A letter to friends on the occasion of the second World Forum of Ukrainians
by James E. Mace
CONCLUSION
When Ukraine became independent, most people merely assumed that, with Moscow gone, everything would sooner or later sort itself out and the country would become more or less normal. What was not understood was the dead weight of its inherited Soviet structures, which were then too weak to manage a Soviet-style command economy, redundant in a real market economy, and which fight like hell, so far successfully, to survive and expand.
For example, if in 1991 Ukraine had 291,000 ministerial employees, by 1996 it had over 500,000 and current estimates put the figure at around 800,000. There are roughly 70 ministries and state committees, which are quasi-ministries, supposedly coordinated by seven deputy prime ministers (President Kuchma is currently trying to streamline this apparatus). In such a bloated bureaucratic maze it often becomes impossible to speak of a state policy. Instead we have what economist Volodymyr Sidenko once called the micro-policies of different bureaucratic bailiwicks defending their own interests against all comers.
For example, when former Vice Prime Minister Viktor Pynzenyk's reformism ran up against the ingrained bureaucratic interests of the sector ministries he supposedly oversaw, he was largely pushed out of the loop on everything except the job of trying to convince Western official donors that something called "reform" was indeed significant enough to justify more aid. Minister of Justice Serhii Holovatyi, who was put in charge of the "clean hands" anti-corruption campaign recently called a press conference and stated that he can't do anything because the corruption goes too high, to the ministerial level, and he simply can't touch it. Significantly, the head of one the main villains that Mr. Holovatyi mentioned as frustrating his anti-corruption efforts, the Cabinet of Ministers (comprising about 800 staffers who serve the Cabinet of Ministers as a whole), has just been promoted to the office of prime minister.
Much attention has been paid to corruption, which in Ukraine really does go all the way up and all the way down. But with all due respect to Mr. Holovatyi and the Western organizations that forced the current official steps against corruption, the good justice minister's efforts were doomed from the start.
The simple fact is that when those in a position to misappropriate funds or demand bribes cannot live and support their families in what they consider a decent fashion on their official incomes, they will indulge in corruption. Under such circumstances, even imposing the death penalty on corruption just won't work. Virtually everybody will do it, and nobody with his hand in the till with look very closely at where someone else is supplementing his income. When the state cannot support its own structures, those in such structures will form a covert culture of corruption, based on the principle that those not participating are just plain stupid. And this has happened in Ukraine.
Moreover, Ukraine has inherited the Soviet mind-set that only the government can protect "the people" from being "exploited," and this has led to the assumption, still virtually unchallenged in ruling circles, that the state has to retain control over practically everything. This suits employees of the so-called sector ministries (the Ministry of Machine Building, Ministry of the Coal Industry, etc.) just fine. Meanwhile, those who "privatized" basically uncompetitive assets, which might well become worthless if foreign investors were allowed to build something new, join state and shadow structures in what Oleksander Turchynov calls administrative economic groups, dedicated to the proposition that competitors must be pushed out.
The energy industry, the most serious money for politicians in both Ukraine and Russia, has been completely remonopolized; Motorola has been pushed out of the mobile satellite telephone market; and similar horror stories abound. Coca-Cola, which has won about 80 percent of the Ukrainian soft drink market with a plant in Lviv and is building a huge plant near Kyiv that will create thousands of new jobs, still has endless difficulties with the quasi-ministerial State Committee on the Food Industry, center of an economic-administrative group including breweries that also make soda pop, macaroni factories (which they call vermicelli) and a tobacco plant in Kharkiv that makes fake L&M cigarettes, which means it also creates permanent headaches for Kraft and Philip Morris.
Administrative economic groups can be based on sectors, but they also can be regional like in Uzhhorod, where one Serhii Ratushniak, after making his money in Russian metals trading, got himself elected mayor and basically privatized the whole city in the name of the RIO Syndicate that he controls. Since RIO also makes something called Rata Cola, Uzhhorod is practically the only place in Ukraine where things don't go better with Coke: the "real thing" has been effectively banned.
It might seem logical to abolish such sector committees and analogous ministries, and leave the old badly run industrial dinosaurs they control to their fate vis-à-vis those who can do it better, pay their workers more, and thus create demand for more goods and services, and thereby revive the economy. However, the opposite is being done and that - not the much-vaunted "severed economic ties" with the old "unified economic complex" - is the real reason that most people in Ukraine are so poor.
Governments, like people, who try to do more than they can, cannot complete anything. The result in Ukraine is that the government cannot effectively control even such basic functions of government as law enforcement, national defense and taxation. The state practically fails to pay the militia, which means that the Ukrainian equivalent to the cop on the beat de facto works for those who pay him, i.e., representatives of those who collect unofficial "taxes" for protection and provide their own version of order. I will never forget the night I saw someone try to rob a kiosk, and the girl without great concern replied, "You can't rob me. I already paid, and they'll find you where you live." The implication to the would-be robber was clear: either go home or wind up in a leg cast. He went home. The mafia, not the state, keeps order on the streets of Kyiv.
