Happy New Year!

A year of 2009 was full of major political and economic events for Ukraine. On the negative side, Ukraine's economy experienced a deep economic recession while Ukraine's government gridlocked in an intensifying brawl between President Yushchenko and Prime Minister Yulia Tymoshenko. The upcoming 2010 Presidential Election only worsened a situation with governance efficiency (e.g. a phantom outbreak of swine flu, new price controls, chocking a private sector development, etc.). Furthermore, Ukraine's foreign affairs with Russia reached a new boiling point while the Western Europe cooled its enthusiasm about Ukraine's potential membership in both NATO and EU. On a bright side, Ukraine's four major cities received an approval from UEFA to co-host the European soccer championship EURO 2012 with a final in Kyiv. Btw, it shows that a private sector can strengthen a national reputation if it is left alone from the government mess. And on this note, let me say that I'll return to blogging in a new year of 2010. A month of January promises to be a very exciting because a first round of the 2010 Presidential Election will be held on January 17^th.

Happy Holidays! Happy New Year!

 

Gift Ideas for Winter Holidays!

Ukrainians say that a good book is the best gift ever. You can gift it to someone or you can always gift it to yourself and later gift it to someone else. J Then a good question will be: "Is there anything to read about Ukraine, Russia, and Eastern Europe?" I can recommend a couple of books for both intellectually stimulating and leisure reading.

Let's start with intellectually stimulating books:

1. Awesome book about History of Ukraine by Orest Subtelny.
   
2. State-Building by Verena Fritz
   
3. Russia's Capitalist Revolution by Anders Aslund
   
4. The Strategy of Campaigning by Skinner, Kudelia, de Mesquita and Condolezza Rice
   
5. How Ukraine Became a Market Economy and Democracy by Anders Aslund
   
6. Calculation and Coordination by Peter Boettke
   
7. Media, Democracy, and Freedom by Marta Dyczok
   

Now leisure reading:

1. Always #1 is Everything is Illuminated. Or you can watch a movie. Since I mentioned movies, you should really watch Eastern Promises. This movie is the best foreign depiction of the Russian underworld.
   
2. The Geography of Bliss by Eric Weiner. It's very funny.
   

I also recommend reading these books from George Mason University's faculty. These books are not about Ukraine and Eastern Europe, but these books are really good for everyone who interested in understanding economics.

1. Challenging Institutional Analysis and Development by Peter Boettke and Paul Aligica

2. The Invisible Hook by Peter Leeson

3. Media, Development and Institutional Change by Peter Leeson and Chris Coyne

 

If you want to recommend other books, please feel free.

Happy New Year!

Ukraine’s Traffic Police Can’t Have Favorites

Ukraine's best soccer player, Andrei Shevchenko, got into car accident couple weeks ago in a downtown of Kyiv, Ukraine's capital. Here is a video clip provided by Ukraine's TSN news from TV Chanel 1+1. Andrei's Porsche Panamera Turbo crashed into Honda SUV. As you can see on a video, a car accident is not very serious. Nobody got hurt. Both cars got lightly dented and scratched. Mr. Shevchenko told TSN news that a woman who was behind a steering wheel of Honda suddenly changed lanes without turning a blinker on. So he couldn't do a lot to avoid the crash.

What's interesting about this news report is that Mr. Shevchenko despite his mega-celebrity status in Ukraine presents himself as a down-to-earth person. He has no problems talking to a woman whose car he crashed into. Mr. Shevchenko also seems to be very easy-going with cops. It's funny when this woman asks Andrei: "So what's gonna be next?". And he says that they need to exchange their insurances and sign the protocol. Once again, Andrei's behavior is very far from what someone could expect from a mega celebrity. Moreover, it's impressive to see how cops do their work while they certainly go crazy inside because they can see their Soccer God just in a few feet away. The whole news report is very cool and makes you ponder on an efficiency of law and enforcement in Ukraine. Perhaps, a rule of law is not so bad in Ukraine that even Ukraine's biggest soccer star can't avoid a police report.

Btw, Andrei started in FC Dynamo Kyiv in the 1990s and his excellent goal-scoring skills were spotted by AC Milan's recruiters. He had several excellent seasons with AC Milan in Italy and later he played for London's FC Chelsea. Now he is finishing his career by playing for FC Dynamo Kyiv again.

Merry Christmas!!!

The Russian Baths Are Good For Business

Yes, the Russian baths are good for business. Did you know that? If not, then keep it in mind next time when you have a business trip to Ukraine or Russia. Here is why the Russian baths are good for a business.

