Responsible employers will not fire people as long as they can. Will the state help them?
“Daddy, is this financial crisis going to affect us?
“No, son, it’s going to affect only the oligarchs. We’ll just go bust.“
This is how, with its distinctive touch of humor, Ukrainian society is responding to the challenges of the times. Yet this response largely reflects our fellow citizens’ concerns. Information provided by our media, often verging on hysteria, promptly evokes in Ukrainians the still fresh memories of the early 1990s, when people were losing jobs en masse, while those still on payroll had to wait for their wages and salaries for months or even years. Such parallels are not invalid: Ukraine’s economy is indeed in a difficult situation, a fact which is acknowledged by government officials and businesspeople. Employers, nevertheless, are urging that their businesses should not be buried ahead of time. There is always a way out of a situation, but the search for it needs to be carried out in a professional way.
The Ukrainian Employers Federation, which embraces more than 500 businesses in 48 sectors of the economy, from giant steelworks to small-time door manufacturers, monitors developments on the domestic market, tries to forecast them in a timely fashion, and submit pertinent proposals to the government. However, according to the UEF Director General Volodymyr Hryshchenko, the government seldom heeds the employers’ remarks or initiatives, although the actual owners of businesses are best placed to see the crux of the problem and come up with solutions that would get businesses back on track.
The financial crisis is taking its toll on the European countries. Job cuts and back wages are also inevitable there. Yet, much to Ukrainians’ surprise, the European labor unions that have always been active are not organizing strikes. Why? Because they are holding talks with employers and government officials, working out action plans to overcome the consequences of this crisis, says Hryshchenko. I wonder if anyone consulted any Ukrainian workers when drafting this “anti-crisis bill.”
The Employers Federation tries to take an optimistic view of the prospects of the domestic economy. They say that developers are traditionally the first ones to suffer from financial problems, but they are also ahead of the pack when it comes to revival. Hryshchenko has every reason to believe that, given the Cabinet’s adequate policy, developers will start hiring people in three to four months, which will mean that our economy will live.
The State Employment Center also warns employees against taking any drastic measures. Of course, the Center is getting ready for an increased influx of jobless people, but they say there is no reason for panic. Anyway, the SEC will provide advice to anyone who needs it.
What were the reasons behind the crisis in Ukraine? Are today’s problems a sign of the end or the beginning of an economic decline? Will unemployment become massive, as predicted by some experts? Most importantly, how are these problems to be solved?
These and other issues are raised in The Day‘s interview with Volodymyr HRYSHCHENKO, director general of the Ukrainian Employers Federation and a member of the Administrative Council of the ILO Regional Office for Europe.
“Ukrainian politicians and government officials are misdiagnosing the Ukrainian economy and emphasizing the wrong points. This is fraught with danger. I wouldn’t want to use medical terms, but I think it’s the best way to make the scope of this problem understandable. A wrong diagnosis means a wrong course of treatment.
”Ukraine actually faces the world and domestic economic crisis at the same time. The national one is caused by certain actions on the part of the government. Complications in the real sector of the economy appeared way back before they began to be widely discussed. In fact, the Employers Federation warned the government this spring about this. Also, there is the world financial crisis that struck, above all, our trade and made itself felt to our exporters. What is happening now is multiplication, i.e., our domestic problems have been multiplied by the worldwide crisis. Mean1while, in Ukraine we only hear about the world crisis (most dangerously, this comes from our prime minister), while nothing is being done to solve our domestic problems. All this serves to aggravate the situation. The development of the economic situation depends only on how adequate our government’s measures will be in this situation.”
At the beginning of November 2008 our president finally signed the so-called anti-crisis law. Do you think it will be effective?
”No. The Employers Federation is split on the issue of the IMF loan, yet we cannot take it upon ourselves to comment on its necessity because we lack experts versed in the issues of monetary policy on the national level. We rely on expert opinions we get from the National Bank of Ukraine. By the way, the NBU experts were the only ones to have adequately responded to the situation, albeit belatedly but quite professionally.
