Possible Options for Economic Growth in Ukraine

According to economic theory, economic growth in a given country is possible in only three cases. The first is when investment flows: when capital accumulation outstrips the growth of the labor force, so the share of workers is more capital. This growth is named after the American economist Robert Solow - 'Solovian' growth. The second - economic growth can occur in connection with the expansion of the exchange of goods and services, it is commonly called Smithian growth, because of economist Adam Smith. The third is the growth caused by the accumulation of knowledge, the actual technical or technological progress of society, named after the Austrian economist Joseph Schumpeter, who defined capitalist expansion as continuous, leaps and bounds, technical change and innovation.

However, there is another type of growth that is simply associated with population growth. However, given that the population of Ukraine has been declining for the past 25 years and the demographic dynamics does not inspire optimism, we will not consider this type of growth as a likely factor in future economic growth in Ukraine.

Thus, there remain three types of likely economic growth in Ukraine. We will probably have to exclude Smithian growth for the near future. Since in the world, after the 'great Chinese economic slowdown', there is a certain pause in development in developing countries - because many of them flourished precisely on trade with China. Over the past 25 years, China has been growing rapidly, and therefore the economies of countries that traded in raw materials and low-value products (including Ukraine) have grown with it. Now this growth factor has ceased to work. The American economist Mohammed El-Erian, with his 'new norm' that in the 21st century the developing countries will outstrip the developed ones, appears to be wrong. We could have economic growth, like the developed countries of the West, continuing to trade on world markets (including the Chinese market) with high-margin products. But we do not have one (or we have, but very little for growth). Therefore, no matter how you look at it, Smithian growth is not expected in the near future.

There remain two types of growth - Solowian (investment) and Schumpeterian (technology). They are connected. Let me explain why. Investments, and by them we mean capital investments (that is, investments in the capital of enterprises) are long-term in nature. And what could be the investments during the third and fourth industrial revolutions taking place in the modern era? That's right, only those that enter, first of all, the technology sector. Of course, investments are also possible in non-technological sectors (for example, in agriculture or infrastructure), which will create for a short time the illusion of economic growth in Ukraine, but in the long term they cannot be effective, and again after a while we will see a slowdown in our economy. China has behaved like this in recent years, trying with all its might to maintain high rates of economic growth - by burying millions of tons of concrete in the ground, building countless highways and million-plus cities, many of which now no one lives. But all the same, it did not help, and this component of artificial growth in the overall growth of China (which produces a lot of high-tech products) ended its effect. And now we do not need to repeat these mistakes of the planned Chinese economy.

We see that in fact all types of growth are interconnected, and first of all, investment and technological growth are interconnected. The correct model of economic growth looks something like this - Ukraine needs investments in high-tech sectors that will provide us with the production of high-margin products that are in demand on world markets. And only when in all these stages we have long-term growth, the Ukrainian economy will grow, selling more and more goods and services on world markets (Smithian growth). It will be possible to sell them, because we will trade high-margin high-tech products that are in demand on world markets (Schumpeterian growth). And we will be able to create these products because we have previously accepted investments (both external and internal) in these high-tech sectors of the economy (Solowian growth), national science and technical education.

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Here is a model for a real possible long-term economic growth! All other models in terms of attracting investments as factors of economic growth that will be offered to us, at best, will be able to give only a short-term effect, and will very quickly end their action. Therefore, the cry of officials and journalists: ‘Ukraine needs investments!’, without defining what these investments should be, and in which sectors of the economy they should be directed, is harmful and not constructive.

Let's go further. Since we have seen that growth-beneficial investments can be channeled into technology geological sectors, can we define in which specific sectors they need to be directed? By and large, the answer is no. Modern capitalist development is characterized by an extreme degree of uncertainty, so it is impossible to know for sure where the next technological breakthrough will take place. No expert, even the most famous, will tell you for sure. Therefore, in the West, this issue was resolved quite elegantly. In the West, primarily in the United States, a four-tier system for attracting investment in the technology sector was created - a venture financial model (first, investments in a technology company come in the form of money from family and friends; then money from 'business angels' comes; then money from venture funds; then followed by an IPO). It is this model that helps to overcome the risks of uncertain technological development. But even there, the number of successful investments is quite small. However, it was on this system that companies such as Apple, Microsoft, Google, Amazon and Facebook were created.

So, the indignant reader will ask, we don't need to raise money for our dilapidated infrastructure? No, we need to attract, but now it needs to be done in much smaller quantities than in the technological sectors and in the construction of social institutions of the new industrial society! Because a developed industrial society will then build for itself (using the funds received from the trade in high-margin technological products that are in demand on world markets) the infrastructure it needs. But, if this infrastructure is built before such technological development, then it simply will not be in demand by society. Look at the ruins of Palmyra and Petra (Syria and Jordan), as well as modern Detroit (USA) - this is the fate of the Ukrainian infrastructure. Hungarian economist Janos Kornai calls such a society 'a society of premature welfare'. No, we must first learn how to create technological goods, then learn how to sell them on world markets and at home, and only then can we spend money on ourselves.

In addition, the recipients of investments should be primarily Ukrainian national companies. American John Perkins wrote in ‘Confessions of an Economic Killer’ that some Western investments in developing countries do not even cross the borders of these developed countries: money from the account of one American company is transferred to the account of another American company, and the work is carried out in another country. The US government, for example, allocates funds to Ukraine for the construction of renewable energy facilities - and this money is invested in the production of 'wind turbines' by an American company. As a result, there are ‘wind turbines’ in Ukraine, and there is simply no national industry that manufactures products that are in demand on world markets, which can use the energy produced by these ‘wind turbines’, since no one bothered to create it in due time.

Again, this is why investments must be ‘smart’, and first of all, directed to the education of our national technological specialists in Ukraine, so that they stay with us with their labor competencies after the end of the commercial project. And which, according to new educational methods, approved in the developed world, taking into account all the good that was created in the scientific, educational and production process during the times of the Ukrainian SSR and during our independent development, with the help of the national venture financial industry created for this, will create, in cooperation with international companies, artifacts of the third and fourth industrial revolutions. And only there, dear reader, first of all, we must direct our investments (and create conditions for foreign investments), if, of course, we want to remain in the world economic and political history, as a single and indivisible Ukrainian state.