Explaining policy choices in transition economies: models of economic policy in Ukraine.

• Author: Hinton, Hugh

Abstract

Studies of societies undergoing economic and political transition have focused more on the consequences or effects of governmental policies than on explaining why a specific policy choice was made between the possible alternatives. Further, many of these explanations do not meet basic standards of explanation for the social sciences. This paper examines the policy implications of these explanations by using post-independence economic policy in Ukraine as a focus. It attempts to make the assumptions underlying different policy explanations explicit, identify the variables that have been used to explain policy decisions, and then group explanations into different models according to these variables. Four basic explanatory models can be identified from the literature on Ukraine: the volunteeristic/executive leadership model, the incremental/pluralist model, the structural/institutional model, and the power elite model. Three other models are found to be less useful: the rational model, the majoritarian model, and game theory. Making these models explicit permit empirical tests of their explanatory usefulness and relevance for developmental policy strategies.

Introduction

Governments in societies undergoing political and economic transition must make policy choices among unfamiliar alternatives, many of which are not only difficult but must also be made simultaneously rather than sequentially, and for which there is little precedence for guidance. The literature on this transition initially looked to the Western experience to provide models for both policy and theoretical guidance for this process. The result has been a voluminous cacophony of dissonant theories, explanations, and policy recommendations, many of which have turned out to be at best inappropriate and at worst unjustifiably sanguine. These former include analogies with the American "Wild West" and with the "Robber Baron" periods, regrettable but necessary and temporary eras through which transition nations must pass. Some have proposed a teleological vision of transition (e.g. Brzezinski, 1997; Brabant, 1998), presenting guidance to policy makers and criteria to scholars for measure the success of change. Others argued that key nations, particularly Russia and its leaders, have already made notable progress in this transition (e.g., Anders Aslund, 1995; John Morrison, 1991).

Many recent works, however, have been darkly pessimistic about the transition process, particularly of Russia, and have seriously questioned the appropriateness of Western models. Gaddy and Ickes (1998) argue that Russia (and by analogy others) are insulating themselves from, rather than developing, a market economy. Wedel (1998a) documents the unanticipated results of Western aid, the resilience of Soviet political culture, and the opportunism of "reformers." Still others, such as Pickles and Smith (1998) have challenged comfortable assumptions that transition might have either defined stages or a clear end-point.

Assessing the consequences of particular economic policies has been slightly less bewildering than having to make or recommend them, and two alternative models of transition have emerged: those of "shock therapy" versus gradualist reforms. Although risking oversimplification, there is evidence of a linkage between reform policies and economic performance. Nations that have pursued democratization and marketization have performed best, and these have mainly been those in central Europe and the Baltics with at least a dim memory and some remnants of capitalism, parliamentary democracy, and civil society.

However much attention that the effects or consequences of economic policies has received, far less attention has been paid to explaining why specific policy choices were made between available alternatives, and even less has been paid to the implementation of these policies. The linkage between the characteristics of a nation, the political process, and choices of economic policies has yet to be established. Multiple explanations are stated with relative casualness, assumptions are seldom made explicit, and few authors hypothesize on which are necessary or sufficient conditions to explain why particular economic policy choices or sets of policy choices were taken, and policy recommendations are made without considering the feasibility of implementation.

The purpose of this paper is to examine explanations for economic policy choices and their implementation by focusing on post-independence Ukraine. The thesis is that when assumptions underlying different policy explanations are made explicit and the variables that have been used to explain policy decisions are identified, then these explanations can be simplified and examined both logically and empirically as explanatory models.

Such an approach is consistent with policy analysis, which is concerned not only with what governments do and the consequences of their actions, but also why they do it. A succinct summary of the use of policy models in explanation is provided by Dye (1998). He suggests that models are useful for several reasons (pp. 36-38), particularly because they help identify the really important factors (in our case, those relevant for economic policy) and because they suggest an explanation (in our case, of why certain macroeconomic policy alternatives were chosen rather than others). We should further note that, in the social sciences, an explanation means specifying the necessary and the sufficient conditions for the occurrence of an event or phenomenon (i.e. a policy choice). If the conditions exist and the phenomenon does not occur, or if the phenomenon occurs but the conditions do not exist, we do not have a successful explanation.

Ukraine is an appropriate subject for a systematic and critical examination of these explanations of economic policy choices. It has, at different times (and sometimes even simultaneously), pursued gradualist, reformist, and obstructionist economic policies; further, these policies and their consequences have been widely observed and documented by both scholars and journalists, and the explanations for these policies are readily available. These economic policies have prevented Ukraine from living up to the optimism that greeted its independence, and explaining these choices and their implementation will clarify which policy choices still exist.

Background of Ukraine's Development

The former Soviet Socialist Republic of Ukraine played a pivotal role in the disintegration of the Soviet Union. In March 1991, a majority of Ukrainians voted for both preserving the USSR and for sovereignty within the USSR. This ambivalence was resolved on December 1 with an overwhelming vote for independence and the election of Leonid Kravchuk as president. Kravchuk, former ideologue of the Communist party and a recently converted nationalist, was supported by an unlikely coalition of nationalists and his colleagues in the former Communist apparat. A week later, he met in Minsk with the presidents of Russia and Belarus to sign the Belovezhskaya agreement which formally dissolved the USSR and replaced it with the CIS.

Ukraine's Potential

Of all the new republics created from the former Soviet Union, Ukraine was the one for which there appeared justifiable cause for optimism. Deutschbank's ranking of Ukraine as the former Soviet republics with the greatest likelihood for integration into the European market is well known (Corebet and Gummich, 1990), as is the World Bank's assertion that Ukraine had the potential to become one of "the richest countries of the world" (quoted in The Economist, 1995a: p.21). At independence, such an assessment did not seem unreasonable. In contrast to some former Soviet republics, such as Belarus, Ukraine has had a pro-independence and anti-communist tradition on which to build a democratic state. And it had a diversified economic base, including not only heavy industry and enormous factories in the military-industrial complex, but also significant consumer and agricultural production. In 1989, Ukraine produced 34% of the Union's steel and 46% of its iron ore, as well as 36% of its television sets and 53% of its sugar, contributing over 40% of the industrial and 30% of the agricultural "net material product" of the former USSR, with a national income 10% higher than Russia's.

There were, however, some initial concerns raised about the physical limits on this potential. Some more cautious observers reminded us that Ukraine's industry was decapitalized, polluting, energy intensive, out-dated, and disproportionately concentrated in defense, and that its agricultural potential was similarly reduced by cultivation practices and a labor intensive, aging workforce (Bond, 1992; Golitsyn, 1993; Tedstrom, 1991, Rowen et al., 1994). And although observers recognized that Ukraine would have to build a state and transform an economy simultaneously, few anticipated how ineptly Ukraine would perform the latter task.

Ukraine's Initial Performance

The initial optimism about Ukraine turned out to be misplaced, for Ukraine's economic performance has been more disappointing than even the voices of caution feared. The disintegration of the Soviet system was not followed by the anticipated economic transformation. Rather, Ukraine's macroeconomic collapse ranks among the worst in the former Soviet Union and Eastern Europe--exceeded only by those nations torn by civil war (e.g., Slay, 1996: p. 55). Even the pessimists failed to anticipate the human errors that would turn a difficult transition into a nightmare for millions of its citizens. By the end of 1994, the real gross domestic product was at 36% of the 1990 level, industrial production at 51%, and the value of agricultural production at 66%, shown in Table 1. These statistics, as a number of observers have commented, overstate the extent of the disaster for three reasons. First, the GDP of the Soviet period...