Ukraine: Curbing Corruption
President Volodymyr Zelensky inherited the poorest country in Europe, torn apart by an ethnic conflict fueled by a plethora of incompatibilities. The war completely destroyed its economic base in the east and the annexation of Crimea deprived Ukraine of income from natural gas, tourism, and wine production.
The defining characteristics of that time were chaos, uncertainty, instability, and theft of the state treasury and natural resources. The whole country was rotten with incompetence and endemic corruption.
In the exultant atmosphere of the presidential elections, the country was looking to overcome its past and was energized by confidence in its future. Zelensky’s ambition of turning his dysfunctional country into the envy of Western Europe was to be fostered by American economic assistance and foreign investments. For a fleeting moment, after very successful interactions with President Donald Trump, it seemed like he was succeeding. Yet just eight months after the inauguration, the exuberant optimism faded away and exhilaration turned into paralysis. No American economic aid has been coming and optimism about foreign investment has not materialized. So, what went wrong?
Widespread corruption is the major impediment to economic assistance and foreign investment. Since 2014 some $22.4 billion was provided by the EU, and loans and grants from Washington, for an annual average of nearly $4.5 billion -- comparable to the U.S. annual aid to Israel, and there’s little to show for it. Though Zelensky deserves high marks for building the anti-corruption political consensus, replacement of a corrupt bureaucracy and enacting the anti-corruption legislation, there was a failure to understand the nature and scope of the challenges arrayed against him.
As French economist and author Frederic Bastiat warned ominously, “When plunder becomes a way of life for a group of men in a society, over the course of time they create for themselves a legal system that authorizes it and a moral code that glorifies it.”
Indeed, corruption isn’t people -- corruption is a system. It should be noted that this is a state system. Governments by their very nature are institutions of corruption, and nowhere is it more true than in Ukraine. The modern state system of Ukraine is inherited from the Soviet Union and its economy largely controlled by the state bureaucracy, which is always and everywhere subordinates to one single goal -- its own enrichment. The previous administration made extensive use of this and elevated corruption and personal enrichment to an end in itself in power. This era of “crime in law” left a heavily embedded smell in society.
Thus the replacement of staff and the declarations of intent would not alleviate Trump’s concern that American assistance could be squandered or wasted.
The eradication of corruption, however, requires the reorganization of the existing system of state administration of the economy, reducing the influence of the bureaucracy, the destruction of clan oligarchic structures, upholding the laws and strengthening the moral principles of society. This monumental task would take time and serious investment.
In short, without reorganization, there is no money, and without money, there is no reorganization.
Within this context, the emphasis should temporarily shift from suppressing corruption nationwide to implementing an anti-corruption system for individual projects. The strategy is to limit the government’s involvement to the selection of strategic projects and, at the same time, to cut the government agencies off from contract awards and management of cash flow and bleed corruption over time. Indeed, “wrapping” American economic assistance in an anti-corruption shell can be done quickly and efficiently.
The government bureaucracy must be prevented from the administration of foreign aid. The administration of foreign aid and investment portfolios shall be turned to a reputable American management company with experience in the region and a track record of fighting corruption. The very fact that the assets are managed by an American entity subjected to an audit by the American tax and law enforcement agencies will ensure the transparency of the project(s) execution and convince the U.S. Congress and the business world that Ukraine has established an effective mechanism that alleviates any notion of improprieties.
Ultimately, success in such an effort will depend on the ability of the Ukrainian government to manage Ukrainian-American relations in the near term. Since the U.S. aid and project financings are key components of American foreign policy, politics and financial aid are merged into a single construct that is in constant flux. Given this reality, the relationship must be cultivated, particularly in dealing with Donald Trump. A sense of common mission, unity of objectives and intangible psychological momentum of personal relations play an important role.
In the face of a direct threat from Russia, economic assistance needs to be requested not primarily on the ground of potential financial breakdown, as it stands now, but as a sensible method of “locking” democratic gains. The stakes are high and the future of Ukraine as a unitary state is in the balance.
Alexander G. Markovsky is a senior fellow at the London Center for Policy Research, a conservative think tank that examines national security, energy, risk-analysis and other public policy issues. He is the author of Anatomy of a Bolshevik and Liberal Bolshevism: America Did Not Defeat Communism, She Adopted It. Mr. Markovsky is the owner and CEO of Litwin Management Services, LLC. He can be reached at email@example.com