Ambassador A. Martirosyan participated at 4th Annual International Commerce Convention

19 December, 2015

On December 19, Ambassador of Armenia to India Armen Martirosyan participated at the inaugural session of the 4th Annual International Commerce Convention organized by the University of Delhi, where he delivered a speech. The theme of this year's conference was Corporate Governance and Corporate Social Responsibility: Retrospect and Prospects. Co-Founder of Infosys Narayana Murthy was the Guest of Honour at the two-day event. The convention was attended by representatives of large companies, scientists and students of various universities.

Ambassador A. Martirosyan's speech is presented below:

"First, I'd like to thank the organizers of this forum for inviting me and enabling me to address the audience. To tell you the truth, when Mr. Ashish Jain first offered me to take part in this conference, I was quite reluctant to accept it, since the topic is outside the domain of my current professional activities. Moreover, I figured it would be somewhat awkward for a diplomat to wax poetic about corporate governance in the presence of Mr. Narayana Murthy, who is described as the Father of Indian IT by Time magazine and one of the 12 greatest entrepreneurs of our time by Fortune magazine. Nevertheless, I thought that some aspects of Armenia’s experience in the transition from planned to market economy, the challenges we encounter on this path, some of you would find useful.

If one asked me what a corporation was 32 years ago, when after graduating from the Yerevan Technical University I began my work as an engineer, I'd barely answer, despite the fact that I was engaged, together with 15 thousand high skill workers, in the production of anti-aircraft defence systems at the biggest enterprise in Armenia, or Armenia’s biggest corporation, in today’s terminology. Consisting of many branches across Armenia, it was called "a manufacturing amalgamation". The Ministry of Radioindustry of the Former Soviet Union controlled the enterprise on behalf of its sole owner, the Soviet government. Obviously, the absence of private ownership as such meant that rules or regulations necessary for corporate governance were not needed at all. Among other factors, this contributed to the economic failure of my erstwhile country, and on December 26th, 1991 the world was officially notified about the demise of the Soviet Empire.

In those days it seemed to me, a youngest member of the first Parliament of Armenia, that by adopting legal acts coupled with generous official development assistance from the international community we would promptly succeed in state building. However, our excitement very soon turned into trepidation at the notion of responsibility for the future, as we began to realize the scope and depth of that historically unprecedented transformation.

We embarked on elaboration and implementation of reforms without clearly understanding the fundamentals of market economy in general and the transition process in particular. The educational system in place during the Soviet years did not enable us to comprehend and effectively address the demands of what was now the global economy.

Reducing the size of the state sector was the dominant requirement of those times. In response to this trend, the leading International Financial Institutions emphasized a set of policies intended to reduce the degree of state intervention in economic affairs and labelled the concept of economic reforms as the Washington consensus.

To my understanding, there was not too much wrong with the Washington consensus per se. The problem, rather, was that while states were bound to pull back activities in some areas, they also needed to simultaneously strengthen functions and capacities in many others. The primary one that I'd like to mention is the state's capacity for institution building and fair and transparent enforcement of laws. To make my case clear, I want to speak on the privatization of state owned enterprises in 90s.

Privatization was undoubtedly an appropriate prerequisite of economic reforms. However, to be implemented effectively, it required a substantial degree of institutional capacity, which the state did not posses. New owners of what used to be state assets were determined neither by the market nor by merit-based selection, but instead by their proximity to decision makers. Thus, "big bang" privatization brought players into the fold, whose efforts were mostly directed towards asset stripping rather than asset building. Lack of laws and regulations and ineffectiveness of the judiciary, combined with the lack of knowledge and expertise concerning work in an open and competitive environment, encouraged the sale of assets belonging to what used to be large industrial enterprises.

Thus the initial capital was created, leading almost exclusively to the formation of family owned small and medium enterprises. This new economic structure could not support industries that were capital intensive, required high wages, or involved significant R&D. It contributed to deindustrialization and rapid development of the service economy, which became the dominant component of the GNP.

Since the beginning of the 21st century, the further opening of the country, intensification of competition, growing need for external financing and modern technologies, and the strengthening of rule of law and the judicial system, necessitated reduction of transaction costs, and consolidation and incorporation of some existing enterprises. Thus, corporate governance emerged. Protection of minority rights, shareholder meetings, appointments of independent directors, moral hazard, etc; all these new phenomena are making an entry into our daily lives. To properly address these new demands, national legislation has been developed and the judiciary has improved.

In the course we are witnessing the positive and negative impacts of corporations' activities first hand. Thus, in pursuit of profits, most companies neglect critical issues, and affected communities respond by becoming more outspoken and demanding with regards to the corporations' fulfillment of social responsibilities. Environmental issues are of primary concern today. On the one hand, extractive industries harm natural ecosystems, to the inevitable detriment of the locals' traditional ways of life. On the other hand, the affected communities, mostly residing in the rural areas, benefit from much needed new jobs. One can already infer the difficulties involved in balancing these complex costs and benefits. In the meantime, some corporations provide optimism with regards to this balancing act by, among other things, recognizing the need to provide work-based educational opportunities for local youth that place them directly with employers and encourage hands-on learning opportunities. The industries in Armenia that pursue this concept most actively are ITC and engineering.

These companies in turn have become more demanding towards potential employees and now look for individuals with outstanding competencies, knowledge, creativity and cognitive abilities. In the 21st century human capital is a determinant link between innovation, competitiveness and growth.

Today educational institutions, and especially universities, assume a bigger responsibility in building a human capital. With that end in view, the government of Armenia attaches utmost importance to the development of affordable and competitive higher education. The American University of Armenia, the Armenian-Russian University, the French University, the European Regional Educational Academy, and the recently opened branch of the Moscow State University enable the youth of Armenia and thousands of foreign students,including students from India, to receive a high quality education. As a result, according to the Report on Human Capital Index-2015, published by World Economic Forum, Armenia ranks 43rd; Finland and Yemen are placed first and 124th respectively. Surprisingly, India comes in at only100th place. Despite India's academic potential and centuries old history in higher education, the fact remains that the achievements of Indian universities are quite limited, and subpar in comparison with our natural expectations. It is recognized that a multitude of complex and multifaceted problems exist at all levels of education in India, and Indian society has to quickly find comprehensive solutions to these problems in order to live up to its own aspirations.

In the emerging international order, the source of power and the status of states is going to be defined not by natural resources or number of warheads in their possession but instead by their ability to acquire new knowledge and implement innovations in all fields of human activity.

Concluding my speech, I wish the faculty and students of Delhi University success in contributing to India's rise in the years ahead in partnership with the corporate India."

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