Only the affluent can compete with bureaucrats

LEFTIST REGRESSION

The Day: What principal political features would you single out as in the public eye before the next election campaign?

Valery KHMELKO: If we speak of the political orientation of citizens with a right to vote, this is a multidimensional space. Although there is quite some time before the next elections, even now we have a clearer picture than, say, a year and a half before the previous parliamentary campaign. I would look at this picture from the standpoint of socioeconomic orientation and attitude toward the market economy first. This attitude was one of those dimensions differentiating the electorate during the last elections. In 1998, the Communist electorate was the most leftist in national-political and socioeconomic terms; by the same token, Rukh, the National Front, and Reforms & Order (PRP) were the extreme right. Aligning the political parties according to these two dimensions makes it possible for us to state that during the previous parliamentary elections the Ukrainian electorate’s political orientations were not chaotic in general.

We have started a poll to see what the current situation is. The picture is becoming clearer so far only in terms of political party affiliation, one’s being prepared to vote for certain party even now. The most perplexing thing, in my opinion, is that there is a greater number of people willing to vote for the Communists, Socialists, and Progressive Socialists. While 14% of the electorate favored the Reds a year and a half before the last elections, this time it is 20%. The Socialists, together with the Peasants’ Party, were supported by 3.3% and now 3.8%. The Progressive Socialists had 0.4% and now 2.6% (one should consider, of course, that this party is represented in Verkhovna Rada, meaning better access to the information theater). Less than one-fifth of the electorate intended to vote for the Left at the time. Today, about a quarter do. Some political analysts believe that those willing to vote for the Left have already made up their mind and those saying they may vote for other parties have not. They further maintain that most people making up that 23% still undecided could vote for non-leftists. Personally, I think that such people are not likely to vote. I also think that not more than 60% of the electorate will cast their ballots. Of these 56% already have certain political preferences. A sad picture. However, if we had the election today on the basis of proportional representation and with a 4% barrier, the Leftists and non-Leftists would show a 2:1 ratio; the three Left parties would receive 46% and three non-Leftists (Rukh, United Social Democrats [SDPU{o}], and national democrats) would have to be content with 22.5% of the votes. All the other votes would be lost. Of course, one can hope that Reforms & Order will get a fresh start (it already has 3.5%) and get seats in parliament. In that case the non-leftists would have some 27-28%, rather than 22.5% of the votes, and the ratio would be reduced from 2:1. But the non-leftists will have to work hard to really change the picture. These parties are rather scattered, although by and large they control a bit more votes than the Left.

Volodymyr PANIOTTO: I would like to add something concerning alliances. Politicians harbor the illusion that everything they do has a quick and strong impact on the voters. Our previous polls show that there is a substantial time lag before something done becomes a socially important fact. Hence, I think that the parties planing to unite should hurry, so they can have enough time to launch their association, for otherwise the effect will be insignificant.

V. K.: Also, when uniting, one must allow for the electorate’s orientation. For example, the Socialist and Progressive Socialist electorates were quite close before the last elections and are now even closer.

The Day: And this despite the confrontation of their leaders?

V. K.: Yes, and I mean the electorate’s being oriented toward the market, restoration of the Soviet Union, or rapprochement with Russia; also people’s attitude toward the freedom of the mass media. Incidentally, we recently asked if our respondents thought that government should control the press, radio, and television. The results showed that even Reforms & Order and SDPU(o) voters took a stand resembling that of PSPU.

The Day: Our Socialists and nationalists often take the same stand. Civil liberty and market economy tests show that there are absolutely no formulated criteria.

V. K.: Speaking of the level of support for economic freedoms, three groups of voters are clearly discernible. Those of NRU (Rukh Udovenko), PRP, SDPU(o), NDP (People’s Democrats), UNR (Rukh Kostenko), and Batkivshchyna are the most outspoken supporters market reform. The SPU and PSPU electorates are somewhere in between, and the Communist constituency takes the most reactionary stand. Thus, market economy orientation makes the party affiliated electorates quite distinct. Of course, there are other dimensions complicating the picture, but it is too early to make any definite conclusions. I think that the non-leftist politicians must take certain serious steps, allowing for their constituency’s orientation. For example, Trudova Ukrayina (Labor Ukraine) was formed to take part of the electorate away from the Left. Now, after putting forth Serhiy Tyhypko, who is obviously a non-leftist leader, I think it risks losing its former, quite leftist supporters and never getting another one. Because of the discrepancy between the name of the party and its leader, this party could find itself in, so to speak, an electoral pit.

The Day: People of this party say they have certain resources to convince the electorate that a banker is also a workingman. Do you think they will manage this in a year and a half?

