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Times of crisis are also times of inevitable change. The state and businesses should adapt to those changes with the smallest losses and create conditions for Burapid economic growth after the crisis. But how can this goal beachieve? This is not an easy question. The state may play one of two roles; it may become a regulator, allowing uncompetitive enterprises go bankrupt if those enterprises cannot solve their problems on their own, or the state may play the role of “saviour”, supporting companies during hard times until they are able to overcome the crisis. Both approaches have pros and cons, as well as "for" and "against" arguments, while International practices do not give accurate answers to this question. Economic policies of various countries are different and a dispute on the advantages of liberal or regulated economy continues.
Supporters of the concept that the state should stop subsidizing enterprises believe that there is no reason to support uncompetitive companies; the sooner they leave the market, the sooner more efficient firms gear economic growth. In this case, crisis plays a sanitizing role, allowing only the strongest to survive. The faster this process is completed, the faster the economy is revived and adapted to new conditions. The state's aid distorts healthy market competition and cultivates the so-called mentality of 'customising'. It is important to save money during the crisis and spend it only to ensure future economic growth. Wasting scarce resources is unacceptable. According to this concept, weak enterprises will go out of business. The economic assets such as investments, human resources and entrepreneurial initiatives will be re-distributed to more competitive sectors. This process relieves the state and healthy economic sectors from the burden of subsidizing somebody, as well as helping to find costs for long-term investments, modernization, innovations, and social aid. The companies that cannot solve their problems on their own should not rely on taxpayers’ support and leave the market. The liberal concept supporters believe that the abovementioned principles guarantee economic growth after the crisis if Ukraine follows them.
An alternative to such a concept asserts that the state should provide maximum support to enterprises during the economic and political crisis, and so rescuing them from bankruptcy. Many companies, even if considered to be inefficient, give jobs to hundreds of thousands people. Such companies are frequently so-called 'town-making companies' and are the only employers in small towns across the regions of Ukraine. Without the state’s subsidizing they may go bankrupt, causing massive job cuts and thus social turmoil. Investments have dried up during the downturn, making it all but impossible to create jobs. By helping those companies stay afloat, the state gives them a chance to prosper after the crisis. The supporters of this view are worried by the possible domino effect triggered by bankruptcy of one firm – ruin of business partners (clients and contractors) and even business rivals. Thus by providing aid to a certain company, the state can support an entire economic cluster. Moreover, possible state refusal of support may cause irreversible loss of technological complexes, including property and qualified personnel, in a number of strategic industries such as aviation, tool engineering, or chemical industry. These unique complexes are a potential basis of future economic growth. As a result, advocates of state support argues that 'blind trust' in the liberal model of economic development during the crisis may have irreparable consequences.
The motion of whether the state should stop subsidizing enterprises during the crisis will be discussed at the debate that will be held in Kyiv on June 11, 2009, by the Foundation for Effective Governance in partnership with Intelligence Squared, London.
Note
State’s subsidizing refers to forms of direct or hidden support by the state, such as privileges, subsidies, protectionist measures, state-regulated prices and tariffs, tax holidays (exemptions), etc.
Competitiveness is an ability of a company to create, produce and sell goods and services, more attractive in quality and price than those of its business rivals (from the report of the World Economic Forum).
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