Політика 2018-12-03 08:30 Віхров Максим

Ukraine’s American Dream

Just like democracy itself, entrepreneurial freedom and an efficient economy can foster social justice

Social justice is one of the oldest and most controversial socio-political concepts. “No one has been able to come up with one and only one universal rule that will identify what social justice is,” renowned economist and Nobel laureate Friedrich Hayek once said.

The most seductive formulation came from French socialist Louis Blanc, back in the mid-19th century: “From each according to his ability, to each according to his needs.” His idea was taken up by Marxists of various stripes who tried in different ways to put it into practice—and nothing good came of it. The minute the government began to determine everyone’s talents and needs, and to distribute goods, new inequalities emerged, often more horrible and insurmountable than what was earlier. For instance, the USSR divided up its population literally into different sorts who were provided for according to different standards, which were called “provision categories.” Moscow, Leningrad and a slew of other major cities, industrial and recreational centers received as much as 80% of all the goods the state produced. There were also subcategories based on professions: miners were in the first provision category, while collective farm workers were in the lowest or third category After the USSR collapsed, new inequalities emerged that have left ordinary people no less dissatisfied.

The guarantee that freedom will not turn into chaos is having laws and the institutions that ensure that they are upheld. Laws are also the foundation of economic growth: when there is no law, the only functional form of enterprise becomes marauding. Ukraine has faced plenty of problems in this respect, and this is reflected in the catastrophic lack of trust in the courts, -75%, the prosecutorial system, -74%, the police, -46%, and so on, according to a 2018 poll by the Democratic Initiatives Fund.

A serious factor in public disillusionment are instances when wealthy and influential individuals evade punishment for obvious and even proven, crimes or when lawlessness becomes systemic. In fact, this last was the final straw that led to the mutiny in the Vradiyivka police rape case in summer 2013 and, ultimately, to the Euromaidan. For Ukraine to move closer to ideal justice, however vague that might be, there’s no reason to reinvent the wheel: all it has to do is institute real rule of law.

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In contrast to equality before the law, equality in terms of material property is unattainable and not even necessary, provided that it does not lead to overstepping bounds. All the historical efforts to establish material equality have led to enormous numbers of victims. How large is the equality gap in Ukraine? The GINI Index, which designates the level of stratification in a society from 0=complete equality to 100=absolute inequality, Ukraine stands at 25.5, or about the same as Norway or Sweden, according to the CIA’s 2015 World Factbook. But because of the large share of the shadow economy, this ranking does not really reflect reality. According to the National Academy of Science’s Institute of Demographics and Social Studies, Ukraine’s wealthiest 10% has 40 times more than its poorest 10%. The UN has concluded that this level of inequality threatens the country with socio-political unrest. Why? Populists keep emphasizing that it’s immoral to be wealthy in a poor country, but appeals to ethnics and morals only hide the essence of the problem.

In fact, overly deep inequality is only a symptom of the level of dysfunction in a society’s institutions. Too much stratification in a society suggests that the country’s economic resources are being usurped by its elites, who use them for their own interests. This means that the country is lacking not only a proper market economy but democracy as well. In protecting its privileges, the elite tends to build an oligarchic or autocratic regime, using anti-constitutional means against the country’s citizenry, from stealing elections to unleashing terror. Such a country cannot be free or wealthy—at least not if people don’t have the power to manage their resources and, say, collect gas extraction fees to fill holes in their budgets.

It’s no secret that all of these features are typical, to one degree or another, of Ukraine. That means that social stratification cannot be reduced simply by “taking away and divvying up” the wealth of individual oligarchs. First of all, the country needs real democracy and rule of law. Secondly, it needs to establish a truly competitive economy instead of conserving the dominance of oligarchs. For instance, only 53 of the wealthiest American corporations have managed to stay on the Fortune 500 list ever since it was established in 1955. And even then, their rank keeps changing all the time.

Of course, a competitive economy cannot guarantee wealth for all, but only it can offer a chance to the largest number of people. This means having the necessary institutional conditions: open access to the market and bank credits, protection of labor and property rights, a properly functional court system to settle disputes, and so on. How high social lifts can raise individuals and their load capacity are determined also by the overall efficiency of the domestic economy: if it’s low, most people will be stuck in poverty regardless of how well other institutions work. 

