WHY DO WE FAIL IN EVERYTHING?

The seven years of endless reforms have become a kind of an intellectual nightmare for people who ask themselves: what is actually going on in this country? Indeed, on the one hand, the authorities seem to be doing something, but, on the other hand, life is becoming worse and worse. There are a host of explanations for this condition: from a Jewish- mason conspiracy (optionally: Russian) to reasoning about the innate qualities of our people and rulers. Despite the diversity, all versions suffer from complete hopelessness and only “lay another brick in the wall” of our eternal desperation before the “huge, hundred-headed monster.” We all know the sensation as if we try to make our way through a cotton wool wall — it emerges when we deal with our state or try to do anything that goes beyond the norms of life. Every step here is so hard that this creates the impression that the gravitational force in Ukraine is several times stronger than the rest of the planet.

Meanwhile, there may be other explanations for our situation, more plausible than “all are bastards,” and, accordingly, recipes for overcoming it, the more so that today's intellectual preparedness is higher than it was before. The West has come up with the fruitful concepts of virtual economics, which stands much closer to reality than other “explanatory” ideas. (As far as I remember, only a few years ago attempts to explain to foreigners at various seminars that, for example, Ukraine's state budget is mere fiction — from the macroeconomic angle, not just in terms of “isolated figures” — were accepted with distrust, to put it mildly). A few years ago, Serhiy Datsiuk's Renewal came out, and the author also published the article “The Pins and Needles of Ukrainian Reforms” in Roman Zvarych's journal Demos at approximately the same time, so now, after “virtual economics,” I can assert that there are certain points of departure for a new, more productive, view of Ukrainian reality.

A FEW PRELIMINARY NOTES

1. The illusion of economics.

During and after perestroika , economic science assumed in the public consciousness a hitherto unknown, literally sacred, image. To working people and politicians, economists seem to be like magicians who possess the secret knowledge of “how to take the country out of the crisis” (suffice it to recall Natalia Vitrenko's steady affirmation: “I am an economist!”). Economic debates, from the angle of public consciousness, look like disputes about how to correctly pronounce the salutary mumbo-jumbo incantations. No one doubts, however, that the main thing is to find and pronounce the saving formula. Meanwhile, economics is rather far from both the magic and the exact sciences (the only similarity is perhaps observable between money circulation and thermodynamics). It is Nobel Prize winner Friedrich von Hayek who gave the most accurate definition to the problem of illusions connected with economics: “...economics is only a science about humans.” Indeed, we practically always participate in economic relations, not only when buying and selling things or working at a factory; what influences our economic behavior is not only the so-called purely economic factors, but also the commonly accepted social practices, morals, and traditions. It is not accidental, by the way, that the aforementioned Hayek suggested a new term “catallaxy,” for he was aware that a scientific- looking context grossly distorts the vision of reality. We are going to use further on mostly this “catallaxy” approach; in other words, we always mean that economics is a science about humans.

2. It is hard to speak about snow in Africa.

Much of what follows below could not have been noticed inside or outside the defunct USSR. Inside, there were almost no people possessing “outer” knowledge (let alone experience), for all states look more or less the same “from the outside” (this is why Sovietologists mainly specialized in foreign policy of the USSR and Kremlin intrigues). It is our present-day “in-between” situation that makes it possible to comprehend and outline the vectors of the on-going processes.

3. The point is in proportions.

The phenomena in question perhaps exist in all countries. However, they exist in different countries on different scales, leading to different consequences. No doubt, the Ukrainian situation can also be discussed in terms of macroeconomics, which is true, but this will only be a part, not the greatest at that, of the truth. On the other hand, in America, a senator's son must have more chances than an ordinary mortal to become a senator, but this is not critical for them. To avoid a great number of digressions, this author asks the reader always to bear in mind these remarks.

