Free Societies

Ukraine’s post-war recovery depends primarily on establishing the rule of law

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Dmytro Boyarchuk

This op-ed originally appeared in The Hill.

As Ukraine continues its counteroffensive against Russian occupying forces, it must also execute a counteroffensive against its own dysfunctional rule of law.

Both Ukraine and our foreign friends must prepare for life after the war by laying the foundation for a recovery effort that will put Ukraine on stable footing over the long haul. The transition from a wartime effort to peaceful prosperity will bring unique challenges.

But overcoming them to create a thriving Ukraine will also help to withstand — or even better, deter — yet another Russian invasion.

As a Ukrainian, I have observed significant miscommunication between Western leaders and their Ukrainian counterparts regarding the recovery. One major misconception about Ukraine from the perspective of international financial institutions is that its rule of law is supposedly “weak.” This diagnosis implies that Ukraine’s rule of law is fundamentally sound, albeit with occasional performance issues. But that’s not true: If anything, the rule of law in Ukraine is non-functional. It doesn’t exist.

While Ukraine can lay claim to state bodies and formally written laws, a substantial portion of Ukrainian life is governed by informal rules, relying on institutions not reflected in official legislation.

According to the World Bank’s Rule of Law Index. Ukraine’s judicial and law enforcement systems have changed little since Soviet times. Even by 2020, they remained substantially less effective than the rule of law in Poland and the Baltic states at the start of their respective transitions during the early 1990s.

Due to the crippling legacy of Soviet rule, which ushered in multiple waves of repression and the elimination of private property, Ukraine’s uphill climb is far steeper than that of its neighbors. Poland and the Baltic states, for example, were occupied much later on and were fortunate enough to avoid the genocidal actions that Russians practiced aggressively against Ukrainians in the decades before World War II.

In many corners of Ukrainian life, formal rules have been supplanted by an informal “social contract.” This “contract” may align with written rules, but not necessarily.

It has proven to be functional when the country faces external threats, as was the case in 2014 and 2022, when people mobilized to defend the country’s independence. However, once Ukraine’s survival mode is deactivated and Ukrainians return to relative normality, a corrupt state of “business as usual” ultimately prevails. Selective application of law, discretionary practices in tax and customs administration, and raids on private property are routine issues that stem from a suboptimal, unreliable rule of law environment.

What’s the answer? To date, Ukraine’s Western partners have worked wonders in pushing the country toward judicial and law enforcement reforms. However, what Western leaders fail to understand is that Ukrainians cannot rely solely on formal rules (i.e. legislation) to build a strong economy in Ukraine over the decades when the rule of law is still “under construction.”

Introducing more complicated legislation in an environment where informal rules dominate simply does not benefit the country; it only creates an additional market for bribes to bypass lawmaking.

The answer, therefore, is simplification. Simplifying the relationships between the state and its citizens (e.g. taxpayers) lays the sturdiest possible foundation for an optimal, reliable rule of law. The logic is quite straightforward: Although detailed legislation allows for better handling of specific scenarios, such laws can also lead to situations where the state and its taxpayers may interpret the same situation differently, necessitating high-quality judicial and law enforcement systems to mediate potential disagreements.

Because the judicial and law enforcement systems are problems in themselves, it is critical to minimize the number of instances where the state and its citizens could interpret the same situation differently. A prime example was the introduction of a simplified tax system in Ukraine during the late 1990s, which served as a viable framework for the booming development of small and mid-sized enterprises in the years shortly thereafter. Reform brought entrepreneurs out of the shadows, aided by paying a single tax that replaced various other taxes and fees.

Simplification isn’t a new approach, but it is sadly overlooked by the international financial institutions dictating Ukrainian economic policy at the moment. Various parties are pushing for increasingly sophisticated legislation (for mercantile reasons), while reforms to enhance the rule of law traditionally lag behind.

It is time for a reality check: Ukraine should be viewed as a country that inherited a dysfunctional rule of law, which needs policymaking that takes into account the systemic incapacity within the country’s official state system.

In place of a complex tax system, Ukraine needs simple taxes that are easy to pay. In place of voluminous regulations, Ukraine needs simple regulations that normal citizens can understand. And, in place of bureaucracies where citizens must apply to register businesses and access basic services, Ukraine needs simple online procedures. Simple, fair, and lawful.

Otherwise, reform will fall flat and Ukraine will never create the robust economy it so desperately needs — now and many decades after the Russian occupation has ended.