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5 July, 2018  ▪  Maksym Vikhrov

Pragmatic paternalism

How experience and venal calculus are turning some Ukrainians away from liberal reforms

Despite strong demand for change in Ukraine, a significant portion of Ukrainians does not support a course of liberal reforms. According to a recent poll by the Rating group, nearly 60% of Ukrainian voters still believe that the state should be responsible for their lives, 40% support the equalization of incomes, and nearly 50% want to see the state-owned share of business and industry increased. Moreover, 70% of Ukrainians are prepared to give up some personal freedoms in exchange for greater law and order in their country.

Typically, a preference for paternalism clearly correlates with the age, education and property indicators of respondents. The highest proportion of opponents of liberalism is among those over 60 who have only primary education and consider themselves poor. The lowest share is among those aged 18-29 with a university degree. In public discourse, this mentality is often dismissed as the “sovok” or soviet mentality, lumpen prole-ism, and so on. However, the heart of anti-liberal attitudes does not necessarily lie in an irrational rejection of freedom or ideological rigidity. A closer look shows that the rejection of liberal reforms in Ukraine is based on widespread experience and a pragmatic personal calculus.

Generally speaking, liberalism means that individuals ensure their own material needs by competing on the labor market while state policy is largely determined through the competition of various social forces in the legislature and civil society. The power of the government should ideally be reduced to the role of a night watchman, so to speak. This way of organizing life has many advantages but it’s not for everyone.

RELATED ARTICLE: Civic passivity

Liberalismis a powerful stimulus for economic growth but it inevitably results in different social groups being in an uneven position. Potential losers in this environment are the poor who, having no capital, are unable to take advantages of the opportunities offered by entrepreneurship, and those whose education—or lack thereof—puts them at a disadvantage on the labor market. In short, all those who have the least chance of winning the competitive struggle in a market environment. Such individuals feel more confident when benefits are distributed by a government that guarantees everyone a minimal level of well-being, and not by the market.

In theory, which has been persuasively confirmed in international practice, the transition to a free economy eventually benefits everybody, but the timeframe for Ukrainians to suffer through has become quite short. In a poll taken in 2017 by the National Academy of Science’s Institute of Sociology, only 6% of them are prepared to suffer as long as necessary, while another 33% are prepared to be patient, but not for long. Meanwhile, 21% don’t want to put up with it at all any more because they already feel they are in an insufferable position, while 29% aren’t willing simply because they don’t believe that the reforms will succeed.

What this suggests is not that ordinary Ukrainians are capricious but that they are making a very rational calculus. To suffer through difficulties when you don’t believe in an ultimate positive outcome is absurd, even when opportunities present themselves. Those who are already vulnerable can no longer suffer because they simply don’t have enough economic reserves left. This is what underlies an obvious socio-political paradox: those who find themselves in a difficult situation are more inclined to support the status quo than urgent radical reforms. This flies in the face of notions of the revolutionary potential of those who have “nothing to lose but their chains,” but it’s entirely true in Ukraine today. Any ground-breaking economic changes will increase personal risks, and the stakes are highest precisely for the poor. Where the middle class has economic reserves, the poor risk ending up in extreme poverty.

What’s more, the problem is not only in attitudes towards liberalism itself but also in a lack of trust in those responsible for and undertaking these reforms. Historically, no Ukrainian Government really had a measure of trust at its disposal that was enough to undertake fundamental reforms: ordinary Ukrainians had doubts about both the motives of the reformers and their capacity to properly implement what they were proposing.

To some extent the blame here lies with individual politicians and groups who have chosen the path of populism. However, just changing the individuals involved will not solve the problem, as the negative collective experience of Ukrainians during the long crisis of the 1990s cannot simply be deleted. According to monitoring by the NAS Institute of Sociology, Ukrainians were greater supporters of liberalism at the dawn of independence than they are 27 years down the line. For instance, 25% of them supported the privatization of large enterprises in 1992, while 32% opposed it. A decade later, in 2002, the relative shares changed to 18% and 55%, while in 2016 it was 14% and 62%. Meanwhile, the undecideds came down to 24% from 42%. Support for the privatization of small enterprises went from 56% in 1992 to 32% in 2016, while opposition has risen from 14% to 37%. Attitudes towards the liberalization of the land market have shifted equally dramatically towards the negative. In 1992, 63% of Ukrainians supported it and only 14% were against, but by 2016, the numbers had practically reversed: less than 17% favored it while 59% were against.

