The marketization of Mongolia

Monthly Review, March, 1996 by K.L. Abeywickrama

A recent international television program focused on the problems in Mongolia: hundreds of homeless children living in the sewers of Ulaanbaatar, and the corollary tale of the benevolent Western philanthropic organization which had built a shelter to house a few dozen of these children. The story is a familiar one: life in the ex-communist states is miserable and tragic, allegedly a destructive legacy of the communist ideology that failed to deliver on its promises. The situation of Mongolia is that of an untold disaster which is worth telling. The story of this small nation of 2.4 million people living in a huge land area of 605,000 sq. miles is typical of the tragedy that has befallen many ex-communist states.

The nomadic tribes of Mongolia had their triumphs in ancient times when they conquered and ruled extensive areas of Asia and Europe. Attila the Hun in the 5th century and Genghis Khan in the 13th century had the largest empires in the world in their times, more extensive than the domains of Alexander the Great or Julius Caesar. But when the Yuan dynasty of the Mongolian monarchy that ruled the Chinese Empire ended with a medley of warring chieftains by the 16th century, the country became a vassal state of China and declined into insignificance.(1)

For the next five hundred years Mongolia remained a primitive theocratic state ruled by the Head Lama, the Jetsundamma Khutuktu. China provided the provincial governors and Chinese traders controlled commerce, while 40 percent of the working population served the lamaseries as lamas or serfs working on farms. A poor and illiterate population of nomadic herders, farmers, and hunters was governed by aristocrats and monks, who owned most of the land. The imperial glories of a people who once conquered and ruled countries as far as Western Europe were only a dim memory.

After the Russian revolution, defeated remnants of the White Army under Baron von Unger-Sterberg captured and ruled Mongolia until the local revolutionary forces under Sukhbaatar invited the assistance of the Soviets to gain independence and establish a socialist state in 1921.

The economic, social, and cultural transformation of Mongolia under communism is a spectacular achievement, as astonishing as any of its past achievements. The socialist revolution of 1921 brought Mongolia into the modern world, and the new communist government brought Mongolia into the industrial age in three phases: 1921-39; 1940-60; 1961-1990.(2) In the first phase, the state began industrialization based on the processing of livestock products and other agricultural outputs of the collective farms. Attempts to collectivize herders failed at this stage. Trade, transport, banking, and communications were nationalized. Mongolian/Soviet joint-stock companies, state corporations and state-sponsored cooperatives took over economic production. Ulaanbaatar (literally, Red City) became an industrial center. In the second phase, agricultural herds were collectivized, industry diversified into mining, timber processing, and consumer goods production. Central planning began in 1931 with the first 5-Year Plan. Soviet assistance for communications and industry increased. In the third phase, Mongolia became a part of the COMECON economic group by joining the Council for Mutual Economic Assistance (CMEA) in 1962. The economy was linked to the economic plans of the COMECON countries, and the Soviet Union in particular, with the entirety of the foreign trade concentrated in this region and production geared to the reciprocal requirements of these countries.

Soviet and East European financial and technical assistance modernized and diversified the economy with the creation of large new industrial centers in other cities like Baga Nuur, Choybalsan, Darkhan, and Erdenet. Soviet assistance averaged an equivalent of 30 percent of the GDP at times.(3) Large factories for woolen products, leather goods, cashmere, cement, meat, timber, and grain processing employed hundreds of thousands of workers. For example, the shoe factory had produced 4 million pairs of footwear, while the meat factory could store a million carcasses.(4) Mining became a major economic activity and copper exports constituted half the exports by value. The economy grew by an average of 6 percent per annum, but began declining to 4-5 percent towards the late 1980s with the political disarray in the USSR. By 1980, industry accounted for 35 percent of the GDP, a proportion far higher than in major industrial nations like Japan or the United States.

The communist era dramatically improved the quality of life of the people until 1990, achieving commendable levels of social development through state-sponsored social welfare measures.(5) Education and health services were free, full employment was virtually guaranteed, lifetime pensions were granted to all employed persons, and women achieved equal opportunities in employment. Primary education was compulsory, 89 percent of the students completed the 8th grade, 50 percent graduated from the 10th grade and 16 percent of the work force achieved higher education. With a per capita GDP estimated at around US$ 840 in 1989, Mongolia achieved a literacy level of 97 percent for the population over 10 years of age. In 1990, it had 88.8 medical personnel and 119.5 hospital beds per 10,000 population. Nutritional standards, at 2,800-2,900 calories per day per capita, were adequate and compared with other middle-level countries. Infant mortality at 60.6 and maternal mortality at 1.44 per thousand births were still high but had registered substantial improvements over the years. Life expectancies at 60 years for males and 62.5 for females compared well with those in many developing countries of the time.(6)