Armenia’s Soviet past laid the groundwork for its burgeoning tech revolution, but can it avoid the pitfalls of neoliberalism moving forward?

Armenia's Soviet past laid the groundwork for its burgeoning tech revolution, but can it avoid the pitfalls of neoliberalism moving forward?

Armenia is one of the leading centres for software development in the world as well as a regional hub for chip design, not to mention networking systems and communications.. The opening day of the World Congress on Information Technology 2019, held in the Armenia capital of Yerevan between 6-9 October 2019.

(WCIT 2019 Yerevan)

“This is really the first time that there is a continuous flow of amazing people coming to this country to see what’s going on and what’s happening. And it’s so exciting because I really believe in the potential of the people here,” says Madlene Minassian, head of corporate affairs at PicsArt, the image editing app and darling of Yerevan’s burgeoning tech scene. She spoke to Equal Times just days after the end of the World Congress on Information Technology 2019 which was held for the first time in its 40-year history in the Armenian capital, attended by CEOs, policymakers and technologists from around the world, as well as prominent members of the Armenian diaspora such as Alexis Ohanian, co-founder of Reddit, and celebrity Kim Kardashian-West.

Armenia is one of the leading centres for software development in the world as well as a regional hub for chip design, not to mention networking systems and communications. In 2017, the turnover of the ICT (information and communications technology) sector accounted for approximately 7 per cent of GDP, while according to the Enterprise Incubator Foundation (EIF, a business incubator and consulting company based in Yerevan), Armenia saw an almost fourfold increase in ICT start-ups between 2010 and 2017, jumping from 181 enterprises to 800. Minassian says the growth of the Armenia’s tech sector is rooted in the country’s Soviet past: “We have a legacy of scientists,” she says alluding to the likes of Hovannes Adamian (inventor of the colour television) and Boris Babayan (pioneer of supercomputers in the Soviet Union). “This is the kind of environment to create tomorrow’s leaders of IT.” Amalya Yeghoyan, a project manager at EIF, agrees:

“During the second half of the 20th century, Armenia was one of the countries providing R&D [research and development] services to the whole of the Soviet Union.” In fact, it is estimated that a third of all Soviet military electronics were designed and produced in Armenia, and it was also home to the secret Yerevan Computer Research Institute, which employed thousands of highly skilled workers.

Armenia also has a diaspora that is several times bigger than the country’s population, in part due to the aftermath of the 1915 Armenian genocide. Today, Armenia is home to three million people while its diaspora is estimated to be between seven to 10 million. As a result, “after the collapse of the Soviet Union, the government approached people of the Armenian diaspora working in big multinational companies [in the United States], such as Microsoft and Synopsys, to move their R&D branches to the country,” says Yeghoyan.

Yet, as much as legacy matters, policy has also played an important role in Armenia’s rising tech scene. Over the past 20 years, at the behest of the International Monetary Fund, Armenia has implemented successive reforms designed to encourage foreign investment in the country. In 2019, the new government of Nikol Pashinyan took the decision to substitute existing progressive tiers of taxation with a single 23 per cent flat tax (to be lowered to 20 per cent in 2023).

In addition, another law has been introduced to grant no tax on profits and only 10 per cent income tax to new start-ups with fewer than 30 employees. Critics, most prominently the grassroots diaspora-based Zoravik Activist Collective, have complained that these reforms will only deepen income inequality by shifting the burden of taxation “from the wealthy minority to the impoverished majority”. According to the most recent data from the Asian Development Bank, 25.7 per cent of Armenians live under the poverty line.

From ‘Velvet Revolution’ to ‘economic revolution’

Pashinyan became the prime minister of Armenia in May 2018 after leading weeks of anti-government and anti-corruption protests in the small Caucasian state. The former prime minister, Serzh Sargsyan, was the public face of the Republican Party of Armenia (RPA) which had ruled the country for 20 years, a period plagued by corruption and little attention to the rule of law. But this peaceful transfer of power, which was dubbed the ‘Velvet Revolution’, was quickly followed by more radical changes. “When this government came into power it announced the programme of an economic revolution,” says Gevorg Baghdasaryan, a former legal adviser in the Ministry of Economics. The new tax laws are just one part of it. Baghdasaryan argues that this government’s economic philosophy follows some clear guidelines: “Increasing the business ranking of the country to attract more investments,” and “breaking up monopolies, oligopolies and reducing the state’s capacity to limit private companies”.

