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: “The Political Economy of Ukraine”.

додано: 29-08-2001 // // URL: http://maidan.org.ua/static/mai/999100835.html
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Hans van Zon's "The Political Economy of Ukraine" IMHO is one of the best analysis in its field. Below is an excerpt from van Zon's analysis on how the mafia clan networks have taken over the ruling of the state for their own purposes through the kleptocrazation of the nomenklatura resulting in a predatory state run by a "System-Mafia."

The reference to "elite parasitism" transforming Ukraine into an Eastern European version of former Zaire is an echo of the "thirdworldization" process of Michel Chossudovsky.

The result has been a transition "from 'plan' to 'clan', rather than from 'plan' to 'market'." The 'raison d'etat' in Ukraine is ceasing to exist.

The slow elimination of the nation-state as a barrier to the "good governance" by the New World Order through its globalization is in line with the prediction of such one world governmentalists and CFR'ers as Rhodes Scholar, former U.S. Deputy Secretary of State, and former Editor-in-Chief of Time Magazine, Strobe Talbott. Thus it seems that Ukraine must undergo the "birthing pains" of Strobe Talbott's "Birth of the Global Nation" before its citizens can be developed into real "citizens of the world".

[ Posted With Permission ]

The Political Economy of Ukraine
(ISBN 0-333-78301-8; 2000)
Hans van Zon
Research Professor in Central and
Eastern European Studies
University of Sunderland


Chapter 3: Politics, State and Bureaucracy (p. 38-46)

From a developmental to a predatory state

Karl Polyani argued that for capitalist economies the 'road to the free market was opened an kept open by an enormous increase in continuous, centrally organized and controlled interventionism'.52 Weber noticed that 'capitalism and bureaucracy have found each other an belong intimately together'.53 Comparative analysis of the conditions under which states in newly industrialized countries create innovative conditions for private enterprises shows that the role of the state is crucial in economic development. According to Evans the important question is what kind of state intervention is necessary.54

Social and economic development occurs if state structures fit into the social environment. Predatory states like Zaire miss the bureaucratic institutions that can resist capture by rent-seeking actors. According to Evans, developmental states show that state institutions must be embedded in a dense network of ties that bind them to societal allies with transformational goals.

However, in order to further development, the state and its bureaucracy should have a certain level of autonomy. 'Autonomy complements embeddedness, protecting the state from piecemeal capture, which would destroy the cohesiveness of the state itself and eventually undermines the coherence of its social interlocutors.’55 According to Evans, it is the delicate blend of autonomy and embeddedness that makes the difference. Evans also argues that political elites should share a common sense of purpose and direction, an esprit de corps.

Looking at Ukraine from the above perspective, it seems that some crucial ingredients for a developmental state are missing. Politicians and top executives do not share a sense of common purpose and direction. Usually, their first loyalty is towards their clan and the private interests of this clan. The bureaucratic domain they are occupying they consider as their private lot an connected enterprises can freely feed from state resources. A sense of public accountability is missing. Clientelistic networks dominate the state apparatus that has become predatory with respect to society at large. Thus, the state hardly enjoys autonomy with respect to private business networks of ruling clans.

In a certain sense, the state is privatized by influential financial-economic groupings an bureaucrats. Also, professionalism within the bureaucracy is very low because meritocratic recruitment principles are hardly applied. In many respects, Ukrainian bureaucracy is reminiscent of the bureaucracies of the Ottoman and Byzantine empires.

Under conditions of transition to a market economy, the state has to fulfil a very complicated role. State power, which was overwhelming and suffocating in socialist times, has to be decentralized. The function of the state should change from that of a command role in all spheres of life to that of facilitator. During this process, transition goals have to be clearly set and the state has an important role in monitoring this transformation, formulating new rules of the game and seeking the enforcement of new rules.

The World Bank recently began to emphasize the role of the state in the developing world and in transition countries. It said in its World Development Report 1997 that for human welfare to be advanced, the state's capability, defined as the ability to undertake and promote collective actions efficiently, must be increased.56 The World Bank pleaded to reinvigorate public institutions by designing effective rules and constraints, to check arbitrary state actions and combat entrenched corruption. Also, the state should match its role to its capability. Where state capability is weak, how the state intervenes - and where - should be carefully assessed.

