The leitmotif of President Kuchma’s message to the new Parliament is that, in his opinion, the results of the elections demonstrated the unwillingness of most of the populace to return to the old system of social values; it was simply their way of protesting shortcomings and miscalculations in the socioeconomic sphere. Now was the time to secure economic growth based on the inherent unity between structural and innovative policies. Sounds impressive, but the part about “inherent unity” makes one wonder.
A GAME WITHOUT INSTITUTIONAL RULES
At one point in his speech Mr. Kuchma had to admit that the problems with reforms were largely due to neglecting the people’s being mentally unprepared for radical changes, especially in terms of ownership. Meanwhile the World Bank in its 1996 report, “From Plan to Market” estimated this unpreparedness as follows: 60-80% of the populace of former socialist countries and Soviet republics want to return to the planned economy, and only 15-35% favor a market economy. In other words, the authors of “radical economic reforms” must have overlooked that most of the 21 million holders of stocks and land shares were opposed to such sound ideas as market self-organization, effective private ownership, market adaptation of the social infrastructure, etc. And this problem is crucial in any transition economy.
In order to understand the rules of the game being played by Ukrainian society at the end of the twentieth century, it is necessary to remember that such relationships underwent radical change in the USSR’s first thirty years. Even with bloody and repressive methods, the process of nationalizing property lasted fifteen years. Accordingly, the reverse process, three generations later and given peaceful conditions, should last at least three decades.
Unfortunately, any such institutional strategy was not mentioned in the Presidential message. Instead, a previous message from several EBRD functionaries once again stressed the need to step up privatization and form a critical mass in the private sector. And on April 28, addressing the all-Ukrainian conference of collective agricultural enterprises, Mr. Kuchma admitted that all efforts to introduce market reforms in the agrarian sector had been abortive. He blamed everything on bad lower-level public servants, forgetting that they were of the same stock as the “ordinary working masses.” In other words, to get this “critical mass” and institute new economic relationships, one has to get rid of all those “builders of communism” currently forming the bulk of the work force in rural and urban areas. It remains to be seen who will carry out this mission.
INNOVATIONS WITHOUT RESOURCES
“Innovating” was perhaps the most frequently repeated term in the speech, yet the President completely ignored the fact that twentieth century world economic development is characterized not just by the innovation paradigm, but by four technological “lifestyles,” and that changes in each are closely connected with specific innovations. Hence three questions: (a) Which of these lifestyles is to be instituted? (b) What kind of innovations? (c) What resources will be used to translate these innovations into life?
To answer them, one has to remember that central planning could reorient investment to new technologies, but could not let capital out of the old embrace. As a result, these technologies were constantly reproduced, forming multiple technological “lifestyles,” finally causing a structural crisis.
Today’s Ukrainian economy turns out to reproduce both the third technological “lifestyle” (formed at the beginning of the century, including impetuous railroad construction, general purpose machine-building, ferrous metallurgy, and coal consumption as the basic source of energy) and the fourth one which in the developed countries reached its limits in the mid-1970s (progress in organic chemistry, polymers, motorized vehicles, use of oil as the key source of energy). However, there is a fifth technological “lifestyle,” marked by spectacular headway in microeconomics, telecommunications, flexible automation, use of compound construction materials, increasing air transport, and natural gas consumption). Elements of this “lifestyle” were formed in the USSR within the defense establishment (also known as the military-industrial complex), but were folded up when the economy began to be demilitarized. An attempt to convert the defense establishment, to begin manufacturing hi-tech civilian products failed, reducing to a minimum the possibility of reviving the domestic manufacturer and increasing the competitiveness of his products.
As for the sixth “lifestyle” which will dominate the first three decades of the coming century (rapid development of artificial intelligence, biological and space engineering, integrated high-speed transportation systems, and safe nuclear power engineering), to speak of its introduction in Ukraine would be ridiculous. Its elements are to be found perhaps in a handful of Ukrainian research centers. By and large, the nation’s economic complex is on a steady downward curve. Machine-building’s share in the structure of investments has noticeably dropped. Most investments are made in the processing phase which seems to predetermine Ukraine’s future “specialty.”
The speech attaches almost all measures to correct the situation to numerous targeted programs; Ukraine is likely to rank first in the world by the number of such programs per capita. And against this grim backdrop the strategic goal is proclaimed: getting Ukraine level with the world’s leading technologically advanced countries by the end of the first decade of the twenty-first century. A very good intention, obviously one of those with which the road to hell is paved. Among other things, Mr. Kuchma announced that “Ukrainian society has retained the nucleus of its scientific and technological potential, something far from all countries with transition economies have done,” a statement far from reality. Because of the predominance of the third and fourth technological “lifestyles” Ukraine has a critically short supply of experts in the latter-day fifth “lifestyle” which is supposed to smoothly merge into the sixth. Nothing has been done to replenish it. Rather to the contrary, so that now most such experts are either subject to brain-drain, staying in the West, or are employed in domestic commercial structures, meaning the inevitable loss of their professional skill. Hence the presence of specialists servicing “the world’s best products” and nobody to make them at home.
A similar situation is taking shape with regard to financing such innovating progress. Stated sources like development budgets, financial leasing, setting up the Ukrainian Bank for Reconstruction and Development, etc., can at best make a “small leap” over one “lifestyle,” but never a long one, clearing two or three of them. It was no coincidence that the Japanese gradually activated industries peculiar to certain technological “lifestyles” before tackling super-modern programs. Even working round the clock with their innate diligence, it took fifty years.
This author consciously avoided statistics, so as to keep clear the overall domestic economic picture, the more so that a closer and strictly scientific look at the figures cited in the speech would inevitably lead to substantial corrections. The question is how long we will have to wait for it.






