Tuesday, October 21, 2014

Economic ranking of political parties           


By the Editorial Board of VoxUkraine
Ukraine is going to have a highly competitive parliamentary election in a week. Polls suggest that eight parties are going to make it. While some voters are dead set in their preferences, many voters are still uncertain about their choice. Indeed, there are many new faces in the political arena. If party programs provide any guide to how these parties are going to behave in the future, there is a broad spectrum of possibilities offered to voters.
We asked 13 economists from leading academic and policy institutions in Ukraine and abroad to evaluate the economics of each party’s program. Here is the ranking:
  1. People’s Front (Yatsenyuk)
  2. Civil Position (Grytsenko)
  3. Batkivshina (Tymoshenko) + Poroshenko bloc
  4. Samopomich
  5. Opposition bloc
  6. Communist Party (KPU)
  7. Radical Party (Lyashko)
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Monday, October 20, 2014


Political parties’ programs: what to choose when there’s nothing to choose from

By Ilona Sologub (KSE)


In this post we review the published programs of nine highest-rating parties that represent almost all, rather limited, spectrum of the Ukrainian politics: Batkyvshschyna (Motherland), Civil Position (CP), Communist party of Ukraine (CPU), Radical Party (RP), Opposition Block (OP), Poroshenko Block (BPP), People’s Front (PF), Samopomich (Self-help), Strong Ukraine (SU). Despite the fact that these parties are political rivals, their programs are very similar.


The main common feature of the party programs is the absence of ideology – hence, they try to go down to as many people as possible instead of occupying their electoral niche. That’s why in the same program one can find deregulation and support of “domestic producers”, lowering of taxes and raising of social protection, anti-monopoly statements and promises to concentrate land in the state property, lowering of inflation and indexing of salaries and pensions etc. Another common feature of the party programs is their vagueness. All of them promise to “develop”, “increase” and “support” but there is hardly any clear measures or indicators the execution of which can be checked. Finally, only three of the considered nine party programs have more or less clearly articulated goal. The most specific (although hardly achievable) is the goal of the People’s Front – to enter the top-20 countries by the UN Human Development Index in twenty years. Other parties either do not formulate their goals at all or provide some general phrases, such as “victory”, “justice” or “welfare”. Below we consider how the main issues of the country development are addressed in the party programs.


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Sunday, October 19, 2014

Handling Frozen Conflicts: the Economic Angle



By Eric Livny (ISET) and Tom Coupe (KSE)

It now seems more and more likely that Eastern Donbass (the area currently controlled by the self-proclaimed Donetsk and Luhansk People’s Republics) will become a frozen conflict zone, a territory in which the Ukrainian government will have little power to enforce its laws and where slowly a parallel governance system, an unrecognized ‘quasi-state’, will emerge. In the absence of a viable military alternative, one option likely to be considered by Ukraine and its Western allies is to exercise ‘strategic patience’. As discussed in a Foreign Policy article by Lincoln Mitchell and Alexander Cooley, this approach has been until recently employed by Georgia and the US in their dealings with Abkhazia and South Ossetia. ‘Strategic patience’ consisted, according to Mitchell and Cooley, of:

“helping Georgia develop into a prosperous and democratic country under the assumption that once this happened the people of Abkhazia would naturally want to rejoin Georgia. In practice, therefore, StratPat meant doing nothing – certainly not building relationships with anyone in Abkhazia.”


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Saturday, October 18, 2014

Handling Frozen Conflicts: the Economic Angle

By Eric Livny (ISET, Georgia) and Tom Coupe (KSE, Ukraine)

It now seems more and more likely that Eastern Donbass (the area currently controlled by the self-proclaimed Donetsk and Luhansk People’s Republics) will become a frozen conflict zone, a territory in which the Ukrainian government will have little power to enforce its laws and where slowly a parallel governance system, an unrecognized ‘quasi-state’, will emerge. In the absence of a viable military alternative, one option likely to be considered by Ukraine and its Western allies is to exercise ‘strategic patience’. As discussed in a Foreign Policy article by Lincoln Mitchell and Alexander Cooley, this approach has been until recently employed by Georgia and the US in their dealings with Abkhazia and South Ossetia. ‘Strategic patience’ consisted, according to Mitchell and Cooley, of: “helping Georgia develop into a prosperous and democratic country under the assumption that once this happened the people of Abkhazia would naturally want to rejoin Georgia. In practice, therefore, StratPat meant doing nothing – certainly not building relationships with anyone in Abkhazia.”

