Ukraine's Amer­i­can Dream

Just like democ­racy it­self, en­tre­pre­neur­ial free­dom and an ef­fi­cient econ­omy can fos­ter so­cial jus­tice

The Ukrainian Week - - CONTENTS - Maksym Vikhrov

En­tre­pre­neur­ial free­dom and an ef­fi­cient econ­omy as the fac­tors of so­cial jus­tice

So­cial jus­tice is one of the old­est and most con­tro­ver­sial so­cio-po­lit­i­cal con­cepts. “No one has been able to come up with one and only one uni­ver­sal rule that will iden­tify what so­cial jus­tice is,” renowned econ­o­mist and No­bel lau­re­ate Friedrich Hayek once said.

The most se­duc­tive for­mu­la­tion came from French so­cial­ist Louis Blanc, back in the mid-19th cen­tury: “From each ac­cord­ing to his abil­ity, to each ac­cord­ing to his needs.” His idea was taken up by Marx­ists of var­i­ous stripes who tried in dif­fer­ent ways to put it into prac­tice — and noth­ing good came of it. The minute the gov­ern­ment be­gan to de­ter­mine ev­ery­one’s tal­ents and needs, and to dis­trib­ute goods, new in­equal­i­ties emerged, of­ten more hor­ri­ble and in­sur­mount­able than what was ear­lier. For in­stance, the USSR di­vided up its pop­u­la­tion lit­er­ally into dif­fer­ent sorts who were pro­vided for ac­cord­ing to dif­fer­ent stan­dards, which were called “pro­vi­sion cat­e­gories.” Moscow, Len­ingrad and a slew of other ma­jor cities, in­dus­trial and recre­ational cen­ters re­ceived as much as 80% of all the goods the state pro­duced. There were also sub­cat­e­gories based on pro­fes­sions: min­ers were in the first pro­vi­sion cat­e­gory, while col­lec­tive farm work­ers were in the low­est or third cat­e­gory Af­ter the USSR col­lapsed, new in­equal­i­ties emerged that have left or­di­nary peo­ple no less dis­sat­is­fied.

The guar­an­tee that free­dom will not turn into chaos is hav­ing laws and the in­sti­tu­tions that en­sure that they are up­held. Laws are also the foun­da­tion of eco­nomic growth: when there is no law, the only func­tional form of en­ter­prise be­comes ma­raud­ing. Ukraine has faced plenty of prob­lems in this re­spect, and this is re­flected in the cat­a­strophic lack of trust in the courts, -75%, the pros­e­cu­to­rial sys­tem, -74%, the po­lice, -46%, and so on, ac­cord­ing to a 2018 poll by the Demo­cratic Ini­tia­tives Fund.

A se­ri­ous fac­tor in pub­lic dis­il­lu­sion­ment are in­stances when wealthy and in­flu­en­tial in­di­vid­u­als evade pun­ish­ment for ob­vi­ous and even proven, crimes or when law­less­ness be­comes sys­temic. In fact, this last was the fi­nal straw that led to the mutiny in the Vradiyivka po­lice rape case in sum­mer 2013 and, ul­ti­mately, to the Euro­maidan. For Ukraine to move closer to ideal jus­tice, how­ever vague that might be, there’s no rea­son to rein­vent the wheel: all it has to do is in­sti­tute real rule of law.

In con­trast to equal­ity be­fore the law, equal­ity in terms of ma­te­rial prop­erty is unattain­able and not even nec­es­sary, pro­vided that it does not lead to over­step­ping bounds. All the his­tor­i­cal ef­forts to es­tab­lish ma­te­rial equal­ity have led to enor­mous num­bers of vic­tims. How large is the equal­ity gap in Ukraine? The GINI In­dex, which des­ig­nates the level of strat­i­fi­ca­tion in a society from 0=com­plete equal­ity to 100=ab­so­lute in­equal­ity, Ukraine stands at 25.5, or about the same as Nor­way or Swe­den, ac­cord­ing to the CIA’s 2015 World Fact­book. But be­cause of the large share of the shadow econ­omy, this rank­ing does not re­ally re­flect re­al­ity. Ac­cord­ing to the Na­tional Academy of Science’s In­sti­tute of De­mo­graph­ics and So­cial Stud­ies, Ukraine’s wealth­i­est 10% has 40 times more than its poor­est 10%. The UN has con­cluded that this level of in­equal­ity threat­ens the coun­try with so­cio-po­lit­i­cal un­rest. Why? Pop­ulists keep em­pha­siz­ing that it’s im­moral to be wealthy in a poor coun­try, but ap­peals to eth­nics and morals only hide the essence of the prob­lem.

