About a month ago Ukraine played host to Russia's retired reformers,
Messrs. Nemtsov, Gaidar, and Urenson. They compared corruption in both
countries and agreed that there was more in Ukraine but different. In Russia,
corrupt bureaucrats are spread along the vertical of power, all the way
down from the center to the regions. In Ukraine (so they think), the bulk
of the political power market is in the center and the regions do not as
yet have enough authority or resources to breed corruption. Great! However,
the situation may well change dramatically next year. The Budget Committee's
bill, prepared under the direction of Yuliya Tymoshenko, may shift the
decision-making (and selling) center from Kyiv to the provincial capitals.
Last week, Verkhovna Rada began deliberations of the state budget bill
in the first reading. Since the document offers a number of innovations
the politically active public needs time to understand their meaning, and
understanding them will not be easy. Unlike all previous budget programs,
the current one was prepared and market-oriented in keeping with all scientific
marketing rules. Neatly bound, with a colorful cover design, it may well
not be fully understood before next summer.
Yet, using an analysis of previous years' budget practice, certain conclusions
can be made even now. First are the budget program's political and economic
consequences. Contrary to the widely advertised right of local self-government
to self-financing, document provides right only insofar is it related to
"hands-on management." A budget that is not oriented toward actual revenues
(according to the bill, they can differ from planned ones by over 50%)
can only produce the cashier's arbitrary rule. Secondly, shifting the flow
of funds from the regions to the center (instead of the current "center-region"
pattern) will deny the central government the lion's share of political
influence. Thirdly, increasing the quantity of "non-tax revenue" is undoubtedly
directed against political (and commercial) rivals among the President's
entourage. Fourth, the Budget Committee's persistent stand in favor of
a "target-oriented" emission - for the benefit of farmers and coal miners
- will perhaps create a floating majority in Parliament, allowing the bill's
timely passage (and pay the support groups their fees). This is how the
political objectives programmed in Parliament's budget bill can be described
in general.
As for the economic consequences, they are even less encouraging. The
worst thing is that the budget's "guidelines" will whet the state structures'
appetites, so they will hunt down private business and its money with even
greater zeal. In her presentation Ms. Tymoshenko said that more money should
be printed to replace barter deals and all tax payments would be made.
Evidently, she must have been dodging, because she of all people knows
that the products supplied by two-thirds of Ukrainian enterprises are needed
by no one at any price. At best, Ukrainian goods selling at such mind-boggling
prices could be exchanged for money just as useless as they are. In other
words, no further tax payments will be forwarded to the budget after such
an emission, just as the effective enterprises were not freed from arbitrary
bureaucratic dominance, much as they would like. What is sure to appear
will be increased dollar demand at the Ukrainian Interbank Currency Exchange
(where part of that fresh emission will be channeled and then again, after
being carried as "losses" on the balance sheets of collective farms and
mining directorates). Actually, this unsecured emission is only one negative
aspect of the bill. Another innovative element, "budget debentures" will,
in fact, expand the effective money supply by using substitute money, creating
inflationary pressure. And the hopes of all those rejoicing at the zero
budget deficit (with a 50% hidden one) will likewise shatter, because this
deficit is only meant to simplify control over monetary spending. The zero
deficit does not cancel the rule that the amount received by the budget
equals the amount spent. At the same time, this clause forbids the government
to borrow and spend money at its own discretion, just as it forbids borrowing
from the National Bank.
Recall that several months ago the Solons debated the GDP percentage
to be redistributed through the budget. The Cabinet suggested something
like 25% and the Communists wanted slightly more than one-third of the
national wealth. Yuliya Tymoshenko beat them all, proposing 50% GDP and
refusing to back down an inch. Needless to say, no such percentage will
ever be got from the illiquid GDP. However, it seems worth trying to foresee
the consequences of such redistributing trends: one more year at least
lost for Ukraine. Of course, the Communists, Socialists, and Agrarians
will support the stated project of nationalizing the economy (the more
so that nationalization is favored by parties nestling in or with power
structures). In a word, the next year will pass under the slogan of enhancing
government regulation of the economy. So what is the difference between
what they want now and what they tried to accomplish under socialism?
There is a difference, and a tangible one.
There are two distinct types of government regulation, although they
are constantly confused in Ukraine, one being presented as the other and
vice versa. This is apparently done on purpose, for political reasons,
to show that we are also on the right track. The Ukrainian (as well as
Russian) "dominion" regulation type proceeds from the fact that the state
owns property and does business. This is the least effective obsolete variant
dating back to Muscovite Tsar Ivan III. An altogether different picture
is observed in the West; they change conditions, thus regulating business
but without trying to either nationalize or redistribute or taking any
other rigid measures. Generally speaking, the more the government machine
is involved in property relationships, the greater the viscosity of the
scheme under study and the harder it is to follow. It gets harder for the
state to switch from exercising direct control to providing conditions.
All official statistics today point to 90% of the nation's wealth being
in the hands of the state.
Most importantly, however, property determines the state's political
conduct, so that the state cannot adopt a milder regulation mode by establishing
equal rules of the game for all players. There are three possible ways
out of the current situation in principle. The first is return to a centralized
economy, but it is not likely to come about. The idea of a strong state
is extremely popular now, but the state will not get any stronger if burdened
with managing enterprises; it will once again sink and drag us all down
to the bottom. The second one is suppressing the market somewhat, but without
rigid government regulation. This seems the most likely scenario at present.
The third one is quickly and purposefully creating market institutions,
but this calls for enacting a multitude of laws which neither the Ukrainian
Parliament nor the entire extant system will ever accept. The government
should be forbidden from doing any business or engage in any profit-making
activities. It must be ousted from the business domain, but this is not
likely to happen, at least not in the coming year.
By Iryna KLYMENKO, The Day






