*Ukraine: What Went Wrong With It and How to Fix It*

That is the new Anders Aslund book, and it is instructive throughout.  Here are a few things I learned:

1. 80 percent of Ukrainian youth receive higher education of some kind.

2. Ukraine has the world’s highest rate of pension expenditures as a share of gdp, at about 18 percent, circa 2010.  Most of that is old age pensions, and that is for a population with a relatively short lifespan, 68.5 years, 122th in the world according to UNDP.

3. At the time of publication, Ukraine’s public expenditures stood at 53 percent of gdp.

4. “Ukraine is running out of money…”  OK, that one I already knew.

5. “No economy has fared as poorly in peacetime as Ukraine did from 1989 to 1999.  For a decade, Ukrainian GDP plummeted by a total of 61 percent, according to official statistics.”  Some of this, however, was offset by the growth of black markets.

6. Crimea is no longer included in Ukraine’s formal measure of gdp, although Donbas is still included.

Comments

1. Most young people study in low-quality private universities or in former vocational schools, which were 'upgraded' to universities in name only. Even some of good universities enroll almost every applicant, provided he or she is ready to pay fees.

2. Life expectancy improved to 71.4 years in 2013. Retirement age until recently was 60 for men and 55 for women, but now women will be required to retire also at 60, which will reduce pension fund deficit a little bit. Main problem, though, is that unlike in most poor countries, Ukraine has low birth rate and low ratio of workers to pensioners. There are less than 2 workers for each retired person. So retirement age will have to rise further.

Has Ukraine done any worse than Russia would have absent the bullish two-decade commodity super-cycle bull?

Another question would be: What has Poland done better?

The last time I checked (over a year ago), Poland only had four billionaires, while Ukraine had several times that number, and Russia had a ridiculous number of billionaires.

Seriously, I can't imagine more senseless, ignorant comment on this topic. Hats off.

Polish GDP per capita (PPP) went up more than 120% between 1990 and 2014, Ukrainian went down.

Similar story with almost every other economic and development indicator.

Like I said ...

I think you're misleading Steve. He's implying Poland has done better at controlling the growth of oligarchs.

*misreading

My bad

I'm noting that Poland has done better than Ukraine by the average citizen, and Ukraine has done better by the average oligarch. It's an awfully small sample size, but the correlation might not be wholly coincidental.

Funny thing: I don't think that Polish billionaires or millionaires envy Ukrainian oligarchs. They may have less money, and It's way harder for them to gain political influence but their fortunes are safe, protected by the same body of law that protects FDIs

I'm not an expert on this topic, but my understanding is that Poland's economy remained relatively more privatized than those of Russia and Ukraine during the Cold War; for example they retained private property throughout the Soviet period. So when the time came it was much easier to "flip the switch" back to a market economy. Russia became saddled with oligarchs because they had to privatize all their property, which to paraphrase the guy from Indiana Jones and the Last Crusade, went....poorly, and thus Russia is saddled with oligarchs to a degree that Poland wouldn't have had to worry about.

Same for Czech Republic, I believe.

I am originally from Czechoslovakia and the only significant property you could own was a residential or recreational house with a garden. In the former USSR you could only lease the land from the government but in either case the only thinkable economic activity on such properties was some limited side income generated from selling produce. Truly private economy existed but it was extremely limited, completely overshadowed by the grey and black market.

In fact, it was very difficult to "flip the switch" and to the date, very bad things happened during the privatization and to this date there is no clear consensus about what would have been a better way to do it.

My take is that the main differences are cultural. Poland and Czech Republic were part of the west for a millennium and while the 40 years under the soviet sphere ruined a lot, it didn't completely change some important cultural and moral norms and expectations.

The point on culture is right. It is not a surprise that support for a stronger rule of law, anti-corruption, and reform originated from western Ukraine - the area that used to be ruled by the Polish-Lithuanian Commonwealth and later part of Habsburg Austria.

Over the past twenty years, you can see that influence slowly growing to the rest of the country. It used to be limited to the northwest, then moved into central Ukraine. Now we can see it as the stronger force going south along the Dneiper and across the river into the northeast. It remains to be seen if it becomes the dominant political force throughout southern Ukraine.