When asked to describe the main challenge of the current government, Baghdasaryan says that “citizens need to act more proactively, be more engaged, try to create their companies and add value to the economy,” but he also argues that reforms are “not strictly neoliberal.” He tells Equal Times: “As our prime minister once said, this government has no ‘isms’, but jumps from one idea to the other”. In short, “the basic principle is that we do everything business is more pleased with.”

The problem is that beyond all the hype about Armenia being ‘the Silicon Valley of the South Caucasus’, Armenia remains a country plagued by inequality. Its official unemployment rate is 17.7 per cent and its GINI index (which measures inequality) was 32.4 in 2016, up from 29.4 in 2011.

Obviously, these issues pre-date Pashinyan’s government but as the Armenian economist and statistician, Hrant Mikaelian writes: “Considering that inequality is one of the reasons why a revolution occurred, the government is taking a big risk [with its tax reforms].” Defenders of the tax reforms argue that a leaner tax code could lead to increased economic activity and investment, thus setting in place higher wages and spending power and, eventually, more tax revenues.

But independently from the as-yet-to-be-seen effects of the flat-tax on inequality levels, what role could the tech sector play in closing the huge gap between the rich and the poor in Armenia? According to Baghdasaryan, besides breaking up monopolies and attracting investment, a third pillar of the government’s approach is shifting economic activity “from agriculture [which is said to account for nearly 35 per cent of total employment in Armenia] to the technology and know-how-intensive sectors.”

For Yeghoyan of the EIF, Armenia’s tech industry will only become a genuine factor of social progress when the development of technological innovation is applied to all sectors and industries, particularly agriculture and healthcare. “We still don’t experience an impact of the recent technological developments in this country in the rural areas,” she says. “What we see rather is Armenia booming on the global map as a country of individual thinkers spreading creativity.”

Where did the activists go?

The movement that brought Pashinyan into power was one where people from different socio-economic backgrounds coagulated around slogans such as ‘love and solidarity’ in an attempt to dislodge systemic corruption and a political class and structure that had little positive impact on the lives of ordinary people. Therefore, one could argue that ideological divergences amongst protesters came second to their willingness to instil change.

On top of this, no political parties from the radical left made it into Armenia’s parliament following the December 2018 general elections. Subsequently, today, the country’s political landscape is one where the ruling liberal forces are opposed by nationalistic parties – there are almost no political forces willing to take up the fight against inequality as a primary concern. Why is this so?

“There is a fear of public criticism. Because the government is still new,” says Armine Ishkanian, an associate professor in social policy at the International Inequalities Institute at the London School of Economics. “There is a fear of revanchist forces from the previous regimes which leads to a reluctance to be over critical,” she adds. On top of that, and, more generally, “there is a very small segment of the population that subscribes to more left views,” with the consensus being that Armenia should focus on fostering economic development as a whole, irrespective of how that wealth and development is distributed amongst the population.

Nevertheless, some of Pashinyan’s early supporters came from the left. “But they are very marginalised in society and do not have very strong political support,” according to Ishkanian. When asked whether Pashinyan’s revolution has turned into a neoliberal laboratory, Ishkanian’s answer is clear:

“Yes. Where the revolution drew people in it was to change society, not just the leadership of the country. Unfortunately, the neoliberal policies that have been adopted over the past two decades are continuing and intensifying under the new government.”

In the light of Ishkanian’s analysis, it is striking to see how the Western media has focused on Armenia’s technological boom as an outcome of the 2018 Velvet Revolution, without paying enough attention to the social and economic dynamics.
“The point is that it is not just about what revenues can be generated from the high-tech sector, but also what the government proposes to do with those revenues, how it proposes to tax those corporations and how it wants to invest in the socio-economic development of Armenia,” says Ishkanian.

It is difficult to say what will happen in the near future. In July 2019, a survey conducted by the US-based democracy think-tank the International Republican Institute showed that 60 per cent of Armenians think the country is heading in the right direction. But Ishkanian is cautious: “I think there is going to be discontent. One-third of Armenians live in poverty. The government’s approach has been to encourage entrepreneurial spirit…but, it should look at the structures that prevent certain people from going into business, or from accessing the types of educational opportunities that will allow them to benefit from the high-tech economy. And I haven’t seen this level of thinking so far.”