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10 May, 2011  ▪  Dmytro Kalynchuk,  Rostyslav Pavlenko

Working Against Nature

The authorities have enough powers in their hands to launch any reform but the nature of relations among those in power results in the dragging out of changes or confusing their essence
Gallery: Form and Substance (photos: 11)

Once every few months, the authorities arrange a pompous ceremony with international experts and journalists at posh venues to deliver yet another slew of promises. The latter are just a remix of what the government has said at previous presentations, ignoring limited progress in carrying out the reforms.

Unfortunately, the government mostly surprises the international community and its own people with a litany of transformations and Prime Minister Azarov even draws upon impressive numbers in discussions to back up his claims. Yet, everybody in the government ignores the fact that laying out 18 or 20 priorities essentially means fulfilling none of them.

The real essence

Empty slogans that are cast aside reveal the real goals of the initiators and implementers of reform in Ukraine. Firstly, this is a total economisation of the budgetary funds. Secondly, “revival of economic growth.” There are some other points, such as social welfare, wages and pensions, but these are routinely remembered. Moreover, the government insists that social benefits will increase at some point in the future.  

Translated from political into everyday language, this means reducing “extra” spending and creating a comfortable environment for businesses run by those who are in power. Meanwhile, maintenance of the government and repressive punitive system is growing ever more costly. Making it easier to do business for those who are in power includes lightening their tax burden, re-distribution of subsidies and privileges, and removal of barriers to their siphoning of capital abroad. This approach is used to reallocate budget expenses by delegating a broad range of powers to the Cabinet of Ministers allowing it to not involve parliament in taking economic decisions about subsidies and privileges and the distribution of social benefits. This is the purpose of the so-called reforms, both those that are being prepared and those that are being implemented.

There is much evidence to the fact that the Tax Code works on behalf of the interests of Big Business and the tax authorities while creating a ghetto for small and medium business (SME) – which is usually seen as the basis of a free-thinking middle class - thus making it impossible for SMEs to work within the taxable economy thereby pushing even more of them into the shadow economy.

Pension reform should have begun with increasing the retirement age which, in turn, could possibly have resulted in higher pensions at some point in the future.  Administrative reform was nothing more than a re-shuffle in the government hierarchy accompanied by growing expenses on the civil service and, quite likely, a more confusing decision making process resulting from additional opportunities for corruption by officials. And it looks like the land market will be opened up so that it brings the most profits to big landowners and big business.

The quality of various reform initiatives could provoke long debates – and some cheerleaders from the government, such as Serhiy Tihipko. Any successful legislative initiatives will fail if they are placed into the context of hampering a free development of the economy and the society.

In fact, this is the key stumbling point for reformers: they attempt to undertake reforms without actually doing any reforms. They claim they seek to increase revenues from the business community while leaving intact the old system that was based on corruption, biased and selective attitude towards different players which was a system oriented towards funneling cash abroad rather than streamlining production, lacking structural investments and regional development or increasing social standards.

Put simply, the old system built on a despoilment and transformation of business relations with the authorities into economic profits cannot be successful at implementing reforms that would aim at undermining the fundamentals of this system. It would take systemic economic changes to put an end to the monopolistic position of those in power and prevent them from uncontrolled and mass robbery.

Stability versus reforms

Developed countries have a recipe for success; they have relied on liberating public energy and initiatives, assisted in creating jobs, provided equal market terms, allowed easier access for capital, and supported promising projects,  both during periods of post-war rehabilitation, and overcoming energy crises such as the current one. The impression in Ukraine is that if the authorities implemented such changes they would go against their own nature thereby crushing any chances for the success of these reforms.

Innovations are critically important these days. But, what is the way out if the government is unable to implement them today? In theory, the right and only possible way in a democratic society comes from pressure from the opposition who are supported by public organisations as well as interaction with interest groups, such as trade unions, associations of entrepreneurs and so on. Yet, the opposition has turned out to be weak. The slogans that “it’s at least good that the opposition has survived the authorities repression” could only fool those who are naïve. This is merely complacency for the weak and those who are doomed to fail. Global leaders have drawn a red line for the Ukrainian authorities which they cannot cross, while the business of those in power is too dependant on international markets to ignore serious warnings. Russia does not need so much metal, chemicals and grain as it also competes for foreign markets and in competition with Ukrainian tycoons.