Whatever the failures of Ukraine's past governments, that it had multiple democratic elections with changes in government has made Ukraine's political culture very different from Russia's.

If not for the costs imposed by partition and war, Ukraine would probably be a good turnaround candidate. However, despite some good reforms now being passed, the current economic downturn caused by the uncertainty of Russia's war is creating more political instability.

I stand corrected.

Chris, I agree with you that Ukraine has much better political culture than Russia but what you say is the optimistic scenario. Ukraine still has huge problems, corruption is out of control, the demographics situation is abysmal and most of the brightest people who could have improved the country left long time ago.

The last time I checked, Bulgaria, much more westernized country and a member of EU, has similar demographic and brain drain problem (see population graph in http://en.wikipedia.org/wiki/Demographics_of_Bulgaria). It is a vicious cycle and I am afraid that these countries are doomed in the long term. For some reason (even though on surface the country is similar to Bulgaria) I am little more optimistic about Romanians whom I know as extremely proud and hardworking people.

BTW compare the demographics of Ukraine or Bulgaria to the demographics of Czech Republic http://en.wikipedia.org/wiki/Demographics_of_the_Czech_Republic

I thought Pochemuchkas were supposed to ask lots of questions.

I don't see why Ukraine should be regarded as having a better political culture than Russia, never mind much better. Ukraine is substantially more corrupt than Russia. In Russia, the president and various other high officials treat the country as their personal property. Ukraine is an actual oligarchy of billionaires who gained their money by dubious means. Presidential elections between competing oligarchs that were formerly allies but are now aligned with different foreign powers doesn't seem particularly admirable to me. Both countries have a small minority of people who would like them to become a liberal democracy. In both countries these people can be safely ignored by the government. Both countries have a substantial minority of what would be regarded as fascists in the west that the government is scared of and panders to. The best people leave both countries to live elsewhere.

I don't understand Ukraine and probably never will. I just hope we don't send troops there. According to Sid Meier's Civ IV they totally belong inside Russia's cultural sphere.

Ukraine (and rest of the world) is YOUR personal responsibility, and that of all Americans. Thus your noble Congress has long deployed vast sums of $$ and legions of troops and bureaucrats across the globe in your name and expense.

Since all U.S. domestic economic, social, and political factors are in superb condition, it's wise to focus externally, everywhere. Especially important are economic analyses of small, distant, war torn countries on the verge of collapse... to increase your understanding of your full responsibilities. You must know "What Went Wrong With It and How to Fix It" regarding Ukraine.

Well done.

If we really wanted to help would send them all a green card.I think that even Steve Sailor would not object to sending green cards to Ukrainians.

I expect he would. He has a fairly jaundiced view of the Russian criminal underworld in California.

I had jaundice when my parents immigrated from Czechoslovakia, and they gave me a blood transfusion (presumably American blood). But I still committed some crimes while growing up n L.A.

Who doesn't have a jaundiced view of the Russian criminal underworld? I mean, except for the Russian criminal underworld (and their moms).

It's difficult to tell whether Ukrainians are Russians, Austrians, Poles or Mongols.

Ask a Ukrainian! They will tell you that they are Ukrainian!

Most nations (and arguably all the big ones) are very mixed. That's no excuse for invading them.

If you want an excuse, invent some fantasy Nazis and sell the idea to Stephen Cohen, pseudonymous characters at British universities, and the krill suspended in the foetid waters of alt-right websites. (Remember, though, it's only 'hasbara' if you defend Israel).

They are definitely not Mongol. I've read that some Ukrainian nationalists boast that Ukrainians are the "purest" Slavic people (Russians have Tatar/Mongol admixture, South Slavs have mixed with Turks etc.). I think the article was in Forbes, the author's comment was: "A. H. would be impressed."

I think "Ian" above is correct - today's difference between Catholic and Orthodox Slavs is due to cultural divergence (influence of religion on worldview and social norms etc., and proximity to the West). Sigh...