In fact, overly deep in­equal­ity is only a symp­tom of the level of dys­func­tion in a society’s in­sti­tu­tions. Too much strat­i­fi­ca­tion in a society sug­gests that the coun­try’s eco­nomic re­sources are be­ing usurped by its elites, who use them for their own in­ter­ests. This means that the coun­try is lack­ing not only a proper mar­ket econ­omy but democ­racy as well. In pro­tect­ing its priv­i­leges, the elite tends to build an oli­garchic or au­to­cratic regime, us­ing anti-con­sti­tu­tional means against the coun­try’s cit­i­zenry, from steal­ing elec­tions to un­leash­ing ter­ror. Such a coun­try can­not be free or wealthy — at least not if peo­ple don’t have the power to man­age their re­sources and, say, col­lect gas ex­trac­tion fees to fill holes in their bud­gets.

It’s no se­cret that all of these fea­tures are typ­i­cal, to one de­gree or an­other, of Ukraine. That means that so­cial strat­i­fi­ca­tion can­not be re­duced sim­ply by “tak­ing away and divvy­ing up” the wealth of in­di­vid­ual oli­garchs. First of all, the coun­try needs real democ­racy and rule of law. Se­condly, it needs to es­tab­lish a truly com­pet­i­tive econ­omy in­stead of con­serv­ing the dom­i­nance of oli­garchs. For in­stance, only 53 of the wealth­i­est Amer­i­can cor­po­ra­tions have man­aged to stay on the For­tune 500 list ever since it was es­tab­lished in 1955. And even then, their rank keeps chang­ing all the time.

Of course, a com­pet­i­tive econ­omy can­not guar­an­tee wealth for all, but only it can of­fer a chance to the largest num­ber of peo­ple. This means hav­ing the nec­es­sary in­sti­tu­tional con­di­tions: open ac­cess to the mar­ket and bank cred­its, pro­tec­tion of la­bor and prop­erty rights, a prop­erly func­tional court sys­tem to set­tle dis­putes, and so on. How high so­cial lifts can raise in­di­vid­u­als and their load ca­pac­ity are de­ter­mined also by the over­all ef-

Ac­cord­ing to the Na­tional Academy of Science's In­sti­tute of De­mo­graph­ics and So­cial Stud­ies, Ukraine's wealth­i­est 10% has

40 times more than its poor­est 10%. The UN has con­cluded that this level of in­equal­ity threat­ens the coun­try with so­cio-po­lit­i­cal un­rest

fi­ciency of the do­mes­tic econ­omy: if it’s low, most peo­ple will be stuck in poverty re­gard­less of how well other in­sti­tu­tions work.

Here, Ukraine also has plenty of is­sues. If GDP, the length of the work year and the em­ploy­ment rate are com­pared, then it turns out that the av­er­age Ukrainian makes US $3.70 an hour for pro­vid­ing goods and ser­vices — al­though in real rather than nom­i­nal terms, it works out to US $2.80. Yet Ukraini­ans work no less than Ger­mans, Poles or French peo­ple. The prob­lem is that they are mostly em­ployed in ar­eas that are not highly prof­itable, which makes it a lot harder to im­prove their stan­dard of liv­ing through work. And so, thirdly, the coun­try needs to de­velop a highly pro­duc­tive econ­omy.

Just how high can so­cial lifts take a per­son? There are plenty of ex­am­ples of in­di­vid­u­als who started out in the low­est reaches of society and reached fan­tas­tic heights. For the sta­tis­ti­cal ma­jor­ity, join­ing the mid­dle class and be­com­ing up­wardly mo­bile is a re­al­is­tic prospect within this stra­tum. The mea­sures dis­cussed here pro­vide the best con­di­tions for this to hap­pen. In con­tem­po­rary Ukraine, the mid­dle class is still un­der­de­vel­oped. Credit Suisse, a Swiss bank, com­pared house­hold in­comes with in­di­ca­tors of wealth for each re­gion in 2015, con­clud­ing that only 0.8% of adult Ukraini­ans ac­tu­ally be­longed to the mid­dle class and con­trolled 16.9% of the coun­try’s eco­nomic re­sources. Of course, there are other ways to cal­cu­late mat­ters that pro­duce a more op­ti­mistic pic­ture. For in­stance, the Razumkov Cen­ter came up with a fig­ure of 14% of Ukraini­ans be­ing in the mid­dle class in 2014. By com­par­i­son, the Pew Research Cen­ter re­ported in 2010 that 72% of Ger­mans be­longed to the mid­dle class, 74% of the French, 64% of Spaniards, and 59% of Amer­i­cans. So­ci­eties whose mid­dle class is in­sub­stan­tial show a huge gap be­tween the rich and the rest. This sug­gests that so­cial in­sti­tu­tions have been ori­ented so as to deprive most cit­i­zens of op­por­tu­ni­ties to im­prove their stan­dard of liv­ing, re­gard­less of their in­di­vid­ual ef­forts. What’s more, the ar­chi­tects of this kind of or­der are gen­er­ally a cer­tain por­tion of the elite who have taken over all na­tional re­sources.

