Toward Europe through the Lessons Of Regional Cooperation
In their analyses and especially in the advice generously handed out to governments, economists tend to ignore the fact that many factors that determine the present and the future of a society do not belong to the sphere of economics. It is the combination of historical, geographical, cultural, economic, and other particularities that explains the present and sheds light on the future. And it is this combination that prompts, in the context of a perspective analysis, the pro-active actions of decision-makers both in the public and private sectors. If we want to see the future unshackled from the past, we should bear in mind that both things depend on the same determinants. Thus in order to break this linkage, one must use these factors alone.
Looking into Ukraine’s woeful past, we have to admit that many of its woes can be put down to its geographic position in the center of Europe, between West and East, North and South, at the collision point of great Ottoman, Austro- Hungarian, German, and Russian empires. Today, Ukraine’s geographic position has not, of course, changed, but the great empires have vanished. Military and police coercion have given way to economic cooperation, and what determined Ukraine’s woes yesterday can bring it happiness tomorrow. Ukraine’s position on the political map of Europe has become today the main prerequisite for its future. Of course, provided this country will be able to choose the right strategy in utilizing this prerequisite in order to solve two major problems.
First, to build a true nation state capable of uniting all its citizens around the idea of national cohesion and to work for the creation of a strong law governed state relying on competent governance and conducting a dialogue with the nation which must evolve into an organized and responsible civil society.
Secondly, to create the conditions to reform the industrial entities capable of promoting the final entry of the Ukrainian economy into the world market, slowing down, at the same time, the drop in the living standards of the most unprotected social groups. Raising living standards, drastically reduced since the Soviet Union collapsed, is an indispensable condition for inculcating national feelings, as well as molding an individual behavioral style conducive to the strengthening of democracy. Democracy should not be regarded as just a consequence of future economic growth, without any additional risks to civic freedoms. The development of the mechanisms of national solidarity will be able later to promote the strength of market structures, even if these mechanisms now seem to be only additional complications.
Both tasks are closely interconnected, for the creation of new economic structures cannot be the result of the free play of market forces alone. For this simple reason, the latter are shortsighted. Moreover, the weakness of the state in a transition period enhances the negative consequences of any market, such as, crime, corruption, and the shadow economy. All these phenomena, on the one hand, become factors promoting social inequality, leading to the income- related polarization of society, and, on the other hand, they frighten away the investors who could contribute to the development of a sound and stable market economy. Undoubtedly, this country will be able to break free from this vicious circle only if the state is able and determined to follow a well-considered strategic course toward the systemic transformations required to ensure the stable growth of the Ukrainian economy.
The international environment plays a key role in the context of these goals, for it is outside its borders that Ukraine will be able to find both the markets for its products and the capital for investments needed to reform its production sphere. In this case, the special features of the commercial ties Ukraine maintains with the outside world, in particular, the structure of its low value added primary metallurgical and chemical product exports to the developed industrial countries, as well as its fuel crisis, also affecting the composition of its imports, make us think that, under the present state of affairs, unconditional openness of the Ukrainian economy to world markets would beyond doubt be disastrous rather than positive. Under the conditions of post-Soviet heritage (forming cartels, barter, tax evasion, etc.) and in the absence of duly organized trade practices and networks, the comparative advantages that the structure of foreign trade contains will not now have the same effect as the relative advantages which could be obtained as a result of the efficient management of production structures. Only admission of the most cost-effective industrial structures into multinational groups successfully performing on the world market can yield quick results in the shape of comparative advantage. Hence the importance of such management of the privatization process which would make it possible to attract experienced investors to map out a development strategy of enterprises open to international competition and would keep at bay Mafia-minded predators.
What seems inevitable is openness to international competition, deregulation of foreign trade, mastering the negotiating skills and, in general, all the other actions and measures aimed at preparing Ukraine for opening up its economy to international competition. These can be implemented gradually and not only by means of a step-by-step temporal extension of implementation but also at the expense of the geographic dimension, which becomes possible thanks to economic cooperation. It is in this context that the European Union has signed with Ukraine its Agreement on Partnership and Cooperation. But the state of Ukraine’s economy, institutions, and society as a whole convinces us that this country’s integration in the European Union will not occur in the near future. Moreover, the experience of EU expansion and admission of the most advanced countries of Central Europe only confirms this prediction. The way to building Greater Europe will be long, but from now on it will be divided into intermediary stages to be opened by the initiatives of regional economic cooperation. Among them, the Central European Free Trade Agreement, the Black Sea Economic Cooperation, and the Cooperation Program for the Baltic Region actively supported by the Organization for Economic Cooperation and Development. This kind of initiative does not yet enjoy priority status in the Ukrainian government’s activity and, in this respect, lags far behind such directions as joining the World Trade Organization (WTO) or the Agreement on Partnership and Cooperation with the EU. Undoubtedly, this shows inadequate realism, for Ukraine could draw considerable advantages from joining the already extant blocs of multilateral trade cooperation at the current unavoidably long stage of trying to reach the required institutional and economic level.
