Headliners Krawchenko and Hawrylyshyn give Ottawa conference weight and wit

by Andrij Kudla Wynnyckyj
Toronto Press Bureau

TORONTO - Ottawa University's Chair of Ukrainian Studies scored a significant coup in securing the participation of Dr. Bohdan Hawrylyshyn and Dr. Bohdan Krawchenko, two heavyweight Western advisors to the Ukrainian government, in their March conference "Towards a New Ukraine I: Ukraine and the New World Order, 1991-1996."

Both are Canadian citizens, yet both spend the bulk of their time in Ukraine. Dr. Hawrylyshyn does so as the chairman of the Ukrainian Parliament's Council of Advisors (among other posts); Dr. Krawchenko as vice-rector of the Academy of Public Administration run by the Office of the President.

Dr. Krawchenko acted as the conference's leadoff man, and in addressing his topic, "The Building of a New Civil Society and Political System in Ukraine, 1991-1996," he expanded on a talk he delivered at the Canadian Institute of Ukrainian Studies (CIUS) 20th anniversary conference in November 1996.

"Ukraine has traveled an incredible distance; it has lived an incredible drama," said Dr. Krawchenko. He added that observers, both in the Ukrainian diaspora and in foreign-based governments, financial concerns and commercial enterprises need to keep in mind the pressures the newly independent country faces, caught as it is between a resentful former imperial center, Moscow, and an economically and politically demanding West.

The machinery of state

Concentrating on his area of expertise and personal involvement, Dr. Krawchenko provided a sketch of Ukraine's construction of public administration, "the machinery of state."

He said Kyiv's ability to make significant advances in this area, though it had no legacy of statehood, was truly remarkable. "The state was anything but a Leviathan at independence," the German-born academic said. "In 1991, the Ukrainian government was a post office box which received instructions that were occasionally translated into Ukrainian."

As a precondition of successful reform, Dr. Krawchenko said the state had to be strong enough to withstand lobbies that confront it and stand up for the common good. Initial paralysis on this front mirrored the initial weakness of the Ukrainian state, he said.

Much of the Oxford-educated presentation struck an odd chord. At a time when governments in North America and Europe are obsessed with shedding civil servants and cutbacks, Dr. Krawchenko was proposing the seemingly heretical: increasing the size of the Ukrainian bureaucracy.

He pointed out that Ukraine's government had been numerically small, the entire state machinery consisting of only 12,000 people in 1991.

The reason was simple, the former CIUS director said, "No rule of law? No Ministry of Justice. No free market? No Ministry of Finance and commerce. If money isn't money, but simply a unit of accounting, then you hardly need a central bank."

Dr. Krawchenko opined that Ukraine's government faced problems with human resources - things weren't simply too communist to function properly; the problem was the wrong kinds of civil servants with the wrong kinds of skills. "There were too few lawyers and economists, and too many people with technical skills, such as engineers," he said.

He spoke proudly of the training of public servants conducted by the Canadian Institute of Public Administration in conjunction with the body where he served as vice-rector, but that despite advances, "a culture of public service has to be cultivated - the rudeness of Ukrainian functionaries is legendary; you wonder if anything has changed since [satirist Mykola] Hohol's time."

The obstacles continue to be considerable: "Too many ministries (112); inter-ministerial competition is ridiculous where you need cooperation; and accountability is zero where you need transparency," Dr. Krawchenko said.

He added that the role intended for a bureaucracy in a democracy is often reversed, wherein officials issue directives to ministers instead of the other way around.

However, Dr. Krawchenko said President Leonid Kuchma is showing the necessary leadership, and referred to Mr. Kuchma's March 21 announcement of the establishment of a special task force on restructuring the civil service, financed by a $200 million World Bank loan.

The advisor said the principal sources of corruption among government officials are low salaries and over-regulation. "The more signatures you need, the higher the probability of a bribe; less regulation equals lower corruption."

The civil society

Dr. Krawchenko then raised questions concerning the new boundaries that have to be drawn between the state and society in Ukraine, as it moves away from its totalitarian Soviet heritage.

"Under totalitarianism, you have total integration; in a democratic civil society, intermediary institutions (Churches, unions and the like) function independent of one another and of government," he said.

Shifting from the theoretical, Dr. Krawchenko said the number of NGOs and other professional lobby groups trying to influence public policy is rising, and is currently at about 5,000. But, he said, "this is a pittance compared to Canada, and in South Africa, also a young society, you have 30,000."

Dr. Krawchenko said many of these organizations are very small in membership and in the scope of their activities, and too many specialize in seminars rather than in tangible advocacy of programs or satisfaction of needs.

