Decentralization of power authority and financial resources in Ukraine is impossible because of corruption. However, it is decentralization that may effectively fight corruption.

After political and tax reforms, administrative-territorial reform is not only the most discussed, but also the most looking forward to in Ukraine. Many see it as a symbolic farewell to the attributes of the Soviet past and an impetus toward the country’s economic and social growth. Local self-government is generally believed to be more effective in solving daily problems hence decentralization – delegation of certain authorities from the Center to the regions – will ensure regional greater economic liberty and balanced development, attract inward investments and eventually result in bigger responsibility of local executives. With this in mind, there is little wonder why a debate on “Decentralization will boost regions’ competitiveness” stirred vivid interest of the audience. The debate was held in Kyiv on December 17 by the Foundation for Effective Governance (FEG). As polls before and after the debate revealed, an absolute majority of participants supported the idea of decentralization. Yet the panelists during their presentations reminded us that enthusiasm should not make us forget about the risks of this process.

“Decentralization is one of the ways to coordinate relations between the Center and the regions. However, one shouldn’t overlook numerous examples of corruption, irresponsibility and unprofessionalism of local public servants. To delegate additional resources and power authority to the locals without introducing effective control mechanisms first may have disastrous consequences for Ukraine. Another important question: will local authorities be able to develop long-term strategies of economic development for their regions?” asked Natalya Izosimova, Director of the FEG, in her opening speech at the debate. She also drew attention to deprived areas, where independent local financial bodies simply cannot function and thus state subsidies are a must.

Yet the idea of decentralization is alluring, all the more so because there exist many examples of successful decentralization in the world. The most remarkable of these is the USA, where every state can define its own administrative and taxation policies. Consequently, many companies have moved to the states with the most favorable conditions for business. For instance, this has facilitated the development of American agricultural regions.

Volodymyr Groysman, Vinnitsa Mayor and speaker for the motion during the debate, appealed to Poland’s successful experience of decentralization. He also tried to persuade the audience that if local officials were delegated more power authority, they could ensure normal life standards for the communities and fully prove their competence to their voters. “I am certain that decentralization today is not a requirement of one particular person. Our entire country needs it”, he emphasized.

His opponent Volodymyr Yatsuba, MP and former Minister of Regional Development and Building of Ukraine, agreed that local self-government can boost regions’ economic development because over time it has proved its ability to work effectively under stressful conditions. “I’ve always believed and continue believing that it were the mayors and the local Ukrainian communities who have pulled forward that heavy wagon that we’ve been pulling for twenty years since our independence and which makes Ukraine a country with an integrate economic structure”, he stated. In the mean time, he mentioned that with due consideration of every region’s potential, it is reasonable to advocate their fiscal decentralization and financial independence in the future. He also stressed the necessity to consolidate administration resources on central and regional levels, to create a definite system of subordination, and to work out an effective procedure of decision-making, particularly during the period of the economic crisis and political turmoil in Ukraine.

Pierre Defraigne, economist, Еxecutive Director of the Madariaga College of Europe Foundation and European civil servant for more than thirty years, joined the panel against the motion. By saying “what is good for one country is not necessarily good for another”, he warned against idealizing international experience and called for a deeper consideration of specific local features. In his opinion, Ukraine currently faces more urgent challenges, such as political instability, misbalance of regional development, and most importantly, corruption. At the same time, Mr. Defraigne mentioned that Ukraine has made a big leap from the command to market economy. “What is more decentralized than a market economy?!” he exclaimed.

For the most part, his opinion was shared by economist and lecturer Irina Khakamada. However, she also noted that incredible as it may seem, decentralization will reduce the scope of corruption in the country. “Centralization means a one and only financial conduit: money moves upward through this channel and then, according to national directives, downwards along the same channel. And the more money moves up and down in a corrupted society, the more gets lost along the way”, explained Ms. Khakamada. Consequently, decentralization eliminates these long financial chains. Moreover, it is easier to control budget spending and monitor power abuse at the local level. Ms. Khakamada also stressed inevitability of decentralization. “The period of stability in global economy is over. We’re looking at a sweeping wave, stirred up by the appearance of new economic players. Only responsibility of all economic subjects: national economic systems, corporations, entrepreneurs – can win under these conditions. Decentralization is this responsibility, however uncomfortable it may be”, she emphasized.