Problem is that Russia considers a lot of things within Russia's cultural sphere, including several NATO allies. While I understand the disbelief that Russia will ever be a threat, the primary problem is that of political will. The US does not want to be in Europe forever: we had already withdrawn our heavy troops from Germany, but now the US is considering pre-deploying an entire heavy brigade's worth of equipment to Romania as a counter to Russia, since, well, Europe doesn't seem to give a damn. Quite frankly, Russia remains a threat, and Ukraine, which I don't care about, is a great place to put many more Russian soldiers into early graves. Giving them a horribly bloody nose in Donbass ends their imperial ambitions for a decade or longer.

Was the Ukraine the first economy to hit population decline spiral? The population has already declined about 12% the last 25 years and I think that is only accelerating. With that reality, how can any economy thrive?

What went wrong? Putin wants to keep a big chunk of it (at least) under his control. He has all the guns in the region. Everybody knows this.

Some research (law of tyler) says that in a dictatorship GDP growth is lied about at some 2 % . Over a long term this adds up.

So different systems, different data. Bad things did happen, but don't trust data too much.

Ukraine seems to be in a bad neighborhood (much as Poland was in 1939), and that presumably would discourage foreign investment.

Perhaps they should have kept their nukes.

I suspect Ukraine pretty much has the same problems as Russia with exception of not having the oil and gas to keep the system running.

All of the former Soviet Republics are in dire need of major insititutional reforms of the legal system, stuff that should have happened before they privatized their economies. They all suffered because they raced ahead with privatization before they put in place the legal institutions to protect private property rights and ensure equal enforcement of the law. As a result, the system went striaght from communism to crony capitalism.

The Baltic States seemed to have recovered relatively well. Any idea what pushed them towards legal reform? Honestly curious. I suspect these regions are more properly "Western," at least more so, since they were part of the Polish-Lithuania commonwealth and not annexed by Russia until its modernization period, while Ukraine is more properly Orthodox, and many of the other former Republics are Great Game territory.

You're correct. They historically had closer ties to the west so they had already inherited some of the Western ethos. And yes, it probably has something to do with Eastern Orthodox vs. Roman Catholicism in their history. Lithuania is Roman Catholic. Latvia and Estonia are Lutheran.

But I really don't want to go down the path of saying that there's anything inherently authoritarian about Russian or Ukranian culture, just because they ended up in the Eastern Orthodox half of the church. Cultures change.

Regarding Baltics, they have a very long "Western" history, with Estonia and Latvia ruled by local German-speaking elite (descendants of Teutonic knights, Germans who came with them and upper-class locals assimilated by them). This elite stayed in power when Russian Empire annexed Baltics in the 18th century and probably had more influence on the local politics than the Russian Imperial Government all the time until 1917. I am not sure about Lithuania but the Russian Empire might have left the local nobles in power there as well.

The Baltics had a long history of cultural contact with the West. The Teutonic Knights, the Hansa, Poland, and Sweden all controlled or were heavily involved in the region for hundreds of years.

That all three Baltic countries achieved independence and created real states between the world wars was also important. Both Belarus and Ukraine failed to do so.

> All of the former Soviet Republics are in dire need of major insititutional reforms of the legal system, stuff that should have happened before they privatized their economies.

Not that easy. During the transformation the management of the state owned companies effectively run the companies and it was able to funnel a lot of money into their own pockets. For example, this oligarch http://en.wikipedia.org/wiki/Vladimir_Yakunin is the president of Russian state owned railway company. Humble public servant, heh?

IMHO, selling all the industry to the western companies would have been the least bad solution but it was politically unworkable and the downsides are pretty clear.

So, I'm thinking of this because I recently watched the film 'Leviathan', which shows the level of corruption in the legal system in Russia.
Basically the plot of it is that there's a guy who owns a piece of land which is being taken through something very reminiscent of eminent domain, but the difference is that when he goes to court to try to fight it everyone from the judges on down is in the pocket of the local oligarch. So he basically has no protection for his property. He's essentially got no property rights. It doesn't matter WHO you sell all the state-owned property to in such a system. Whoever controls the courts is going to wind up with the property.

Forget it Jake, it's Chinatown.