”If the NBU says that this money is what Ukraine needs to stabilize the financial market, we go along. On the one hand, this law is meant to meet the IMF requirements; on the other, it is packed with clauses that have nothing to do with the loan. This law attempts to give preference to certain sectors, but these preferences are absolutely unfounded. For example, our high-ranking lawmakers in parliament, people whose salaries we are paying out of our own pockets and whom we have essentially hired, are seriously deliberating a bill that gives preferential status to frog-breeding farms. Personally I have nothing against frogs, but when the country is gripped by an economic crisis, when businesses are closing down, when people are forced to work shorter hours, when in a month employees will be officially handed pink slips, our parliament is considering the issue of breeding frogs and oysters. This is absurd!
”As for the IMF loan, let us consider the issue and make a concrete decision, rather than lobby for someone’s interests along the way. As for the economic crisis in Ukraine, it can’t be helped by passing a bill. What we need is a series of comprehensive measures to minimize the consequences of the economic decline.”
As a professional employer, how do you envision this system of measures?
”We have submitted our proposals to the government. There are procedures stipulated in the General Agreement signed by the government and the all-Ukrainian associations of employers and trade unions. We have proposed to set up a trilateral committee representing the government, the Employers Federation, and trade unions and task it with working out a comprehensive program to overcome the crisis.
”The European experience and the lessons learned from the Great Depression of the 1930s (many refer to it without actually knowing what they’re talking about) clearly point to the fact that everyone has to be put in the same boat. Let me stress that we can’t ignore the position of trade unions, which protect the interests of employees. While doing so, labor unions, however, often fail to comprehend objective economic processes. They may launch protest rallies, putting forth demands the employers are unable to meet. Therefore, we have to sit together at the negotiating table and jointly minimize the consequences.
”After all, Europe has admitted that we are facing millions of redundancy dismissals. In this situation the European trade unions are not considering actions of protest but are acting jointly with the employers. And so we insisted on the setting up of an effective committee. This committee was founded recently, but it is made up of government officials only. What’s next? We employers know how to prevent job cuts.”
Indeed. Would you enlarge on this subject?
”There have appeared a number of ‘funeral directors’ who are burying Ukraine’s economy and forecasting catastrophic staff reductions. In fact, we were the first to offer these alarming figures. But why [did we do so]? The reasion is that we know how to reduce possible losses and prevent the snowball effect.
”Businesses should be able to have working capital — that’s all it takes. Instead, Yulia Tymoshenko promises the people to nationalize enterprises that will not pay wages. What does this mean? A businessman who has created a dozen jobs with his own efforts and intellect now has to hand over his business to the state as a result of the government’s incompetent actions. Who will run it if the person who owns it and has invested money in it is no longer in control? This is not mere adventurism — it is a horrible thing.
”After Tymoshenko’s statement on Friday, I received three phone calls on Saturday. Every caller asked how he could lawfully withdraw money from Ukraine. The federation’s statute makes it imperative that I answer every member’s question. For example, we recently replied to a request by sending a brochure on how to legalize a business in Latvia. Today, our entrepreneurs will follow the path of least resistance: they will start businesses in, say, Latvia and tomorrow will come to Ukraine as importers. Is this what our government is after? Instead, it should confer medals of honor on businessmen who create jobs in Ukraine, in particular in villages and raion centers.”
”All we need today is a couple of resolutions and the situation will start to gradually improve.
”This spring our government adopted an absolutely unlawful resolution and we had warned against it and then demanded its cancellation. The resolution banned the circulation of tax promissory notes. The Cabinet of Ministers cited a number of criminal acts involving such promissory notes. But who is to blame? The culprits are the government officials who are handling these notes.
”At the first stage [of production], Ukrainian exporters need to import [products], which requires collosal sums of money. This problem doesn’t exist in the [civilized] world because they have VAT refunds. This is an absolutely normal settlement formula: I import goods, like components for my manufacturing business, and draw up a promissory note. A month later I export goods and my promissory note is closed.
