Influence Institutional Structure To Development Of Ukraine Overtime
Introduction
Through this essay, I will try to investigate the development of Ukraine (or lack thereof) and link this development to its institutional structure. I will try to examine what are the reasons behind Ukraine's economic and social struggles. Ukraine is an interesting case since it has a wide range of natural resources varying between very fertile soils to large amounts of energy resources like coal and natural gas. Yet it still couldn't manage to 'bloom' yet. The country had problems integrating to world economy right after its independence, it got hit by corruption, its political stability suffered from the swings between two major powerhouses (being Europe and Russia). I will compare it to other post-soviet countries so that we can see what is common problems among them and what is unique about Ukraine’s path of development.
With this essay, I am hoping to get a better inside towards Ukraine's institutional structure so that we may be able to see what can be done for Ukraine for it to live up to its potential.
What is Left From The Soviet Union
If we will talk about The Union of Soviet Socialist Republics and Ukraine Chernobyl disaster has to come at some point. And it turns out the disaster tells us something crucial about the state of the Union. As Mikhail Gorbachev puts it “even more than my launch of perestroika (the program to restructure the Soviet Union’s economic and political policy), was perhaps the real cause of the collapse of the Soviet Union five years later.” Perestroika and glasnost (policy of transparency implemented by Gorbachev) were adopted 2 month before the meltdown. USSR was on the way of finding itself a new identity, a better, a more “true” socialist state. Gorbachev knew that if a country loses it’s way of correcting itself, it cannot last centuries. And in order to correct USSR, governing bodies had to be more transparent. But they did not know the first test of “glasnost” was that close. After the incident that occurred in 26th of April, it took almost 24 hours for officials set a meeting to discuss the possibility of an evacuation. It took well over 24 hours to start the evacuation of Pripyat. It went pretty smoothly and without a lot of hassle since most people did not realize the extend of the situation. They were told to gather what is essential documents, and some food and given a few hours for that. They were unaware that this wasn’t a temporary evacuation.
In 28th of April at morning, Swedish officials recorded a surge in radiation levels surrounding their nuclear plants. Couple of countries also reported similar changes. At 9 pm the incident was announced through Vremya (the main evening newscast in USSR) from Programme One (a television channel produced and transmitted by Soviet Central Television). It took 3 week for Mikhail Gorbachev to take initiative and address the public. On May 14, 1986, Gorbachev said on television; “In view of the extraordinary and dangerous nature of what happened at Chernobyl, the Politbiuro took charge of the entire organization of the work needed to ensure the speediest possible action to control the accident and limit its effects… All the work is being conducted around the clock. The scientific, technical and economic capabilities of the entire country have been called into action…All aspects of the problem…are under the close scrutiny of the Government Commission.” Chernobyl Nuclear Power Plant was an attempt to demonstrate the scientific and technical superiority to western world at the expense of thousand of people are being relocated and losing their homes. In some ways we can’t be sure the true cost of the exposure to radiation since we don’t know how much of the increase in the cases of health problems can be attributed to the incident. Also we can’t be sure how much of these increases can be explained by the lack of immediate evacuation and misjudgment on the part of local authorities. More information relating to the subject of health issues linked to the incident can be found in WHO’s web page about Chernobyl.
This story of what has happened behind the iron curtain, gives us a pretty dismal look of the state of USSR’s institutional and bureaucratic structure at the time. The disaster isn’t just the incident itself, but the way it handled and the lack of safety measures in place prior to the incident. It was a known fact that the reactor was not built according to the original design and it went through some design deviations that might lead to mishaps and accidents. Yet the construction continued the way it continued due to rush job and lack of adequate resources. This tragedy could have been prevented if institutional structure was healthy and it had sufficient capacity to correct itself along the chain. Gorbachev’s policies did not help USSR, if anything it caused it to collapse sooner rather than later. Only 5 year later, USSR collapsed on December 31,1991 and gave birth to 15 independent countries including Ukraine. The institutions that led to the collapse of the union became the cornerstone for this country to built on.
A Rocky Start
Like other Post-Soviet states Ukraine suffered from a constant decrease in its GDP per capita until 2000’s. Many researchers links this to not shortage of resources, or lack of academic capacity but to its problems of adapting to market economy. As Tiffin (2006) puts it; “In quantifying the benefits of market-friendly institutional reform, our results suggest that durable growth in Ukraine will depend critically on the authorities’ ability to secure the foundations of a modern market economy.”