KARL MARX WAS RIGHT, OR THE LAST HELLO FROM THE GRAVE

For me, the most unintelligible thesis of Marxism was the postulate about the state dying out as a result of total etatization. Indeed, it is impossible for those born under socialism to grasp this postulate, for the excellent condition of “dying out” was in fact achieved at the very first stages of Soviet history. However, this failed to lead to the brilliant consequences Marx foretold, so we all learned in college about “the further necessity of the state's increasing role under the conditions of socialism.” But there was nothing to increase because all things possible, including individuals, had been nationalized. True, there was no state in the USSR in the strict sense of the word, as we can only speak about the state when there exist subjects independent of it, for whom the state might be the lawmaker and the arbiter. Since there were no such subjects, there was no state (see the previous remark 3). Mature people, who determine our policies, never saw or came across the state; they do not know its design and purpose. What existed in the USSR still requires term- assigning and research. For brevity, let us call this structure a pseudostate (at least because it had the outer signs of a state).

EACH MARKET HAS ITS OWN “INVISIBLE HAND”

Whether or not the state exists, there is always economic exchange in society. In a “normal” case, the exchange is carried out on the basis of private property, with the main criterion of its efficacy being the ability to meet the needs of other people. Growth of property is the motivating force of human economic behavior (it would be more correct to speak about satisfaction, but this would unnecessarily complicate things in this case. Usually, the growth of property and satisfaction are interconnected things, even if man prefers the latter to the former). A most primitive non-monetary exchange (I need the pencil, you the eraser, let us swap) features the growth of public good because the two sides satisfy their needs. The growth of our property in a “normal” market depends on the satisfaction of other peoples' needs (it in fact depends on the growth of national wealth).

An “abnormal” socialist situation, when there is no private property as an economic phenomenon, also displays exchange. Here the role of property is played by the status: in the simplest case it is a post in the state hierarchy (we all remember “not-so-simple” cases, when an “empty-bottle-bank” dealer or a “well-connected” man “who knew how to make his way up” had a higher status than the manager of a small factory — this is why I speak about the status, not the post). This method of economic activity became especially evident in the years of “developed socialism,” when the share of direct coercion fell drastically. We all remember shortages and the proverbial “pull.” Pull is the most vivid example of a status-based exchange. So if you, for example, can “get hold of” wooden boards for your country house, and you need a ticket for a vogue theater show, the number of boards you will swap for the ticket will depend on the status you wield. Obviously, if you manage to turn to the ticket-holder introducing yourself as a representative of the city Communist Party Committee secretary, this will require fewer boards than if you represented an ordinary factory manager. But if the ticket-holder is a good friend of yours, you will get the tickets for free, i.e., for money.

Let us add to this another important thing: the market (or, in Hayek's words, “the extended order of human cooperation”) is based on the principle of the supply of goods and services to all those who need them. Pull existed for the “insiders” (although all were involved in it). In other words, the costs of exchange in the former and the latter cases cannot be compared. In the former case, you go to a shop and buy the thing you need; in the latter, you spend your time and effort to search for the “people you need” and produce some additional services to become an “insider,” in addition to paying for the commodity itself. This situation embraced not only private persons but also enterprises. Let us recall “procurers,” the people who majored in “wresting” supplies from the related enterprises, the supplies being, as a rule, prescribed by the state plan and supposed to be effected “automatically.” All the above-said may boil down to two formulas: 1) The scope of status- based property under socialism does not depend at all on the ability to meet the needs of other people. 2) Most transactions in this system do not increase the national wealth. The Soviet Union was done away with not by imperialism or oil price cuts, but by the daily billions- worth of loss-making economic exchanges.

Now we can take the next extremely important step. Since there is a multitude of exchange, the socialist system can also have the market as an information medium and a method of coordinating the efforts of people, who do not know each other, to achieve individual goals (so to speak, coordination without a “prior arrangement”).

Frankly speaking, I know rather few people in Ukraine who understand the decisive function of the market which in fact allowed Adam Smith to speak about an “invisible hand” that moves the required resources where they are mostly needed without any government interference and finally leads to an increase of national wealth.