"Some guy was beaten by police recently in Mykolaiv," the scholar observed, "and after it happened you could get pamphlets about human rights, you could attend a seminar on human rights, but you couldn't get a lawyer to assert them for him."

Dr. Krawchenko said fear of the system persists and that it remains difficult to get people together to petition effectively, despite the frequency of strikes and demonstrations.

He said he sees cause for optimism in the gradual proliferation of municipal associations, small business associations, farmers' cooperatives, associations of entrepreneurs and industrialists, and various professional guilds.

Political sphere in infancy

A major difficulty, in Dr. Krawchenko's estimation, is that political parties are mostly still in their infancy. "As organizations of political power groups, they're organized around power clans held over from the Soviet period, and are often territorial," he explained.

The political scientist said that membership and influence in these clans are unclear, and internal alliances are constantly shifting. He commented that individuals in the private sector are "too busy making money to support any parties - only recently have individuals come to take politics seriously and seek to deal with the impediments thrown in the way of economic reform by the Verkhovna Rada."

He also pointed out that many entrepreneurs derive their influence and power through such impediments, and are now loath to see them removed.

Dr. Krawchenko said the expected reform of Ukraine's electoral law, with the adoption of proportional representation, will do much to assist parties in establishing a more transparent power base.

The advisor said Ukraine has "an hourglass society," with a great concentration of power at the top, very little in the middle, and a wide base of the powerless who have little access to the top echelon and few opportunities to form an influential middle class.

For Dr. Krawchenko, Ukraine's progress as a civic and political society is dependent on the latest generation of civic-minded entrepreneurs. He said he was encouraged to have met an impressive number of such individuals in Kharkiv. "These are very smart, very pragmatic former academics - they know what they want, they have a good understanding of how to achieve it, and they have a strong feeling for the civic health of the country."

When asked, as always, about the effectiveness of Western aid programs, Dr. Krawchenko replied with characteristic candor: "If anyone did an audit, the results would be awful. Everybody talks about institution-building, but nobody does a thing about it except organize seminars."

Dr. Krawchenko added: "What Ukraine needs is 1,000 good economists, 1,000 good lawyers; $10 million could set up the necessary programs to train them, and this would be one of the cheapest and most effective ways to turn the country around."

Hawrylyshyn on Ukraine's inheritance

Dr. Hawrylyshyn addressed the topic "Ukraine, 1991-1996: Changes in the Economic System and Structure." Most notably, he exhibited a close identification with the country, frequently referring to "our industry," "our currency" throughout his presentation. His talk also included a liberal sprinkling of barbs intended for Western policy-makers and consultants who paint Ukraine as country that isn't "measuring up to international standards."

The founder of the Kyiv branch of the International Management Institute said that while everyone knows the "three commandments handed down from Mount Washington by the IMF and the World Bank are liberalization, stabilization and privatization," few take the time to examine Ukraine's inheritance from the Soviet Union that fundamentally conditioned what Ukraine could do.

Dr. Hawrylyshyn pointed out that Ukraine's system had been inextricably woven into the Soviet imperial web, and that its economic structure was warped by these political considerations.

Ideology subverted the usual economic criteria for decision-making in enterprises, he said, and there was no pursuit of optimization in production in terms of quality control and cost effectiveness. Both capital and resources (with disastrous environmental impact) were devalued. In addition, everything from basic resources to parts for machinery was often brought from as much as 1,500 miles away.

The advisor said a Soviet bias toward the military and heavy industry, and a virtual absence of investments in a civilian economy meant there were no transfers of advances made in one sector to another, such as those disseminated from the U.S. space program.

According to Dr. Hawrylyshyn, although many sectors of the USSR's economy were scientifically avant-garde, most were completely unsuited to the needs of the general population, and this produced the paradox of a technologically backward country run by technically brilliant individuals.

Also making Ukraine's transition difficult was Russia's decision to renege on an agreement to share the former USSR's assets, Dr. Hawrylyshyn said. In fact, not only did Russian officials take control of all gold, precious stone and foreign currency reserves, as well as foreign-based institutions and real estate, they even siphoned off funds held in banks in Kyiv. The advisor related how on one occasion $110,000 he brought in to finance IMI-Kyiv was whisked off to Moscow overnight and never recovered.

First commandment: liberalization

Returning to the aforementioned "three commandments," Dr. Hawrylyshyn assessed Ukraine's economic performance since independence, beginning with liberalization - establishing the necessary distance between government and the marketplace.

He said that while financial transactions and economic activity are quite free, particularly in the shadow economy, this has considerable drawbacks.

