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Economics

Ukraine's economy, what's up with it?

Ismael Barkat, November 11th, 2020

Ukraine is an emerging free market economy. Previously Ukraine’s economy was under the control of the government. During this period Ukraine contained numerous inefficient factories owned by the state. Farms wasted the majority of their resources by trying to produce large quantities of food. This was not very efficient because since quantity was a main factor, quality was not taken into account therefore many of the foods grown turned rotten. This in turn dropped the amount of food available for sale. Since the government decided the prices of goods many of the prices were set randomly. This is because of lack of competition meant they had to decide prices themselves and often did not work out well. Adding on to that most of the consumer goods were in short supply since many of the resources were wasted or were not allocated properly. The government spent most of the money funding the military instead of the civilian economy. This led to the cities not being developed properly as funds were not allocated to provide better roads, schools, hospitals, etc.

Ukraine was moving from a command economy. A command economy being that the country’s economy would be run by the government. All businesses were run by the government (no privately owned companies). Wages and salaries were the same. Food rations were employed, and there are few luxury goods available. There is no variety of goods since there is no competition.

Ukraine is trying to transfer towards a free market. This is where the government has much less say in how the economy is run. Production is done by private companies which are not owned by the government. This gives a wider variety of goods available to the public and encourages competition. Therefore prices can be low. Wages and salaries are not determined by the government and therefore give motivation to work harder to earn more money. The disadvantages of having a free economy would be that there is a large import of demerit goods, such as cigarettes, drugs or prostitution. These products have a large profit but are bad for people, though they are driven by a high profit motive. Large firms will be able to take control of the market, thus running the risk of having monopolies. This would mean that companies can raise the prices and control the market how they want.

Historically, Ukraine is well known for its agricultural production. Among its main agricultural products are sugar beets, wheat, meat, and dairy products. Other crops include barley, corn, rye, and tobacco. Most Ukrainian farms are very large state-owned farms. Smaller private plots have historically been the most productive throughout the former Soviet Union, and their importance should grow in the future.

Ukraine’s major industries are metalworking, machine building, construction, chemicals, food, and light industry. Ukraine is a major producer of steel and iron. Ukraine accounted for 33% of Soviet steel and iron production. About one-third of its industrial manufacturing comes from machine-building sector, which produces tractors, machine tools, and mining equipment. Transportation vehicles manufactured by Ukraine economy include cars, trucks, buses, railway cars, diesel locomotives, airplanes, and ships.

The chief output of Ukrainian chemical industry is fertilizer, while Ukrainian food industry is involved with sugar refining, meat packaging, food canning, and wine production. Among consumer goods produced are television sets, refrigerators, washing machines, and clothes.

During the 90’s Ukraine’s GDP was considerably low -1.9% in 1998. This was during the time of their transition into a free market economy. It showed that while Ukraine was under a command economy their GDP per capita was not ideal. While the change was occurring the GDP gradually increased. In 2000 it reached 5.9%. This proved that their change was working.

Ukraine went through hyperinflation during their time under the command economy. Hyperinflation is a period of rapid inflation that leaves a country's currency virtually worthless. This meant that the people would be unable to buy day to day goods as prices would be raised faster than income was made. An analysis which shows this would be the Ukraine economy consumer prices dynamics from 1994-2006. It highlights the drastic change of prices from 1994 where the prices were exceedingly high during their period under command economy. Then the prices drastically change in 1997 to soon stabilize in the 2000’s. This showed that Ukraine eventually benefited from the change to a mixed economy.