How important it is for Ukraine to reform its self-governance structure, if truly considering a state based on Western European standards of regional self-determination and individualism Russia’s foreign minister Sergei Lawrow has repeatedly been lobbying for a federalization of the Ukrainian state, as an answer to the recent Crimean and Donbas crisis. The Crimean referendum to be held on March 16, 2016 has not been the essence of transparency and high standards of democratic referenda, as reported by OECD and other international non-governmental institutions. As long as the outcome of the still ongoing crisis remains unclear, and the international community doesn’t accept Russia’s involvement in the action of the separatists, a lack of efficient self-governance institution is clearly observable. Thus, it is one of the main goals of PM Yatsenyuk’s government to create and redefine the role and structure of Ukranian local administrative structures. Janukovych’s heritage Ukrainian local government structures do theoretically exist; superficially they are even similar to those present in Europe. This similarity can be seen in the usual three-level division. The largest local governments are the oblasts – a loose equivalent of Dutch provinces. These administrative regions are divided into reions, and finally subdivided into into urban-type settlements and rural councils or silradas, which represent the smallest administrative subdivision. Another similarity is the fact that each self-governance representative is appointed through a general electoral system. However, Marcin Swiecicki, a former mayor of Warsaw who gave substantial input into the creation of the Polish self-governance reforms of the early 90’s, states: “The Ukrainian local government system cannot be called a true a self-governance system, seeing as it is not a system but rather a way of ensuring that family members of Ukrainian politicians are not kept jobless.” This common opinion arises in a rather negative way from several distinctive characteristics of local political institutions in Ukraine. Firstly, none of the self-governing structures possess any kind of executive power without the blessing of the centralised Kiev government. The most important implication of it is a complete lack of financial independence. Local governing structures do not possess any legal competences that would allow them to create budgets. Although no financial decision can be undertaken without Kiev’s supervision, regions are not solely financed from the capital’s budget. As much as 10% of their income comes from various local taxes, such as regionally established real estate and utility taxes. However, these margins seem strongly economically insignificant, especially considering that one obwod is populated by around 10 million people, and that expenses are centrally regulated. In order to visualise these difficulties, it has to be mentioned that even payments for flowers ordered for the then appointed governor of Odessa, Eduard Hurwic, were made extremely late – that is, 90 days late. The scale of public illiquidity becomes even greater when considering payments for serious regional strategic expenditures, with delays reaching up to a few years. Another large drawback of the existing system is the lack of a clear division of competences and tasks for each level of self-government. This results in a bureaucratic machine that pursues the same processes and controls, thus allowing local bureaucrats to become local corruption centers. If the duplication of bureaucratic activities seems detrimental for the regional economy, then imagine a situation where those duplications occur in twelve thousand (yes, 12,000!) administrative regions. It all seems to be very much like Ukraine. The duplication of these activities of dubious quality at such a great level leads to a disability for regions to pursue any kind of rational and aligned economic policy. European reinforcements The temporary government of Yatsenyuk, along with the recently elected Ukrainian president Petro Poroshenko, appointed vice prime minister Volodymyr Groisman to create a plan of drastic changes in those inefficient regional structures, which they identified as crucial drivers of potential Ukrainian economic and social growth. Groisman, the former mayor of Vinnytsia, likes to talk much about his positive experience with joint regional cross-border economic and scientific projects. Furthermore, he decided to arrange a group of mostly Eastern European self-governance experts, who had experience in reforming local government in the early 90’s in former post-soviet countries. Groisman especially stresses the success of professor Regulski’s local governance reforms, which allowed for a very decentralised and efficient local government system aligned with the Polish central government – without destabilising control from centralised authorities. This group has already been advising self-governance in Serbia, Kazachstan and Montenegro, where it pursued a mostly successful policy of regional decentralization, while keeping an unfederalised unitary state organism. The local government, fool! The group has identified the uncountable amount of silradas to be the most urgent issue. It is a priority to start bundling these administrative regions, because only then these institutions, closest to the human being, will be able to pursue effective local government policies without having a collective of contradictory regional policies. Gromads are meant to be divided using objective parameters, such as relative regional wealth, industry advance, and population. The emphasis here is to avoid any cultural division in this already divided country, aiming at reducing the amount of gromads by at least two thirds. This should go together with making national treasuries (e.g. real estates) available for local governments, allowing them to professionalise their services for citizens. Only after these administrative changes will the Kiev government be able to give up competences and distribute tasks to local governments, where it is believed that local governments will be more efficient than centralised authorities. Examples of such tasks and competences might be education, basic health services, or possibly local moratoriums for land transactions – whereby it has to be stated that the Ukrainian system of moratoriums on land has been identified in IMF’s global report to be one of the most crucial spaces for reforms enabling economic growth. Furthermore, the amount of reions should be reduced by at least half towards a level of 245 administrative regions. However, no bundling of oblasts is expected, as twenty-five of them seem to represent a rational amount similar to European self-governance systems. Misiage, a member of Groisman’s task group, stated: “Even with the amount of silradas reduced by two thirds and reions by half, it will not be possible for regions to create independent and competitive regional policy, without a drastic change in the tax system”. He believes that only if the regional government is able to redistribute some of their income directly, then the reform will be going in the right direction. Furthermore, he believes that leaving all real estate taxes for local government income might be a good start, whereby he stresses the need to go even further and leave some of the PIT and CIT regionally in a not-so-far future. A last identified necessary reform is the creation of a wealth redistribution system, which would decrease regional economic inequalities. This move is especially important for Ukraine, which seems to be divided by political and national conflict as never before in its short post-soviet history. Dismantling regional inequalities could be a way to keep the country together. Creating future value Several problems are, however, arising. Firstly, the government has to pursue a drastic change of the constitution, whereby it should give local governments legal rights towards some degree of executive power in terms of economic and social regional development. Unfortunately, the Ukrainian parliament, Verkhovna Rada, is still full of members of the pro-Russian Regions Party, whereby it has to be said that the term ‘regions’ in the party’s name seems very ironic. This means that it might be very difficult for the post-Maidan coalition to acquire a constitutional majority, which is necessary for an effective self-governance reform. Another arising problem is the reduction process of administrative regions. The central government might face various interest groups, which are benefiting from the current inefficient self-governance system, by creating a system of disappearing public spending, whereby the multiplier of Ukrainian government spending is below 0 – meaning a negative effect on the economy as a whole – due to immense levels of corruption and public mismanagement.Yatsenyuk’s government will have a very difficult job in balancing between interest groups and reformation ideas. This is strongly related to the relatively strong moratorium institution for land, a major production factor of the still quite agrarian Ukrainian economy. Those regional interest groups use this to increase their own wealth, while decreasing business confidence and creating inefficient resource allocation. Last but not least, Ukraine has to find a way of settling its territorial disputes with Russia. Without Russia accepting Ukraine’s pro-reformatic strive, it might be extremely difficult to pursue self-governance reforms. Starting is the trickiest The Ukrainian self-governance system has found itself on the edge, as probably did the whole state. It is now in the hands of the Ukrainian’s elites to create efficient local government structures, while trying to balance out various economic interest of stakeholders, for whom the current system is beneficial. This reform cannot, however, stand on its own. Without reducing the vast amounts of corruption, nepotism and other economic and political problems, the effects of reform might not be in accordance with expectation. Moreover, the government needs to find a way of balancing between decentralization and centralization, while not allowing the country to split economically and politically to an even greater extent. The self-governance reforms can be expected to  happen at a greater pace at the silradas level than at the higher administrative levels. For this reason, the government needs to be constantly reminded that the reform has to be pursued as a package of radical changes regarding all administrative regions of the state. Kiev cannot allow Moscow to use the reform for further destabilisation of oblasts, especially of those lying in between a potential route connecting the Crimean peninsula with Russian mainland. Thus, it must decrease anti-Kiev tensions, which are being directed from Moscow. A relative elasticity with official regional languages might help with that, while keeping the country’s territorial integrality. Last but not least, it has to be clearly stated that the goals of prime minister Volodymyr Groisman’s task group will be very difficult to achieve. Considering both Ukraine’s short-term and long-term economic and political difficulties, it seems rational to state that the country and its political elites need to redefine self-governance with, paraphrasing Deng Xiaoping, “Ukrainian characteristics”.