V. K.: This is a very difficult task. I think that the former leftist electorate will not buy it, and the non-leftist one will take some convincing.

The Day: So much they would have to change course?

V. K.: There is probably another way out. Uniting Trudova Ukrayina with another organization and adopting a name that will not scare away those supporting business and market reform. However, even economic attitudes have taken a noticeable turn to the Left in the last six years. While 78% agreed in 1994 that Ukrainian citizens should have the right to private land ownership including the right to buy and sell it, today it is 54%.

The Day: Roman Bezsmertny said in an interview with this newspaper that the electoral system does not influence the structuring of society. What do you think? If it does, what are the likely scenarios and options?

V. K.: Given our conditions, the electoral system does influence this structuring, primarily with regard to the so-called political class. Through that class it influences the electorate’s political orientation, causing a degree of structuring. Politically, however, our society is not easily structured. I’d rather address this structuring to the political system. But forcing this process under current economic conditions is dangerous. We could get carried away, ending up with parliament dominated by a leftist majority. I would recommend to our politicians that they stick to the mixed system for awhile.

The Day: Yevhen Holovakha joked that we could have a purely majority electoral system, then there would be no Communists left in Parliament.

V. K.: You have a point, of course, but, Mr. Holovakha would probably agree that we should not pay such a price for having a non-leftist Verkhovna Rada. All estimates point to some 6-8 parties likely to pass muster under the current system, enough for the voters to find their bearings, something they will never manage while they have to deal with a hundred parties. Now this is better than the 28 that we used to have, and maybe we will end having 6 parties, which would be still better. The main thing is for the alignment of their forces to suffice to help them on the road to economic and political liberty, not the other way around.

SEMICAPITALISM

The Day: How deep do you think reform has penetrated our society?

V. K.: It all depends on what criteria one uses. In terms of large social structures, one should consider changes in at least these aspects: macrosocial differentiation of approaches, macrosectoral structure of the social division of labor, social/caste structure, and the institutional one. The macrosocial differentiation of approaches is, of course, characterized by the ratio between the incomes of the wealthiest 5% of the families and the poorest 5% in this society. Concerning changes in this ratio over the past nine years, polls carried out by KMIS show that in 1991, the ratio was very close to that in the United States, in 1985: 8.6 vs. 8 in Ukraine. Ukraine’s most affluent 20% of the families received incomes at the time that were only eight times higher than those of the poorest 20%. Then the situation began to worsen. In 1996, the ratio was about 14, and in 1998 it had almost reached 29, thus surpassing US statistics during the Great Depression (18). In the last two years the situation has shown an opposite trend. October statistics show that the highest 20% received ten times more than the lowest with the wealthiest 5% getting 19% of all incomes in this country.

V. P.: Developing business is one of the results of the reform. Not very long ago, we studied small and medium businesses in Ukraine together with two American firms. One of the surprising results was that the number of people employed by large businesses was a little lower than that in small and medium ones. Previously, we had believed differently.

The Day: There is a lot of talk about regression, especially in terms of the economic attitudes of the public. Is the people prepared to show real economic activity?

V. P.: As I mentioned, our studies show that the Ukrainian business structure is different from what we thought. It is very different from what it was at the beginning and, by and large, has not too many differences compared to certain developed societies. If we consider the number of people engaged in various lines of business we will find some 12% self-employed; if we categorize Ukrainian businesses by scale, we will come up with 86% self-employed. In other words, most businesses here rely on self-employment. It is also true, however, that a mere 25% of the self-employed are officially registered, compared to 40% small businesses. Medium and large businesses are practically all registered.

Yet the problem is not the number of small and medium businesses, but the way they perform and in what environment. Because of the tax burden, quite a few of these evade taxes and here the main technique is using cash. Such businesses constitute 62% of the total. Other techniques include referring incomes to items levied lesser taxes (22%), expenses to entities enjoying concessions (13%), registration in an offshore zone, and keeping unregistered accounts (6%).

The Day: Are there any statistics showing the relationships between business and the state?

V. P.: There are inspection reports over the past six months, covering all types of business. The overall index is 10.6: that is, almost two inspections a month; seven inspections in six months for small businesses and twenty for larger ones.

As to the main problems facing business, 46% of our respondents point to the tax system, 12% to lack of current assets, low market demand, and inflation. Remarkably, administrative control here amounts to a mere 2%.

The Day: Would you enlarge on other statistics like unregistered employment?

V. K.: In fact, there is little we can say about the dynamics of unregistered employment, for we are still to carry out another study. We can only discuss the revenue dynamics now, yet our data shows that over 40% of the officially employed do unregistered business. This allows people to get some additional income and survive.

