 Oleh Soskin,
Director of Institute of Society Transformation
Ph.D. in economics
Ukrainian business and presidential campaign: whom from the candidates should we stake on?
Analysis and forecast
Less than two months are left till the Presidential elections. The final stage of election campaign is coming. More and more Ukrainian citizens think about the question: what will happen if one or another candidate becomes the President? Although it seems that the choice is wide – as everybody knows 26 presidential contenders are registered – in reality there are three favorites. One of them is Victor Yushchenko, who is supported by more than 35% of electors. Two more persons are Victor Yanukovitch, present Prime Minister, and the leader of socialist party, Alexander Moroz. According to our expert judgment these two candidates have almost the same rating index of people’s trust – about 10-13%. Thus, it may be forecasted, that elections in Ukraine will be held in two tours according to current legislation, if there are no unexpected situations or extraordinary and force major conditions. It is obvious, that there won’t be overall winner in the first tour, because none of the candidates de facto won’t be able to gather 50% plus 1 voice (though under certain circumstances Yushchenko may have such an opportunity). At present there are three persons who have the best chances of taking part at the second tour of presidential elections. They are V. Yushchenko, V. Yanukovitch and A.Moroz.
Thus, if nothing will happen, there is no doubt that Victor Yushchenko will be the one of two candidates, who will pass to the second election tour. But it is still unknown, who will be the second, Yanukovitch or Moroz, because the leader of SPU has rather high rating index of people’s trust.
The goal of our investigation is to analyze how the victory of one or another presidential contender will influence on Ukrainian private practice development in whole and every Ukrainian businessman in particular. Why is it important? It is important because the prosperity of every nation depends on:
- Circumstances, which are created for enterprise’s functioning
- Rate of turnover of private capital and prosperity of its owners – national bourgeoisie
The achievements of 13 years of independence of Ukraine may be estimated in different ways, but it is undoubtedly that during this period the formation small, middle and big business and basic principles of its functioning has taken place. We passed the phase of initial capital accumulation and forming of capitalist relations and bourgeoisie very quickly. Exactly for such new class as bourgeoisie, it is very important, who will become the next president. By the way, such questions as: who will be the President, what Party will win parliamentary elections and form a government, who will become Prime Minister, are always the questions of vital importance for any developed country with stable market economy and democratic system. Especially these questions are important for Ukraine, which hasn’t already passed the phase of integral market economy formation, mass development of private property and formation of democratic society.
At present time different socially economic systems and strange economic forms are functioning. Natural, capitalist, petty bourgeois, state-capitalist and even state-monopoly systems represent economy. The scale and nature of functioning of business in Ukraine, as well as formation of national bourgeoisie (petty, middle and upper), depends on combination of state systems and on influence of state authority on these systems.
Prospects of existence of private enterprise and bourgeoisie in the country depend on settling the list of questions. Further we are going to outline the basic ones and try to analyze their influence on the development of business in context of presidential elections in Ukraine.
The first question: conditions for forming business, which are created at a state level. Such conditions may be called “favorable” for the development of free enterprise if legislative and normative basis of the state is stable, transparent and has invigorate mechanism.
The state has to decrease its intervention at business surrounding little by little, minimizing the level of its regulation with a help of administrative methods. Unfortunately, rather strict, unfavorable conditions for the functioning of business are created in Ukraine by present regime. At present time the procedure of registration of juridical and natural persons is complicated, there are many instances for registration and accounting, the legislation is unstable and conditions for running business constantly change (and not in a good scene).
Thus, we are going to look at three most popular presidential contenders from such positions and then we will analyze, how the win of any of them may influence on conditions of the functioning of business in our country.
First of all let’s examine intentions and opportunities of the favorite of presidential campaign – Victor Yushchenko, concerning further development of business surrounding in Ukraine. It is necessary to remind that Yushchenko was oriented at open dialog with business, while holding the position of the Prime Minister of Ukraine. He initiated public hearings pertinent to urgent business problems, and took part at such hearings. He considered opinion of business associations and public organizations and took into account conclusions of scientifically analytic examination before making one or another decision, concerning private enterprise. At the same time Yushchenko devoted more attention to development of big and middle business than to small one.
