In line with the nature of the economic cycle, a crisis (which means the loss of a great part of the state’s economic potential) should be followed by the phase of growth. However, this applies to the nature of a market economy, still nonexistent in this country. What we received is not only an industrial slump unprecedented by world standards but also a heavily deformed virtual economy. Under conditions of the classic business cycle, crisis performs a constructive function. It helps overcome structural disproportions and do away with nonviable economic forms. The economy comes out of the crisis revitalized. Its transition to the growth phase is prepared precisely on this basis. But we have the opposite result: the accumulation of deep reproductive disproportions.
Also unsolved remains the problem of competitiveness. Apart from a few enterprises, it rests on artificially formed ground: the production cost of items decreases not because of upgraded management and innovations but at the expense of chronic and rising debts. These include UAH 6.5 billion in back pay, the UAH 43 billion excess in overdue accounts receivable over accounts payable, and almost a UAH 14 billion indebtedness of enterprises and organizations to the budget.
These and other facts do not give us cause for optimism. No reliable prerequisites for sustainable growth exist. Even the prerequisites for it are still to be created. For want of this, depressive development is the most likely scenario. Its potential is determined by plus-minus 2% GDP dynamics. Of course, depending on foreign market situation, there some acceleration could also occur. However, in the long term (in the absence of basic changes in the economic policy), this course of events seems most likely.
The above obliges us to be most critical and well-balanced in our assessment of economic transformations carried out in the past few years. It is important to drop false illusions, above all, about the extent to which the policy pursed in previous years was correct even in its conceptual basis. We will never be able to stand firmly if we evade giving justified answers to these questions.
Economics should put in its influential word. To do so, it must stop politicizing the problems linked with the analysis of transformations carried out in previous years.
One of the key problems is rethinking the role and place of the state. One has to get rid of such utterly primitive ideas as too much state, too little market, and vice versa. Opposition on either-or lines has never been and cannot be a basis for serious policy. Dismantling the foundations of the administrative economy, we broke the golden rule: the state can only leave the economy alone when full-fledged market mechanisms have been created and function effectively. The World Bank is also pointing this out.
World experience unquestionably proves the important role the state plays at the most difficult and crucial stages of development. Among the examples is the period of overcoming the Great Depression and the postwar transformations, including those in the 1960s and seventies. The foundations of the modern Western economic system were laid precisely in that period. They were established on the basis of the Keynesian postulates of the state- assisted encouragement of economic demand and active cooperation between the state and private capital.
These and other examples confirm the need for fundamental changes in our policy.
Radical liberalism was to some extent justifiable in dismantling the command economy. Now that the goals of economic growth and of structural and innovation policy are coming to the fore, strengthening the regulatory function of the state becomes the key problem. The same applies to the policy of reforms. Any attempts to conduct profound reforms with an ineffective state preserved, are doomed to failure. This undeniable truth has been confirmed above all by our own experience of the past years. Only biased politicians cannot see this.
How is it possible to restore the viability of our state and make it a force capable of radically changing the economic and, hence, social situation, and ensuring truly radical reforms, rapid economic growth, and balanced development? Let us be frank: we do not have clear answers to the question, it remains largely poorly worked out even in theory. It is not at all accidental in this connection that the leading thesis of the Presidential Message about the increased viability of the state has been replaced in the Government Program with a fundamentally different definition, increased viability of the government. I do not think this is a mere stylistic error. In this case we see the manifestation of two diverse ideological structures, two models of economic transformations. One should not bury one’s head in the sand and pass over these differences in silence. Society has the right to relevant information. This applies not only to differences between the Government Program and the Presidential Message but also to relationships between the government and Verkhovna Rada. What will be the logic of this relationship? Will it still be confined to old patterns and postulates that have not justified themselves? Will emphasis be laid on a critical rethinking of the basic principles of economic policy and its adaptation to the existing realities of the nation’s economy?
Due account should be taken of the multi-sided nature of the problem in question. The state’s increased viability should be assessed first from the angle of solving the main problem of systemic changes, deepening the market-oriented transformation of the economy. What is crucial here is institutional support for the policy of reforms, the final formation of a developed market infrastructure, establishment of an effective legislative system, stable rules which lay the groundwork for economic activity. Also acute is another problem: putting aright the existing property-related deformations, true legalization of various forms of property, political support for and reliable state protection of private property, the interests of business partners, creditors, and domestic capital in general. It is very important in this connection to ensure application of the civilized mechanisms of state regulation to a land market which is in fact functioning, albeit chaotically. The problem of protecting small shareholders also needs a prompt solution. We have almost 15 million of them. An intensive redistribution of property is now underway. The state should not leave this process to its fate, either; it must bear the brunt of the solution of this problem. It is, in the long run, a question of forming the required critical mass of reforms in a short time, which in the future will allow the Ukrainian economy to develop on a self- sufficient market basis.
Secondly, the state’s viability should also be assessed from the standpoint of its ability to ensure (using all the possible means, including those of regulatory policy) the creation of economic, political, and social prerequisites for realizing the available (including potential) competitive advantages of the Ukrainian economy. In a situation where such advantages cannot be realized on the basis of market self-regulators for want of the latter, the state must act as a subject that strengthens the market mechanisms just being formed and to finally do what the market is so far unable to.
