Гарань О. В.

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    The Driving Forces for Unwanted Reforms: Lessons from the Ukrainian Transition
    (2010) Dubrovskiy, Vladimir; Szyrmer, Janusz; Graves III, William; Golovakha, Evgeny; Haran, Olexiy; Pavlenko, Rostislav
    This work explores the political-economic mechanisms that lead to economic reforms even if the state is “captured” with the rent-seeking interests, as was the case in Ukraine in 1990th. We argue that unless the social capital is strong enough to solve the coordination problems, the rent seeking can be sustainable for a long time only if the players are coordinated forcedly by an authoritarian arbiter. Such arrangement is mutually associated with peoples’ passivity, and inability of comprehending the virtues of market coordination based on the private property rights. Until this public consciousness change, so already emerged market institutions start crowding out the rent-seeking ones, deterioration of authoritarian control and coordination due to the technical and societal progress remains the main long-term factors of reforms. Although such deterioration does not cease the rent seeking, and can even release it, lack of control makes it unsustainable, so ultimately requires replacing a forced coordination with the market one based on universal protection of the property rights. On the other hand, the longer this stage lasts, the stronger get intermediate (and often informal or illegal) rentseeking social structures and practices fed with the rent from uncontrolled resources, which obstruct establishing the market order. In Ukraine deterioration of totalitarian control started at least since Stalin’s death brought about the proliferation of interpersonal networks of mutual exchange based on blat. Price liberalization of 1992 was a “passive” systemic reform that the government had to accept because of the far-went deterioration of centralized control and coordination. Then the gap of control was mostly closed in two main waves of reforms, each of them coming as a reaction to crisis: monetary stabilization plus privatization (1995-96), and fiscal stabilization plus contracting of state paternalism towards the enterprises (1999-2001). However, the market adjustment after initial shock appeared to be delayed for almost eight years due to the persistence of deep-rooted rent-seeking interpersonal networks, and thus incurred very high social cost.