Kyiv School of Economics for Public Policy and Governance Programs,
Lviv Security Forum,
The property right is a fundamental human right which ensure the rule of law. The state determines the rules of how its citizens and communities shall access the resources. The income that citizens and communities receive, to the greatest extend, depends on these rules. Citizens pay part of their income as a tax to the state or community, defining the welfare of the community and society. The rules of access to the resources also define the level of independence and distancing of public authorities from the influence of individual owners. The more resources are concentrated in the hands of certain individuals, the more influence they have on public institutions – the Parliament, government, courts or local governments and more opportunities to establish rules in their own interests. The independence of institutions affects, in its turn, the observance of all other human and civil rights and freedoms in society.
The property right is natural, derived from the need to protect human life and well-being. Therefore, in a democracy, the right to property is understood as the real ability of a person to own his property without hindrance and the ability of the state to protect this property right by law and court.
During the years of Soviet colonization of Ukraine, the understanding of property and responsibility for its possession was depleted. And from the beginning of Independence of Ukraine until today, a positivist interpretation of property rights has been preserved. The law emphasizes that property rights are “public relations concerning the possession, use and disposal of property, regulated by law.”[i] This means that the decisive factor for the protection of property rights is not its nature, but the whims of the legislator.
This approach has negatively affected and still affects all processes related to the exercise of the property rights, including access to private property, management of private property, protection of the owner and liability of the owner. Moreover, gaps in property laws, together with their positivist interpretation, appeared to be the preconditions for the establishment of monopolies in Ukraine and became a major source of corruption in the judiciary.
Free of charge privatization, in particular the privatization of housing, land and state enterprises was and remains detached from the idea of acquiring property rights with all the consequences of its implementation.
The privatization of the housing was carried out through the free transfer of housing and ancillary premises to citizens.[ii] At the same time, during the privatization, the ability of citizens to maintain the housing that was transferred to their ownership was not taken into account. Moreover, the state has legally reserved the opportunity for local authorities to intervene in housing management. In addition, the joint ownership of land around apartment buildings is still not regulated.[iii]
Privatization of state-owned enterprises was carried out without any understanding of the critical value of certain industries or enterprises for the lives of people and society.[iv] Despite the adoption of the laws “On Restriction of Monopoly and Prevention of Unfair Competition in Entrepreneurship” and “On the Antimonopoly Committee of Ukraine”[v], antitrust regulation do not actually work. There is a lack of understanding of the proper criteria for monopolies or monopoly position, as well as the lack of authority and independency of the antimonopoly committee.
Instead, the ground for the smooth formation of monopolies was laid at the legislation. In 1995 the presidential decree[vi], and later in 1996 the law of Ukraine[vii] introduced the concepts and grounds for the establishment of “financial-industrial” groups. These decisions actually legitimized the organization of vertical and horizontal monopolies. At the same time, privatization is carried out in the absence of clear requirements for investment agreements or criteria for liability for violation of such requirements.
Privatization of land has become a separate cornerstone of distorting the understanding of private property. Land and subsoil deposits were not considered as self-sufficient assets that provided a profit and were simply granted for supplementary use. The land tax was introduced in 1992[viii], but due to numerous exemptions it was hardly paid. Following the introduction of budget decentralization in 2015, it was expected that cities would be interested in collecting land tax. But in many cities, land is still seen as a gift to entrepreneurship.
Naturally the practice of rent payments did not develop in the best way. Rent payments constitute a miserable part of revenues to the state budget in both absolute and relative terms. In addition, proper regulation of transfer pricing has never been established. Considering that Ukrainian monopolists export a lot of raw materials and the products made of them, the lack pf transfer pricing regulation allow them to hide incomes in offshore jurisdictions.
Therefore, the free transfer of housing to citizens without the obligation to maintain residential buildings distorted their perception of ownership and responsibility for its management. It also contributed to public tolerance for the uncontrolled access of others to the private property. And the processes of non-transparent privatization or seizure of other people’s property did not cause disapproval or resistance in society.
The lack of criteria for privatization and its hand management provided selected individuals with access to the most attractive assets and natural resources, preliminary critical infrastructure facilities.
The de facto absence of land tax and low rent for subsoil deposits use, as well as the lack of real investment requirements and privatization criteria allowed industrial owners generate abnormal profit. Moreover, the lack of antitrust safeguards encouraged them to form vertical and horizontal monopolies.
The strong monopoly position of specific individuals or groups of individuals has given them uncontrolled tools to influence society and state institutions and today constitutes the main obstacle to the establishment of the rule of law in Ukraine.
[iii] More on consequences of housing privatization can be read in the article by Alona Babak “Institutional formation and development of property relations in the management of residential buildings”, International Scientific Journal “Internauka”. Series: “Economic Sciences” // № 10 (42), 1 vol., 2020
[iv] Law of Ukraine On Restriction of Monopoly and Prevention of Unfair Competition in Entrepreneurial Activity / Vidomosti Verkhovnoi Rady Ukrainy (VVR), 1992, N 21, p.296, URL: https://zakon.rada.gov.ua/laws/show/2132-12/ed19920218#Text
[v] Law of Ukraine “On the Antimonopoly Committee of Ukraine” / Bulletin of the Verkhovna Rada of Ukraine (VVR), 1993, No. 50, Article 472, URL: https://zakon.rada.gov.ua/laws/show/3659-12/ed19931126#Text
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