”After they canceled the system of promissory notes, we warned that serious problems would emerge in September, because no matter what the situation will be, the government wouldn’t be able to secure VAT refunds. This is precisely what happened. In September, the VAT refund budget was exhausted. No VAT refunds, no way to use promissory notes, no loans available, no floating funds. What else can be done? Production volumes and the staff size can be scaled down. This is a man-made problem. Canceling this regulation of the State Customs Service would get all this off the ground. As for abuses of office, let these be handled within the institution of the civil service which is totally corrupt.
”Our second demand is the Cabinet should pass an official resolution curbing the rate of bribes charged by government officials. I’m not kidding. We believe that the 15-percent rate is enough for the needs of government officials and their families. But what they demand today is 30 percent! Take any government contract, for example — its budget will be smaller than the sum total of bribes demanded by the bureaucrats.”
An official resolution curbing bribes would actually acknowledge corruption in government agencies, wouldn’t it?
”It’s common knowledge, anyway. We know about kickbacks and the kickback rate, so let’s call a spade a spade and try to control the bureaucrats’ insatiable appetite. Also, this money has to be laundered, so then it’s not 30 but actually 38-40 percent that has to paid to someone. Furthermore, as a result of the financial crisis, bank loans are unavailable, which entails problems for businesses regarding circulating capital. I mean, you have to buy goods, but you don’t have the money to pay for them. You can make a deal with the supplier by promising to pay later. In a situation like this, manufacturers are faced with a dilemma: stop manufacturing and dismiss the workers, or deliver the goods and wait for postponed payment.
”As a businessman, I can assure you that they will go for the second option. They will keep delivering for as long as they have sufficient floating capital. Stopping production is a disaster. Believe me, firing people is a disaster for employers, for these people have received training and have the right qualifications; they will not necessarily return after production is resumed. Any employer will hang on for as long as he can only to avoid firing his people.
”Ukrainian legislation appears to have an altogether different objective. As soon as I deliver the goods, I have to pay the tax. We are not talking about scrapping this totally absurd regulation and working out systemic methods. However, for as long as these deep economic problems exist, the [tax] administration procedure — the so-called cash method, when you pay immediately after you receive money- could be modified for a year or two. Why do people start losing their jobs? The reason is that we have to pay taxes instead of paying out salaries. Our state bleeds us white and creates the conditions in which we are forced to fire people.
”We have also suggested that the government ban further rises in electricity prices, which go up with each passing month, and the railroad freight rates. This is an issue that can be resolved on the state level. How did our government respond? It agreed with our proposals, but only in regard to the enterprises in the chemical and steel industries. You can’t single out an industry because they are all interconnected. A metallurgical works involves 500-600 enterprises in various other sectors. This is where small and medium-sized businesses step in and they employ most able-bodied citizens of the country. As it is, we are giving preferential treatment to those that are closer to the powers that be anyway. What about the rest? Besides, our steel companies have stopped exporting their products: they have nothing to deliver today.
”We have filed a submission to the Cabinet of Ministers of Ukraine regarding the comprehensive nature of problems experienced by giant chemical works in Severodonetsk, Cherkasy, and Rivne. These enterprises are about to be closed. We are witnessing an attempt to create conditions in which Ukraine will have to buy mineral fertilizers from Russian companies, which pay for natural gas half of what their Ukrainian counterparts are charged.
”Our government explains this policy by the need to support agricultural producers, saying that our peasants need cheaper fertilizers. That’s nice packaging. The bottom-line question, however, is: What are we going to do with hundreds of thousands of people who are working at the chemical works? Meanwhile, gas prices will keep mounting. Apparently, someone in the government needs to have a brainwave and change things. [The answer can be found in] any textbook on economics for third-year economics students — reading it would not hurt our — ”professionals” in the Cabinet.”
