The motion whether the state should stop subsidizing enterprises during the crisis will be discussed at the debate that will be held in Kyiv on June 11, 2009 by the Foundation for Effective Governance in partnership with Intelligence Squared, Great Britain.
Crisis time is a time of inevitable changes. The State and business should adapt to those changes with the smallest losses and create conditions for a rapid economic growth after the crisis. How to achieve that goal? This is not an easy question. The State may play one of the two roles. It may become a regulator making uncompetitive enterprises go bankrupt. Since those enterprises can not solve their problems on their own. At the same time, the state may play a role of “saver”, supporting companies during a hard time until they are able to overcome the crisis. Both approaches have pros- and cons-, as well as "for" and "against" arguments. International practices do not give accurate answers for this question. Economic policies of various countries are different, and a dispute on the advantages of liberal or regulated economy continues.

Supporters of the concept that the state should stop subsidizing enterprises think that there is no reason to support uncompetitive companies: the sooner they leave the market, the sooner more efficient firms gear economic growth. In this case, crisis plays a sanitizing role, allowing only the strongest to survive. The faster this process is completed, the faster the economy is revived and adapted to new conditions. The State's aid distorts healthy market competition and cultivates so called mentality of customising only. It is important to save money during the crisis and spend it only to ensure a future economic growth. Wasting scarce resources is unacceptable. According to this concept, weak enterprises will go out of business. The economic assets such as investments, human resources and entrepreneurial initiatives will be re-distributed to more competitive sectors. This process relieves the State and healthy economic sectors from the burden of subsidizing somebody, as well as helps to find costs for long-term investments, modernization, innovations, and social aid. The companies that can not solve their problems on their own should not rely on taxpayers’ support and go out of the market. The liberal concept supporters think that the abovementioned principles guarantee economic growth just after the crisis if Ukraine follows them.

The alternative concept supporters believe that the state should provide maximum support to enterprises during the economic and political crisis rescuing them from bankruptcy. Many companies, even if considered inefficient, give jobs to hundreds of thousands people. They are frequently so called town-making companies and single employers in small towns of the regions of Ukraine. Without the State’s subsidizing, they may go bankrupt, causing massive job cuts followed by a social turmoil. Investments have dried up during the downturn, so it is virtually impossible to create jobs. By helping those companies to stay afloat, the State gives them a chance to prosper after the crisis. The adherents of this viewpoint are certain of the domino effect triggered by bankruptcy of one firm – ruin of business partners (clients and contractors) and even business rivals. That is why by providing aid to a certain company, the State in fact supports an entire economic cluster. Moreover, the State's denial of support may cause irreversible loss of technological complexes, including property and qualified personnel, in a number of strategic industries such as aviation, tool engineering, or chemical industry. These unique complexes are a potential basis of a future economic growth. In the opinion of the advocates of this approach, a blind trust in the liberal model of economic development during the crisis may lead to irreparable consequences.

Note

The State’s subsidizing refers to forms of direct or hidden support by the state, such as privileges, subsidies, protectionist measures, state-regulated prices and tariffs, tax holidays (exemptions), etc.
Competitiveness is an ability of a company to create, produce and sell goods and services, more attractive in quality and price than those of its business rivals (from the report of the World Economic Forum).

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