According to the World Development Report 1997, without an effective state, sustainable development, both economic and social, is impossible.57

Western 'transitologists' often assume that the state is a relatively autonomous social power that can impose transition to a market economy in the context of impartial rules and the juridicial transformation of the property forms. However, the state is rather used as a tool by ruling clans to promote their interests, that is selling off state property. Ironically, the Marxian concept of the state as an instrument for the ruling class seems adequate in Ukraine. As argued earlier, it is no only the ruling elite but also the state bureaucracy that instrumentalizes the state for its own private purposes. No polity has been created that is a reflection of society and that could adapt political structures to changing social needs, creating preconditions for evolutionary institutional change.

The continuing deep divide between the state and society can be considered as one of the major causes of failed modernization attempts.

The question is whether there has been any progress in the building and transformation of the slate. An overall judgement is complicated and the picture looks mixed.

Of course, a nation-state with all its attributes has been built up almost from scratch and the Ukrainian state is more viable now than many could have expected in the early 1990s. This is a major accomplishment, at first sight, if only looking at formal institutions. If looking at substance, a parasitic state has emerged. Forces have grown that undermine the rule of law, like the shadow economy and criminal structures. Although the legal framework has definitively improved, the situation with respect to the rule of law, or rather the absence of it, has no improved.58 There is little progress towards a well functioning market economy and parasitic structures suffocate productive economic activity. By mid-2000, the elite was still mainly interested in rent seeking and elaborating structures that allow them to continue doing so.

A state has been created that seems to be self-destructive as it undermines its infrastructure an cripples its own instruments of governance. The state is dominated by a ruling class that is short-sightedly only interested in plundering the state. The social base of this state has weakened an become dependent on Western economic and political support to sustain itself. The state allows the massive exodus of human, material and financial resources out of production into exchange.59 It allows the collapse of the scientific and industrial infrastructure. According no what happened to the economy, the Ukrainian state is a de-developmental state.60

In Ukraine, economic and political power gravitates towards those at the head of the state apparatus. Although there are some oligarchs, they are less powerful than their Russian counterparts as the money economy and merchant capital is less developed in Ukraine. This is also related to the fact that the sell-off of state property is less advanced in the Ukraine and its mineral resource base is rather poor.

The Ukrainian state can be characterized as patrimonialist.

The Ukrainian stale arose out of the patrimonial tradition of the Russian and Soviet states. The Tsar 'owned' the nation and its resources and its citizens were assigned duties but had no rights.

In the Soviet state, the party leadership 'owned' the country. The Ukrainian state is also reminiscent of underdeveloped economies where the appropriation of surplus is severely constrained by the low level of cash transactions, where there is an absence of a well paid, professional public service that gives rise to a state 'pathologically swollen by nepotism an terminally infected by graft'. 61

Table 3.1 Government expenditure as a percentage of GDP, 1992-99

Year Government expenditure (%GDP)
1992 45.0
1993 46.5
1994 59.7
1995 48.0
1996 43.2
1997 49.6
1998 41.7
1999 38.1

Source: Ukrainian Economic Trends, December 1999.

Obviously, the Ukrainian state is not a state in the traditional meaning of the word. It is a disintegrating state, despite the appearance of it being built up from scratch.

Society and economy have increasingly become ungovernable.

The weight of the state in the economy is still very important.

Even taking into account the growing role of the shadow, non-registered part, of the economy, which now comprises more than half of estimated GDP, government expenditures aoe considerable, compared to countries at a similar level of development (Table 3.1).

Not only is the persistent high share of government expenditures as share of GDP remarkable, but also the high fluctuations. More important, but not reflected in these figures, is the pervasive state control over the economic process. A defining characteristic of the Ukrainian state is the continued depth and breadth of power exercised by the state over every aspect of society an economy, being immune from public scrutiny.

