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When a country becomes personal business: Azerbaijan LLC

 

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Watching the news, hearing about the latest corruption scandal, understanding just how much government officials all around the world are misusing government budgets, serving themselves, not their country. Be it in the USA, Russia, China, or Azerbaijan, it seems it has become a trend to run a country as you would run a business. Even worse, the country’s resources become an asset in the personal portfolio of one or a few families in power.

In certain parts of Russia, US, but also Netherlands, mayors have been replaced by city managers. The terminology itself conveys the idea that the people are resources to be managed when it should be the other way around. Any government official is a civil servant, and as such, serves the people, acting and managing the city’s or country’s resources to the benefit of the population. It seems many are confused between a citizen to government relationship and a customer to business one.

In this article, we will first discuss the concepts of government and business, then we shall analyze different ways in which governments act as private businesses, going against their original purpose of serving their people.

The concept of government

The concept of government itself can be difficult to understand, especially since it can be good and bad at the same time. In spite of the possible occurrence of evil, the need for a government comes from our need as a human being to live in a society without fearing aggression or unfairness where each one of us can still act as an individual with their own rights. Depending on the type of government, each country’s citizens participate to the government budget in the form of taxes, budget that then will be redistributed for the betterment of the livelihood of its population, support economic growth, technological advancement, organize a healthcare and education system etc.

A government is thus there to create a system of justice and equal rights that puts fair restrictions on our freedom and penalizes wrongdoings such as the use of violence, theft, robbery, etc.… in theory. On the one side, having some type of government over the citizens of a country is necessary, on the other, any government’s powers should be limited, and they should be held accountable for their wrongdoings (E. Read, 2018).

The concept of business

One of the definitions of a business is an organization of individuals that work together to generate profit. Depending on the hierarchical position of said individual inside the business organization, increasing company profit will act as a guarantee to keep your job and get a promotion, or maintain investors happy, increase personal worth, increase assets, reinvest.

When talking about a company or a business, many words come to mind: strategic planning, achieving goals, cost-cutting, cost optimization, marketing, investment management, investors, and others. This business organization can make money if its economic activities are legal and follow the laws of the country it operates in. The government of this country thus limits, to a certain extent, the business’ freedom and penalizes it if it does anything wrong.

Unfortunately, these two concepts intermingle more than necessary.

Cost management

Managing costs is an essential task for a business. During difficult times especially, companies must optimize their costs as their revenue decreases. Some might cut their workforce, others will search for cheaper supply options, or cut advertising costs. Such methods are normal as companies must adapt to the current business environment. If you have minimal economic education, this pertains to the concepts of scarcity and availability of resources.

Other companies have in the past followed less ethical cost management and revenue optimization methods. Early 2019, Blizzard, a world-renowned video game company, went under scrutiny for firing over 800 employees despite having record-breaking earnings the year prior. Proving once again how this company cares more about its shareholders and increasing revenues, than providing quality service to their clients.

In Azerbaijan, many are employed by the public sector, for example in the oil and gas industry, education, healthcare, or administration. Despite high revenue from natural resources, the government did not reward the people in the form of better salaries, or social security, pensions…As discussed in our previous article, teachers are underpaid and struggle to earn enough to live a comfortable life. This situation is no different for our doctors and medical staff. Nor is it any different for those who are employed by SOCAR, BP, Total, and others in non-management positions.

During the construction of the Baku-Tbilisi-Ceyhan pipeline, several NGOs reported how rural workers were scammed, led to sign false or erroneous contracts, lacked social security even when working in a dangerous environment. Other issues were related to the increased forced prostitution of women living in rural areas. While the political and economic impact of the BTC pipeline was extraordinary, especially in terms of geopolitics as Europe started seeing Azerbaijan as a new stable oil and gas supplier, it did not have the optimal effects on the livelihood of our population as a whole.*

Source: SOCAR website, 2020

Despite the existence of a natural resource sovereign fund (SOFAZ), our government failed at saving oil and gas revenues for difficult times. Indeed, since 2014, at least 60% of the fund’s revenue was transferred to the government budget. Maybe this is how they funded the 10 million USD in coronavirus help to Iran and the World Health Organization. Who knows? What is sure is that even during peak years, inequality in Azerbaijan was rising.