Economics Education and Education in General
Since Ukraine has been a part USSR for 69 years, not just its economic system is highly influenced by USSR, but also it’s education system, education system being the root source of innovation, lack of a good education system that is designed to promote critical thinking and innovative mindset did cause problems of integration to world economy. People educated around the idea of centrally planned economy (especially economics lecturers) did not suddenly disappear, or immediately adapted a completely different school of thought. In a way it seems to be analogous to arrival of Europeans to the New World, Americans found themselves in a game they were not trained to play and essentially it hurt them pretty severely. USSR and Ukraine raised a generation that lacked the tools to deal with the problems of market economy. And Shiyan,& Nikiforova (2012) suggest that this is still the case. They say that; “In universities professors who had taught the “socialist economy” continued to teach economics. They do not have the slightest idea about the functioning of a market economy. Therefore, the misconception of the market economy is formed in the young generation. Politicians and civil servants make economic laws, focusing mainly on the familiar to them “socialist economy”.” With their research, they suggest that the education system that was put in place during the Russian Empire and revised along the way by USSR in order to serve the needs of the state towards the push of industrialization was the root cause of the lack of efficiency. To be more precise, they do not criticize the lack of capacity to make “science” per se, but they criticize the structure that was not able to translate that knowledge into practical use through innovation and entrepreneurship.
Kyvda, O. (2016) also seems to suggest that the current education system is far from ideal. Ukraine is 130th among 180 countries when it comes to Corruption Perception Index 2017, according to Transparency International. She claims that universities are suffering from their share of corruption as well. “...if Ukraine wants to become the advanced country with a competitive human capital – higher education institutions transparent and accountable to society are necessary. Thus, the Ukrainian universities need that integrity in the West is called: absence of corruption in case of effective management of educational, scientific and administrative activities of university.”
Market Economy (But Not Really)
A class of people called oligarchs emerged after the collapse of the Soviet Union because of weak property rights. They benefited from the transition phase and to this day they secured their own property rights by buying politicians or buying court decisions or by becoming politicians themselves. Since they emerged right after the collapse, and they control good chunk of the wealth, and also they closely tied to political world, they blur the line between private and public sector. Victor Yanukovych, former president of the Ukraine, served under the presidency of Leonid Kuchma as prime minister. He won the presidential elections in 2004 but the elections were claimed to be rigged. After massive nationwide protests that is known as Orange Revolution, Ukraine’s supreme court ordered a revote. Opposition leader Yuschenko won with 52 % of the votes against Yanukovych’s 44 %. He ran for the presidency and won in 2010 and he served as the president of Ukraine until he fled the country in 2014. He is wanted by Ukraine for high treason. Four members of Viktor Yanukovych’s Party of Regions have died within weeks as investigations against old regime officials in 2015. His son Viktor Viktorovych Yanukovych found drowned at the bottom of the Lake Baikal in a van. Victor Yanukovych was an ally of Rinat Akmetov, who is also a former member Verkhovna Rada of Ukraine (Parliament of Ukraine) from Party of Regions, the richest person of Ukraine with the estimated wealth of 4.8 bn $ as of 2018 (according to Forbes) which is a far cry from his net worth of 15.4 bn $ in 2013. His net worth took a dive since Victor Yanukovych fled the country. Rinat Akhmetov also owns channels of 'Media Group Ukraine', media outlets of 'Today Multimedia' and several regional media outlets in Donetsk and Zaporozhye regions. Victor Pinchuk, former member of the Verkhovna Rada of Ukraine between 1998 to 2006. His net worth is estimated at 1.4bn $. He is the son in law of former president Leonid Kuchma. Pinchuk made his wealth in metals, steel in particular. After achieving his doctorate in pipe design from the Dnipropetrovsk Metallurgical Institute, Pinchuk founded Interpipe in 1990, which makes metal products, most notably steel pipes. He is also the founder of the Starlight Media.
Ihor Kolomoyskyy, former governor of the Dnipropetrovsk. With another Ukrainian billionaire Genadiy Boholyubov, founded PrivatBank in the early 1990s. It became one of the key banks in Ukraine, handling more than a third of private deposits and serving approximately half the country's population. He is also a co-owner of 1+1 media. He has forced to step down of his role of governor of Dnipropetrovsk in 2015 by current President Petro Poroshenko. In 2016 PrivatBank has been nationalized due to a large scale fraud investigation. The High Court of London has granted an order to froze more than $2.5bn of “worldwide” assets belonging to Igor Kolomoisky and Gennadiy Boholyubov in 2017. His net worth is estimated at 1.1 bn$. Petro Poroshenko, the current President of the Ukraine, has an estimated net worth of 1.3 bn $ as of 3/3/14. He is also known as “chocolate king” due to his ownership of chocolate maker “Roshen”. Apart from his ownership of Roshen he got involved with other business’ including Channel 5, a TV channel that broadcasts in Kiev. Ukraine is a country that is run by billionaires. There is no denying that. But the problem isn’t people being billionaires. Actual problem lies within the legal and bureaucratical structure of Ukraine. Åslund (2005) argues that this is not a unique problem that is specific to Ukraine or any other former Soviet state. He thinks of this oligarchy issue as a somewhat natural problem that arises from significant structural changes, and doesn’t think of this issue as a unique to problem Ukraine or Russia.
