Georgia and Poland: Lessons for Ukraine

In 2003, few people would believe that in a few years Georgia would turn from one of the most corrupt CIS countries into one of the most business-friendly countries in the world. Similarly, very few people could think twenty five years ago that Poland would become a regional leader. Looking at their experience, Olga Aleszko has no doubt that Ukraine will become successful too. 

The Ukrainian government has an urgent need to implement core reforms successfully, proving to its people that the fight for freedom and a better future in the winter of 2013-2014 was not in vain. Many analysts and activists expect Ukraine to implement radical and fast reforms similar to those undertaken by Georgia. However, Ukraine is a large country with a highly industrialized economy. What could happen in Georgia overnight will take some time to occur in Ukraine. However, there is another case in the region which is highly relevant for our country. The experience of Poland in reforming its economy beginning in 1990, in particular with regards to privatization, is perhaps more similar to Ukraine due to the size of the country and the complexity of the economy. Therefore, the Ukrainian government could study and replicate a combination of the successful reforms undertaken by both Georgia and Poland.

In this article I outline the importance and best practices of systemic reforms undertaken by Poland and Georgia that are relevant for Ukraine. The Georgian case is recent and vivid, and immediate in the results. Georgia initiated intensive reforms within one year and in comparison to that, at the first glance Ukrainian attempts to reform look disappointing. However, a detailed analysis of Polish experience reveals that disappointment is ungrounded. In the conclusion to this article I identify a possible scenario for the implementation of successful reforms. I argue that positive changes may be achieved in Ukraine and that current slow progress was worth fighting for.

Case 1. Georgia – from the most corrupt country in the region to the most business friendly one

It is not a secret that the government of Georgia starting from 2003 achieved something incredible. According to the report of Transparency International, Georgia was among the group of the most corrupt countries in the world in 2003 (ranked 124th of 133 countries), Ukraine was ranked 106th at that time.

Transparency International Annual Reports, http://www.transparency.ge/en/annual-reports

It is almost impossible to fight corruption from a bottom-up approach. It must be a top-down approach, there should be political will of the ruling government in the first place. Success of the Georgian anti-corruption reforms is based on the idea of creating efficient public institutions, public administration reform, and imposing the rule of law, matching the standards of the Western countries in the shortest possible time.

Appointing former president of Georgia Mikheil Saakashvili to the position of the Governor of Odesa Oblast’ (region) is farsighted. This action did cause dissatisfaction of some Ukrainians (most probably, preheated by pro-Kremlin propaganda) as M. Saakashvili is (i) a governor who has no connections in the region and no interest to grant public positions to his relatives/friends/etc (ii) he has also no interest in robbing Ukraine due to his reputation of corruption combater in Georgia. Most importantly, M. Saakashvili can use his experience in the Odesa region. However, it is not enough to have just one governor focused on fighting corruption in one Ukrainian region. If the Odesa region becomes more transparent while the rest of Ukraine does not, in a while corruption will return. The struggle against corruption should be equally strong across the country.

One may think that Georgia could implement its reforms efficiently just because the population and the territory of Georgia is small and for that reason easier to manage and monitor. However, I believe that the government determination was the key element of anti-corruption strategy. The Georgian government created a clear and transparent National Anti-Corruption Strategy and Action Plan of reforms and implemented sanctions against people involved in corruption (including high rank officials). In addition, they: reduced the overstaffed and inefficient public administration abolishing unnecessary functions of state bodies; increased the salaries of public officials, civil servants and the police; privatized state owned property and detected people who mismanaged state property for their own benefit; improved tax administration, custom service, treasury service, selected competent officials to them and decreased the number of face-to-face transactions in aforementioned services by introducing digital technologies. Furthermore, they reduced the number of taxes; created a transparent and simple tax system; significantly reduced limitations and regulations for private business; created the Public Service Halls – offices where citizens could receive all necessary information and documents “at a single window”.

It is hard to combat corruption in public administration by introducing only anti-bribery laws for civil servants, for several reasons: (i) they receive low salaries that cannot provide their living; (ii) the system, through higher level administration employees, pushes them to take bribes; (iii) the front office and back office are combined, so that one person is responsible for the whole process, which makes it easier to “make a favour” to those who require a service.

