• Corpus ID: 20141183

Organized Crime and Corruption in Ukraine: Impediments to the Development of a Free Market Economy

@article{Shelley1998OrganizedCA,
  title={Organized Crime and Corruption in Ukraine: Impediments to the Development of a Free Market Economy},
  author={Louise Shelley},
  journal={Demokratizatsiya},
  year={1998},
  volume={6},
  pages={648}
}

• L. Shelley
• Published 22 September 1998
• Political Science
• Demokratizatsiya

Organized crime and endemic corruption threaten the stability of Ukraine and undermine its transition to a market economy. The indigenous crime problem of Ukraine is significant, but the problems are exacerbated by the criminalization of the Russian state and most of the successor states of the former USSR. Criminal links operate across the former USSR, and the proximity of Ukraine to both Western Europe and the Caucasus makes those countries important transit points for diverse criminal activity. The concomitant problems of organized crime and corruption deter both foreign and domestic investment and exacerbate the problems of capital flight. Ukraine's very independence is threatened by its inability to satisfy its citizens' financial needs, a problem severely exacerbated by the endemic corruption and the hijacking of the privatization process by former members of the nomenklatura (party elite). Nationalism, a potent force for state construction in Ukraine, cannot alone counteract the corrosive impacts of crony capitalism and organized crime. At the end of the Soviet period, Ukraine was left without the institutional capacity to address organized crime. Most of the expertise and the institutions to deal with the problem remained in Russia, which inherited the centralized institutions of the Soviet state. Ukraine had to create its own legal norms and institutions while addressing this unfortunate legacy of the Soviet era. In the early years of newly independent Ukraine, organized crime and corruption grew unimpeded by laws or personnel capable of addressing them. At the end of the 1990s, with further privatization anticipated, Ukrainian development may flounder without appropriate legal safeguards and the adoption of legal norms. Resources may continue to flow to the elite as a result of high-level corruption, leaving the mass of the citizenry impoverished and without faith in the Ukrainian state. The Costs of Organized Crime and Corruption Organized crime is such a serious problem in Ukraine because the citizens perceive that they have been robbed of the assets that they were to have inherited from the Soviet state. Recent World Bank surveys of citizen perception of governmental integrity reveal that citizens have little faith in state institutions. Citizens surveyed in Ukraine reveal that their trust in governmental institutions is lower than in any other region of the world surveyed. Ukrainians believe that their country has a more severe problem with corruption than Russia and other successor states.(1) Recent research of the World Bank supports this view. The percentage of firms in Ukraine in 1998 reporting high bureaucratic corruption was the greatest of any country surveyed, greater even than in notoriously corrupt Indonesia. Furthermore, Ukraine's situation in regard to corruption had declined dramatically in the past five years, more significantly than in other countries surveyed in Asia and other parts of the world. Ukraine's level of corruption surpasses that of Russia.(2) This widespread corruption contributes to weakness of the rule of law and undermines the predictability of the judicial process.(3) The corruption undermines the certainty of business transactions making businesses vulnerable to exploitation by organized criminals. It also severely inhibits the foreign investment that Ukraine so greatly needs to repair its depleted infrastructure. The hijacking of the privatization process by organized crime and corrupt officials has resulted in a highly polarized society. Instead of an emergent middle class, Ukraine now has a small, extremely rich, new elite and a large, impoverished population. This is particularly problematic in a former socialist society where citizens were educated in an ideology committed to social equality. Although economic inequality existed in the Soviet period, it was more hidden from view than that of the new elite who flaunt their wealth both domestically and overseas. …