Here, Ukraine also has plenty of issues. If GDP, the length of the work year and the employment rate are compared, then it turns out that the average Ukrainian makes US $3.70 an hour for providing goods and services—although in real rather than nominal terms, it works out to US $2.80. Yet Ukrainians work no less than Germans, Poles or French people. The problem is that they are mostly employed in areas that are not highly profitable, which makes it a lot harder to improve their standard of living through work. And so, thirdly, the country needs to develop a highly productive economy.

Just how high can social lifts take a person? There are plenty of examples of individuals who started out in the lowest reaches of society and reached fantastic heights. For the statistical majority, joining the middle class and becoming upwardly mobile is a realistic prospect within this stratum. The measures discussed here provide the best conditions for this to happen. In contemporary Ukraine, the middle class is still underdeveloped. Credit Suisse, a Swiss bank, compared household incomes with indicators of wealth for each region in 2015, concluding that only 0.8% of adult Ukrainians actually belonged to the middle class and controlled 16.9% of the country’s economic resources. Of course, there are other ways to calculate matters that produce a more optimistic picture. For instance, the Razumkov Center came up with a figure of 14% of Ukrainians being in the middle class in 2014. By comparison, the Pew Research Center reported in 2010 that 72% of Germans belonged to the middle class, 74% of the French, 64% of Spaniards, and 59% of Americans. Societies whose middle class is insubstantial show a huge gap between the rich and the rest. This suggests that social institutions have been oriented so as to deprive most citizens of opportunities to improve their standard of living, regardless of their individual efforts. What’s more, the architects of this kind of order are generally a certain portion of the elite who have taken over all national resources.

This is how mass poverty is the outcome of an economy whose productivity is low and institutions flawed. This is clearly the case with Ukraine. According to the UN, the poverty threshold in Central and Eastern European countries is US $5 a day per person, which means UAH 4,200 a month. Meanwhile, a Derzhstat household study showed that the average monthly income per person in Ukraine was UAH 4,344 in QI of 2018, further differentiated as UAH 4,558 in urban areas and UAH 3,923 in rural areas. Fully 30% of Ukrainians had incomes that were below the actual subsistence minimum—the official subsistence minimum is depressed. Household spending on food alone was 46%, which also testifies to widespread poverty. For instance, the average Canadian family spends around 9% of its income on food, while in Kenya it’s nearly 47%.

For all these reasons, overcoming mass poverty must be a fundamental component in building a just society. And yet, this cannot be done simply by distributing national resources to the poorest: at most this approach can lead to a very temporary improvement. Long-term, sustainable positive results will appear to the extent that the national economy becomes more productive and individuals are given more and more opportunities to engage in it and improve their lives. Of course, there are groups of the population who a priori are in no position to compete evenly with others: handicapped individuals, victims of force majeure circumstances, and so on. It would be quite fair if a society gives such people targeted support. However, when government support for the weakest turns into a situation where entire strata of the population are sitting on social welfare, obviously in exchange for political loyalty, this is the path to decline.

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And so, to build a just society means shoring up democracy, establishing effective institutions and developing a highly productive economy. Only then can a country achieve the maximum match between individual effort and reward for such efforts. This, in some sense, is the original concept behind the American Dream. This won’t, of course, make every single person wealthy or eliminate material inequality. However, with successful reforms, poverty can be reduced substantially in Ukraine and made less penetrating, while many inequalities can be eliminated through competition and opportunity—not for absolutely everyone, but for very many.

Social justice will never be absolute, but there is no better approach. How ready Ukrainian society is to these changes is debatable. On one hand, polls regularly show the tendency towards paternalism among Ukrainians, but there is opposing evidence as well. For instance, in a 2013 survey by the Oleksandr Yaremenko Ukrainian Institute for Social Studies, nearly 70% of Ukrainians supported the notion that people themselves need to ensure that they achieve a decent living standard, while the government’s job is to ensure the necessary conditions. Fewer than 30% in that poll thought that the state is obliged to provide a decent living standard for everyone. Still public opinion is a mutable thing, especially with an unstable economy, an ongoing war and other stresses. The main obstacle to greater social justice in Ukraine is likely to be populists who manipulate the emotions of their fellow-citizens, offering them visions of fantasies that can never happen and promising results that are impossible to achieve.

Translated by Lidia Wolanskyj

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