A black swan is an event with three properties. First of all, a black swan is a rare event, based on past knowledge, and one that is impossible to predict. However, although its probability is low, when the event occurs, it has an enormous impact. Last, the event is easily explained afterwards. People didn’t see it coming before the fact, but after the fact, everybody saw it coming. To illustrate a black swan event, imagine you are a turkey. You are being fed and watered every day. Because you are fed, your happiness level will rise every day. Every time you eat, you feel better than the day before. Judging from past events, you consider yourself lucky and will continue to do so until the end of time. However, one day, your head gets chopped off: ‘Thanksgiving’. The slaughtering of the turkey is a black swan event. It is rare, as it could only happen to the turkey once. It obviously has an enormous impact, for the life of the turkey is now over. On top of that (assuming the turkey lives at least to the point where it figures it out), it becomes obvious that it was being raised for slaughter; the protection and vaccinations were to keep it healthy, the excess food was to fatten it up. Psychology prevents people from recognizing a black swan event. The turkey’s belief that every day would be fantastic is reinforced by the fact that every day was fantastic. Besides, the accumulation of supporting information doesn’t just reassure the turkey, but also actively destroys the ability to think about things the turkey doesn’t know, even as worst case scenarios. The example also illustrates the importance of context and point of view. The sequence of events described above is a black swan for the turkey, but not for the butcher, as he already knows what is going to happen the day before thanksgiving. The concept of rare, unpredictable, high-impact events was well-known, but naming them as black swans was popularized by Nassim Nicholas Taleb in his book ‘The Black Swan, The Impact of the Highly Improbable’ in 2007. Black swan theory versus black swan problem The black swan theory of Nassim Nicholas Taleb should not be mistaken with the black swan problem, which demonstrates the falsifiability of an observation, statement, hypothesis, theory, or argument. It is questionable whether one could compose a general theory from a limited amount of observations. For example, a scientist notices that all swans people have seen up until this moment in time have been white. Every time people saw a swan, their hypothesis ‘all swans are white’ was confirmed. It is impossible to see all swans in the world, or at least you can never be sure whether you’ve seen all swans in the world. Therefore, it is impossible to prove the theory ‘all swans are white’. This problem is solved by falsifiability. A statement is called falsifiable if it is possible to conceive an observation or an argument that proves the statement in question to be false. In short: all swans are white, until a black swan is witnessed; so a theory is proven until proven otherwise. Although Nassim Nicholas Taleb describes the discovery of black swans by Europeans in Australia in his book, it is not a black swan event, seeing as the discovery hardly had any impact. During an interview for the McKinsey Quarterly, he explained that he used the example to encourage people to ‘think of the unknown and of the potency of the unknown, particularly a certain class of events that you can’t imagine but that can cost you a lot’. The impact of black swans on businesses History shows that the impact of black swan events is bigger than all planning and predictions of companies and institutes can foresee. What does this mean for companies and their (strategic) planning methods? To some disagree, one of the most well-known black swans is 9/11. If the terrorist attack on the world trade center in New York had been a conceivable risk on 10 September 2001, it would likely not have happened. Either way, the consequences of 9/11 were immense. In the short run, the United States of America activated SCATANA: Security control of Air Traffic and Air Navigation Aids. SCATANA is a procedure that allows to take control of the airspace in order to ground all the air traffic. It is a procedure that was designed to counter the Soviet Union and their long-range bombers. As a consequence, thousands of people were stranded, air cargo could not be delivered, and businesses were limited in their transport options. In the long run, security procedures and costs on airports and aircraft increased, which obviously had a big impact on the operation of airports, airlines, and aircraft manufacturers. To illustrate: since September 11, 2011, the United States of America alone has spent upward of $740 billion on security. In 2011, Japan was hit by a magnitude 9.0 earthquake and tsunami that caused a nuclear disaster, persistent power outages, and a host of other major societal and economic challenges. Disasters such as the one in Japan do not only affect local companies, but can cause multiple supply chain disruptions. For example, Philips was a major supplier of semiconductors to Nokia and Ericsson in 2000, when a fire at a chip plant in Albuquerque destroyed chips for millions of cell phones. Nokia immediately set up a troubleshooting team to assess the impact and find alternatives. Nokia was able to make all customer shipments in time. In contrast, Ericsson took several weeks to respond to the situation, and by that time most of the market capacity had already been allocated to Nokia. The impact was devastating for Ericsson, which took a $2,34 billion loss in its mobile phone division. The example shows that being dependent on one supplier makes you vulnerable for black swans. This might have consequences to the outsource policy of a company. In any case, with the rise of global business, it is likely that black swans carry increased risks for any company, including negative impacts on customers, suppliers, partners, assets, operations, employees, and shareholders. Today, not only can a catastrophe in one part of the world affect the sourcing, manufacturing, shipping, and sales of products locally — the interconnections of global financial, economic, and political networks ensure that the effects of such events ripple around the world, too. Typically, large companies rely on their enterprise risk management (ERM) department to identify potential business disruptions, map out their most likely effects, and develop mitigation plans and preventive actions to reduce the risk exposures. ERM has become an indispensable member of the global functional teams in most large companies. However, most ERM departments focus on high frequency risks instead of black swans. Besides, high-magnitude, low-frequency events can stem from sources too numerous and too varied for the ERM team to identify in full. In short, ERM does not have the capacity to monitor high-magnitude, low-frequency disruptors on a regular basis. How then can companies cope with black swans? How to cope with black swans First of all, one should not attempt to predict black swan events. A certain black swan will never happen twice. Businesses will take precautions to cope with the problem in the future. If the event were to happen again, it would be just as rare and unpredictable, but the impact would be limited. Second, a black swan event for one company might not be a black swan surprise for the other. One should ensure that the organization is flexible and/or robust enough to adequately respond to unexpected events with a big impact. Therefore, once black swan events emerge, businesses need to be very clear about the expected impact on their particular business, and they need to have a robust plan as to how best to mitigate against any negative implications. Last, not all black swan events are negative, e.g. the invention of the Internet or the Harry Potter phenomenon. Businesses should be ready to cope with negative black swans and take advantage of positive ones. Because of the enormous impact and possible distortion of the market, new opportunities arise that businesses could use to their advantage. In his The Ten Principles for a Black-Swan-Robust Society, Nassim Nicholas Taleb describes precisely how to cope with black swans. To look back on the turkey example, one should try to avoid being the turkey by identifying areas of vulnerability, so that blacks swans can turn white. Avoid being a turkey by identifying areas of vulnerability in order to turn black swans white

