UkraineWatch

Ukraine's FEMEN Protests at Davos Forum

2012-01-28T13:02:00.000-08:00

Ukraine's activist group shines on a global scale. Its message, however, is very obscure. "Davos, Switzerland (AP) -- Three topless Ukrainian protesters were detained Saturday while trying to break into an invitation-only gathering of international CEOs and political leaders to call attention to the needs of the world's poor."
Click here if you want to read more.

Black Market in Agricultural Land is Booming in Ukraine

2011-10-28T14:31:00.000-07:00

with Oleg Peregon, Vice President, NGO Green Front, Ukraine

A sale of agricultural land has been illegal in Ukraine since the Moratorium Act of 1992. Despite many promises, neither administration liberalized a market in agricultural land. Nonetheless, a black market in farmland has thrived. Now it is becoming one of the largest illegal markets in farmland, with approximately $900 million in annual sales, in Eastern Europe. The black market has a backing of local state officials. Corrupt bureaucrats embezzle their power to stuff their pockets with cash while they are stripping the nation of important natural resource and robbing poverty-stricken rural population of their private property. The black market causes environmental degradation and undermines sustainable economic development of Ukraine, one of the major world grain exporters.

The moratorium has never stopped the black market in Ukraine. According to Ukraine’s State Committee on Land Resources (SCLR), almost 20 percent of farmland changed ownership in the last decade. And it seems that the black market is booming now more than ever. Kharkiv-based environmental NGO Green Front reports that a number of sales advertisements featuring farmland has increased in local newspapers recently. The popular local newspaper Premier went from 58 to 300 weekly sales ads in less than a month. The black market has also made it to the internet. Now you can find hundreds of listings of farmland sellers online. For example, online store AllBiz that is popular in Ukraine has almost 200 listings of farmland sellers. Many sellers’ websites even guarantee a one-day delivery of farmland.

The black market in farmland is going strong with no questions asked. The buyers are farms, greenhouses, flower shops, landscapers, and house owners who can afford landscapers. The sellers are either firms subcontracted by the local government or local state officials. The black market quantity is equal to a capacity of one truck (e.g. Russia-made Kamaz truck). A single Kamaz truck carries, on average, ten tons of soil. The black market price is seasonal with its high in spring and summer ($80-100 per ton) and its low in fall and winter ($150-180 per ton). According to the Green Front, the projected annual sales are almost $900 million in Ukraine.

This is how the black market works. An excavator digs out fertile soil, on average, up to four feet deep. Then an excavator loads a soil into a truck that delivers a product to a buyer. To double their profits, infamous entrepreneurs bring garbage from urban areas and dump it in the excavated areas. Thus, the damaged farmlands are converted into illegal landfills. This black market activity causes irreversible soil depletion and environment pollution. The SCLR reports that almost 32 percent of farmland is degraded and 20 percent of arable farmland is low-yield due to soil erosion. It is obvious that the black market could not reach the current volume of sales without backing of state and law enforcement officials.

The state officials abuse law even when it comes to private ownership of their constituency. The black soil is extracted from two main sources: abandoned land and retiree-owned land. A so-called abandoned land is a land parcel whose heirless owner is deceased. Abuse of the abandoned land is just another proof of the government embezzlement because ownership of the abandoned land is transferred to the local authorities automatically in Ukraine. The magnitude of the power abuse is mind-boggling. When the NGO Alternative interviewed deputies (Party of Regions) of the Pesochyn village council in Kharkiv province, the second largest province of Ukraine, the Regionals said blatantly that the farmland sale is only legal in their county while it is illegal elsewhere.

Retirees who own farmland also suffer a great deal from the government abuse. The SCLR reports that 53 percent of land owners are retirees and 30 percent of them have no heirs. The Green Front reports several cases when the soil was extracted from the land parcels owned by pensioners in Kharkiv province. Several local residents tried to stop the illegal extraction of their land. However, the local government silenced the whistleblowers. The Green Front also submitted evidence of illegal extraction of land, including these pictures, to the Kharkiv department of law enforcement. The law enforcement officials considered available evidence insufficient to open a case.

NGO Green Front copyrights.

Right now it is too early to predict the impact of the black market in agricultural land on Ukraine’s economy, one of the major world grain exporters. It is clear that the current black market activity causes irreversible damage to the environment and retards economic progress. And the government embezzlement not only undermines a fundamental institution of capitalism and democracy – secure private property rights but also erodes trust and accountability in political order.

Who in the World is Freest of All?

2011-09-21T08:04:00.000-07:00

The long-awaited annual edition of the Economic Freedom of the World has been released by the CATO Institute, American public policy think tank. The CATO team of researchers, led by Dr. James Gwartney (Florida State University), Dr. Robert Lawson (Southern Methodist University), and Dr. Joshua Hall (Beloit College), measure a degree of economic freedom with respect to five areas of economic activity: size of government, rule of law, monetary system, international openness, and government regulation.

Hong Kong still remains the freest economy of the world, followed by Singapore, New Zealand, Switzerland, Chile, Australia, Canada, Chile, the U.K, Mauritius, and the U.S. This is basically the top 10 of the Economic Freedom of the World report.

Zimbabwe is the least free economy of the world, representing the poverty-stricken region of Sub-Saharan Africa. The bottom 10 of the economic freedom rankings also includes Myanmar, Venezuela, Angola, Democratic Republic of Congo, Central African Republic, Guinea-Bissau, Republic of Congo, Burundi, and Chad. Let us hope that the new Miss of the Universe from Angola, Leila Lopez, can attract more international attention as well as foreign investors to her country.

Where is Ukraine? Ukraine with the level of economic freedom measured at 5.7 out of 10 is actually in the bottom 20 economies. While the economic freedom grew during the Yushchenko presidency, Ukraine could not catch up with Russia. The CATO Institute ranks economic freedom in Russia (6.55 out of 10) much higher than in Ukraine by placing the former in the top 80 economies. Due to obvious political reason, Belarus is not in the rankings. If the Yanukovych administration does not stop a self-destructive public policy, Ukraine may stop showing up in the Economic Freedom of the World rankings as well.

Overall, the CATO Institute points out that economic freedom of the world fell for the second consecutive year: “The average economic freedom score rose from 5.53 (out of 10) in 1980 to 6.74 in 2007, but fell back to 6.64 in 2009, the most recent year for which data are available.”

What is Ukraine’s Biggest Economic Woe?

2011-09-07T17:27:00.001-07:00

Ukraine’s economy is still recovering from the global 2007-2009 economic recession that had a devastating impact on the national economy. Economic growth rate is nearly half of the pre-recession average rate. Unemployment rate is approaching double digits. Inflation is rampant. Ukraine's external debt is nearly equal to Ukraine’s GDP. Overall, the economic situation is very drastic and it requires a new approach to the current economic policy.
A jobless stagnant economic recovery is very common among many developed and industrialized countries. The EU economy is still struggling with its recovery, hindered by the fiscally troubled PIIGS countries (i.e. Portugal, Greece, Italy, Ireland, and Spain). The European economists scramble to find a way to reduce Spain’s 20-percent unemployment rate and create strong incentives for a fiscal accountability for the PIIGS.
The U.S. economy is also going through a jobless stagnant economic recovery. The Congressional Budget Office (CBO), major nonpartisan American research organization, downgraded the US rate of economic growth to 1 % in the Q2. The US unemployment rate is 9.1% that translates into more than 14 million jobless Americans.
Of course, comparing Ukraine with the EU or USA is similar to comparing apples with oranges. A difference is very substantial to draw any fundamental conclusions. Nonetheless, Ukraine’s economy seems to be facing similar structural problems which are present in both the EU and USA.
So, what is going on with the American and European economies? The answer can be found in the hotly debated book, Great Stagnation, by Tyler Cowen, co-author of the one of the most popular economic and business blogs, Marginal Revolution and Professor of Economics from George Mason University, USA. Professor Cowen writes that the US economy as well as other developed economies got stuck because a supply of low-hanging economic fruit is exhausted.
What is a low-hanging economic fruit? Education, immigration, urbanization, natural resources, and technological innovation. According to Professor Cowen, the developed nations got stuck because they have been exhausting low-hanging economic fruit for the most part of the last century and eventually they hit the bottom. Growth rates of output and median incomes have a steady downward trend across the developed economies over the last few decades. This empirical fact supports Professor Cowen’s argument.
Dr. Cowen writes that the United States and European countries have nearly exhausted a potential of educational attainment. Most population has not only high school diplomas but also college degrees. Instead of being a valuable asset, education is eroding its value because its marginal gain is diminishing. If there is any genius left without any formal education in the US or EU educational system, he or she must be hiding under a rock.
Economic impact of immigration is also declining because modern immigrants do not have the same comparative advantage (e.g. higher level of education, cheap labor force) as compared to immigrants in the 1800s and 1900s. Immigrants still contribute to economic growth of the developed economies but easy gains of immigration are nearly gone. Natural resources are also overexploited in many rich countries. The gold rush, the booming mining towns, and the oil booms are now subjects of economic history rather than economic reality.
Dr. Cowen also asks us to think about the most recent major technological innovation that drastically changed our lives. He argues that most innovations were exploited in the 1950s and 1960s, except for computers and internet. Cowen writes that even consumer goods did not have any major revolutionary change since the 1930s and 1940s when household products changed drastically: air conditioning, refrigerators, washers, dryers, dishwashers, radios, televisions, phones, and affordable cars. Modern households have the same household items with slight technological improvements.
Moreover, Dr. Cowen points out that an economic impact of consumerism is also diminishing because most households in the developed countries have already had all necessary household items. Many households have kitchen appliances, internet, several TVs, several laptops, several cell phones, several cars, and so on. Moreover, the global recession made consumers much poorer and more cautious about their spending and credit cards. As a result, the level of consumer confidence is pretty low in America, Britain, and Europe. The US consumer-confidence index has reached the lowest level (45%) since June 2009, the official start of economic recovery in the US. Thus, the Keynesian demand-side economic policy, the working horse of the American and European governments, is another low-hanging economic fruit that is nearly gone.
Ukraine also fits Professor Cowen’s theory quite well. Ukraine’s economy has nearly exhausted a supply of low-hanging fruit. Educational attainment was always high in Ukraine, even back in the Soviet period. A flow of immigrants was never strong for Ukraine. In contrast, Ukraine suffered from a tremendous brain-drain before and after the collapse of the former Soviet Union. Blue-collar workers are also leaving Ukraine. Many workers from the Western Ukraine work permanently in Europe while workers from the Eastern Ukraine travel all the way to Moscow, Russia’s capital, to find a job at a construction site. Youngsters, especially women, use very popular work-and-travel programs to go overseas and stay there legally or illegally. Young people, blue-collar workers, and intellectuals leave Ukraine because of very limited opportunities available to them in their Motherland.
According to the State Statistics Committee of Ukraine (SSC), the unemployment rate remains at 9.5% or 2.1 million jobless Ukrainians. Unfortunately, the SSC does not report labor statistics about part-time workers who want to have full-time jobs and discouraged workers (who gave up looking for a job). Various independent surveys report that the actual rate of unemployment is around 18% or almost 4 million jobless Ukrainians. There is a drastic shortage of a demand for labor in Ukraine. A discriminatory nature of Ukraine’s job market supports data from independent surveys. Ukrainians know really well that your chances to get a job decrease exponentially with your age. Ukrainians also know that employers discriminate against females and, especially, single mothers. If you are 50 years-old female and without a job, your chances to find a well-paid job are close to nothing. Ukraine’s job market is both ageist and sexist.
Urbanization, natural resources, and technological innovation are also nearly exhausted by Ukraine’s economy. Ukraine as any European country is highly urbanized. So there is not a lot of potential for real estate and infrastructure development. Natural resources were also heavily exhausted, first, by the Soviet nomenclature, and then by the Ukrainian oligarchs. The technological potential of Ukraine is hardly competitive at the world level. The above-mentioned brain-drain diminished the potential of technological innovation significantly because neither state nor private philanthropists tried to prevent it by supporting scientists financially.
Things get worse if we bring into equation economic and political institutions existing in Ukraine. First, Ukraine’s economy is still in a “gray zone” somewhere between state-controlled and oligarch-controlled economy where state and oligarchs are not separate from each other. The “gray zone” economy retards any economic progress. Second, Ukraine’s political system is also in a “gray zone” of transitional democracy where the façade of political institutions looks appropriate but these institutions are rotten inside. Ukraine has a presidential-parliamentary political system without any working system of checks and balances. The political oligarchy retards any democratic progress. Finally, both economic and political institutions are subject to a pervasive lawlessness where those who must enforce the law abuse it. Thus, the oligarchic “gray zone” economy without any rule of law is the biggest economic woe of Ukraine. Under these circumstances, if there is any low-hanging economic fruit left, it is more likely to be rotten inside. Ukraine’s economic recovery can have a bitter aftertaste unless the current institutional status quo is changed.

Logrolling in Ukraine

2011-07-07T14:28:00.000-07:00

     A logrolling or vote-trading is a common practice that elected officials use to pass laws. If you need a support from other elected officials, you promise them to vote for their bill in exchange for their votes. Ukrainian deputies went even further than a simple trading of votes. They trade their ID cards. If you need my vote, you can take my ID card and use it to vote for your bill.
     Here is an amazing video that shows a session from Ukraine's Parliament. Click on this link and watch from :29 to 1:00. You will see how a deputy checks in dozens of his colleagues. Then you will see that a head count (424) is far from an actual number of deputies. Finally, you will see how a deputy who uses several ID cards votes for his own proposed bill. Nonetheless, his bill did not pass the parliament.
     Here is another video about logrolling Ukrainian deputies.

If you are interested in reading about logrolling, start here.

Ukrainian Workers Are Strike-Averse

2011-06-20T11:09:00.000-07:00

    Another cool statistics from the Kyiv Post's Maria Shamota shows that Ukrainian workers had the lowest number of strikes in Europe in 2008. Ukrainian employees went on strike only thirteen times. Swedish workers had 18 strikes and British employees went on 144 strikes. Italian workers who are the leaders of the European labor movement went on 1,339 strikes in 2008. Even if you adjust number of strikes per capita, Ukraine still had the lowest number of strikes per capita in Europe.
    There are couple things which puzzle me about these data. First, workers in Austria, Belgium, Bulgaria, and Czech Republic did not go on strike at all because their strike was either cancelled or a conflict was resolved. Second, I do not see France in this chart while the international mass media often talks about French workers going on strike.
    Anyways, can we really say that Ukrainian workers are more strike-averse than their European colleagues? Is there another explanation behind these data? What if Ukrainian workers incur higher opportunity costs of going on strike than do their European counterparts?

Ukraine's Agriculture Policies

2011-06-13T10:16:00.000-07:00

Ukraine is moving to liberalize its land market , but, according to recent statements by the country's agriculture minister, foreigners will be prohibited from purchasing agricultural land.
That was the topic of my interview with the World Politics Review. We discussed Ukraine's agricultural land policies. Click here if you want to read more.

FYI, here is a Russian version of my article "Robbing the Breadbasket" in the KyivPost. If you can read Russian, please, check it out and leave comments.