There seems to be a close cooperation between the political class and the criminal world. This cooperation had already emerged in Soviet times and was most visible in the centre, Moscow, as well as some Central Asian and Kaukasus republics. There is evidence that as early as 1988, members of the Soviet leadership had anticipated the break-up of the Soviet Union and created an underground economy in order to safeguard their economic interests after an eventual break-up.62 Since 1987/88 cooperation between the political class and organized crime included coordinated operations chiefly designed to protect economic activity conducted on the orders or in the interests of ruling elites. Here, private security guards played an important role. Knabe (1998a) argues that instability and confusion in 1989-91 may have been deliberately created in order to divert public attention from the really important processes going on, particularly regarding the transfer of property. A system-Mafia came into being.

This system-Mafia was most pronounced in Moscow, but less visible in Ukraine. However, in 1996, according to a report written for President Kuchma, organized crime had increasingly imposed its rule and begun to pose a threat to the stability of the state (see also Chapter 10, page 179).63

Rather than a catalyst for social and economic development, the state and its bureaucracy constitutes the most formidable obstacle to any social and economic progress. The question is what strategy should be used to overcome this obstacle and to what extent is it possible to change the nature of state and bureaucracy.

There is ample experience in the developing world of attempts to transform the state and public administration. Four to five decades of post-colonial 'development administration' have provided a variety of instruments for transforming public administration.64 Common to most approaches is the view that the bureaucracy is a key instrument of development.

Only with the 'structural adjustment' approach, furthered by the IMF and the World Bank since the early 1980s, has the bureaucracy been seen as an obstacle rather than an instrument for development. This view was based on the failure of attempts to transform Third World bureaucracies.

It appeared that few political leaders in the Third World were willing to overhaul the bureaucracy: 'Having failed to turn the bureaucracy on its head, or to bypass, decentralize or reorientate it, the new answer was (with structural adjustment programs) to privatize it, or at least part of it'.65

International financial institutions often had the leverage to force governments to downsize bureaucracies. According to Hirschmann the structural adjustment programmes led, however, no uncertain and very fragmented bureaucracies, to 'a depleted and demoralized civil service'.

Another approach is that of 'governance'. It is an attempt 'to make the bureaucracy accountable, transparent, and even responsive to the public; but the objective is not to achieve this outcome by supply (that is it does not expect the state and the bureaucracy to become accountable of its own account), but by demand (that is, civil society builds the capacity and skills to press government to be accountable for its actions'.66

Third World experience shows that there are no unequivocal successful receipts for reforming public administration.

The situation in Ukraine is more complicated given the much more important role of the state in public life, compared to typical Third World countries. While many Third World countries have over-large states, which means employing too many civil servants, they are not over-powerful, that is they do not have too many powers of regulation and control. However, the Ukrainian state is also over-powerful.

Downsizing the civil service, coupled with administrative reform, based on transparency an avoiding overlapping competencies, should be a focus of any reform programme.

However, it seems that an efficient and accountable public service is only feasible in conjunction with a developed civil society, with its multiplicity of governance mechanisms.

In the developed market economies, governance structures beyond state and market became increasingly important, especially since the changeover to a knowledge-based economy. Messner (1997) concludes that the most effective societies in economic, social and ecological terms aoe not unleashed market economies, but active and continuously learning societies that solve their problems on the basis of a complex organizational and governance pluralism.67

Governance refers to some forms of administrative or regulatory capacities. Agencies, which either are not part of any government (non-governmental organizations), or are transnational in character, contribute to governance.68

Modern, post-industrial societies became increasingly differentiated at the institutional level. A multiplicity of new patterns of organization and governance has emerged alongside hierarchical governance of society by the state.

A new socio-technological-organizational paradigm appears to be gaining ground. Messner highlights especially the meso-level as the domain in which new governance structures emerge.

Countries at a lower development level in particular have problems in developing governance structures at the meso-level.

In Ukraine, actors at all levels are geared solely to lobbyist orientations and are unable no develop any common problem-solving orientations. Generally, Ukraine fails with respect no meeting the institutional-organizational demands of modern society.

