- Thomas Jefferson to Edward Everett, 1824.
One of the major stumbling blocks in the recent Ukrainian political crisis has been the issue of federalism. Its intensity was mainly caused by President Yushchenko's uncompromising position regarding any issues related to federalism. According to the President, "federalism is a cursed word in Ukraine and we should not touch this dreadful topic for the Ukrainian nation. No ordinary citizen wants to divide the country, wants an Eastern Ukrainian republic, wants federalism, and wants separatism." It is worth noting that the words "federalism" and "separatism" are synonymous to the president.
At the same time, when some leaders of the Party of Regions pronounced the word "federalism," they also often had something fairly specific in mind. As Prime Minister Victor Yanukovych explained on August 2, "The problem was brought about by the undemocratic approach to the convictions of millions of citizens whom the authorities tried to remove from social life because they supported the other presidential candidate's program... The truth is that people, in their souls, are in favor of the integrity and indivisibility of Ukraine." So again federalism was associated with the perspective of feudal division of Ukraine.
Of late, the president has used the word "feudal" on occasion. On July 28, the President said, "A country that is in feudal relationships cannot discuss European standards of pensions, support for mother and child and other social standards."
To understand the answer to the question of where Ukrainian political feudalism begins, one should look in some detail at the structure of Ukrainian society -- especially at its administrative, political, and economic components -- from a historical perspective. To begin with, it is well known that in the relationship between politics and economics, the former plays the primary role. At the same time, the causality runs both ways: economic interests also influence the political structure. The administrative structure of a country is often left outside the picture describing its political and economic functioning. Does it matter that Ukraine, a country of more than 46 million people, consists of 24 regions, 2 cities with the status of regions, an autonomous republic, and 608 districts?
The country's administrative structure is a result of the assiduous work of Russian bureaucrats in strengthening the integrity and indivisibility of the Russian imperial pyramid. Why did they fail in a country with almost unlimited natural resources?
Surprisingly not all resources were unlimited. In the Soviet Union, there was a scarce resource, called modern technology. In the second half of the twentieth century, it turned out that the Soviet economic system was not receptive enough to new technological ideas. When the blame for the collapse of the Soviet Union is put on its economic system, an important missing point is that the foundation of the Soviet Union's economy was its feudal administrative system.
This worked remarkably well for the socialist state even though, according to Karl Marx, socialism was a transition stage between capitalism and communism, with feudalism left far behind. To understand how administrative feudalism affects, through the political structure of a country, its economic performance, let us take a look at Ukraine's budget system, specifically the receipts of local budgets in Ukraine.
It is worth noting that local governments are not allowed to freely dispose of their shares of national tax revenues because the money is transferred to them for delegated tasks. Among the delegated tasks are those related to health care, education and a number of other social benefits. Therefore local governments in Ukraine act as an agent in the delivery of basic services to their own residents, which contradicts the EU-adopted principle of subsidiarity, according to which the power to deal with an issue is to be held by institutions at a level as low as possible, and only as high as necessary.
An important indicator of the absence of a sound revenue base for local authorities is also the ever increasing share of grants in their receipts: 31.8 percent in 2002, 34.9 percent in 2003, and 43.6 percent in 2004, which puts local governments at the whim of state administrations and higher-level bureaucrats.
Table 1 also shows that local revenue autonomy in Ukraine is very low and, as a result, local self-government is extremely weak. In 2004, the receipts from national shared taxes and grants made up about 80 percent of all local government receipts. Unfortunately, the data is not detailed enough to support the often used estimate that in Ukraine local taxes and fees on average constitute not more than 10 percent of all local revenues, which is also the case for federalist Russia.
Thus, one can conclude that the territorial decentralization of government has not happened in Ukraine yet, with local authorities mostly promoting state interests on a local level within the funds allotted by the omnipotent central bureaucracy. It is time to recall that no lustration law has ever passed in Ukraine and a large number of former communist nomenclatura members are still active players in Ukrainian politics. Their personal interests are nowhere close to those of Ukraine, still trying to get rid of its communist legacies.