How Yushchenko is going to solve mentioned problems in case of winning? He proclaims simplification of running business and giving support to small business in his election program. He assures that he will separate business from authority, defend entrepreneurs from requisitions, forbid law machinery to put pressure on enterprises. Sir Yushchenko asserts that if he wins the elections, practical steps for the development of small and middle business will be made. For example, rates of crediting will be guaranteed. We may expect that Yushchenko inflict a serious defeat on competitive groups, even if he can’t defeat all existing clannish financial groups in Ukraine. Also it may be assumed that he will contribute to forming his own financially corporate group from his business surrounding.
Thus, Yushchenko’s program contains many positive aspects. But it is still incomprehensible, how will he realize them in practice.
As for Victor Yanukovich, unfortunately there was no appreciable liberalization of conditions for running business, especially small and middle ones, when his holding the post of the Prime Minister. On the contrary, conditions for running business became stricter and business environment submits more and more to administrative-command dictate. Practically our present Prime Minister is building the model of monopolistic capitalism in Ukraine, where small and middle business play a supporting role.
When Victor Yanukovich headed the government, country was involved into 5 structural crisises: food crisis, fuel and energy crisis, financial crisis, socially demographic crisis and the crisis of private enterprise. So, we can make a conclusion that under the present Prime Minister State machine directly adjusted market relations, breaking objective economic laws, imposed administrative and bureaucratic restraints at all kinds of business. Especially brutal was the state-administrative managing of food sector of Ukrainian economy: directive limits on prices for grain, list of foodstuffs and agricultural products were imposed. The same administrative-command mechanism of pricing is used at energy sector, where directive artificial prices for fuel are imposed. Such facts testify that Victor Yanukovich, while holding the position of the Prime Minister of Ukraine, couldn’t show his worth as a manager, who can act effectively in conditions of free market economy.
It is obvious that he and his government more and more trend to directive administrative-command system of management. The volume of financial resources, which are invested in state sector of economy, are rising, financially corporate groups, which are supported by government, are developing. These groups have access to budget money. At the same time preference is given not to national business, but to foreign capital, especially Russian one, which buy for nothing our enterprises. So we can make a conclusion that government doesn’t take care of development of national capitalism and national bourgeoisie. In such conditions small and middle business suffer the most.
Victor Yanukovich couldn’t also cope with a problem of corruption and bribing. These shameful phenomenons flourish in Ukraine. At present it is impossible to carry on business, because all the time it is necessary to look for a protector, which is more and more associated with one or another financially-corporate clannish group. Victor Yanukovich promises that in case of his win, the principle of “single office” will become a common rule; tax service won’t prevent legal business; internal market will grow; the harmonization of accounting and tax account will take place; crediting of small business will grow.
But the question emerges: What prevented Yanukovich to act in such a direction, being the Prime Minister? Is the post of the president needed for this? Why, for example, the principle of “single office” wasn’t implemented year ago (and not only for registration, but for accounting too)? Why today the small business, even that, which is working according to reductive tax system, has to give different accounts for different instances? Why is it necessary to rewrite every year in tax service in order to work on single tax? Why accounting isn’t still harmonized and simplified? What prevented Yanukovich to initiate adopting the law about single fixed tax? -If he had done this, the violation of businessmen’s dignity will have come to an end.
Unfortunately, in election program of Yanukovich mechanisms of favoring development of national business and of transparent competition are not mentioned. That is why it is incomprehensible, will everybody have the same conditions of running business or will separate financially corporate groups underlie? There is an opinion that if Yanukovich win the elections, only natives of region and those who vowed fidelity to Donetsk financially corporate group will have an opportunity to carry on business.
Under Yanukovich financially corporate groups will develop very quickly. The new president will support Donetsk financially corporate group and create conditions for its monopolistic existence.
Thus, today’s practice of Yanukovich and his election program don’t give an answer for the basic question: how will those citizens of Ukraine, who would like to carry on business, especially small and middle one, feel.
