Gerard Roland: Corrupt Officials Will Stop, as Their Actions Will Always Be In the Limelight

Interview with Gerard Roland, Professor of Economics and Political Science of the University of California in Berkley

http://conference.bank.gov.ua

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Gerard Roland, a renowned economist, Professor of Economics and Political Science at the University of California (Berkeley, USA) told in his interview to VoxUkraine what place Ukraine occupies on the political and economic map of the world, whether we have a real democracy, which powers should be withdrawn from the President, and what can make Ukrainian parliamentarism more constructive. In late May, Mr. Roland visited Ukraine to take part in the conference “The Role of Central Bank in the Economic Development” co-organized by the National Bank of Ukraine and the National Bank of Poland. VoxUkraine (in cooperation with the Economic Strategy Center) talked with Mr. Roland about the vitally important issues for Ukraine.

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Do you think still relevant to label a group of countries as transition economies? Like, for example, such different countries like Poland and Ukraine?

Gerard Roland: No, the reason is simple, the way I define transition is transition away from central planning and away from the communist regime, so that happened in most countries in the early 90s and was largely finished by 1995. I call them post-communist countries because with transition you have the impression that you are on a certain path where some are more advanced than others, but in reality you have a lot of diverging paths and not all are going in the right direction. Many are actually carrying the burden of the communist past. That’s why I prefer to call them post-communist countries.

Would you propose some other classification rather than labeling them all as post-communist countries and in which of the big group of countries would you put Ukraine?

GR: It depends at what time you would ask me to do that. Let’s look at the whole history. Ukraine is the best example of what I call post-communist countries. The communist regime collapsed but there was no serious reform of the state apparatus to make it conform to the rule of law etc. What happened is that groups of political entrepreneurs among people who were part of the “communist nomenklatura” saw opportunities to make a lot of money.

Some people very quickly became very rich by using positions inside the state apparatus and competing with each other. I think we can see a large part of the history of Ukraine including the Orange Revolution, partly also the Maidan, as a fight between these different networks: Akhmetov, Yanukovich, Kolomoiskiy, Firtash. And the last president Poroshenko is, actually, one of them.

The current situation in Ukraine is really unstable. It’s one where either one will go back to what Ukraine has experienced the first 25 years, which is a kleptocratic state, or there are going to be serious reforms. There already are serious reforms but there needs to be a critical push so that both the oligarchs, but also people inside the population, know that things are really changing, that there is hope.

So there really is a fight on one hand between these vested interests, that have been created in the post-communist period, and civil society on the other hand, who understands that things must be better. There really is a fight and it’s not clear who’s going to win.

And it’s an international fight, because Russia due to the Putin regime today is at the head of this group of kleptocratic states. That’s why somebody like Orban all of a sudden is sympathetic of Putin because he thinks that they have very similar interests.

It’s really a fight and I think Ukraine because of its mobilization, because of the enthusiasm of young people, has the potential to become a normal democracy, to become a country with normal rules and then I would not call it a post-communist country anymore.

The second question is how to create a productive conflict between in the society to get a balanced but stable system, not getting country broken into pieces on the one hand but on the other hand not to have state capture when everybody is just corrupted and connected as crony capitalists.

GR: It’s very complex and I’m not sure I have all the right answers, I would just give you my views on this but this is a question of debate and the debate itself is very important.

One: I think civil society mobilization is very important and I would like to note two aspects here.

First aspect – the war in the East instead of demobilizing people has actually mobilized them. Because everyday people are being killed in the East, people understand that the fight for democracy is really a life and death matter. I think that’s a big difference with the Orange Revolution where people got demobilized very quickly.

And the second aspect has to do with the current youth — people who are today between 15 and 25 years old have not grown up under communism, they only heard about it from their parents, they did not go in the communist school system, etc. So they don’t accept the corruption, they don’t accept the lies, the manipulation etc. They want a better future and they’re going in the streets to ask for it. You see it in Ukraine but you see it also in Slovakia and Russia and so on. So civil society is very important.

Two: it’s clear that people need to fight to have a president or an executive that is defending the reforms. That’s very important.

Three: it’s also very important that the executive gets support from the legislature. And it’s clear that you will have corrupt interests in the legislature for years to come but it’s very important that you create a critical mass of deputies especially among young people who really want to change things.

Four: you need to go through institutional change.

Here I find that here there are many good examples of reforms for example digitalization of public service, the public procurement laws, the fact that the wealth of politicians had to be declared. They cut out the middlemen, they create transparency. They’re not killing the corruption but they’re creating obstacles to corruption. And there one thing that is important which is happening in this country is what I call a thousand leaks. That is, if you create all sorts of reforms that generate informational leaks so that information is publicly accessible and does not get shut off. Then the corrupt interests cannot close the leaks. So if there are too many leaks, they will just have to stop at some point as their actions will be constantly in the limelight.

