UKRAINE'S ORANGE BLUES - MISTRUSTING YANUKONOMICS

25.03.11


 

WORLD AFFAIRS.  You gotta see things in perspective, President Viktor Yanukovych’s apologists say. Sure, democracy may not be doing too well, but just look at the economy. Bold reforms are being adopted. Just give Yanukovych a few years, and Ukraine will become an Eastern European tiger. Growl.

Were that the trade-offless democracy, more growthone might rationalize Yanukovych’s authoritarianism as the price an underdeveloped country has to pay for economic modernization. After all, it’s true that Ukraine needs a systemic overhaul and that the process of reforming the tax code, the legal system, the pension system, the educational system, and a myriad of other socio-economic spheres will be painful. And it’s true that the country must be reformed sooner rather than later, lest it continue on the path to oblivion. And it’s also true that the Orange leadership’s bungling only intensified Ukraine’s troubles and left Yanukovych with a big mess.

For better or for worse, however, authoritarianism is not an option for Ukraine or for Yanukovych. As I’ve been arguing in this blog, authoritarianism á la Yanukovych is intrinsically unstable. Hence, to think that one can force Ukraine to modernize is absurd. It won’t work, and the likely consequence of such an effort is a social upheaval leading to government collapse.

That leaves Yanukovych with one option: coaxing Ukraine toward reform. But that can work only if Ukrainians trust their president and are willing to assume economic hardships for the good of the country. Poles, for instance, accepted shock therapy back in the early 1990s because they were happy to make sacrifices for a government they believed in.

Public opinion surveys show that trust in Yanukovych has plunged, and it’s not hard to see why. He could have reached out to the national democrats who had voted for Yulia Tymoshenko, but chose instead to bulldoze his way to super-presidential status, roll back Ukrainian language, culture, and identity, and attack the democratic opposition. He could have tried to produce a fair tax code, but chose instead to ignore the centerpiece of any serious economic reform, thereby generating mass protests that culminated in the Entrepreneurs’ Rebellion of late November 2010.

Yanukovych’s assault on the national democrats lost him the support of nationally conscious Ukrainians, and his indifference to the needs of small and medium-sized enterprises lost him the support of the nascent middle class in both eastern and western Ukraine. Yanukovych then lost everybody’s support by failing to understand the obvious: that a reformer asking the people to make sacrifices must be perceived as honest, frugal, and incorruptible. Peopleand especially people living on the margins of subsistence, like most of his proletarian constituency in eastern Ukrainewill endure pain only if they believe their leader will endure pain.

Yanukovych has done the exact opposite. He’s been living high on the hog in a huge villa on a questionably appropriated estate; he dresses like a hotshot Wall Street investment banker; he’s driven to work in a limo, thereby causing massive traffic jams in downtown Kyiv; he’s surrounded himself with corpulent ministers who appear to have their fingers in every conceivable pot. And his rule rests on the Party of Regions, a political machine consisting of beefy pogromchiks, shifty crooks, and unabashed corruptioneers. Ukrainians would sacrifice for a Martin Luther King; they’d be crazy to sacrifice for a Nero.

Yanukovych has also failed to acquire the trust of foreign investors, without whom modernization is impossible. In 2010, his first year in office, foreign direct investment grew by only 12 percent. In the first year of Orange rule, 2005, FDI almost doubledgrowing by 96 percent. And, in the intervening Orange years, FDI grew by 12 percent in 2009 (when Ukraine was virtually ungovernable during Viktor Yushchenko’s disastrous last year in office), 21 percent in 2008, 39 percent in 2007, and 29 percent in 2006.

Why are investors skittish? Cause they ain’t stupid. They want stability, but they understand that invocations of stability are no substitute for the foundation of any stable economic environmentrule of lawand that rule of law is impossible in a dictatorship. Unfortunately, Yanukovych doesn’t get this elementary point. As he noted on February 17th, “Ukraine is a state that is attractive to investors. But it is imperative to create motivations for investors, the most important of which are the stability of the country, the transparency of its economy, and an effective policy of deregulation.” No word, not even a peep, about rule of law. But as German Foreign Minister Guido Westerwelle recently put it, “There are in Germany entrepreneurs who would gladly invest in Ukraine. But they fear legal instability and corruption.”

As long as Yanukovych continues to be viewed as an anti-Ukrainian and anti-entrepreneurial Godfather who prefers bling to bowling and one-man rule to rule of law, Ukrainians will continue to make ends meet in the shadow economy, and investors will continue finding more attractive opportunities elsewhere.

Is the situation hopeless? Winning back the trust one unwisely squandered is extraordinarily difficult, as the public response to the recently initiated investigation of former President Leonid Kuchma’s involvement in the 2000 murder of journalist Heorhii Gongadze demonstrates. Although a welcome development, the investigation will do little to help Yanukovych. Since no one trusts him anymore, everyone’s working assumption is that justice was the last thing motivating his decision to bite the hand that once fed him.

That said, Yanukovych might be able to regain some credibility by reversing course in several dramatic ways. Firing his Russian-supremacist minister of education, Dmytro Tabachnyk, would be a good start. Ending Tymoshenko’s harassment would help. Crafting a tax code that promotes small and medium-sized business would be nice. Moving to a modest apartment in Kyiv and walking to work would do wonders for his imageand his tennis game. And letting the courts be independent might persuade investors that rule of law is not yet quite dead.

That’s a tall order, but is it possible? Sure. The only catch is that Yanukovych would have to stop being Yanukovych.

Alexander J Motyl





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