Spreading rumors can also be an example of an effective self- organizing system similar to a market function (only much more primitive). Let us note that although the decision on whether or not to pass the information further on is being made by each “spreader” individually, the information (irrespective of its trustworthiness) becomes known to you almost immediately. What is more, for you to become the “recipient” your wish is not required — your potential interest is quite enough. Let us also note the effectiveness of the spontaneous “natural selection” of information importance, which exists in spite of the differing human ideas of reality: “backstage” rumors will never leave the bounds of “back stage,” while generally important information will be known to all (suffice it to recall that in Soviet times rumors warned us about price rises with almost 100% precision).

Returning to nos moutons , we conclude bitterly that a self-organizing system of coordination, which emerges naturally in a system with status-based property, enhances many times over the negative consequences of loss-making exchanges. Since the growth of property (status) does not depend on the satisfaction of the needs of other people, “the invisible hand of the status-based market” kills all living creatures in the economy, reducing, not increasing, the national wealth. For more convenience, we shall call the status- based market “antimarket.”

WHAT HAPPENED DURING PERESTROIKA?

The degradation of socialism caused the monolithic pseudostate to gradually disintegrate (I do not mean the political collapse of the USSR, which is only one of the consequences of the overall process). Speaking more figuratively, the socialist iceberg began to melt, forming around itself such “water” that people and structures, as a result of economic degradation, found themselves outside the system of absolute governmental patronage. An environment emerged outside the pseudostate, which began to exist by the laws of normal money-based economics (it is very important to point out here that the perestroik a-time liberalization, which allowed a transition to money relations, was only a reaction to the degradation of socialism, which allowed the “ice” to melt slowly rather than burst into pieces from overload; our current situation is the result of a still-continuing destruction of socialism, and not the result of “perestroika” or “liberal reforms”). This resulted in a quaint system in the post-Soviet countries, which at the same time combines a money-based economy and an antimarket that is parasitic on the latter.

Another important moment: as soon as the pseudostate formed an environment outside itself, the former began to deal with the latter as a normal state — the source of standards and the arbiter — without being adapted to this and, what is more, without any feedback from the outer environment. But inside, this “iceberg” of a pseudostate has not changed at all and is still a system based on status. The motives our pseudostate is guided by with respect to the money-based economy are being dictated by the destructive logic of the anti-market. It would be a grave mistake to think that the anti-market is only confined to the state limits: in fact, we are all actors on both the normal market and the anti-market at the same time. The simplest example is a kiosk selling contraband cigarettes (because the “required people” can import cigarettes without an excise duty owing to connections). Bribing traffic policemen, plumbers, etc., is nothing but status-based anti-market relations pervading our society and being deeply inherent in it (Yegor Gaidar showed in his book The State and the Evolution that the territory of the former Russian Empire, throughout its history, never knew “normal” private property, which makes parochial status-based relations much more deep-seated than we think).

THE ECOLOGY OF ECONOMICS

We all know the simplest way the anti-market feeds on the mo- ney-based economy, which quite fits our hypothesis. Let us remember that various state agents (tax authorities, fire brigades, etc. ), in dealing with their victims, first try to go from the formal plane of a juridical norm to that of personal relationship based on status: “We can find any kind of violations in your place, so let's strike a friendly deal.” What is more, victims themselves never strive for a law- bound relationship. A good example of this system can be found in the army. Formally, the Statute, equally compulsory for a soldier and a general, guarantees a private soldier decent conditions of service: an 8-hour sleep, weekend liberties, etc . However, it also contains some clearly unfulfillable requirements, for example, that all servicemen salute each other (i.e., soldier to soldier). So if you want to stand up for your rights, go round and saluting and making your mates laugh .