‘STRATEGIC PATIENCE’ OPTION ASSESSED

An important assumption behind ‘strategic patience’ thinking is that quasi-states (QS) emerging in contested frozen conflict zones will not do well either politically or economically, fueling a sense of frustration with the corrupt regime and the breakaway status quo.

Prima facie, there are good reasons to expect QS, such as Transnistria, Nagorno Karabakh, Abkhazia, South Ossetia, and, potentially, also Eastern Donbass, to implode in the absence of international recognition and economic isolation. In his 2006 article “The Sustainability and Future of Unrecognized Quasi-States”, Pål Kolstø lists some of the obvious reasons for their difficulties.

First, QS are typically off to a bad start, with much of the infrastructure lying in ruins after a ferocious civil war fought (mostly) on their territory prior to secession. While there is considerable empirical evidence suggesting that wars do not necessarily inflict long-term damage to a country’s economic development, a crucial condition is that war really ends and is followed by stable peace (see, for example, “Civil War” by Christopher Blattman and Edward Miguel (2010)).

Second, like any new states, QS at least initially lack in governance machinery and skills, and are unable to collect taxes and perform the basic functions of government, ensuring personal security, let alone property rights. These initial difficulties (often shared by the parent states – Ukraine, Georgia and Moldova) are compounded by the lack of international recognition. As argued by Kolstø, the QS status “puts a damper on normal legal trade with the outside world, and encourages illegal business”. While enriching the political elite of QS (through cuts and kickbacks), smuggling and other types of illegal business do not help QS emerge from the post-civil war institutional limbo and develop a normal, business friendly institutional framework.

Third, non-recognition carries additional economic cost as foreign investors will be reluctant to invest in a jurisdiction where legal contracts are not internationally binding, international conventions have limited applicability, and investment may be wiped out through an outburst of hostilities (such as the 2008 war between Russia and Georgia over South Ossetia).

Yet, despite these less than auspicious circumstances, neither Abkhazia nor any other QS on the fringes of the former USSR have succumbed to more than 20 years of isolation and non-recognition. Rather than crumbling and crawling back, these “frozen economies” appear to be doing sufficiently well to establish a reasonable degree of internal legitimacy and sustain themselves over time.

In part, this has to do with the unenviable condition of the parent states’ own economy and politics. Both Georgia and Moldova were failed states for much of the 1990s – corrupt, criminal, plagued by brain drain and, as a result, not attractive enough for the ‘strategic patience’ policy to work. The other major factor for the economic and military sustainability of unrecognized QS has been the existence of a powerful external patron. What Russia is for Abkhazia, South Ossetia and Transnistria, Armenia is for the Nagorno Karabakh Republic (NKR). The same pattern is also to be found elsewhere: EU and NATO ‘patronize’ and protect Kosovo; US and Turkey do the same for Taiwan and the Turkish Republic of Northern Cyprus (TRNC), respectively. The presence of these two factors – an (initially) weak parent and a strong patron – are hardly incidental. Both are at the root of the secession phenomenon in the first place.

While none of the post-Soviet QS are star performers, the scanty evidence that is available to us suggests that the policy of ‘strategic patience’ has not been very effective so far. Despite very bad initial conditions and the high toll on investment and quality of institutions exacted by the lack of international recognition, QS do well enough to generate a sense of loyalty and patriotism among the local population that chose (or ‘was chosen’) to remain under their control. At least in the case of Transnistria, the parent state (Moldova) failed to decisively outperform its former territory. While, arguably, Georgia has accomplished a great leap forward since 2003, this did not translate into a change in perceptions and political preferences on the Abkhazian or South Ossetian side of the divide. Moreover, an economically stronger and modern Georgia may be perceived as more of a threat (particularly, after the 2008 attempt at forceful re-unification with South Ossetia).

Public perceptions have been a subject of a very interesting set of parallel surveys conducted in 2010 by John O’Loughlin of the University of Colorado at Boulder, together with several colleagues. Simultaneously held in Georgia and Abkhazia as well as in Moldova and Transnistria, these surveys suggest that people in QS are not necessarily unhappy about their existence. In “Divided Space, Divided Attitudes? Comparing the Republics of Moldova and Pridnestrovie, O’Loughlin et al argue that while being richer (according to ‘official’ per capita income data) people in Transnistria feel richer. Moreover, a higher share of people in Transnistra think that their country is better off than Moldova compared to the share of Moldovans thinking that Moldova is better off than Transnistria. The findings of O’Loughlin et al for Abkhazia and Georgia (“Inside Abkhazia: a survey of attitudes in a de facto state) are quite similar, lending little support for the ‘strategic patience’ doctrine.