Speaking about Alexander Moroz it is necessary to mention that he is a representative of socially democratic ideology of society development. That is why neither he nor his party is oriented at establishment of market economy and powerful national bourgeoisie in Ukraine. The Left and the Left-centrist political forces always take the development of business as some tactical instrument, as a concession to state economy in a whole. Social party and Moroz are the representatives of mentioned before ideology in Ukraine. They are oriented at existing of private property as a secondary form of property, in conditions of priority development of state ownership. Thus, if Moroz becomes the president, he won’t be able to initiate creating favorable conditions for forming powerful national business in Ukraine, because he takes it only as a transition form. At the same time small private property and small and middle business will develop under Moroz. One of the points of the election program of the leader of SDPU is an evidence of this fact. According to mentioned point, Moroz states for creating the conditions for rapid development of small and middle business and business undertakings. Moroz won’t be able to liquidate state-monopolistic financially corporate groups, but he will at least a bit reduce their power.
The second question, which entrepreneurs are worried by, is the existence of bulky and unstable tax system in Ukraine. It is necessary to diminish meddling in development of the business on the part of tax system as soon as possible. Victor Yushchenko offers the easiest tax system. There is even a point about liquidation of tax militia in his program, which is a positive step. “Taxes will be fair and tax pressure will decrease” says Yushchenko. Taking into account the practice of his working as a Prime Minister, we may believe that he will favor weakening of tax pressure and tax system. Victor Yushchenko also proclaims that in 5 years he will decrease the salary loan in the form of social tax (deductions to the pension fund, funds of social insurance and on the occasion of unemployment) to 20%. Such goals are very approving. But the level of social tax, to my mind, is too high – it shouldn’t be more than 12%. It is necessary to mention that such tax Victor Yushchenko should impose when he held the post of Prime Minister of Ukraine.
As for Victor Yanukovich, while being the Prime Minister, he reduced profit tax, but he didn’t succeed in liquidating or reducing added value tax, which is the most corrupted and incorrect tax for the present day. He also didn’t succeed in adopting the law about single social tax. So, Victor Yanukovich has made some steps for liberalization of the tax system, but these steps were not qualitative and irrevocable. The ore so as the government proposed rather irrelevant law about implementing immovable property tax. We consider that in case of implementing such tax, the conditions of running business in Ukraine will get worse. In such sense the win of Victor Yanukovich is rather dangerous for the businessmen.
The election program of the present Prime Minister doesn’t contain clear information about the ways of reducing tax pressure and the quantity of taxes and liquidating absolute power of tax service. From the other hand, Victor Yanukovich promises to reduce the rate added value tax to 12%. Taking into account his experience as a Prime Minister it may be made a conclusion that Victor Yanukovich can make some positive changes in this sphere. At the same time it is necessary to mention, that this point of his election program is very weak. The ways of promoting of liberalization of the tax system and transforming it in such a way that total taxes won’t exceed 15% of created profit are not pointed.
The election program of Moroz contains the worst points about improvement of the tax system. If he is elected, the level of taxes for business sphere may grow. That is because exactly such practice in the sphere of taxing is typical for world social democracy.
Moroz won’t give some serious preferences, including preferences in tax sphere, for the development of national business, because, as we mentioned before, he is not a supporter of spreading of private property and bourgeoisie in our country.
The third question is the stability of currency, absence of deficit of the state budget and conditions, which lead to growing of inflation level in the country.
It is necessary to outline that when Victor Yushchenko was a Prime Minister there was no budget deficit and devaluation of national currency. And what is more, Yushchenko had always regarded very carefully to the question of currency stability. He offers to adhere to such policy subsequently. It is very positive. But we should take into account the following moment. When Yushchenko headed the National bank, there were two cases of devaluation in Ukraine: the first of them took place in 1998 and was very powerful, the second of them took place at the beginning of 1999. Thus, it is necessary for business to raise a question about guarantees of stability of national currency, and non-admission of national currency devaluation, inflation and forming state budget with deficit.
If Victor Yanukovich becomes a president, we may expect very unpleasant surprises in monetary-budget sphere. That is because Ukraine is developing on credit during 2003-2004 and this is the consequence of his practice as a Prime Minister. Victor Yanukovich and his government borrow too much abroad. For example, $ 1 billion was borrowed in 2003 and 8 months later in 2004 eurobonds to the sum of $ 1,1 billion were placed at foreign markets. Large sums of money are borrowed with a help of public bonds, which are sold for grn billions inside of Ukraine. Under Victor Yanukovich as a Prima Minister state budget had a deficit twice. In 2004 the amount of state budget exceeded 7,4 grn billions.
