Publication: Monitor Volume: 4 Issue: 80

Analysts and government officials from Ukraine and the United States gathered at Yale University on 24-25 April presented a grim picture of an economy in the grip of organized crime and corrupt politicians. Economic reform has made only slow progress in Ukraine. Despite the introduction of electoral democracy, the restructuring of the bureaucracy inherited from the Soviet era has barely begun.

Corruption is an omnipresent problem, as was shown by the data presented by Joel Turkewitz and the World Bank’s Andrew Stone. A survey of small businesses in 1995 found that Ukrainian entrepreneurs spent 28 percent of their time dealing with government officials–twice the proportion in other countries, such as Gabon or Lithuania. License fees are a major source of revenue for government agencies. They are also often accompanied by bribes. Twenty-five agencies have the right to conduct inspections. The average firm has twenty-four inspections per year (fire, health, tax and the like). Each visit requires bribes and takes up considerable time and effort. The average tax inspection lasted ten days, and the typical firm had seven tax inspections per year. The average firm in a 1996 survey spent $150 in bribes per employee per year. As a result of this corrupt regulatory pressure, only 300,000 small private firms exist in Ukraine, and only one third of these are operational (compared to one million active businesses in Poland). Despite all these bureaucratic controls, roughly half of all business activity goes unreported to the tax authorities.

American University Professor Louise Shelley spoke of Ukraine as having “a new market economy criminalized from its inception and controlled from the top to the bottom.” Moving freight across the country–through the port of Odessa, for example–is “criminalized at every step along the way.” She noted that organized crime is an international problem, with gangs from Russia, Lebanon and Colombia operating in the crime-tolerant environment of Ukraine, smuggling drugs, people, prostitutes and arms in all directions.