Re-Privatization in Ukraine

11.10.2006

The Moscow Times reports (subscription only) on the announcement of the Ukrainian Prime Minister Viktor Yanukovych that the government is planning to buy back some companies privatization of which is questionable.

There were mistakes or fraud by the state towards such companies, and we need to correct these mistakes,” Yanukovych told reporters after a Cabinet meeting. “The state will include in the budget very soon funds to buy shares on the stock market to return them to the state.” He did not specify which companies he meant or when the process might be started. Yanukovych also said he wanted to boost controls over companies where the state has a majority stake.

Murky privatizations became a staple of the transition process in the republics of the former Soviet Union. Many state enterprises were sold at a fraction of the price to cronies, undermining the legitimacy of privatization processes, market transitions, and new democratic governments.

Dealing with dubious privatizations is not an easy task. Re-privatization of resources brings government back into the control of the economy, something transitions from command economies were seeking to escape. However, there are many political issues that relate to questionable privatizations, such as corruption and emergence of oligarchic elite that has interests different from those of the small and medium-sized business community.

Anders Aslund took on the issue of re-privatization in Ukraine and elsewhere in the post-Soviet space earlier. He brings the issue to the fundamentals – the respect for property rights.

After the purportedly successful re-privatization of Kryvorizhstal, Nikopol Ferroalloy Plant was nationalized for no legal reason whatsoever, only because the former prime minister capriciously so desired. To nobody’s surprise, the Ukrainian legal system failed to defend the lawful owner’s property rights, and the government sees nothing that it can do. If re-privatization had not been broached, the Ukrainian government would not have defaulted so badly on property rights. The fundamental truth, which the Peruvian economist Hernando de Soto has spelt out in his book The Mystery of Capital, is that “capitalism triumphs in the West and fails everywhere else.”