Ukraine's Economy Did Not Get Far Since The 1990s

2011-06-09T10:36:00.000-07:00

I was surprised when I saw it. Ukraine's economy is not as active as it was in the early 1990s. Number of shipments is still much lower than it was in the early 1990s, reported by the Ukraine's State Statistics Committtee. Here is a very interesting graph that gives you a breakdown of quantity of shipments across Ukraine by type of transportation: air, water (sea and river), and ground (car and train). I wonder what explains a smaller number of shipments now as compared to the early 1990s.
HT Maria Shamota from the KyivPost.

MORE ON UKRAINE'S "GREAT GRAIN ROBBERY"

2011-06-06T10:25:00.000-07:00

Here is my article in the Kyiv Post. The russian version of my article will come out on Wednesday.

The Ukrainian Weekly (June 5, 2011) has three articles, including mine article, about Ukraine's trade policy. I highly recommend you reading the current issue.

ROBBING UKRAINE'S GRAIN MARKET: EXPORT QUOTAS AND EXPORT DUTIES

2011-05-25T13:45:00.000-07:00

Ukraine, one of the top grain exporters in the world and nicknamed the bread basket of Europe, is being robbed by its government. A post-Soviet country located in Eastern Europe on an area slightly smaller than Texas has become a hostage of its mercantilist government. In October 2010 the Ukrainian Cabinet of Ministers presided by a former apparatchik, Prime Minister Mykola Azarov, enacted a resolution requiring quotas and licenses for exporting grain. The objective is to stabilize food prices and prevent a food shortage caused by last year’s poor harvest. While the protectionist policy came under harsh criticism from both foreign and domestic observers, the government extended the export grain quotas until June 30, 2011. Moreover, the government used corrupt practices of allocating export quotas and licenses wherein an unknown company Khlib Investbud received a lion’s share and gained the market power in the grain export industry. The grain industry generates 15% of Ukraine’s exports - $7.5 billion. The controversial regulation killed the spirit of competition in the domestic grain market and pushed it towards monopolization. Foreign observers express concerns that the monopolization of the export-oriented Ukrainian agriculture will contribute to higher food prices around the world. If the current trade policy is not reversed, surging grain prices will affect each of us negatively.

Quota and license are usually imposed to limit the quantity of a product and raise its price. The grain export license is given to a company by the state to buy the grains from domestic farmers at the domestic price and resell these grains at the world price to foreign buyers. Since the world price is higher than the domestic price, whoever receives the export license is guaranteed a profit of a middleman. Moreover, the export grain quota limits the quantity of export that results in a price markup. For all grains exported with the quota, the markup could total to billions of dollars. Thus, a licensed company that has an export quota receives a profit that is not earned through market competition. The government regulation creates the profit for the middleman which causes market inefficiency such market monopolization and wastes society’s resources.

Foreign observers have criticized the current trade policy on the grounds of its inefficiency. Morgan Williams, the President of the U.S.-Ukraine Business Council, estimated that losses in the domestic food industry could reach $5 billion as a consequence of the protectionist policy. According to Martin Raiser, the World Bank's Country Director for Ukraine, Belarus and Moldova, the present grain export quota system is inefficient and restricts the inflow of investment. Even with these sharp criticisms from foreign observers, the Ukrainian delegation in the World Trade Organization (WTO) defended the current export quota system by referring to Article 9 of the GATT (General Agreement on Tariffs and Trade) and Article 12 of the Agreement of Agriculture. The Ukrainian government promised WTO that “an export quota system was introduced in order to prevent a critical shortage in the domestic market resulting from a poor harvest in 2010 of certain agricultural products and eliminate a significant imbalance in the domestic grain market that is essential for food security and stability in the grain market”. Grains that fall under the regulation are crops produced by most domestic farmers: wheat, buckwheat, corn, barley, and rye.

In fact, the Ukrainian government lied to the WTO and the rest of the world to defend the protectionist policy. A “poor harvest in 2010” was a big fat lie. According to Ukraine’s State Statistics Committee, the “poor harvest of 2010” was above the average if you looked at the record of Ukraine’s grain production in the last two decades. On average, Ukraine’s agricultural sector produced 36,1 million tonnes of grain between 1990 and 2010. Ukraine’s agriculture hit the bottom in 2003 with a harvest of 20,2 million tonnes of grain while it reached the peak in 2008 with 53,2 million tonnes of grain. Thus, the “poor harvest of 2010” that was 39,2 million tonnes exceeded its average by 3 million tonnes. Nonetheless, in his controversial interview to the Kyiv Post, Ukraine’s Minister of Agriculture Mykola Prysyazhnyuk stuck to his guns and reiterated that the main reason for the regulation was the shortage of grain in Ukraine.

The current protectionist policy is an absolute failure because it hurts Ukraine’s economy. The protectionist policy that brought back the oligarchic “old family values” such as corruption protectionism, and nepotism sent a clear signal to foreign companies that Ukraine’s economy went back in the domain of the oligarchs. Foreign grain traders accused the Ukrainian government of corruption and nepotism because the distribution of quotas was not transparent. Grain traders had only seven days to apply for the export quota after the Resolution of the Cabinet of Ministers was enacted. As a result, most of the companies were unable to receive the grain availability certificate while an unknown company, Khlib Investbud, received the lion’s share.

Moreover, the export quota system that was designed to stabilize food prices failed to keep food prices from rising. Domestic food prices have increased by 20% since the quota system was introduced. Ukraine’s State Statistics Committee reports that prices of bread, sunflower and corn oil have increased by 12% since January 2011. The grain prices rose by 15% in the first quarter of 2011. The domestic consumers are outraged with surging food prices. The current economic situation is actually very drastic. In Ukraine an average pensioner receives around $100 per month. Given rising food prices, a large number of the elderly Ukrainians find themselves below the poverty threshold.

Furthermore, the protectionist policy hurts domestic farmers. The cash-strapped farmers are forced to sell their grain at lower than expected prices because the Khlib Investbud company uses its market power to dictate the prices in the domestic grain market. Remaining independent grain traders are fighting over left over crumbs. The Ukrainian government needs to understand that the current protectionist policy hurts both sides of the international trade, exports and imports. Lower profit margins do not allow the cash-strapped farmers to purchase essential machinery and fertilizer that are mostly imported from Russia, Belarus, and USA. Higher food prices forces the domestic consumers to devote a large part of their income towards food items and spend less on other imported goods.

The protectionist policy hurts everyone except the Khlib Investbud that seems to be the only winner from the whole situation. However, any criticism of the current trade policy or questioning the role of the Khlib Investbud is suppressed by the state. The editor of the English-speaking newspaper Kyiv Post, Brian Bonner, went on strike after the Ukrainian government tried to prevent the release of the hotly debated interview with Ukraine’s Minister of Agriculture. So far the Ukrainian government made only two changes to the controversial regulation. In March 2011 the government dropped corn from the original list and increased the total size of the quotas by 1.5 million tonnes to 4.2 million tonnes or 10% of the last year’s harvest.

Of course, I must mention that the Ukrainian government said today that it would replace the grain export quotas with export duties of 9 to 14 %. Replacing export quota with export duties is an old trick. The export duty has the same effect as export quota. The imposed export duties discourage exports, reduce quantity of grain exports, and raise grain prices. By the way, the Ukrainian delegation in the WTO has not yet submitted the official documents about replacement of export quotas with export duties.

It sounds logical that the government replaces quotas with duties now. Since October 2010 the Khlib Investbud backed up by the Grain Ukraine has used its market power to accumulate around 2 million tonnes of grain (5% of the last year’s grain production) at low domestic prices that the company dictated. It gives the Khlib Investbud a handicap that the company can use to compensate the imposed export duties. Other grain exporters have to play by the new rules of game. Moreover, the Khlib Investbud had exported 800,000 tonnes of grain before the government imposed export duties. If you look at the whole situation, it is clear that the Khlib Investbud is still the only winner. They have still robbed the domestic grain market!

The current trade policy signals domestic grain producers and foreign grain traders that the Yanukovych administration sticks to the protectionist policy. It also shows that the government can change policy without any legitimate economic reason at all. Ukraine's economic policy is a puppet in the hands of the Donetsk interest group. The backwardness of the current trade policy undermines Ukraine’s potential economic growth. The current protectionist policy can destroy the agricultural sector of Ukraine. If this policy continues, we will see capital leaving the agricultural sector for other industries. If this outrageous grain robbery is not stopped, the European breadbasket will be completely emptied out for the benefit of a single company. If Ukraine is still a democratic state, the government must explain why the benefit of a single company comes at the cost of the whole nation!

P.S. The edited version will appear in the Ukrainian Weekly.

Legal Fusion: Annotated Codebook of Ukraine’s Agriculture

2011-04-12T09:19:00.000-07:00

Here is my op-ed in the Kyiv Post.

Ukraine's Land Reform in Cartoons

2011-03-24T11:13:00.001-07:00

Here is my Op-Ed/cartoon in the Kyiv Post: http://www.kyivpost.com/news/opinion/op_ed/detail/102164/

The Aid Workers Really Help Ukraine

2011-03-09T12:30:00.000-08:00

The Economist had a very interesting piece about an impact of international remittances (e.g. MoneyGram, Western Union) on economic development. The main point of the article was that migrant workers send more money back home than their countries receive in foreing aid. Ukraine seems to be the case too. If you look at the following graph, you can see that the remittances (measured in current US dollars) reached almost $6 billion in 2008. FYI, the total amount of foreign aid that Ukraine received between 1991 and 1999 was only $4 billion (current US dollars). After adjusting for inflation, Ukraine received $5,2 billion in foreign aid between 1991 and 1999 (I used BLS's CPI data). An annual amount of international remittances still exceed an amount of foreing aid that Ukraine received in almost ten years!

Russia and USA House More Inmates than All European Countries Combined

2011-02-21T10:36:00.000-08:00

The Pew project has very interesting data on incarceration per capita. USA houses more inmates than the top 35 European countries combined. Russia is in the second place. Another interesting fact is that the top ten, except USA, represents the former Soviet countries. Also, I am surprized that dwarf-countries like Georgina, Estonia, Latvia, and Lithuania are in the top ten. What are the causes? It could be that the FSU countries and USA have higher crime rate than European countries. It could be that the law and enforcement is more effective in the former Soviet countries and USA. I doubt it.
Here is a link: http://rortybomb.wordpress.com/2010/09/29/pew-economic-mobility-project-incarcerations-effects-on-economic-mobility/

Ukraine's Macroeconomic Situation

2011-02-14T15:06:00.000-08:00

Here is a snapshot of data taken from the EBRD's Macroeconomic Indicators. The 2007-2009 recession had a devastating effect on Ukraine's economy. GDP dropped by 15.1%, unemployment reached 8.1%, consumer prices increased by 15.9 % and producer prices increased by 6.5%. Ukraine's external debt grew from 56.4% to 91.7% of its GDP. Ukraine's internal government debt increased from 19% to 31.3% of its GDP.

I am always amazed how politics distorts a macroeconomic reality. If I cranked up my credit cards to 150% of my annual income, who would give me a loan? I cannot think of anyone except the Lehman Brothers. Oops, they are out of the business.
Why should it be different with countries? The Ukrainian government is negotiating another loan with the IMF. By the way, the government has already received a $15.1 billion loan in August 2010. The IMF's website says that "the IMF’s Executive Board has approved a $15.1 billion loan for Ukraine to put the country on the path to fiscal sustainability, reform the gas sector, and shore up the country’s banking system." What fiscal sustainability do we talk about here? Did someone look at the currently outstanding size of both internal and external debts of Ukraine? It is not fiscally sustainable now.
Where do all IMF loans go? Ukraine looks like a black hole that sucks in multi-billion-dollar loans from international charitable organizations like IMF or EBRD. Ukraine and similar countries cannot have the fiscal sustainability until they develop a government accountability. Until then each charitable organization must correct their language by calling their "loan for Ukraine" as "loan for the government".

Assorted Links

2011-02-09T10:56:00.000-08:00

1. The top 20 articles published in the AER (American Economic Review) over the last 100 years.
2. There is no free lunch in our life unless you are looking for a wife from Ukraine.
3. A number of Ukrainians participating in the Green Card Lottery (Electronic Diversity Visa Lottery) reached a new record. 760,000 applications in 2010!

Learn Ukrainian in Ukraine with University of Alberta

2011-02-09T10:18:00.000-08:00

If you want to study Ukrainian in Lviv, Ukraine (birthplace of Ludwig Von Mises, distinguished Austrian economist), you should check out the program that University of Alberta (Canada) is running this summer.

Here is a link: http://www.arts.ualberta.ca/~ukraina/study_in_ukraine/ukrainian_through_its_liv/

"The Beverly Hills" of Ukraine: Kharkiv's Rublevka and Public Land Grab.

2011-01-26T09:55:00.000-08:00

     I guess that I shall start a new series of stories about a land grab in Ukraine. I am not taking about privatization or eminent domain. I am taking about different schemes that the government officials use to transfer public land into their private ownership. The land grab takes place all over the former Soviet Union area because a rule of law is weak and a system of property rights is insecure.
    I think that it is fair enough to call it a land grab because public land is grabbed rather than purchased or inherited. Since the government officials are the riches of Ukraine or vice versa, they can afford to develop the grabbed public lands into the upscale gated communities like the Beverly Hills in California, USA. Since the first upscale gated community so-called Rublevka was built in Moscow on Rublevsky highway, all similar real estate developments are named after it.
    Today I would like to talk about Kharkiv's Rublevka. Kharkiv is the second largest city in Ukraine. The two most important people in Kharkiv are the Mayor of Kharkiv, Mr. Kernes, and the Governor of Kharkiv region, Mr. Dobkin. Both government official are members of the presidential Party of Regions aka the regionals. I wrote about a series of conflicts between the City Hall and Kharkivians earlier. But I can see everything in a new light now when the Bureau of Land Management of Kharkiv Region releases a very interesting data. According the BLM, the city of Kharkiv auctioned public land only once in 2008. Back then the City Hall sold 3 hectares or 7.41 acres of land for 28 mln. hryvnia or $3,5 mln. The BLM, however, reports that more than 100 hectares or 247 acres of public land located in the Central Park of Kharkiv (The Gorky Park) are privately-owned and under the real estate development. Well, it is quite a mismatch. So here is a math question:
Q. Suppose that A sells 7.41 acres of public land to B for $3,5 mln in 2008. How much can A get if A sells 247 acres of public land to B and price of land does not change?
A. $116,6 mln. (FYI, it is the budget of Kharkiv in 2010).

Who says that you cannot put a price tag on corruption? Simple math. Simple land grab. People lose favourite recreational spot and the city budget looses millions of dollars while while the government officials enrich themselves. What can I say? I look forward to more math problems from the City Hall of Kharkiv. These guys are math whiz kids.
   Here are the pictures that show the real estate development in Kharkiv's Central Park. The first picture shows the so-called "Kharkiv's Rublevka" gated community in the Gorky Park. The second picture shows a new real estate development adjacent to the Kharkiv's Rublevka. The Kharkivians have already gave a nickname to the new gated community. They call it "New Rublevka". Also, the Kharkivians start referring to their city as the Kernes City.

