The Ukrainian Observer, April 5, 2004
Every morning millions of Ukrainians go to work. But those Ukrainians that go to work in Canada, in the US or in Germany earn ten times more than those who work in Ukraine and, presumably make ten times more product. It could have been a miracle (if you transport a cat to Canada it does not grow the size of a tiger), but it is not.
Why do people work better? One reason is your environment. If your marching song is funny, if you singing it with friends, if your shoes don’t kill your feet, if you look forward to some beer - you walk faster. Western environment helps people to concentrate on their work, makes work more pleasant - and people work better as a result. When people work better, they can legitimately expect better pay, and the other way around: when people expect better pay they work better. And yet, this alone cannot explain the tenfold difference in productivity and pay. The only thing that can explain it is the destruction of labor.
Every morning, Ukraine goes to work. But if for every five of those who create, build, and produce there are four of those who impede, control, destroy, waste, or steal, the combined productivity of these nine people will be five minus four equals one, and this is nine times less than it would have been had all nine of them were producers.
What is productive labor? It is when you make something that people need using the inputs whose combined value is less that the product you’ve made. A chair is valuable, but not when it is made out of a Leonardo Da Vinci’s painting. Nor would a chair be valuable if making it prevented other people from making their chairs.
In Ukraine, we see every type of activity that complicates or even precludes legitimate production. In fact, it is hard to find legitimate productive activity that has not been made less rewarding by incessant and comprehensive efforts of other Ukrainians, and, first among them, the Ukrainian state. In fact, the Ukrainian state is firmly, strongly, and resolutely orientated against legitimate success. The Ukrainian state approves of financial gain and actively seeks it, but only if it is illegitimate and was not the direct result of honest productive work. In a Stalinist labor camp, the thieves-in-law were the only ones who never went hungry, and the thieves-in-law were the only ones who did not work. Unfortunately, the Ukrainian state has not succeeded in breaking out of that mentality.
There are states that communicate with their citizens by providing them with public goods: well-equipped schools, functioning hospitals, adequate army, good roads, laws that respect a right of every individual to attain success through honest productive activity, and competent public servants, respectful and protective of the people they are called upon to serve. When these public goods are in evidence, people are ready to pay taxes, since they know that these services come at a price.
A state can and should demand taxes. But taxes should not be so high as to make productive activities unprofitable: the main concern of the state should be the long-term profitability and competitiveness of businesses, because these businesses constitute the sole source of income both for the citizens and for the state itself. The primary role of state is to nurture and to protect businesses, and in fact, the best policy is to give fledging businesses cheap credits, managerial advice, and tax holidays to ensure their success. This policy is no charity: on the contrary, it is calculated to extract the maximum tax in the long run. The stronger the enterprise the more tax it will pay over the period of years, even if the tax rate is low.
But the Ukrainian state does not operate this way: give us much as we can take, and give it now, even if that will force you to close down your business. Obviously, the Ukrainian Tax Authorities are carefully preserving the historical tradition going right back to the Mongol invaders that looted Kyiv a thousand years ago.
Today, Kyiv is peppered with billboards suggesting that the state has the right to extract taxes. But the message would have been more effective if the roads were not quite so potholed. The citizens are not the state’s indentured servants: they pay for the state to provide public goods (such as good roads) and have the right to demand honest accounting as to where their money went. And honest accounting is what they are getting: the public servants’ Mercedes easily traverse the potholes that could endanger the lives of taxpayers as they ride in their rickety Tavrias.
Here is a typical story. Two Ukrainians had a small workshop. They were buying baby carriages at a Ukrainian plant, modernizing it, and selling them to Poland. Now, that sounds strange: why modernize a brand new product? Could not that plant do it itself? No, it could not, because that plant was an official Ukrainian enterprise, that is to say, a sitting duck for tax authorities, who had long since bled it dry. The average wage of the workers at the plant was fifty plus, the average salary - one hundred dollars, and the average lunch - a bag of instant noodles. No, a plant employing hungry, dispirited workers could not assemble its baby carriages right. The workers had for a while been busy stealing everything at the plant that was not securely nailed down, but now there was nothing left to steal. We should note that sane states offer their outdated plants special credits for modernization and retraining, tax rebates and tax write-offs, but that particular plant was already too far gone for that. But let us return to our workshop. The guys worked successfully for a few months, making and selling a good product, paying taxes, and feeding their families. And then the tax authorities came. Now, Ukrainian tax laws are intentionally unclear so as to make sure that anyone could be assessed a fine. Since our guys neglected to pay a reasonable gratuity, a huge fine was assessed, and it so happened that it was assessed at a precise moment when the guys had money in the bank they had borrowed to make another purchase of carriages. This money was taken and the guys were penniless and in debt. And on the next day, they heard from the bandits demanding that the debt be paid immediately, and with usurious interest. See, I forgot to say that in the West bank give credits to businesses as opposed to informing the Tax Police when is the best time for a shakedown. So the guys sold their apartments and cars and went to work as taxi drivers.
