This interview, originally published in Ukrainian in Gazeta.ua, was arranged with the assistance of the Innovative Development of Ukraine Association.
Is economic progress possible in Ukraine?
In two years we’ll finally be able to move forward. The situation has improved somewhat. We have received tranches of loans from the International Monetary Fund, and this has strengthened the hryvnia.
Many do not believe even in the possibility of an economic miracle in Ukraine. But we have the experience of many countries that have undergone successful changes. Most of them did not have the enormous resources that are available in Ukraine. These countries also did not have people with the same level of education. We have a very educated people. The combination of the human capital and natural resources is a guarantee that a Ukrainian economic miracle is very realistic. The government has to pursue a wise policy. Then business will develop the right way. Overall, economic growth where the social-economic situation is in order is not a miracle. On the contrary, it is very realistic.
It appears Ukraine hasn’t had much luck with wise policy
Unfortunately. However, there are examples where the government has been able to work effectively. In 1996, they created a good Constitution. They beat inflation. They introduced the hryvnia. All this happened in three months. They could have begun transforming the country then. However, it didn’t happen. There was no political will to go further.
In 2000, Viktor Yushchenko was prime minister and Yulia Tymoshenko was deputy minister. At that time monopolists in the energy sector settled accounts with each other using barter. Therefore, they never recorded any profits and did not pay taxes. The country had huge debts from the payment of pensions. For nine months people did not receive anything. I was present when Yulia proposed to Yushchenko to force these energy companies to move to a system of financial transactions. And that was it. As soon as that happened the budget received taxes. The government paid pensions immediately. People had greater purchasing power. And that is how the economic growth began — 9% GDP a year.
However, in 2001 Kuchma removed Yushchenko from the post of prime minister. He was afraid Yushchenko was becoming too powerful. At that point the government’s effectiveness ended. That government should have been kept. Yushchenko was a completely different person then. As president he became nothing.
What is hindering economic development today?
Corruption, poor legislation, a corrupt judicial system. There are no guarantees of property rights. Also discord within the political elite.
Why haven’t we had any radical reforms yet?
We are somewhat limited by the fact that we want to do everything according to the Constitution, according to the current laws. And this is what the outside world requires. We could remove 80% of the judicial ranks with one stroke. Fire two thirds of the bureaucrats. Reduce the number of regulations. If a person does not need 25 pieces of paper to open a business but only two, then he does not have to pay a bribe each time. That is the best way to fight corruption, instead of monitoring constantly who is paying and taking bribes. But we can’t do all this because it goes beyond the current law. Therefore the reform process is so slow.
What is the optimal model for change for Ukraine?
There is no ideal one. There are various possibilities that we should use for internal changes. One of them is the financial assistance from the West. Even though this assistance is too small. Europe is very hesitant while encouraging negotiations. As in the case of the Minsk agreements. Well they had their negotiations. So what? The Ukrainian side is adhering to the ceasefire agreements. Russia is not. And Europe is not reacting. It is not increasing sanctions against Moscow.
What needs to be done for the country to move from gridlock.
There is one answer. Innovation. I invented a tool once — a valve that releases steam. I was naïve. I gave the patent away for free to an American company, which then made US $20-30 million annually for decades from this invention. At that time I was intrigued by the process of innovation — how it is possible to change the world. The catalyst of invention is not accumulated knowledge but a keen sense of the need for “something.” And there are two countries than can serve as examples for Ukraine: Japan and Switzerland. In Japan every worker could propose some innovation. And the board of directors of his company brought these ideas to life. Every day people at different levels thought about what could be improved — each one in his field. The government issued a so-called “bio book” where all the new technologies were described, especially their possible implementation and potential markets. Industry executives and government officials met and decided who would implement the innovative projects and in which country.
Switzerland also doesn’t have any natural resources. In Ukraine they are fantastic. And Switzerland has only two polytechnics. Their role is enormous even though Switzerland has the lowest percentage of people pursuing higher education of all the developed countries . But they have very high quality training for skilled workers. Many graduates are not simply writing dissertations but working on their own technology. Many open their own businesses. They can obtain loans under 3% per year or even less and 50-year mortgages for under 2.5%. All these things contribute to the accumulation of capital. Why not use this example in Ukraine?
When will we see the first results?
First of all, innovation requires changes in the structures of the economy. Ukraine needs a total transformation. Fundamental changes must take place in all the government agencies. The current political environment must be completely changed. Also the social-political system must be reformed. If we begin immediately we will see realistic changes in about 7-8 years. There are people in parliament who understand that reform must take place. The core issue is developing a strategy. We must answer the question — what kind of country do we want to build. Without this we will not be able to move forward.