Admin Resource

Administrative resource or admin resource is what Ukrainians say when they refer to government's abuse of power. I had a blog post about how the Yanukovych administration rigged the 2012 parliamentary elections using their admin resource to affect election results in hospitals, prisons, armies, public schools, and the rest of the public sector. Now I can show cool data from NGO Maidan. The following charts show that public support of the Party of Regions and voter turnouts are shooting through the roof at the special polling stations like hospitals and prisons. Basically, if you don't know how it's done, you must see that mainly sick people and prisoners support the Party of Regions.

Even China Can't Handle Ukraine

Here is a very interesting story. Chinese businessmen wanted to build a factory in Ukraine. They spent about a year on filling paperwork, getting permits, and bribing government officials. I assume that they have to do the same in China so that their learning curve is pretty insignificant. Then Chinese businessmen told their Ukrainian partners that they need to put their project on hold for couple months. Couple months turned in a full year. When Ukrainian partners contacted their Chinese partners about a status of their joint venture, Chinese partners said that they just finished building the same factory in China. So you can build a factory in China in less time than it takes you to get a permit to build a factory in Ukraine. I knew that Ukrainian bureaucracy is terrible. Now I know how terrible it is to do business in Ukraine for foreign investors. Unfortunately, the story is literally told by the book. Here is the book - the Mystery of Capital by Hernando de Soto. Ukraine's economy must have a significant issue of the dead capital. Many businesses cannot work legally in Ukraine because of extraordinary corruption and bureaucratic red tape.  

So what's happening to the net foreign direct investment (henceforth, FDI) in Ukraine?  The following graph shows that the FDI dropped from a 9-percent to 5-percent share of Ukraine's GDP between 2005 and 2010. You can also see that Ukrainians who work overseas transfer back to their families or friends the amount of dollars that is almost equal to the amount of the net foreign direct investments between 2009 and 2010.

It's also interesting to see how foreign direct investments and international remittances behave during the economic downturn (2007-2009). While the net FDI dropped from 7 to 4 percent share of GDP, the international remittances increased from 3 to 4 percent share of GDP. Please, keep in mind that 1 percent of Ukraine's GDP is $1,3 billion. So the one-percent increase of the personal money transfers is a pretty large raw figure. That's the case when percentage is not impressive as much as raw figure is itself.

You can also see that the amount of the net FDI and international remittances are different from their benchmarks under the Yushchenko presidency and the Yanukovych presidency. Of course, we cannot really compare averages with a single year observation. Let's just agree that the net FDI jumped from 2.6% to 9.1% after the 2004 Orange Revolution when President Yushchenko and Prime-minister Tymoshenko came to power. Since then the net FDI has had a declining trend.

Big Family Election

Here are pretty cool observations from one of my friends about the 2012 Parliamentary Elections (ht Diana Cucos):
FYI: MP - member of parliament

MP of the Party of Regions (presidential party):

Viktor Yanukovych Jr. is MP. He is one of two sons of President Viktor Yanukovych (the Party of Regions). Viktor Yanukovych Sr. is a dentist who has recently joined the Forbes list of the 100 wealthiest people of Ukraine. How many fillings and crowns does it take to become a millionaire? Kids, you should become dentists.

Alexei Azarov is MP. His father is the Prime Minister Nikolay Azarov.

Peter Melnik is MP. He is the president of the Tax Administration University. Prime Minister Azarov is the god-father of Melnik's kid.

Viktor Baloga is MP. He is the director of the State Emergency Management Agency.

Baloga Jr. and Baloga Sr. who are Mr. Baloga's brothers are also MP. So all three brothers are MPs.

Andrei Kluev and his brother Sergei Kluev are MPs. Andrei Kluev is the Secretary of the Security Council.

Artem Pshonka is MP. He is the son of Viktor Pshonka who is the General Attorney of Ukraine.

Julia Levochkin is MP. Her brother is Sergei Levochkin who is the Director of the Yanukovych Admnistration.

Dobkin Jr. is MP. His brother is the odious governor of the Kharkiv province, Dmitry Dobkin. Until recently Dobkin Jr. has been admitted to the drug rehabilitation center in Switzerland.

Artem Semenyuk is MP. His father is the governor of the Chernovtsy province, Michael Papiev. The change of the last name was a cheap trick.

And this list goes on. I am just tired of translating the big family of the Party of Regions.

Sick Leave Voting

I just got off the phone (actually, Skype) with my friends from Ukraine. Of course, we talked about upcoming parliamentary election. Things are getting worse every day. The pro-presidential Party of Regions just pulled another ace out of their bottomless sleeve - the sick-leave voting. Illiberal democracies watch and learn how it's done in Ukraine.