This therefore looks like perfect timing for the opposition as reforms are not progressing while aggravating the situation; meanwhile, the level of confidence in the government is plummeting even in its home base of support. The opposition should grasp this opportunity! Yet, any progress requires political will and organisation which the current opposition lacks. In contrast, the opposition is opaque, helpless and incomprehensible in the eyes of the electorate. The government couldn’t dream of such an opposition!

There is some hope for spontaneous protests and new wave leaders. The government is very cautious about such developments, if not fearing them. At least, it seeks to meet their demands. If they continue, the pressure could push the government towards changingand strengthen those of its members who understand that reforms are inevitable. In the first instance, however, such leaders could emerge from a combination of many favourable conditions. Also, somebody has to organise widespread protests at a time when the government is consistently crushing human and financial resources that would permit such a scenario to unfold . In addition, the opposition which could organise such a movement is unable to do so. So, Ukrainians largely turn to self-protection which includes such avenues as labour migration, moonlighting and so on.

One of the last hopes is for a conflict within the authorities. Such a conflict has been predicted ever since the Party of Regions first came to power but it has never emerged beyond the corridors of power.

This is what “stability versus reforms” looks like. Until the above trends remain unchanged, all hopes for systemic changes in Ukraine are unlikely as they run counter to the nature of the current government whose version of stability translates into stagnation which weakens both the country and the government. Therefore, those in power have little choice to either keep the current situation unchanged and extinguish fires which could break out earlier than they expected, or find the courage to implement real reforms which will bring everlasting changes.

Reform advertisement:

October 2009- Viktor Yanukovych presented his election platform “Ukraine for the People” where he promised radical economic reforms and improved social standards.

2 June  2010 - President Yanukovych presented the Programme of Economic Reforms in Ukraine for 2010-2014 at the second meeting of the Economic Reform Committee that is chaired by the Ukrainian president. The Programme outlined 18 segments with a series of new laws required for each of them.

3 June 2010 -  Yanukovych announced key provisions of the Programme in his presentation made at the Ukrayina Palace, Kyiv’s major concert hall. The president declared in his address that there is now a possibility to “start building Ukraine for the people, not for the government.”

2 November  2010 - The five-star InterContinental hotel hosted an extended meeting of the National Projects working group which is based under the Economic Reform Committee chaired by President Yanukovych. The participants heard four “national projects” that the government would seek to attract investment: New Energy, a New Quality of Life, New Infrastructure and Olympic-Hope 2022.

11 March  2011 – Prime Minister Azarov announced at  the Reforms for Better Life press-conference that “the Government has managed to solve most of the problems of national economic development” and listed eight priorities for 2011: improvement of the investment environment; support for the development of agriculture; land reforms, pension provision, social welfare support, health care and education; streamlining and implemention of energy strategy for Ukraine; and completion of the reform of the central executive.

29 March  2011 – The InterContinental hotel hosted a Ukrainian Summit, an economic forum organised by The Economist Group. Iryna Akimova, First Deputy head of the Presidential Administration, announced a cancellation from 1 January 2012 of the moratorium on the buying and selling of land for Ukrainians and foreigners; the future adoption of a bill on sovereign debt; establishment of a single securities depository in the first six months of 2011; the division of mines into profitable and unprofitable entities; and other reforms in line with plans disclosed earlier. Deputy Prime Minister Serhiy Tihipko repeated the slogans about the necessity of pension reform and reducing the state deficit, and announced three draft bills aiming to attract businesses to emerge from the shadow economy, followed by five or six further bills on state procurement in monopolised segments of the economy.

CALLOUT:

A system based on stealing cannot implement reforms that will reduce corruption and outright robbery.


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