Without doubt, the collapse of illusions and expectations during the reconstruction period played a serious role here. But there’s no question that the behavior of Ukrainian Governments has also provoked considerable negativity. To be fair, not one president or premier planned to institute shock therapy on the country, but because of corruption and their incapacity to govern properly, the result often turned into precisely that.

RELATED ARTICLE: The art of the impossible

A classic example is the efforts to restructure the coal industry, which had to be brought in line with the requirements of a modern market economy. Reforms were expected to involve not only the shutting down of unprofitable mines but also the retraining of workers, the provision of replacement job options, and other supportive measures.  However, over 1995-2002, instead of the planned UAH 9 billion being allocated, only around UAH 3bn was, and, of that lesser amount, the Accounting Chamber says that at least 10% was used “ineffectively” or “unlawfully.” Moreover, funds provided by the World Bank in support of restructuring the industry, US $150 million to be exact, were used “not as designated.”

The situation with finding redundant coal workers new jobs went no better. Over 1996-2001, nearly 100 mines were closed, but only 6% of the plan for new jobs was implemented. It was because of this kind of thing, and not some kind of ideological rejection of market reforms, that the idea of restructuring the industry was despised so much in the coal mining regions. Since then, little has changed.

Needless to say, far from all Government initiatives meet with failure. For instance, a relatively effective system of subsidies made it possible to transition to market prices for energy without the level of shock that skeptics predicted. Still, the way government agencies function leaves a lot to be desired, and so reforms can have unexpected consequences.

This is particularly true of the banking sector, judiciary and property rights, the tripod on which a market economy stands. The Global Competitiveness Index, in which Ukraine ranks a very distant 128thamong 137 nations. For the protection of intellectual property rights (IPR), it’s 119th, for the independence of its courts, 129th, and for the solvency of its banks, almost at the bottom at 135th. These and other problems not only undermine the confidence of potential foreign investors, but also spur domestic resistance to reforms: a market economy with weak institutions fosters arbitrariness and abuse. Take the land market issue. According to the NAS Institute of Sociology, a 2012 poll of the owners of shares of farmland and those who process agricultural products were against the sale of farmland because they were concerned about competition with Big Business and foreigners, resources being used improperly, and similar issues. Since then, attitudes have not budged: a poll by USAID’s Agroinvest, 80% of Ukrainians are worried about one or another of these threats if a land market is formed, although 55% of them also see some benefits.

As to privatization, a 2017 poll by GfK Ukraine revealed that the main fear was that the terms and conditions of tenders would be designed in the interests of specific oligarchs. Given the poor anti-monopoly legislation and systemic corruption on the part of oligarchs with good connections to the government, such fears are hardly unfounded. Doubts about medical reforms are also mainly connected to disbelief that they will be properly carried out. According to GfK Ukraine, among those who are familiar with the restructuring of the healthcare system, 44% support it, but 52% are against. Negative expectations are typical of less well-off individuals, who fear that corruption will not disappear, services will not improve, and many rural areas could find themselves without a hospital altogether.

And so, the fact that many Ukrainians are not happy about liberal socio-economic paradigm is only marginally driven by ideology. It’s quite probable that the reason for their negative attitudes is that they don’t see the reforms as improving their lives: some because they can’t compete on the labor market, some because they don’t expect the stated results to actually be reached, and others because they don’t believe that market mechanisms won’t also be abused. The first issue is linked to the vulnerability of pockets of the population and not much can be done about it for now. Poor Ukrainians will begin to believe in liberalism when they can see and feel its impact. Until then, reformers will simply have to try to overcome their skepticism and dissatisfaction.

The second component is much harder to deal with as it’s strongly linked to disillusionment in governments and institutions. While a political team can manage to—at least theoretically—gain voters’ trust and hold on to it for a complete term, restoring trust in institutions will take much longer because it requires providing people with a more positive common experience. This doesn’t mean that Ukraine should reject liberal reforms outright. For the next few years, however, they are doomed to be unpopular and politicians should accept that.

Translated by Lidia Wolanskyj

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