What is the sick-leave voting? All employees of public sector are forced to vote for the Party of Regions. School teachers, university professors, students, army generals, soldiers, police officers, firemen, prison guards, prisoners, doctors, and even their patients are forced to vote for the pro-presidential Party of Regions. Voting in public hospitals is a case in point. Like military base or prison, hospitals fall in a category of separate electoral district in Ukraine. To win elections in the special electoral districts, the Yanukovych administration forces doctors, nurses, and other hospital employees to take a sick leave and check in their own hospital for the upcoming election. Moreover, doctors, nurses, and other hospital employees have to check in at least two friends or patients to their hospital so that all they together can vote for the Party of Regions as one big happy family. Of course, you can refuse to do that for a very tiny cost of losing your job. That's how it's also done in the army, the police force, the schools, and everywhere else in the public sector in Ukraine.  

The Party of Regions is so power hungry that they don't stop at anything. I have already written that all TV cable companies dropped TVi that was the only independent TV channel in Ukraine. TVi was the last bastion of mass media representation that the opposition politicians could count on for the parliamentary elections. The Party of Regions proudly checked the mass media control off their election prep list. I am still amazed or dazed by how political situation has made a 180-degree turn since 2010. Less than two years ago Ukraine was a troublesome emerging democracy. Now Ukraine is a solid consolidating autocracy.

The Party of Regions or the Regionnaires (ht Alexander Motyl) were unstoppable on their way to exterminate any meaningful political opposition. The Party of Regions threw dozens of opposition politicians and businessmen to jails without any proper judicial procedures. Those opposition politicians, businessmen, and journalists who saw "the writing on the wall" fled Ukraine. The political opposition is meaningless now. It takes at least three powerful men to replace a woman. Yatsenyuk (Tymoshenko's replacement), Klitschko (yes, the heavy-weight boxing champ of the world), and former President of Ukraine, Mr. Yushchenko cannot still get their act together while the elections will be next Sunday.

Ukraine has one week left before the nation will completely fall off the political map of world democracies. Most of my friends are just sick of this situation. They are sick to their stomachs because they cannot change anything and because there is no demand for this change from the political opposition. My friends who happen to work in public sector like hospital or school are also sick to their stomachs because they are losing their freedom. They cannot vote for the opposition politician and keep their job at the same time. Neither they can vote for the odious Party of Regions and keep their dignity intact. Human dignity or job - that's a trade-off for many Ukrainians at the upcoming parliamentary elections. If human dignity paid your bills, the choice would be fair.

Happy Belated Birthday to the Most Famous Lvivian, Ludwig Von Mises!

Two days and 131 years ago, Ludwig Von Mises who is the distinguished Austrian economist was born in the Jewish family in Lemberg, Galicia province, the Austro-Hungarian Empire. Now, Lemberg is know as .... Lviv, Ukraine.

"Mises's legacy lives", GMU's Professor Peter J. Boettke writes, "on in a variety of streams of thought in contemporary economics, political economy, and social philosophy." Mises' work has a very broad range of topics including socialism, the quantity theory of money, history, and so on. Ludwig Von Mises taught at the University of Vienna, Austria, and later at New York University, USA.

The Aid Workers Really Help Ukraine and Georgia

I have already written that in a single year Ukraine's economy received more dollars from international remittances than Ukraine's economy received in foreign aid in almost ten years (of course, I adjusted both amounts for inflation). International remittances that are essentially money transfers via MoneyGram, Western Union and similar financial institutions are becoming a pretty significant part of Ukraine's economy. As shown in this graph, international remittances and net foreign direct investments represented the same share of Ukraine's GDP in 2009. In 2010 the total amount of international remittances constituted $5.6 billion (4.1% of GDP) or $122 per capita.

It is interesting fact that another former Soviet state, Georgia, received around $280 per capita in international remittances. The GDP share of international remittances is also higher in Georgia than it's in Ukraine. In Georgia the international remittances represent almost 8% of GDP or somewhere between $1.1 and $1.3 billion. 
Overall, it does look like international remittances are becoming another significant source of cash flow in both post-Soviet countries. I agree with ISET's Givi Melkadze that international remittances serve at least two objectives: one, consumption, and, two, investment. I think that international remittances are more biased towards consumption. Anyways, it will be interesting to get more data about international remittances.   

 

Last Days of Freedom of Speech

Just a month before the upcoming parliamentary elections the Ukrainian parliament is making a new advancement against the freedom of speech. And it could be the final stage in reversing the Ukrainian democracy back to autocracy. In the light of the upcoming parliamentary elections, the overall political situation is becoming very dismal in Ukraine, the country of the Orange Revolution.
The parliament has recently passed the Law on Libel in the first reading. Mainly, three political parties voted to pass the infamous law: the Party of Regions (leader: President Yanukovych), the Communist Party (leader: Peter Symonenko), and the People's Party (Speaker of the Parliament Lytvyn). The Law on Libel considers any defamatory statement or published statement that cause a public contempt illegal. If you look for a source of inspiration behind the Law on Libel, it's the Stalinist constitution. The picture (titled: Don't Speak) that you see below shows how the Stalinist regime treated the freedom of speech. If you wonder why they pass it now, the answer is the upcoming parliamentary elections (end of October).

