3.3. Interaction of the State, Civil Society and Private Sector

Having chosen democracy as a system to guide further development, Armenia had to develop its own model of social cooperation to solve the problems posed by social and state reforms. A decade of experience with reforms has demonstrated the importance of considering the vital interests of all participants while designing and implementing models, as well as the grave consequences of ignoring those interests. The first step towards social cooperation can be the elaboration of such a model.

From the viewpoint of social cooperation the whole path of Armenia's post-authoritarian development can be divided into three phases, each having a number of common features along with peculiarities.

Phase 1. The population was consolidated around a national idea, aimed at seeking independence for Nagorno Karabagh from Azerbaijan, and for Armenia from the USSR. The Armenian National Movement (AMN), as a representative body, undertook the role of voicing and protecting these ideas. Social groups and NGOs overwhelmingly proclaimed their support of the AMN, though the number supporting full independence was close to 40-45%, according to public opinion polls. Nevertheless, Armenia announced the decision to secede from the Soviet Union, although the leaders of enterprises and the business-minded part of the population were conscious of the irreversible consequences of this step.

Phase 2. Armenia seceded from the USSR, and after the introduction of its national currency, left the united ruble zone. Civil society started rapid but chaotic self-organization, without any essential support from the State or private sector. The de-nationalization of the state property resulted in the formation of new social structures of society, general impoverishment, and precipitated a mass outflow of the population for social reasons.

Phase 3. Its current developments could be called "state oriented" since are noticeable the attempts made to increase the state influence on social and economic processes, and to enhance the role of the state. In all three phases of social cooperation, the state is still the dominating actor. To become an equal participant, the state, along with creating a legal field conducive for business, must be capable of carrying out effectively a number of functions (Table 3.1).

Table 3.1. The State as an Equal Partner

3.3.1. Civil Society

The number and diversity of civil society organizations (CSO), as well as their impact on social life, are major indicators in assessing the degree of civil society's establishment. The mushrooming of non-governmental organizations in Armenia, which augmented the numbers of previously established official NGOs, was associated with several developments: the earthquake (charitable funds and unions); Karabagh movement (unions of compatriots); struggle for independence (social, civic and national unions); cuts of redundant manpower (unions of craftsmen) and acquisition of state independence (cultural, religious, youth, women, etc.).

Figure 3.1. Functioning of Civil Society in Armenia Source: data provided by the RA Ministry of Justice, specified through a special survey.

Women's and ethno-cultural unions and a number of charitable organizations are the most active in assisting orphans, the families of freedom fighters who died at war, and the residents of the earthquake zone. The attempts of human rights organizations to curb persecution for political reasons and to protect human rights are so far inefficient, although they are supported by some international organizations.

3.3.2. Private Sector

The participation of the private sector in social cooperation is interesting in terms of its social and organizational parameters. The private sector is more or less involved in the socioeconomic process: it makes certain contributions to the budget, to the pension fund, creates jobs, etc. From this point of view, most farmers engaged in agriculture (due to the dominance of the in-kind exchange economy) as well as petty entrepreneurs and traders are weakly integrated in this process. The primary role in this sector belongs to the relatively large trade and industrial entrepreneurs (Figure 3.2).

Figure 3.2. Cooperation in the Private Sector.

Formation of the private industrial sector is largely determined by the growth of a new economic class, comprising the representatives of the present and former ruling elite, prosperous ex-patriates, self-made businessmen and foreign investors. Though all of these groups are potentially subject to such risk factors as changes in the ruling elite, extortion, lack of genuine protection for investments and urgently needed protection of their interests, cohesion even within this economic class is rather low. Yet sporadically entrepreneurs are taking steps to protect their interests, usually by keeping a low profile, and trying to solve their problems alone. Faced with the dilemma to either play by the proposed rules, or to hide in the shadows until better times come, the preference is usually with the latter. According to some expert estimates, two-thirds of economic activity is considered to be unofficial. Imperfect tax legislation and corrupt bureaucracy aggravate this situation. Large entrepreneurs seem to find themselves in conditions that force them to consolidate, hence some increase in the activity of entrepreneurs and businessmen's unions has been noticed. This has resulted, for example, in the partial termination of the government's mandatory decision to install cash registers. During parliamentary elections in 1999, entrepreneurs and businessmen garnered support for candidates at 20 majority-polling districts. Most of these candidates were elected and formed their own lobbying group. These phenomena can be regarded as the outcome of consolidation activities on the part of entrepreneurs and businessmen.