• Українська
  • Русский
  • English
Where there is no law, but every man does what is right in his own eyes, there is the least of real liberty
Henry M. Robert

MISLEADING MILESTONES AND ULTIMATE GOALS The Ukrainian economy is following the Latin-American pattern

13 November, 2012 - 00:00

For seven years Ukraine, Russia, and other former Soviet states have been taking vain efforts to prove to the world that the changes they brought about in the social and economic order are the only way to solve the economic problems that accumulated over the last half century.

Usually, a reference is made to Poland’s achievements, though it is obvious that Ukraine is nowhere near that country’s level of development.

Such lagging is easily explained: after 1945 Poland was in fact an extraordinary conglomerate of capitalist (with 76% of peasants being individual farmers or in urban areas nearly a third of the population were owners of small businesses employing up to ten hired workers) and socialist (large industrial facilities) economies. There is much more basis to compare Ukraine’s economy with Latin-American ones, which 30 years after mass privatization are mostly oriented toward the production and basic processing of natural resources.

There is now no doubt that Ukraine is following the Latin-American pattern. Real privatization for money has concerned only basic production sectors. Enterprises in the processing sector were privatized for certificates. The results achieved so far are as follows: the production level in the basic sectors has been growing (although insignificantly) in exports, while in the processing sector it continues to fall. The short-lived interest of Pakistan and Turkey in Ukrainian tanks temporarily breathed life into this sector, but there has been no follow-up: the developed countries do not welcome new competitors on the arms market, and for that matter, other markets. This is why the stentorian declarations on “strategic partnership” are not supported by investments in Ukraine. Our partners from the developed countries are in no hurry feeling that time is on their side.

The point is not that average income in Ukraine is 30 to 40 times lower than in the developed countries, but that this gap is increasing. The sources of this trend originated some 35-40 years ago, when labor-intensive and environmentally hazardous industries began to move from the developed states to the Third World, using capital transfers, while the developed countries were rapidly increasing the share of high profit technology intensive production.

For this reason, the economic structure of the developed countries was more and more oriented toward small and medium-size enterprises which are better managed and hence develop more dynamically. This allowed the developed states to increase the average income of their population, which in its turn increased the demand for products of the industrial giants. In short, production and consumption, both growing, were balanced.

In Ukraine, the production infrastructure created in the past, with large and medium-size enterprises dominant, and a purely biased, negative attitude toward small business, restrained the development of small firms. The capital intensity of production and low rate of financial turnover characteristic of the sector forced the biggest part of the active population into trading activities, including international ones. It worsened the operating conditions for the production sector which faced fierce competition from foreign producers. Privatization for certificates, which was carried out on the basis of contradictory and confusing Ukrainian economic laws and aroused a strongest interest to the shadow redistribution of property, completed the utter devastation of the production sector.

As the situation developed, the economy was supposed to undergo changes caused by the factors mentioned. However, this never happened. Privatization laws remained essentially unchanged, which did not allow legislative barriers to be created to stop the collapse of production in medium-size and large enterprises. The conditions for developing small business in the production sector were not substantially improved either. The issue is not only that some tax amendments affecting small business had not been considered before 1998, but that the institutional and financial conditions for such businesses to be created were not changed (there are still difficulties in locating production facilities, required start-up authorized capital is still large, etc.)

The Ukrainian producer also suffered a negative impact from the growing difficulties associated with product exports, increased cost for various customs and other related procedures, imposition of various payments to commercial organizations which assumed some of the functions that state institutions used to provide enterprises for free. The increased tax rates have made every second operating enterprise (which now force one-third of the nominally existing ones) to operate in the shadows.

Unfortunately, following the course of the Russian economic thought (without reference to the real integration of both countries), Ukraine has chosen false landmarks in transforming its economy. But even this country had an example of another way of economic transformation. After 1927, artels [cooperative enterprises of agricultural or industrial workers] existed with a dynamically developing production. They were set up using shareholders’ own money, and to deceive the shareholders the way it is done at the enterprises privatized for certificates was impossible. The liquidation of artels in 1961 and creation of state-owned local industrial companies on their basis marked not only the act of the large-scale plunder of collective property by the state (no compensation was paid), but also liquidation of the way toward evolutionary economic transformation. The forgotten history of the development and liquidation of artels played an evil joke on the Ukrainian people, and the joke has now become a tragedy.

However even now, in the period of a sharp economic crisis there are still some ways to resurrect the country. They call for adopting of nontraditional solutions by both the legislative and executive branches.

This requires the confidence of all strata of the society in the country’s leaders along with bringing together different forces regardless of their ideology and party membership. This is not utopian romanticism sired by the harsh pressures both inside Ukraine and abroad; it is the objective necessity of the last chance to drag the country out of the hole it fallen into.

In order to philosophically comprehend the economic problems that accumulated in Ukraine, one needs to have intelligence, strong will, the skill and the wish to forge compromises, and the ability to sacrifice one’s personal interests to the public good. Next year’s presidential elections will show not only the Ukrainian people’s skill at choosing itself a leader, but its place in the world historical process.

 

Rubric: