Post on 15-Jan-2016
description
CASE CASE UkraineUkraine
www.case-ukraine.kiev.ua
The Political-Economic and Institutional The Political-Economic and Institutional Framework for Assessing the Business Framework for Assessing the Business
Environment in UkraineEnvironment in Ukraine
Vladimir DubrovskiyVladimir Dubrovskiy
CASE Ukraine
Keywords for the framework
Blat networks of interpersonal exchange with favors
Discretionary rule; selective law implementation (enforcement)The nachal’niks as opposite to bureaucrats
The “vicious triangle” of legislation-corruption-discretionRent seeking, overappropriation, and “arbiter-client” relationsPaternalism and its consequences“State capture” by corrupt networks
Societal structures:
Institutions:
Political economy
Some notions concerning the institutional changes
Some examples
In place of conclusions
“The severity of the Russian laws is alleviated only by discretion in their enforcement” “… just this disorder makes life in Russia
possible”
Institutional legacy of the former empire: Institutional legacy of the former empire:
Legislation is designed (intentionally?) in such a way that almost EVERYONE must become a lawbreaker
Discretion is the only resort from such a “total guilt”
Every business is subject to the authorities’ Every business is subject to the authorities’ arbitrary, arbitrary, discretionarydiscretionary power power
CASE Ukraine
“Who are the boss, we or the law?”
“Laws are written for the fools”
Karamsin, 19th century Russian historian
Gertzen, 19th century Russian social thinker
Keywords: DiscretionDiscretionary ruleary rule
Uncontrolled and mostly affiliated with business
Strictly controlled and separated from business
Possesses the political power to magnify ambiguity and non-transparency in legislation
No decision-making power
Clear separation of “powers” from branches of State
Controls politicians rather than vice versa. Tries to control mass-media to avoid public scrutiny
Operates under constant public scrutiny and political oversight
Poorly-paid and dependent upon administrative rents (in money or barter)
Relies upon discretionary power and vague and arbitrary informal rules
Highly-paid professional public servants facilitating rational processes of control.
Implements legislation in a strictly formal (impersonal) way
Administrative power in Ukraine
Bureaucracy (by Weber)
Nachal’niksNachal’niks: not the bureaucrats!
FACILITATES
CASE Ukraine
Legislation (flawed,
ambiguous, impracticable)
Corruption
Discretion
ENHANCES
INTEREST INTEREST
Decreasing the demand for improvements
ALLEVIATESALLEVIATES
CASE Ukraine
Keywords: Blat Blat networksnetworks
Reputation-based informal networks of interpersonal mutual exchange with “favors of access” (blat)
Emerge to facilitate the illegal transactions of all kinds
““One has to One has to deservedeserve a a rightright to pay a bribe” to pay a bribe”
No contract enforcement was officially available
Normal economic activities were considered illegal
Forced modernization, especially the Communist regime:
Legislation violated the natural law
Ledeneva, 1998
Weak rule of law
Litwak, 1991 (!) while
Usually requires a coercive force to arrange appropriation and/or prevent overappropriation (“tragedy of the commons”, overfishing)
CASE Ukraine
Keywords: The The RentRent Seeking SeekingProfit seeking
Creation of the value apprised by a competitive market
Appropriation of a value created by others or already existed
A positive-sum game (“cooking a pie”) increases the public wealth
A zero- or negative-sum game (“cutting a pie”) usually decreases the public wealth
Rent seeking
Players can agree on certain mutually-beneficial rules and enforce them
Manufacturing, trading, financial operations, etc. – if conducted under the fair competition and an even “playing field”
Robbing, fraud, racketeering, and ANY economic activities, to the extent they involve privileges, abuses of competition (like protectionism), etc.
A renewable rent source(as a state
budget)
A renewable rent source(as a state
budget)
CASE Ukraine
player player
playerplayer
Rent as an exhaustible common resource
Authoritarian arbiter
Restrains the devastating competition by force,
based on his discretionary power…
… but instead extorts the rent himself
client client
clientclient
Monopoly rent
CASE Ukraine
player player
playerplayer
InIncrease in the social wealth
DeDecrease in the social wealth
Competitive market sector
Rent seeking sector
Effects of an authoritarian rule
Paternalism towards the enterprises Enterprises’ rents depend primarily on the arbiter’s discretion
client
client
client
client
CASE Ukraine
Rents Rents for the nachal’niks and oligarchs at the expense of the population; deadweight loses
Credit emission
The government commits to “support a domestic producer”
“support of the
effective demand”
Tolerating arrears
Protectionism Direct subsidies
monetary emission
Soft crediting
monopolism Forced crediting
Fiscal deficit
Tolerating barter
Price growth out of control
Paternalism Paternalism results in crises
CASE Ukraine
Size of the rent-seeking sector is determined by the
balance between amount of rents available for an
arbiter and his costs of control and coordination of
the rent seekers
The rent seeking is costly for a society
It takes certain cost of an arbiter to coordinate and control the rent seekers
The rent seeking contracts
With exhausting of the available rents, and
complicating of control and coordination
Evolution:
A tacit social contract:
“We” do not bother
“them”, “they” do not
bother “us”
BlatBlat
Whither “captured statecaptured state”: a dead end?
Business:
a “Milk caw” or
a “Rent pump” for officials
Administrative power:
Provides protection and patronage for
business
Property rights, rents
Public
Sources of rents
Perceived totally corrupted
Perceived totally rent-
seeking
PASSIVE PLAYER
PASSIVE PLAYER
Perceived Perceived manipulatedmanipulated
Threat of populism and paternalism towards large groups of population
CASE Ukraine
Public is not passive anymore, it became a “principal” of the politicians
The oligarchs are not the main players anymore
Executive power officials have lesser impact on the legislature
As a result of the revolution:
Political market emerges
Politicians appeal to the broad groups of population
Public consciousness is still immature:
while
does not properly distinguish profits from rentssupports redistributive activities (as “re-privatization”)supports “coordination and control” (e.g. price regulation)
CASE Ukraine
“captured” by the directors and bureaucrats
Still controlled by the directors and bureaucrats by the means of
paternalism
Property rights
Time
The title property rights
The residual rights of control
Formal and actual institutional changes
CASE Ukraine
Evolution of the informal property rights
0
20
40
60
80
100
120
1994 1995 1996 1997 1998 1999 2000 2001 2002
0
5
10
15
20
25
30
% of entities privatized by the moment in the total number of privatized entities
ACTUAL percentage of the total labor force working at the private sector
PERCEIVED working in the private sector (IS NAS survey)
Depletion of the rent sources
Market imbalances
Financial instability
Cheap energy and credit
«intermediate winners»«intermediate winners»
Sources of Sources of RentRent
1988 - 19941988 - 1994
Dependence on government's re-distributive power
Stripping of the fixed assets (“end game”)
Sources of RentSources of Rent1995 – 1995 – 2004???2004???
Subsidies and government contracts
Close collaboration of business and officials based on blatblat
Thanks for Thanks for your attentionyour attention!!