The military is no less a scandal than the militia. Common soldiers in the Ukrainian armed forces are paid all of 17 hryvni, less than $10 dollars (U.S.), a month. Spent on their upkeep (food, clothing, etc.) are 1.58 hryvni (87 cents) a day. A series in the popular Russian-language (but rather patriotic) daily Kievskie Viedomosti quoted one anonymous young officer to the effect that, should such an army have to fight somebody, most soldiers would immediately ask where to surrender. The usual official response, "Yes, we're poor but combat ready," fails to assuage doubts that the state is really capable of fulfilling the function of national defense.
The tax system is such that not long ago economist Oleh Soskin estimated that the total tax liability to make one hryvnia in the private sector would come to around 1.30 hryvni. Obviously, nobody pays it. Traditional managers have inherited from the Soviet era the custom of "doing chemistry" ("khemichyty" - to cook the books), and virtually every firm operates with a bookkeeper, who deals with taxable revenues, and a safe, where the off-the-books and untaxed funds necessary to keep any Ukrainian company in business are kept. Officials have also spoken about a huge problem of "revenues lost due to underestimates by tax inspectors," which is a code word for the fact that it's often cheaper to bribe the tax inspector than pay absolutely outrageous taxes.
This won't come without thorough tax reform, but lowering the tax burden to the point where it's easier to pay taxes than evade them cannot be done without either radically downsizing government or returning to hyperinflation, even with the now fashionable fiscal expedient of running up huge wage and pension arrears in the state sector.
Another problem is that independent Ukraine inherited all the social obligations of the old Soviet system. One is the system of privileges (pilhy), a case for each of which can be made, but which in their aggregate constitute a crushing burden on the economy.
For example, 25 million people, half the population, have the right to free public transportation. No one would really quarrel that pensioners ride the bus free to turn in the bottles they collect at 2 to 4 cents apiece, that invalids get free trips to the clinic, or that barely paid rank-and-file military personnel cannot pay to get where they're ordered to go. But why should a general, a prosecutor and the secretaries who type their paperwork enjoy such a privilege?
Moreover, the new Constitution of Ukraine guarantees all citizens the rights to free health care, education and "higher education on a competitive basis" at a time when the nation's hospitals, clinics, schools and universities lack the funds to pay either their staff or their utility bills on time. And you don't have to be Sherlock Holmes to figure out that those who are not paid by the state for their services often either demand payment from those they serve or perform those services in such a perfunctory manner that the client would have been better off staying at home. Pensions, guaranteed by the state, are well below the subsistence level.
When I raised this problem with one national deputy, he replied that all governments promise things they can't deliver. Politicians certainly do, especially in Ukraine - a country lacking the organizations of civil society that can compel politicians to keep their word to the group such an organization represents.
But when the law, especially the Constitution, promises very concrete things and people don't get it, the law and government itself begin to lose legitimacy. If the state can't deliver what its fundamental law tells people they have a right to, the people simply stop believing in that particular state's right to govern them. And this is already beginning to happen in Ukraine.
Logic would dictate that, if government cannot support its own structures even in the sense of paying their workers on time, the question must be raised of how to reduce those structures and certainly not, as in the case with Ukraine, expand the number of people working in them. If the state assumes so many functions that it cannot effectively carry out even such basic functions as national defense, law enforcement and taxation, it simply must reduce the number of its functions. If a state cannot meet the obligations it has assumed before its people, it must be frank in telling the people that the community must decide what it can live without, so that it can guarantee such basic needs as education and care for the elderly.
Various studies of voter behavior in various countries indicate that the most important indicator of popular political behavior is not people's material circumstances but their future expectations concerning their material circumstances. In other words, if people still have faith in a better future, they will put up with today's hardships. Ukraine's political elite is rapidly squandering that reservoir of faith. Once it is gone, restoring it will be next to impossible.
The Ukrainian diaspora can and should hold itself up as a mirror before the Ukrainian people. Earlier in this century members of an identical population went their different ways. Emigrants came to the New World with nothing but their knowledge and their willingness to work. Those they left behind had, and retain, the same knowledge and abilities. But the emigrants came to a system where the state limits itself to doing a few things well and lets citizens know that their labors can earn real rewards for themselves and their descendants. Ukraine has inherited structures that render this virtually impossible. Should those structures be supplanted by more modest, Western-style ones providing individual and economic opportunity, there is no reason not to expect that in a couple of generations Ukraine would be in a position to offer humanitarian aid to the United States.
James E. Mace is professor of political science at the University of the Kyiv-Mohyla Academy.
Copyright © The Ukrainian Weekly, August 31, 1997, No. 35, Vol. LXV
| Home Page |