An “economic, peaceful, silent, deadly remedy” is how U.S. president Woodrow Wilson described trade sanctions in 1919. In the aftermath of World War I, he presented them at a conference in Indianapolis as the alternative that would make actual war redundant. One definition of these sanctions that still holds today is that they are measures in which one country publicly suspends a major portion of its trade with another country to attain political objectives. These objectives can either be compliance, subversion, deterrence or sending a strong international or domestic signal. However, throughout the twentieth century, the variety of conflicts and a continuing search to hit the opponent where it really hurts have made the ways to achieve these objectives increasingly specific. In particular, sanctions nowadays do not have to be imposed from one country on another; part of a package of sanctions usually includes measures from one country against specific citizens of another. But did these developments over the past century shape a more efficient tool?economy, the Western governments are also hurting their own financial markets. Maximum damage When further advocating the League of Nations, the UN’s predecessor president Wilson proved himself an advocate of so-called total boycotts. Trade, business or even communication had to be made impossible for all the citizens of a sanctioned country. Much like in a physical war, the main idea was that trade wars should inflict as much damage on a country and its inhabitants as possible. However, total boycotts proved less effective in preventing war than initially thought in the run-up to the next World War. In the thirties, sanctions failed to make Mussolini withdraw his troops from modern-day Ethiopia. Furthermore, trade sanctions by the U.S. against Japan prompted the latter to enter World War II. Japan’s minister of foreign policy, Teijiro Toyoda, called the sanctions on oil imposed by the U.K. and the U.S. an “encirclement”, and the fear of losing all access to petroleum resources sent the country into a paranoia that contributed to its eventual willingness to fight. Next to an absent or adverse effect, a third possible unwanted outcome was to hurt the wrong people. In the sixties, Norwegian sociologist Johan Galtung was the first to argue that sanctions “hit the innocent along with the guilty”. From the conflicts of the decades that followed it became clear that this concern was justified. It culminated in the first sanctions issued against Iraq. In this case, comprehensive sanctions were imposed, preventing the flow of all commodities and products to and from a sanctioned country – as opposed to particular sanctions which only block particular goods and commodities from the target country. With the sanctions that were imposed upon Iraq after its invasion of Kuwait, civilians were hit much harder than intended, arguably even harder than in a physical war, in which civilians are protected by law and commonly spared by both fighting parties. For the first six years after the installment of the sanctions, Iraq was shut off from all foreign trade, including exporting its own oil, which devastated the country’s economy and society. Terrorists and targets When the U.N. started to acknowledge the mistakes made in Iraq in the mid-nineties, the terms ‘smart’ and ‘targeted’ sanctions gained momentum. They are comparable to the particular sanctions mentioned earlier. At the end of the decade, when sanctions were imposed to ban blood diamond trade from a number of African countries, the U.N. explicitly stated that no civilians should become collateral damage. Perhaps not surprisingly, this development of targeting the source more specifically was accelerated by the events of 9/11. To target terrorists, Juan Zarate, George W. Bush’s adviser on combating terrorism, announced that smart sanctions would go “on steroids”. Part of this operation was the U.N.’s demand that its 189 member states would freeze the assets and restrict the movement of a list of specific terrorists. This had been tried before against leaders of Haiti’s junta, but with little success. In that first attempt at targeting individuals, the U.S. discovered some problems that are still pressing today, such as accidentally sanctioning a pastor instead of a military lieutenant with the same name. Targeting the list of terrorists proved to be easier demanded than done, due to differences in the spelling of the targets’ names and the informal ways in which Middle Eastern terrorist networks conduct their monetary transactions (hawala). A second problem is exemplified by former Libyan dictator Muammar Quaddafi’s frozen assets, which now have to be returned to the country after his death. Some of the accounts had been frozen for over 30 years. Since his death, it has turned out to be very hard to decide what part of his 200 billion ‘fortune’ is dirty money and which part of it belongs to whom exactly. Additionally, bank software, such as the worldwide news media, showed to have some difficulty with the correct spelling of the former dictators’ name – a common problem throughout this story. I’m on the list In the trade wars of today, the sanctioning of individuals continues to be a significant part of the measurements. In the conflict between Russia and the West over the Crimea, both parties take turns at it. Even Wikipedia now keeps an up-to-date list of sanctioned individuals on both sides of the conflict. The people on this list are mainly close allies of Putin or Obama, and have their assets as well as their travel rights frozen. However, Putin and Obama are not listed. The official explanation for this is that only suspects in the Crimea conflict are sanctioned. In reality, this leads to only minor impact, since both countries have enough resources of their own to operate, and truly vital companies (such as Gazprom) can still operate freely. Some people are even happy with their position on the list, such as former presidential nominee John McCain, who said he was “proud to be sanctioned by Putin”, adding jokingly that he regretted that he would have to cancel his spring break in Siberia. Thus, individual sanctions seem to be strongest as a symbolic measure; a signal instead of a way to world peace and reconciliation. Among the more absurd examples are the sanctioning of Obama by Chechen leader Ramzan Khadyrov for his ‘slander’ campaign against Russia, and the list of 60 specific luxury goods that the U.S. banned from export to North Korea, containing James Bond movies and Hennessey’s cognac – on which Kim Jong Il allegedly spent 800,000 dollars a year. Targeted or smart sanctions may not have made Woodrow Wilson’s wish for a total substitute to war come true yet, but as odd as and impossible to impose some individual sanctions may be, they are still the far more preferable option.