Here is the YouTube video about a real estate development of the grabbed lands in Kharkiv. It is in Russian. But you should check it out. It shows the maps of the Kharkiv's Rublevka in the Gorky Park.

Ukraine's Current Status Quo: Prosperity, Freedom, and Geopolitical Location

2010-12-21T12:45:00.000-08:00

    A new wave of political prosecutions, including investigation of the Orange Revolutionary and former Prime Minister Yulia Tymoshenko (BYuT), provides a clear-cut evidence that the Yanukovych administration curb a political freedom by prosecuting Ukraine's political opposition. The Yanukovych administration steps on a very slippery slope of their policy. If they slip, Ukraine will become a country with curbed civil liberties and human rights like Russia. While the current policy costs Ukrainains their political freedom, it does not come for free to President Yanukovych (POR). He is loosing public support. Kuzio (2010) writes that Yanukovych can increase his public support if he can increase social welfare, reduce inflation and unemployment. I agree that President Yanukovych can play a card of a policy trade-off between freedom and prosperity. In other words, President Yanukovych can get away with his policy by gaining public support if his policy leads to economic prosperity. The Yanukovych administration does not have to go too far in a search for a policy template. They can use their previous experience from the Kuchma administration. Anyways, majority of the Yanukovych administration are the Kuchmists. Or they can follow the Putin’s policy. Either way Ukraine’s economic prosperity will come at the price of political freedom as it happened in Russia.

    In 2009 Ukraine was free as it had never been before. The Polity Score that measures the level of political freedom (e.g. 0 denotes absolute autocracy and 20 denotes consolidated democracy) was 16.36 for Ukraine and 9.22 for the rest of the FSU countries (Polity IV, 2009). Ordinary Ukrainians enjoyed a higher level of political and economic freedom than Belarusians and Russians. Belarus, Russia, and Ukraine were moving in different directions. Belarus and Russia slipped into autocracy. Ukraine became one of the freest countries in the FSU region (Freedom House, 2009). Also, the annual research report “Nations in Transit” released by Freedom House in June 2009 demonstrated that Ukraine’s quality of political institutions was above that of the FSU and Russia. Ukraine had a more independent judiciary than Russia and the rest of the FSU. The independence of mass media and the development of the civil society were very close to the levels in developed nations. The democratic institutions at both state and province were also of better quality. The electoral process was very transparent and up to democratic standards. The rule of law, the civil and the political rights were much stronger in Ukraine than anywhere else in the FSU. Overall, the report showed Ukraine as a free state with a consolidating democracy as compared to non-free and authoritarian Russia and the rest of the FSU, except the Baltic States. Unfortunately, the situation has changed drastically since the Party of Regions came to power.

    Now the Yanukovych administration is changing a political status quo for the worse. They are prosecuting the political opposition and curb individual political freedom. Eventually, President Yanykovych will have to offer a compensation for his current misbehavior if he wants to retain his public support. Will President Yanukovych try to trade economic stability with Ukrainians for their liberties? Kuzio (2010) writes that Ukrainians cannot be bought off. He writes that “Ukraine is not Russia, where abundant deposits of raw materials are exported and provide a large amount of support for the state budget. Prime Minister Vladimir Putin has been fortunate in being able to buy off Russians by trading (economic) stability for democracy through record-high oil and gas prices throughout most of this decade”. Even if it is true, it does not mean that President Yanukovych will not attempt to use the policy trade-off.

    Will it be a wrong policy? Yes. Will it stop the Yanukovych administration? No. His administration that consists of the Kuchmists knows how wrong policy can pay off. The Kuchma administration gravitated towards Putin’s standards of media and political freedom during the 2004 presidential campaign. Unlike Russia, the authoritarian glitch in the Kuchma administration triggered the Kuchmagate and the Orange Revolution. As a result, Mr. Kuchma and his protégé, Mr. Yanukovych, were ousted from the government by the Orange Revolution. While the Yanukovych administration knows how wrong policy can pay off, the long-term iron grip on the political power demonstrated by Belarus’ Lukashenka, Russia’s Putin, Turkmenistan’s Niyazov, Kazakhstan’s Nazarbaev, and Azerbaijan’s Aliev tell them that it can be done. It is a rare case when Ukraine’s geopolitical position is its curse. If Ukraine were located somewhere in the Western Europe, the Ukrainian government and public would be less exposed to the past and modern period of the totalitarianism of the former Soviet Union region.

The Yanukovych Administration Unleashes a Full-Blown Political Terror

2010-12-16T13:03:00.000-08:00

Ukraine's Office of General Prosecutor launched investigation against Mrs. Yulia Tymoshenko, former Prime Minister (BYuT), on embezzlement charges. Kyivpost writes that "Tymoshenko said after questioning Wednesday that the probe centres around her alleged misspending of $280 million (€200 million) received for the sale of carbon credits under the Kyoto protocol". Since the prosecution considers her flight risk, she cannot travel overseas.

Her political party, BYuT, has already reacted to a new twist in the series of political prosecutions by blocking the Parliament and fighting with the Regionals (Party of Regions) there. Mrs. Tymoshenko says that President Yanykovych controls her investigation. It seems to be true that the Office of General Prosecutor receives orders from the Yanukovych administration. Many allies of Mrs. Tymoshenko are arrested or under investigation. Her former deputy and closest political ally, Oleksandr Turchinov, is under investigation. The General Prosecutor issued the arrest warrant for Bohdan Danylyshyn who was Minister of Economy in the Tymoshenko government. Mr. Lutsenko, the former Minister of Interior, is under the investigation on embezzlementt charges too. Mr. Lutshenko allegedly raised a salary of his personal driver by rigging the payroll system.

Mrs. Tymoshenko's allies find themselves in a circle of fire. The political terror becomes a mundane part of Ukraine's reality with a full-blown prosecution of anyone affiliated with the political opposition. The Yanukovych administration does not spare anyone. It does not matter whether it is a president of the Donetsk university opposing a real estate development on the public property of his school or it is a group of Kharkiv residents opposing a real estate development of the public park. The Yanukovych administration is drunk with the power. The recent political prosecutions have already topped the "achievements" of the Kuchma administration. Shall we witness a revival of the seemingly forgotten year of 1937 from the Soviet history? It is simply unacceptable. I do not understand why the rest of the world does not react to the political terror in Ukraine.

The Yanukovych administration, however, gambles with the Tymoshenko case. It is not the first time that Mrs. Tymoshenko is under investigation. The Kuchma administration went even further by throwing her in the jail. But the political prosecution made Mrs. Tymoshenko the victim of the political terror in the eyes of Ukrainian voters. As a result, she lead the Orange Revolution and rose to the power. If the charges do not stick again, the Yanukovych administration can step in the same river twice.

Chernobyl as Tourist Hot Spot

2010-12-15T13:20:00.000-08:00

The Wall Street Journal writes that Ukraine's government will turn Chernobyl into the official tourist spot for the upcoming EURO 2012. "Ukraine's Emergency Situations Ministry said Monday it is working on a plan to open the area around the defunct plant—where a reactor exploded on April 26, 1986, spreading radiation across the then-Soviet states of Ukraine, Belarus and Russia—to visitors starting next month.The ministry said radiation levels in certain parts of the so-called exclusion zone, which stretches 30 kilometers (19 miles) around the exploded reactor, were now returning to normal levels."
I am not sure whether it is a really cool place to go on a tour. It is a deserted city. Though it could be a hot spot for the extreme tourism. You can play paintball there or do a base-jumping from the roof of the nuclear power plant. It will be interesting to see what revenues the Chernobyl will generate in 2012. By the way, several tourist companies have already been running the unofficial Chernobyl tours. So the government will just make it de jure.

Sex Slaves and Human Trafficking... From Ukraine to USA

2010-12-06T16:18:00.000-08:00

MSNBC's Meredith Vieira goes inside the human trafficking and underground prostitution scene in the United States in “MSNBC Undercover: Sex Slaves in America,” which premiered Monday, Dec. 3 on MSNBC. One episode is about two Ukrainian "Work & Travel" students who looked forward to working in a restaraunt in Virginia Beach, VA but they were forced to work in the strip club in Detroit, MI. Here is a link to the video.
Unfortunately, the human trafficking is rampant in Ukraine and other Eastern European countries. It does not look like the government does anything to fight it.

Russia Will Host the Soccer World Cup 2018

2010-12-03T14:50:00.000-08:00

Russia won the right to host the 2018 Soccer FIFA World Cup. Russia's Prime Minister Putin promised the FIFA that Russia would invest billions of dollars in stadiums, roads, hotels, and other infrastructure. Right now Mr. Putin says that Russia will spend about $10 billion. The KyivPost writes that Mr. Putin expects major companies to foot some of the bill.
Russia will have to build 13 stadiums and renovate three major stadiums, including Luzhniki. Mr. Putin project the cost of stadium construction to be about $4 billion. Russia proposed to host the World Cup in 13 major cities: Kaliningrad, Kazan, Krasnodar, Moscow, Nizhny Novgorod, Rostov-on-Don, St Petersburg, Samara, Saransk, Sochi, Volgograd, Yaroslavl, and Yekaterinburg.

Azarov's Tax Code Causes Public Protests

2010-11-27T15:49:00.000-08:00

Ukraine's parliament passed the Tax Code proposed by Prime Minister Azarov (Party of Regions) and his government. Now the Tax Code waits for President Yanukovych's (Party of Regions) "approval". In brief, the Azarov's Tax Code is draconian. It offers tax incentives to the corporations and high-income households while it shifts a tax burden on small- and medium-size businesses and middle-income and low-income households. The bill was passed quietly without any public discussion. The Azarov's Tax Code, however, caused massive public protests when the legislation became publicly available. It consists of several chapters written by both local and foreign experts. Chapter 14 of the Tax Code is the most controversial. If it remains unchanged, it will drive the small-size business (e.g. sole proprietorship) to a brink of bankruptcy. When the government faced public protests, Mr.Azarov (Party of Regions) played the nastiest political trick. He said that the small- and medium-size businesses would bankrupt the welfare and social security system if they opposed the new legislation. Despite his provocative announcement, Ukrainians seem to be united. If President Yanukovych signs the bill, protesters promise to repeat the Orange Revolution.
Here are links to videos featuring public protests:
http://glavnoe.ua/video/v643
http://glavnoe.ua/video/v640

The 2010 Best Economics Blog

2010-11-23T11:55:00.000-08:00

My colleague, Olga Nicoara, won the 2010 Best Economics Blog Award from the Marketing Degree. I highly recommend her blog for my readers interested in the political economy of the Soviet and post-Soviet countries. Congratulations!!!

The Political Economy Of Hurricane Katrina And Community Rebound

2010-11-19T10:01:00.000-08:00

I am excited to inform you that The Political Economy Of Hurricane Katrina And Community Rebound (November 2010, 272 pp, $ 99) featuring the chapter that I co-authored with Dan Rothschild (The Mercatus Center) came out finally. Go ahead and buy it online!
The book is edited by Emily Chamlee-Wright, Elbert H. Neese Professor of Economics, Beloit College and Affiliated Senior Scholar, The Mercatus Center, George Mason University, US and Virgil Henry Storr, Senior Research Fellow and Director, Graduate Student Programs, Mercatus Center, George Mason University and the Don C. Lavoie Fellow, Program in Philosophy, Politics and Economics, Department of Economics, George Mason University, US. Contributors include E. Agemy, J. Bleckley, E. Chamlee-Wright, D. D’Amico, J. Hall, S. Horwitz, A. Kashdan, L. Krasnozhon, P. Leeson, A. Martin, E. Norcross, D. Rothschild, P. Runst, E. Schaeffer, D. Skarbek, A. Skriba, R. Sobel, V. Storr

Here is an abstract: In 2005 Hurricane Katrina posed an unprecedented set of challenges to formal and informal systems of disaster response and recovery. Informed by the Virginia School of Political Economy, the contributors to this study critically examine the public policy environment that led to both successes and failures in the post-Katrina disaster response and long-term recovery. Building from this perspective, this book lends critical insight into the nature of the social coordination problems disasters present, the potential for public policy to play a positive role, and the inherent limitations policymakers face in overcoming the myriad challenges that are a product of catastrophic disaster.

UTA Students Visit the Bureau of Engraving and Printing

2010-11-15T11:18:00.000-08:00

I am serving as a faculty adviser to the student organization, the National Association for Business Economics - UTA chapter, affiliated with UTA Economics Department. Last Friday we went to the Bureau of Engraving and Printing in Fort Worth, Texas. There are only two BEPs in USA: one, in Washington, DC; and two, in Fort Worth, TX. Tour was really interesting. UTA students get a chance to see the money creator as well as the inflationary machine with their own eyes. The most interesting fact is that the BEP works 24 hours a day, Monday through Friday, and now it is printing $386 million a day or $16 million an hour. Given the recent announcement about the quantitative easing, it will take the BEP-FW 1550 days to print $600 billion that FED will use to purchase the US government bonds. If the BEP-DC prints at least at the same rate, it will take both BEPs 775 days or more than two years to print $600 billion. Unless my calculations are wrong, the whole situation around the quantitative easing seems to be very interesting.

Life under Yanukovych

2010-11-15T10:52:00.000-08:00

I would like to explain why I disagree with the Economist on the local elections in Ukraine (“Life under Yanukovich”, November 6-12, 2010). The Economist writes that President Yanukovych cannot mirror Putin's policy because, "unlike Russia, Ukraine does not have enough resources to carry on without (economic) reform." If there is a resource requirement for a sustainable autocracy, I am not aware of it. The Economist argues that President Yanukovych has to implement economic reforms to remain in the office for the second term. If reforms fail or stall, President Yanukovych will be tempted to hold on to power by repressive means. But it is exactly what is going on in Ukraine now. The local elections show that the Yanukovych administration is the ruthless repressive bureaucratic apparatus. The state prosecutes and interrogates political opponents. Many allies of Mrs. Tymoshenko are arrested or under investigation. The government ruthlessly manipulates election laws and thuggishly rigs the elections. The official results contradict the exit polls for the first time since the Orange Revolution. If local elections happen to avoid falsification, the Yanukovych administration forces the democratically elected mayors or members of city councils to join the ranks of the presidential party, the Party of Regions. The list of repressive means goes on and on.

I agree that the Orange Revolution serves as the reminder of the failed repressive regime of President Kuchma. The Yanukovych administration that mainly consists of the Kuchmists remembers really well those events. But Niyazov’s Turkmenistan, Nazarbaev’s Kazakhstan, Aliev’s Azerbaijan, and Lukashenka’s Belarus tell President Yanukovych that Ukraine can carry it on without the resources of Russia. Is there life under the repressive regime of President Yanukovych? No.

Is There Life Under President Yanukovych?

2010-11-08T14:00:00.000-08:00

The Economist has great article "Life under Yanukovych" about the local elections in Ukraine. Here is a link to the article. And here is a link to my opinion. The article is very optimistic. Its central message is the following: given the elections are falsified, President Yanukovych cannot lead Putin's policy because, "unlike Russia, Ukraine does not have enough resource to carry on without reform." I strongly disagree.

