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Doing Less for Less

When China’s latest GDP figures were released in April, showing that growth in the Middle Kingdom had slowed considerably, the markets became scared.

May 14, 2013 - Jakub Parusinski - Articles and Commentary

451px-Miners_of_Donetsk.jpg

451px-Miners_of_Donetsk.jpg

Commodity prices fell, expectations were revised, and doomsayers quickly predicted a return of the global recession.

Soon, however, someone noticed why the country had grown just 7.7 per cent in the year to the first quarter, rather than the expected 8 per cent. The comparison base – 2012 – was a leap year, and thus had an extra day to produce stuff. Taking into account this difference, as insightfully shown by The Economist, could push growth past 8 per cent. What a difference a day can make.

Ukraine is no economic powerhouse. And yet each year the country takes almost a month off in official holidays  10 days in early January, another 10 or so in May, and a healthy sprinkling of additional days off throughout the year. August can also largely be written off  even when people do come into work the cities grind to a halt, as life moves to the countryside, seaside resorts in Crimea, or Turkey.

In a recent op-ed for Korrespondent magazine, Pavlo Sheremeta, president of the Kyiv School of Economics, argues the current work culture is telling of the nation’s economic strategy in general. Rather than focus on innovation, developing the service sector, and pursuing other lines of development that require a lot of hard work, everyone tries to get a free ride on the public dime.

Ukrainians are going for yet another 12-day fiesta. And this is understandable – there’s no need to be competitive internationally, and there’s enough days to pillage the public coffers,” Sheremeta writes sarcastically.

Every investment summit in Ukraine now features the same complaint from Western business leaders that once had (and still might) high hopes for Ukraine to follow its high-growth emerging market peers: dozens of countries are competing for international capital, doing everything they can to make things easier, while Ukraine makes little or no progress.

A look at Ukraine’s international rankings tells the whole story. The country came in at 152 out of 185 countries in the World Bank’s 2012 Doing Business ranking, and was the world’s third worst place to pay taxes. This year saw a marginal improvement – 137 out of 185 – but Ukraine clearly remains stuck in the past as other countries speed forward.

The growing disparity is particularly visible in Asian tiger economies such as South Korea – the world leader by number of hours worked. Sheremeta ends the op-ed on a telling comparison: the GDP per capita of South Korea was 165 US dollars in 1965, a figure that rose to 23,000 US dollars in 2013. Ukraine’s has yet to cross the 4,000-dollar line.

By agreeing to a format of less for less, both the citizens and the government also agree to lower their expectations of one another. Just like in Soviet times, “we pretend to work and they pretend to pay us” is the word of the day. The government, meanwhile, loses out in terms of tax revenue and the potential for innovation that a driven economy can produce, but only faces token criticism for consistently failing to deliver on services.

All this leads to a vicious cycle of mediocrity. Pensions that eat up 18 per cent of the budget – one of the highest levels in the world – are a pittance at little over 100 dollars per month (in its basic version). Yet even Ukraine’s meagre social payments are enough for many to drop out of the job market earlier than needed, and survive instead on a combination of government cash, hustling on the grey economy and subsistence farming.

After bashing the spirit of enterprise for decades, if not centuries, it is little wonder that Ukraine has precious few “get up and go” people ready to try their luck and set up a business, and a system riddled with red tape is ready to punish the few who try.

As a result, the economy is dominated by big business, either directly or indirectly linked to commodities, while small and medium firms have a minimal slice: 10-15 per cent of GDP, compared to 50-60 per cent in the European Union (estimates for the shadow economy, meanwhile, run up to 60 per cent). According to some estimates, as many as 12 million Ukrainians aged 15-70 are not economically active, out of a total population of 45 million.

But the problem runs deeper than just pure economics. The message for ordinary citizens is simple: try and you will be crushed, but lay low and your basic needs will be met. As a result, the fear of instability – the argument for backing Russian president Vladimir Putin or Ukraine’s Viktor Yanukovych – has the political system in check. Those with little hope of making it in true capitalist competition, like pensioners or low-skilled workers, will thus make sure to perpetuate the hybrid post-communist system.

Meanwhile, few put in the effort to improve the system. It is better to work on getting that scholarship, job experience, or marriage partner which will let you leave the country – rather than civic activism and business ventures that will change it.

A colleague from one of Ukraine’s most prestigious publications recently complained that he could not find anybody good to hire. Even when a journalist had the talent, a 50 per cent premium over the market rate was not attractive enough. “Yes, you pay more, but I would have to work,” he heard several times. Ukraine has the same problem.

Jakub Parusinski is Chief Editor at the English-language weekly Kyiv Post and a contributor to New Eastern Europe’s Unravelling Ukraine column.

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