Another important area the Ukrainian government should reform immediately is the judiciary system. With a transparent and independent judiciary and court system, people’s trust to the government rises. In order to decrease the level of corruption in the courts, the salaries of judges should be sufficiently high and the punishment for corruption very strict and inevitable, so that expected value of taking a bribe becomes highly negative. The important element is informing the people about the reforms. People should know which reforms are going to be implemented, and the expected results of these reforms.

Case II. Poland – reforming a large economy.

Poland is one of the most successful cases of post-Soviet transformation. In 1989 a new post-communist Polish cabinet, with Tadeusz Mazowiecki as the Prime Minister, faced a serious challenge of reforming the failed communist system into a free market democracy. The process of Polish economic and administrative reforms was different to that of Georgia. In Poland, the newly elected government was in the situation, when the economy was so bad (empty shelves in the stores, 640% inflation at the end of 1989) that it believed that even “Shock therapy” economic reforms (explained below) would not worsen the economic condition of the country.

The ability to start economic reforms was enabled due to the transparent actions of the new government, that had a strong political will to serve for the welfare of the whole nation and increase the living standards of all Poles.

“Shock therapy” was the name of the reforms introduced in 1990, the package proposed by Leszek Balcerowicz, the Finance Minister. Elements of the package included: permission of bankruptcy of state-owned businesses when they were not efficient, prohibition to finance the state budget deficit by the central bank, cancellation of preferential loans for state-owned businesses, and permission of foreign investment. These economic reforms were implemented immediately and kick-started the free market. However it was only the beginning of the difficult reform path. Later on, in the 1990s other reforms were implemented including privatization, reforms of tax system, social security and education. In contrast to the “Shock therapy” reforms, these further reforms did not happen so quickly. For example, privatization in Poland is still not complete. If in Georgia almost all public entities have now been transferred to private hands, in Poland major heavy industry enterprises (coal mines, shipbuilding, metallurgy plants) still belong to the State Treasury. Similarly, the decentralization reform in Poland took over ten years to implement.

What is important for Ukraine to understand is that privatization in such a large economy like Ukraine may take a while. Although within the last twenty years a large part of state property has been sold, the number of state-owned enterprises is still large. To carry out large scale privatization one first needs to ensure the fair and transparent procedures, and this may take some time, especially taking into account current opposition to this process.

A possible scenario for successful reforms in Ukraine

„Corruption occurs where the government has contact with money” (K. Bendukidze)

In summary, Ukraine is able to choose the best practices from two different but at the same time very successful cases of reforms in Central and Eastern Europe. Firstly, the most important in all these actions should be the presence of the political will of the government. It was present during both the Georgian and Polish reforms. Strong political will in the government to fight corruption in the system must be visible for people. It is not enough to have just some “bribe-free” ministers and civil servants. A partially corrupt government cannot combat corruption in the system. When the Ukrainian government “looks in one direction” with respect to reforms, there will be fewer obstacles for their implementation.

Secondly, the Ukrainian government should create an efficient, corruption-free administration and an independent judiciary system, like Georgia did. Elimination of inefficient departments of the public sector and digitalization of the public service will contribute to a slump in corruption and improvement of the public service. Independent courts along with reformed prosecution and police will raise the trust of nation to the government. Reforms should be implemented comprehensively: the most urgent is the reform of the law enforcement system (police, judiciary and prosecution).

Based on the experience of Poland, the third step would be for Ukrainian decision makers to understand that substantial economic reforms take time and to develop the patience to implement them. Public administration reform would set the ground for further privatization of the state property, decreasing the possibility of process abuse. That is why it may take some time to privatize the most important state owned enterprises, as it is necessary to fight the corruption first.

For the last two years, Ukrainians have shown willingness and determination of becoming a democratic state. Ukraine is able to reform its system wisely and become a prosperous country. Even though the Georgian case of quick reforms looks so appealing, it is crucial to understand the difference of conditions in Ukraine and to continue working despite the absence of quick results. The case of Poland demonstrates that the speed is not the main factor during the implementation of reforms. Some reforms should be prioritized – in Ukraine these are anti-corruption measures. Other reforms can be implemented step-by-step.

In 2003, few people would believe that in a few years Georgia would turn from one of the most corrupt CIS countries into one of the most business-friendly countries in the world. Similarly, very few people could think twenty five years ago that Poland would become a regional leader. Looking at their experience, I have no doubt that Ukraine will become successful too.