For example, the Socialist Party of Ukraine pushed the Law of Ukraine "On Social Protection of the Children of War" through the Parliament on November 14, 2004. It is designed to guarantee extra social protection to the Ukrainian people that were less than 18 years old on Sept. 2, 1945. Without a doubt, the cost of the law to the society should not be measured only in pecuniary terms. So, among the state social guarantees for the children of war is "first-priority allotment of land plots for individual house construction, gardening, and trucking."
Two points immediately spring to mind. First, a Ukrainian citizen who has enough funds for the construction of a house needs no extra social protection on the part of the poverty-stricken state, irrespective of his or her age. Second, the words "first-priority allotment" indicate the expected beneficiaries of the clause. Unfortunately, not all 9.2 million children of war can count on getting a plot of land. The socialists, led by Speaker Oleksandr Moroz (born in 1944), are ready to distribute land for free among the "chosen" ones even though they are the same ones that have opposed land reform in Ukraine for years.
Political and fiscal decentralization makes those in power closer to the people and puts otherwise faceless bureaucrats under public control. To understand the enormity of the task of fiscal decentralization, it is enough to take a look at the progress Poland has made in this respect. As a result of Poland's 1999 public administration reform, the number of provinces (voivodships) was reduced from 49 to 16. The provinces are subdivided into 308 counties (powiaty) and 65 cities with county status (miasta na prawach powiatu). Many tasks, programs, and services were decentralized to counties. However, there were unmet goals, one of them being fiscal decentralization.
The central government retained both revenue generating and revenue assignment authority, thereby severely impairing local self-government autonomy and democracy in Poland. At the same time, it should be mentioned that even in 1997 locally generated revenues made up 35.2 percent of all local revenues in Poland, which, even today, looks like an unachievable goal for Ukrainian local budgets.
The conclusion to be drawn from the Polish experience is that fiscal decentralization is a huge issue in a unitary state with a strong central bureaucracy, which is certainly the case for Ukraine.
Most economists would agree with Volodymyr Rybak, one of the most respected members of the Party of Regions and the Minister of Construction, Architecture, and Housing and Communal Services, who, at his first press-conference after becoming Minister on August 8, said, "...in a unitary state fiscal federalism is a must. In a nutshell, money should be there where problems appear and there where they are to be solved."
Another question is whether it is optimal, from an economic point of view, to keep such a big country as Ukraine unitary. It is true that there is no need for small, homogeneous Sweden to switch to a federalist administrative structure. However, the same cannot be said about heterogeneous Ukraine with its large, but unstoppably shrinking population.
A sad fact is that Ukraine's population has dropped from 52.2 to 46.7 million over 15 years of its independence. In 2005 alone, it lost 351,296 people. This corresponds to a population growth rate of -0.63 percent, one of the lowest in the world. In reference to Ukraine, the term "population growth rate" should better be changed to "depopulation rate." This demographic situation justifies any measures promoting democracy and through it regional economic development.
The issue of federalism has many more facets than one can imagine. So, many proponents of the unitary structure of Ukraine base their arguments upon the utter misconception that unitary states are inherently more stable. According to them, stability is so important that democracy at the local level may be victimized, with somebody else's rights being taken away for the so-called public good.
A missing point is that federalism would provide more stability, without sacrifice on the part of the freedom-loving people of Ukraine. Nowadays federalism is an economic concept first and last. Rejecting it might mean depriving our descendants of a decent life. o
Pavlo Prokopovych, PhD in economics and candidate of science in physics and mathematics, is a senior economist at the Kyiv Economics Institute and assistant professor at the EERC MA program in economics at the National University "Kyiv-Mohyla Academy." The views expressed are purely the author's.
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"The qualifications for self-government in society are not innate. They are the result of habit and long training".
