In August 1991, the first democratically elected Ukrainian Parliament declared Ukraine an independent, sovereign state. The leadership of the Communist Party and the former ideological dogmas were officially refused. The totalitarian,command system was destroyed, and political dependence on Russia in government decision making was stopped. Transformation to a market economy became a key point of the state economic policy. Institution of private ownership, competition, restricted role of government in economy were recognized at the political, academical and social levels. Tremendous changes occurred in the psychology of great majority of people, promoting their understanding of advantages and support of a market economy. A lot of important political and economic changes were started.
Raising the level of the economic freedom gives an opportunity for development of entrepreneurship, small private business, wide net of commercial organizations. The system of prices is becoming more oriented to the market factors. Enterprises and individuals started to pay more attention to the level of costs. Ukraine mass media is opened for the different opinions, discussions, estimations of the economic situation and perspectives for the country. There is no persecution for convictions and one's own opinions. Ukraine has become an equal member of the world economic community, opening the national economy for foreign investments, joining important international agreements and organizations.
In spite of tremendous changes in the political life of Ukraine, the economic situation became progressively worse. The main factors of negative impact to the national economy can be formulated as follows:
- the absolute opposite of the previous economic system to the new one;
- the absence of a concrete strategic program for economic development and also a model of national economy for the future;
- destroying centralized system without replacing it with another mechanism;
- absence, imperfection, or incompleteness of legislative basis for the reforms; contradictions between laws and governmental instructions;
- rejection of conversion to a market economy by numerous governmental officials still responsible for decision making; former communist bosses continued to hold the most important positions in politic and economic spheres.
Since 1990 production has declined. During 1990-1993, industrial production decreased about 18%, agriculture production 22%, consumer goods nearly 30%. The National income of Ukraine in this period dropped about 40%. The increase of prices for energy was particularly hard for the new independent state. For two years (1992-1993) the price for oil increased more than 14 thousand times and natural gas 7.5 thousand times. The volume of investment decreased 54% in 1991-1993. The decrease of production in Ukraine was redoubled by increasing inflation process. The rate of inflation was 2,000% in 1992, and more than 10,000% in 1993. Retail prices were increasing in 3.6 times quicker than incomes of population [Borodyuk, pp.8-io].
As before, the state monopoly in both production and "commercial activities still predominates. Tremendous financial assets passing through the state budget with the only reason to support unprofitable enterprises on expense of better doing ones (Table 8). This artificial support redoubles the problem of the state budget deficit. To solve this problem the government periodically makes the system of taxation more complex. Enterprises have to increase prices for their products, and finally, it is consumers who have to pay these taxes. Because of the absence of real competition, there are no incentives to decrease prices, improve quality of the produce, and use resources more efficiently. The process of privatization is inadmissibly slow. For example, in 1992 only 1% of suggested volume was privatized. The share of the state property remains at about 70%. The crisis results in a sharp decline of the majority of population's living standard.
Adopted from: Panasyuk, B. 1994. "Derzhavne Regulyuvannya Ekonomiky". Ekonomika Ukrayiny, No.l, pp.23.
Current economic crisis has particularly affected the agrarian sphere. Agriculture always was the most painful point of command economic system, but recent years brought unprecedented decline of production (Figure 10). There is a clear tendency of decreasing acreage under crops and number of animals. Shortages of fuel, spare parts, and other inputs on one hand, and dysfunctional organization of production in combination with a certain irresponsibility of bureaucratic apparatus on another hand, caused a huge volume of already fabricated products to be lost, spoiled, stolen, and illegally taken out of Ukraine. Ordinary methods of control, which were effective under command economy, have lost their power.
Figure 10. Index of agricultural production in Ukraine, 1990-1993 (1986-1990 = 100%)
Data from: Silske Hospodarstvo Ukrayiny: Statystychny Zbirnyk. 1994. Kiev: Ministry of Statistics of Ukraine, p.10.
Declining production is especially significant in public sector of Ukrainian agriculture (Figures 11 and 12). Losing periodical state donations and benefit of distributions, the majority of collective and state farms demonstrate their complete incapability to act independently, as market-oriented organizations. Only the artificial support, both economic and political, of collectivized agriculture delay its bankruptcy. Loudly sounding opinions for defending of collective farms have no real economic arguments, and can be considered as lobbyist actions of the procommunist political forces.
Decline of agricultural production leads to increasing food shortage, and in turn to unpredictable growth of retail prices. Because of low level of family incomes, a certain part of population in Ukraine is already cut off from normal food consumption. The quality of nutrition became a national problem of Ukraine. Parallel with decrease of total agricultural output, there are tendencies of declining ratio of commodity output to the total output, increasing expenditure of resources, their selling abroad at the dampening prices and for barter exchange. Agricultural producers have to sell their produce to the state at the unfavorable prices. The state does not pay for agricultural producers in time. Delay payments are tremendously cheapened by inflation. State procurement prices are so low that they do not provide agricultural enterprises with acceptable level of income [Lukinov, p.5].
The prices for manufactured goods have 2.5 times higher tempos of growth than agricultural product prices. More than a half of collective and state farms hardly balance their income and expenditures, and do not have any investment funds. The majority of collective and state farms have to cease any construction and reconstruction, modernization and acquirement of equipment, and use of modern technologies. They limit themselves only to maintenance of existing technical resources which are rapidly depreciating [Lukinov & Shepotko 1994, p.3-4]. The hyperinflation makes compensation for labor too insignificant for collective and state farms' workers and specialists. This main labor incentive lost its importance.
