An Economic/Political Strategy for Democratic Ukraine

by Dr. Helmsworth Greystone, October 2000

Problems faced by Ukraine:


1. High Unemployment
2. Crippling Taxes
3. Lack of opportunity in Ukraine
4. Best and Brightest leaving the country
5. High cost of government
6. Inadequate government revenue
7. Poor national morale
8. High dependency on Russia for energy
9. Too many political parties
10. Government leadership focus in wrong direction
11. Other Countries have low opinion of doing business in Ukraine

How to win the elections:

We are told that there are no charismatic leaders in Ukraine that can unite the approximately one-hundred single-issue political parties that exist and gain a plurality; that citizen apathy is so high that most Ukrainian voters have given up on their leaders and don't bother to vote; that government corruption is squeezing the lifeblood from the nation. We are told that because of these things, Ukraine is destined to continue having corrupt government and a population reduced to peasantry by that government. But is this necessarily so? I don't think so!

Ukraine belongs to the people of Ukraine, not to a handful of government officials. These owners of Ukraine must reclaim ownership and then control of their country. The question is how is this to be accomplished? The people of Ukraine must believe that there can be a better Ukraine. They must be told and convinced that Ukraine can be saved. An honest political party that will Address the real issues of Ukraine listed above must emerge. It must Offer solutions for all of these problems and show the Ukrainian voter how its plan will bring economic relief to all Ukrainian people, how quality of life will improve, how the children will be better off.

Ukrainians should not focus on single-issue politics (for example, ecology). While ecology is indeed important, hungry voters are more interested in feeding their families than cleaning up a river. Ecology can be a part of the platform and should be, but it must not be the only issue and it must not be a leading issue. The same can be said of the "free market" issue, "democracy issue" and "religion issue" among others. The problems listed above are the issues that will get the attention of a wide range of voters.

Ukraine must find a way to coalesce the 100 political parties into fewer and fewer parties until there are enough voters to give a simple majority. In UkraineÍs case, the Communists have approximately 16 % of the vote but because of the other 99 parties in the country dividing the remaining 84% of the vote, the Communists get most of their candidates elected. Until some other party can achieve enough unity to change this condition, the Communists will continue to be over represented.

How to address the problems faced by Ukraine:

The Government must have revenue to pay for government, for national defense, for the purchase of energy, and the many functions that the Ukrainian people depend on the Government for. Government now tries to generate this desperately needed revenue by taxing anything, everything and everybody. Fiscal policy is one of desperation, not one of planning and good national economics. People and companies are taxed to the point that companies are discouraged from moving into Ukraine and those already there are discouraged from growing. People and companies cheat on taxes, hide income when they can, engage in black market activities and survive by violating the law. Taxes are literally crippling the country.

Because companies are declining in Ukraine and because companies from other countries are afraid to come into Ukraine, the unemployment is growing at an ever-increasing pace. It is absolutely necessary to lower unemployment and put more people to work. People are more concerned about survival issues than about political agendas or anything else. They struggle to feed, clothe and house their families. Desperation drives people to do many things they would never do under better economic circumstances. This desperation leads to many types of illegal and nation-harming activities such as drugs, smuggling, prostitution, and others. The political party that can show the Ukrainian people how it will increase employment and thus make survival in the country easier will get many votes.

What is the secret of increasing employment? Ukraine must become an international player. Economic isolationism is killing the country. How will Ukraine become an international player? It must create conditions within the country that favors foreign investment, reduces the fear of investing in Ukraine and reduces the fear that most foreigners have of traveling to or living in the country.

Government must enact legislation that protects foreign nationals and foreign companies that invest in Ukraine. Taxes must be reduced for all companies so they can make a profit in the country. Profit drives investment. Without profit, there is no investment. High tax rates in Ukraine force international companies to invest in other countries and not in Ukraine. It is important to get this message to the people. One way of getting the attention of foreign companies is to give them a period of five years for which there are no taxes on their income, profits, capital investments, equipment or any other aspect of their business. After five years, the tax rate would be modest and competitive with other nations.

The government will argue that it can not afford to allow companies to come into Ukraine tax-free for five years. Why not? It receives no revenue from these mythical companies now and in five years, there will be a positive stream of income from these same companies that government does not have today. In the meantime, jobs are created by these new companies and new investments in Ukraine. The people are better off because there are jobs and these same people who now pay no taxes because they are unemployed will pay taxes on their earnings. Government has a net increase in revenues and the people are better off.

Government still "owns" most of Ukraine. Foreign investors will want land, buildings, equipment and other tangible assets in Ukraine in order to build and operate their factories and businesses and to create jobs for Ukrainians. These "needs" can be a source of income for government. Government can lease or sell land, existing buildings and resources within the country to these investors. Ukrainians should not fear that their land is being bought by foreign nationals and companies. These foreigners can not take the land anywhere else. It will always be in Ukraine and it will at the same time be making life better for Ukrainians.

Government should sell most of the Government owned assets to Ukrainian citizens. Unless Government needs the land, buildings, or other assets for the operation of the government or for the public good (such as parks, lakes, waterways, highways and the like), it should sell them all. Why? Because these assets in the hands of government are producing no tax revenues and government desperately needs tax revenues. privatization of land, industry and buildings creates a tremendous source of income for the operation of government. All such assets would be appraised and a tax base created from the appraised value of such assets. The owners of these assets would be assessed taxes each year based on the appraised values. The owners would either find a way to make income from the assets or they would sell these assets to others who could, because they would not want to pay taxes on non-productive assets.

Ukraine has the resources to rise out of its depression. Government must simply do the things that will allow Ukraine to grow and prosper instead of squeezing the lifeblood from the meager productivity it now has. Such a program of privatization and taxing of real property would allow a great reduction in personal income taxes and direct taxes paid by the wage earner. This reduction in personal taxes would encourage growth, work and a stronger economy.

The effect of taxes on prosperity


History throughout the world tells the story better than any individual. Low tax rates promote prosperity, lower crime, higher morale and satisfaction, higher employment and better standard of living for the population. Low tax rates often increase the revenues collected by government rather than reducing them. High tax rates create the conditions existing in Ukraine. Such conditions result in lower employment, lower government revenues and pressure on government to further increase taxes which further deteriorates the national condition. This is such a spiral that Ukraine finds itself in.

Summary


The political party that can address all of the issues discussed above in a convincing way will win the elections. The people must be given hope. They must see a light at the end of the tunnel. If they do, they will respond. There is no quick "fix" to the problems. It will take several years to bring prosperity to Ukraine. A government that understands the economic dynamics of a nation can reverse the downward spiral and cause things to get progressively better. It is absolutely essential for Ukraine to create such a government. It can only create such a government if political candidates come to understand these dynamics and can convince the people. The people must overcome their political apathy and seek out candidates that are honest and will use the political office for making the country better off rather than enriching themselves. Never forget that the political office belongs to the people, the holder of that office is a servant of the people. Not the other way around.

Dr. Greystone welcomes responses from any Ukrainian citizen or informed national of any country. This website has provided a forum for discussion of this article. You are invited to send your comments or questions directly to Dr. Greystone. You will find a link to the Discussion Forums on the Web Site Directory Page. Once you have clicked on the Discussion Forums, You will find Dr. Greystone's topic under the "politics" subtopic. To go to the Web Site Directory Page, click HERE.