The initial response of the Russian authorities and state-run media to the sanctions imposed by the European Union and other Western countries for actions allegedly taken in the east of Ukraine was brave. There were countless episodes of statements made by high-ranked authorities and members of the Russian Duma that the economy of the country will not deteriorate as the results of restrictions imposed, and that those, in turn, will have a boomerang effect – Europe and the United States themselves will undergo greater losses than the object of their punishments. This rhetoric that invokes the image of the self-sufficient Soviet Union which only thrives in spite of the crafty plots of its ever-vigilant nemeses was warmly welcomed by the portion of the Russian population still oriented towards the besieged fortress model of global politics. However, as recent developments have shown that the discourse quite likely targeted the internal audience rather then sent a signal to the rest of the world. Even though the impact on individuals and groups ostensibly responsible for decision making in the Russian political establishment did not reach the desired level, the effects on the well-being of the general populous appears to be somewhat more sensitive. So what is it exactly that arose in the consequence of the sanctions? Upon the announcement of the implementation of what is now known as the first round of sanctions, the Russian largest market index MMVB fell by approximately eight per cent over the course of several days. It is worth mentioning that initial restrictions were yet of a mild character, as they mainly concerned suspension of negotiations on certain joint projects, and established an entry ban for concrete officials. The strength of the market response to the measure is motivated by the ephemeral nature of investor confidence in the Russian economy. According to the World Bank, Russia is placed 93rd in the Business Confidence ranking, neighbouring such states as Jamaica and Albania. Uncertain investors The intrinsic political risks associated with lack of transparency and accountability implies a higher cost of business conduct for enterprise, which not everyone can afford to bear. Thus, receiving a signal of impending confrontation, the market reacted by withholding. The respective sentiment is enforced by the model of a closed country with marginalised private market that the world could observe not so long ago. The fright that there may be movement towards restructuring the existing construct with the usage of late-soviet templates impacts not only foreign market entities, but also national businesses and individuals who may prefer to discontinue their activities. A decrease in investor and business confidence results in an outflow of capital from the country. This is, in turn, consequential in several respects. A diminished supply of foreign currency causes the exchange rate to drop and the rouble to weaken. Since the beginning of the Crimean crisis, the rouble lost approximately twenty per cent of its value with respect to the euro and the dollar. This development is rather crucial for a major exporter. On one hand, it can temporarily improve the budgeting due to the ability of the government to simply throw in more Roubles into the Economy and thus dilute some of the pressuring issues and appease certain displeased elements. However, in the medium run and long run, such currency drop has its detrimental implications. Problems for consumers Certain conditions, such as high maintenance cost of production due to the local climate or the Soviet neglect of consumer industries, cause Russian production of consumer goods to be scarce and uncompetitive. Thus, lack of domestically produced consumer goods is compensated through purchasing from abroad, making them the largest component in the Russian import. A strong decline in the national currency results in a decrease of relative purchasing power of those in its possession. Thus, there is an almost immediate direct income effect on those used to purchasing Norwegian salmon and German cars. Furthermore, weaker Rouble implies a rise in prices of production factors, which now affects domestic manufacturing costs. In the end, this promotes inflation and, hence, deterioration in living standards. Besides that, the trick of throwing in cheap roubles employed by the government is hardly efficient anymore – the additional value accumulated is eaten up by the increasing meaninglessness of papers in your wallet. The diminishing of the purchasing power was reinforced by the response ban on food imports imposed by Russia. Reducing supply from abroad brought up domestic prices and created a lot of uncertainty in the market, since the ban also concerned raw materials used for much of domestic production. These disturbances in the food market resulted in food inflation rising from 5.3% at the beginning of the year to 11.5% in accordance to the recent estimates. It is, however, not only consumers that suffered. The total external debt of the Russian private sector is, according to the country’s Central Bank, 343 billion USD. This is sizeable to the external debt on the public sector. Denominated in foreign currencies, it is going to increase in its real value making repayment more complicated, specifically for private sector companies who, unlike the government, cannot rely on previously accumulated reserves. This implies further turmoil in the market associated with supply drops reducing the output and pushing up the prices. The estimate of the Russian inflation as of the end of September is 8%, which is almost two per cent larger than the respective value in 2013. The announced target for this year was 5%. After each round of the sanctions, the monetary authorities would inform that they were consistently working on balancing the inflation growth, and working to commit to their pre-set goal. However, given the previous dynamics and market developments, this promise is unlikely to be fulfilled. What the future holds The further path for the Russian economy, as well as the society, is now very dependent on the strategy that the authorities will select to tackle the issue. The tactics of gradual diminishing of the Russian military involvement in the Ukraine with further easements from the Western Countries could constitute the moderate scenario of gradual alleviation. However, the negotiations held over the conflict have suggested this outcome as unlikely. Maintenance of the status-quo is unlikely: Europe, United States and several other countries have demonstrated their commitment to advancing with the punitive strategy given lack of compliance. Recently imposed restrictions are starting to affect international operations of government-owned gas and oil companies that are the primary source of income for the Russian budget, which can have a range of consequences, from cuts in social welfare to inability to meet debt obligations. There is also a possibility of speeding up the deterioration that is frequently observable in left-populist proposals on governmental or parliamentary level. Amongst those were ban on Western clothing and cars, elimination of foreign companies from particular industries, sharp rise in income taxation, VAT and corporate taxation complemented by imposition of a 10% sales tax. The latter measure has already been approved by the parliament and is to take place starting next calendar year. It is difficult to forecast the development associated with this path due to vast uncertainty involved. However, it is clear that heading this direction cannot stabilise the situation in the Russian economy, which may have far-reaching consequences for a large and resourceful country somewhere on the periphery of Europe. The sanctions caused food price inflation to go up to 11.5% according to recent estimates

As a reaction on new European Union sanctions looming over Russia, on Monday September 8th, Russian prime minister Dimitry Medvedev threatened to decline access for European flights through Russian Airspace. Medvedev stated that ‘bypassing our airspace could drive many struggling airlines into bankruptcy’. And indeed, because of the sheer size of the world’s largest country, it would cost a lot of money for European airlines, if they had to bypass Russian airspace. Such a restriction would especially hit European airlines offering direct flights to Asia. At the moment, airlines extensively use Russian airspace. According to data by flightradar24.com, on September 1st 2014, European and US airlines accounted for the majority of foreign flights operated over Russia. As can be seen from in figure 1, European and US airlines, account for 59% percent of foreign flights operated over Russia. The shortest route from Amsterdam Airport Schiphol (AMS) to Narita International Airport in Tokyo (NRT), Incheon International Airport in Seoul (ICN), and Beijing Capital International Airport (PEK), clearly pass through Russian airspace (figure 2). Shutting down Russian airspace for European airlines would affect normal flight operations. European airlines like KLM, British Airways, Lufthansa and Air France, which are frequently operating flights to Asia, would have to divert to more northern or southern routes. These routes are longer, take more time, and burn more fuel than regular flights. According to KLM, rerouting a flight to northern Asia to bypass Russian Asia would add €30.000 to the total flight costs. In addition, ticket prices would have to rise in order to cope with the increased costs of operation. Concluding, Russia’s measures would definitely hurt the financial and competitive position of European airlines. In practice, airlines generally do not fly the shortest route to their destination. Airlines are, depending on the kind, demanded and or requested to not fly through no-fly zones. Most common no-fly zones are used for military purposes. Route decisions are taken by airlines. Generally, airlines avoid no-fly zones. For example, Syria is avoided by all airlines at the moment. However, North Korea and Somalia, are not avoided by all airlines. Airlines use a variety of sources in order to assess the safety of an air transport route. These sources include National air transport authorities, and international aviation organizations like the International Air Transport Association (IATA) and International Civil Aviation Organization (ICAO). It is not clear how often airlines ignore no-fly zones out of commercial interest. Restricting access to Russian airspace is not something new. In 2007, it banned Lufthansa’s cargo unit from its airspace, in an apparent attempt to pressure the airline to move its hub to Siberia. In fact, Russian airspace was closed during the cold war. However, after the collapse of the Soviet Union, Russia liberalized its airspace rules, resulting in an vast amount of generated revenue from over-flight charges. To illustrate, according to I. Stupachenko, analyst at Otkritie Capital in Moskow, ‘Aeroflot collects royalties from foreign carriers from Siberian overflights, receiving about €170 million in 2013’. By restricting access to European carriers, Russia would significantly hurt its national airline, for which the royalty payments are equal to 18 percent of full-year earnings. As a consequence of shutting down Russian airspace, the European Union would most likely, as a response, close its own airspace to Russian airline Aeroflot and their partners. Research has shown that there is a direct connection between the amount of direct flight connections and economic growth. For example, a report from Frontier Economics demonstrated that UK businesses trade 20 times as much with emerging market countries that have a direct daily flight to the UK as they do with those countries that do not. While flight connections are not a sufficient condition to create trade and economic growth, connectivity ìs an essential component of developing trade relationships. Without excellent connectivity to the world, other economies are likely to step. Therefore, if the EU decides to pursue airspace counter measures, the Russian economy would cripple. The question arises whether or not Russia is willing to take that risk by closing their airspace first. In conclusion, restricting European airlines access to Russian airlines would indeed affect the financial and competitive position of these airlines and the European Union as a whole. However, shutting down the airspace would have at least the same amount of adverse effects on Russia. Not only would Russia receive less revenue from over-flight charges, they would also lose lots of connections to vital destinations, resulting in a decrease in economic value.