Urban property rentals and utilities such as water, gas and electricity have gone up in price sharply but still cover only about 80 percent of cost. Even so, these increases have reduced many to penury, compounding the hardship wreaked by the inflation that wiped out savings.

Dr. Hawrylyshyn said that while stock exchanges are operating, their relatively small size and inexperience among the participants have produced very low volumes of trading. He noted that while people are falling prey to scams, this is not occurring at anywhere near the rate seen in Albania, and such frauds are certainly not as prevalent as they are in Russia.

He said the irrationality of Ukraine's tax system and its enduring layers of regulations are causing corruption to flourish.

However, Dr. Hawrylyshyn vigorously rejected the notion, suggested by a questioner from the floor, that Ukraine's is a pervasively corrupt society and that honest citizens are perpetually at a competitive disadvantage. Provocatively, he asserted that such claims are "very close to the proposition that we are genetically anti-Semitic, thus that we are genetically corrupt."

The Swiss-educated scholar said he believes that Ukraine's citizens had become "contextually corrupt" because of low compensation to officials, enterprise managers and employees; the arrival of foreign speculators; and archaic regulatory barriers to economic activity.

Coyly controversial, Dr. Hawrylyshyn proposed that it would be a good, although likely unpopular, idea to extend an amnesty for flight capital. "Abroad [flight capital] is earning paltry percentages in secured savings accounts in foreign banks, whereas it could be earning 20 percent returns on investments in the country," Dr. Hawrylyshyn said.

"It certainly seems unjust, but it would be good for the economy to get those billions back into circulation," he added.

Second commandment: stabilization

In Dr. Hawrylyshyn's estimation, stabilization efforts are the Ukrainian government's most obvious and most dramatic success.

"Inflation, which had peaked at 5,000 percent annually and destroyed life savings and internal investments, has been totally curbed," he said, "to the point that, with a rate of 0.2 to 0.6 percent a month, it is at levels that would make any Western country proud."

Dr. Hawrylyshyn credited the government with having reduced the state budget, whose deficit has been brought under a respectable 6 percent of the GDP.

The most laudable achievement, to the advisor's mind, was Ukraine's ability to secure a convertible currency necessary for international trade - the hryvnia.

He said Ukraine's performance in this regard matches the efficiency of the Swiss. He said the fact that the transition from the karbovanets was not confiscatory, and that none of the previous currency was rendered useless, meant that its value was fully preserved and this greatly increased confidence among the citizenry.

The government stopped printing money indiscriminately, and people stopped buying everything that appeared on the shelves, thus driving up demand and prices artificially.

He conceded that the government's tight monetary policy had created a credit squeeze and sent many enterprises into debt, and thus produced large-scale wage arrears. "So we achieved currency stability at a high price," Dr. Hawrylyshyn said, "but the alternative is to start printing money, thus reviving inflation, and you get sent back to purgatory, if not hell."

Third commandment: privatization

Dr. Hawrylyshyn sees the area of privatization, in which a free market for land, labor, capital and goods is established, as the most problematic in Ukraine, particularly in agriculture.

The advisor asserted that Ukraine needs to import Western technology to reduce energy consumption, to build up light industry that produces consumer durables, and that local enterprises should shift to knowledge-intensive areas to capitalize on the high level of education of Ukraine's population.

Further, Dr. Hawrylyshyn said that while trade with other countries is thriving, Ukraine's relative commercial inexperience is being exploited. He cited examples: raw sunflower seed oil is being sold to concerns in Turkey, which then process and bottle it, and sell it back to Ukraine; raw alcohol is shipped to Slovakia, where it is distilled and bottled then exported back to Ukraine.

An obstinate Verkhovna Rada

Dr. Hawrylyshyn counseled patience in tackling the thorny problem of the Verkhovna Rada's inability, because of an obstinate few, to proceed with economic reform.

"How, without shooting the pack of them, do you get rid of the 70 deputies who insist on passing tax legislation that stifles investment and economic development, who refuse to pass budgets thereby tying up entire sectors of the economy, who refuse to swear allegiance to Ukraine and who refuse to abide by a Constitution they themselves adopted?" he asked rhetorically. "You wait," he replied, "They'll be voted out soon enough."

Closing as he opened, the Kyiv-based advisor playfully jabbed at the U.S. "After all, even that vaunted democracy didn't grant the vote to all of its citizens until the 1860s, did not establish a truly rational free market system without outrageous monopolistic excesses or tariff barriers until the mid 20th century. It took them more than 150 years after independence."

"Of course, we're not quite as bright as the Americans," Dr. Hawrylyshyn said, "but give us 20 to 30 years and we'll get there."

Copyright © The Ukrainian Weekly, June 15, 1997, No. 24, Vol. LXV

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