Oligarchs are billionaires that born out of a failed state and transitioned to a new born state that lacks the proper legal structure to provide the sufficient confidence over property rights. According to Aslund, Oligarchs are just agents, unlike regular citizens, have the financial and political might to at least attempt to secure their property rights. This is the main difference between a billionaire from USA and a billionaire from Ukraine. USA evolved into a state where as an individual (regardless of your financial might), you can be reasonably confident about your property rights and rights in general due to USA’s well established legal structure, while this is not the case in Ukraine. Aslund, argues that this was also the case in USA at some point. He suggest the modern oligarchs of Ukraine are not that different from the 1850’s “Robber Barons”. Robber Barons are the class of people that emerged during the 19th century. They were business man that built the infrastructure of modern USA. They built the railroads, they mined coals and steel and oil and many others. They benefited greatly from the boom through recent technological advancements in the world. They benefited from the lack of governmental regulations and they acquired massive amounts of wealth. Just like today's oligarchs.
Aslund, suggest that in order to deal with the issue of oligarchy, we have to see the situation as what it is. These people have massive control over pretty much every institution that constitutes as part of Ukraine. They are there to protect their own interest. He argues that because Ukraine lacked the authoritarian leader just like Putin, oligarchs had the reasons to protect their property by every means through be it media, be it owning football clubs, be it corrupting legal system. In Ukraine, the more transparent he oligarchs are, the more backlash they received. The more they cater to the audience, the more praises and claps they get. In a way Putin set out a few rules to provide oligarchs with the security over their property, in exchange he gets their support, and tax revenue, and general “help”. It was an offer that they couldn’t refuse.
Ukraine: How Does It Compare to Her Sisters
Collapse of the Soviet Union is an incredible playground for social scientists in general. Post-soviet countries do share a common starting point, but there are differences in their development paths along the way. Although there is no way to pin point why these differences occurred, it can be vaguely attributed to differences in their historical background and other exogenous factors such as environment and external political influences. Gel’man (2008) explains differences in countries’ paths of development by the table shown above. He takes 3 countries Ukraine, Russia, Belarus as examples. Because during the period of Soviet Union, Belarus lacked the local authorities unlike Ukraine and Russia, because it was heavily linked to Moscow, after the collapse of the Union, there was no strong local authority to establish itself as the new ruler. Economic decline gave a chance to win for the populist outsider candidate Alexander Lukashenko in general elections in 1994. To this day he is still the head of Belarus. This is a case of “Winner takes all”. In Russia this was not the case. It had plenty of local authorities who had the power and influence over a certain population and area, without the influence over national level. During the presidency of Yeltsin there was a state of “Cartel-like deal” but it turned out to be not stable. After the election of Vladimir Putin, things did change. During his presidency, especially after the economic growth due to increase of oil prices, he established more power over local authorities as the central authority. He increased the power of monolithic elite by weakening local authorities. Ukraine is,unlike the other two, still lives within a chaotic position. Inter-elite conflicts still very much the case. It has been ruled by “Cartel-like deals” so far. Hopefully after the two and a half decades of internal conflicts, it will manage to establish itself as a grown democratic country, unlike Russia or Belarus.
References
- Gel'Man, V. (2008). Out of the frying pan, into the fire? Post-Soviet regime changes in comparative perspective. International Political Science Review, 29(2), 157-180.
- Andrew J Tiffin, 2006. 'Ukraine; The Cost of Weak Institutions,' IMF Working Papers 06/167, International Monetary Fund. Shiyan (Shyian), Anatoliy A. (Anatolii) and Nikiforova, Liliya O., Why Do Inefficient Innovation Institutions Exist in Russia and Ukraine? Mechanisms for Correcting Them (January 7, 2012).
- Available at SSRN: https://ssrn.com/abstract=1981199 or http://dx.doi.org/10.2139/ssrn.1981199 Hansen, J. (2011).
- The Chernobyl disaster: Implications for the Soviet Union and glasnost. Aslund, A. (2005). Comparative Oligarchy: Russia, Ukraine and the United States. V. Kryvda (2016), Key issues in the economics of education in Ukraine and ways of their solution, Vzdelávanie a spoločnosť (Education and Society) : medzinárodný nekonferenčný zborníki,298-301,Prešovská univerzita v Prešove