The agrarian crisis in Ukraine has some very dangerous social consequences. The birth rate does not provide even simple reproduction of population. The traditional large peasant families disappeared. In some Ukrainian villages there are even no women in the child-bearing age. Because of the gigantomania policy, many small villages were claimed as non-perspective, and then also disappeared. The quality of life of the rural population is rapidly deteriorating because of hard labor conditions, low living standard, and the absence of satisfactory medical service. Each new generation has less interest both to work in agriculture and live in countryside [Onyshchenko & Yurchyshyn, p.12].
Of course, it is possible to blame state officials responsible for governmental decision making for this situation in agriculture. But the current crisis in agriculture has deeper economic roots originating from the time of Stalin collectivization. It was a logic result of rude ideological delusion which anyway, earlier or later, would take place. The main factors might be listed as follows:
- alienation of peasant from factors of production, deprivation of the right to own their land and product produced;
- disregard of the peasant family as a special economic phenomenon;
- ignorance and reluctance on the part of communist officials to consider economic incentives, and the practice of unlimited intervention in economic processes;
- replacement of economic management and. incentive .mechanisms by rigid administration, strict root of command practice in agriculture (and not only in this sphere);
- neglect of world experience and dogmatic gigantomania in the choice of priorities and directions of agriculture development;
- industrial fetishism which became the basis of discrimination toward peasants in the conditions of life and work.
The consequences of forced collectivization have become apparent in full extent under conditions of current economic crisis. Traditional collective farming economic incentives such as periodical increase of procurement prices, constant growth of nominal level of workers' and specialists' salaries, cheap state credits, privileges in distribution of resources are completely exhausted. The state is not able to conduct regular control and intervention in collective farms' affairs as it was before. Only fundamental reformation in relation to property, democratization of management, and new organizational arrangements can rescue large-scale farming from complete degradation.
Some important steps are already done. The conception of pluralism of different forms of organization and management became a leitmotif ot restructuring in agriculture. Many collective and state farms have declared their steady purpose to share their property and transfer their enterprise to a form of private business. Individual (family) private farms have gotten an official status due to the Law on Private Farming adopted in 1992. It was an impetus for rapid growth in the number of private farms. At last, the clear certainty for land privatization was officially pronounced in the Ukrainian President's Edict on Land Reform in 1994. Ukrainian government intends to decrease significantly its intervention and commercial activities in agriculture.
A certain progress in understanding of privatization by agricultural producers themselves and some legislative initiatives is only the beginning of real restructuring. The share of private farming (1%) is so small that they cannot be considered as an essential contributor in general agricultural output in Ukraine
(Figure 13). At the same Figure 13. The share of different producer groups in total agricultural output of Ukraine, 1993
Source: Silske Hospodarstvo Ukrayiny: Statystychny Zbirnyk. 1994. Kiev: Ministry of Statistics of Ukraine, p.12.
time, the share of collectivized agriculture (collective farms 42% and state farms 18%) is still significant, and the enterprises of this type, as before, remain the principal agricultural producers in Ukraine. In 1993, they produced 93% of grains, 98% of sugar beets, 43% of vegetables, 64% of milk, 59% of meat, 52% of eggs, and 74% of wool [Silske Hospodarstvo Ukrayiny, pp.18,19,23].
But general output, as well as the share in it, does not display the level of production development and efficiency (sometimes supporters of collective farming forget about that). Because of price mechanism imperfection and hyperinflation, it seems to be impossible to determine the real state of matters. The only way is to use natural indexes, such as yield and animal productivity, to illustrate" the actualdevelopment of Ukrainian agriculture. Even according to Ukrainian official statistical data it is possible to conclude that the existing organizational structure of agriculture does not allow realization of the tremendous agrarian potential of Ukraine (Table 9).
The spirit of collectivization still has an influence upon the mentality of those who are responsible for principal decision making in the state. The work of industrial enterprises, distribution of the state resources, and the system of agricultural education keep their primary orientation to the needs of collectivized, large-scale agriculture. Collective farms long ago overstepped the limits of pure economic phenomenon. They turned into a complex social system. The majority of rural population, especially older people, depend on this system, and can't imagine their life without it. Economic insolvency of collective farming condemns these people to low living standard and social discrimination.
Table 9. Selected indexes of yield and animal productivity in U.S.A., Europe and Ukraine, 1992
Data from: Silske Hospodarstvo Ukrayiny: Statystychny Zbimyk. 1994. Kiev: Ministry of Statistics of Ukraine, pp.148,150,152,162.
Thus, the communist ideology created the organizational structure of agriculture. And now this structure is a carrier of the ideology, even when the state, government and society officially refused this ideology. Stalin's model of collectivization still determine the image of Ukrainian agriculture. Here Stalinism took such deep metastasizes that even for a long period after its official censure, eradication and public anathema, the idea of collectivization still exists, operates and, as before, leads Ukraine, the country with affluent resources, to the blind alley of underdevelopment. The idea of collectivized agriculture is so tenacious that even today it is supported by many honest people who have nothing in common with Stalinism, who can be considered rather as antistalinists, but who are still not able to rise over this, probably the deepest delusion of the communist regime.
An agrarian reform is always, to a certain degree, a subject of politics. But during the Soviet period the political context of agricultural development programs always predominated over their economic essence. Maybe that is why this brief economic review of Ukrainian agrarian history looks so politized. But high politization was the characteristic of our society and our life. Without taking this statement into account it is impossible understand the essence of the agrarian problem in Ukraine and to make any projections for its future. Hopefully, democratization and depolitization will present the opportunity for economic actions.