If the parliament passes the law, the freedom of speech as well as democratic election is over in Ukraine. Several newspapers and TV channels started a campaign against the Law on Libel. They posted the following ad:

 One of TV channels that opposed the Law on Libel is TVi. If you follow events in Ukraine, you should know that all cable companies "voluntarily" cancelled their contracts with TVi. You cannot watch TVi on your TV anymore. You can watch it only online. Needless to say, a number of TVi viewers has already shrunk significantly. TVi follows the life story of Russia's NTV. And another one bites the dust. So what are the chances that this campaign will be successful given that some of supporters are under the government pressure?  

Professional Protesters

Alexander Motyl has another interesting blog about civil society in Ukraine. He writes that political apathy of Ukrainians is a myth. He writes that:

" Meanwhile, Ukrainians are protesting like there’s no tomorrow. According to a study by the Center for the Study of Society, Ukraine has experienced 100 to 300 protest actions every single month of 2010 and 2011. The numbers are usually highest, between 200 and 300, when you’d expect them to be highest—during the spring months of March, April, May, and June and during the fall months of October and November.
Now that’s a helluva lot of protests, especially in a country that’s supposedly disinclined to protest. In the social sciences, you’d say that the evidence disproves the “passivity hypothesis.” In any case, it certainly doesn’t support it.
The numbers for this year are especially impressive. There have been about 100 to 150 more protest actions per month in March, April, May, and June than for corresponding months in 2010 and 2011. A more recent study (by the same center) of protests in July shows that, at 404, they exceeded the previous month’s 330 by 74. That’s a record, sparked largely by the Regionnaire-controlled Parliament’s adoption in late June of a law on languages that is as stupid as it is supremacist. Significantly, July also saw another record: the number of repressive responses went up from 70 in May and June to 101—a 44 percent increase."

According to the Center for the Study of Society, number of protests increased by 22% just in one month. Also, it is very interesting to know that there are at least 200 protests per month in Ukraine. All these facts are pretty cool except that their data sample is pretty biased.
They collect their data from mass media coverage. Well, it's the first bias in their sampling method because the media coverage is very biased in Ukraine. Another issue is their definition of a protest. Is it only political? People protest for other reasons too. Is there a cut-off number of people for an event to become a protest? Do they differentiate between small- and large-scale protests. Let's say that five people yelling near mayor's office is not a mass protest even if it's covered by media. Also, I wonder how they control for paid protests that are very commonplace in Ukraine.       

Nowadays people doubt sincerity of protesters because everyone assumes that protesters are paid. Most of time the assumption is correct. It was not like that before the Orange Revolution when both sides of the conflict paid their supporters.

When I was in Ukraine two months ago, I saw how hard it was to organize unpaid protests. Actually, the issues that caused several NGOs to protest were very important for majority of population. Nonetheless, the NGOs didn't pay their protesters because they wanted to avoid the negative publicity.
So what happens when you don't pay your protesters? NGO that had a network of 5,000 members was able to recruit only 25 members, including 20 board members. It was very disappointing. Another protest that several NGOs organized in five major cities had total of 150 protesters or 30 protesters per city, on average, when their network had at least 30,000 members. 

Living Economics Is On My Reading List

If you haven't done it yet, you should read Living Economics by Peter J. Boettke. It's that kind of book that you wish that you read it before. The book is amazing. It's available here in hardcover or paperback and here in Kindle version. 

"The passion of the teacher is often the inspiration for a student. This lively book illuminates how economics affects all walks of life, whether in the marketplace, voting booth, church, family, or any human activity. Boettke believes that economics is not merely a game to be played by clever professionals, but a discipline that touches on the most pressing practical issues at any historical juncture. The wealth and poverty of nations are at stake; the length and quality of life turns on the economic conditions individuals find themselves living with.

So teaching and learning economics are high stakes ventures. Along the way he introduces us to major thinkers: from Smith, Say, and Bastiat of the Classical School, to Neoclassical and Austrian scholars (Menger, Mises, Hayek, Kirzner, and Rothbard) on to New Institutional economists (Alchian, Coase, Demsetz, North, Ostrom and Williamson) and Public Choice theorists (Buchanan, Tullock, and others). This engaging and reasoned book is a must-read for economists, students, and everyone else who wishes to better understand economics"

The TVi Case: TVi Scores while the Ukrainian Government Loses..

Ukraine's Tax Administration dropped the tax evasion charges against TVi's chief editor Mykola Kniazhytsky. It was a bit unexpected after all recent events. President Yanukovych allegedly ordered the Tax Administration to drop charges when the United Opposition offered Mr. Kniazhytsky a place in their party list for the upcoming parliamentary elections. I guess that the opposition television station TVi wins this battle. Does it mean that TVi and opposition win the upcoming major battle?

On the sad note, Ukraine's Department of Justice announced that the Klementiev homicide case was closed. Investigative journalist Klementiev went missing two years ago in Kharkiv where he was collecting material about several members of the Party of Regions. The Department of Justice says that former detective of the local Organized Crime Unit is the suspect in the Klementiev case. It starts reminding the infamous Gongadze case.