Facebook of Ukraine's Agriculture

 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.



Should Ukraine Go Green?

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".

Free Trade Hits Hackers Hard!

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

Ukraine’s Gambling Industry Goes Online

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

Now It’s Much Easier to Go Bankrupt in Ukraine

In May 2009 a 28-year-old real estate developer from Kharkiv, Artem Misyura, won a seminal case in the Supreme Court. His real estate development business as many others went bankrupt. So the entrepreneur filed for the bankruptcy of his privately-owned firm. Ukraine's Law on Bankruptcy would allow a liquidation of the private firm if the owner as a judicial entity took a responsibility for all firm's financial liabilities. Basically, the bankruptcy of the private firm was virtually a masochistic process because it would still hold you as an individual responsible for all loans, delinquent payments, etc. Moreover, it will affect your credit history so that you cannot start a new business or even take a loan to buy a car. However, Mr. Misyura who holds a Law Degree from Kharkiv Law School and his former classmates who are corporate lawyers filed a law suit to the Supreme Court where they requested a revision of the Law on Bankruptcy by appealing to the Constitution of Ukraine. And they won a case. As a result, any entrepreneur can file for the bankruptcy with his individual credit history staying intact. Ukraine's lawyers have already nicknamed the case after the entrepreneur. The Misyura Case is really a seminal change in Ukraine's Corporate Law that was a very convoluted and business-hostile piece of legislation. The Law on Bankruptcy was one of the major obstacles to the business in overcoming the current economic crisis. Since it's much easier to file for a bankruptcy and liquidate business, Ukraine's private sector might have a second wind to rebound from the economic crisis.

Ukraine’s Car Dealerships Deal with the Credit Crunch in Their Own Way.

Ukraine's entrepreneurs don't stop to demonstrate their resilience in the light of the current recession. A persistent credit crunch paralyzed the car sales in Ukraine. Moreover, hryvnia is depreciating so that fewer Ukrainians can afford the imported cars. The car sales have declined by 78% since January 2009 as compared to the previous year. While banks start showing the signs of the stabilization, the car dealerships decided to step in and offered their customers to lease a car without the third party – banks (see "Let's Put Banks Aside", Korrespondent, August 5, 2009). The car dealerships offer more flexible payment plans than the banks can offer at the present moment. Their rates are also lower than in the banks. The real estate developers quickly adopted the business model of the car dealerships. Instead of dealing with a crippled banking system, a customer can obtain a loan directly from the construction company if he decides to purchase a housing unit. The main question is: how do the car dealerships and real estate companies finance this new service?