A dismal science, as economics is often referred to, often focuses on two basic mechanism of human behavior - signaling and screening. For instance, your resume serves as a platform for both signaling and screening. As a job seeker, you use a resume to signal your quality to a potential employer. If you are an employer, you use an applicant's resume to screen for his or her qualifications. Both signaling and screening offer a cost-effective way of match-making in the job market. These concepts can also be applied to other aspects of human lives. Think about dating!

But we live in a world of imperfect information so it can be difficult to get a perfect match each time. So both signaling and screening are also associated with a couple of side-effects such as moral hazard and adverse selection. In other words, you always risk of running into a wolf under a sheep's skin that is a so-called "ship-skin effect" popularized by the labor economists and vice versa. So you got the point. Now let's talk about the Russian baths!

In my undergrad (i.e. in Ukraine) I had a professor who taught Principles of Investment Banking. He was actually one of the first investment bankers in Ukraine. And I remember him complaining a lot about spending 90% of his time in the Russian baths. He said that it helped to check a credibility of their investors. I had no clue what he talked about. I just thought that doing business in a sauna was a fashionable trend in the 1990s.

Well, a sauna has obvious health-related attractions. It improves your immune system and clears your pores. All nations use the same concept of sweat lodge while they just call it different names: the Turkish baths, the Korean baths, the Finnish sauna, and the Russian baths. But it seems that the Russian baths also provided a unique platform for signaling and screening for entrepreneurs in the former Soviet countries, such as Russia and Ukraine, in the tumultuous 1990s.

How did it work? Well, it's easier to picture this if you've seen a movie Eastern Promises staring Vigo Mortensen as a Russian mobster. Russian or Ukrainian (i.e. post-Soviet) gangsters have a very distinctive subculture of prisoner's tattoos. These tattoos are very informative. They can tell a whole life path of a gangster starting from his first incarceration and up to a present moment. A tattoo that pictures Eastern Orthodox Christian church usually tells you how long a gangster was in prison. A tattoo of a cougar on a shoulder will tell you that you are facing a criminal who was in prison for a robbery and assault. Other tattoos can tell you a rank of a gangster in a hierarchy of underworld (i.e. wise guy or made), his responsibilities in a gang (i.e. con artist or racketeer), his criminal record, his religion, his ethnicity, etc. If the Russian mafia can be proud of something, its subculture of prisoner's tattoos must be a source of its pride.

A main goal of the prisoner's tattoo is to introduce a gangster without much to say. Talk is cheap, right? But who would think that the Russian businessmen could utilize the knowledge of prisoner's tattoo as an effective mechanism of screening and signaling. Since it was impossible to have a proper credit check in the sketchy 1990s, the potential business partners would have a meeting in a sauna where you would be almost naked. Do you see where I am getting? If you had prisoner's tattoos, you could not hide them. Of course, the meeting would require a presence of an expert in prisoner's tattoos who could be either a cop or a gangster. Once you've gone to the Russian bath, the credit check is done. Was it cost-effective? Hell, yes.

What about signaling? Ceteris paribus, a businessman needed to collect a debt from his irresponsible business partner in the shady 1990s. Then he would hire so-called "debt-coll ecting agents" who would invite a debtor to the Russian baths. A debtor who would see the prisoner's tattoos of the debt-collectors in a sauna would be more eager to pay back his debt. Here's ECON 101 for Russia, Ukraine and other former Soviet countries in the early 1990s. Do you still think that economics is a dismal science? Think about it next time when you have a visit to the Finnish sauna or the Russian baths.

From UkraineWatch

 

Ukraine’s Government Begs the IMF for Help

The IMF gave Ukraine $16.4 billion in the beginning of 2009. But Ukraine got only $11 billion before the IMF got fed up with a political mess in the Ukrainian parliament and government spending unleashed by the Tymoshenko government. President Yushchenko made things worse when he sent the Minimum Wage Bill to the floor of Ukraine's parliament. However, Ukraine's president can only propose a bill while its destiny solely depends on a will of a whimsy parliament. Of course, the minimum wage bill got stock in the parliament because the Tymoshenko government directed all its attention to fighting the phantom outbreak of swine flu in Ukraine. Now we all know what kind of outbreak it was (see previous posts).

This week the Tymoshenko government sent its representatives, including two Deputy Ministers of Finance, Ihor Umanskiy and Anatoliy Myarkovsiy, to the IMF in Washington, D.C., USA. Now Ukraine's government asks just for two billion dollars from the rest of the frozen IMF loan. I have a very obvious question: What for? The government received $11 billion earlier this year and where did it go? Ukraine's president Viktor Yushchenko asks prime-minister Yulia Tymoshenko the same question. The Ukrainian economy still experiences the deepest recession among other FSU countries. What's going on with the government accountability in Ukraine? In the meantime, a date of the first round of the 2010 Presidential election is approaching.

