ARCHIVES  Danyliw Seminar 2016

Inna Melnykovska

Davis Center, Harvard University (US)

Inna Melnykovska is a Postdoctoral Fellow at the Davis Center for Russian and Eurasian Studies at Harvard University. She completed her PhD in Political Science at the Free University of Berlin (Germany) in 2016 with a thesis on “Big Business and Regime Changes in Ukraine and Russia.”

PRESENTATION
DISCUSSION

Abstract

Corruption in Ukraine: A Way to Get Things Done?

Post-Maidan Ukraine still suffers from systemic corruption with the business elites (often labeled ‘oligarchs’) playing a key role in patronal networks. Policy and academic discussions about the fight against corruption and the “de-oligarchization” in Ukraine primarily concentrate on domestic reforms. However, the capital of Ukrainian business is mobile and Ukraine’s corruption also has the international dimension. The Panama Papers disclosed just a snapshot for how offshore secrecy jurisdictions abroad fuel tax evasion, money laundering and bribe financing, which eventually erode state structures, compromise reform processes, and boost long-run growth and welfare in Ukraine. Offshores have cost Ukraine between US$ 117 billion (Global Financial Integrity) and US$ 67 billion (Tax Justice Network) in revenues, which is about 1.5-2% of its GDP annually. Furthermore, the business elites exploit tax havens not only to hide their capital and acquire assets abroad, but also to benefit from security of property rights guaranteed by Western institutions in offshore, while they further corrupt political power and profit from bad governance in Ukraine.

 

Still, the global capital mobility has positive effects as well. Ukrainian holdings belong to the emerging multinationals in the global financial markets. Being financially internationalized through such borrowing activities as syndicated credits, Eurobonds, and IPOs, Ukrainian business elites become more sensitive to the international perception of their credibility and have to adapt their (local) business structures and activities to global rules of doing business, such as good corporate governance, full accountability, and transparency. In return for compliance with these demands, the global economy offers certain incentives such as lower credit rates and growing investment. It also increases the strategic risks of being overtaken by rival business groups, as it leads to increased competition in the local markets by providing new opportunities for middle business to make money and to grow to big business status. By subscribing to a rational choice vision of business preferences, business groups should react upon ‘conditionality’ of the global economy – demands, benefits, and risks – to the extent to which they are involved in the global markets, which is the degree of business internationalization. However, the positive transformative power of the global economy can be compromised by offshore jurisdictions (if borrowing activities are conducted through offshore companies) as well as by the domestic context (in particular, by business embeddedness in domestic politics).

 

The paper concentrates on several Ukrainian business groups who are represented in Ukrainian politics (and have the capacities to influence it) and who are integrated globally (in particular, in the global financial markets). To account for sectoral specifics, it compares Ukrainian business groups which concentrate their assets either in energy, heavy and chemical industries or in agriculture. Using the sources of Wharton Research Data Services and collecting the data provided by capital market agencies, stock exchanges, media and Ukrainian companies, it relies on a unique dataset on the capital mobility of Ukrainian business elites till 2015. I will help to further understand the workings of the international political economy and the interplay between capital mobility, corruption, and political power in Ukraine. This knowledge allows to make the recommendations on how to effectively restrict the abuse of the financial globalization and enhance democratization and good governance in Ukraine by means of international financial regulations.

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