The main loss inflicted on society by the anti-market is not a simple arithmetic sum of the inadequate profit derived from the time consumed for dealing with the state and the amounts spent on bribes. Much more horrible is the overall “pollution” of the market (in general, it might be an interesting topic for the “ecology of economics”). As is the case of ordinary ecological pollution, the “pollution of the market” is nothing but a standing factor, but it is impossible to say what kind of effect it will have in each concrete instance. In other words, decisions in the money-related part of our economy are made not only under the influence of its own signals but also under that of anti-market signals, which makes these decisions ineffective. Coming back to our example, a smuggler who does not pay an excise duty can sell his cigarettes cheaper than the one who does. On the normal market, a lower price is a signal to other sellers to lower prices, which requires some economic measures (to search for new suppliers, etc. ). However, in our case, a low price is not the result of know-how (which other market actors could also have discovered) but the result of a status exchange, so the normal response of other sellers (price reduction) to the “polluted” signal will bring about their ruin. Such a situation radically diminishes trust to any market signals in our economy: you never know whether the signal is from the market or anti-market. It is next to impossible to assess the damage from this state of affairs. We can so far point out only three obvious results: 1) Our entrepreneur, with prior knowledge that “nothing will come out,” usually does nothing in situations where the “normal” one would kick-start bustling activity; 2) Under the conditions of doubtful signals, it is impossible to plan on the level of an enterprise, and any long-term activity and efforts by market actors are mainly aimed at seeking out the “fast money,” which leads to criminalization and, hence, to a greater dependence on the state; 3) Competition turns under these conditions into a rather dubious instrument which by no means secures the victory of the best; in essence, there is competition for more convenient and cheaper access to the required status.

AN INSOLENT CANCEROUS TUMOR

All entrepreneurs ask the same rhetorical question: “Don't they understand?” This boils down to reproaching the state: you can't kill the hen that lays golden eggs, and something of the kind. An NDP member once said to The Day : “When you talk to officials, each of them seems quite sound-minded person, but, all together, they act like a swarm of locusts.” An absolutely correct definition, if you bear in mind that both standard-setting by-laws and the existing practices are, in many respects, anti-market products. In this lies the “specifics” and the hopeless horror of our situation: for the money-related part of our economy, the products of the state are juridical norms, while for the pseudostate itself, they are “economic” decisions, methods of parasitizing, converting the status into money and “normal” property. What is more, the application of norms, which is the competence of the “executive power,” fully depends on the latter's “goodwill” (it cannot be otherwise in a status- based system), so even “correct” and “reformatory” laws and other norms are fulfilled in such a way that it would be possible to support, above all, the conditions that enable the anti-market to exist. To look at it from the outside, this activity looks so masterly and its consequences so evident that this allows none too clever people to speak about the “conspiracy” of either “imperialists” with the IMF to boot or the wrecker officials. In reality, the activity of the pseudostate is so effective just because it is not directed from one center and, in most cases, is not the product of political decisions and compromises but is the result of the same market-type coordination of the unknown-to-each-other people to achieve their individual goals, which we mentioned at the beginning of this article. Let me remind you that not only the officials but also the rest of the population take part in this coordination, without both sides suspecting this.

To illustrate the effectiveness of the anti-market, I will give a list of the main “victories” of the pseudostate, with which all those who have been following our recent history will surely agree.

1) An absolute victory over private property. All talk about privatization can only deceive perhaps the IMF. When there is no procedure for bankruptcy, when an enterprise can be “reprivatized” any time by the State Property Fund or parliament because of “incorrect” privatization, when the notion of property does not exist for “law- enforcement” or other bodies, when no one even dares to speak about the private ownership of land, it is senseless to speak about property. If there is no property, the economy is ruled by status.

2) Fierce resistance to attempts to convert the pseudostate into a normal state. Glaring evidence of the power of anti-market mechanisms is the tear-jerking unity with which most post-Soviet countries have introduced the notorious “mixed” system of an electable president and an appointed premier who heads the government. Not a single developed state has a structure like this, perhaps due to its excessive intricacy (the author is prepared to prove that even the “French model,” as cumbersome as it is, is very far from our national options). In reality, there is nothing new in this system: this is a renamed version of the Party Central Committee-Council of Ministers relationship, in which the leading role is assigned to the Central Committee (president), with the Council of Ministers made responsible for putting it into practice. If the will of voters in no way influences the government's behavior, status rules the roost.

3) A complete flouting of the law plus rejection of judicial reforms (it is self-explanatory). If there is no arbiter, whose decisions are binding on all, status-based relations take the upper hand.

