Is Ukraine More Repressed than Belarus?

According to Heritage Foundation, a US conservative think tank, Belarus has more freedom than Ukraine. Belarus is ranked as 150 out of 179 countries in the Index of Economic Freedom. According to the report, business, trade and fiscal freedoms as well as government spending has improved in Belarus. However, the situation with corruption in Belarus has deteriorated.

It is not surprising that Belarus ranked low in the Heritage Foundation’s list. It is very surprising that the “last dictatorship in Europe” has more freedom than Ukraine. Both countries are classified as “repressed”. Belarus, that for the first time in many years has been ranked as not most repressed country in Europe Although some may see it as a sign of real improvements in Belarus, the methodology of such ranking is very questionable.

Granted, recently Belarus has undertaken a few steps to liberalize the economy, but still it has by far less freedom than Ukraine. Unlike Belarus, Ukraine has been recognized as a market economy both by the European Union and the United States, and it is likely to be a member of the World Trade Organization soon. Although on the corruption issue Ukraine may indeed have more problems than Belarus, the share of private sector in the Ukrainian economy there is much greater than in Belarus, where the Belarusian state controls most of the economy.

According to the Heritage Foundation, the main advantage of Belarus comparing to Ukraine is Business Freedom (72.1 points for Belarus vs. 38.7 pts for Ukraine). In the absence of empirical studies of their own, the Heritage Foundation seems to rely heavily on the World Bank’s Doing Business report.

That Index of Economic Freedom similarly ranks Belarus higher than Ukraine for ease of doing business. Echoing the Doing Business report, the Heritage Foundation notes that now it takes less time in Belarus to start a new business or obtain a license. However, It is hardly possible to believe that Belarus has more economic freedom than Ukraine. Apparently, in the absence of independent legislature, it was easy for the Belarus government to fix the laws, so that they conform to several indicators to which the Doing Business report authors pay attention. It takes longer in Ukraine to fix the laws, because unlike Belarus, it has democratically elected parliament and presidency which reflect diverse interests of Ukrainian voters.

Another significant advantage of Belarus according to the Heritage is labour freedom (84.4 pts vs. Ukraine’s 57.7 pts): Reportedly, Belarus has “relatively flexible labor market regulations” that “promote more job creation and productivity growth. The non-salary cost of employing a worker remains high, but dismissing a redundant employee is relatively easy.

The so-called Labour Freedom is exactly the problem, which prompted introduction of the European Union economic sanctions against Belarus in 2006. In fact, employees in Belarus are stripped of virtually all protections available in other European countries, including the right to organize in trade unions. Once they concluded a labour contract, they not even terminate terminate it before it expires. On the other hand, the Belarusian State, which is the largest indirect employer is Belarus, can indeed fire anybody with ease, because there are almost no labour law protections apply.

Despite its questionable ranking methodology, the general description of the Belarus economy given by the Index of Economic Freedom is fair:

Belarus’s economic freedom score is 48.7, making its economy the 150th freest in the 2010 Index. The persistence of Soviet-era policies and practices continues to deny Belarus the benefits of economic freedom enjoyed in most other former Soviet republics, although its low score has improved by 3.7 points after four years of decline.

Reforms undertaken to reduce regulatory costs and enhance the business and investment climate have led to improved business freedom and labor freedom scores. Most of Belarus’s 10 economic freedom scores, however, are considerably lower than world averages.

In reality, Belarus’s economy is still characterized by pervasive state involvement and control. Restructuring is very slow, and the small private sector remains marginalized. Though tax rates are moderate, there is no comprehensive tax code. Regulations are confusing and applied unevenly. The government controls many financial institutions, directly or partially and subsidizes inefficient state enterprises. The court system is completely dependant on the State and the state almost never looses to private parties.

Read the full text at heritage.org.

YK & AČ

Alexander Čajčyc is a PhD candidate at the Financial University under the Government of the Russian Federation in Moscow.

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