LESSONS LEARNED FOR UKRAINE

With a population estimate of 3mln, the eastern part of Donbass (not controlled by the Ukrainian government) is much larger than all other post-Soviet QS. In terms of its size and economic structure, it is closest to Transnistria (about 500,000 citizens). Both Donbass and Transnistria have been the mining and industrial centers of their parent states and have rather similar human capital and factor endowments. Designated for manufacturing by the Soviet planner, both have been magnets for internal migration by (mostly Russian) engineers, technicians, miners and steelworkers. This Soviet legacy puts them at an advantage relative to three tiny ethnic enclaves in the South Caucasus which have been historically specialized in tourism (Abkhazia) and agriculture (South Ossetia and Karabakh).

Like Transnistria, Eastern Donbass is likely to be on the receiving end of Russian subsidies, trade contracts and infrastructure investment, and last but not least, military protection. Eastern Donbass’ size and the fact that it directly borders on Russia further weakens the case for isolation and ‘strategic patience’ as a means of achieving re-unification.

WHAT ARE THEN THE OPTIONS FOR UKRAINE AND EASTERN DONBASS?

While the pain is all too fresh for both sides in the recent conflict, the only viable strategy for reunification is mutual political engagement and economic integration. The rationale to re-integrate economically (in all frozen conflict areas) will only get stronger over time, and will undoubtedly play a role in bringing divided people together, once the memory of war and human loss recedes into the background. What may support a move towards greater economic (and, eventually, political) integration is the fact that despite years of separate existence, people in divided areas continue to share the same values. Such is another finding from the survey work conducted by O’Loughlin et al in Transnistria and Moldova, Abkhazia and Georgia.

Despite the lack of recognition and years of hostility, economic integration has eventually made it to the agenda of Transnistria and Moldova. A sizeable share of Transnistria’s exports goes to the EU (through Moldova); discussions are underway concerning construction of additional bridges over Dniester to improve communication and trade linkages.

After more than 20 years, Georgia is also gradually coming to realize that negative rhetoric (branding secessionists as “Russian puppets” and “terrorists”) and continued military and political confrontation are counterproductive in the sense of keeping the borders sealed and preventing mutually beneficial trade and human connections. Back in 2012, Bidzina Ivanishvili made economic linkages (e.g. reopening the railway connection to Russia via Abkhazia, and restoring the famous Ergneti market straddling the border with South Ossetia) a key subject of his election campaign. While yet to be realized, Mr. Ivanishvili’s pragmatic vision of using mutual economic interests in order to overcome the trauma of recent bloodshed, is worth of serious consideration by Ukraine and all other parties to frozen conflicts in the region.
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This post is also available at ISET.

Friday, October 17, 2014

Minsk Protocol is a Big Failure?

By Kateryna Dronova (Berkeley, CA).

A month ago in Minsk, the Trilateral contact group (Ukrainian, Russian and OSCE representatives) signed a ceasefire protocol to restore peace in the eastern regions of Ukraine. In the first 24 hours after the agreement was signed, hope for peace was demolished by the renewed fighting near Mariupol: pro-Russian belligerents equipped with Grad rockets fired 16 times at Ukrainian positions allegedly from the Russian territory. Subsequently, Ukrainian forces in Mariupol were reinforced with additional troops. These events triggered a huge media storm and a widespread critique of the peace negotiations and Minsk Protocol as nonsensical, ineffective and useless strategies. Hence, Ukraine’s complex position was significantly weakened.
The Ukrainian government has to explain to its own nation exactly what is happening, and it hasn’t done so yet. […] The people of Ukraine will not accept peace at any price.
Konstantin Batozsky, adviser to Serhiy Taruta, Donetsk Governor
.
The negotiations in Minsk (attended by former Ukrainian President Leonid Kuchma, prime minister of the self-proclaimed Donetsk People’s Republic (DPR) Aleksandr Zakharchenko, head of the self-proclaimed Lugansk People’s Republic (LPR) Igor Plotnitsky, Russian ambassador to Ukraine Mikhail Zurabov, and OSCE representative Heidi Tagliavini) progressed on September 19th. The initial Minsk Protocol was detailed by another set of agreed provisions laid out in the Memorandum on the Protocol’s enforcement. These documents must also be read in light of two other legislative acts: Bill on special procedures of self-governance in certain areas of Donetsk and Luhansk regions of Ukraine (5081) (known as the “Law on special status”) and Bill on the prevention of the prosecution and punishment of persons who participated in events in Donetsk and Luhansk regions (5082) (also known as the “Amnesty law”). Serhiy Taruta, the governor of Donetsk Oblast, has recently published his critical and well-structured analysis of the truce. This post aims to evaluate the effectiveness of the abovementioned agreement and legislation (Minsk Protocol, Memorandum and two supplementing Bills) with regard to the existing practices of managing conflict and post-conflict negotiations, including drafting of cease-fire agreements. Thus, we shift the focus from discussing issues in the Minsk Protocol to factors omitted by drafters and negotiators and the significance of such omissions.