Ukraine's Municipal Elections Will Be on Halloween

2010-10-29T14:59:00.000-07:00

Ukraine will have the municipal elections on October 31, 2010, the Halloween Day. These elections are more likely to become the first non-democratic elections since the 2004 Orange Revolution. The political situation is very dramatic. The Yanukovych administration ruthlessly suppress the political opposition.

Most municipal and mayor elections will be the one-candidate elections. The red tape of the centralized bureaucracy hinders the democratic process of candidate nomination and registration. Facing outrageously ruthless government pressure, candidates from the political opposition could neither nominate nor registerr themselves for the upcoming elections in several provinces, strongholds of the presidential party, Party of Regions. Some candidates are forced to revoke their nomination in support of the incumbent candidates who are members of the Party of Regions. By default, most municipal and mayor elections become the one-candidate elections. In Eastern provinces such as Donetsk, Kharkiv, and Luhansk advertising companies refuse to provide time and space for political advertisement of the opposition’s candidates.

The government cements the vertical integration of power at the speed that reminds the second term of the Kuchma administration. The Yanukovych administration forces all government officials to enlist in the Party of Regions. Also, President Yanukovych abuses his power by calling for criminal investigations of the opposition’s politicians. Many allies of Mrs. Tymoshenko are arrested or under investigation. Her former deputy and closest political ally, Oleksandr Turchinov, is under investigation. The General Procurator issued the arrest warrant for Bohdan Danylyshyn who was Minister of Economy in the Tymoshenko government. All recent events remind the tragic events of 1937.

Several NGOs called for responsible public action in the upcoming elections. Most Ukrainian voters tend to agree on the new consensus that they have to vote "against all" since there are no other options in most provinces. The following banner says: "Election on the Halloween. October 31st. If you don't vote, the evil will win!"

Ukraine's First Lady Quotes Mises, Hayek, and Professor Peter J. Boettke!

2010-10-19T20:26:00.000-07:00

I would not believe it if I did not read it myself. In the July issue of Ukraine's leading newspaper Pravda,
former first lady, Kateryna Yushchenko, quotes Mises, Hayek and ... my dissertation advisor, Professor Peter J. Boettke. Mrs. Yushchenko wrote her op-ed about free market debate in Ukraine. She makes excellent points.
Here is a link to the original and here is a link to the Google translation. Since the Google translation is not perfect, I just want to clarify it. Mrs. Yushchenko quotes Dr. Boettke drawing analogy of the heavily regulated market economy with the Olympic swimmer in shackles. She quotes Professor Boettke saying that "if you put shackles on legs and hands of the Olympic swimmer, wrap heavy chain around him, and drop him in the swimming pool, he will drown. But you still can't say that he can't swim." Neither you can say about the heavily regulated market economy that free market does not work. Really great op-ed!

Ukrainian Dance

2010-10-13T19:38:00.000-07:00

Everyone asks me about Ukrainian national dance. It can be different. Here is a link to the performance by the Zorya Ukrainian Dance Ensemble at the Texas State Fair, Dallas, TX on Oct 10, 2010. It was awesome.

The 2010 Nobel Prize in Economics

2010-10-11T14:20:00.000-07:00

Peter Diamond (MIT), Dale Mortensen (Northwestern U), and Christopher Pissarides (LSE) won the 2010 Nobel Prize in Economics for their contributions to the theory of unemployment. Congratulations! Their work on job search theory, wage stickiness, hysterisis, job creation, and job destruction shed new light on our understanding of unemployment.
It's interesting that the US Senate rejected Peter Diamond's nomination for the Federal Reserve Board back in April 2010. His intellectual influence still carries on to the FED through his former student and current chairman of the FED, Ben Bernanke.
Also, the 2010 Nobel Prize in Economics is a good reason for celebrating the Austrian Economics because the prize-winning work on employment includes insights from the Schumpeterian creative destruction and the Hayekian discovery process.

Yanukovich's Party of Regions Beats Up People, Cuts Down Trees, and Auctions Off Public Park

2010-10-06T16:18:00.000-07:00

Kharkiv, the second largest city of Ukraine, became a place for the blood-shedding stand-off between residents of Kharkiv and the Kharkiv mayor. On June 2, 2010, the mayor's security service stormed a camp of protesting Kharkiv residents. The Kharkiv police observed the battle without taking any sides. Protesters sought refuge in the standing-by police officers who denied them in protection. The protesters were insulted, beaten up, threatened with chain saws so they had to flee. The police arrested and removed the remaining protesters.

Kharkiv residents were protesting mayor's decision about real estate development of the city park, Gorky Park. The park's square footage is approximately five times as big as New York's well-known Central Park. According to the real estate development plan, the private contractor would built a highway across the park and gated residential communities with amenities such as tennis courts and swimming pools. The plan looks like a normal real estate development but it violates the law. The Gorky park is public property designated for recreational activities. It cannot be a subject for a real estate development.
I watched the events closely because it's my hometown. I hoped that the common sense would take over corruption and lawlessness. It didn't! Kharkiv's deputy mayor Gennady Kernes and Kharkiv's governor Michael Dobkin who are members of the presidential party, Party of Regions, were ruthless and unstoppable.
Here is a link to the documentary(CNN video) that shows how the stand-off between residents of Kharkiv and the Kharkiv mayor's office ended on June 2, 2010. It's shocking that the police officers did not protect citizens from unidentified security guards (thugs) who removed demonstrators from the designated area of real estate development. The video has comments from the crime witnesses. Subtitles have a correct translation.
Here is a link to the website of NGO Kharkov Forest.
Here is a map with the real estate development plan of the Gorky park, provided by the NGO Kharkov Forest.

A Farewell to Democracy, Free Media, and Free Enterprise: Ukraine's Prospects Revised

2010-10-04T15:20:00.000-07:00

In my old post I wondered whether Ukraine had a strong political opposition to counteract advances of President Yanukovich against democracy, economic freedon, and free media. My answer was yes. And I was too optimistic. I thought that either former prime minister Yulia Tymoshenko or former president Viktor Yushchenko could stop the Yanukovich machine. They failed again. Everyone left Tymoshenko. Her former sponsors and party members are in the Yanukovich team now, not always voluntarily. Yushchenko is a political ghost. Nobody can stop President Yanukovich and his Party of Regions, at least, in Ukraine. The Yanukovich administration did more in six months than the Kuchma administration in ten years. The Yanukovich administration curbed media freedom, oppressed small-scale and medium-size business, and installed dictatorship.
A farewell to freedom of speech. The Yanukovich administration curbed freedom of media really fast. Ukraine's mass media looks like Russian media now. Nobody criticizes President Yanukovich openly. It got to the point that the Voice of America can lose its broadcasting partners in Ukraine very soon as it happened in Russia.
A farewell to free enterprise. The Yanukovich administration hammered small-scale and medium-size businesses with oppressive tax policy. The new tax code promises to become the apocalypse of economic freedom in Ukraine. All small-scale and medium-size businesses move their operations to the shadow economy before the new tax code will go in effect.
Finally, a farewell to democracy! The Yanukovich administration won the case vs the 2004 Constitutional Amendment in the Constitutional Court of Ukraine. The 2004 Amendment was very important step in Ukraine's democratization. It was once in a lifetime opportunity.  In brief, this amendment separates powers between president and prime-minister where the former is responsible for foreign policy and the latter takes on duties of domestic policy. Not anymore! The executive power is centralized now! The Constitutional Court ruled last Friday that the 2004 amendment violated the Constitution of Ukraine and thus the Constitutional Court overruled it. Did I mention that right before the seminal ruling four judges of the Constitutional Court were replaced with four new judges affiliated with the Party of Regions.
So, Ukrainians, please, say a farewell to democracy for the next five years at least. But it's no the saddest part. It's really sad that if Yulia Tymoshenko won the presidency, she would do the same. The only difference is that the Party of Regions could stop her. Who is going to stop the Yanukovich machine?

Happy Birthday to Ludwig Von Mises!

2010-09-29T16:13:00.000-07:00

Today, 129 years ago, the distinguished economist and the leader of the Austrian School of Economics was born. His work is outstanding. It is very broad ranging from topics of socialism to the quantity theory of money. Ludwig Von Mises taught at the University of Vienna, Austria, and later at New York University, USA. If you have not read his work, please, start reading it now.
It's a very interesting fact that Ludwig Von Mises was born in Lemberg in Galicia province of the Austro-Hungarian Empire. Now, Lemberg is know as .... Lviv, Ukraine. I wonder whether anybody celebrates his birthday in Ukraine?

Facebook of Ukraine's Agriculture

2010-09-28T15:23:00.000-07:00

Let me introduce Volodimir Ambrossov (Professor at Kharkiv State Agricultural University) and Viktor Stotsky (former governor of Novodalazhsky county, Kharkiv province). They played and continue to play a very important part in the economic development of Ukraine’s agro-producing industry. I have a huge respect for them. Dr. Ambrossov and Mr. Stotsky are the faces of Ukraine’s agro-producing sector.

Dr. Ambrossov is a seminal figure in Ukraine’s land reform. He worked together with Pavlo Gaydutsky (former Director of Department of Agriculture) on the project of the 1999 Reform. Dr. Ambrossov is not an arm-chair agricultural economist. He served as President Kuchma’s representative in Kharkiv province. His main task was to advance the land reform and supervise the land privatization. Now he leads a consulting group that conducts analysis of agro-producing industry.
Mr. Stotsky actually knows Dr. Ambrossov very well. They were classmates when they went to Kharkiv State Agricultural University. Since then their paths have crossed many times though they chose different career paths. They are still friends. Mr. Stotsky started his career as a farm manager. Later he was elected as a governor of Novodalazhsky county in Kharkiv province. Now Mr. Stotsky serves as an economic adviser of Kharkiv deputy Shklets.

Dr. Volodimir Ambrossov.

Viktor Stotsky.

Fact of the Day

2010-09-23T14:28:00.001-07:00

Average Ukrainian household spends almost 60 percent of its income on food (thnx2: Ukrainian Economist’s Oleksandr Shepotylo). Only three percent of the household income goes into eating out and entertainment. According to the CIA World Factbook, Ukraine’s GDP per capita was $6,300 in 2009 (134^th place in the world).

The SUSTA Protests against Ukraine’s President Yanukovich in New York

2010-09-22T10:08:00.000-07:00

I didn’t blog for some time. But Ukraine is getting more interesting with every day since Mr. Yanukovich became Ukraine’s president. Today I received a message on Facebook from the SUSTA – The Federation of the Ukrainian Student Organizations of America. Today the SUSTA members will protest against Mr. Yanukovich’s visit to New York. The Ukrainian Weekly will feature their demonstration. Here is a message:

On the occasion of today’s visit by the newly-appointed Ukrainian President Victor Yanukovich, members of SUSTA - the Federation of Ukrainian Student Organizations of America (Союз Українських Студентських Товариств Америки), along with the Ukrainian-American community and the worldwide Ukrainian diaspora would like to share with you our deepest concerns regarding the recent anti-democratic developments in Ukraine.

In the recent months since his election into office, the pro-Russian President has taken alarming steps to compromise Ukraine’s national identity and sovereignty. To name just a few:
•the unconstitutional extension of the lease for the Russian Black Sea Fleet in Crimea;
•the rising dependence on Russia to provide for Ukraine’s security and stability which poses a definite threat to Ukraine’s sovereignty;
•the denial of Holodomor as an act of genocide and its removal from the official presidential website;
•recent censorship of the press, targeting several independent Ukrainian television stations;
•the new government’s move to control the judicial system by granting the president power over the hiring and firing of judges; and,
•the non-bloc status of Ukraine, which threatens Ukraine’s Euro-Atlantic integration and future NATO membership

As if these were not enough, certain parliamentarians of President Yanukovich's Party of Regions, together with some satellite parties, appointed a controversial figure by the name of Dmitri Tabachnik as the Minister of Education and Science of Ukraine. Sadly, Mr. Tabachnik is widely known for his anti-Ukrainian, anti-democratic, pro-Russian, xenophobic attitude towards ethnic Ukrainians, especially to those living in the Western part of the country. In some of his statements, he has specifically formulated discriminatory wording which is comparable to that used by the Nazi propaganda with respect to the Jewish people during WWII. In fact, he proceeded to follow policies which diminish the Ukrainian language on the national level (i.e. cancelling university examinations in the Ukrainian language, issuing decrees to cease movie translations in Ukrainian, intimidating and arresting university faculty and students for simply exercising their democratic rights, etc)…

It is hard for us all to observe Mr. Yanykovich’s and Mr. Tabachnik’s current reversals of the former President Victor Yushchenko’s democratic policies. It seems that the current administration’s damaging political actions reflect the refusal to acknowledge Ukraine as an independent country and threaten the very existence of Ukraine as a young democratic nation. As citizens of the Ukrainian-American community (and the world Ukrainian community at large), we are greatly disturbed by these recent anti-democratic policies of Mr. Yanukovich, his newly-appointed government and parliamentary counterparts. As proud Ukrainians, we firmly uphold and vehemently defend a strong, self-sufficient, independent state where Ukrainians are free to express their opinions, are cognizant of their culture and history and are proud of their unique heritage!

The time is NOW! We cannot allow President Yanukovych to threaten Ukraine's freedom any longer!!! We must defend Ukraine’s integrity and sovereignty!

We would like to thank all of you for joining us here today to voice your own concerns regarding the future of Ukraine as a country, its independence and the plight of its people. It is up to each one of us…

Sincerely yours,
Vera A. Partem, SUSTA 2010-2011 President and Executive Director
Olya Yaruchkivska, SUSTA 2010-2011 Vice President
Roksolana Starodub, SUSTA 2010-2011 Treasurer
Ostap Tymchyk, SUSTA 2010-2011 Secretary

The Post-Soviet Potemkin Village

2010-07-15T13:54:00.001-07:00

I am reading a book "The Post-Soviet Potemkin Village: Politics and Property Rights in the Black Earth" that is about land reform politics in Russia and Ukraine. It is written by Jessica Allina-Pisano, an Associate Professor in the School of Political Studies at the University of Ottawa. Professor Allina-Pisano conducted more than 300 interviews in Ukraine and Russia between 1997 and 2006. So far I just read two chapters that showed her profound knowledge of the politics in Ukraine and Russia. Her research is very interesting and I look forward to reading her book.

Ukraine’s Fiscal Policy Hurts National Exporters

2010-07-13T10:03:00.001-07:00

Ukraine's fiscal policy forces the national exporters to a bankruptcy. A large number of export-oriented companies complain that the state refused to issue VAT (value-added tax) refunds because of exponentially increasing foreign and national debts. In Ukraine the Commerce Code and the Tax Code clearly state that the exporting companies should receive VAT refunds to avoid a double taxation because their products are subject to VAT in the importing countries. The state, however, issues tax refunds only to few companies that supported President Yanukovich in the 2010 Presidential elections. Other companies have to pay a high price for their political views. One of the largest steel-exporters, Arcelor Mittal, plans to lay off thousands of workers if the company does not receive VAT refund in the amount of $312 million (2.5 billion UAH). A transnational agro-producing corporation, Cargill, left the Ukrainian grain market because the government refused to reimburse VAT in the amount of $100 million (800 million UAH). Other exporters also face potential downsizing if the state defaults on VAT liabilities.

