Economic Reform in Ukraine: The Unfinished Agenda by Anders s> Åslund Georges de Menil (review)

Abstract

REVIEWS 389 Aslund, Anders, and de Menil, Georges (eds). Economic Reform in Ukraine: The Unfinished Agenda.M. E. Sharpe, Armonk, NY, and London, 2000. xvi + 287 pp. Notes. Tables. Figures. Bibliographicalreferences. Index. $95.95. RECENT revelationsof corruptionin the highest officesof the Ukrainianpolity bear out much of the argument by Aslund, de Menil and their fellow contributors to this volume that corruption and rent-seeking behaviour are mainly to blame for Ukraine's baleful record of transition to a market economy and a viable political democracy. But that is only part of the story. There is clearly an element of personal disappointment in many of the contributions, since the authors were all part of a team of foreign experts assembled by the Soros Foundation's Open Society Institute to advise the Ukrainian Government on economic reform, as well as six prominent Ukrainian officialsdirectlyinvolved in the reformprocess. The latterprovide a comprehensive, albeit not entirely impartial, insider'sview of the struggle for reformand its frustrationby political opponents. The chapters grew out of an international conference on the state of economic reformsin Ukraine held in Kyiv in mid-June i996. Most have been updated to the middle of I999. They contain much useful descriptive detail on the generalstrategyof reformand on specificsystemicand sectoralpolicies, such as taxation, fiscaland monetarypolicy, energypolicy, socialpolicy, price liberalization and privatization and its legal basis. On the whole, the recipe for transformation is the standard one of macro-economic stabilization, micro-economic liberalization and privatization in short, the so-called 'Washingtonconsensus'. In the impulse to get inflation down, prices up (via elimination of subsidies), and the farm sold of, there was scant room for concern with maintainingproduction and, hence, employment. The scenario was reminiscentof the old Radio Yerevanjoke: 'Isit possibleto build socialism in one country?'The answer:'Yes,but only if you live in another country.'In a book reviewed in this journal (FromShockto Therapy, SEER, 79:3, 200I, pp. 580-82) Grzegorz Kolodko, formerDeputy Prime Minister and Minister of Finance of Poland, argued that it was only by getting away from this standard model that his country was successful in its transition to a market economy. Several of the authors, including Aslund himself, blame the UkrainianParliament(VerkhovnaRada) forsabotagingthe reformsat several crucialpoints, purelyforselfishpersonaland groupinterests.These arguments tend to forget that transition is a problem of political economy, not solely of economics sensu stricto. Parliamentariansmay well have been savingpoliticians like PresidentKuchma and Prime Minister Yushchenkofrom themselves.At least Kuchma seems to have come to this conclusion -by agreeing to the suspensionand reversalof some key reforms. In the longer run, Aslund and his colleagues are probably right;stasisand corruption do not leave much room for economic development, and the processes they have initiated must eventually be brought to some sort of completion. Collusionandrent-seekingbehaviourbyvariousinterestgroups so-called 'financial-industrialgroups' closely connected with the political authoritiesin Ukraineareprobablyworseeven thanin theRussianFederation. 390 SEER, 8o, 2, 2002 However, that, too, is not the whole story.A turnaboutto economic growth in 2000 and 200I, almost in spite of the factors listed by the contributors, suggeststhat the largelyprimary-industryexporting economy of Ukraine was just waiting for an upturnin Russian secondaryindustry,which also occurred at this time. As Aslund himself notes, poor Ukrainian economic performance cannot be blamed on Russian exploitation, as many Western commentators and some Ukrainians(mainlyfrom Galician Ukraine)have argued.The path dependency of the old Soviet model has had a largerimpact on Ukraine than, say, Estonia, a much smallereconomy with friendlyneighbours, like Finland and Sweden, willing to invest. Ukraine has little oil or gas to attract risk capital, and the by now infamous collusive, rent-seeking behaviour of Ukrainianoligarchsand theirpoliticalpatronshas created a legal climate that is not conducive to seriousforeigninvestment. Thus, Western alarm over Ukraine's alleged backsliding toward Russia rings a bit hollow in Kyiv and Kharkiv, if not L'viv. President Kuchma has skilfully played Moscow off against NATO and Washington in a style reminiscent ofYugoslavia's Titointhe 1950s, I960s andI97os. Hisheart,too, lay in Moscow, but his pocketbookwas opened in the directionof Washington and Brussels.Eventually, the economic transformationof Ukraine will have to be completed, but the final form of her economy, political system and her relationsbetween East and West will evolve along its own...