University of Chicago professor Roger Myerson wasn’t in Kyiv to speak about his 2007 Nobel Prize-winning mechanism design theory, a mathematical vision of how people and institutions interact in business and politics. He came in mid-September to discuss the merits of power redistribution. In Ukraine’s case, it’s having wealth multiplied in a way that promotes regional development.
A “tragic, but not surprising” contraction of the nation’s
economy, which the International Monetary Fund expects to reach 6.5 percent
this year, could be managed by applying a looser monetary policy, Myerson told
the Kyiv Post in an interview.
Having more money circulating in the economy with lower interest rates
makes capital much more accessible, the theory goes.
When asked how this particularly should be done, given local skepticism
towards the policy working in Ukraine’s economy Myerson said: “I’m a
Chicago economist and Keynesian economic stimulus (that bets on boosting demand
mostly through increases in government spending) doesn’t seem too compelling to
me… The government needs to provide services, to provide military efforts and
the Ukrainian people need to pay for that, and I hope that other countries in
the world are providing financial support during the time of crisis.”
One step could be broadening the tax base. “If a part of the public
deficit is covered by foreign subsidies, monetary policy and inflation – that is
understandable,” he added.
Human capital-driven economic growth could work too. “How many of your
educated people work at home and how many work in Europe and the U.S.?
Something should be done in order to make them want to work at home,”
Myerson continued.
Letting regional governments earn money by privatizing assets located
within their boundaries is another smart economic move. This would make them
interesting to outside investors.
Myerson believes that many of Ukraine’s current problems could have
potentially been addressed if the country had delegated central power to local
governments. He said that after the EuroMaidan Revolution, many local leaders
and even whole communities “felt they had no stake in running of the country.”
“Decentralization can
discourage separatism,” Myerson concluded.
It takes three key elements to make this happen, he says. First, parliament
should either pass a law or the constitution should be changed to start the
process of transferring power to local communities.
In Ukraine’s case, he says, there is a shortcut that can be used, at least
temporarily. Under Ukraine’s constitution, the president has powers to appoint
regional governors. It would make sense appoint local leaders who have the
authority to speak for the local population, even if they come from a rival
political camp.
Secondly, a local election would have to be held to propel new leaders to
power at the local level. But most importantly, how money flows in the nation
would have to change. Significant local taxes would have to stay in the
communities, but also the finance ministry would need the “ability to allocate
public money by transparent rules.”
The procedure for allocation
would have to have clear rules. For example, money from the central budget could
be distributed proportional to the population of a particular region or
community.
In most countries of the
world, Myerson says, “local governments are not fully funded by local taxes,
but through transfers.”
Some 20-25 percent of public money has to be spent by the districts, who
would oversee all local public functions such as elementary education and
roads. Regional authorities, who would handle more complex public functions,
would get another 10-15 percent of public cash, and the rest would make up the
national budget.
He thinks this financial pattern would stabilize the country structurally. But
government should be careful not to tip the scale in favor of provinces too
much: when there’s a large province that can stand on its own as a country its
leader might like the idea of divorcing from the nation altogether.
At the same time, in a country where power is devolved to the regions and
communities, potential national leaders tend to rise from the local level,
especially from big cities and the provincial leadership level.
Kyiv Post deputy chief editor
Katya Gorchinskaya can be reached at [email protected]. Kyiv Post associate business
editor Ivan Verstyuk can be reached at [email protected].