The lack of historical experience with methods of compromising, conflict management an network structures tends to result in endless disagreements.

Also, a lack of due process of law is hampering the formation of 'generalized trust' between actors, one of the important conditions for the development of network governance. According to Messner, international competitiveness, owing to the increasing significance of industrial clusters, regional economic zones and network structures between firms and their environment based on collective efficiency, results from specific patterns of social organization an governance.

Social governance capacity is a condition for economic efficiency and development. However, the blocked Ukrainian society is characterized by a lack of governance capacity.


The character of elite networks

The previous chapter described how, since the reign of Brezhnev, patronage-clientele networks operating on the borders of illegality have gained in prominence.

Under communism, elite networks gradually acquired qualities reminiscent of European feudalism.69 Loyalty towards the local chief was primordial, less so competence. Secrecy was paramount. Instructions were usually given orally, not in written form so as to avoid problems with accountability.

Informal dealings were crucial to the functioning of the economy and gradually became more important. There was no rule of law. Exertion of power was absolutist and arbitrary, on all levels. Wheeling and dealing became crucial for survival in all spheres of life. In this political tradition the Ukrainian polity emerged.

The falling away of the party state did not unleash market forces, but rather paved the way for the Nomenklatura networks to appropriate the state for their private purposes. It was a transition from 'plan' to 'clan', rather than from 'plan' to 'market'.70

Elites operate primarily in the sphere of the state and its administration because Ukraine remains largely a bureaucratically controlled economy. The state and its administration set the parameters in which the elite operates. As the rules of the polity are not clear and as there is not a strong countervailing power, patronage-clientele networks spread.71

Political patronage can be defined as an informal network of personal, political relationships, which are at the same time both asymmetrical and interdependent.72 Also, the relationship has to be tested over time. It encompasses the mutual exchange of political goods, political patronage can be found in all societies. It allows politicians to govern more effectively. Typical of the Soviet Union was that political patronage developed into a crucial mechanism for elite mobility, hardly being checked by other mechanisms, such as open selection procedures on the basis of meritocratic criteria. Therefore, political loyalty to the party and the patron became of utmost importance.73 Formal decision-making procedures increasingly became a facade to mask the decision-making by a set of coteries.74

When Ukraine became independent, loyalty of the elite to the state was promoted by the fact that the state was the most lucrative feeding ground and it gave elites the opportunity for career advancement and self-enrichment.

As Garnett suggested, the pursuit of self-interest may have proven to be the most patent source of state building and nation building in Ukraine.75 At the same time, elite parasitism was an obstacle to social change.

Motyl suggests that elite parasitism may transform Ukraine into an Eastern European version of former Zaire.

In Pokhalo's view, 'The Ukrainian paradigm of state building today is but the manifestation of creating... a state for its own sake, outside society and above it'.76

Elite networks in Ukraine are characterized by secrecy and distrust towards those not belonging to the inner circle of the clique. Important lobbies are grouped around specific industries an related banks and, above all, based in specific regions. For example, President Kuchma, who came from Dnipropetrovsk, promoted many friends from his town to influential positions in Kyiv. It has been estimated that up to 200 Dnipropetrovsk clan members were appointed to top executive positions in Kuchma's government and administration.77 Clan leader Lazarenko, then the Dnipropetrovsk province governor, was initially appointed deputy prime minister in charge of energy. Other clan members were given almost all the ministerial portfolios involving industry. They included Valery Pustovoytenko, who became prime minister in 1998. In May 1996 Lazarenko became prime minister. He gave the clan's major company, United Energy Systems, half the wholesale natural gas market, so helping it become the richest private company in Ukraine.

The main competitors for natural gas profits came from the Donetsk clan, which was organized around parliament member Volodomyr Shcherban. That clan was swept aside with the assassination of another member of the Donetsk clan, Yevhen Shcherban.

President Kuchma dismissed Lazarenko in mid-1997 without ever explaining why. Perhaps Lazarenko's seizure of the gas supplies at the expense of other clans became an embarrassment to Kuchma. The Dnipropetrovsk clan split in two and open warfare ensued. Both clans used the media. The Kuchma clan used the judiciary power to fight its opponents. Newspapers from opposing clans were regularly closed. Companies linked with opposing clans were fined.