George Coopers’ view on the current state of the science of economics in his book “Money, Blood and Revolution”. About fifty years ago, historian and philosopher of science Thomas Kuhn published his most influential book The Structure of Scientific Revolution. With this publication, Kuhn opened the world’s eyes to a new, innovative way of looking at science and the way it develops over time. He argued that scientific knowledge does not improve by means of a steady, linear process but rather through a set of well-defined stages, all of which are incompatible with each other. To each of these stages belongs a different “paradigm”. In Kuhn’s view, paradigms constitute a widely accepted set of theories affecting the way scientists operate and come to solutions within a certain field. Just like a pair of tinted glasses, they provide scientist with a peculiar and unique way to look at the world, which will never be equal to that of someone wearing a different pair of glasses. Thus, for example, when Copernicus first questioned the idea that Earth lies at the center of the solar system, a real Scientific Revolution began. This revolution eventually lead to that highly dreaded paradigm shift known as heliocentrism. A science in crisis In the light of recent events, some argue that economics may well be the next candidate for a paradigm shift. Could failure to come up with an effective, well-defined recipe against the financial crisis be a symptom that economics is itself nothing less than a science in a crisis? In his latest book Money, Blood and Revolution George Cooper tries to find the answer, highlighting how the existence of many scattered, conflicting views has thrown economics in a state of chaos.While mainstream economics is still based upon the Neoclassical school, conventional economic policy is fuelled by the idea that the economy is well manageable through monetary channels, making Monetarism “overwhelmingly dominant”. Meanwhile, in the light of questionable outcomes reached by austerity-policies, an enthusiasm for Keynesian stimulus seems to be picking up once again. Unrealistic foundations Only within one chapter of Coopers’ book, nine leading schools of economic thought are cited and explained, signaling the fact that “all is not well in the field of economics”. To make things worse, many of their core ideas rely on features that do not fully belong to the real world. One example is given by the Neoclassical school, perhaps the one that most needs to be put under scrutiny, given its prime role in the academic world. Feeding on Adam Smith”s ideas, this school is built on the foundations provided by three basic assumptions: People have rational preferences. Individuals maximize utility and profit. People act independently on the basis of full and relevant information. These axioms may be otherwise summarized as individualism, maximisation and equilibrium, the last one being the consequence of the first two. Yet, it wouldn’t be too much of a gamble to state that reality appears to be working differently. What needs to be challenged is not only the idea of equilibrium. The Austrians already did so with their Business Cycle Theory, postulating an economy that oscillates around its equilibrium state without ever reaching it. This time Cooper goes one step further by challenging the very idea of maximisation. Individuals, he argues, do not act as rational optimisers but rather as competitors. They do not seek to reach the best outcome in absolute terms, but rather try to outperform their peers and closest competitors, leading to what may be best defined as a “Darwinian economy”. This is why, for instance, we would greet a raise in salary with great enthusiasm, but only until we find out that our new salary is still lower than our colleague’s, who does exactly the same job. Within this framework, the axiom of individualism falls, given that competition is a collective phenomenon. Bloody money If economics is entering a state of crisis, its constituting paradigm ought to be redefined. This leads to Coopers’ final insight, an attempt to re-write economics inspired by William Harveys’ work on the circulation of blood. Although it might seem, to say the least, a little unrelated at first, Cooper compares the flow of money within the economy to the human body’s circulatory system. Money flowing from the bottom to the top of the social pyramid is compared to freshly-oxygenated blood leaving the lungs to reach all other organs. This upward push is made possible by capitalism. At the same time, progressive taxation, made possible by the existence of democracy, acts to push wealth back down. This partnership between capitalism and democracy is responsible for modern economic growth. Given quantitative easing (QE) measures influence asset-holders that are often located at the top of the pyramid, they are not nearly as effective as putting money at the bottom, to trigger spending and provide growth. It appears obvious, in the light of this theory, that fiscal (Keynesian) stimulus becomes the strategy of choice. Stop thinking we’re thinking Similar ideas can be found, in a less romanticized fashion, in a 2009 article by distinguished economist Paul Krugman, published under the title How did Economists get it so wrong? “When it comes to the all-too-human problem of recessions and depressions”, Krugman argues,  “economists need to abandon the neat but wrong solution of assuming that everyone is rational and markets work perfectly”, suggesting that the mathematical beauty of fully rational markets should not be mistaken for reality. Just like Cooper, after a rather detailed appraisal of the current status of economics, Krugman reaches the final conclusion “that Keynesian economics remains the best framework we have for making sense of recessions and depressions”. Whether existing academics will listen to these new ideas is doubtful, and re-writing economics is a quest that calls for more than a 200-page book. After all, Keynesian stimulus is not exactly a novelty. Yet, if time is ripe for a paradigm shift, a new way of looking at the too often irrational human behavior may well be a starting point.

The EU and US governments have opted for a targeted strategy when trying to force Russia out of the Ukraine conflict. Unlike Russia, they have not chosen wide restrictions on imports and exports. The initial sanctions attempted to restrict travel of senior Russian corporate leaders close to Putin. Recently, they have focused on restricting selected Russian companies from using European and American capital markets. Restricting access to capital markets for some firms is not a one-dimensional operation. Capital markets consist of a wide variety of financial institutions and entities. Sanctions imposed by the governments of the respective countries have to be executed by those financial institutions. In practice, this means that financial institutions are prohibited from providing investment or brokering services to the selected Russian companies. One could easily see a problem in this strategy. By attempting to hurt the Russian economy, the Western governments are also hurting their own financial markets. Serious trouble for Russia in the short run Russian companies, like companies from all over the world, need funding to operate. Although these funds can be acquired from various sources, large companies usually resort to international capital markets. The vast amounts of capital required for their operations can only be acquired against reasonable conditions on this platform. The current sanctions imposed on Russia thus present these companies with a huge problem. Under the sanctions, the selected companies are unable to acquire any new finance from EU or US capital markets. Finance includes both equity and debt financing. Of most immediate concern is the restriction of debt financing. New debt does not just include any additional level of debt the company wants to acquire to expand its operations. It also includes new debt to replace old debt that is due. Companies, and countries for that matter, often use debt to pay off debt. In the process, they are able to adjust their interest rates and the maturity of the debt. Usually, this is a straightforward action that does not cause any problems. Every so often, this is not the case. A prime example in recent history involves the financial crisis in the EU. Interest rates on loans for various southern European countries rose above acceptable levels. Greece used to have interest rates for long-term debt of 4 to 5% prior to the crisis; this increased to close to 30% at the height of the European crisis. This means Greece would have to replace their debt issued at 4% by new debt issued at 30%, a huge increase in interest costs for a country already in trouble. Greece was effectively shut out from capital markets, like the Russian companies, and forced to lend money from the IMF and Western European countries. The Russian companies face a similar problem. They too have to pay off their debt, and preferably with new debt. There are several alternatives to using new debt. One is the use of cash, which has its limits and reduces the liquidity of the company. Illiquidity in itself is perceived as a market risk, increasing the risk levels for the company, and as a result increasing required returns. Another option would be to replace debt by equity, which is also not an option under the current restrictions. It seems only sensible that Russian companies are looking for alternative markets for funding, being shut out from the Western markets. Those markets will not be easy to come by; one does not easily replace a financial hub like London. The short-term impact for the Russian economy will no doubt be severe. Even if the companies are able to meet their debt obligations, it will come at the cost of cash balances and new debt at worse conditions. Russian companies currently not affected by the sanctions will be readjusting their debt levels and sources in anticipation of possible new sanctions. This readjustment could mean higher financing cost and lower investments, implying a possible stagnation of the Russian economy. The West will face the consequences in the long run In the long run, it seems the sanctions imposed by the Western countries are bound to hurt the same Western countries the most. Already, Russia is looking for alternative ways of funding