Ukraine: What Went Wrong and How to Fix It
The oligarch model, gas trading rents and the post-Maidan reform agenda.
Summary
Anders Aslund wrote this after the Maidan revolution and the Russian annexation of Crimea, and it reverses much of the optimism of his 2009 book on Ukraine. He had advised the Ukrainian government in the 1990s and returned to the subject with a considerably darker assessment.
His diagnosis of what went wrong concentrates on the Yanukovych period from 2010 to 2014, which he treats as a qualitative change rather than a continuation. He documents the capture of state institutions by the president's associates, the redirection of public procurement, the tax administration's use against political opponents and against businesses that would not sell, the customs revenues diverted, and the estimated scale of the extraction. He also covers the structural problems that predated it: the gas trade with Russia and the intermediary companies through which it was conducted, the energy subsidies that made Ukraine among the most energy-intensive economies in the world while enriching the arbitrageurs between subsidised and market prices, the state-owned enterprises, and the judicial system.
His reform programme is specific: eliminate gas subsidies, which he treats as the single most important measure because they fund the corruption; privatise or liquidate state enterprises; deregulate to remove the inspection powers that enable extortion; reform the judiciary and the prosecution service; and stabilise the currency and the banks. Several were subsequently attempted with partial success. Aslund is an advocate with a long involvement and readers should weigh that, but the specificity of the diagnosis is the book's value.
Key takeaways 7
- Gas subsidies were the central source of corruption in Ukraine, because the gap between subsidised and market prices funded extraction at enormous scale.
- Ukraine was among the most energy-intensive economies in the world as a direct consequence of subsidised gas prices.
- The Yanukovych period represented a qualitative change in which state institutions were captured for direct personal extraction.
- Tax and inspection powers were used against businesses that would not sell to the president's associates.
- Aslund treats eliminating energy subsidies as the single most important reform because it removes the rent rather than policing it.
- State-owned enterprises functioned as vehicles for extraction rather than as producers.
- Aslund reversed the optimistic assessment of his own earlier book, which readers should note when reading either.
Who should read it
Investors and analysts working on Ukraine who want a specific reform diagnosis focused on where the rents actually came from.
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