Ukraine's Dire Economic Situation, Explained

To appreciate Ukraine's predicament, consider these charts.

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Ukraine is back in the news. The country's conflict with Russia, which has been ongoing since 2014, is heating up again. There is a real possibility that Russian dictator Vladimir Putin will try to grab even more Ukrainian territory in the months to come. The Russians are suffering from an economic downturn caused by Western sanctions and a fall in the price of commodities, and Putin might try to shore up electoral enthusiasm for his party by appeals to nationalism.

In large part, Ukraine is vulnerable to Russian expansionism because it is poor and cannot compete with its better-armed eastern neighbor. And Ukraine is poor because it has failed comprehensively to reform its communist-era economy after the fall of the Berlin Wall in 1989 and dissolution of the Soviet Union in 1991. To appreciate Ukraine's predicament, consider the charts below.

Ukraine's economic reforms started quite late and fell far short of economic reforms in other parts of the former Soviet bloc. Today, Ukraine's economic freedom is similar to that of Ghana and Burkina Faso.

MTupy
Human Progress

Without adequate economic reforms, Ukraine's income adjusted for inflation and purchasing power parity has declined by 30 percent since 1989. Contrast that with Poland, which has clocked in a respectable 119 percent increase.

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Human Progress

Ukrainian life expectancy tells a similarly depressing story. With growing incomes, Estonia and Poland improved their healthcare systems, and saw their life expectancies increase by 13 percent and 15 percent respectively. In Ukraine, it rose by a paltry 4 percent between 1989 and 2015.

MTupy
Human Progress

State control of the economy proved to be a breeding ground for corruption—with politically connected "industrialists" snatching the most profitable companies in return for financial donations to their political masters. (Note that the Corruption Perception Index and World Bank's rule of law index start only in the mid-1990s, by which time Poland and Estonia already undertook many economic and political reforms.)

MTupy
Human Progress

The incestuous relationship between Ukraine's businessmen and politicians has retarded institutional development in the country. Today, the rule of law and democracy lag behind most other nations, including Poland and Estonia.

MTupy
Human Progress
MTupy
Human Progress

For more on the interaction between economic freedom and institutional development, please see www.humanprogress.org as well as my Cato Institute paper on 25 years of economic reforms in ex-communist countries.

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  1. So how long until the pro-Russkie commenters start showing up?

    1. No kidding – “historically part of Russia” “near abroad” “blahblahblah”.

      1. Look, all I’m saying is some genes should be eliminated from the pool for the sake of purity…whoops wrong article.

      2. The name means at the edge. At the edge of what? Russia, of course. It is the same reason Wales is English by right. If it was meant to be independent they would have given it an appropriate name.

        1. The name means at the edge. At the edge of what?

          Polish-Lithuanian Commonwealth, of course!

          1. Only solution to countering Russian expansion: rebuild the Polish Lithuanian Commonwealth.

            1. Bring back the Tatar yoke!

        2. I thought it was at the Edge of Seventeen.

        3. Ukraina was the borderland between the forests, dominated by Slavic-speaking Russians and Poles, and the grasslands (steppe), dominated by nomadic horsemen, usually Turkic speaking (Tatars, Pechenegs), also the Mongols (ca 1240-1380). The Slavic nations gradually got the upper hand as they mastered the lifestyle of steppe nomads (Cossacks).

      3. Just respond by saying that Moscow used to be part of the ancient Kievian state.

    2. It didn’t take me long, bro!

    3. My last pay check was 9700 dollar working 12 hours a week online. My sisters friend has been averaging 15k for months now and she works about 20 hours a week. I can’t believe how easy it was once I tried it out.
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    4. Anybody can earn 450$+ daily… You can earn from 9000-14000 a month or even more if you work as a full time job…It’s easy, just follow instructions on this page, read it carefully from start to finish… It’s a flexible job but a good eaning opportunity.. go to this site home tab for more detail… http://bit.do/ctDjs

  2. I await Groovus’s take on this.

  3. Hold my beer and watch this.

    The Ukranian people deserve the right to free ad should be allowed free and open elections. Ukranians aren’t Russians. Stop trying to make that a thing.

  4. Reason continues to show anti Putin bias …does Putin want to “grab” Ukraine or does starving Ukrainians want to rejoin Russia? The oligarchs,Neo nazi skinheads,Chechyan and Syrian Islamists, corrupt government in Kiev that has not implemented Minsk accords,strong Russian minorities in Southern Ukraine from Mariupal to Odessa …all tend to support idea that Ukrainianis might envy Crimea where people enjoy Russian style salaries and pensions and now have a bridge built for them from Russia…why does Reason paint this as Putin “grabbing ” more of Ukraine?

    1. Russian style salaries and pensions? Are those in rubles?

  5. Molly . I can see what your saying… Samuel `s c0mment is unimaginable… last monday I got a great new Infiniti after bringing in $6142 this past month and-also, $10k lass month . without a question it is the most comfortable work I’ve had . I began this 5 months ago and straight away began to make over $81 p/h

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  6. Your description of Ukraines problems sound very familiar with America’s growing problems

  7. Western Ukraine was historically not a part of Russia. From 1918 to 1939 it was part of Poland, and from 1795 to 1918 it was part of the Austrian empire.

  8. Wait, is Russia falling apart or is it so powerful that it is covertly influencing policy decisions and funding pro-Russian (or at least, not anti-Russian) political movements around the world? I guess it COULD be both…

  9. I am making $89/hour working from home. I never thought that it was legitimate but my best friend is earning $10 thousand a month by working online, that was really surprising for me, she recommended me to try it. just try it out on the following website.

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  10. The incestuous relationship between Ukraine’s businessmen and politicians has retarded institutional development in the country.

    This is a magnificent sentence: it features both “incest” and “retard” in a contextually valid way.

  11. Christopher . if you, thought Maria `s postlng is astonishing… on thursday I got a gorgeous Honda NSX from having made $8819 this-past/5 weeks and-more than, $10 thousand this past munth . without a doubt it is the nicest work Ive had . I started this 8-months ago and pretty much immediately startad bringin home at least $78.
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  12. You spent a lot of time comparing Ukraine to Estonia, which doesn’t make a lot of sense. Next time try comparing it to Putin’s Russia. You’ll find that Russia has done much, much better than Ukraine economy-wise, which explains why many Ukrainians would want for their oblast’ to join Russian Federation.

    What is Russia’s “freedom score” is? It’s probably pretty bad. lol

  13. “Economic freedom” works well if there is an underlying civil society that challenges public theft and embraces honest courts. Where that is lacking, thieves strip the economy bare. Neighboring Belarus, which kept much of the Soviet system, is today much better off than Ukraine, though poorer than Poland.

    Ukraine might look better today if it had been able to make a clear choice. Instead, it has been paralyzed by a standoff between the pro-Russian south and east, and the pro-Western west and center.

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