About corrupt elites and elite corruption

What today’s Ukraine has in common with Napoleon’s France In his inauguration speech, the fifth President of Ukraine has announced the development of the economy as one of the key priorities during his tenure. He also defined the main problem which stands in the way of this development – corruption, which has destroyed the foundation of social organisation and led Ukraine to a crisis of sovereignty. Poroshenko’s opinion is not unique – society is united in that the economical development is necessary, and for this it is important to fight corruption (as understood in a broader sense) and carry out reforms. The second person in the country – Prime Minister Arseniy Yatseniuk, – expressed this position quite directly: “It would be catastrophic to continue with an economy which lives on loans, therefore we have to carry out the harshest reforms possible.”  It is true, the economical institutions in Ukraine which define its business and investment climate are horrific. Good examples are given by various measures from the Doing Business investigation by the World Bank. For example, to demand the assets of the debtor at his bankruptcy, a typical Ukrainian medium business will have to spend a sum which is 40% bigger than the cost of these stocks, and they will only be able to receive less than 10% of them after such expenses. To compare, in Black Africa these numbers are about 20%, and this is the worst result from all world regions. Temporary spendings to connect to the electricity system in Ukraine surpass the worst measures in the world in Black Africa and South Asia two times over – almost 9 months. We hold one of the leading positions in the length of temporary spendings for tax payments (almost 400 hours per year for typical average businesses). Frequently these phenomena are considered a product of bad organisation or some errors, which are constantly being made in the work of the government and state apparatus. However, these “errors,” generally, have existed for years and decades – the business climate in Ukraine has been constantly horrendous for the entire 23 years of its existence. The reason for such “stubbornness” of corruption institutions is simple – they are being used by a certain part of the higher class (in Ukraine, unfortunately, a significant part) to receive benefits in the form of corruption rent. The key word here is the higher class. In order to alter economical social institutions to be beneficial to oneself (using the money of this very society), and prevent their correction, it is necessary to have powerful political influence, which only the elites have. De facto it can be said that the main economical problem in Ukraine is political government and the influence of the corrupt class of the reigning nomenclature. The reason for stagnation as a phenomenon Ukraine is not unique in its problems at all. Corrupt elites, which use their political influence to receive rent, are widespread in developing countries – de facto, the countries where such elites are absent are either developed or reaching that stage. According to one of the main contemporary theories of economical development, explained the book of American economists Daron Acemoglu (probably the most authoritative specialist in economical development in the world who recently became part of the Economical Council in the Ministry of Economical Development and Trade of Ukraine) and James Robinson “Why Nations Fail,” it is the usage of political power by the elites to elicit unproductive rent from the economy that is the main reason for stagnation as a phenomenon. If the higher class has enough volume of political power and is not controlled by society very well, such social order is also called a “closed order,” then they receive the opportunity to easily gain from this very society, by redistributing part of the national product in its favour. Of course, such redistribution damages the economy, as it is done on account of businessmen and workers engaged in productive useful work – de facto, the rent of the elite is taken in some form or other from their pockets. As a result, the possibilities for socially useful earning become limited, which contains the growth of investments and creation of new companies and jobs. Which, naturally, leads to economical stagnation. The solution is quite obvious – it includes the elimination of the damaging “closed” political order. The political system has to become as open as possible to accept new people, as well as to kick out those who have become too comfortable in it. Political power of the elite has to be significantly limited, and the possibilities for social control of the government have to be maximally broad. The authors of the book “Why Nations Fail” call this a transition to “inclusive political institutions.” Also such social order is frequently called “open order,” in the sense that the political power is open for competition and social control. The main need of the economy in Ukraine This way, to solve its economical problems, Ukraine needs, first and foremost, not economical reforms (the majority of which have to do with the problem of corruption anyway), but political changes. A significant (the most corrupt) part of the nomenclature of the elite has to be eliminated from the political arena, new people have to join the system instead. Maidan activists, politicians from local governments, officers from volunteer troops fighting in the East – all of these people would be well-suited for the role of the new elite. However a simple replacement of some elites by others is insufficient – without institutional changes, which would solidify the “open” order of society, the new elites would become a semblance of the old ones after some time. The political system itself has to become open for competition on part of new players which are not part of any nomenclature structures and transparent for control on part of the citizens. Fortunately, the understanding of what reforms are necessary for this is gradually forming in Ukraine. The first harbinger of change was decentralisation, which may make citizens closer to the government (and, consequentially, make control over it easier) and give an opportunity to new political players to become part of the central government not through participating in some nomenclature clans, but through the demonstration of their management abilities in the structures of local governments. Besides decentralisation, calls for a change of the judicial systems sound in the expert circle and society – as the judicial branch of government is the same mechanism of corruption as the legislative and executive branches. The citizens also demand a reform of central government bodies to make them more transparent and subject to social control – for example, through the openness of financial sources for political parties and the usage of an open-list system at the parliamentary elections (which would allow the citizens, and not party elites, to determine the members of the Parliament elected from such and such political powers). According to Daron Acemoglu, who wrote this in his book, a significant role in successful development of contemporary Western Europe was played by the Great French Revolution and the Napoleonic Wars back in the day. The bourgeoisie which rebelled at the time, which deposed the aristocratic “old order” based on corruption and which formed the institutions of “open order” in France, spread these institutions on the tips of Napoleon’s swords among neighbouring countries, where they assimilated as a result. We would like to believe that this winter Ukrainian bourgeois revolution will be able to break our “old order” and finally rid Ukraine of its main problem – the cast of nomenclature drunk on political power which gains from the rest of society. Source: Forbes Translated by Mariya Shcherbinina