This is how mass poverty is the out­come of an econ­omy whose pro­duc­tiv­ity is low and in­sti­tu­tions flawed. This is clearly the case with Ukraine. Ac­cord­ing to the UN, the poverty thresh­old in Cen­tral and East­ern Euro­pean coun­tries is US $5 a day per per­son, which means UAH 4,200 a month. Mean­while, a Derzh­stat house­hold study showed that the av­er­age monthly in­come per per­son in Ukraine was UAH 4,344 in QI of 2018, fur­ther dif­fer­en­ti­ated as UAH 4,558 in ur­ban ar­eas and UAH 3,923 in ru­ral ar­eas.

Fully 30% of Ukraini­ans had in­comes that were below the ac­tual sub­sis­tence min­i­mum — the of­fi­cial sub­sis­tence min­i­mum is de­pressed. House­hold spend­ing on food alone was 46%, which also tes­ti­fies to wide­spread poverty. For in­stance, the av­er­age Cana­dian fam­ily spends around 9% of its in­come on food, while in Kenya it’s nearly 47%.

For all these rea­sons, over­com­ing mass poverty must be a fun­da­men­tal com­po­nent in build­ing a just society. And yet, this can­not be done sim­ply by dis­tribut­ing na­tional re­sources to the poor­est: at most this ap­proach can lead to a very tem­po­rary im­prove­ment. Long-term, sus­tain­able pos­i­tive re­sults will ap­pear to the ex­tent that the na­tional econ­omy be­comes more pro­duc­tive and in­di­vid­u­als are given more and more op­por­tu­ni­ties to en­gage in it and im­prove their lives. Of course, there are groups of the pop­u­la­tion who a pri­ori are in no po­si­tion to com­pete evenly with oth­ers: hand­i­capped in­di­vid­u­als, vic­tims of force ma­jeure cir­cum­stances, and so on. It would be quite fair if a society gives such peo­ple tar­geted sup­port. How­ever, when gov­ern­ment sup­port for the weak­est turns into a sit­u­a­tion where en­tire strata of the pop­u­la­tion are sit­ting on so­cial wel­fare, ob­vi­ously in ex­change for po­lit­i­cal loy­alty, this is the path to de­cline.

And so, to build a just society means shoring up democ­racy, es­tab­lish­ing ef­fec­tive in­sti­tu­tions and de­vel­op­ing a highly pro­duc­tive econ­omy. Only then can a coun­try achieve the max­i­mum match be­tween in­di­vid­ual ef­fort and re­ward for such ef­forts. This, in some sense, is the orig­i­nal con­cept be­hind the Amer­i­can Dream. This won’t, of course, make ev­ery sin­gle per­son wealthy or elim­i­nate ma­te­rial in­equal­ity. How­ever, with suc­cess­ful re­forms, poverty can be re­duced sub­stan­tially in Ukraine and made less pen­e­trat­ing, while many in­equal­i­ties can be elim­i­nated through com­pe­ti­tion and op­por­tu­nity — not for ab­so­lutely ev­ery­one, but for very many. So­cial jus­tice will never be ab­so­lute, but there is no bet­ter ap­proach. How ready Ukrainian society is to these changes is de­bat­able. On one hand, polls reg­u­larly show the ten­dency to­wards pa­ter­nal­ism among Ukraini­ans, but there is op­pos­ing ev­i­dence as well. For in­stance, in a 2013 sur­vey by the Olek­sandr Yare­menko Ukrainian In­sti­tute for So­cial Stud­ies, nearly 70% of Ukraini­ans sup­ported the no­tion that peo­ple them­selves need to en­sure that they achieve a de­cent liv­ing stan­dard, while the gov­ern­ment’s job is to en­sure the nec­es­sary con­di­tions. Fewer than 30% in that poll thought that the state is obliged to pro­vide a de­cent liv­ing stan­dard for ev­ery­one. Still pub­lic opin­ion is a mu­ta­ble thing, es­pe­cially with an un­sta­ble econ­omy, an on­go­ing war and other stresses. The main ob­sta­cle to greater so­cial jus­tice in Ukraine is likely to be pop­ulists who ma­nip­u­late the emo­tions of their fel­low-cit­i­zens, of­fer­ing them vi­sions of fan­tasies that can never hap­pen and promis­ing re­sults that are im­pos­si­ble to achieve.

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