Analysis: Euro 2012 row shows Ukraine’s goal should be a free market

POLITICS and sports are often an incendiary mix, as the controversy now swirling around the Euro 2012 football championship, to be co-hosted by Ukraine and Poland, demonstrates.

German chancellor Angela Merkel, European Commission president José Manuel Barroso, and other European Union leaders have said that they will boycott matches held in Ukraine, owing to the imprisonment of former prime minister Yulia Tymoshenko and other opposition figures.

Why, two decades after communism ended and Ukraine gained its independence, does the country remain in economic torpor and locked in authoritarian politics?

Contrary to what many Western economists think, the worst economic breakdowns are not the result of free markets gone haywire, but of an excessive concentration of political power.

Witness the divergence in long-run economic growth between the Euro 2012 co-hosts. Poland’s GDP has almost doubled over the last 20 years, while Ukraine is still barely maintaining the output level recorded during the last year of socialism.

Economic growth is a matter not just of quality of life, but of quantity as well. Child mortality rates have declined in all central European countries over the past 20 years, especially in Poland, where the rate fell from 17 per 10,000 live births to seven. In Ukraine, by contrast, under-five child mortality rates have fallen only slightly, from 25 per 10,000 live births to 24, while life expectancy has declined from 70 years to 68.

The post-communist record shows that the countries that reformed most successfully are also the most democratic. The worst economic outcomes in the region are found in countries that have diverged from democracy.

Democracy is not a panacea, but non-democratic regimes usually pursue worse economic policies than democratic governments do. The former engage in predatory and unpredictable regulation, which produces a bad business environment.

A key ingredient of Poland’s success in the last 20 years was a clear separation, from the very beginning of the post-communist transition, between politics and business. There were uniform rules and equal protection for everyone.

Moreover, Poland avoided extreme booms and the deep recessions that follow. Most booms are produced by bad monetary and fiscal policies. This is true of the recent boom-bust sequence in Spain, Ireland, the United States, the United Kingdom, Bulgaria, and the Baltics, as well as Ukraine. Ukraine’s record over the past 20 years demonstrates it is not enough to abolish socialism. The real challenge is to build free-market, rule-based capitalism. And, to do that, an energetic civil society must demand an end to crony capitalism. Ukraine’s citizens can become more like their central European neighbours, or they can allow the economy’s many distortions from past bad policies to persist, in which case they will fall further behind.

• Leszek Balcerowicz is a former deputy prime minister and finance minister of Poland (1989-1991; 1997-2000) and a former president of the National Bank of Poland