Wednesday, October 15, 2014

2014 Nobel Prize in Economics: Jean Tirole

The Sveriges Riksbank Prize in Economic Sciences in Memory of Alfred Nobel 2014 was awarded to Jean Tirole «for his analysis of market power and regulation. What is Jean Tirole’s contribution?

Monday, October 13, 2014

Market is the Key for Energy Independence

By the Editorial Board of VoxUkraine
Energy is at the core of the Russia-EU and Russia-Ukraine relationships. Since the 2009 gas dispute, which led to a 13-day interruption of the natural gas exports from Russia to the EU, European politicians have started publicly talking about reducing Europe’s dependence on Russian energy supplies. A lot more has been said than done on that front, admittedly. Yet, the issue has resurfaced recently, as Russia’s blatant disregard for international law and its aggression against Ukraine brought about fresh fears that the country will once again be leveraging the energy as a “diplomacy tool”.
The good news for both Europe and Ukraine is that a new player – USA – will be entering the European energy scheme. The currently ongoing shale oil and gas boom in that country is turning the United States into an oil exporter, and will likely bring US gas to Europe as soon as the relevant infrastructure is ready. A possibility of increased gas supplies from the Middle East could also change the balance in the European energy sector. It is our belief that:
  • The EU and Ukraine need to confront Russia’s energy bullying by uniting their forces;
  • In the short run, the EU and Ukraine should appoint a single agent to negotiate with Gazprom, with the European Commission taking a leading role. A preferred solution will be to sell Russian gas at the Russia-Ukraine border;
  • In the medium run, Europe needs to actively pursue and encourage shale gas exploration and development. This will require striking a balance with the active environmentalist lobby movement (or culture) on the continent;
  • In the long run, the EU and Ukraine should review their gas pipeline network, with the view of creating a structure similar to that present in the United States. The end goal should be redesigning of this infrastructure to facilitate creation of a single European natural gas market. This market will allow for a better substitutability between the energy suppliers, and will diminish the abuse of market power by Gazprom (or any other entity, for that matter);
  • Ukraine needs to actively utilize market mechanisms and incentives to encourage development of energy saving technologies throughout the economy.

Friday, October 10, 2014


Does Ukraine have a plan? Some suggestions for the Strategy for Ukraine


By Ilona Sologub, KSE

It is always good to have a plan before approaching a problem. Ukraine today has a lot of problems, so it needs a very good plan to cope with all of them. Recently, the government and the President presented several plans of economic reforms. This article is an attempt to discuss these plans and to make some policy suggestions. In this post, I tried to set a framework such a discussion. However, the main message of this post is that absence of a completed and signed strategic plan should not be an obstacle for and immediate implementation of some obvious steps.

A strategy definition

A strategy is a multiple-steps action plan to achieve a certain goal. There are four necessary components of a strategy:

  1. The goal (a vision for the future). This goal should be feasible and achievable within the strategy time horizon. For example, I may have a goal to fly like a butterfly. This goal is infeasible, so I will never achieve it. I may also have a goal to lose ten kilos by tomorrow. This goal is feasible but not achievable within the given time horizon.
  2. A sequence of steps that would lead to the goal (i.e. an algorithm), with timing and a defined intermediary result for each step. For example, if I’m climbing a mounting, I should ascend for a certain number of meters every day.  There can be several possible paths to the top, and several algorithms to achieve the goal.
  3. Estimate of resources needed to achieve the goal and availability of these resources (this estimate will influence the choice of the exact path in the p.2 above).
  4. Person(s) responsible for implementation of the plan.

