Books of Changes: 10 Books for Successful Country

Andrei Kirilenko, Professor of Practice of Finance at the MIT Sloan School of Management, member of the Advisory Board of VoxUkraine:

If you are reading this note, then, geopolitics is a part of your personal history. Perhaps one of your grandparents died in a concentration camp, and another was killed in the war. Maybe your mom experienced hunger, got married to an officer and gave birth to you at a remote outpost of vanishing empire. Maybe your sister ran away with a backpack filled with a few things after armed men with a strange accent occupied her hometown. If you’re familiar with such cases, George Friedman books includinga “Borderlands” will resonate with your story.

For Friedman as well as for you, geopolitics is very personal. His father was born in Uzhgorod where he survived the Holocaust, fled from the Soviets and then emigrated to the United States. Friedman, who founded the geopolitical consulting firm Stratfor and the author of several popular books, writes in his Border lands: ” My was one of tens of millions who lived or died on the edge, and perhaps nowhere was there as much suffering from living on the edge than in Ukraine”.

“Borderlands” are brief geopolitical treatise written as a personal diary maintained during the trip which sets out the Friedman’s views on the present and future of Ukraine, Poland, Turkey, Moldova and Romania. He believes that two of the five countries will become powerful nations in the future, the other two will try to “transfer” their problems to another state, which is the highest bidder. And one of the states will entirely disappear in the future. Look again at the names of countries, divide them into three groups – the leader, the follower, the disappeared state – then read the book to know Friedman’s opinion and see whether you agree with him.

Tymofiy Mylovanov, Professor at Pittsburgh University, co-founder and member of the Editorial Board of VoxUkraine:

David Galula’s book – a classic guide to conduct operations aimed at suppressing the separatists and counter-insurgency operations (or ATO as it called in Ukraine). It should be read by anyone who is interested in resolving the crisis in the east. Military action is only a part of counterinsurgency strategy. It is difficult to quell the uprising without elimination of root causes which enabled the leaders of the uprising (local or external) to find the support of the population and recruit active participants. What is the secret? What else needs to be done to defeat the rebels and prevent the spread of the uprising in other regions along with military action?

Galula claims that soldiers and other members of suppression operations must fulfill military functions as well as functions of propaganda and persuasion. The soldier should become a social worker, who restores justice and helps to the poor. Moreover he should restore infrastructure and houses as a civil engineer, teach children in the destroyed villages as a teacher, provide first aid in the liberated territories as health workers do. However, it will last until he would be replaced by professionals among civilians.

Let me parallel with the situation in Ukraine. The uprising became possible due to the fact that the state has lost public trust and this niche was captured by rebel leaders. Suppression of the uprising is to restore confidence in the government. It is necessary to rebuild lost political institutions from scratch.

There will not be enough excuses and promises. The state should build new governance arrangements that go from the people to enable people who are trusted by the local population to become local authority. The first priority in the fight against the uprising is a search for local leaders who have influence, and creating conditions where these leaders will be interested in supporting the central government. This is a prerequisite for victory over the rebellion. Military action will continue indefinitely without this.

While Ukraine’s strategy to combat with the separatist crisis is built primarily on military action and political action at the central level, the Galula claims that local authority with the community and local leaders might be more successful approach.

Yuriy Gorodnichenko, Associate Professor of Economics at the University of California, Berkeley, co-founder and member of the Editorial Board of VoxUkraine:

Probably everyone agreeswith the idea that corruption is a problem number 1 in Ukraine.Indeed, the epidemic of corruption is so devastating in Ukraine that it threatens the very existence of the country itself.The main issue is how to reduce corruption and control it at an acceptable level.It is obvious that Ukraine is not the first country that is facing such a problem and it has a lot to learn from the experience of other countries.”Corrupt Cities” – is a quite accessible synthesis of what we know about corruption, how it should be treated and how to keep it under control.

The book offers a simple formula for identifying processes, positions, etc., that are prone to corruption, andsuggests a way of “curing” the problem: corruption = monopoly power + discretion of officials – accountability.In other words, corruption is “strong” in the area where the official has the exclusive right to provide services (e.g.,issuance of a permit) where he or she is entitled to a free interpretation of facts and rules (e.g., there are no restrictions or formulas for making consistent decisions), where he or she is not subordinatedto anyone and his / her activity is not subject to scrutiny by the public (e.g., all documentation is used for the internal use only).

In the book “Corrupt Cities” there are many examples of how countries’ governments could break the corruption by combining simple measures that weakenedmonopoly power (e.g., allowthe private sector to provide services or give the right to receive services in other jurisdictionsto consumers) and freedom of action (e.g., minimization of decision-making stages and simplification of rules), and strengthened accountability process (e.g., the introduction of public hearings, reports and publication of tender reportsand usage of electronicmanagement system).The examples discussed in the book, not only highlight, but also inspire because some cases initially seemed hopeless.