The Day: This sounds like a recommendation for the lawmakers; people starting in business without any extraordinary initial resources must get through such bureaucratic jumble that they lose heart. Would you comment?

V. K.: By and large the situation is like this. The bureaucrats, perhaps taking advantage of the inadequate legal experience of the legislature in its first convocations, or the dependence of most lawmakers on executive authorities in terms of living conditions, managed to have bills passed making any more or less profitable business (except exports or that done using contacts in high places) practically impossible without breaching the law or receiving some concession or another. Our polls show that a large number of business people have to give bribes. Unlike a European capitalist society, our businessmen depend so heavily on bureaucrats, they cannot become the upper social class. Our bureaucrats are firmly entrenched in this position.

In addition, there is a unique result of our reform which I call semiconductor property relationships. The point is that, following the liquidation of Communist Party organizations and deprivation of the old Soviet labor unions of what influence they still had, the kind of power normally enjoyed by the owners of capital goods in a society dominated by private ownership passed into the hands of the managers of enterprises, collective farms, as well as bureaucrats in ministries and other government agencies. With the start of privatization, free from control by parallel party and union bodies, they found themselves in a unique position. Now they had every opportunity to turn the revenues from the management of official capital (later formally known as dividend capital) into private funds, using the state budget to cover the losses — meaning that they built fortunes at the people’s expense. Unlike a full-fledged owner, the manager of someone else’s money acts as a “semiowner” or “semiconductor” in market conditions, with money moving one way, from a given enterprise to that manager’s account, and no movement the other way around.

Such an institutional structure does not allow any political or economic freedoms to develop, because this structure makes the most of the mass media dependent on the bureaucrats. And you know better than I do what happens without freedom of the press. And so most our social institutions are actually deformed.

The Day: Could this be why the electorate is taking a Left turn?

V. K.: I think that this turning Left is explained by the fact that only part of the population can receive unregistered incomes. In Ukraine, this trend is not stable; the least unregistered business is registered in the east and the most in the south and west (people are also most market-oriented there).

The Day: Do you mean that in those territories the economy is turning away from socialism the way it existed and people live on what they can make from business done on the street?

V. K.: Yes, street business and private garden plots.

V. P.: I would also point out that many researchers propose not to refer such people to small business and free them from taxes, because their so-called line of business is the only way they can survive.

V. K.: Incidentally, when we first used World Bank techniques to study profits, losses, and consumption in 1995 and then in 1996, we discovered that almost 75% of the population spent the summer on their private plots, primarily engaging in subsistence agriculture. Only 13% sold some of the produce and the remaining 87% consumed it to survive. Two-thirds of the urban residents had to keep such private plots and this produced a negative effect on the macrosectoral structure of our social production.

V. P.: Actually, this was one of our most surprising discoveries.

V. K.: While the industrialized societies were moving from the industrial- information to information-industrial phases, Ukraine was regressing. In 1990, the employment rate in industry was 1.5 times higher than in agriculture. In 1999, the picture changed drastically, with the agrarian sector employing 4.9 million (including private garden plots recorded by official statistics) against 4.4 million persons in industry. Polls showed an even greater number in the agrarian sector. Ukrainian history testifies that such statistics were characteristic of the early years after World War II.

“LET THE STATE ORGANIZE SOMETHING AND WE’LL TAKE PART”

The Day: There is another trend, with part of society moving in the information direction and the rest becoming feudal.

V. K.: I refer only to general trends. Of course, part of our society is quite advanced, so the advance movement ideas are very interesting, because simply restoring industries, getting them back to where they were before the economic collapse would mean wasting huge resources. I mean not only time, but also manpower, finance, and tangible assets. Of course, we must look for a nontraditional way out, proceeding from the situation that has developed, when we have a highly educated population and rather backward technologies and factories, to use other criteria.

V. P.: I would like to add that we discuss different options for social policy, aid, and so on. The World Bank is most concerned, yet approaches good for other countries — like developing small business, soft credits, etc. — do not always prove effective in combating poverty in Ukraine. We have a different mentality and traditions, our people are not prepared for such assistance and for independent work. So the World Bank people came up with what I think a very clever thesis, that we must support mechanisms that actually exist, and that this may be an optimum approach, given our culture. We have two real survival mechanisms. The first is our private garden plots used as subsistent agriculture. The other is what we call unregistered business. If we stick to the first one and work on it quickly and effectively, using WB loans to buy modern farm equipment and seed, this could pull Ukraine out of the pit we’re in now. On the other hand, this would bring us closer to an agrarian society. Besides, our skilled manpower would degrade, lose its skills, and so forth.

