Investment Climate?

Once again the state is calling upon its citizens to voluntarily pay its debts, and we are hearing about all the bright investment opportunities offered in this best of all possible worlds called Ukraine. Perhaps this is a good time to ponder over why nobody seems to rush into the land that Standard & Poor’s has proclaimed the world’s best, since it had to pay so much on its eurobonds last year. Of course, one might lose, should inflation exceed 16%. Has there been one year since independence when it was under 16%?

The reason is really quite simple, no matter how hard some people try to get around it: investment means growing one’s own business, making it run like a business, taking the risks, and hoping for whatever fair profits the market might provide. The backbone of the post-Soviet economy is still “enterprises,” which usually cannot evolve into businesses because of the way they were built, are run, and are politically connected enough to keep the competition out.

These “enterprises” were built in a world of state prices and with an eye only to output: the inputs could be as much as needed as long as the state got what it needed out of it. When the command economy came down, it meant that suddenly something called efficiency began to matter. Putting in all the labor, energy, and raw materials in the world was no longer efficient. Moreover, the people running these wonderful things were not businessmen but politically connected engineers, some of whom have evolved into businessmen but most of whom never will. Their interest are totally different from a businessman’s. These Red directors are perhaps the main villains of the Ukrainian economy and deserve the same fate Stalin once reserved for the kulaks. I propose a new slogan: marketization of the whole country on the basis of the liquidation of the Red directors as a class. No need to shoot or exile them, but let them go bankrupt if the market so decides. If somebody from the outside buys into an enterprise, let them bring it their own management and take their chances. Then maybe Ukraine can get down to business and its people begin to live decently. Efficiency means higher productivity of labor and at least the opportunity to pay it better. Unequal competition favoring the “domestic producer” means favoring lower productivity and poorer workers. It just cannot be put any simpler.