for their companies. Within Russia, they have the option to use government funds or insurance funds, along with funds from Russian financial institutions. Externally, the Russians will look for countries not participating in the current sanctions battle. Specifically, they will be looking at the Chinese financial markets to fill the gap. Like the Russian companies, Western financial institutions will lose out in the short run. They are simply not allowed to serve the Russian companies, at the cost of huge fines. At the moment, the debt obligations of these Russian companies are spread across a great number of financial institutions. Of much greater concern is the long run impact of not serving these customers. Russian companies now facing the difficulties and costs of finding alternative ways of funding will not fall into the same trap twice. Looking at the future, they will make sure their funding is more diversified and, importantly, much more focused on partners the can rely on. The current sanctions prove that Western financial markets are not necessarily a reliable means of funding. Rather, they can be used in a political battle. As a result, Russian companies will always consider the risk of losing access to the capital markets in the EU and the US. And they will act accordingly. Companies are always looking for the cheapest, or – more accurately – most cost-efficient way to fund their activities. The size and depth of capital markets in the US and EU will not suddenly cease to be attractive to companies. Looking at the difficulties Russian companies have in reacting to the sanctions, proves the point that a replacement is not easy to come by. But for Russian companies, the sanctions will have increased the risk in Western financial markets. Risk is a cost. It is a cost for Russian companies, as well as a cost for the Western financial markets. So far, we have considered Russian companies and losing their business. However, there is every reason to be just as worried about the reactions of Chinese companies or companies in the Middle East. They too will look closely at the current situation and assess what the possible consequences could be for them. They too will see that the financial markets are used as a political instrument in the West and start looking for alternatives. Financial markets in the West have been taken on an insecure road by their governments. Just recovering from a financial crisis, strengthening their balance sheets and decreasing their exposure to risk, the last thing they need now is insecurity. Political leaders in the West have seen it fit to impose sanctions on Russia for the situation in Ukraine. It seems the current sanctions are effective in the short run, but are self-damaging in the long run. Using the financial markets as a political instrument will be a clear message to any country that does not consider itself an immediate ally of the West. The longer these sanctions are in place, the more damage is done to the credibility of financial markets in the West. As a result, the sanctions force the Western countries to reach an agreement with Russia as soon as possible. Although that sounds positive in the spirit of peace, it weakens the negotiation position of the West. The West may think it is hurting Russia, but it is probably more accurate to say they have done Russia a favor.

Every student has noticed that some lectures are better than others. That is, any student that once in a while attends lectures must have noticed this. To some extent, this is simply because some professors are better than others. Though anyone can improve their lectures by training and experience, that’s not what I want to talk about. The interesting thing is that one lecture by a specific professor can be much better or worse than a different lecture by the same professor. Why is this? What inspires a professor to excel in some lectures? Is it the idea of providing knowledge to students yearning to learn? Is it that handsome young man or the pretty young women so eagerly anticipating what you will say next? Is it the sudden realization that good student evaluations may help get that promotion you so desperately desire? The truth is, I don’t know. I myself am sometimes surprised at how well or how poorly a lecture is going. I do know that the key is in the interaction between professor and class. There has to be chemistry, even when the lecture is mostly a one-way transfer of information. Of course, this means that the professor has to adjust to the students. This is very important, but it’s not the whole story. I think that students can contribute a lot to this chemistry and can help improve any lecture. More importantly, I think there are things that students should try to avoid. So, if you want a good lecture, try to avoid: Dozing off. To state the obvious: it is not very inspiring to see someone tuning out while you are doing your best to be inspirational. I realize that some topics are boring (and some professors even more so). You’ll just have to bite the bullet. If you notice that you’re having a hard time focusing, then do something to break the pattern. Ask a question (that will pimp up your adrenaline) or try to guess where the professor is heading. Do anything to regain focus. Playing with your phone. More generally: doing things you could just as well do elsewhere. Nothing pisses me off more than a student who thinks (s)he has something better to do than to pay attention. For most lectures, attendance is not mandatory. If you do not intend to pay attention, just don’t come. No hard feelings! If you’ve decided to attend, then pay attention. If you’ve lost track, ask a question. There are no stupid questions (only stupid people). In other words, if you are not getting out of the lecture what you had hoped to, then don’t give up, but do everything you can to repair this. Trying to appear smart by asking the obvious. Asking questions and making comments is good. These should be used to clarify and contribute, however, not to show how smart you are. Some students seem to think that if they appear smart, the professor will remember them and forgive mistakes in the exam. It doesn’t work that way. I don’t remember names and when correcting exams I typically have no idea who the student is. A smartass remark in the lecture is just annoying and makes me want to stop and go do something more useful. Asking whether material is important for the exam. We know you want to pass the exam. We also want you to pass, and so we will prepare you the best we can. Being asked whether you need to know something for the exam gives the impression that you do not want to know it otherwise. There goes my inspiration. I thought you were more genuinely interested in what I was saying…

Millions of jobs lost, trillions in revenues evaporated, and communities throughout the globe in immense hardship – these are some of the consequences of the current economic crisis. It started in 2008 with the bailout of Bear Sterns and the fall of Lehman Brothers, and soon spread throughout the world, or at least many claim so. Now, some six years later, when the initial wave of Keynesianism and calls for bailouts seem to be weakening, one can notice a slight change in the debate over the crisis. The Austrian perspective is seen to be gaining more support, and the question of desirability of central banks is being reopened once more. In the past, authors alike Bernanke praised achievements of the Federal Reserve and central banks in general. They argued that these institutions are to be recognized for their maintenance of price stability, and safeguarding of the financial system. In their view, central banks, on top of effectively implementing their monetary policy, can mitigate moral hazard problems through regulation. This, however, seems a rather ambitious claim, given the current state of the economy. Too big, too bad To many it seems obvious that central banks are to be blamed for the hardships caused by the 2008 crisis. They argue that central banking in its current form increases moral hazard problems, and promotes misallocation of resources. First, moral hazard problems in banking are associated mostly with the status of ‘too big to fail’. Given the internal interconnectedness of current financial systems, it is argued that if some of the biggest banks fail, this will have negative ramifications for the whole system, and could possibly result in further bank failures, thus starting a vicious circle. Following this logic, many governments in recent years argued that bank bailouts are necessary for protection of their financial and economic systems. Knowing this, the biggest banks had incentive to increase their risk – since if their investments turned bad, governments were ready to step in, and if otherwise, they stood to make much larger profits. This need not imply that all banks followed such reasoning. However, if even a single one had, it would have immediately gained a competitive advantage over the rest of the industry, and thus boosted its financial performance on the expense of its more responsible competitors. As a result, current standards of financial analysis would identify it as a ‘better business’, and call for increased investment. If other banks wished to stay in the business in the future, they had to follow, since the next crisis would still be too far in the future to ensure timely punishment of their risk-seeking competitor. Thus, it happened that risky and often dubious investments spread throughout the financial industry in the years preceding the current crisis. No way out A simplistic and often idealised response to this problem is a call for increased financial regulation. Even if the assumption that this regulation would be effective at the time of its implementation is granted, its effectiveness is still most likely to suffer from lag caused by the constitutional system of the host country and dynamic character of the financial industry itself. In other words, what may be a sound financial regulation today, need not make sense tomorrow. The only way states could ensure full control over the risk taken by the bank, would be their nationalisation. Such drastic intervention would decrease the efficiency of the financial system, as well as leave the doors opened for private misuse of the nationalised banking sector. A noteworthy example is the situation in