The latest developments connected with the attempts by Vice Premier Yuliya Tymoshenko to reform the energy market in order to set up a clear system of power supply and payments (provided the attempts are sincere) have raised a purely economic question. Can we create a civilized market in one isolated sector, the fuel and energy complex, without taking into account the current realities in the Ukrainian economy as a whole?
The main points of the proposed project, Reforming the Energy Market, are: full payment for electricity consumed, an substantial increase (up to 70-80%) of the share of real money in settlements, and timely transfer of funds received by energy market operators to power generating companies. And the vice premier does seem to intend to confine her efforts only to electricity, to which the statement she made May 19 on natural gas supplies bears witness. From now on, gas will only be delivered after prepayment, while deadbeats will be cut off from the gas pipeline, irrespective of whether it is a hospital, a kindergarten, a maternity home, or a boiler room which heats a residential neighborhood. Our citizens are in for hard times: no money — no central heating, hot water, or lights.
And one could only welcome attempts to put the relations between energy market suppliers and consumers into a normal civilized framework were there not just one but.
Before advancing any project of reforms, one should do at least two things: first, gage the chances of its implementation under existing economic conditions, and, secondly, to simulate and calculate the possible economic and social consequences of these reforms. Such a systemic approach shows professionalism. The Ukrainian fuel and energy industry is not a thing in itself but a basic sector of the economy, so the interconnection and mutual influence between the two is substantial. With this in view, let us study the two main economic factors directly responsible for the implementation of the reform’s chief components: payments based on money only and one-hundred-percent payment for the energy resources consumed.
We can state unequivocally that it is practically impossible to bring these intentions to fruition given the current monetary policy. Barter schemes, mutual conditional settlements, and nonpayments emerged as the objective reality of an unenviable situation. It is common knowledge that the national currency is the only legal tender for buying goods and services in a normal economy. For want of the former, the legal sector of the economy begins to experience Graham’s law of how bad money drives our the good, when quasi-money, such as barter, debt swaps, and other assets begin to supplant the national currency. The money mass now available in Ukraine is insufficient to secure all payments.
The second objective factor is the disproportion between prices and wages. Meanwhile, it is the economically justified share of wages in GDP, assessed on the basis of the real cost of workforce and labor productivity, that strikes a balance between the supply and solvent demand of the population, which in fact determines its ability to make full payment for what it consumes. The population is incapable of doing so due to the low level and arrears of Ukrainian wages.
As a result of the action of these two factors, the total amount of money received by electric power suppliers cannot offset the two main components of its price, cost of production and profit to energy market operators. Since the latter aim to earn a profit in the form of money, they, as the first link in the money chain, try to satisfy, first of all, their own legitimate economic interests. There is not enough money for all, which leaves electric companies at the receiving end. It is useless to combat this objective phenomenon by administratively redistributing the financial flows. The chronic scarcity of money resources will be always begetting have-nots who will strive for a new redistribution of the earnings, thus aggravating confrontation.
The delivery of electrical energy and gas only to those able to pay may have negative social and economic consequences. In the long run, is it the fault of the ordinary individual that the wages he receives from the state are not enough to meet the most basic needs? One can get used to electricity outages and hot water interruptions, but it is a moot point whether high-rise residents will accept staying in their unheated apartments in the winter. Artificial restrictions on thermal and electric power consumption will only cause many enterprises to grind to a halt and output to drop, thus raising a host of other problems in the economy.
It is utterly impossible to carry out the proposed energy market reform, at least concerning strict money payment discipline, under existing economic conditions. Moreover, it could have an effect just the opposite to that expected. Paraphrasing a well-known utterance of “the father of the nations,” we can say you cannot go alone to the civilized market until the whole economy becomes ripe for this. This means reforms in the energy sector must be started by revising monetary policy and reforming the remuneration system.
The former point has already been repeatedly debated in The Day, but there have been no positive changes in monetary policy because the government and the National Bank, in spite of all arguments, still hold on to their old monetarist positions. Meanwhile, the time has come to stop debate on whether there is enough money in our economy or not and to do a scientific calculation of the money mass required for effecting all payments without exception. This is the only way to eliminate barter and conditional settlements.
The other important factor in solving the problem of nonpayment is increasing the population’s solvency, so that it could pay fully for what it has consumed. Indeed, society cannot consume more than it produces, but the attempts to artificially restrict consumption lead to a situation when the already manufactured products are either consumed without payment or remain without demanded. Thus, to normalize the commodity-money circulation at the stage of end consumption, one has to carry out a radical reform of the remuneration system, with the share of wages in the GDP going up to 50-60%.
Unless the monetary policy is revised and the remuneration system is reformed, any kind of reforms that touch one way or another upon commodity-money relations will fail to yield positive results and will be nothing but a political game or a new slicing of our meager economic pie.