EXPERT POOL
Decentralization is responsibility, however uncomfortable it may be.

PIERRE DEFRAIGNE
Еxecutive Director of the Madariaga College of Europe Foundation

It’s strange that coming from the European Union civil service which is severing regional devolution I bring to plead against decentralization and for centralization. But I need to say two things. First, what is good for one country is not necessarily good for another. So be very careful about so called ideal solutions. They may not fit the country. Second thing that matters in political life is the sequencing, the order when you do things. Spain was a very centralized country thirty five years ago, today it is a very decentralized country. But it took thirty five years to move down that road.

When I look at Ukraine, what strikes me is first of all disparities among regions within Ukraine. Second remark, regions in Ukraine trade more with the rest of the world than among themselves. Third remark, you still need good infrastructural linkages between East and West in Ukraine. So, I am a bit skeptical about the theory that would say the decentralization would be the miracle already in Ukraine. Ukrainian scourges are everywhere. You know them: legal order, business environment, capacity to enforce, to turn words into deeds, to turn programmes into policies, to respond to the needs of the people in the daily life, to be accountable on what you promise people, etc. Corruption is everywhere, they say. So I would say, it’s more important for Ukraine to bring first the central house into order. Ukraine needs well-thought-out industrial policy, able to foster middle class. No democracy can be effective without middle class and the best protection against corruption is a strong middle class.

IRINA KHAKAMADA
Economist and lecturer

I believe that if Ukraine wants to be an effective country, it’s doomed for slow, calm evolution towards decentralization. Why? Firstly, because Ukraine is one of the biggest European countries as far as its territory is concerned, and the bigger the country, fewer the chances of its effective administration from the Center. Estonia can be managed from the Center, but it’s impossible either in Russia or Ukraine. Secondly, Ukraine indeed is infamous for its corruption. In Russia and Ukraine, you don’t treat corruption like a crime, but rather like an environment, in which the power authorities and business exist. What fights corruption better – centralization or decentralization? Of course, it’s decentralization, because centralization means a one and only financial conduit: money moves upward through this channel and then, according to national directives, downwards along the same channel. And the more money moves up and down in a corrupted society, the more gets lost along the way. However, if the money stays closer to its source and is spent faster, less of it is lost, even if locals are corrupted.

Moreover, Ukraine is a very specific country, and what I mean by this is that Ukraine remains very susceptible. No institution has been formed completely. No system has fully developed – neither good nor bad, neither authoritative nor democratic. Everything is still in transition. And this turmoil coincides with global turmoil, because the entire world enters a long period of instability. Nobody could foretell the global crisis, and it’s still impossible to say at which stage of this crisis we stand today. This “double turmoil” demands great responsibility. It’s impossible to bring up new, responsible officials by an order from above, especially in a corrupted environment. They can only be reared at the lower level, and we have to delegate power authority there. It’s decentralization that encourages effectiveness and bustles the entire system.

DISCOVERY
Public debates on economic and business topics in Ukraine are organized by the Foundation for Effective Governance in partnership with Britain-based Intelligence Squared. In order to introduce the classic model of discussion in the "Oxford Union" style, the Foundation invites speakers for and against the motion. Every panelist briefs his/her views for 6-7 minutes. The audience of 200 to 400 persons then has an opportunity to ask questions, argue against the speaker's notions, and express their own ideas. Polls before and after the discussion clearly shows where the audience stands on the motion and if their attitudes are altered by the arguments. In 2010, public debate in Ukraine will be broadcast on TV