Should Ukraine Go Green?

2010-06-10T11:20:00.001-07:00

I would like to talk about Ukraine's environmental policy. Here and there Ukraine is pressured by international donors to develop sustainable environmental policy. I agree that Ukraine needs to responsibly conserve natural resources for the future. A responsible conservation must be based on a cost-benefit analysis so that our generation internalizes full costs of our actions today without passing our costs on future generations.

The problem is that the international organizations offer financial aid for the development of the recycling infrastructure. Available financial packages provide a wrong set of incentives for Ukrainian entrepreneurs because they can subsidize economically inefficient projects. The best case in point is a recycling factory in Kharkiv, the second largest city of Ukraine. Several entrepreneurs tried to build the recycling factory twice. The factory was build to assist the city of Kharkiv with a curbside recycling program. Each time they received a grant from the international donors and the city. And each time the factory went bankrupt.

Before more mistakes are made, Ukraine needs to learn a lesson from USA that a curbside recycling does not conserve resources. Industrial and large-scale recycling can conserve resources if a necessary infrastructure is in place. In USA it's very costly to run curbside recycling programs. You need to run trucks across the city to collect recycling bins. Trucks burn diesel fuel, pollute air, cause traffic, and waster other resources. On average, 85% of curbside recycling programs waste resources in USA. For instance, LA County has 800 trucks instead of 400 trucks on roads each day because of a curbside recycling program. Excessive number of trucks causes excessive air pollution.

The recycling is also a manufacturing process that can conserve resources. For example, 95% of a value of aluminum can is in electricity so the recycling preserves energy. However, aluminum cans constitute a trivial part in the US recycling. Americans mostly recycle plastic, cardboards and paper products that are worthless in terms of recycling.

Thus, the recycling should not be done to feel good. The recycling as any type of economic activity must be a subject of a thorough cost-benefit analysis. Ukraine should learn the lessons from the recycling experience of USA before more grants will be received to build more recycling factories.

Here is an outstanding interview about recycling in the US with Daniel Benjamin, the distinguished professor of Economics at Clemson University in South Carolina. He is also an author of an essay "Eight Myths about Recycling".

NATO, Good Bye!

2010-06-09T14:24:00.000-07:00

It happened at last. Ukraine's parliament will change Ukraine's status from potential member of NATO to a neutral status. Ukraine's president Yanukovich said that he would look forward to the parliamentary session and he supported the decison of status change. If anyone keeps score in terms of US and EU foreign policy in the FSU region, Putin's Russia is leading in the series with a pretty large handicap. Here is a piece about Ukraine's NATO bid.

Ukraine’s Prospects

2010-05-30T15:50:00.001-07:00

I am reading couple books – Economic Analysis of Property Rights by Yoram Barzel and Free Market Environmentalism by Terry Anderson and Donald Leal. These books are not about Ukraine. But these books have great insights that can be applied to Ukraine. So here is what I am thinking.

Human values matter only for human decisions. Human beings always respond to incentives. Price provides the strongest incentive since money matter a lot for most people. Price sends a correct signal only in a free market and democratic society. Otherwise, a price signal comes with a white noise - a market distortion (e.g. central planning in the former Soviet Union). Then everything goes wrong. Free market economy needs democracy as much as a democracy needs market economy. Without a free expression of a political will, a dictator can destroy an unfettered faith in a free market process. Without a faith in a free market, people will not respect market prices and property rights. Without a free market, a democratic society can't use its resources efficiently because the social decisions are not based on the market prices. The final element is a rule of law. Without a rule of law, a democratic nation with a free market economy will always operate at a suboptimal level because a cornerstone of a free market society – private property – is not protected by the law. Thus, a nation can prosper only if three elements are in place. Otherwise, a nation is doomed to be an underachiever.

So where is Ukraine now? Ukraine has two elements in place – an emerging free market economy and a consolidating democracy. The rule of law is a weak link in Ukraine's path of post-socialist development. A recently elected Ukraine's president – Mr. Yanukovich - is more likely to follow the Putin's Russia style of command and control rather than a very hands-off approach of his predecessor – Mr.Yushchenko. It's a no-brainer to predict Ukraine's path of development under Mr. Yanukovich. His team will curb media freedom, redistribute state property through privatization to his donors, increase a tax burden on private sector except friendly corporations, and cater specifically to the Russian interests. Does Ukraine have a strong political opposition to offset any potential damage to be made by Mr. Yanukovich. Yes. At least, three politicians can resist Yanukovich's advancement against democracy and free market. It will be former prime minister Yulia Tymoshenko, former president Viktor Yushchenko, and former parliamentary speaker Arsenyi Yatseniuk. I guess that we will see really soon whether the Ukrainian trinity can work effectively from the barricades of the parliamentary opposition.

Free Market Environmentalism in Montana

2010-05-26T14:01:00.000-07:00

I am writing this blog post from a small town surrounded by snow-capped mountains and livestock ranches. I am in Bozeman, Montana, where I have started a research fellowship at the Property and Environment Research Center. PERC is the leading research organization in the environmental economics. In USA it's the oldest and largest institute dedicated to improving environmental quality through free markets and private property rights. PERC actually pioneered the free market approach to the environmental economics known as free market environmentalism (FME). I am very excited to work here side by side with the most distinguished economists such as Roger Meiners, Daniel Benjamin, PJ Hill, Terry Anderson, Bob McCormick and many others. I have not met everyone yet because PERC has a pretty large stuff with many visiting scholars.
At the PERC my mission is to present an economic analysis of Ukraine's the most controverial land reform known as the 1999 Reform. I will use a firm-level sample from Ukraine’s agro-producing industry to assess an economic efficiency of agro-producing firms created in a wake of the 1999 Reform. My preliminary analysis indicates that a fully delineated and secure system of private property rights leads to large positive gains in economic efficiency. In Ukraine, agro-producing firms with a well-defined and secure governance system have twenty percent higher level of productive efficiency.

The Political Economy of Natural Disaster: from Iceland’s volcanic eruption to USA’s Hurricane Katrina

2010-04-20T16:17:00.001-07:00

The recent failure of a centralized government-controlled response to a natural disaster led to a shutdown of the European airspace and thousands of stranded travelers across the world. If you followed the news, you know that a volcanic eruption in Iceland generated clouds of volcanic ash and blocked the airspace between Europe and other regions. You should also notice that the volcanic-transportation crisis also revealed a failure of a centralized European transportation system to deal with any kind of natural disaster effectively. The whole concept of Eurocontrol, the Brussels-based agency that coordinates the European air traffic, has been undermined when European countries started lifting their air travel bans one by one. Thus, Iceland's volcanic eruption reminded us once again the folly of the centralized government control over business activity and its efficiency in responding to the natural disaster. That's why I want to recommend you reading a new book, The Political Economy of Hurricane Katrina and Community Rebound, published by Edward Elgar that focuses on the political economy of the 2005 Hurricane Katrina by critically examining the public policy environment that led to both successes and failures in the post-Katrina disaster response and long-term recovery. Building from a perspective of the Virginia School of Political Economy, this book lends critical insight into the nature of the social coordination problems disasters present, the potential for public policy to play a positive role, and the inherent limitations policy makers face in overcoming the myriad challenges that are a product of catastrophic disaster.

Contributors include a number of distinguished established economists as well as outstanding young economists: E.M. Agemy, J. Bleckley, Emily Chamlee-Wright, Daniel D'Amico, Joshua Hall, Steve Horwitz, Andrew Kashdan, Leo Krasnozhon (humbly yours), Peter T. Leeson, Adam Martin, E. Norcross, Daniel Rothschild, Petrick Runst, Emily Schaeffer, David Skarbek, Anthony Skriba, Russ Sobel, and Virgil Henry Storr.

Can We Explain the Bloody Protests in Kyrgyzstan?

2010-04-08T08:50:00.001-07:00

Bakhtiyar Igamberdiev, Assistant Professor from Kyrgyzstan's Issyk-Kul State University, will present his research at George Mason University's Institute for Conflict Analysis and Resolution (ICAR). Professor Igamberdiev, ICAR Visiting Scholar, is working on his dissertation thesis about the contemporary political economy of Kyrgyzstan. He will speak about current political events in Kyrgyzstan. A topic of his guest lecture, Five Years Since the Tulip Revolution: Economic and Social Policy, Bringing a Bloodier Revolt, is extremely important and timely in a light of the current events in Kyrgyzstan. Professor Igamberdiev will explain the causes of the bloody protests in the former Soviet state. He will show how public policy implemented after the Tulip Revolution lead to a significant deterioration of the socio-economic conditions and public unrest. Professor Igamberdiev will address the most important question: Is there a constructive escape from recent conflict?

I would like to express my deep condolences to the people of Kyrgyzstan. I wish that a conflict will be mitigated very soon without a loss of human lives on both sides of the conflict.

From UkraineWatch

Russian-Kazakh Cuisine in Virginia

2010-03-27T09:10:00.001-07:00

I am always asked about Ukrainian cuisine. What's it like? And I've already blogged about it.
Here is a new place, Cafe Assorti, that offers a mixed Russian-Kazakh cuisine and it seems to have several food items from Ukrainian cuisine such as ravioli (pelmeni), cutlets (kotleti), meatballs (tefteli), pirogi, crepes (blinchiki), summer soup reminding French vichyssoise (okroshka), and borscht.

in reference to: CAFÉ ASSORTI (view on Google Sidewiki)

My GMU Fellow-Blogger is Under Hacker Attack

2010-03-23T07:33:00.001-07:00

As a follow-up on my previous post about InZero invention, here is example of how it's really easy to breach anybody's computer security via the PDF attachment.

in reference to: North Korean Economy Watch » Blog Archive » Someone is not playing nice…. (view on Google Sidewiki)

Free Trade Hits Hackers Hard!

2010-03-21T07:55:00.001-07:00

Who could figure that the main breakthrough in hackproof hardware-based computer systems would come from … Ukraine. Yes, the Ukrainian programmer, Oleksiy Shevchenko, employed by the Kyiv-based American IT company came up with ingenious invention, the reversely engineered computer system. It protects your computer by creating its virtual copy so that hackers, spywares, viruses and other web-based security breaches end up in a wrong, non-existing, computer system. By the way, the estimated losses from hacker attacks are pegged at more than $1 trillion per year. According to the Ponemon Institute's survey, 85% of companies and agencies have suffered security breaches and data losses over the previous year.

Now Mr. Shevchenko works in, a tiny, Herndon (Virginia, USA) startup called InZero Systems side by side with Mr. Hughes, former president of General Motors' international operations and of Lockheed Martin. The BusinessWeek reports that the InZero has already been tested by the US "military's Defense Advanced Research Projects Agency (DARPA) and several companies that specialize in finding cracks in computer security. No one has broken in". Since InZero wants to catch a big fish, the US DOD, both Mr. Shevchenko and Mr. Hughes face a burden of proof that InZero has no built-in back door left for Eastern European spies. Let's cross our fingers that the red tape of the American bureaucracy will not stall the technological breakthrough. The Obama administration actually thinks about speeding up a bureaucratic review of export-oriented products that are sensitive to the national security. Now the US Department of Commerce can take up to 60 days to review the export-oriented product. President Obama wants to slash it down to 30 minutes!

The estimated cost of InZero software is $25 for individual users versus more than $1 trillion in losses from hacker attacks per year. If it is not the Pareto improvement, then what's that? The InZero is a direct outcome of free market forces. It is a by-product of globalization, free trade, and outsourcing. Isn't it the best way to give a lecture about benefits of free trade? I'll test it on my students in the International Economic Policy class. Rock on!

From UkraineWatch

Finally… a Ph.D.

2010-03-17T18:50:00.001-07:00

I am thrilled to inform you all that I have defended my dissertation successfully. My defense ended just a few hours ago. My deepest appreciation to my dissertation committee - Dr. Peter J. Boettke (Chair), Dr. Peter T. Leeson, and Dr. Frederic E. Sautet for their guidance and support in my graduate studies.

This August, I am heading to Texas. I'm joining the Economics Department at the University of Texas in Arlington. I am thrilled about this opportunity and will sadly miss George Mason University which had been my home for the past four years.

Gorbachev's Op-Ed in the New York Times

2010-03-13T18:54:00.001-08:00

I believe that it's the first time when Mr. Gorbachev praises President Boris Yeltsin and denounces post-Yeltsin Russia's government.

Here are some quotes:

"President Boris Yeltsin’s 1996 re-election and the transfer of power to his appointed heir, Vladimir Putin, in 2000 were democratic in form but not in substance. That was when I began to worry about the future of democracy in Russia."

"I sense alarm in the words of President Dmitri Medvedev when he wondered, “Should a primitive economy based on raw materials and endemic corruption accompany us into the future?” He has also warned against complacency in a society where the government “is the biggest employer, the biggest publisher, the best producer, its own judiciary ... and ultimately a nation unto itself.”

in reference to: Op-Ed Contributor - Today’s Russia - Perestroika Lost - NYTimes.com (view on Google Sidewiki)

Stand-up Comedy Brightens Up a "Dismal Science"

2010-02-19T16:37:00.001-08:00

Here is a couple of jokes from the economists:

ROBERT GORDON, Northwestern University: The fastest way for a billionaire to become a millionaire is to invest in airline stocks.

CAROLINE HOXBY, Stanford University: An economist, a sociologist and a psychologist are golfing together. And they are golfing behind a guy who is blind. And the psychologist said, you know, I really am trying to understand what must be going through this man's mind. And the sociologist says, oh, but, you know, think about the interesting social interactions that he's having with other people on the golf course. And the economist says, this is so inefficient. He should be playing at night.

in reference to: Stand-up Economist Finds the Light Side of a 'Dismal Science' | PBS NewsHour | Feb. 4, 2010 | PBS (view on Google Sidewiki)

GMU Economics Student's Journal Becomes Hollywood Movie

2010-02-18T17:18:00.001-08:00

In April 2004, Lieutenant Colonel Michael Strobl, USMC, came across the name of 19-year-old Lance Corporal Chance Phelps, a young Marine who had been killed by hostile fire in Al Anbar Province, Iraq. Strobl, a Desert Storm veteran with 17 years of military service, requested that he be assigned for military escort duty to accompany Chance’s remains to his family in Dubois, Wyoming. Strobl, who is now a PhD student in Mason’s economics program, recently had his journal turned into a movie called “Taking Chance.”

in reference to: Economics Student Strobl's Journal Becomes Hollywood Movie (view on Google Sidewiki)

Human Trafficking in Ukraine

2010-02-17T21:53:00.001-08:00

The US State Department publishes a Trafficking in Person report annually. Ukraine is ranked on the Tier 2 Watch List. Amanda Kloer discusses this situation in details.
To read more, click on the link below.

in reference to: Human Trafficking in Ukraine: The Origin of a Stereotype | End Human Trafficking | Change.org (view on Google Sidewiki)

Fact of the Day

2010-02-13T20:40:00.001-08:00

It's a very interesting fact that almost 80 percent of Ukraine's mass media is owned by only four entrepreneurs (oligarchs, tycoons): Dr. Pinchuk, Mr. Akhmetov, Mr. Taratuta, and Mr. Kolomyisky.