I could be accused here of downgrading the role of corruption and the lobbyism of “pressure groups,” and of actually defending the powers-that-be, as if it were the “invisible hand” and not they who are guilty. I will only say that there is no corruption in Ukraine, for it is the rule, not the exception. Even when you apply to a state body and manage to resolve your problem without a bribe, you in any case pay the pseudostate a “tax” in the shape of the time you lost, which is always longer than is necessary to resolve a problem (I will stress again this is a too simple and linear example relating to a narrow sphere, while reality is far more complex). What is most important for the anti-market is your “running about” per se, which indicates sufficient non- transparency, one of the indispensable conditions for its existence. An individual official who needs a bribe may not in fact get one, but all officials, without prior arrangement, will in any case make you “run about” to make it possible for some of them to receive the bribe. The power of a self-organizing system manifests itself in the fact that, while an individual bribe-taker can be fired, no one will be able to force the officials to act otherwise as long as man depends on the state to the extent that he does in Ukraine.

All must have noticed that if, for some reason, visitors to administrative bodies cease to “run about” (due to simplified rules or tightened control), the anti-market reacts immediately, and after some time everything is restored. Who does so? Nobody in particular, but all together. At the state level, this is revealed in a picture all observers know: as soon as some reformatory decisions have been made, the anti- market at once “makes up” for them either by making decisions in a different field, which bring the former to naught, or by overt sabotage.

As to the defense of the powers-that-be, nobody defends them. On the contrary, as in any sector of the market, there is competition and, hence, natural selection, here. It is the “fittest” that survive, i.e., those who do not ask unwarranted questions and agree to the unwritten and non-debatable rules (knowing well many officials, I have never seen any of them discussing in restrooms how to “double-cross” the visitors). People who regard our state bodies as really representing the state, i.e., above all, as those where there is strict order and the formal hierarchy corresponds to the actual one, are doomed to failure in this competition. As a market economy is stronger than a planned one (“we do not know any means other than competition to inform the individual about where his contribution to the making of public good will be the greatest,” writes Hayek in his last study Baneful Self-Confidence ), so the anti-market is “stronger” than any conscientious policy or “conspiracy.” The difference is that it in fact “informs the individual” about where his activity will inflict the greatest losses on society.

WHAT IS TO BE DONE?

Our situation is being exacerbated by the fact that the existing political stereotypes take no account of not only the decisive role of the anti-market, but also the very fact of its existence. I think the current President also sincerely believes that he promotes entrepreneurship by issuing various decrees, whereas decrees cannot deliver the goods: the anti- market “develops” in a natural way and the limit of its development is its complete degradation. We owe, to a large extent, the emergence of false illusions to the activities of “national democratic” politicians (in cahoots with officials who cheerfully support them), who, taking advantage of their ideological monopoly in the media in the most critical period of 1991-1993, produced the indecent fits of hysterics, accusing each and every “encroachment on statehood” every time one tried to criticize our institutions. They created the illusion of us having a state which only needs some reforming, whereas we were in fact left with a fragment of socialist “ice,” with “reforming” so far boiling down to painting the facets of this iceberg in various colors.

Little wonder that, looking at the current chaos that came about allegedly as a result of liberalization, the overwhelming majority of politicians rattle on about “a strengthened role of the state,” while just the opposite is required for combating the anti-market. In general, the best economic reforms lie in the separation of the state from the economy and the organization of the state as such. This, however, raises a crucial problem: how to reorganize the pseudostate, for there are no other tools but the pseudostate itself to do so. We have already seen that the anti-market is capable of effectively withstanding any attempts to undermine it from inside, so the departure point for transforming a pseudostate must be outside it (as Archimedes said: “...give me a firm spot on which to stand, and I will move the Earth,” — it is too difficult to move the latter, standing on the Earth itself). One such mechanism could be a Constituent Assembly, effectively tried out by the Americans after they had tormented themselves over their unviable system for ten years (after secession from Britain), and repeatedly reproduced in Europe (the only failure occurred in Russia). There might be other mechanisms, too, but, in any case, this is a different serious subject.