Putting our competitive advantages to use should be embodied in strengthening the positions of the domestic market, establishing a model for developing innovations for the Ukrainian economy, setting into motion energy-saving and structural- policy mechanisms, and overcoming the productive deformations that have accumulated over the years of reforms. We still do not have the instruments to do so.
What is decisive in here is an active government policy with respect to reinforcing our positions in the development of high technologies and building up the intellectual potential of society. The revival of the latter brings the best economic dividends. In the world of today, this is the main resource of economic progress. Scientific estimates reveal that modern innovations account for almost 90% of the existing factors of economic growth in the West, and the buildup of intellectual potential for almost 50%.
We have proved to the world that we possess a sufficiently ample technical potential, sophisticated technologies, and a modern multi-segmented system of upgrading knowledge. It is common knowledge that individuals with Ukrainian higher education degrees, especially our designers, physicists, computer scientists, military, and other specialists, enjoy deep respect and great prestige abroad. All this is part of our national wealth and our competitive advantage (far from being fully utilized), and we must, when mapping out our strategy of further development, rely first of all on the effectiveness of this potential and ensure its sustainable enrichment under any conditions.
It is possible to make up for the loss of a part of our economic potential in a relatively short time, but it is impossible when we deal with fundamental scientific research, education system, and workforce reproduction.
I also put a special emphasis on this because even in the last few years, in the period of an acute economic crisis, we have found financial and material resources to support aircraft- and shipbuilding, the missile and space sector, and high-tech enterprises of the military-industrial complex. Much has been done to upgrade our production of agricultural equipment and other strategic industries. Thus, now that there are certain signs of economic stabilization, the state should clearly take a constructive stand in this respect. We have no right to allow any other policy. Otherwise, history will not forgive us.
Also in need of governmental, including financial and credit, support are the new economic relations now being formed in the countryside: otherwise, we will discredit this process.
It is also important to take into account the following. As the Presidential Message proclaims, Ukraine will continue to adhere to the principle of an open economy and strive to join the World Trade Organization. But in this matter also one must act rather cautiously. International practice proves the obvious truth: openness can only be effective if it holds concrete advantages for the national economy in question. Otherwise, it is destructive. It is no accident that Germany and Japan made their national currencies convertible only in the mid-1960s, after they had overcome the aftermath of postwar ruin. But we hurried to do so under conditions of deep economic crisis and 100% losses being made by whole industries. For example, Uzbekistan, which shows the best economic indices among the CIS countries, still refrains from such a step.
Thirdly, the logic of macroeconomic stabilization also needs rethinking. Monetary policy has been playing the leading role here in the past few years. Meanwhile, our own experience, as well as that of other postsocialist countries, shows that monetarist instruments alone are clearly insufficient for the reliable stabilization of money. We should not close our eyes at the fact that even under a high-class (as it was widely claimed) monetary policy the rate of the hryvnia has fallen almost threefold over the years of its existence. This is the main reason why the dollar-equivalent GDP has dropped so sharply. Today, our average wages are UAH 200. This equals $111 under the old exchange rate ($1 = UAH 1.60) and only $37 under the existing rate ($1 = UAH 5.40). This is ample evidence that there can be no stable currency when the economy is unstable and that the instruments of monetary policy alone are insufficient here. The logic of strengthened state financing should also be changed appropriately.
Fourth, the state should also enhance its role because it is essential that it increase its influence on social development. This basically boils down to reliable security of and governmental support for the socially unprotected strata of the population. This is an undeniable axiom.
It is also important to take into account one more aspect of the problem raised. The increased viability of the state envisions putting up reliable societal counterweights to the bureaucratization and corruptibility of the state apparatus. Only the true democratization of all spheres of public life and, above all, economic relations, and the establishment of effective institutions of civil society can become this kind of counterweight. State policies should also counter the influence of oligarchic structures and their interlocking with the state apparatus. The state will never be able to perform its constructive mission when vested interests have an opportunity to condition its policies, influence legislative bodies, court practices, as well as central and local administrative institutions. This interlocking has been mainly based on the official policy of accelerated privatization pursed since 1992. The issue should be absolutely clear: in the absence of the sufficient accumulation of national capital there was practically no alternative to corruption and oligarchization of the privatization process. One should also bear in mind that ineffective counterweights bring into play the law of the extended self- reproduction of oligarchic capital. The latter, after overstepping a certain line, becomes omnipotent: it is impossible to stem its growing tide. This is world practice: many countries have been thrown forever to the fringe of modern civilization because they did not trace in time the threat of oligarchic development.
Simultaneously, one must avoid extremes in this question: national capital should not be kept from concentration and state support. The much discussed (and deservedly so) sphere of small-scale business will feel comfortable under a high enough concentration of capital. In this connection, one of the state’s principal functions is multilateral cooperation with domestic capital with a view to most effectively concentrate its efforts on the solution of the priority problems of our economic development. There should be a two-pronged approach to this: on the one hand, domestic capital, as well as business as a whole, should be transparent for society. On the other hand, the state should guarantee the same rules of the game to all economic entities without exception. This is also one of the signs of the state’s viability.