Primarily, these initiatives create an institutional pattern within the framework of which certain important organizational problems (international payments, single customs duties, harmonization of the fiscal system, trade funding, designing and building infrastructures, etc.) could be quickly solved. For example, it is striking that most projects implemented within the framework of the Black Sea Economic Cooperation relate to sectors most vital for the Ukrainian economy: power generation (setting up the Black Sea Regional Energy Center), foreign trade funding (setting up the Black Sea Trade and Development Bank), development of the scientific and technological potential (setting up the Black Sea Center for Research and Cultural Ties, the Convention on Cooperation in Research and Cultural Information, the Danube- Black Sea Organization, and the Black Sea University), and the development of the private sector (foundation of the Center for Small and Medium Businesses, organization of numerous international forums, conferences, and fairs). No doubt, other initiatives aimed at supporting the transition economy states can also come up as a result of the development of regional economic cooperation. One of them could be the introduction of regional payment mechanisms limiting the use of hard currencies in trade operations between the regional partners. It would be thus possible to challenge barter agreements and overcome increasing debt by easing pressure on international hard currency reserves.
On the other hand, the fact that the regions interested in cooperation agreements are simultaneously represented by transition-economy and market-economy countries, as well as EU full and candidate members, is full of vital energy and makes it possible to establish firm ties with the European Union and the major international organizations involved in economic cooperation in Europe. Ukraine’s active participation in such initiatives would speed up the process of mastering the skills to negotiate economic and trade issues owing to, among other things, the fact that the country would be getting more consistent technical support. While we fear a clash between the weak transition economies and the powerful postindustrial ones, we can also hope for a sort of crossover between partners who at the same time complement each other and face certain important common problems. Among these problems is one that always needs special attention: the need to restructure relations with Russia.
It is not only the post-Soviet and post-Comecon member-states that need their relations with Russia restructured. The so-called capitalist bloc countries always maintained trade links with the Soviet bloc in a rather specific form. And even though such specific ties are no longer maintained today, they have not yet given way to normal relations. Indeed, this abnormality of relations can have different signs today, depending on what countries — those with a transition economy or others — we are dealing with. In the former case, particularly, in the case of former Soviet republics, this abnormality is manifested in an asymmetry of relations, which largely reflects the inertia of the structures and behavior inherited from the past. In the latter case, this abnormality is expressed in an excessively complicated selection of attitudes toward such countries as a potentially vast market, which occurs due to insufficient solvency, a credibility gap, and, in general, due to all the negative consequences of the transition period in Russia. Consideration of these problems from the regional angle makes it possible to develop solidarity among all the interested countries even if each country has its own approach to these problems. For example, the Cooperation Program for the Baltic Countries is a real school including a European Union member-state which maintained special trade relations with the USSR in the past (Finland), three former Soviet republics (the Baltic states), one preparing for European Union membership, Poland, a former Comecon member and a future EU member, and the Scandinavian states. The development of this initiative deserves the attention of the Black Sea basin countries, for they have many similar features and problems.
The regional approach to restructuring economic ties with Russia, provided it is not confined only to the Commonwealth of Independent States, will have an important result in overcoming the asymmetry in the bilateral approach to and restoration of a certain equilibrium between Russia and its partners. On the other hand, such an approach is quite in line with the process of dropping the traditions which existed in the former Soviet Union and thus averts the danger of the former Soviet republics falling back under Moscow’s domination. What guarantees this new approach is the difference between these countries, which gives an impetus to the development of trade relations that will strengthen market regulation and meet the requirements of the WTO.
Both in terms of its geographic position and its special historical and cultural features mentioned, Ukraine can play a strategic role in any regional initiative aimed at developing sound economic relations with a group of countries, some of which, including Russia, are undergoing the transition period. This leading role would be fully justifiable, for it could bring this country substantial advantages, such as the expansion of exports, early attraction of foreign investors, and later the emergence of viable and stable economic structures, which would allow Ukraine to claim full-fledged European Union membership in the future.