While companies all around the world are pressured to constantly increase profit for their investors under the threat of losing capital, a government does not need to act in such a way. In Azerbaijan, SOFAZ funds have been continually misused, increasing the government budget both during growth and economic turmoil. A corrupt government is incentivized to increase budget at all costs, while still spending minimally (e.g. low salaries) as most of the budget ends up siphoned out to the pockets of certain people.

Risk management

This is yet another standard process for any business. Whatever decisions a company makes, risks are always taken. For example, if a company decides to launch a new innovative product, it takes the risk of investing in a product that does not have enough demand, or too much demand leading to delays in production or rushed production with low quality. Therefore, companies need to assess risks beforehand to be prepared for any issues and minimize their consequences.

In the same way, companies manage risk once a crisis is already on. In 2008, Europe’s Société Générale refused to take responsibility for the actions of its managers, instead saving face by suing only one trader, Jerome Kerviel, for the loss of almost 5 billion EUR. This is no different from the Azerbaijani government saving face by refusing to acknowledge the role of the Aliyev-Pashayev clan and other ruling elite related people in the Hajiyev scandal, including Rasim Asadov, Yaqub and Emin Eyyubov, Azer Gasimov, and Ali Naghiyev among many others.

In a more current issue, the Chinese Communist Party has protected their leader, Xi Jinping, by refusing accountability for the Covid-19 outbreak in the region of Hubei. Instead of acknowledging the widespread censorship of all virus-related information, the CCP decided to fire and demote a handful of government officials, diverting attention from Beijing to Wuhan.

Source : Chinese President Xi Jinping arrives at the fourth and last plenary meeting of the National People's Congress in Beijing on March 15, 2019. ANDREA VERDELLI/GETTY IMAGES

Both of these are effectively crisis management strategies that many businesses pursue to protect their shareholders (in the Hajiyev case, anyone involved in the money-laundering scheme), avoid more losses (lose support from Western allies), and save face (keep a good public image). Furthermore, by suing Cahangir Hajiyev, the Aliyev-Pashayev clan also took care of a potential threat to its power in the country. As any risk management course would tell you, identify and control any threat to your assets or earnings.

While it is normal for a government to manage risks, for example by diversifying the economy out of the natural resources industry, it is not normal for a government to not be held accountable for its wrongdoings.

Family business

Since 2016, many of us have been making fun of President Trump’s ridiculous daily tweets and rally speeches, but this is only a distraction tactic. While some preach his words and others hate on him, Trump has been running the USA as a private business, appointing family members, with or without relevant experience, at top government positions. This is without discussing the conflicts of interest of the whole Trump family in different industries, such as the real estate. More particularly, Trump has proudly stated multiple times that as a businessman he is the perfect person to run a country. Indeed, if the objective were to drown the USA in bankruptcy, it is a success.

In Azerbaijan, the power transferred from father to son, with a suspiciously high 76,84% in 2003. Back in 2003 already, the Aliyevs had prepared the terrain for their children. Thanks to the Panama Papers leak, it is known that Mehriban together with then tax minister Fazil Mammadov, created UF Universe Foundation in 2005, with 20% of proceeds going to their son, Heydar Aliyev, and 15% each to Leyla and Arzu. This foundation, via multiple secret Panama-based companies, had majority stake at Ata Holding which itself has stakes in the mining, oil and gas, telecommunications, and banking industries in Azerbaijan. In 2017, the president’s wife was named vice-president and the minimum age to become president was lowered to 18 years old, preparing the position for their son.

Transferring your shares in a company to your family is acceptable for any business owner because the person owns them. Government resources are not the personal possession of any government official, instead they are owned by all citizens of a country and are to be used to their benefit.

Conclusion

The problem is that when a company misuses profits or does anything illegal, governments are there to reprimand them. When it is the government itself that acts wrongly, it is the population that needs to react. Governments exist for their populations: the people are not clients of the government; they are its’ boss.

These are all only a few examples of what has been happening in our country, and worldwide. What angers the most is that those who steal are most often already in a privileged situation, but their greed pushes them to rob their own country and people.

Governments are composed of individuals just like the rest of us. Without mass negative reaction to bad governments and the actions of corrupt government officials, these individuals will continue abusing of their powers for personal gain (E. Read, 2018). If tomorrow every official suspected of misuse of funds was fired, nothing stops similarly minded individuals to get elected and continue stealing.

The latest parliamentary elections are an example of this. No real changes took place and thus, the probability of successful reforms in the country for the years to come stays low. The priority stays the same: maintain the current oligarchic and kleptocratic system where natural resources are stolen from the general population.

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