Ukraine Messing with Capital Investments

It’s the exceptional state that treats capital in economically enlightened ways that promote capital accumulation. If they are like the U.S., they pass law after law and regulation after regulation that cause capital accumulation to stall, the result being stagnation or even deterioration in living standards. So, what does the new government in Ukraine do? It messes with existing contracts for the passage of natural gas through Ukraine. It does this under cover of calling the proposed new law “sanctions” against Russia. That’s a fabrication. But I wonder how the lenders at the IMF feel about these steps toward state control over gas transportation or the breaking of contracts with Russian companies. This is another step toward creating a hostile environment for capital investment in Ukraine and trade, the first one that I noted yesterday was a steep increase in taxes on the natural gas industry.

“Ukraine said on Monday that European energy companies would have to agree [to] major contract revisions when purchasing Russian natural gas if parliament approved imposing sanctions on Gazprom.”

This sort of action is definitely the wrong way to improve Ukraine’s economy: by inserting the force of the state into a major industry, by disrupting existing contracts, and by making potential investors in Ukraine doubt how secure their property rights will be. Along the way, Ukraine will be wanting to extract higher taxes on transportation through Ukrainian territory.


9:18 am on August 12, 2014