Historical experience of economic failures
By Oleksiy PLOTNYKOV, Ph.D. in economics
Analyzing Ukraine's economic experience since the country's independence,
one has to admit, unfortunately, that it has been negative. The activity
of both the current and former residents in the economic sphere was carried
out under the banner of imitation: the imitation of reforms and their substitution
by primitive propaganda.
For all the current President's self-isolation from solving the economic
problems, his predecessor's performance was anything but economically constructive,
either. The things that could have been done effectively in the first years
of Ukraine's independence were overshadowed by economic romanticism used
as a basis for the development policy of the first President of independent
Ukraine. Because of this, the former President's entourage assessed the
socioeconomic processes quite simplistically. In fact, they never overcame
the influence produced by the myths of the primitive Soviet propaganda.
For instance, for a long time it characterized Ukraine as the USSR's breadbasket
which could feed all Europe, etc. Simultaneously they demonstrated a total
lack of understanding the cost Ukraine has to pay to access world markets.
The same can be said about the introduction of a national currency, and
the dreams that it would be stronger than the dollar. The process of Ukraine's
switching to world prices was pictured by imagination just as distorted.
Both nationwide and local newspapers presented Ukraine's ratings, obviously
erroneous, by one German bank. The list of such examples can be quite long.
And the impression was that the very fact of Ukraine's achieving independence
and powerful state activity were expected to make up for the progressing
degradation of the economy.
Since the 1994 elections there was only one good achievement in the
economic sphere: the announcement of the so-called course of radical market
reforms. Unfortunately, it was just an announcement. The text voiced in
Verkhovna Rada is probably the highest achievement of Presidential Administration
economists. At any rate, the current President will go down in history
as a glaring example of how one can announce rather robust ideas and then
do absolutely nothing to accomplish them.
The current President failed to draw the relevant conclusion from his
predecessor's term, and practically no efforts have been made to change
things for the better. The industrial and business community, as well as
broad popular strata, had great expectations for the President immediately
after the elections. This extension of trust was wasted. It is impossible
now to change the image of the President as a hesitant top executive incapable
of pursuing his chosen course of reforms. Even now, in the current President's
last year one can see a complete absence of development policy and philosophy
of reforms. All this has been supplanted by various slogans and appeals,
borrowed from the times of developed socialism, discordant with the statements
about market transformation of the country. The Ukraine 2010 Program, the
only strategically-shaped one, was obviously elaborated by people who in
2010 will, at best, play with their grandchildren, but will never be involved
in state affairs. The attempts to give resounding names to periods of Ukraine's
development, characterize the types and stages of reforms which were not
then implemented, caused only natural irritation.
Now the total lack of confidence of the populace and business community
in the President and other state institutions is quite evident. Domestic
manufacturers do not have proper conditions for production development,
and there is no incentive for capital accumulation and investment in the
Ukrainian economy, revitalizing production, and marketing our goods. Unusually
often changes in the Cabinet and the permanent threat of dismissal distracts
the government from fulfilling its functions in the economic sphere. The
threat of being thrown overboard from the ship of state, which hangs over
the officials supposed to work on the economic sphere, forces them to seek
compromises in order to retain their posts.
The country is heavily dependent on the international financial and
credit institutions. The influence of such entities largely corresponds
to their own interests rather than Ukraine's national interests. This concerns
a broad spectrum of issues, beginning from the size of the state budget
and covering its deficit, to nominations to key state positions. Obviously,
the degree of this dependence creates certain limits for actions in the
course of economic reforms. Ukraine's ratings in the world are so low that
it is not worth presenting them here.
Without referring to basic macroeconomic figures, suffice it to give
the real wages and salaries index. Assuming that in 1990 it was 100%, then
in late 1994 it was 33.5%, and in November 1998 30.9%. And, this is according
to the official data only, from 1994 to 1998 unemployment grew more than
12-fold. This had been accompanied by increasing arrears in social payments
and drop in popular living standards. The government does not have mechanisms
to improve the situation before the presidential elections. Nor does it
have mechanisms to even preserve the current situation.
Analysis of the actions of the President's current economic advisors
late last year and early this one highlights two trends. The first one
is that they try to whitewash themselves personally and to shift the blame
for their own failures to other advisors. And the second is a total misunderstanding
of the realities and absorption in the political economics of socialism:
what are true market relations and what are quasi-market ones.
Analysis of the President's periodical economic enlightenment shows
two things. First, the President receives information on the actual state
of affairs in very limited doses; secondly, he voices materials prepared
by people with virtually opposite points of view. Now and then we get the
impression that the current President is deliberately being made a fool
of. Suffice it to mention how his humiliating bowing and scraping before
international organizations changed to severe criticism during his visit
to Poland. This was followed by a new wave of moderate flirtation, this
time in Davos. In fact, the assumption that the economic entourage of the
current President is trying to sell itself to the team of one of the presidential
candidates in the upcoming elections has every reason to exist.
What Ukraine needs in the economic sphere is quite obvious. The country
needs positive changes, at both the macroeconomic and microeconomic levels.
Paradoxically, as it may seem, the elaboration and promulgation of the
economic reform and development concept remains urgent. The development
of the state should not be based on statements by the highest officials
contradicting one another and being politically opportune rather than of
national significance.
Ukraine needs to define the general socioeconomic landmarks for its
development, which would make it possible to assess the role and place
of the state in the economic sphere. The experience of the developed countries
shows that the effective socially-oriented market economy is impossible
without active participation of the state. However, the state's methods
and mechanism of regulation should not remain unchanged. In addition, the
degree of state regulation, its specific functions and tools, differ substantially
from one country to another, corresponding to their historical, cultural,
geopolitical, and other factors.
In any case, there is no reason for Ukraine to add to its negative experience
in economic development. And what has historically befallen the country
should for obvious reasons be stopped and changed, changed for the better.