For instance, nowadays Hong Kong is an example of perfect and effective management, but in the past the city was a «sinkhole» of corruption and inability until the government seriously set its sights on eradication of corruption.

Although the book focuses on the fight against corruption at the local level, its guidelines can be applied at the national level.Moreover, the key message of the book have essential role in designing and implementation of decentralization reforms in Ukraine.

The book “Corrupt Cities” –is, so to say, a “recipe book” for fighting corruption.It should become a handbook for all politicians and government officials of Ukraine. I strongly recommend this book.

Oleksandr Zholud, Senior Analyst at International Centre for Policy Studies, member of the Editorial Board of VoxUkraine:

American philosopher and politologist Francis Fukuyama explains why some states are successful, while others – not. In his opinion, the political order, which leads to success is based on three institutions: 1) strong effective government; 2) the rule of law – a set of rules of conduct binding on all, without exception; 3) democratic accountability, which implies the possibility of a society to choose and dismiss officials from their positions.

Exploring the history of different countries Fukuyama shows that the three institutions can be combined or exist independently of each other. For example, China has a strong statehood, but weak or virtually nonexistent rule of law and democratic accountability. However, according to the author, the early democratization of society, occurring prior to the establishment of a strong state, often hinders the success of the country. Here the development of so-called clientelism (a system of relations in which patron-politician provides client-voter with a variety of goods (e.g. buckwheat) in exchange for political support) takes place.

A lot of countries are going through clientelism. Moreover, it is a normal form of the early development of democracy, when strong political party with clear program objectives hasn’t formed yet. The main problem is that society often stops at this stage and cannot build a strong, effectively providing quality services to citizens, state.

Ukraine is in the clientelism trap. The country has well-developed democratic accountability – elections are relatively free, there is no state censorship. However there is bad situation with the rule of law. Corrupted courts, noncompliance with formal and informal rules by significant part of society and finally substandard provision of basic public services – education, medicine, defense and maintaining law and order.

Sadly, often the way out of clientelism (although not always) is a war: the need to defend requires all forces of society and significantly improves the efficiency of the state apparatus, if it wants to continue to exist. And this is good news for Ukraine.

Vladimir Fedorin, Forbes Ukraine founder, VoxUkraine contributor:

A quarter-century ago, in September 1989, Leszek Balcerowicz became Minister of Finance in the first non-communist government in Poland. Balcerowicz Plan was the first attempt to apply the standard program of macroeconomic stabilization on the territory of the receding socialist camp, which was previously tested on affected by the debt crisis countries of Latin America. Critics have dubbed this plan as shock therapy, but looking back, it can be argued that the theory which underlay the new course has successfully withstood the test of practice.

Unfortunately, not all the countries which have embarked on market revolution after Poland were as consistent. Ukraine is a vivid example. So what’s gone wrong? One of the best experts in post-communist transformation – Anders Aslund and co-author of the famous Doing Business rating – Simeon Djankov released compilation in late October. It summarizes the success and failures of transformations in the 30 countries that have freed themselves from the oppression of communism. Among its authors are such champions of reforms as Polish economist Leszek Balcerowicz, the Czech Vaclav Klaus , the Estonian Mart Laar, the Slovakian Ivan Miklos and the Georgians Mikheil Saakashvili and Kakha Bendukidze.

Ukraine is a “Loser” of transition period. It, in one sense, returned to the starting point in late 2014. In the introductory article Aslund and Djankov sympathetically quoted Anne Applebaum, who wrote in the Washington Post, that the Poles “were moved by the same feelings as the Ukrainians today” in 1989.

Together with Kyrgyzstan, Macedonia, Moldova and Tajikistan, Ukraine is poorer now than a quarter of a century ago. Although Ukrainians have one advantage over the Poles of the late 1980s. Lech Walesa has joked that returning from communism to capitalism is as impossible as to revive the aquarium fish, which was boiled in the ear. Eastern European reformers have proved that fish can be revived. The principle is simple: the more radical, earlier and wide-ranging reforms, the better they work. Compilation of Aslund-Dyankov should serve as one of the most convenient and comprehensible guides on the road to freedom and prosperity by which reformers will lead Ukraine.

Olena Bilan, Chief economist at Dragon Capital, member of the Editorial Board of VoxUkraine:

Leaders of the World Bank were so impressed by Georgia’s success in the fight against corruption that they have decided to send a team of experts to the country to document all the details. This is how the Chronicle appeared. And it can be rightly regarded as a handbook for anyone, who asks himself the question “is it possible to defeat corruption rather than lead it?”