Now, how much did the Ukrainian state gain from that? Who benefited from ruining this small business, and the only purchaser of these pitiful baby carriages, to boot? The effect of these tax laws is worse than a fire, because it discourages people to even try. After the fire, people rebuild.
Seeing that legitimate productive activity is just too dangerous to undertake, Ukrainians attempt to make a living in a way that would not involve production, and that means stealing from the weak. Here is how one bulldozer owner makes a living. In a pouring rain, he simply goes to an unpaved road. There, he quickly digs a ditch, right on the road. Soon the ditch is filled with water, and now he is in business. He waits nearby, smoking a cigarette. The car comes and gets stuck in the ditch as the water conceals how deep the ditch is. A bulldozer driver happens to be nearby, by pure chance. He pulls the car out of the ditch with his bulldozer, but only for a handsome fee. By playing this trick, the bulldozer driver was able to triple his monthly income: the ditch paid twice as much as his regular job.
The bulldozer owner makes money, but please note that in the process he also wrecks cars, endangers lives, wastes people’s time, and damages the road.
Well, you could say that these are private activities of some clever petty criminal. Not so. For example, in Kiev, each taxi driver must have his driving papers stamped every day, and pay a fee of $1. Since there is only ONE person who stamps the documents, a Kiev taxi driver must either spend three hours, each day, standing in line to get his documents stamped, or be prepared to pay a fine. Thus, the stamp person, who earns $5 per day, is able to destroy thousands of hours of labor in each his working day and leave a city of four million without taxies, so that overall the damage from his activity runs into millions of dollars.
But often Ukrainians do not even need anyone to destroy the fruits of their labor: since their labor is not valued, they have now learned to destroy its fruits themselves. Here is a Ukrainian architect who has been fortunate to build a high-profile projects in one of Kiev’s central squares. Indeed, architects are lucky: there are very few professions where the results of one’s creative labor are visible to so many people, and they stay there for centuries, having been, as the expression has it, cast in stone. In fact, what is left from the great Egyptian civilization but the pyramids and their contents? But back to our architect, fresh from his professional triumph. “Do not go there,” says he, “I now how it was built: I do not want it to collapse when you are in there.”
Well, is not it an outrage? What would you say? But the truth is, it is not. Just stand near a building site at lunchtime. You will see a stream of construction workers going to the nearest cafeteria. Their lunch comes in several variations, according to their character, preferences, and financial means. It could be 100 grams of vodka and a small package of processed cheese, or it could be a glass of tomato juice and 100 grams of vodka, or it could be 50 grams of vodka, a bowl of soup, and 50 grams of vodka. Well, in America, a store that sells an alcoholic beverage to a person in work-clothes runs a serious danger of losing its license. The heartless capitalists over there just do not want their buildings to collapse (assuming that they ever hire alcoholic construction workers, and that is one big assumption).
But I know better than to advocate a restriction on vodka sales. Here, the problem is too far gone. Without their daily dose of “medicine”, many workers simply would not be able to function. But the problem needs to be addressed, just as the other pressing program that threaten the very survival of the Ukrainian nation; AIDS epidemic, drug abuse, and collapsed health care system.
And how to solve these problems? There is a way. Producers must be protected from destructive and envious influences of the state and one’s fellow citizens. People were meant to be creative, and a creator always has something to look forward to. The excitement of personal success is much greater that one derived from harming others or oneself. The Ukrainians in the West have discovered that, and they have done very well for themselves and for societies that are fortunate to have them. Ukraine still has everything it needs to become a prosperous European state, though in places the self-inflicted destruction is showing. We have the choice: either to like ourselves for being nice and deny that Ukraine is in trouble, or to love Ukraine and its people and to work frantically to change the situation here for the better before it is too late.