armenia faces is the low level of public spending for healthcare,” recently appointed Minister of Health Arsen Torosyan told Eurasianet. “We rank as the worst in post-Soviet region and are within the worst 10 in the world.” He says that 85 percent of healthcare costs in the country are paid for out-of-pocket – “one of the worst numbers in the world.”
Torosyan – whose twitter account favorably cites American democratic-socialist congresswoman Alexandria Ocasio-Cortez – says the reform still faces challenges within the government.
“It has been suggested by the Central Bank that we outsource these services to the private insurance companies,” he said. “But international experience shows that in terms of cost-effectiveness, efficiency, and health outcomes the private model is worse than the single-payer system.”
Peter Liakhov is a freelance journalist based in Yerevan. Sign up for Eurasianet's free weekly newsletter.
Peter Liakhov is a freelance journalist based in Yerevan.