How can we ourselves improve the economic situation in Ukraine?

Tom Coupe (Kyiv School of Economics)

Whenever there is a new government, academics, experts and NGOs start writing reports on what the new government and the individual ministers should do to improve the economic situation in Ukraine and finally realize the Ukrainian economy’s full potential. This advice is typically well meant and to the point, however, it often does not reach or fails to convince the people to whom it is addressed. That, at least, is the impression one gets if one compares the reports that have been addressed to previous Ukrainian governments and what has been realized by these government.

Hopefully this new government will be more receptive to some of the ideas proposed but in spirit with the Maidan movement, it might be a good idea to not just wait for politicians to do something, but instead also let the men-and-women-in-the-street take the initiative. Here are some ideas on how non-politicians can improve the Ukrainian economy.

First, Ukraine has a huge amount of money saved under the mattress, an estimated 70-80 billion US$ dollar is ‘lost’ for the economy in that way. Indeed, when money is deposited in the bank, it provides extra liquidity to the bank, thus strengthening the fragile Ukrainian banking sector, and that money can be reinvested, while under the mattress money just remains idle and is useless to all but oneself. Hence, all of us who have mattress savings can stimulate the Ukrainian economy by getting our money from under the mattress. Simply consuming that money will already be a stimulus – investing it in a productive way oneself or through depositing it at a bank will be even more useful. My own research has shown that an important reason why Ukrainians save their money in cash is that they do not trust banks but I am sure that one can easily find a fairly trustworthy bank in Ukraine (for a start, look for big banks that care about their reputation).

Second, an economy needs entrepreneurs to thrive. This is also true for transition economies: already, in 2002, John McMillan of Stanford and Christopher Woodruff of the University of California, San Diego argued ‘that the success or failure of a transition economy can be traced in large part to the performance of its entrepreneurs’. Hence, this is the right time to unleash your creative spirit and start developing those business ideas you have had for a long time. True, it is a rough environment but that means that if you are able to survive in this environment you will flourish when the economy picks up again – and by investing in your ideas you will contribute to that picking up of the economy.

Third, yes, your boss is not a nice person, but by working more efficiently yourself or by giving your boss some pointers about how the business can be run more efficiently, you will give a boost to the company, which will benefit your boss but more importantly it will also benefit the Ukrainian economy – and who knows, it might even benefit yourself from it in the long run.

Fourth, true we don’ t trust the politicians to use the tax money well but maybe it is time to come out of the dark, and start paying more taxes? In this way we can signal the new government we are willing to give them the benefit of the doubt and hope that they will ‘reciprocate’ and spend the government money well (there is a large academic literature that highlights the importance of reciprocity as a motivational factor). Moreover, paying taxes is an integral part of the functioning of a well-developed market economy and isn’t this what we all want?

Fifth, in a similar spirit – we all hate ‘big-scale’ corruption, but many of us will not be able to resist small acts of corruption (data from EBRD’s life in transition survey show that in 2010, 70% of the Ukrainians who interacted with the road police made an unofficial payment – only about 40% of these had been explicitly asked to make such payment by the road policy, another 30% paid because they assumed payment was expected while the remaining 30% offered payment to get things done more quickly). True these small acts of corruption make life a lot easier, but can we really expect big scale corruption to disappear when so many of us cannot do without small corruption?

Finally, be excited about the future of the Ukrainian economy – in a recent experiment, those people who were asked to say to themselves they were excited before giving a speech were judged by independent evaluators to be more persuasive, competent and relaxed speakers than those who were ask to say they were calm before giving the speech. Another experiment suggested that fooling yourself into believing you slept well will increase your performance even if you did not sleep well. So a certain level of self-deception can come in handy. Excitement can also help to convince others to be excited, though it is crucial to stay realistic in one’s excitement – a foreign investor who is convinced by overly excited Ukrainians to enter the Ukrainian market is likely to leave disappointed – all this suggests that a bit more self-deception but a bit less deception of others might be good for the Ukrainian economy.

The above points are all fairly easy to implement and while I cannot promise to do all of them, I commit to work on them – after all, to save the world, shouldn’t we start with ourselves?

A version of this post in Russian is published in Forbes.