Economic Reservation: Myths and Reality

In my view, the simple logic of economic reservation is fairness, economic sustainability and defense capability. But there are many myths associated with economic reservation. I decided to collect 15 arguments that debunk these myths and show why economic reservation is critically important for Ukraine today.

Let's consider each of them.

Myth: Economic reservation violates the principle of fairness.

Reality: By definition, fairness is not a subjective but an objective concept. And it means that it is a public good. We proceed from this fundamental principle. Therefore, the decisions that we as a society and the state as a representative of our interests need to make, especially in these challenging times, should be based on the maximum increase of the public good. In addition, each of us must contribute to this good.

Therefore, we must use the most important almost non-renewable resource, namely people, in the most efficient way. In particular, it is important to enable the enterprise to reserve personnel critical to its functioning. And for the state, in turn, it is important to identify critical enterprises and defense-industrial complexes of Ukraine as those that can reserve personnel and provide military deferment to those whom, for the sake of the public good, therefore, it is fair, should not be mobilized at this stage.

Myth: Economic reservation can lead to mobilization failure.

Reality: the prerequisites for our Victory are a manned and armed army with a technological and managerial advantage. According to various estimates, there are already 800,000 to more than 1 million people in the Defense Forces of Ukraine. How effectively does the military command manage these forces? How quickly can its representatives train soldiers? Carry out a rotation? The results of the audit are still unknown to us. And the facts of inefficient management are known.

On the other hand, the mobilization potential of Ukraine is from 3.5 to 6 million men. At the same time, the critical personnel for business — those whose mobilization will lead to a significant reduction in the successful functioning of businesses, up to the possibility of their complete closure and termination of work — is about 600,000 people. Their mobilization can lead to the closure of businesses and the collapse of the economy.

Therefore, the economic reservation will apply to a maximum of 15% of the mobilization potential and will not affect the mobilization volumes. Instead, it will significantly reduce the cost of mobilization for the state, help the state receive more money through taxes, and preserve the opportunity for business to finance the defense-industrial complex of Ukraine and the army both through taxes and through donations.

Myth: since the priority is victory, then everyone should go to the army.

Reality: Our victory requires the implementation of a number of important factors. These are: the number of soldiers in the army, the technological equipment of the army and the corresponding advantage, managerial efficiency. If the emphasis is on the number of soldiers, then we will lose not only because of the greater mobilization resources of the Russian Federation (25 million) and because of the readiness of the enemy to hire citizens of other countries or to negotiate about the military with the Democratic People's Republic of Korea (DPRK). The main thing is their attitude towards the military themselves, namely they treat them as "cannon fodder".

Since it is obvious that the "quantity" strategy is a losing one for Ukraine, the main emphasis should be on managerial and technological advantage. The main sources of technology and armaments are Western aid and private business, which already has 1,500 enterprises of the defense-industrial complex.

As for management, the motivation of the mobilized, as well as the flow of recruits, will be higher if the real possibility of choosing a unit is respected and the quality of military support, training and attitude is improved. Everything listed in turn requires a working economy and increased trust in the military command of our country and the Territorial Center for Manpower and Social Support.

The existing practice of horizontal interaction between business and military units in helping with equipment and recruiting can become an example for positive imitation at higher levels. For this, it is necessary to ensure that the business itself does not lose its productivity and the ability to conduct its coordinated work due to the fact that there is a threat of mobilization of critical personnel.

Myth: The financial support of the military belongs to government spending, and it does not depend on business.

Reality: the monetary resources at the disposal of the state are mainly tax revenues, state borrowing and international aid. So far, international partners have not agreed to finance the Defense Forces of Ukraine at the expense of their assistance. Thus, tax revenues are the main source of funding for our military.

Taxes are paid in turn by state institutions and enterprises, businesses and citizens. A reduction in business will lead to a reduction in tax revenues, which means it will affect the ability to provide the all-important military.

Actually, that is why it is about finding a balance, namely, how to make sure that the mobilization, which requires an increase in the military budget, does not lead to a reduction in business and a decrease in revenues to the state budget. That's why economic reservation involves reservation only business-critical staff.

It is also worth noting that the business is already making substantial donations to the Armed Forces of Ukraine, which, according to research by Advanter Group, amount to approximately UAH 200 billion over the past 12 months. Inefficient mobilization has already had a negative impact, primarily on white enterprises, the volume of donations of which was the largest. Because of this, there is already a reduction in the ability of businesses to donate and finance projects related to the development of the Defense-Industrial Complex of Ukraine.

Myth: mobilization does not affect the state economy.

Reality: Businesses are already short 26% of staff due to mobilization and migration, resulting in a slower recovery from the 2022 shock. In connection with the increase in mobilization, in any case, tax revenues are reduced, and the need for financing increases. Therefore, as stated above, it is important to maintain a balance between the quantity and quality of those mobilized and maintaining the ability of the business to function, which is also achieved by economic reservation of critical personnel.

Myth: There is no more important staff because all employees are equally important.

Reality: the simulated situation shows that the mobilization of another 15% of men will lead to a reduction in business turnover by an average of 20%, but with the mobilization of critical employees, the drop in business turnover will reach from 30 to 100%, that is, it will cause a complete stop of business activity.