This is consistent description of the steps taken by the Georgian leadership in the fight against corruption in various areas: police, tax system, customs, energetics, education, housing and communal services. The authors tried to avoid evaluative judgments and analysis. They describe the decision-making process by comparing these areas before and after the reforms point to the difficulties faced by the reformers and point to the most common mistakes.

The book is full of examples of life and quotes that enables the reader to decide what exactly was the key to success.

Not all described methods are applicable to combat corruption in Ukraine, but the principles that have used the Georgian reformers can be boldly adopted. The main among them is a vision of the ultimate goal, the speed, the magnitude, radicalism and persistence in spite of resistance.

It just seems that if society is tired of corruption and requires reforms, there’re won’t be obstacles on the road. Protesting against education reforms Georgian students went on hunger strike while respected professors have used the media to put pressure on the government. Officials opposed to the abolition of licenses and meetings on deregulation often ended with quarrels and a nervous breakdowns.

Nevertheless, the team of Georgian reformers managed to carry their point and didn’t lose p support. Largely it is because they were able to claim convincingly: everyone, without exception, will play by the new rules. Public arrests of kingpins and corruptionists are the most famous examples of this.

The principle of equality before the law was applied everywhere in Georgia. In the fight against corruption at customs there were cases of detentions of citizens of other countries who tried to bribe and this has led to an international scandals. For non-payment of electricity bills not only private enterprises, but also water utilities, trolley parks and even the central hospital of Tbilisi were disconnected from the power grid.

As a result, Georgia has managed not only to fight corruption in the police, customs and public institutions but also to change the mentality of people. And this is something that does not happen in many countries that are trying to implement reforms gradually with half measures and with caution on possible negative effects on the political rating.

Alexander Pivovarsky, VoxUkraine contributor

Many of us who grew up in the Soviet Union have repeatedly wondered what happened in those fatal days from July to December 1991,that led to the independence of Ukraine and other republics. After all, a few months before these events, any discussion on independence was actually a taboo and could turn into imprisonment. Was the collapse of the Soviet Union a consequence of decisions taken in Moscow? Was such a decision imposed from the outside? In the new, very timely and fascinating book Harvard historian Sergei poorly used data from the archives of Ukraine, Russia and the US to a detective-style details of previously unknown to the general public events. In the new very timely and fascinating book, the data from the archives of Ukraine, Russia and the United States has been used to elaborate on previously unknown to the general public events in a detective style.

The book convincingly proved that the Soviet Union has not collapsed as a result of the outside influence. Leaders of the USA and other influential countries concerned about ethnic violence and the potential proliferation of nuclear weapons were supporters of the integrity of the Soviet Union. However, the collapse became apparent and an additional factor for this was a power struggle between Mikhail Gorbachev and Boris Yeltsin after the August putsch, which led to a weakening of the structure of the Union.

However, Russian political elite did not want the collapse of the USSR too. The key decision was the Ukraine’s transition to full independence, taken by its nomenclature in the face of the potential impact of Moscow’s liberal reforms, which seemed inevitable that time. It became clear that as a result of reforms the old elite will lose control over the flow of resources.

Leonid Kravchuk who was then the Speaker of the Ukrainian Parliament has convinced communist majority that independence, called by a handful of nationalist MPs, will contribute to long-term interests of the Communists. The leadership of the Communist Party worked seriously to ensure the success of a nationwide referendum on the proclamation of independence on 1 December 1991, after proclaiming independence on 24 August 1991. And independence was supported by 92% of the population of Ukraine.

In addition to the fascinating description of events of that time, the book helps to understand why Ukraine is mired in a transition period. In contrast to the liberation movements in the Baltic states, which were eager to be released from the Soviet Union and transform countries by the type of the main European model, the Ukrainian elite advocated independence since it was profitable to them. At the same time liberal-minded intelligentsia was too small and has survived the persecution, deportation and imprisonment in the Soviet era. And the population was under the influence of Soviet ideology which prevented a vision of the future social and economic system. Only now, 23 years later, a dynamic middle class rose up to demand a complete break with the past.

Oleksandr Talavera, Reader in Finance, Management School, University of Sheffield, member of the Editorial Board of VoxUkraine:

The book of Nobel laureate Thomas Schelling, dedicated to the logic of behavior of participants conflict, is called revolutionary by sociologists. What’s so special about it?

Imagine that while you were at work, terrorists broke into your house and captured your children. The house is surrounded and the head of the anti-terrorist unit asks you what to do. Your actions? Schelling’s advice is to turn off the electricity, cut the telephone cable, switch off the radio, withdraw the negotiators and wait.

If the terrorists will not be able to communicate with you, they will not be able to tell you their demands and threats. And if they cannot threaten you, they are powerless, and the only way for them is to give up after a while. Of course, they can kill your children, but since there is no connection you will not know about it, and they still have to surrender. However in this case they will suffer more severe punishment. Moral: if you cannot communicate you cannot be threatened, but if you cannot be threatened the strategic position of your enemy is pretty bad, whatever power he may possess.

