With every day of the illegal economy's existence, the deeper the economy moves into the shadows, and the likelihood increases of Ukraine becoming a criminal state
The problem of the shadow economy has been a matter of much discussion in recent years. In 1996 the authorities announced their intention to "legalize the shadow economy sector," but in early 1997 the situation suffered considerable changes due to the steep decrease of budget income. The executive branch considers shadow sector reduction to be a state policy priority this year.
Sources
The unofficial economy sector constitutes at least 43% of total GDP or more according to various estimates. The unofficial sector of the economy can be divided into the parallel economy and shadow economy, or, in other words, the black market. According to Russian tax officer-in-chief Potion, about 75% of all Russian enterprises would immediately go bankrupt if they started paying all the taxes the law requires. Ukraine has never made such an announcement, but it would be no mistake to say that the percentage here must be the same or higher, considering Ukraine's more difficult economic straits.
Official activity in many ways fostered the formation and development of the unofficial sector of the economy. When enterprises were under state control extremely cozy conditions were often created: cheap state loans, secured state orders, licenses, quotas, privileges in privatization, etc. The income was shared among them according to how much pull the officials involved had. Scare tactics were widely used against competitors, for which purpose criminal groups (closely related to the officials) or law enforcement and taxation organizations were used. "Ukrainian business" made it possible for regional clans to form. These clans presently rule not only the economy but also politics, based on junior officials, who managed to retain power, while senior officials often suffer from various transformations. Ukraine has had eight governments since independence.
The Freedom We Lack
The creation and existence of a huge unofficial economic sector is doubtless based on the absence of economic freedom.
Today, according to the Western experts estimates, $1069 are needed just to register a small business small enterprise for licensing, registration, and obligatory payments. What should one do, if he cannot, does not want to work for the state, or was fired? He does not have the money to register the enterprise and if everything goes right, he becomes a trader in the bazaar. Though active people dominate, many people prefers to wait for their salary or to live on the dole. There are 3 million people selling products in Ukrainian bazaars, while only 678,000 are officially registered as unemployed.
What Results
The unofficial economy exists together with the state economy and does not suffer from the various structures created each month to control business activity and fill state budget coffers. As a rule, honest taxpayers come under regulation and control. The businessman and his business look like a squeezed lemon after all the checks and either stop working or fully or partially move into the shadows.
An example of shadow activity is medical treatment. Although officially registered as free of charge, 40% of it is paid for in cash. Up to 80% of communal services avoid paying taxes. 70-75% of apartment renovation services and building construction, 60% of car repairs, and 40% of home repair are never registered. State commercial enterprises hide up to 50% of their turnover. According to the economic development center, unofficial turnover in machinery makes 5-10%, up to 10% in oil processing, and 15-20% in passenger transportation. The volume of unofficial international trade can be estimated correctly only comparing the official statistics of Ukraine and the partner country: The figures almost never coincide. According to some estimates, $20 billion has fled the country.
Our Answer
From all the above it can be concluded that the parallel economy, which exists sided by side with the official one, is the reaction forced on businessmen by the state racket system: tax collection, licensing, regulation, etc. Such a parallel economy is the only way to survive under conditions of economic crisis and legislative chaos, but it is definitely not the way for the country to develop economically.
The parallel economy does not envision long-term investment and does not stimulate production. Its existence leads to market monopolization, as for instance with imported tobacco products in the recent past. The government loses control over economic processes in the country because of this sector. The economy embraces more criminal elements and the official economy is gradually transformed into an unofficial, parallel economy; it is pushed into the shadows. What is left of the official economy suffers from various processes, which cannot be solved by using conventional logic.
With every day of the illegal economy's existence, the deeper the economy moves into the shadows, and the likelihood increases of Ukraine becoming a criminal state. We can overcome this danger by electing a critical mass of clear-thinking people to the new parliament, able to pass laws favorable for the economy. The country needs to develop a long term economic strategy, and its tactics of economic reform should be brought into conformity with it.