Yes, for a people-centered state, all people are equally important. However, during the war, the state must orientate itself precisely on the issue of the public good in the application of the capabilities of each person. Therefore, the reservation of critical personnel is a rational part of the social agreement between the state and business, under which business increases the payment of taxes and will continue to maintain defense capability.

At the same time, the state reduces the complexity of reservation procedures, helps businesses to maintain the ability to work, ensures effective and transparent mobilization and recruitment, thereby increasing the confidence of its citizens in itself.

Myth: Economic reservation of personnel will become total and affect mobilization.

Reality: In order to maintain the business's ability to operate, pay taxes and contribute, it is necessary to enable the business to reserve key personnel within the range of only 20% of the full-time number of employees.

Myth: The system of economic reservation can not be transparent.

Reality: The idea is to enable the entrepreneur to do this in an electronic, non-corrupt way, thereby reducing the current corruption in the reservation industry.

Myth: Economic reservation does not solve the issue of financing the state army.

Reality: Additional funding to ensure the Defense Forces of Ukraine from economic reservation can be found by promoting transparency of information on part of the salaries. We assume that 34% of salaries today are in the "shadow".

The idea is to make it an additional condition for business in the economic reservation of critical personnel to set the salary for such employees at a level not lower than UAH 30,000. Similarly, for an individual entrepreneur, when making an economy reservation, set an additional payment of UAH 20,000 in the form of a military levy.

Myth: Making high salaries for reservations will not increase budget revenues.

Reality: an entrepreneur, if he needs this particular technologist, welder, engineer for the functioning of his business, will set him the appropriate salary. Given that the average salary level is UAH 19,000, such a move will lead to an increase in income tax for individuals, which is paid by individuals from income received in Ukraine and the Military levy. In addition, this approach will also cause the formation of the Unified Social Contribution at the level of UAH 80-170 billion, and even more under the conditions of a decrease in the minimum wage of UAH 30 thousand. This will cover a significant part of the needs for additional financing of the army during mobilization.

Myth: Economic reservation is a new scheme to evade mobilization.

Reality: Economic reservation is an extension of the existing reservation system of critical enterprises, which includes critical personnel of enterprises important to the economy. Only now we are talking about critical personnel of non-critical enterprises, which, nevertheless, are important for the economy.

Myth: Economic reservation establishes a property qualification, which means that the poor will fight.

Reality: The military is objectively paid at least five times the national average. Also, let's not forget that there are many entrepreneurs and business leaders at the front: statistics show that 13% of those at the front are entrepreneurs.

Economic reservation does not favor wealthy people. In fact, those who "have money" already have many tools to pay off — they are already using this "tool" as corruption at the level of the Military Medical Commission of Ukraine, the Territorial Center for Procurement and Social Support and in other ways.

The amount of such corruption is estimated at tens of billions of hryvnias, and this is money that is withdrawn from the economy. And economic reservation is just capable of making a significant part of the economy transparent, giving the opportunity to finance the increase of the army.

Myth: instead of economic reservation, demobilization would be better so that those at the front could return to work.

Reality: if the issue of mobilization and reservation of critical personnel is a priority of the civilian leadership of the state, then the issue of demobilization is a decision of the military leadership.

In addition, it should be noted that the process of adapting veterans to civilian life and reaching an effective level of work takes time, as well as the training of recruits, which, along with the issue of motivation, must also be taken into account in matters of rotation and demobilization.

The head of one of the veteran organizations, in whose own business more than half of the men are mobilized, says: "It is important for the business to work, so that the military has a place to return to after the service."

Myth: responsibility for whether or not to implement economic reservation is a matter for the President of Ukraine Volodymyr Zelenskyy, so let him decide.

Reality: Yes, political leaders in difficult times have to take difficult, sometimes unpopular, but important and effective decisions precisely for the good of the country and its future.

However, even an adult society must not transfer such questions to the political leadership of the country but take the courage to speak out loud precisely about objective justice. In particular, those who are called the moral authorities of the nation can objectify the importance of economic reservation for society and the country's leadership.

Myth: Myth: Businesses can be hated because they have the opportunity to wait out bad times with economic reservation. Thus, the question arises as to what is more important for business: to survive during the war or after the Victory.

Reality: This is a fallacious reasoning. In the scenario of no economic reservation, a significant share of private business will be closed and reduced, corruption will increase, and the shadow sector will increase. To save the situation, the state will be forced to raise taxes, devalue the hryvnia, increase the state's share in the economy, and increase expensive foreign borrowing.

It is incorrect to focus on the fact that the business is simply waiting out unfavorable conditions, i.e. "sitting out". Apart from that, it is equally wrong to blame economic reservation for this. Economic reservation will make it possible to reserve significantly fewer staff compared to the number already economically reserved under existing procedures.

At a time when the country is facing many challenges, it is important to find a balance between economic stability and defense capability. Only by joining forces, increasing mutual trust, we will be able to ensure the Victory and prosperity of Ukraine.

For this, it is necessary not to avoid difficult issues, but to objectify the consequences of their solution or non-solution and to find a common answer on the basis of dialogue.

Read this article in Ukrainian and russian.