Ukraine: What Went Wrong and How to Fix It?

Anders Åslund
Peterson Institute for International Economic
2015
ISBN: 978-0881327014
A Review by Julia Sinitsky

Even before the 2013 Maidan Revolution, Ukraine was a social and political enigma. Since its independence from the Soviet Union, Ukraine faltered economically. By 2013 it was one of the poorest countries in Europe. The events of Euro Maidan, Russia’s annexation of Crimea and war in the Donbass put a spotlight on Ukraine’s complicated ethnic, economic, social and political history.

Anders Åslund, an economist with expertise in Eastern Europe, adroitly tackles the most pressing issues in Ukraine: What Went Wrong and How to Fix it?  He examines Ukraine’s history, heterogeneity and contemporary challenges of war, corruption, economic failure, ideology and social reforms— and describes the country’s trajectory since independence in 1991.

This comprehensive analysis – compiled at the peak of Ukraine’s current problems – cuts through mountains of conflicting information on the subject, providing and allowing better assessment of ongoing events.  Åslund wades through continuing propaganda on both the Russian and the Ukrainian sides and acknowledges real issues on the ground.

Among the strongest and most engaging parts of the book are the chapters on Ukraine’s political and economic history from the 1990s to the early 2000s. Ukraine’s history since independence has been troubled by many divisions, and Åslund walks the reader through the various conflicts among governments, actors, factions. He cites the slow economic reforms under the first two presidents, Kravchuk and Kutchma, as well as the mass disappointments that followed the Orange Revolution and the Yushenko government. Åslund’s comparative analysis to other nations in Eastern Europe is useful, showing how far Ukraine has fallen behind its immediate neighbors. He makes constant use of data such as GDP, population growth, mortality, unemployment, investing climate and corruption index, and delves into nuances on reforms: Changes such as aggressive “Polish style” shock therapy were not implemented. Others like gradual privatization and slow redistribution of state-owned assets failed. Others like German, Polish or Czech-style Lustration laws were barely considered.

The author demonstrates familiarity with Ukraine, yet while his historical assessments are accurate, his take on its future seems overly optimistic. He agrees that Ukraine confronts serious problems, but insists that they could be overcome within the next 15 years. He argues that relatively simple legislative reforms could conquer complex issues such as corruption, energy shortages, lack of investment, poverty, health, and education. His analysis does not necessarily overlook implementation, but underestimates the extent of Ukraine’s ever-present remnants of Soviet attitudes. His theoretical framework is solid, but reality is more complicated. Putting great weight behind what he calls “Ukraine’s identity crisis,” he suggests that after 25 years the society stopped dancing between Russia and the EU and made a choice, embracing a more western outlook. 

The possibility that recent events could stop decades of corruption and change citizen behaviour is simply impossible. Corruption is an ingrained practice permeating all levels of Ukrainian society and cannot be swept away within a short time. Of course, the economic shock for Ukraine has been immense, and that alone cannot save the country from economic and political collapse, considering ongoing armed conflict in the east? If anything, recent events exacerbate the challenges.

Åslund is very much a proponent of the Washington Consensus, a neoliberal policy agenda that encourages fiscal discipline, tax reform, tax liberalization, deregulation and reduced government. He repeatedly urges Ukraine to learn from more successful Eastern European neighbors, including Poland and the Czech Republic and how they conducted reforms in the 1990s. He does not mention that after the collapse of Communism in Eastern Europe, these former Soviet satellites had vastly different economic and political structures. Poland and Hungary, for example, had private farms and other enterprises even before 1989, so the success and rates of reform were unsurprisingly different. Åslund takes a better-late-than-never approach, blaming much of Ukraine’s stagnation since 1991 on its failure to implement radical reforms in the early 1990s, but considering the mixed record of neoliberal policies worldwide, it’s unclear if that is the best route. 

Åslund meticulously points out each sector in need of reform. He recommends cutting the size of the state bureaucracy, which in turn would reduce corruption. He recommends complete overhaul of the horribly malfunctioning social sector, first and foremost of healthcare and education. His suggestions on corruption and legislative reform are well structured. Despite his full understanding of the challenges, other proposals seem too easy. Areas like energy sector, health and education reform take years to plan, millions to implement and incredible human capital to realize.  Ukraine has crumbling Soviet infrastructure, crippling debt and social elites who are weary of constant dysfunction and are eager to live and work elsewhere. Ukraine simply does not possess the necessary resources for easy changes. Åslund’s ideas are elegant, supported by ample economic data and models yet workable only in a vacuum.

Policies have real-world social and political implications in schools, hospitals, government offices and homes.  For example, Åslund argues that Ukraine’s pension expenditures for public and private sector employees are unsustainable and must be cut and reformed.  While true, the proposition is extreme, considering that the entire population over 65 lives on such pensions, and could condemn a large part of the population to near starvation. Ukraine has one of the lowest standards of living in Europe. Pensioners endured hyperinflation of the early 1990s, lost their savings, and survive from pension check to pension check.  Alternatives are required to replace subsidies and government assistance especially with the country facing hardship and a refugee crisis since 2013,  withan unemployment rate around 15 percent. Pensions have lost value because of inflation, and further reductions would be inhumane. He briefly mentions programs to ameliorate poverty among the lowest half of the population, but does not expand on the policies.

Overall, Åslund recommends austerity. He suggests anti-corruption reform in the energy sector, and incredibly stopping the purchase of Russian gas. Another source for affordable gas is not entirely clear. He also recommends cutting government jobs and imposing full-fledged university reforms. He does not pause to consider that abrupt overhauls could disrupt the country’s already precarious social peace.  He urges more financing along the lines of a Marshall Plan with onus on Europe, but such funding is unlikely.

Despite these particular issues, it’s impossible to deny that Åslund’s diagnosis of the country’s problems is clear, extensive and profound. The analysis is insightful, though his prescriptions are at times extreme.  He captures the intricacies of history and current events of a state continuously evolving.  Ukraine’s government faces tough choices, and Åslund’s optimism that the country’s leaders and citizens can manage these challenges in a short period may inspire agents of change.

Julia Sinitsky is a teaching fellow and enrolled as a graduate student, specializing in European and Russian Studies at Yale University.

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