FOX Covers Ukrainian Holodomor

2010-02-10T16:16:00.001-08:00

The Glenn Beck Program covers Ukrainian Holodomor in its The Revolutionary Holocaust series.

in reference to: YouTube - Part 3| Glenn Beck Documentary: "The Revolutionary Holocaust: Live Free...Or Die" - 01/22/10 (view on Google Sidewiki)

Stealing Popcorn

2010-02-08T17:38:00.000-08:00

Today HQ of Mr. Viktor Yanukovich's presidential campaign showed Stealing Popcorn that was originally presented in LA more than a month ago. I've not seen it yet. But it seems that the movie represents a mix of documentary and fiction. It's about corruption in Ukraine, the Lazarenko case, and Mrs. Yulia Tymoshenko who is allegedly associated with Mr. Lazarenko's embezzlement. Btw, Stealing Popcorn features a well-known Columbia University's Professor of Post-Soviet Foreign Policy Tymothy Frye, Ukrainian-born Emeritus Professor of Economics at University of California - Berkeley, John Letiche, and UCLA's Associate Professor of Political Science Richard Anderson.

Mr. Pavel Lazarenko was Ukraine's PM between 1996 and 1997. He was accused of fraud and embezzlement of $200 million. He escaped Ukrainian justice by flying to USA where he was arrested and convicted by the American justice system. Mr Lazarenko was sentenced to nine years in federal prison. In 2004 Mr. Lazarenko posted $86 million bail to remain under house arrest at an undisclosed location in California. The Transparency International named Mr. Lazarenko the eighth most corrupt political leader in recent history.

Here is a link to a screening of Stealing Popcorn in LA, Jan 21, 2009.

Here is a link to the movie.

Mr. Viktor Yanukovich Won the 2010 Presidential Election

2010-02-07T10:53:00.001-08:00

According to all exit-polls, former PM Viktor Yanukovich defeated the incumbent PM Yulia Tymoshenko in the 2^nd round of the 2010 Presidential election.

Here is a link to all exit-polls.

Ukraine's Central Election Committee (CVK) counted 99% of votes. Former PM Viktor Yanukovich received 48.69% of votes and the incumbent PM Yulia Tymoshenko received 45.73% of votes. Though Mr. Yanukovich's lead over Mrs. Tymoshenko dropped from 10% to 3%, Mrs. Tymoshenko still lost the 2010 Presidential election.

Here is a link to a map that shows a distribution of votes across provinces. An ideological difference between Eastern and Western Ukraine seems to persist.

Is the 2010 Presidential Election a Repeat of the 2007 Parliamentary Election?

2010-02-05T21:01:00.000-08:00

Dear readers,

How many difference can you find between the results of the 2007 Parliamentary election and the 1st round of the 2010 Presidential election?

From UkraineWatch

The 2010 Presidential Election in Ukraine: It’s a Final Countdown

2010-02-05T20:30:00.001-08:00

I really love this 80's rock song. Yeah, it's the final countdown for the 2010 Presidential Election in Ukraine. This Sunday Ukrainian voters will chose their next president. Will it be an odious former PM Viktor Yanukovich who was officially backed by the Kremlin in 2004 and tarnished his political reputation by using his de jure political power to rig the 2004 presidential election? Btw, the law suit against Mr. Yanukovich never made it to the Supreme Courte. Will it be another nevertheless odious incumbent PM Yulia Tymoshenko who drove Ukraine's economy to the brink of collapse by using command-control approach and choking individual economic freedom? Btw, the Kremlin considers Mrs. Tymoshenko the second BFF (after Mr. Yanukovich) since she can take all credits for the recent gas deal between Russia's state-owned Gazprom and Ukraine. According to the newly signed gas contract, among all European countries, Ukraine will pay the highest price for the Russian gas.

From UkraineWatch

Anyways, whoever wins this election should make it in a true democratic process! Nobody wants to repeat the Orange Revolution. Moreover, Ukrainians are not really psyched about the upcoming 2^nd round because very few voters can tell a difference between candidate Y and candidate T. Honestly, what's the difference? Mr. Yanukovich never disguised his pro-Russian political and economic preferences. PM Yulia Tymoshenko's economic policy did not leave much of a choice for Ukrainian business. At the present moment, Ukraine has the largest number of international trade restrictions. Russia does not really care about it because the Kremlin still apathetically negotiates its WTO membership. I am surprised that the WTO has not addressed the Ukrainian situation yet. Well, it's understandable because the Sino-US trade war is much more fun to watch. Plus, the global economic crisis is not over yet. And some countries kind of overreacted with their own trade policies. All this together keeps WTO busy.

Honestly, the previous presidential elections were much more interesting because there was always something at stake (see figures below). The 1991 presidential election was important in terms of state-building. The newly independent state needed a democratic leader such as Mr. Leonid Kravchuk (1991-1994). However, the incumbent president Kravchuk catered more to the nationalist constituency in the Western Ukraine so that the 1994 presidential election allowed the Eastern Ukraine to bring pro-Russian technocrat, Mr. Leonid Kuchma, to the power.

From UkraineWatch

The 1994 presidential election played a seminal role in the emergence of the region-based division among Ukrainian voters. In 1994 it became clear that the Western provinces held a strong preference for nationalist pro-Western politics, while the Eastern and Southern provinces strongly supported technocratic pro-Russian politics. Another interesting observation was that the Central provinces turned out to become the potential swing constituencies.

The 1999 presidential election also spiced up the Ukrainian politics. That year the Ukrainian voters had to make a crucial choice between two antagonistically ideological candidates: a left-wing pro-Russian Mr. Petro Symonenko, a leader of the Communist Party, and a right-wing incumbent president Kuchma (1994-2004) who learned to balance out his foreign policy between both EU and Russia. The leader of the Communist Party failed to capitalize on nostalgic political preferences of the Soviet-generation constituency. By receiving only 37.8% of votes, Mr. Symonenko succeeded in swinging only several Central and couple Southern provinces. In the meanwhile, most of the former Kravchuk constituency located in the Western provinces and the stronghold pro-Kuchma constituency in the Eastern provinces came united against the ghost of the communism. Since then the left-wing politicians witnessed a tremendous drop in their popularity. The communist front-runner Petro Symonenko received only 4.97% and 3.54% of votes in the 2004 and 2010 presidential elections, correspondingly.

Then Ukraine had the Orange Revolution in 2004. The 2004 presidential election will always be a historical landmark of Ukraine's state-building. After all calamities surrounding rigged 2^nd round and its rerun in the late December, a nationalist liberal pro-Western candidate and former PM Viktor Yuschchenko won the election with 51.99% of votes. Once again the same swing Central provinces gave Mr. Yushchenko so needed handicap. The incumbent PM Viktor Yanukovich lost not only election but also his PM position. Furthermore, the authoritarian glitch in the Kuchma administration tarnished former PM's political reputation significantly. While Mr. Yanukovich received 44.25% of votes in 2004, his popularity dropped to 35.3% votes in the 1^st round of the 2010 presidential election. Nonetheless, Mr. Yanukovich received a ten-percent lead over the incumbent PM Tymoshenko. The incumbent president Yushchenko (2005-2010) who became ultra-nationalist closer to the end of his term received only 5.45% of votes. It's actually very interesting fact about the 2010 presidential election that for the first time in the recent political history of Ukraine the incumbent president did not make it to the 2^nd round. On the other hand, the 2^nd round offers Ukrainian voters a cliché choice between two PMs: the former and the incumbent. Once again, what's the difference?

From UkraineWatch

Nonetheless, I am sure that the final results of the 2010 presidential election will give us more fodder for further discussion of Ukraine's political institutional development. The key to a victory in the 2^nd round of this presidential election is a candidate's ability to capitalize on constituencies in the swing Central and Southern provinces. But I guess it's too late to give this piece of advice, ha!

From UkraineWatch

Assorted Links

2010-02-04T18:45:00.001-08:00

Reuters writes that "Ukraine's Yulia Tymoshenko vowed on Thursday to call people onto the streets in a second "Orange Revolution" even fiercer than that of 2004, if rival Viktor Yanukovich tried to rig Sunday's vote for president". What can I say? First, it's not the first time when the incumbent PM Tymoshenko uses a scare-everyone-to-hell strategy (e.g. the Swine Flu outbreak). Second, how can Mr. Yanukovich rig votes if he does not have the so-called adminresource. In other words, you can't rig votes if you are not in power.
The Christian Science Monitor's Fred Weir writes that "Ukraine votes Feb. 7 in a runoff between bitter rivals Yulia Tymoshenko and Viktor Yanukovych that some say could destabilize the democratic process". Several economists such as Dr. Acemoglu, Dr. Johnson, and Dr. Robinson (AJR) would agree that a status quo change in de jure distribution of political power would cause a status quo change in de facto distribution of political and economic power. So far Ukraine's post-socialist political and economic development shows that de facto institutions cause a change in de jure institutions.
Finally, here is much more interesting piece of news. The BusinessWeek's Halia Pavliva writes that "Ukraine will seek to borrow $500 million to $1 billion by selling Eurobonds as early as next quarter, Economy Minister Bohdan Danylyshyn said, as Europe's hardest hit economy looks for ways to restructure its debt". That's a great point because Ukraine's current debt is a serious economic problem. But I would respectfully disagree that Ukraine is Europe's hardest hit economy. What about the Baltic trinity? Well, they are at least the consolidated democracies so we can leave them alone for now. What about Russia? It was hit really hard by the global economic crisis. Btw, what is happening to Russia's ginormous stabilization fund?

The 2009 Nobel Prize-winning Economist, Dr. Elinor Ostrom, visits GMU

2010-02-03T12:13:00.001-08:00

Yesterday the Mercatus Center at George Mason University hosted an unforgettable evening with Dr. Elinor Ostrom, the 2009 Nobel Prize in Economics. More than 300 people came to see her and hear about a new 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. I've already blogged about this book. Once again, I strongly recommend you reading this book. And don't forget to read Governing The Commons. Both books provide invaluable insights in the modern understanding of institutional analysis and economic development. These books have so many ideas that can be easily applied to the transitional experience of post-socialist countries. Btw, here is a video from the event.

And on a final note, I just want to show off a page from my copy of Governing The Commons signed by Dr. Ostrom.

From Drop Box

Ukraine gets F from the Heritage Foundation

2010-01-23T20:37:00.000-08:00

According to GMU's standard grading policy, Ukraine got F from the Heritage Foundation. The Heritage Foundation' Index of Economic Freedom (IEF) ranks Ukraine as 162nd out of 179 countries with Uzbekistan (158th), Belarus (150th), Russia (143rd), and Tajikistan (128th).

According to the Heritage Foundation:

Ukraine’s economic freedom score is 46.4, making its economy the 162nd freest in the 2010 Index. Its score is 2.4 points lower than last year, reflecting reduced scores in six of the 10 economic freedoms. Ukraine is ranked 43rd out of 43 countries in the Europe region, and its overall score is lower than the world average.

I am speechless. Can you really take these rankings without a reasonable doubt? The authoritarian countries have higher index of economic freedom than Ukraine. Have you tried running private company in Belarus or Tajikistan? I also like the fact that the Property Rights Index did not change at all while most indicators of economic freedom went down. Shouldn't there be some correlation between diminishing economic freedom and property rights protection?

The Economist Covers Ukraine…

2010-01-23T20:09:00.001-08:00

The Economist covered Ukraine's presidential election in couple recent issues. But this week's print edition has TWO articles about Ukraine, including an article in the Leaders section: An Orange and Two Lemons and Five Years on in Kiev. My first reaction is that someone rushed to write these articles. I've found at least ten points which were overlooked. I don't want even to mention that the map of Ukraine has a weird format so that some provinces have Russian spelling while others have Ukrainian spelling. I hope that whoever wrote those articles knows that Ukrainian is the official language in Ukraine as much as Russian is the official language in Russia.

I want to hear your opinions about these articles. How many mistakes will you find?

If You Consider Conducting Research in Russia, ...

2010-01-21T14:09:00.000-08:00

The American Association for the Advancement of Slavic Studies has the following announcement:

The AAASS is seriously concerned about the visa restrictions recently placed on foreign scholars working in Russia. Until the passage of the October 2007 law concerning long term, multiple entry visas, foreign scholars were able to work for an extended period of time (up to twelve months) on academic projects in Russia. The new law currently restricts their stay to 90 days out of any 180-day period,

Assorted Links: 2010 Ukraine’s Presidential Election

2010-01-14T14:42:00.001-08:00

Ukraine's Presidential Election goes Twitter! If you are really interested in following Ukraine's Presidential Elections on Twitter, here is a site: http://www.electua.org/. However, I should warn you that most twits are in either Russian or Ukrainian.
The Jamestown Foundation Blog has a very interesting post about the supposedly rising popularity of the technical presidential candidate, Mr. Tihipko. Tammy Lynch asks the following question: "Can Tihipko Spoil Tymoshenko's First-Round Party?". My answer is "NO" unless all reputable public opinion surveys had a really awful margin of error.
Wikipedia has a page devoted to the 2010 Ukraine's Presidential Election. This page has a nice summary table that demonstrates a change in public support of main presidential candidates. Btw, I've never heard about the Research and Branding Group before. Have you? But it seems to be a very popular research organization in this particular table.

Orange Forever!

2010-01-06T12:25:00.001-08:00

I've received a letter from Bishop Paul Peter Jesep, U.S. Spokesperson for His Beatitude Metropolitan Myfodii of Kyiv and All Ukraine, from Ukrainian Autocephalous Orthodox Church Kyiv-Patriarchate. With his permission, I post it here. It's a very interesting reflection on political beliefs in the American-Ukrainian community:

"Ukraine's Orange Revolution lives! The country's cultural and spiritual reawakening shows that requiems and obituaries are premature. President Viktor Yushchenko has been criticized for his political and economic stewardship. Some of it justified. Although not yet recognized, his legacy is positive and significant. He is the first Ukrainian president who embraced and encouraged the country's distinct Eastern Slav consciousness. Yushchenko challenged his countrymen, Jew, Muslim, Christian, and non-believer to ask who they were as one Ukrainian nation. He reached out to Jews and Muslims as no leader has before to underscore their contributions to Ukraine. Ultimately, a country's soul is defined by its artists, writers, composers, and the language its people speak. Although unable to show a deft touch in educating those who identified with Russian culture in eastern Ukraine or the Crimea, Yushchenko nurtured a national reawakening. He did so, in part, at the expense of bread and butter issues during a worldwide recession.