Thus, it may be foreseen that in case of winning elections, Victor Yanukovich will follow the policy of credits and Ukraine will develop as a debtor country. Such policy is very dangerous, because it lays the foundation for devaluation of national currency and as a result for inflation.
The election program of Moroz creates the impression that he that he is not familiar with questions of turnover of capital and functioning of financial economy of the country. And this is a weak spot of his as a future leader of executive power of the country. Of course the clever assistants could help him, but we don’t know specialists in the sphere of financial or monetary problems in his team.
The fourth question deals with presidential support of farm and cooperative forms of business in villages. Villagers are the most numerous class of Ukrainian society and agricultural sector has always been the most important one for the development of Ukraine. That is why it is important for landowners, who will become the president and what policy he is going to follow concerning further development of business in this sector. To our point of view Victor Yushchenko may create the best conditions for the development of agricultural business in case of winning. While being the Prime Minister, he began to solve questions of financing and supporting of farmers. But Victor Yushchenko’s attitude to forming powerful strata of cooperators in villages and cities and selling land for agricultural processing is incomprehensible. In his program he doesn’t give a clear answer whether agricultural land will be an article of trade or not. Victor Yushchenko mentions this rather indistinctly in the 8-th point of his program. According to it, “it is necessary to stop speculate in land; the land will be the property of those, who work it up”.
Having analyzed the methods and actions of Yanukovich, we may see that from the one hand his government supports the development of agricultural industry, but from the other hand, he is oriented at open sale of the land and transforming an agricultural land into article of trade. This is dangerously, because this will lead to forming of powerful latifundiums in our country.
As for Moroz, his attitude to the land question is simple. He is sure that the land should be the state ownership. Alexander Moroz proclaims in his program that he stands for the exceptional right of Ukrainian citizens for the land. He says that it is necessary to sell bread instead of land. It is clear that Moroz will stand for the development of different collective forms of keeping farming in villages.
The fifth question is about formation of the middle class, based on private owners in Ukrainian society. The attitude for this question of the three main presidential contenders is very important for the further development of our country. We may speak with confidence that Yushchenko’s win will favor forming of middle class. That is because the win of “Nasha Ukraina” is impossible without small and middle business and entrepreneurs of Ukraine. There are more than 5 million of them (plus their families). This is a great electoral power. The majority of these people will count on Yushchenko, not on Yanukovich.
Practical activity of Yanukovich is an evidence of that fact that he couldn’t create conditions for the development of middle class. He is more oriented at hired workers. First of all he counts on budget workers, that is those, who are supported by state budget, and also pensioners, lumpen and marginal strata of society. Most probably that such orientation will remain in future. That is why, the president Yanukovich will hardly make efforts in order to create proper conditions for the rapid development of the middle class.
As for Moroz, it is clear he isn’t oriented at forming of middle class in Ukraine. That is why he will favor the development of those sectors, where the largest quantity of people, who receive salaries from budgets of all levels, are involved. In the agricultural sector he will support collective forms of keeping farming. It is obviously, that he won’t help and understand middle class.
Thus, we have made a common analysis of consequences of winning of one of three main candidates (Victor Yushchenko, Victor Yanukovich and Alexander Moroz). After all every businessman and members of his family should make their own decision in favor of one or another candidate. It is necessary to analyze carefully the practice of actions of every favorite of presidential campaign, appreciate their promises, and only then make a decision. It is appropriate to consult with other businessmen, to hold open debates in different alliances of entrepreneurs. Only then we may answer clearly, who of three presidential contenders should be supported.
And what is the most important, is a transparence, openness and fairness of elections. We shouldn’t allow state machine and clannish-corporate groups to prevent free stating of either businessmen or Ukrainian people in a whole. If elections are transparent, democratic and objective and the results of elections are not falsified, the winner will be that candidate, who will guarantee rapid democratic development of Ukraine. Only then some time later we will live in European country with stable, prosperous market economy. And that economy will be based on private property and powerful middle class, which has national bourgeoisie as a pivot. |
[version for printing]