Eastern European countries after the fall of communism. Nationalised banks were politically forced to extend loans to individuals affiliated with the government, which then turned bad the moment these individuals cashed in their investments, and left the region. Hayek told you so The second (and far more serious) objection to the current system is the argument by the Austrian-school economists. They argue that monetary intervention to reduce interest rates does not solve any problems of the economy. According to them, it only postpones those problems and makes them worse. Low interest rates, in Hayek’s view, encourage unproductive investment – one that is most likely to turn bad the very instance interest rates return to their competitive levels. Therefore, he argued that such policy not only magnifies the economic turmoil in the future, but also causes large losses of capital, caused by its incorrect use. His views have been neglected in past years, mainly due to the believe that the economists achieved full control of the economy – a period referred to as the great moderation. Not many, however, noticed that this period was exactly what Hayek was warning for. Low interest rates in the beginning of the 21st century caused growth of one of the largest asset bubbles in the economic history, and planted seeds of the 2008 recession. As if it wasn’t bad enough On the other hand, Keynes noted: “But this long run is a misleading guide to current affairs. In the long run we are all dead. Economists set themselves too easy, too useless a task if in tempestuous seasons they can only tell us that when the storm is long past the ocean is flat again.” His contemporary followers agree that there are many issues with the current central banking system, and that much can be improved. However, they also believe that sitting back and waiting for the good times to come may prove to be more costly than expansionary intervention. This is supported by current research, which suggests that prolonged recessions fundamentally harms the economy and decrease its long run potential. More precisely, in period of prolonged unemployment workforce loses its working habits and skills, and thus becomes less productive, which implies a decrease in the long run potential of the economy. In the aforementioned discussion the importance of central banking, a reform was outlined. However, it left the reader short of a clear-cut answer to the question of what to do next. It is clear that severe moral hazard problems come along with increased financial regulation. Nonetheless, it is also clear that prolonged crises leave scars on the economy and the society of a troubled nation. The ultimate choice between lower long run income with better allocation of the investment, and shorter recessions accompanied with increase in moral hazard problems, is all up to the reader. At the end of the day, he or she will vote for politicians representing these conflicting policy choices.

A new academic year entails new challenges and opportunities. In the creation of this new issue I have certainly met mine. First I would like to thank Dovile Venskutonyte, who dedicated much of her soul and heart into last years issues of Rostra, and continues to dedicate some of her time in helping me. Together with all of the lovely new editors that have joined the comity this year I look forward to be affected positively by the opportunities presented to us and meet our challenges head on. One of my favourite courses during the second year of my Bachelors in Economics has been International Trade. I was struck by one of the stories in the book and it has been in the back of my mind ever since. The book by Krugman and Obstfeld illustrates a setting in the US where a local content requirement had been imposed. This requirement basically states that a certain part of a good had to be manufactured domestically. One of the industries this requirement had effected was that of the manufacturing of buses. At first this caused the buses to be poorly designed and badly made, thus few people thought that they could be exported to western countries any time soon. This changed when a group of Hungarian investors found a loophole in the local content requirement laws. The laws required 51 percent of the buses to be to be built domestically. The group of Hungarians realised that the buses could be better and cheaper if only 51 percent was made in the U.S. and 49 percent was created in eastern european countries. They set up two locations, one in Hungary producing the shells of the buses and an assembly operation in Georgia. American axles and tires were shipped to Hungary where they were put onto the bus shells; these were then shipped back to the U.S. where American engineers completed the production. Through these steps a perfectly legal bus was made that was cheaper and more efficient than the buses that were previously made. For me this piece of history is a perfect example of “the invisible hand” illustrated by Adam Smith in his book “The wealth of nations”. When regulations are imposed the agents in the economy will always strive for the most efficient outcome. So that they can earn the profits. The message the course conveys is that our governments should strive for free trade and lift trade sanctions. According to the theories this not only raises our welfare but also that of our partners. The events that have transpired while we were enjoying our holidays have been quite adverse to these fundaments of trade theory to say the very least. The growing unrest in Ukraine has lead the EU, the USA, Canada and Australia to impose strong trade sanctions on Russia and vice versa. Trade wars are becoming the alternative to real wars with boots on the ground, when diplomatic alternatives are no longer viable. In my eyes this development is one we should be avoided at all cost as it has never been proven to truly resolve disputes and could lead to inefficiencies on the long term. The solution to international disputes, when military wars and trade wars are out of the question, are not easily found and that is perhaps why the current economic superpowers prefer impose sanctions than search for alternatives. Having said that the UK has found a way to put pressure on the Russian government without harming the economic efficiencies to much. They have blocked the access of the Russian elite to capital market in London, a topic nicely illustrated in this issue. Much like the invisible hand has changed industries and companies drastically trough centuries, the time has now come for Rostra to be influenced by the invisible hand. As much as one likes to believe that printed magazines add a certain amount of authority, the time has also come for Rostra to adapt. That is, the Rostra will be transitioning to a website in early January, and the signs so far have made me feel very positive. I consider this transition to be a step forward rather than a step back and look forward to offering you, the reader, increasingly diverse and dynamic content.

It is remarkable that this magazine is already 60 years old and has reached 300 issues. This means that Rostra is (even) older than I am and that I have been reading it for more than half of my life. I congratulate everyone involved and wish you many more successful years. The topic of nostalgia is well chosen. It is easy to become more nostalgic with age. When you’re young, you think everything is great and can only get better. You get annoyed by old farts telling you how everything used to be better. But as you get older, your stock grows of good memories of things that used to be and you wonder why they no longer occur. You think more and more that everything used to be better. But, how accurate is this? Are we selective in what we choose to remember? To find out, I will use this column to first list all of the things at the FEB that I remember being better in the past. Then, I will analyze how accurate my memory actually is. This gives my top 5 walks down memory lane. I first started working at the FEB (then called FEE) in 1984. These memories are therefore based on 30 years of experience :-|. So, I remember the old days, when: Students were engaged in society and wanted the study of economics to help them contribute to their cause. They supported Marx, Lenin, Mao, Thatcher, Reagan, Keynes, Hayek or some other god. They cared. Nowadays, students are passive and care only about the next exam. For researchers, there was no publication pressure. You were not asked to score publication points to earn research time. This allowed you to carefully think about research and the deeper meaning(s) of what you were doing. Nowadays, it’s like working in a factory, needing to publish one paper after the other in a minimum of time. The dean was one of us. Every five years or so, one of the professors was appointed to be dean. (S)he knew everyone and was acquainted with the department’s history. Nowadays, a stranger walks in every five years (sometimes less) and changes everything because (s)he feels (s)he needs to leave a mark. Promotion was based on seniority. Staying with the department over time was rewarded with promotion. To become an associate professor, you needed to stay long enough. To become a professor, you needed to wait for the chair holder to leave or die. Nowadays, anyone can be promoted. The UvA bureaucrats supported the faculty. If you felt that you needed something to do your work better, they did what they could to help you. Nowadays, bureaucrats think that they know what’s best. They read something about how it’s done in business and copy that to the UvA, without caring whether it supports teaching or research. But when I really think about it: Students were engaged in anything but studying. Quite a few took more than 10 years to finish. Nowadays, students care about the field of study and finish much quicker. There was no check on what people did in their research time. Very few researchers published. Nowadays, excellent research is done. The dean mainly supported her/his own group. (S)he minimized effort spent on management. The FEB was poorly managed. Nowadays, deans have a plan. You may disagree, but at least they manage. Good people left because their career did not progress. We had various professors without a PhD. Nowadays, promotion is based much more on merit. Hmmm… this one actually did use to be much better.

