Stating the Obvious
Economic treatises and explanations are often excruciating difficult for us laymen to wade through, but for those of us who depend on what we can earn, this is a matter of vital interest because our economic survival depends. This means it is worthwhile for us to at least try to understand such things that are not exactly pleasure reading. Prof. Anatoly Halchynsky’s essay, “Are We Growing?” published here, is a perfect example. The basic point, however, is that Ukraine’s currently high rate of economic growth is not likely to be sustainable and investment is certainly inadequate to maintain growth rates capable of allowing Ukraine to catch up with the levels of the advanced European economies it would someday like to be integrated with. There are a number of reasons for this, but two main reasons are that Ukraine needs to reindustrialize, because its existing industrial base has to be renewed to make it competitive, and that this requires a much higher proportion of investment to consumption than it now has. This is true, but there are also some things that the learned professor left unsaid.
This is not news. There are people who have been saying much the same for a very long time, the writer of these lines included. Even without a Ph.D. in economics, some things are obvious to any layman who bothers to analyze what can be observed around him.
In 1994 Osnovy Publishers translated into Ukrainian a World Bank analysis on Ukraine’s Social sphere in the transition period, which indicated that Ukraine was spending more than it could afford, particularly in the social sphere. Consumption, however, is much more than consumer spending. In a larger sense it also includes what people who provide in goods and services to support those who do not or at least less than they consume. This means not only those pensioners, who are lucky to be able to afford bread, but also on all those bureaucrats who run around trying to do all those many things each doer of which has had over a decade to come up with an argument as to why his/her function is essential; on managers of Soviet-era “enterprises” (never, for the most part, to be confused with businesses) who take out loans, spend them mainly on management bonuses, and afterward find the enterprise unable to repay the debt; on hidden subsidies to plants built under non-market conditions and therefore often grossly inefficient; on corruption of state employees too numerous for the state to be able to pay enough to n ot be corrupt; and on disinvestment in the sense of spiriting the wherewithal squeezed out of the Ukrainian economy into offshore accounts and investments. What Prof. Halchynsky calls the need for reindustrialization flows not only to the fact that existing plant capacity is old and needs to be replaced, as is the case with countries that were pioneers of the Industrial Revolution, but that even when they came on line they had been built in a world of fixed prices, meaning that they were designed with no idea of their real costs of production.
In 1994 the journal Political Thought, I suggested that two things needed to be done. The first was industrial triage, a reference to the French practice in World War I of divided the wounded into three groups: those who would die regardless of what was done, those who would survive anyway, and those whose lives might well be saved by concentrating scarce medical resources on them. In the economy, the first group should face bankruptcy, the second allowed to make money, and the third being the focal point of whatever might be done to save them. The second thing was a fundamental rethinking of the role of the state in society scaled back to what the economy can actually afford. This would mean not only freezing hiring (trying to fire bureaucrats is seldom successful) and filling needed positions through transfer among government agencies, but also drastically reducing the excessive regulations that hinder economically productive business activity and breaking the cozy insider relationships between those in government and those in industry that keep the less efficient in operation and the more efficient creations of new investment out or simply rip off any Western investors so foolish as to trust their local partners.
In an election year, however, nobody real expects politicians to tell the whole truth at the risk of electoral defeat. Nothing really good can even be attempted until the decision-makers are more insulated from the need to tell people only what they want to hear. Of course, it is always politically much easier to economize on the relatively powerless — those on pensions, in healthcare, education, science, or rank-and-file workers — than on those with the power and influence to defend their piece of the pie, but doing the right thing economically and taking the easy way out politically are seldom the same things. Even in the best of times, politicians are always limited by the political realities they must deal with, and this often makes it simply politically impossible to do the objectively right thing. Moreover, as I attempted to point out in the journal Suchasnist’ in 1997, Ukrainian political and social processes are shaped by deeply dysfunctional structures any ways of doing things inherited from the Soviet period. Yet, it is time to attempt to get started with what is possible, at least after the elections, and perhaps even to begin thinking about what can be done then to change the situation in order to expand the range of what is politically possible somewhat later.