Finally, something also very important is decentralization. One needs to spread power. You see that those countries where civil society was initially stronger – e.g. Poland, Czechoslovakia, you had the roundtable discussions at the end of communism, creating institutions where power was less concentrated.

I think in Ukraine the power of the president is still too concentrated. So you need to spread the power. The best way to do it would be to change the constitution and then give more power to regions, more power to mayors. Why is that important? Because if all power is concentrated by the executive, then the corrupt interests will really focus on that. If power is decentralized, you have these thousand leaks and then you will have positive examples, you will have some cities that are well managed, some cities that are poorly managed and people will see the difference.

And again, this is going to create hope and enthusiasm, momentum. It is important to create momentum because we should not have any illusion — the changes are not going to happen in three years or five years, it’s going to take 10-15 years, but it’ going to be better after that.

With the transparency there can be a trap when everything is so transparent that people start accepting as a norm that “ok, they’re stealing, but they do something” or they say “those people steal, I will also try to steal”.

GR: It could be the case, but that means that transparency is not enough, this should be used as a tool for civil society. It should generate combativity, if I can say so. And you have to see what is the counterfactual. The counterfactual is that if you don’t have transparency then the corrupt interests feel much better. And the more you attack those people, the more they resist. This is a smell test” for whether reforms are successful. When those people start screaming, then you know you’re in the right direction.

How far should we go with the decentralization?

GR: You should not go to the extreme, but I think I can say several things. One, there has been progress, it should go further, but it should not be to the extreme. It’s not about creating independent republics within the country. The general principle is that local politicians should have some power, which will give them responsibility.

Speaking about politicians what can we do to transfer from “pocket parties” to some real parties as institutions.

GR: This is very important. People recognize that stable democracies are democracies with a strong party system. Because parties have a program, they’re accountable to the voters, they are political brands. They have a reputation, they have their interests that they’re defending. Ukraine is not there yet.

I think a presidential system is not too good for the formation of party systems because if you have a presidential system, then the party is mostly people who are behind some presidential figure or somebody running for the presidential election.

And so it’s not good when parties are essentially dependent on a personality . Parliamentary systems like Germany or like England or Holland or Sweden or Scandinavian countries actually have a more stable party system than let’s say Latin America, which has presidential systems.

Talking about the parliamentary system which one would be in your opinion optimal for Ukraine?

GR: There’s a dilemma. On one hand you need to have a strong party system, because that is what creates cohesion and party discipline. Parties need to have power to discipline their members. The power the discipline their members goes with deciding to put somebody on the list, not to put them on the list, the place they’re put on the list. On the other hand, we also need accountability to local interests.

The German system is not a bad one. There people have two votes: the first vote is on some local politician and the second vote is on parties. Some countries have a system where half of the deputies are elected on a proportional list, the other half on a majoritarian local list. It does not work exactly the same way in different countries.

Russia has exactly the system I just described. But in Russia you have fraud. It’s not a real democratic system. Iran has elections right now, but can we say Iran is a democratic country? No, it’s not really the case. Italy had at some point a system like the Russian one. But then the problem is that you have different parties, which have different strength in different regions. In that case, there is the danger of fragmentation. That is, if some party is dominant in one region, and another party is dominant in the other region then it creates regional tensions. From that point of view, it is better to have national lists that are controlled by the parties.

You have to choose your system depending on the tradeoffs. But you cannot change the system every election. There needs to be a very large discussion inside civil society, with the politicians and then a final decision is made.

What about Ukraine? Does Ukraine have real democracy?

GR: Right now I think it does, it’s a very imperfect democracy, but I think it would pass the test of democracy. There’s freedom of the press much stronger than in other countries. It has freedom of association, people are not afraid to speak, the previous elections have been free, there was much less fraud than under the Yanukovych election, so I would say yes. But it’s very unstable. It’s a very unstable democracy.

We need reforms. And for reforms we need institutions. Which types of institutions we should create to push the reforms?

GR: I think what you really need is to have good rules, good rules for how the executive is chosen, how the parliament is chosen, for the allocation of resources between the center and local authority.

I think having good rules is the most important because it’s very rare that you have a mobilization of civil society over a long period of time. It’s a good thing but one cannot count on long run mobilization. Cultural values and beliefs move very slowly, and cannot be changed overnight. There are many people who are captured by populist beliefs, there are many people who have a little bit a slave mentality, even though that is a too strong word, but it is a belief that you cannot be really free but have to be working for some patron to find a place in life…

We would call them paternalistic…

GR: Yeah, paternalistic, that’s right. And these beliefs and values cannot change overnight. I think it’s really the youth that brings change. If the political institutions are changing, if people think that they can have some power, that they can participate, that they are empowered, then this will reinforce the slow cultural change, that is taking place.

