Innovation - is a historically irrevocable change in the method of production of things.
J. Schumpeter

M.I. Tugan-Baranovsky

J.A. Schumpeter

N.D. Kondratiev

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IEE Forecast [16]. Ukraine will not avoid crisis, if not to take precautions and not to start innovative processes

- In society everything should have its own place, - Plato
- ... the easiest and the most natural way of people's welfare is... (...innovation - IEE), - Aristotle

This famous dispute has no winner till today 

There is no alternative to growth of incomes in economic processes. This especially concerns innovation, as an important precondition for every possible change. Moreover, some situations do not have reliable tools to prevent risks except for an innovation as a systemic process.

If the strategy for innovative development does not support changes, it can bring risks for all institutional sectors of economy, and to depreciate incomes. To make real incomes grow, we may oppose these risks not to innovation, but to other precautions, and rigid monetary policy among them. But this can bring another risks, like braking of economic changes, and oppression of economic freedom.

The comment to this forecast cannot be simple, as well as our cunning and sly economic relations.
In April 2005, Ukrainian Government and National bank undertake precautions. If not to consider other reasons, they may be explained like attempts to restore the broken macroeconomic proportions and to provide stable economical growth.

Today the policy of NBU is often discussed. Because of general changes, it is difficult to notice important institutional changes in the monetary sector of economy. We mean confident and independent policy of the National bank. We should welcome it, for with it there has started a new and different period.

In developed countries the law fixes the right of the Central bank to carry out independent policy. What conditions were, requirements and wishes of the governments, parliaments, etc. Central bank should have right to carry out independent policy; to support stable national currency and freedom of monetary markets; to maintain the balance of payments in the country.

It does not mean, that in case of gross infringements the head of the central bank cannot be discharged. The mechanisms work, and may be started. But wise constitutional mechanisms protect national bank from emotional decisions of politicians. It is the question of vital importance. In political storm the head of National bank should have the right to decide calmly. ...Though with us and our powerful influence, it may differ.

Certainly, policy should be public, and politics should consult colleagues and people all the time. But, if the Right will be broken, risks for the country will be enormous.

Politics and businessmen should calm down, appease their emotions and comprehend this important event, for at last National bank becomes independent. In advanced countries, modern central banks work for even more complex strategies. And this is the constituent of normal international economic life.

National bank has dumped political "reins" from the shoulders. It has started its independent policy for the first time. The event should be supported, or at least, nobody should threaten NBU for it.  But for some errors, its actions are courageous and correct. Now it is an independent player in the institutional society.

You may notice some synchronism in grivna and dollar relations. Grivna is strengthening, and dollar is stabilized too. Monetary authorities advice the countries with currencies adhered to dollar should change their course policy. We pointed to such pressure as for currencies of other countries. However if NBU aims to restore the balance of payments providing an equivalent exchange, these actions should be welcomed, not considering whether there was or there was not a hint. And on the contrary, it is not good if the actions do not aim to restore the balance of payments.

For the sake of justice it is necessary to note, that there are situations when not only it is possible, but also it is desirable to avoid the balance of payments, which provides an equivalent exchange. But it may be justified in verified and long-term strategy (i.e. recent FRS strategy).  

Actions of the central bank should be maximally transparent and predicted for all economic agents and for people. For this purpose its officers should often communicate with the press and members of the parliament, explaining their actions. However in economy there are the situations based on the psychological factor, and sometimes actions of the Central bank should be sudden. And the Central bank should have the right for sudden actions; still the actions should be justified. It should be very convincing in arguments with which it protects national interests.


Central bank and the government keep the most powerful economic tools. Their slightest changes greatly influence institutional sectors of the economy, households and firms. Therefore any change demands care and suspension.

The tools should be combined with long-term strategy on achievement of economic leadership on the basis of an innovation. The actions of the Government and National bank concern only restoration of macroeconomic proportions. Nobody argues, that distortion of proportions even in the intermediate term period can bring risks to economy, and their correction is a painful, but a correct step.

Macroeconomic proportions may change, but the factors of economic growth remain constant. First of all they include growth of consumption by households and accumulation of capitals, but the most important of them are innovations, and also the policies of their stimulation.

Even restoration of macroeconomic proportions or elimination of skews in traditional sectors of economy are much more effective. They pass on the background of powerful innovative process without any serious consequences. Enumeration of these factors of growth means, that still there is no innovative factor of stimulation of economic growth in the governmental policy. People's attitude towards the government will depend on whether the Government applies the innovative factor while its reforms, or not.

It is possible to predict the growth of its authority and political influence in case of successful implementation of innovative policy. It will be so, even at high prices at the traditional markets, for successful innovative policy brings favor. And, on the contrary, all merits of revolution will not help and even close colleagues will turn away, if there will not be an innovative policy. All the precautions will finitely lead to deep and formidable crisis.

Such innovative policy is necessary, if the Government wants to take a worthy historical place. Retrospection convinces, that all previous Ukrainian governments of Ukraine were not effective without Innovation. On the contrary, people have good memories of the countries (Japan, the USA, etc.), which governments have carried out innovative projects.

We predict, that, if there is no successful innovative policy, reality will push the present government to antidemocratic actions and tough policy. In fact, only innovation brings growth of real incomes in economy. Incomes for separate groups and no innovation means force of authority, and redistribution of incomes for the benefit of separate clans.

After year 2006, the economy of Ukraine will step in a phase of its first serious economic crisis. This expected evolutionary crisis will be the reaction for market economy. Pressure, which will accrue during this period, will be like a voltage of a snow at the mountaintop, ready for avalanche. We will experience the period, when even one awkward movement, which could not cause any consequences earlier, will become the reason for crisis processes. However, if real innovative processes will begin in economy, we predict, that crisis will pass at a high level of a conjuncture.

 (c)  IEE


At active participation of V.P.Kuzmenko

Posted on the website: 2005-05-10

Comments on this article:

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