Ukraine’s Prospects

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

      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

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?

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

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

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!

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.

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

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"

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)