Yushchenko showed no sympathy in dealing with Russia's national identity crisis. What does it mean to be Russian without Kyiv, the Mother of All Russian cities? His indifference fueled Moscow's ongoing efforts to marginalize Ukrainian culture, language, and history in the international media. According to Russian President Vladimir Putin, Ukraine is nothing more than a breakaway province. He incorrectly insists that it never existed as a nation prior to the breakup of the Soviet Union. Ukraine has a thousand year history. Its final incorporation into Russia occurred when Empress Catherine finally defeated the libertarian, free-spirited Ukrainian kozak state with its rudimentary democratic structure. Spiritually, there can be no Russia without Kyiv. Culturally, politically, and intellectually Moscow cannot let go of Ukraine because to do so leaves its own national identity in question. The Eastern Slavic soul beats in Kyiv, not Moscow, Novgorod, St. Petersburg, or anywhere else in Russia or Belorussia.

It's ironic that Viktor Yanukovych, the Moscow supported presidential candidate from eastern Ukraine, recently told the Associated Press that "the development of . . . democratic principle in our country" was a "price . . . too great." Yet Yanukovych benefits from the very freedom he criticizes in his campaign. During the Associated Press interview Yanukovych also mocked the Ukrainian language as "gibberish" and the messiness of democracy as a "variety show." He vows commitment to a Leninist "rule of law" and the restoration of the Russian language to its superior place.

Regardless of who is the country's president, the sky is blue if Ukrainians in the country and those in the Diaspora work to cultivate the Ukrainian language. If young artists, writers, dancers, musicians, composers, and Christian and non-Christian spiritual leaders in Ukraine nurture the Ukrainian-Eastern Slav soul then the wheat fields are golden. President Yushchenko opened the door. Complacency will shut it. The Orange Revolution is not about personalities. It is about ideas, values, and principles. It's about the culture of a people. Ukrainians are the only Eastern Slav people with the courage to wrestle with the challenges of democracy. Democracy is not about convenience. It is about liberty.

The Orange Revolution can and will live on so long as patriots and those in the Diaspora recognize the critical importance of promoting Ukrainian art, culture, language, and literature. It will not matter who is president so long as ordinary Ukrainians in Ukraine and the Diaspora work to nurture, preserve, and further the country's distinct heritage."

Good News for Ukraine’s Steel Industry

2010-01-04T11:10:00.001-08:00

It looks like Ukraine's steel industry has better prospects in 2010 thanks to … the US International Trade Commission (USITC). The US steelmakers just won a case against surging imports of Chinese steel pipes.

WSJ writes that: "The ruling Wednesday (Dec 30) will result in duties of between 10% and 16% on future imports of Chinese steel pipes used to extract natural gas and oil. It is the latest in a string of trade decisions against China and threatens to further aggravate trade tensions between the two nations."

As far as I know, there are only few countries producing this kind of steel pipes in the world, including China, Russia, and Ukraine. Given the current state of foreign affairs, USA is more likely to buy steel pipes from Ukraine rather than from Russia. Happy New Year, Mr. Pinchuk and Mr. Akhmetov!

Happy New Year!

2009-12-29T15:41:00.001-08:00

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!

2009-12-29T15:21:00.001-08:00

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:

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

Now leisure reading:

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.
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

2009-12-25T11:10:00.001-08:00

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

2009-12-18T15:14:00.001-08:00

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

2009-12-17T12:24:00.001-08:00

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?

2009-12-16T11:52:00.001-08:00

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

2009-12-15T11:32:00.001-08:00

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

2009-12-08T08:59:00.001-08:00

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

Turkmenistan 844
Tajikistan 753
Kazakhstan 713
Afghanistan 706
Russia 688
Uzbekistan 663
Ukraine 637
Moldova 619
Azerbaijan 613
Kyrgyzstan 602
Belarus 592
Georgia 584
Somalia 580
Egypt 560
Bulgaria 554

Assorted Links: Ukraine’s Phantom Outbreak of Swine Flu

2009-12-07T15:26:00.001-08:00

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

2009-12-06T15:15:00.001-08:00

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.

Face Mask and Price Control: Ukraine’s Government Fights off H1N1 Virus

2009-11-26T08:40:00.001-08:00

Over the last two weeks, Ukraine's Prime Minister Tymoshenko provided a classic example about when price controls and government misinformation could go awry. The government spread panic among Ukrainians by announcing that the country had an outbreak of swine flu in the Western regions. It stated that soon enough the whole nation would be infected with the epidemic and deadly swine flu. In all major TV channels, prime minister told the nation that "the world sent the second greatest trial, after the global financial crisis, to Ukraine and that the nation was not ready to cope with the new disaster". Even Ukraine's president Yushchenko who usually avoids populist decisions wobbled under political pressure and asked for emergency financial and medical aid from the European Union and other countries. In another televised address to the nation, the prime minister announced a three-week recess in schools and universities. The government also banned any public gatherings during the same time period.

From UkraineWatch

Can you guess what happened next to a demand for all medical supplies that could somehow help to fight off the imminent virus? The demand for medicals supplies simply skyrocketed. Shelves of local pharmacies were emptied within two days. Ukrainians bought everything starting from face masks to herbal supplements to flu medications. The price of face masks went up three times across the country until it became impossible to find it in the stores. Some small-scale apparel producers quickly added a new production line to meet the surge in demand. Several boutique stores even tried to add chick to the dismal face masks by putting funky designs on them including a happy face. The government officials, that caused the panic in the market in the first place, responded with an old-school approach by imposing price controls on all necessary medical supplies and face masks. Ukraine's government even went further by threatening entrepreneurs with arrests if they try to make an extra buck on the "swine flu panic". The Leviathan of the Ukrainian government was unleashed. All imaginable regulatory agencies ranging from anti-trust agents to fire-control inspectors swamped local pharmacies and markets to enforce this crazy edict. Subsequently, many privately-owned pharmacies cut down their working hours and even shut down in order to avoid conflict with ravaging regulatory agencies. Even black-market entrepreneurs scaled down their operations to avoid any interaction with law enforcement. Could you guess what happened next? The anti-market behavior of the Ukrainian government proved the law of unintended consequences once again when all medical supplies vanished almost overnight.

Unfortunately, the story does not end there. When fidgety consumers faced the empty shelves in the pharmacies, they retreated to all kinds of substitute goods. Traditional Ukrainian medicine prescribes garlic, onion, and lemon to combat the cold. The demand for these goods rose and their prices doubled. In Kharkiv, the second largest city of Ukraine, the price of garlic skyrocketed from 5 hryvnia per bundle to 55 hryvnia (approximately, 7 USD). The government stepped in again. The government accused retailers of making windfall profits on the virus outbreak. However, a public outrage spurred by several public whistleblowers such as Ukraine's celebrity doctor Dr. Komarovksy made the government back away from another price control. The World Health Organization made an official statement saying that Ukraine did not have a very serious H1N1 outbreak. The government rushed to announce that its "quarantine measures" prevented the outbreak of swine flu. Indeed, everything seems to be back to normal though it is still hard to find lemons in the grocery stores. Many Ukrainians also wonder what they should do with the surplus of home medical supplies. Everyone seems to realize the government caused the panic in the markets in the first place by misinformation, and then they try to correct the markets by using anti-market policy instruments. And you know what happened.

Thus, after two decades of post-socialist development Ukraine's government seems to misunderstand its role in a market economy. Sequences of policy lapses like these represent the importance of understanding basic economics, the law of unintended consequences, and resisting populist pressures. Otherwise, the government hurts its own people instead of protecting them.

Misinforming a General Public Always Backfires

2009-11-19T20:37:00.001-08:00

"The Daily Show" host Jon Stewart pointed out inconsistencies in alternating "Hannity Show" shots of a recent conservative rally on the steps of the Capitol Building in Washington, D.C. This has led to accusations of Fox News splicing video footage shot at a larger Glenn Beck rally held in Washington two months ago with video shot at last week's rally, thus falsifying footage to make the more recent protest appear bigger than it was. In other words, the Fox News got caught and made fun of. The lesson is learned once again – don't misinform general public. Speaking of which, so what's really going on with "the pandemic swine flu" in Ukraine? Btw, Ukraine's Ministry of Health prefers to call it the Californian flu.

Here is a video from the Daily Show.

Assorted Links

2009-11-19T16:13:00.001-08:00

KyivPost has a very interesting article about who stands behind the major Ukrainian politicians in the upcoming presidential elections:

A lot of money gets raised, made and spent during elections. In Ukraine, with an election law that does not cap spending by candidates, major campaigns are expected to cost from $60-$70 million in the case of former Verkhovna Rada speaker Arseniy Yatseniuk and up to $100-$150 million or more for the two front-runners, ex-prime minister Victor Yanukovych and Yulia Tymoshenko, Ukraine's current premier.

Swine Flu Infects Ukraine’s Politics

2009-11-12T11:18:00.001-08:00

It's been in the news since last week that Ukraine has an outbreak of swine flu aka H1N1. Russia, Poland and other neighboring countries overreacted by limiting entrance of Ukrainians across borders. Ukrainian politicians overreacted even more than their foreign peers. Whether the outbreak of swine flu had place, the whole governance system simply folded under exigent circumstances as a house of cards touched by a slight breeze. Politicians did everything what they should not do. Instead of protecting its citizens, the Ukrainian government spread panic and fear among the public.

From UkraineWatch

First, it is very interesting that the government was solely responsible for a panic among the public. The Ukrainian government misinformed citizens about H1N1 outbreak. The World Health Organization says that there was no outbreak of swine flu in Ukraine. The government spread a panic among population when Prime Minister Tymoshenko and the Health Minister announced that Ukraine's Ministry of Health registered a record number of people infected with swine flu somewhere in Western Ukraine. However, the World Health Organization has not confirmed an outbreak of swine flu in Ukraine yet! Moreover, a number of deaths from pneumonia that is a complication of seasonal flu was very far from a critical level. Since "the outbreak of H1N1 flu" (October 29, 2009) Ukraine that is a nation with 46 million people has lost 213 people from pneumonia. Only six cases of the H1N1 infection were confirmed. Several medical doctors have already criticized the Tymoshenko government for misinterpreting data and misinforming the public. The most adamant critic of the government incompetence is Dr. Komarovsky who went on several TV shows to calm down Ukrainians and dissolve a myth about the H1N1 outbreak. The government has already changed its position on the epidemic H1N1 situation by announcing that its preventive measures have already reduced the number of flue infections at least by a factor of four.

Second, instead of H1N1 outbreak, we witnessed, perhaps, a final break in the Orange coalition. When Ukraine's president Yushchenko rushed to ask for medical supplies from Europe in order to fight the nonexistent epidemic swine flu, Ukraine's prime minister Tymoshenko ridiculed him for relying on foreign aid instead of doing something himself. Mrs. Tymoshenko promised Ukrainians that she would provide masks for free at each mobile office of her party across country. President Yushchenko retaliated by filing a law suit to the Supreme Court against the Tymoshenko government for failing to report data on a spread of seasonal flu and holding public rallies during "the outbreak of H1N1 virus".

Third, Mrs. Tymoshenko blatantly used "a fight with swine flu" for the sake of her presidential campaign. She proclaimed a fight with swine flu "the second great trial given by the world to Ukraine after the world financial crisis". She made it clear that H1N1 "outbreak" is her number 1 priority in the ongoing presidential campaign. Mrs. Tymoshenko went to war with the swine flu with such zeal and vigor as Miguel de Cervantes' heroic knight Don Quixote who rode his horse to fight windmills. I guess the WHO officials were really touched by the brave heart of Mrs. Tymoshenko that they reconsidered the status of H1N1 in Ukraine to "assumed outbreak". WOW! Well, it's hard to blame the WHO for still being shy when only six person died with a confirmed H1N1 virus from 250,000 "assumed" infected in a country with 46 million people. I am not a doctor, but it doesn't even look to me as a potential outbreak.

Why and what happened to Ukraine's government? I don't really know. But "H1N1 outbreak" shows once again a "professionalism" of Ukrainian politicians. The "outbreak" also demonstrates that what government can do when it is a group of incompetent self-interested individuals delegated with executive and legislative power and driven by the electoral campaign. This kind of government can't do anything good!

Swine Flu Causes Outbreak of Political Stupidity in Ukraine

2009-11-10T17:11:00.001-08:00

Dr. Yevhen Komarovsky, M.D., has an excellent OP-ED in Ukraine's leading English language newspaper Kyiv Post. Dr. Komarovksy not only refutes a myth about H1N1 outbreak in Ukraine but also ridicules a political incompetence of the Ukrainian government.

Here is an example of how efficient is a centralized system of governance in Ukraine:

"I recently talked to a nurse working in a public hospital. She received a call from a chief of medicine, who said: "Tomorrow you have to bring three face masks to your work." Her justified objection that they're difficult to come by was met by the boss' curt reply: "It's your problem. The night is long. There's enough time to sew them."

Celebrating 20 Years of the Fall of Berlin Wall

2009-11-09T09:59:00.001-08:00

What was the major political event in the last two decades? The Fall of Berlin Wall! Today we celebrate twenty years since the fall of the Berlin Wall. Even though the Berlin Wall fell between Eastern and Western Germany, the whole world was affected. But the fight for freedom, democracy and free market is not over yet! We can still see hubris of the Berlin Wall further to the East as well as all over the world.

I usually like to make reference to the Economist to make my point clear. And I looked forward to this week's issue. But I am honestly disappointed with the Economist's dull celebration of the greatest political event in the world's modern history.

George Mason University's Professor Peter Boettke has much more interesting blog post on the Fall of the Berlin Wall (including very cool YouTube video):

"November 9th 1989 --- forgive me if I still get choked up about it 20 years later -- is a critical date in modern history whose significance should never be forgotten. Those of us who believe strongly in the freedom of the individual and in the power of voluntary civil associations (including the profit motive of the market) to resolve social dilemmas instead of relying on the coercive power of the state have lost much of the ground we gained in the 1980s and 1990s during the time since 9/11, and especially this past year. But we still can rejoice in this shining example of the victory of the individual over the collective. Freedom was celebrated that day by people who were oppressed by their government for far too long."

Btw, I highly recommend you reading another post by Richard Ebeling.

If you are interested in the political economy of the Soviet Perestroika and post-Soviet transition, I also recommend you reading these books by Dr. Peter Boettke: Calculation and Coordination and Why Perestroika Failed. These both books are always on my desk.

Eminent Domain: Russian Version

2009-11-08T20:36:00.001-08:00

Moscow's city council shows little respect for private property rights in land. The authorities cater to interests of real estate developers by displacing villagers and destroying their private property without compensation. How do the government officials get away with this? They claim that since land titles were given by the Soviet government, hereby, they could not be acknowledged by the Russian law. I guess it's just another "rock thrown in a harbor" of the Russian system of private property rights.

Here are some quotes from today's NYT article by Michael Schwirtz:

"They gave us this land and told us to develop it," Ms. Gurlynina, now 78, said. "They said we could stay here forever." Then, early one morning last year, the bulldozers arrived. The municipal government had declared that the Soviet-era permits giving Ms. Gurlynina and her neighbors use of the land were invalid, and it had ruled that the 200 or so homes in Ms. Gurlynina's community, called Rechnik, as well as dozens of others in a neighboring community, had to be removed. Moreover, the city said, the residents would have to pay for the demolition themselves.

