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John Lough
Chatham House, the Royal Institute of International Affairs, is a world-leading policy institute based in London.
Our mission is to help governments and societies build a sustainably secure, prosperous and just world.
Contents
Summary 2
Introduction 4
Systema’s four pillars 9
Systema’s structure 12
Systema in the banking, energy, transport
and healthcare sectors 16
Agriculture: a counterexample 25
The place of the media in systema 28
Conclusions 30
About the author 38
Acknowledgments 38
Summary
Ukraine’s systema – commonly described as oligarkhiya in Ukraine – grew out
of a specific form of crony capitalism that took root in the late 1990s. It has proved impressively resilient and adaptive to political and economic disruption since the 2004–05 Orange Revolution. It allocates resources inefficiently and in ways that do not benefit society, and increases economic costs by reducing competition.
At the same time, it weakens institutions and perpetuates high levels of inequality and corruption. As such, it is the underlying obstacle to the development of fully functioning democratic institutions and rule of law.
Systema has proved particularly hard to dislodge because it rests on a firm alignment of interests between big business and the political class in favour of rent seeking over wealth creation for the public good. Across the state sector, and at different levels, it has spawned an extensive supporting structure of beneficiaries that service those interests.
Systema’s structures are in place not just in Kyiv but across the country.
The same operating principles are replicated at regional level for the benefit of powerful local elites and their accomplices in regional governments and councils.
The influence of systema across the banking, energy, transport and healthcare sectors rests on the same foundations, and achieves broadly similar results for its stakeholders, even if some reforms have significantly reduced opportunit
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