This is just an illustration of history with a deeper meaning. How to make sure that Putin was unable to threaten and affect the Ukrainian government? First is to minimize the possibility of meetings.

Schelling’s ideas will be useful in the searching for answers to other questions. For example, what is the meaning of the struggle for Donetsk airport if there is almost no infrastructure and military significance of the object is not too high? Whether it is necessary to protect it at the expense of lives of Ukrainian patriots? Or yet another question that can be answered by Schelling: why Ukrainians who managed to overthrow the Yanukovych and stop the invasion of Russia, are unable to fight corruption and to carry out reforms? And finally, why limitation of his power is in the interests of Ukrainian President?

Perhaps, after reading Schelling’s book you will become not worse professional strategist than the author, and perhaps even better than the leading Ukrainian experts.

Ivan Miklos, former Minister of Finance of the Slovak Republic (2002–2006), member of the Advisory Board of VoxUkraine

Joel Hellman published an article “Winner takes all” back in 1998. Nevertheless, this work is more relevant now than ever for Ukraine, as the country pursues a policy of partial reforms of which Hellman has warned. Partial reforms are devastating for the country and its people; they bring worse results than no reforms at all.

An illustrative example is Poland, Ukraine and Belarus. At the end of the communist regime in 1990, these three countries were approximately the same level of economic development if to judge in terms of GDP per capita. The present level of economic development in Poland, which has conducted comprehensive reforms, is three times higher than in Ukraine with its policy of partial reforms. Level of economic development of Belarus, where practically were no reforms, is to two times higher than in Ukraine.

In addition, countries that hold only partial reforms have more pronounced redistribution of income in favor of a narrow circle of people. The main reason lies in the fact that the strategy of partial reform creates many opportunities for easy enrichment.

All transforming economies pass-through this of easy enrichment, but in the countries which undergo rapid comprehensive reforms, this period ends quickly. At the policy of partial reforms profit hunters get a lot more time for enrichment. As a result, they become stronger and more powerful, able to stop further changes that may complicate their lives.

Hellman does not use the term “oligarchs”, but in fact it is they who represent the profit hunters. It is they – the winners, who receive all and become the most important obstacle to the comprehensive reforms that could improve the situation in the country and most of the population. Now Ukraine has received a rare window of opportunity to reform its economy. The country should take into account past mistakes and not to allow the oligarchs again become winners.

Nickolay Myagkiy, VoxUkraine contributor

Why some countries are rich and others are poor? Perhaps this is one of the most frequently asked questions in the economic environment. For Ukraine it is never been more relevant than nowadays. The country moved away from the standard of living of Western European countries for less than one generation, while its neighbors – Poland, Czech Republic, Hungary and Slovakia – approached them. In addition, Ukraine has experienced enormous social upheavals over the past year: the revolution, the change of power, war and deep economic crisis. What is the reason of Ukrainian failures and how to fix them?

This book has a short, but reinforced by a layer of historical and economic facts, response. The reason is in institutions, various formal and informal rules and incentives that affect the country’s economy. They cannot be changed overnight, and such changes are quite lengthy.
For example, if in the country, is easier to steal and to pay a bribe than to study hard, work and grow to become rich and powerful, millions of people lose motivation to study and work but get an incentive for corruption. To change such a mass perception and behavior is possible only in the long term and through the great efforts. Typically, these changes lead to poverty. If revolution occurs in the poor countries this often means a change of elite, while the rules remain the same. At the same time, some countries are arranged in such a way that their existing institutions allow masses to benefit from equal and free access to resources, power, rights and opportunities. Free access implies competition, which in turn means that the resources, capital and people talents are used as efficiently as possible. In such countries science, innovation and research are encouraged, as they allow obtaining a competitive advantage, rather than corruption and communications. This in turn stimulates the growth and development.

The authors are convinced that despite the fact that in the past and the present in most countries is dominated by high levels of corruption, the transition to a system in which the level will drop significantly, it is possible, although this rarely happens. The authors are convinced that despite the fact that now and earlier most countries are dominated by high levels of corruption, the transition to a system in which the level will drop significantly is possible, although this happens rarely.

On the example of successful transitions of Acemoglu and Robinson authors show that the combination of many factors during the critical periods in the history of the country opens a rare window of opportunity to break through the vicious circle to a progressive one. In particular, the emergence of a broad coalition of people who are oriented on reforms and changes of the rules and not individuals.

The tragic events of last year opened such window of opportunity for Ukraine. For politicians, it is important now to realize that missed opportunity to implement radical changes in the rules and incentives will mean that the country will be among the economically depressed countries for a long time.