The Day: What about our society? What does it prefer?

V. K.: I think that our people generally prefer the state to organize something, so they can take part in it. A considerable part of this society, especially Left-Bank Ukraine, wants precisely that.

V. P.: This problem is linked with politics. If the population is poor and must somehow change its way of life (and any changes at the initial stage can only lower living standards), a politician making such changes quickly loses popularity, so he doesn’t want to take the risk.

The Day: But the politicians currently in power and opposition do not seem worried by the prospect of losing popularity. We have to move forward anyway, so what recommendations could one offer them? Perhaps something like a coordinated series of measures or what?

V. K.: In our situation simply repeating the road we have traveled would do no good. Repeating the road traveled by the new industries in Southeast Asia would perhaps show some results, but this would mean repeating an experience that proved effective once, and we all know that things tend to change. I hope that we’ll have politicians capable of working out a program, using polls and economic computations, that will prove effective given state support — provided the state does not give orders but motivation. Russia, for example, provided attractive conditions for the development of information products, lifting certain taxes. Now these products are so competitive that even our publishers in Western Ukraine have a hard time challenging them. This is an example of an effective approach to motivation and a better chance that people with initiative will follow suit. If we have real priorities and conditions for such motivation and stimulate business in the right direction, I think we will find enough talent in Ukraine to give it a higher stage of development, without relying on past experience.

V. P.: If this is really so, we are in a very bad way. The fact that the most resourceful of the impoverished strata could have increased their incomes over the past two years shows that they were at the end of their rope precisely two years ago, then they started getting on their feet, but very slowly. Not because the state provided favorable conditions, but because they adapted to the existing situation and managed to do something even then. I would say it is a kind of self- defense.

The Day: The state can be challenged by the rich. We see that the eclectic, artificial Red vs. Yellow-Blue (i.e., nationalists —Ed.) confrontation, now looks like Reformers vs. Oligarchs. And it is not choosing between principles or views, it is just getting a place in the sun, rather than changing any of the premises of our social relationships.

V. K.: I think that it is very important to cultivate a tolerant attitude toward business using the media. We must learn to understand that even the transactions we usually describe as speculation are productive for a society as a large system, because people buying things in one place and selling them in another create economic contacts. In practice, this is as important for society as blood flow in our body. Shaping economic ties is a very important productive effort. This business grows from below and is painfully exposed to the authorities. I think that these strata are most likely to understand that it is time to change things not only individually, but jointly. Actually, our parliament majority is an example of how our non-Leftists can go about passing bills to rid business of bureaucratic arbitrariness. People’s Deputy Brodsky said something which can serve as a conflict study finding: “Bureaucrats are the main class enemy of business.” Not in the sense that we must destroy this class the way the Bolsheviks did. We should change our legislation, and such changes should be purposeful, setting priorities to help develop business and free businessmen from their current dependence on bureaucrats.

The Day: Bureaucrats should serve as administrators, even if highly paid ones, but not as employers.

V. K. : Absolutely, but today they are state-level racketeers.

The Day: There has been so much talk about the administrative reform. How is it doing?

V. K. : I know next to nothing about it. We have no data. Personally, I regard it as a myth of sorts. No real steps are being taken. Take our institutions of higher education, where I know the situation best. Bureaucrats meddle in things they would never have touched in the first years of independence.

The Day: vPerhaps because there is no public resistance.

V. K.: Yes. People are mostly concerned with their personal survival. We know from history that when people have more time and energy to do something besides struggle to stay alive they start forming associations to make changes for the better. As long as they have to work from morning to night to survive, no parties or trade unions will be of any use. And political, professional, and, of course, business associations are the foundations of any society. They are the backbone of a truly civil society. Here this backbone is just shaping, it is actually nonexistent. Although we have many so-called nongovernmental organizations, we are not prepared to combine efforts to solve a certain social problem other than a personal one, presenting it as a social issue. After we start moving in that direction, I think we’ll get more optimistic.

The Day: So is there a unifying national idea this society could accept today?

V. K. : I’d say that such an idea cannot be ethnic, because ethnic ideas will divide, rather than unite our society. Nor should it have anything to do with languages, for this would also split this society. This idea must be constructive in socioeconomic and state-building terms, aimed at putting together a political nation and creating modern forms of social reproduction.

V. P. : Something like a great leap?

V. K. : No, we should not leap anywhere. We should look for a path to follow, not a place to jump. For example, Yevhen Marchuk in The Day’s articles about advance offers a lot of constructive ideas that could help form a national idea. Also, articles by Serhiy Udovyk. I think this is the direction we must follow to adopt an idea capable of uniting all of Ukraine.