Why should oligarchs pay the salaries to senior officials

2014/03/01 • News

завантаженняBoris Davidenko, for Ukrainska Pravda Wednesday, February 26, 2014, 14:51

Any reforms of the new government would be sabotaged by the army of 400,000 officials. How can the richest people in the country impede it?

The future Prime Minister and the President of Ukraine will be forced to begin judicial, administrative, energy, land, tax, pension and dozens of large-scale reforms.

They have no choice: CHANGES are the main reason why Ukrainians perished in the streets. But will the reforms work well?

Over the last decade, the only more or less successfully completed reform was tthat of the Armed forces of Ukraine, which Anatoliy Hrytsenko managed to bring to the point of no return. All the other countless initiatives of the governments of Tymoshenko, Yanukovych, Tymoshenko again and Azarov were halved or candidly disastrous. However, reforms of the first Mykola Azarov’s government were developed, for example, by the sensible people from the consulting company, McKinsey.

To blame Azarov and his Ministers for the failure of all undertakings is a very dangerous mistake. The other 373,000 officials contributed just as much to the failure. Any reform was their personal enemy, which in the best case would hinder their inactivity, and in the worst would deprive them of the opportunity to receive illegal rents and get rich.

Now, as never before, it is very likely that Ukraine will be lucky, and honest, competent people are ready to carry out the reforms. However, even under these conditions, their chance to defeat bureaucrats is not totally assured. Even in the state-owned companies that are not so archaic as ministries or departments, the power of bureaucracy is virtually unbreakable.

Here is an example: at the beginning of 2011, Belgian Peter Vanhecke was appointed a Chairman of Board of “Ukrnafta”. Vanhecke is a successful financier, who was before that a Head of investment Bank “Renaissance Capital Ukraine”. He announced plans for the restructuring of “Ukrnafta” and the IPO. The outcome wasn’t good.

Employees of “Ukrnafta” while drinking beer laughed and described how all the orders and instructions of the capable Belgian manager were shifted among the departments, and every change was discussed at endless meetings, for the agreement of the Ministry and in the analysis of consequences.

Ukrnafta is a good lesson. It’s not enough to appoint intelligent top-manager and to hope that he alone will clear the Augean stables. Evebody needs a team. The conflict between the shareholders of “Ukrnafta” (group “Privat” and Cabinet) deprived Vanhecke of the possibility  of forming a professional team, and future ministers and governors will be deprived  of such a possibility by a tight budget.

Over the past few years in the ministries and departments a very clear hierarchy was formed. The Minister is a person from the Family, the majority of deputies are close to oligarchs, relatives or those who are neutral concerning Family, heads of departments of the subdivisions are the minions of the Party of Regions and big business. And so to the last superior, who is somebody something is dependent on. Most of these leaders must quickly change.

But who could be elected instead of them?

Of course, in every department some of the honest and competent managers miraculously survived, thanks to whom the public sector somehow worked, but there are clearly not enough of these.

In 2010, I interviewed the author of the majority of Georgian reforms Kakha Bendukidze. His response to a question about how many honest and effective people are necessary so as to carry out reforms, was that if one is not afraid to fire the incompetent and imprison those who take bribes, then just a couple of dozens of honest and active people in each office is enough.

Ukraine is ten times bigger so, let’s assume that each ministry will need 200 professional managers. Such a team of the top and middle managers is quite able to rebuild the Soviet Ministry quickly and implement the aforementioned  reforms.

Now in Ukraine there are 18 ministries, which means that they need about 3,500 new top – senior and middle managers. Let’s add 1,500 managers for any commissions and departments. Altogether that’s 5,000 people.

Business, both native and foreign, could become the source of staff. But for that, money is required. The salary of Ukrainian Ministers is UAH 20,000 – 40,000, of deputies and heads of departments – 2-4 times less. Salaries of good managers in the private sector are at least 5-10 times higher.

Many effective managers in Ukraine are patriots, but not all of them are altruists. Some members of the Cabinet of Ministers at the time when Azarov was Prime Minister,  2010-2012 many business people were offered jobs in the civil service. But…

“I was invited to the Ministry of Finance in the time of Khoroshkovsky, – says former head of the bank. – I was ready to work 2-3 years for the country. But neither I, nor my family were ready to have a fall in income and live for UAH 7,000. It was hinted that in the process the problem would be solved, and I would not remain in the red. But I didn’t want to “settle questions”.

New ministers may try to find effective managers among the fanatics who are ready to work for an ideal, but I’m afraid that there will only be a few. Ukrainians are pragmatic. Therefore, without decent salaries for high-ranking officials we are doomed to the fact that the civil service will employ those people who will by no means  be capable of solving state issues. So, we will not live in an efficient state for many years to come.

To increase the salaries of officials tenfold – is unrealistic: the state of Ukraine is poor, and the IMF will be categorically against the growth of state machinery expenditures.

Business can help once again, very large business. In Georgia – the first years after the revolution, the growth of salaries for  top public  officials  were paid from the Fund of Soros. The lion’s share of financing was the money of Georgian billionaire Gasoline Ivanishvili, who later became President of the country. This is a good example for the native multimillionaires.

The monthly salary of US $7,000 for 5,000 new state  heads will cost US $420 mln  -per annum a lot of money for the budget, but quite feasible for large businesses.

If donors to the Ukrainian Fund are only the  top twenty people from domestic Forbes, their annual contribution will be only US $21 mn from each of them. Pinchuk and Akhmetov spend more on charity.

Such participation of businessmen in the rebuilding of the country is much more useful than just talk about reprivatization and dishonestly acquired assets. Effective and fair state controls will lead to the improvement of the investment climate. In turn, the growth of capitalization of the private companies will not wait long at the expense of improvement of the business climate.This means that big business will very quickly  have a hundredfold return  on the expenditures of the officials’ salary. So this can be considered as an investment, not as an expense.

A suitable name for such a Fund already exists. In January it became known that Rinat Akhmetov closed his Foundation “Effective Governance”. Rinat Leonidovych, do not hurry.

Translated by Liliia Chulitska, edited by Janet Taylor

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