You’ve mentioned that already for several times that at least in your view the change will take probably another 10-15 years. How then the reformists can outperform populist who promise the result tomorrow. How should we communicate to people that they should wait for another 10 years.

GR: That is not a message. The message is that you’re fighting battles on a day to day basis, year by year, month by month, election by election. And one has to be very clear about those battles, whether it is about central bank independence, whether it is about gas prices, whether it is about different reforms, one has to communicate clearly to the public.

And here, I think, it’s very important for reformers to learn their job as politician to communicate with people. To say things not in a bureaucratic way, not in a technocratic way, but to be able to say the truth in simple words.

Let me give an example because I’m French speaking. The last French election was very interesting. Macron, he went to the Whirlpool factory and he did not say, “I’m going to save your jobs”. He said instead,” Look, I can’t, I really can’t promise that, I would be a liar if I would promise to you that I will save your jobs”. By the way, in a market economy jobs get lost, firms close, that’s the reality, you cannot change it.

So you have to tell the truth. You should not say, “We’re doing these reforms because the European Union is asking or because the IMF is asking this.” You don’t get the support of people that way. You really have to find a communication strategy, that is effective but to tell the truth and telling the truth sometimes say, “Look, it’s going to be hard for a while because we’re paying for the mistakes of the past but there is going to be change. We cannot promise you it’s going to be better in six months, but there is no alternative. Because otherwise you go down the path of Venezuela.

I think Venezuela is a very good example. It’s terrible what is happening in that county. When they had high oil prices they were financing all sorts of social programs. Now the oil price is low and they have hyperinflation, they are unable to control things, people are demonstrating, they’re hungry, they’re being shot on the streets. That is the road that populists are going.

I think it’s important not just to tell the truth but also it’s very important to attack the false promises, the false truths of the populist politicians. People need to be made aware of that. The French example is a good one because populist Marine Le Pen was mostly criticizing things and making hollow promises, she only got 30 or something percent of the votes, which is much, too much, but still she did not win the elections.

French example is very instructive for Ukraine.

GR: You need a Ukrainian Macron

(laugh)

And one more specific question. In Ukraine one of the sources of corruption are state enterprises. What would be your advice, how to isolate them from political impact, should there do the reform of corporate governance or should we just sell them?

GR: In some cases privatization is the solution but not always. It’s case-by-case. You have state-owned enterprises in many countries and in many countries there is a form of political capture and there are inefficiencies. So one has to find specific solutions. For e.g. exposing to competition, financial discipline, corporate governance, sometimes privatize parts of them but, it should be on a case-by-case basis.

Privatization is something that should be done very careful because in all post-communist countries privatizations mostly were not well done. It worked well when firms were privatized to foreign multinationals because they bring the technology, they have the capital, they have the management, know how, and so that improved the performance.

But when it went to some kind of oligarchs, the performance did not really improve very much and that’s true in Russia, that’s true in many countries, there has been a lot of research on this. So I would say that deregulation is much easier than privatization. Because deregulation all you need to do is just suppress and eliminate some rules.

I think in post-communist countries deregulation should be very-very important and widespread and when you become a normal state, a normal democracy – you can reregulate, but as long as the state is dysfunctional – it’s better to be on the deregulation side.

Privatization, if you do it – you have to do it in a competitive system. Under Kuchma all the privatizations were basically a way to give them to “my friend here, my friend there” in a gift to Pinchuk, a gift to someone else etc. So when you do it, it has to be done in competitive auctions, in a transparent way. If you cannot assure it’s going to happen that way, it’s just going to create scandals.

And now last question. So, now it seems that at least part of the Ukrainians is getting disappointed with having not enough changes and positive results after Maidan and on the other hand you tell about 10 or 15 years prospective for changes. What will be your message to those Ukrainians who feel disappointed?

GR: First of all, more changes happened in the last three years than in the previous 23. The change in the energy allocation system, changes in public procurement, changes in terms of starting seriously to fight corruption, and the list is long. The anti-corruption fight is slow, I know, and people for a while said “oh, nothing is happening” but, I think last year they started with the Nasirov case and a few other big fish; they are stepping up the fight.

The economy is improving, it was in free fall in the beginning, after the instability, the Crimea, the war, etc. So, I think, people can already see the changes. If they think that they will become like West Germany in five years – it’s not going to happen, but they can become like Poland. In Poland it didn’t take three years, it took 10-15 years before it became better, but even there it’s not perfect either.

 


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