KIEV: Ukraine is the second poorest country in Europe, after Moldova. Its backwardness is starkly illustrated by gross domestic product per capita.
In 2017, according to the International Monetary Fund, Germany’s was $44,000, Poland’s $13,400, Romania’s $10,400, but Ukraine’s just $2,500.
In 1989, Poland and Ukraine were at a similar economic level.
These numbers do not reflect purchasing power, and Ukraine has a much larger unofficial economy than the other countries. The difference is that Poland and the rest of the European Union have open and competitive markets with real property rights. In Ukraine, businesspeople thrive on rents in monopolistic sectors.
In their monumental work “Why Nations Fail,” professors Daron Acemoglu and James Robinson explain why countries do not easily move from one trajectory of development to another. Either they are in a virtuous circle of inclusive economic and political institutions, or they are caught in a vicious circle of extractive institutions.
Ukraine is still stuck in such a vicious circle. Acemoglu and Robinson conclude: “Attempting to engineer prosperity without confronting the root cause of the problems — extractive institutions and the politics that keep them in place — is unlikely to bear fruit.”
Ukraine has carried out many economic reforms, but they need to be completed if the country is to break out of its vicious circle of rent-seeking.
