I moved to Ukraine in 1991 in order to help the country of my ancestors to finally build a democracy, freedom, rule of law and a prosperous economy.
It was almost 20 years ago, and I’ve been thrilled at the positive developments that I have seen.
But I have been disappointed that Ukraine has not been able to reach its full economic and political potential. That it did not move immediately and decisively with free market and legal reforms that would have made it a prosperous nation today; that would have made its citizens feel that they live in great state.
A free market is private property protected by rule of law. It’s private production based on a profit incentive and free competition.
In those countries of the Soviet bloc where quick and comprehensive market reforms were implemented, results were immediate and impressive in economic growth, better standards of living, and greater opportunities for all.
The Baltic countries, Poland and the Czech Republic were most successful and have democracies with efficient market economies, private ownership, relatively high growth, high standards of living and minimal corruption.
Those countries that took a gradual approach ended up with higher rates of inflation, greater and longer decline in output, more income disparity, more corruption and less democracy.
The economic failures in Ukraine and elsewhere were not the result of capitalism, but rather the vast interests profiting from government transfers and market distortions, obstructing reforms and establishment of certain rules and laws by which capitalism functions most effectively. I do not feel that what we see here today is true capitalism, it’s not a market.
Ukraine, unfortunately, was the one of the last to adopt market reforms. Those reforms that Ukraine did adopt, however, yielded quite impressive results. Privatization, a strong monetary policy and deregulation all led to strong economic growth after 2000.
But, and this is my second argument, communists, old enterprise managers, bureaucrats, and the newly rich got together and fought free market and democratic reform. They assured the population that they did not need capitalism, that Ukraine needed its own, so-called “third way.”
And they created market distortions. They created subsidized credits, trade quotas, licenses and price controls. And they put them as laws and entrenched themselves. And they established huge and populist social programs with the benefits going mostly to the wealthy and the privileged, and a large bureaucracy, miring the economy in red tape and corruption.
They conduct corrupt insider sales of state enterprises. So instead of setting an honest broker, a referee, who establishes and enforces clear and transparent privatization procedures, that is creating a level playing field, politicians sold these government enterprises to themselves and to their friends for a dollar. The problem was not free market and capitalism, but the post-Soviet politicians and the distortions of strategies and populism that they created.
In 1991 and today, there was, and there is, no alternative to adopting free markets, which have been proven worldwide to provide the greatest economic wealth and higher standards of living.
I’d like to end with a quote from Peter Boettke, a professor at George Mason University: “If you bound the arms and legs of gold-medal swimmer Michael Phelps, weighed him down with chains, threw him in a pool and he sank, you wouldn’t call it a failure of swimming. So when markets have been weighed down by inept and excessive regulation, that’s not a failure of capitalism.”
Kateryna Yushchenko is president of Ukraine 3000 charity foundation and the former first lady of Ukraine.