Ukraine used to be called the Breadbasket of Europe and produced 1/4 of all the agricultural output of the Soviet Union. It's wheat farms are more productive per acre than the wheat fields of Nebraska and Kansas.

The country still has lots of mineral reserves and a reasonably productive steel industry.

Ukraine should be a decent place to live. It has lots of economic potential. Ukraine could be as prosperous as Poland.

Unfortunately, the political culture is toxic and unfixable. No one will invest in the country so long as it remains more corrupt than Tijuana's traffic cops.

"It’s wheat farms are more productive per acre than the wheat fields of Nebraska and Kansas. "

According to the world bank the Ukraine has on average about two/thirds of the yield of the US.
http://data.worldbank.org/indicator/AG.YLD.CREL.KG/countries

Agriculture in the region suffers from a lack of mechanization, infrastructure (irrigation etc) and good practices. With the huge capital investment Americans are able to make in Kansas and Nebraska productivity, it's no wonder the yield is higher. However, the black soils of Ukraine have such high potential, that they have their own black market smugglers, taking them out of the country by the truck load. It's why the Chinese were such big investors in Ukrainian agriculture.

BTW I really like how much of the discussion here revolves around the different cultures going hundred of years to the past. I suppose discussing cultural differences of some weird Eastern European countries is fine but a similar discussion in other contexts would be "racist".

Fear not, a discussion thread on "What's the matter with Tanzania?" will bring out the racists :)

There has been no discussion. There has been an invocation of 'culture' but no indication anyone has a clue about how the anthropology of the Ukraine might differ from that of Estonia or Bohemia. I attend Ukrainian Churches and never noticed anything peculiar about the congregants other than a handsome resistance to musical and liturgical innovation.

This is why it was supremely sad to see Kakha Bedukidze die before he could do his magic on the Ukrainian economy. I suspect that may have saved Western Ukraine at least. I'm surprised that such a huge event was so underreported and under-discussed in the econosphere.

Anders is one of the best writers on Ukraine. He's been at it almost forever. I've been too busy but when I get around to it I'll post a review a my blog.

A few brief points about Ukraine that are usually missed:

Ukraine lost a third of its population during World War II, going by its post-war borders. Nearly half the fighting in the whole war took place within Ukraine, and both sides robbed the food and scorched the earth as they moved back and forth across it. The Germans also murdered millions of Jews and POWs. Even by the late 1980s Ukraine was still a deeply scarred country.

The Soviet Union and its European satellite states began to grow apart economically already in the late 1980s. The satellite states continued to function and gradually liberalized, while the Soviet elite turned to wholesale robbing from their own system and the Soviet mafia grew into a huge economic power already by 1988-89. The emptying of store shelves and hyperinflation likewise began before the breakup. It's just not realistic to ask why Ukraine didn't follow the course of Poland or Slovakia. By the time Ukraine became independent at the end of 1991 it was already a totally different, much poorer and much more deeply criminalized place.

Ukraine was always the main industrial heartland of the Russian empire, with a concentration of metallurgy and military industry. Which was largely doomed when the empire collapsed.

Ukraine wasn't governed any better or worse than Russia in the early 90s. About the same. Kuchma from 94 was a lot more organized and efficient than Yeltsin, but alas mostly to bad ends. Kuchma invented the re-centralization model that Putin would later follow, and though Kuchma is a genuine bumpkin who never had any imperial ambitions, he and Putin are very similar characters and their style of domestic rule is practically the same.

Twenty some years ago some wealthy acquaintances of mine went to Ukraine intending to build a factory. They had the all the money and all the technical skills needed. Their ancestors had come from Ukraine so they felt an emotional attachment to the land and its people - before they actually went there.

What they found was corruption on such an epic scale that it was impossible to accomplish anything. So they came back home and built a new factory here.

Ukraine's circumstances may have many causes but corruption seems to over shadow everything else in importance.

I knew a woman with relatives who went to Ukraine on a charitable mission. She mailed them utensils, which got stolen; then canned goods, which got stolen; then sweaters, which got stolen; then blankets, which got stolen. Then she contacted them and said she was opening a savings account (back home) for the kids and donating to the account.

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