By Vahan Zanoyan
Much has been written about the conventional economic development challenges of Armenia: Infrastructure needs, energy security, export promotion, agricultural development, emphasis on specific sectors such as IT, direct foreign investment, more affordable credit for businesses, etc. While these issues remain important, there are deeper and less tangible challenges that often get neglected in the professional discourse — both in Armenian research efforts and in the publications of multilateral organizations, such as the World Bank and the International Monetary Fund (IMF).
Without minimizing the importance of the conventional topics, this paper will focus on some of the key intangibles.
Most of the intangible challenges are related to measures aimed at compensating for the small size of the Armenian economy relative to its trading partners. In small countries — say, with a population of under 10 million — like Armenia:
- a poor economy and sub-standard education system cannot support a strong military,
- a poor economy cannot support a strong education system,
- lack of innovation and a poor education system cannot support a strong economy,
- poor economic opportunities and slow growth cannot support growth in immigration,
- slow growth (or decline) in population in turn stifles economic growth, starting a vicious cycle.
However, just because Armenia is a small country in a bad neighborhood does not mean that it has to remain economically weak. While small countries do not have the economies of scale enjoyed by larger ones, they can be much more agile, more adaptable, and suffer from fewer and more manageable social challenges. The proven way of compensating for small size is (1) high and increasing productivity of labor and capital; (2) synchronization of various economic spheres to create synergies and positive economic externalities; (3) technological innovation (a major catalyst for productivity gains) through dedicated R&D spending; (4) efficiencies built into the system of production and distribution of goods and services.
The rest of this article will be devoted to an exposition, in outline form rather than detailed analysis, of various intangible measures which, directly or indirectly, contribute to and promote the four measures listed above.