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Economy Is at Heart of Ukraine Vote : Election: The choice at the polls seems to be either independence at the risk of financial ruin, or a move toward Russianization. Returns are expected today.

July 11, 1994|MARY MYCIO | SPECIAL TO THE TIMES

On a grand scale, where state enterprises export "shadow production" and stash millions of dollars in earnings in offshore banks, people use the word mafia to describe the underground economy and its entrepreneurs. On a small scale--where Tovstoles sells kittens next to women in babushkas hawking parsnips, and none of them reports income--it's called survival, and it is the cushion keeping Ukraine's economy afloat.

Shadow profits have their price. Traders pay bribes for permits instead of applying for them. They pay protection money to racketeers instead of taxes, breeding corruption, criminality and government budget deficits. There are costs for the economy as a whole when assets, labor and brainpower drain into short-term, quick-buck schemes instead of investment.

"No economy can thrive in the underground for very long," said Kaufmann, who believes the growing imbalance will eventually force either man elected Sunday to free the formal economy from the state's remaining tethers.

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