It is believed that the world financial crisis in general and the Ukrainian crisis in particular were engineered in order to redistribute world capital, for want of other available options. In your opinion, is this statement true to reality?
”I don’t think it is true. Events take place first, legends come next. What kind of capital is there to be redistributed in Ukraine? Who would benefit from this? Ukraine as a whole would be put at a disadvantage. Those responsible for hostile takeovers would win, but they were sitting pretty before the crisis, weren’t they? As for redistribution of fixed assets, we have all seen the kind of bespredel that reigns here. (Bespredel is a popular term in Ukraine over the past few years, in this case meaning a blend of lawlessness and gang rule.)
”Hostile takeovers are taking place in full view of the entire country. We are receiving alarming signals from Luhansk oblast and Kyiv. The good old takeover patterns are being applied. I will not name businesses because this is still dangerous, but if this problem is not resolved, we will make such situations public knowledge. What I’m referring to is three huge businesses in Kyiv and three more in Luhansk oblast. Let me stress that this has nothing to do with the economic crisis. It’s just that our politicians are into redistribution, jointly with the power structures.”
Hostile takeovers have become standard practice in Ukraine. Does the Employers Federation have a mechanism to combat it?
”We were the first in Ukraine to join the UN Global Treaty. European countries had spent decades working out an optimal decision-making mechanism for economic issues aimed at securing social accord, the so-called social dialogue. This is the first section of the Global Treaty. The second section is about introducing environment-friendly production — which we wholeheartedly support. The third one has to do with combating corruption. Bribery is the keyword for all of Ukraine’s branches of power, including all regulatory, monitoring, and law enforcement authorities. This is also what hostile takeovers rely on. Overcoming this evil takes political willpower, something we don’t have and aren’t likely to develop in the foreseeable future. Perhaps we need a harsh law to crack down on offenders. Sounds funny, doesn’t it? However, these are our realities.
”What can you expect if the government does not abide by the law? Small wonder that Europe’s attitude to our government is, mildly speaking, negative. Our prime minister flew to Brussels and declared that the Ukrainian government’s anti-crisis action plan had been considered and adopted by a summit of the European People’s Party. Her statement was carried by the media.
”Recently, attending a European forum on overcoming the economic crisis, we were asked by high-ranking EU officials whether the Ukrainian government had taken into account all the proposals of the employers. I answered diplomatically that we hadn’t as yet met with the government to discuss the subject. They were shocked. I went on to say that their European People’s Party had approved our anti-crisis action plan. And then I discovered that one of the gentlemen I was talking to was an EPP functionary. He was, to put it mildly, bewildered: How could any party — in Europe or Africa-possibly meddle in the affairs of another country? He said, ‘We don’t have an understanding of your problems. We’re working to solve our own, so how can we offer you advice?’
”Our government isn’t honoring its international commitments, just as it is failing to comply with the General Agreement signed with trade unions and employers. This is equally true of this Cabinet and the previous ones. However, we will respond adequately, so let this government face the music. We have our own mechanisms, including lawsuits and international arbitration. Here the point in question is not Ukraine’s image. It does exist, trust me! The point is to make the Ukrainian government act in keeping with Ukrainian legislation.”
Moving from the government to ordinary Ukrainians, what are they supposed to do under the circumstances: wait out, support the employer, change jobs, leave Ukraine, or something else? What is your recommendation?
”My recommendation is to help the employer keep the situation under control and not to succumb to provocations, such as actions of protest. Such problems can be solved by way of negotiations. I might as well point out that not all employers are prepared to adopt this attitude, but if their employees act in a civilized manner, they will make even the most unwilling employers sit down with them at the negotiating table. This is provided that, rather than unrealistic demands, the employees offer specific proposals on how to keep the employer’s business alive, enabling them to earn money. All this must be done in a transparent way, understandable to both sides. This is what we have already talked about: we are all in the same boat and we need to row together.”