Thursday, October 9, 2014

Presentation of Strategy-2020 for Ukraine. Impressions and reflections

 By Ilona Sologub, KSE
The presentation of the Reform Strategy-2020 for Ukraine by Dmytro Shymkiv, Deputy Head of the Presidential Administration, on September 29th 2014 has left me with the mixed feelings.
On the one hand, it is good that the Ukrainian officials are thinking about strategic issues and forming a vision for the future. On the other hand, I would not call a two-page leaflet “a strategy”. Mr. Shymkiv mentioned that there is an extended version of this document. However, it is not published since it is “under discussion”. Why this raw version cannot be published to invite a broader discussion, is not quite clear.
The first page of the leaflet lists 62 reforms and state programs that should be implemented over the next six years. Many of these reforms and programs overlap. For example, there is “energy sector reform”, “energy efficiency program” and “energy self-sufficiency program”, which are different aspects of the same problem. “Energy sector reform” also overlaps with de-monopolization and infrastructure development. Constitutional reform is a part of decentralization and local self-government reform, economic and monetary policy reform includes tax reform, deregulation and enterprise development, corporate rights reform and so on. I’ve got an impression that the authors just listed all the reforms mentioned  to them by the different think tanks and experts (Mr. Shymkiv named about 20 contributors to the Strategy). Besides, as noted by Serhiy Datsuyk, 62 reforms in six years are too much both for the government and for the society.

Wednesday, October 8, 2014


Why Ukraine’s Army Received A Cold Welcome in the Liberated Towns of the East

By Anna O. Pechenkina (Carnegie Mellon University, USA)
 
Perusing my facebook feed’s many discussions about the war in the Donbas, I was struck by a comment that the soldiers of Ukrainian army were treated “worse than stray dogs” in the liberated towns and villages of eastern Ukraine. Another poignant comment remarked: why should my brother risk his life to liberate the   from separatists while the locals in eastern regions are not even grateful for his sacrifice? Despite numerous anecdotes of elated civilians greeting the Ukrainian army, it would be a mistake to conclude that Severodonetsk residents’ chanting of “Thank you” and “Glory to Ukraine” is the norm for the territories recaptured from the separatist militias in eastern Ukraine. This raises an important question: why did local population so often greet the Ukrainian service members coldly in liberated towns? The answer is indiscriminate violence employed against civilians.

Monday, October 6, 2014

So, should Ukraine go MAD? Andrew Kydd vs VoxUkraine.

Discussion that took place between VoxUkraine and Andrew Kydd from the University of Wisconsin-Madison.


The article Can Ukraine play MAD with Russia? by the Editorial Board, that was recently published by VoxUkraine, as well as by the well-known Ukrainian outlet, Liga, has gained popularity very quickly. To provide some evidence, more than 73 000 people viewed it on the mentioned Ukrainian resource during the first 3 days after publication. Overall, ideas stated in the article generated quite a hot public debates both among Ukrinian citizens, and among Western academics. Below we are presenting the dialog that took place beween VoxUkraine and Andrew Kydd from the University of Wisconsin.
  • Can Ukraine play MAD with Russia?
  • Initial comment. "Should Ukraine go MAD?" by Andrew Kydd
  • Reply to “Should Ukraine go MAD?” by the Editorial Board of VoxUkraine
  • Reply to the Reply."It’s a MAD World" by Andrew Kydd

Friday, October 3, 2014

What Poroshenko did and did not say? Content analysis of the President's speech

By the Editorial Board of VoxUkraine

President Poroshenko finally gave a speech.  In a long-awaited speech, he said 2,685 words in about 27 minutes. What messages did he deliver? Content analysis, a basic tool in psychology, postulates that people frequently mention topics they worry about. In a nutshell, if somebody cares about health, he or she will talk a lot about health directly and indirectly. By looking at the relative frequency of words, one can infer a person’s priorities. Using this insight, we can try to understand what is on Poroshenko’s mind.
To avoid personal biases, we translated Poroshenko’s speech using “Google translate” and calculated the frequency of words. Figure 1 shows the importance of the key words in the speech: larger font size reflects higher frequency of words
 
Figure 1. Original tag cloud of Poroshenko’s speech.