The lobbies linked to the gas companies belong to the most powerful in Kyiv, although Ukraine only produces 20 per cent of the gas it consumes. Trading of gas is one of the most lucrative activities in Ukraine. Particularly profitable are licences that allow companies to buy gas in Russia and sell it on the Ukrainian market. In November 1998 seven deputies from the ruling People's Democratic Party (PDP) quit the PDP faction in parliament, and since then the gas lobby has been outside government.78

Unlike Russia, oligarchs have come less to the fore in Ukraine, partly related to the less advanced state of privatization.

Five oligarchs control the bulk of the mass media and all support President Kuchma.79

[ SL : In his footnote, Hans van Zon names the five oligarchs as Ihor Bakai, Viktor Pinchuk, Hryhory Surkis, Vadim Rabinovich and Oleksandr Volkov, names that should be Familiar to readers of this mailing list. ]

President Kuchma has fostered various corrupt clans in order to play them off against each other and thereby stay in control. According to the Kyiv Post he has done so by maintaining and even adding to Ukraine's maze of arbitrary rules and corrupt officials 'which deters most investment but is a gold mine for the brokers who can guarantee safe passage through'.80

Power was mainly focused on redistributing the economic wealth of the nation, less on creating new wealth. As the most influential lobbies represented value-subtracting industries an declining regions, they succeeded in squeezing substantial sums from the national budget.

However, the nature of the redistribution process changed, from direct subsidies from the budget to hidden subsidies in the form of lax exemptions, non-payment of the energy bill, etc. (see Chapter 4).

On the micro-level, redistribution mechanisms caused an enormous income divide, a rapid impoverishment of the overwhelming majority of the population and a fabulous enrichment of the ruling elite (sec Chapter 9).

The new economic elite was mainly interested in short-term gains. The short-term interests of the main lobbies also dominated the policy agenda. Generally, one can see in the transition process that groups who gain substantial rents in the early phase of transition, based on distortions of the inherited economic structure, have a stake in maintaining a partial reform equilibrium that generates high private gains but at considerable social costs. The peculiarity of Ukraine is that, unlike countries such as Hungary, the Czech Republic and Poland, this partial reform equilibrium seems rather structural and stuck in the very early phase of the 'reform process'. Ia seems that in Ukraine the ruling elite has an interest in keeping the economy in limbo between a centrally planned and a market economy in order to continue its rent-seeking behaviour.

In Ukraine, the new economic and political elite emerged out of the old Nomenklatura. Whereas in countries like Poland, the elite became more diversified and the first post-socialist governments hardly counted ex-communists, in Ukraine the old elite retained its power. It is telling that the first president of independent Ukraine, Kravtchuk, was responsible for ideological affairs in Kyiv under the old communist regime.

Chapter 10: Path Dependency and Development
Prospects (p. 179)

Criminalization of economy and state

According to a report written for President Kuchma in 1996, organized crime poses an immediate threat for the stability of the state. The criminal subculture has penetrated all levels of the state apparatus. Organized crime has its parallel power structure and the population has to pay for these structures. On average, organized crime makes products 20 to 30 per cent more expensive.14 Few firms can escape organized crime; about 90 per cent of firms are under its influence.15

[ . . . ]

The problem is that with the criminalization of the state, state power becomes a function of private, often criminal, interests and that the public good becomes subordinated to those private interests. It is nowadays difficult to make a clear distinction between organized crime and the state.

It is not only that Mafias find protection by the state, as is the case in many countries, but that organized crime can instrumentalize the state.

It means that there is not anymore a 'raison d'etat'. The state as a semi-autonomous institution has ceased to exist.

The state has transformed into an entity that is acting against the public good, in the interests of a kleptomanic, criminalized elite.

додано: 29-08-2001 // URL: http://maidan.org.ua/static/mai/999100835.html
Версія до друку // Редагувати // Стерти

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