What is Gas War Good for?

2009-11-07T12:47:00.001-08:00

EU-Reporter's Gary Cartwright warns us about another round of Russia-Ukraine gas war. While Ukrainian politics is gridlocked by former allies, President Yushchenko and Prime Minister Tymoshenko, Russia's Prime Minister Putin steps in to remind Europe that Russia's gas supplies can be again affected by the unstable political situation in Ukraine:

"Putin appears to be trying to draw the EU into its dispute, which one might see as manufactured in a committee room just off Red Square, claiming that Brussels is making the situation worse by refusing to subsidise Kiev. The Ukraine had asked the EU for a $4.2 billion loan to pump Russian gas into its underground storage tanks. "The EU has not given Ukraine any money," Putin told leaders of his United Russia party on Friday. "Ukraine has not received a single cent, not one hryvnia."

Is a Post-American Europe Real?

2009-11-03T09:34:00.001-08:00

Economist's Charlemagne blog features a new paper by the European Council on Foreign Relations (ECFR) that weighs pros/cons of supposedly coming status quo change in the world politics:

The paper focuses on a clever and important thought, namely that America is well underway with its analysis on how to operate in a "post-American world", (ie, the much-discussed new world in which the brief post-Soviet era of unrivalled American hegemony has been challenged by the "rise of the others".)

The ECFR paper concludes: "Europeans might have more success if they worry a little less about what the US is up to and a little more about defining and asserting their own common interests in relation to Russia… They need to make it harder for the Russians to play on their divisions by presenting a more united front to Moscow, not just on issues such as energy but also on the wider economic relationship that is waiting to be developed to mutual benefit."

I recommend reading a section that contains concluding remarks. It starts on page 61. If that's the best what they could come up with, then … good luck with being "a post-American Europe". Btw, here is my op-ed at EU-Reporter about a post-American Ukraine.

Russia’s Gas and Ukraine’s Political Mess

2009-11-02T20:36:00.001-08:00

Russia's Prime Minister Vladimir Putin typically rushed to accuse Ukraine of failing to make monthly payments for Russian gas. Mr. Putin even suggested EU to lend Ukraine at least $1 billion to help it pay for gas supplies.

BusinessWeek's Lynn Berry quotes Mr. Putin:

"Let the Europeans throw in a lousy billion," he said in televised remarks after talks with Danish Prime Minister Lars Lokke Rasmussen.

"Why have they gotten so stingy down there? Let them get something out of their pockets," he said, in typically colorful language. "They have money, too."

Lynn Berry also writes that Putin first raised the gas payment alarm last Friday, when he said that Ukrainian Prime Minister Yulia Tymoshenko had warned him that Ukraine's president, Viktor Yushchenko, was making it difficult to pay the gas bill. Once again Mr. Putin can't help himself to stay neutral when it comes to the Ukrainian politics. Btw, Mrs. Tymoshenko whose government runs the state-owned natural gas company NAFTOGAZ is responsible for Russian gas import and payment. President Yushchenko has nothing to do with this. However, the upcoming presidential elections create more benefits from any black PR. Did I mention that the Tymoshenko government bans to use black PR against prime minister?

Ukraine’s Practice of Unfair Trade Is All Time High

2009-11-02T19:58:00.001-08:00

According to a new report from the Centre for Economic Policy Research, Ukraine imposed the most tariffs on commercial products among other countries. China that discriminated against 163 nations is second to Ukraine.

Once You Are Bailed Out, You Don’t Come Back!

2009-10-30T15:44:00.001-07:00

One of the fundamental principles of economics tells us that people respond to incentives. In a free market economy, profit that is definitely the best incentive directs business toward activities that increase wealth. However, the 2008 recession showed that the Ukrainian government as well as the American government had different take on the key element of economics. I am taking about bailing out.

The Tymoshenko government bailed out couple private banks by purchasing around 90% of stocks in each privately-owned bank. For instance, state bough out Rodovid Bank. Everything seemed to be OK until a new announcement made by the Rodovid bank's administration. Rodovid needs additional $1 billion to restructure its debt. Ernst & Young will supervise Rodovid's debt restructuring. It looks like the Tymoshenko government is really good in turning any lucrative business in a bankrupt. I still wonder how did the government manage to let the state-owned oil company NAFTOGAZ go bankrupt?

The main problem is not even bailing out again. Now a main issue is that the Tymoshenko government has no money to finance a bail-out. A money-printing stunt thrown by the National Bank of Ukraine has already inflated domestic money supply to all time high of the last decade. Inflation is rampant in Ukraine! Moreover, the government budget resources are almost exhausted. At present moment, the government budget has less than $100 million at its disposal that is even lower than the dramatic 1998 level. Russia's prime minister Putin has already rushed to reprimand Ukraine's president Yushchenko for defaulting on payments for Russia's natural gas. Wait a sec, what does Ukraine's president have to do with this? Ah, it must be the politics.

So what does the Tymoshenko government do in search of external financial resources? The government announces sales of government bonds. The Tymoshenko government sells 6-month Ukraine's government bond with 30% yield! Even Brazil is more modest with 8.76% yield on its 6-month government bonds. Many domestic and foreign experts express their concern that the Ukrainian government can run a Ponzi scheme. I agree that it looks really weird.

Assorted Links

2009-10-28T14:34:00.001-07:00

The most recent public opinion poll conducted by the Kyiv International Institute of Sociology shows that POR's presidential candidate Viktor Yanukovich has more than 40% of public support.
According to the Legatum Prosperity Index, Ukraine beats Russia in terms of economic development. Ukraine holds the 61^st place (out of 104 countries) in the Legatum rankings while Russia is only the 69^th. Here is a diagram that compares Ukraine with Russia.
Social capital improves in Ukraine. Car-owners join brand-based social clubs such as Subaru Kyiv, Daewoo Brothers, Mazda United etc. Members of car clubs call themselves brothers in wheels.

Taras Kuzio on Ukrainian Politics

2009-10-27T19:44:00.001-07:00

Myroslava Gongadze, a leading anchorwoman of Ukraine's Voice of America, interviewed Dr. Taraz Kuzio, Professor of Ukrainian Studies at University of Toronto.

Overall, I agree with Dr. Kuzio except his take on "constitutional anarchy" in Ukraine. I believe that the 2004 Constitutional Amendment that delineated executive power between president and prime minister brought a very important system of checks and balances that Ukraine needed for a long time.

Assorted Links

2009-10-25T09:50:00.001-07:00

A sin tax in Russia. Is it really Pigovian tax? Ukraine deals with national vice in a simpler way.
Media freedom is under threat in Eastern Europe. What about Ukraine?
Taras Kuzio with a superb preliminary analysis of Ukraine's presidential campaign.

Ukrainian Cuisine

2009-10-24T14:17:00.001-07:00

People often ask me about Ukrainian cuisine. What's that like? What do people eat in Ukraine? What are the most popular dishes? Ukrainians are a very carnivorous nation. Btw, there's a really funny movie Everything is Illuminated with Elijah Wood who plays a vegetarian American Jewish teenager who goes on a heritage trip to Ukraine. This movie has a funny episode that shows how hard it's to be a vegetarian in Ukraine.

Anyways, Ukrainian cuisine differs across Ukraine. In the West, most dishes are very close to Hungarian and Polish cuisine. In the South, you can really enjoy food if you are piscatorial. If you like spicy and kebab-type cuisine, you should go to Crimea that is the most Southern part of Ukraine. In the Eastern Ukraine, food is closer to Russian cuisine.

So here are my top three dishes from the Eastern Ukrainian cuisine:

The Borscht. Topped with a sour cream. Main ingredients are sugar beets (they give it a red color), potatoes, carrots, and beef.
Any kind of blintz. This picture shows you blintz stuffed with ground beef. They are usually served with a sour cream too.
The potato pancakes aka dranniki. With a sour cream again.

From UkraineWatch

Ukraine’s Gambling Industry Goes Online

2009-10-22T22:28:00.001-07:00

Ukraine's Prime Minister Tymoshenko has already built a reputation of anti-market politician. Few Ukrainians were surprised when the Gambling Bill introduced by the Tymoshenko government went into effect last month. In brief, this bill outlaws operations of gambling industry within metropolitan areas except in the specially designated zones for gambling. The gambling zones will be established in suburbs farthest from the downtown. It's not clear how the government will regulate a size of the gambling zones. Will all gambling business be able to fit in these still-to-be-built zones? Neither anybody knows whether owners of casinos will be compensated for business liquidation and relocation. By the way, who is going to build the gambling zones? There are too many unknown variables in this equation.

Why would you do it at all when Ukraine's economy is going through a deep recession? Don't you need to support business instead of shutting it down? What about other jobs which are related to the gambling industry? Btw, the gambling business generates more than 30% of local tax revenues in Ukraine. For instance, tax revenues from the gambling business made up 60% of a city's budget in Kharkiv, the second largest city of Ukraine. However, Mrs. Tymoshenko proudly uses the Gambling Bill in her presidential campaign. One of her campaign ads says: "Gambling Business is Outlawed: She (Mrs. Tymoshenko) Works!"

But Ukrainian entrepreneurs strike back! The owners of gambling business found a way to keep their operations at the old establishments. The entrepreneurs swapped casino's license for internet café's license. The former casinos became the internet cafés. Brand new desktops with internet access replaced slot machines and poker tables. Now the former card dealers introduce themselves as IT consultants. Btw, you can still buy buzz there. So how does it work? It's simple. You just play the same games online. Instead of buying chips, you deposit $100 to your internet-based account and then play black jack, throw a dice and so on. The owners of "internet cafes" say that after all they benefited from the Gambling Bill because they found ways to cut down their costs. One, internet café license is cheaper than the gambling license. Two, Ukraine's Tax Administration classifies internet café as a sole proprietorship for tax purposes so that the entrepreneurs just pay a flat income tax of 300 hryvnia ($40) regardless of their total revenues. Three, they also cut down on their labor cost because the internet café needs much fewer workers than a small-scale casino. Overall, the Gambling Bill is a really bad idea. It definitely hurts a gambling business that is one of the major sources of tax revenues in Ukraine. So far the effect of the government regulation was partially cancelled out by emergent entrepreneurial response. Let's hope that the internet café business is not the next on the Tymoshenko list.

From UkraineWatch

It’s a Final Countdown

2009-10-18T23:30:00.001-07:00

For the fourth time in its history, Ukraine will have the presidential election. It will be less than in 90 days. The main competition will be between both pro-Russian politicians: prime-minister Tymoshenko and POR's front-runner Yanukovich. The Central Election Committee of Ukraine estimates that the government will have to spend at least $160 million on the elections. A registration fee for each presidential candidate is $314k.

According to the most recent public opinion poll SOCIS, the most popular presidential candidates are 59-yo Viktor Yanukovich (28.7%), 48-yo Yulia Tymoshenko (19%), and 35-yo Arsenyi Yatseniuk (8%). Ukraine's president Viktor Yushchenko enjoys only half of public support of another Orange Revolutionary, Yulia Tymoshenko. In terms of political ideology, Mrs. Tymoshenko represents the left-wing of Ukrainian politics, while Mr. Yanukovich poses himself as the right-wing and Mr. Yatseniuk is in the center. If we use analogy with the American politics, Ukraine's prime-minister is a socialist democrat where Mr. Yanukovich is a republican and Mr. Yatseniuk is independent.

Assorted Links

2009-10-16T19:33:00.001-07:00

Only 57% of Russians say that their country needs a democracy. Ukraine's big brother demonstrates the path dependence at its best!
Russia and China strengthen their strategic partnership. Russia diversifies its energy sector by selling 70 billion cubic meters of natural gas to China.
The Russian government bans Stalin-era research. History Professor Mikhail Suprun is arrested for conducting a research on ethnic Germans deported by Stalin. Don't major in Soviet History!
An outrageous case of child molestation in Ukraine, in the world-known summer camp Artek. Several BYUT members allegedly committed child molestation.

Ukrainians Are Getting Poorer

2009-10-14T16:46:00.001-07:00

According to Ukraine's State Statistics Committee (UKRSTAT), a real wage rate dropped by 11.3% as compared to the Q2 of 2008. A rising unemployment (9.9%) and a rampant inflation (16%) seriously damaged real incomes of Ukrainians. UKRSTAT reports that a real disposable income shrank by 8.3 in the Q2:2009 as compared the Q2:2008. If you look across provinces (oblast'), Kyiv province has the highest level of work compensation with average monthly salary of 3,126 hryvnia or 390 USD. The lowest level of salaries is in Ternopil province where on average you can get paid 1,443 hryvnia ($180) per month. UKRSTAT also reports that a construction industry that was severely hurt by the 2008 recession experienced the sharpest decline in the real wages among all industries. On average, the monthly wage rate dropped by 23.2% in the construction sector. Here is a graph that demonstrates a percentage change in the real wage rate in Ukraine between 2000 and 2009.

From UkraineWatch

Odessa Chemical Plant's Privatization: To Be or Not To Be?

2009-10-12T11:17:00.001-07:00

Ukraine's State Property Fund (henceforth, SPFU) fails to sell the Odessa Chemical Plant that is a monopolist in Ukraine's chemical industry. Moreover, Odessa Chemical Plant is the largest producer of ammonium nitrate in Eastern Europe.

Here are the events behind the failed sale. First, the privatization was mission impossible from the start because it was outlawed by Ukraine's President Viktor Yushchenko. Presidential Decree #200:2007 prohibited a privatization of the Odessa Chemical Plant because it held strategically important position in Ukraine's market for chemical products. Nonetheless, prime-minister Tymoshenko and SPFU persuaded bidders and public that it could overrule the presidential ban on privatization. Then the ban should be overruled before the start of auction, right?

Anyways, several bidders decided to participate in the auction and paid upfront 400 million hryvnia ($50 mln) in auction fees. One of the bidders was GAZPROM-owned Azot-Service Company. The auction was broadcasted on several national TV channels. SPFU offered a starting bid of 4 billion hryvnia while all experts including SPFU agreed that the real market value of the Odessa Chemical Plant was at least 8 billion hryvnia ($1 bil). Then Ukraine's Nortima Company that is a part of a Dnepropetrovsk-based corporation Privat offered the winning bid of 5 billion hryvnia. Privat's CEO Ihor Kolomyisky said that he was ready to offer up to $1 billion. Little did he know that SPFU would refuse to recognize the legitimacy of the auction? SPFU's official statement is that the winning bid was much lower than the real market value of the auctioned item. So the deal is off.

It's hard to understand the true nature of all commotion around the Odessa Chemical Plant. Prime-minister Tymoshenko who makes a rule of law as a cornerstone concept of her presidential campaign does not really show a lot of respect for the rule of law. It's also not clear why president Yushchenko refuses to auction off the Odessa Chemical Plant that he was very eager to sell three years ago. Perhaps, the failed privatization best illustrates only the Tullock rectangle.

From UkraineWatch