 

Do You Want to Know More about Nobel Prize-winning Economist – Professor Elinor Ostrom?

Your answer must be "Yes, I do". Then you should read this book Challenging Institutional Analysis and Development: The Bloomington School written by George Mason University's Professor Peter Boettke and the Mercatus Center's Senior Research Fellow Paul Aligica.

This book explores the Bloomington School of Institutional Analysis and Development (IAD) represented by a couple of outstanding scholars – Vincent and Elinor Ostrom. The name of the Bloomington School comes from its geographical location because both Vincent and Elinor Ostrom are associated with the Indiana University at Bloomington. Professor Boettke and Professor Aligica write that the truly distinctive and unique nature of the Bloomington School has been misunderstood because of its association with a mainstream rational-choice research. The Bloomington School has its own style of scientific inquiry that mixes both fundamental economic and political studies with applied research. For instance, Professor Elinor Ostrom's seminal book Governing the Commons shows how a thorough field work can help a scientist in answering the most fundamental economic issues such as coordination, cooperation, and rationality. An innovative approach to a scientific inquiry made the Bloomington School become one of the most dynamic and world-known centers of the New Institutional Theory movement. The Bloomington School of IAD offers not only innovative but also groundbreaking concepts and theory within its broader philosophy of scientific inquiry. That's why Peter Boettke and Paul Aligica focus on the scientific dimensions of the IAD research system. Their book presents a systematic analysis of the Bloomington School by explaining its basic assumptions, its main themes, and its main methodology.

I recommend this book not only to students and social science scholars but also to the international development community. It's a must-read book!

Eastern Europe’s Love Triangle: NATO, Russia and Ukraine

The Foreign Policy's Simon Shuster has a really good piece about a relationship between Ukraine and NATO. In brief, Mr. Shuster writes that, despite Ukraine's decade-long efforts to join NATO, Russia and NATO seem to get closer while leaving Ukraine aside.

Here is a great quote:

"At the Bucharest summit, even if Ukraine had had Britain's democracy, Germany's economy, and America's army, they would still not let us in, because for [Russia] it was too early," says Anatoliy Grytsenko, head of the Ukrainian parliament's defense committee and a former defense minister. "Russia's voice today is not exactly a veto on NATO decisions, but it is a deciding factor for some of the key members of the alliance."

Fact of the Day

According to the Pocket World in Figures (2010) published by the Economist, the former Soviet countries have the highest number of deaths from cardiovascular disease per 100,000 people in the world:

Rank# Country N of deaths

1. Turkmenistan 844
   
2. Tajikistan 753
   
3. Kazakhstan 713
   
4. Afghanistan 706
   
5. Russia 688
   
6. Uzbekistan 663
   
7. Ukraine 637
   
8. Moldova 619
   
9. Azerbaijan 613
   
10. Kyrgyzstan 602
    
11. Belarus 592
    
12. Georgia 584
    
13. Somalia 580
    
14. Egypt 560
    
15. Bulgaria 554
    

    
     

 

Assorted Links: Ukraine’s Phantom Outbreak of Swine Flu

Ukraine's short history of political campaigns has seen a lot. But political and economic events surrounding a phantom outbreak of swine flu shocked not only Ukrainians but also the rest of the world.

A free-lance journalist Julia Ioffe has an excellent piece in the Foreign Policy with a great quote from Taras Berezovets, a senior campaign adviser for Ukraine's prime-minister Yulia Tymoshenko:

"We had to create a phantom and then have a white knight riding in to save the day," Taras Berezovets, a senior campaign advisor for Tymoshenko's BYuT bloc, told me (Julia Ioffe) in a Kiev restaurant, confirming widespread suspicions among Ukrainian journalists. According to a campaign adviser to Yulia Tymoshenko, the Ukrainian prime minister who is also a presidential candidate purposely inflated fears of an ongoing swine-flu epidemic to aid her presidential run."

The Washington Post's Philip Pan has another great article about idiocracy surrounding H1N1 outbreak in Ukraine.

Finally, the Slate's Anne Applebaum discusses a chain of events emerged in a response to Ukraine's panicking about the phantom outbreak of swine flu.

Russia has the Highest Rate of Fraud in the World

EU-Reporter's Gary Cartwright has a great post about fraud and corruption in Russia.

Here is a great quote:

A recent survey by PricewaterhouseCoopers suggests that the country has the highest level of fraud anywhere in the world. Some 71 per cent of respondents said they had been fraud victims in the last 12 months alone, a 12 per cent rise from the company's last survey, conducted in 2007.

Another great quote:

Transparency International was only slightly less scathing on Russia's corruption record, placing the country 146 out of 180 - on a par with Sierra Leone.