Until recently, Ukraine and Russia have been as close as two nations can be: the Russian language is commonly spoken in Ukraine, there are many cultural similarities and the challenges for political and social development produced by the collapse of the USSR. However, with global geopolitical interests drawing the two countries apart, the media resources of both have started an ongoing battle of propaganda. A cccording to a recent poll, 88% of Russians learn about the events in Ukraine trough local television and 73% consider the information reliable. Therefore it is no surprise that as much as 77% of the Russian public blames Ukrainians for the conflict, which erupted between the two sisterly countries in March. There is a lot of talk about the Russian state propaganda machine all around the world, especially in liberal democracies, however not only the Duma is manipulating public opinion through disinformation and propaganda. Ukrainians do not look at Russia as favorably as before. In March 80% of the population considered themselves friendly to Russians, however in August that number fell to 40%. Therefore both, media and the political arena, in Kiev shifted from supporting a tight relationship with Russia to favoring as little to do with it as possible. It is important to understand that while, Euromaidan, the revolution, with which the conflict begun, had a “euro-“ prefix to it, the annexation of Crimea and the war in the Eastern Ukraine have shifted the nations’ focus from the importance of western leaning reforms to the rivalry with the oppressive neighbor. Instead of debating pressing issues such as social security and financial stability, politicians are trying to gain favor with the public by donating to the military or creating an image of a war hero. In the recent elections the winning party, called “The Peoples Front”, built its platform upon the militaristic rhetoric of its leader, the Prime Minister, Arseniy Yatsenyuk. TV talk shows now also predominantly feature soldiers, but what is worse is that the media space is going somewhat insane. While blaming Russian propaganda for posing images from the Chechen war as supposed evidence of Ukrainian military cruelty, mainstream media in Ukraine has tries to pull the same trick with image from Syria. There is a plethora of such examples and most Ukrainians can spot them. However, unfortunately, there will always be some consumers willing to buy into such lies. A distraction The turmoil of the conflict serves leaders of Ukraine well by allowing them to draw attention away from important and urgent issues such as the absence of hot water and heating in some regions. However, there is no clear military agenda either. There is no war formally declared on any country and the Ukrainian government hasn’t officially accused Russia of illegal military activity within its borders, although the cabinet officials do not restrict themselves from such accusations on television, sometimes even presenting evidence. During a recent meeting with students the Prime Minister has replied to a question about president Putins’ remark on Russian military superiority: “The one with more muscles and guns is not the strongest, the one who has faith is. We have faith and we will win this war” Perhaps it was a demonstration of faith when his government authorized the construction of a wall along the entire Ukrainian-Russian border. Around $8 million were dedicated to the project. Initially the idea was proposed by a governor from Dnepropetrovsk, Igor Kolomoyskiy, and when it became too popular to ignore the Prime Minister took on to supervise the construction himself. A short moth later, the wall is old news and doesn’t seem to be on the table anymore, yet the political capital gained remains intact. Leadership failure Another, even larger, scandal erupted, when the government purchased bulletproof vests. Not only where did they cost three times the market price, they also had a defect: they didn’t actually stop the bullets. The media attributed the scheme to the eccentric governor, whose political support has skyrocketed after the revolution, the same governor who came up with the idea of constructing the wall alongside the border. Even though investigations were carried out, nobody was held accountable and the deal was not reversed. Moreover, the military campaign in the east has not proven to be effective. There were numerous incidents of friendly fire due to miscommunication in the chain of command, cases of encirclement of Ukrainian forces by the opponents and further heavy losses that could have been avoided. It is not disputed that these large mistakes were not simply accidents, but rather results of incompetence and lack of leadership in the Ministry of Defense. However, officials should not be too worried, since they are not pressured by an outraged public. Peoples’ thoughts are concentrated on the enemy, which has to be defeated, instead of the commanders, which have to do it. More is needed Ukrainian international politics have a more diverse agenda. Even though a deal with Russia to supply gas until March 2015 has already been struck, Ukraine is still facing an energy supply shortage, which it tries to solve by negotiating deals with Europe to reverse supply Russian gas. At last the IMF has successfully reached out to the Ukrainian government and credit requirements are being set in place as a step to solving the countries large financial woes. Yet, of course, the largest political issue is the relationship with Russia and the ongoing sanctions. There is some criticism for Ukraine’s European allies for not doing enough to pressure Russia. Many view Europe’s sanctions as weak, however each new measure is welcomed and further action heavily endorsed. There is a feeling of a big brother punishing a bully, who stole your lunch money. That is pleasing, but the lunch money doesn’t come back. A new path Interestingly, Ukrainian government, while lobbying for sanctions in Brussels, did not impose any sanctions against Russia itself. It was only in mid-August when the parliament has voted in favor of a “Law on Sanctions”, which most media outlets had promoted as the ultimate strike against the oppressor. The law was signed into action only a month later by the president, Petro Poroshenko, but as it turned out, did not have any real effect. The law does not include any specific sanctions to be implemented, but merely declares the possibility of doing so and explains the procedures for parliamentary vote on possible trade restrictions in the future. However, no further discussion was held and no vote to impose any sanctions was even scheduled. In a video that was accidently leaked on the Internet the Prime Minister said: “These events in Donetsk and Lugansk are signs of direct Russian military aggression. Their [Russian] regular army forces are close to Mariupol … All these sanctions are like bandages to a dead man, they didn’t help…” Notably, it was PM Arseniy Yatsenyuk himself who proposed the “Law About Sanctions” and capitalized on the public support for it. There is no denying that a war is being fought in the east of Ukraine or that a new path for the country’s development has been chosen. With Crimea occupied and the densest Russian-speaking territory proclaiming its independence, there is no political future left for those who supported Russia as the choice for Ukraine’s main geopolitical ally. Now the agenda is completely European. But for Ukraine this, first of all, means internal change – fighting corruption and bureaucracy, creating competitive enterprises and new jobs. Unfortunately this is near impossible at times of war and those times are not nearing an end. The revolution started when the former president, Viktor Yanukovych, decided last minute not to sign an important trade and political treaty with the EU. Even though he supported this decision while running for the presidency, after Russia’s objections and convincing, the signing was canceled and the Euromaidan erupted. Today, the treaty is signed, however, its implementation is postponed. It is said that the Ukrainian people are not prepared for a large change in the system during such turbulent times. For better or for worse the number one priority in Ukraine right now is defeating the enemy in the east. “All these sanctions are like bandages to a dead man, they didn’t help…” Arseniy Yatsenyuk