Injustice Theory: Why do the rich get richer and the poor get poorer in Ukraine?

Author : Oleksiy Kushch

In Ukraine there is a typical situation of "wild" capitalism, with the more exploitation, deeper polar stratification of society, where luxury and abundance at one pole neighbor with poverty and despair on the other
23:28, 17 July 2018

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Could a raw monopolized economy provide its human capital with a high level of income in the form of wages? The question is rhetorical, although there are examples of the oil-bearing sheiks who, even in conditions of monopoly and raw economy, are trying to cut big oil share without depriving ordinary citizens. But there is just a significant share, there is something to cut. Ukraine is not so rich in its natural resources, but it has potential opportunities in terms of international logistics. Judge for yourselves: our country is located between the largest energy consumption market (EU) and their largest world exporter (Russia). It seemed that it was a gift of fate: create a gas hub, modernize oil refineries, earn on your transit superiority, especially since after the collapse of the Union somebody got a meaningless Baikonur, and someone - a gas transportation system and a complex of unique underground natural gas storage facilities.

The second example is logistic exclusivity, which is conditioned by the presence of the largest consumer market (EU) and the interest of the global supplier of consumer goods (China). And here our other trumps: create multimodal logistical centers, industrial ranges, technological parks, become participants of "the New silk way" and, like ancient Khazars, have profit. Yes, that's only for this it is necessary to be lucky with our politicians. Only on transit and logistical potentials Ukraine is able to earn up to 20% of GDP with minimal costs on its part but receives only 3-4%. Simply transit potential has firmly saddled by pro-power groups of influence, which have created on it some successful now companies. And no one thought of developing the logistics potential for one simple reason: it is difficult to get corrupt rent there because international logistics loves transparency and uniform rules of the business game.

That is why, as the classicist of Marxism used to say, in Ukraine there is a typical situation of "wild" capitalism, with the more exploitation, deeper polar stratification of society, where luxury and abundance at one pole neighbor with poverty and despair on the other. In fact, we have a mold of a rental model of the economy, in which no more than 20% of the population can comfortably feel themselves. This includes officials, law enforcers and the sectors serving them: the raw material financial-industrial groups and the accompanying "services" in the form of the financial sector, audit, legal companies, services and recreation. The rest of the country - and this is 80% of the population, will always be strangers at this party. And while a small part of the society spends its money, another, a large part, is clearly not ready for such "debauchery" and, in fact, is doomed either to sociopolitical marginalization or to leave the country in search of a better living environment.

This is indicated by the level of penetration of the wage fund, which is defined as the ratio of the wage fund to the industry share in the volume of GDP. In agriculture, construction and industry only 30-35% of the gross product goes to pay wages, in trade and the information and telecommunications industry - from 17 to 20% (although there is a factor of shadowing wages). In the services sector - up to 27%. The highest figure is in the financial market - 43% and transport - 38%, and the lowest - in the real estate sector (4%). But if we take the basic branches of the economy: industry, agriculture and construction - even taking into account shadow wages, this indicator hardly exceeds 40-50%, while in developed countries it varies from 70 to 90%. This shows that, on the one hand, the raw material specificity of our economy does not allow us to pay high salaries, and on the other hand, the level of exploitation is so extremely large and manifests itself in that the dominant Financial and Industrial Groups redistribute most of the final product in their corporate interests, bypassing labor collectives. This is due to the extremely low development of an independent trade union movement in Ukraine and the absence of a legislative framework that would protect the interests of employees through both positive (progressive scale of taxation and raising the non-taxable minimum to the minimum wage in the country) and negative incentives (minimum hourly wage, industry and regional tariff grids).

If we analyze the dynamics of the average salary of one full-time employee per month, then in Ukraine there was a very short period when this level was competitive with Poland (taking into account a part of shadow incomes and the difference in domestic prices). In 2012-2013 years this indicator rose to the level of 380-410 dollars and taking into account the shadow part was more than 600 dollars. Comparing with the price parity, this level of income corresponding to the salary in Poland in the amount of 1000 euros. A little more and our labor market would, like a magnet, pull out our seasonal workers from Western Europe, as well as those Ukrainians who did not have time to settle firmly in European countries. As a result of last year, the average salary of one full-time employee did not exceed 270 dollars, and the price parity has partially worsened: the ability to rent housing and pay for a communal apartment, for example, in Kyiv has decreased significantly in recent years. Today, the competitive level of labor remuneration in Poland, which will successfully absorb our human capital in geometric progression, is no longer 1000 euros, but 600-700, as a result of which the labor migration channel has expanded critically, scooping up more and more layers of population that previously could not rely on labor migration. The one reason for stopping the flow of labor migration could be an increase of the average salary of a full-time employee to 500 euros, that is, up to 15,000 UAH per month, if hryvnia will be stable in the medium term.

As a result, we are rapidly reducing not only the economically active population and the number of full-time employees (here the annexation of Crimea and the occupation of part of the Donetsk and Luhansk regions played a role), but also a qualitative indicator such as the ratio of the number of full-time employees to the economically active population. Compared to 2010, this indicator decreased from 48% to 43%, and the factor of war here no longer plays a key role, because as a result of the annexation of territories, all population groups proportionally decreased. The structure of our human capital is increasingly reminiscent of the "Mexican-Philippine" model when children and old people remain at home, and the whole "middle class" migrates abroad for work.

If we analyze labor costs by types of enterprises (small, medium, large), we get an interesting picture. In agriculture, large companies account for 9.4% of the total payroll in the industry, while the average pay 65.4% of salaries, and small - 25.2%. In the financial-industrial groups, 46.7% of salaries are paid, and the average - 45.4%. In construction, the share of large companies is only 2.6%, in trade - 39%, and only in transport the salaries are 66.8%.

Along with this, agriculture shows only 7.5% of operating profitability (medium and large companies), industry - 9.2%, construction and transport, in general, moved to the "stone age" of total optimization - 1.1% and 1.5% respectively. Only operations with real estate and the trade sector show indicators that are remotely similar to real ones - 53.5% and 31.6%, respectively.

All these statistical calculations show only one thing: if the sector has a relatively low share of labor costs for employees, the profitability indicators in it are close to real, but most of the added value goes to the pockets of the owners, and not converted into adequate growth salaries. (In the same trade and construction, no one is in a hurry to increase the level of wages, since the overall negative background in the country allows us to justify the figures that appear in the vacancies, they say, see how many other companies offer.) Simultaneously, in those industries where the level of remuneration is quite high, there is a significant shadowing of labor incomes, and the employee himself is deprived of most of the social guarantees and is transformed into a worker of the cloth English factory of the 18th-century model by the workers' rights.

Even this type of economy, which has developed in Ukraine, allows paying salaries by 20-30% more, but this requires a movement from two sides: on the part of hired workers and their unions in terms of defending their interests, as well as on the part of the state in terms of application instruments of deterization and progressive taxation. But the main thing is the destruction of the rental model of the economy and the cutting off of corruption rent in favor of those who create a national product, that is, in favor of millions of ordinary Ukrainians. As Nobel laureate Paul Krugman once said: take away the positive economic policy and effective incentives, and you will lose the "middle", that is, the middle class. And another Nobel laureate Joseph Stiglitz added: inequality is not inevitability at all, but the result of concrete political decisions. Although if we correlate the global tasks of creating a society of median incomes in Ukraine with the current portfolio of our pro-governmental "elites", it turns out that the likelihood of solving them is akin to that dilemma when wolves vote for not killing sheep and bees – for not eating honey.

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