The battle in Kiev is, in large part, a fight for the country’s economic future – for better jobs and prosperity.

Ukraine’s protesters want to pry their country away from Russian influence and move closer to the European Union. A look at neighboring Poland, which did just that, suggests why.

The two countries emerged from the collapse of the Soviet Union two decades ago in roughly similar economic shape. But Poland joined the EU and focused on reforms and investment – and by one measure is now three times richer than Ukraine.

Ukraine, on the other hand, sank in a post-Soviet swamp of corruption, bad government and short-sighted reliance on cheap gas from Russia.

Per capita economic output is only around $7,300, even adjusted for the lower cost of living there, compared to $22,200 in Poland and around $51,700 in the United States. Ukraine ranks 137th worldwide, behind El Salvador, Namibia, and Guyana.

Protests broke out in November after President Viktor Yanukovych backed out of signing an agreement with the EU that would have brought the economy closer in line with European standards.

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It didn’t have to be this way, experts say. Ukraine has a large potential consumer market, with 46 million people, an educated workforce, and a rich potential export market next door in the EU. It has a significant industrial base and good natural resources, in particular rich farmland.

How did things go so wrong? Here are the main reasons.

• OLD INDUSTRY: Ukraine did little to move away from Soviet-era industries producing commodities such as steel, metals and chemicals.

• GAS FOLLIES: Ukraine’s state gas company, Naftogaz, charges customers only about 20 percent of what it pays for imported Russian gas. That means the government spends about 7.5 percent of the entire economy’s output each year on a massive home heating subsidy aimed at keeping voters happy.

• CORRUPTION: A recent World Bank study of the economy cited “pervasive” corruption as a major factor holding back the economy. At street level, businesses are subjected to arbitrary treatment by officials and demands for bribes. Higher up, there is widespread public skepticism over the fortunes amassed by the connected, known as oligarchs. Ukraine ranked 144 out of 175 countries in the 2013 corruption perception index compiled by Transparency International, an anti-corruption group, behind Papua New Guinea, Nigeria, and Iran.

• RED TAPE: Business advocates say owners sometimes prefer paying bribes to obeying regulations and taxes that are so complicated and burdensome that they would be out of business if they complied. The country’s complex business tax laws require 390 hours a year to comply with and take 54.9 percent of profits. That put Ukraine 164th out of 189 countries in ease of paying taxes in a World Bank survey.

• BROKEN FINANCES: Ukraine’s finances now are in such bad shape that it will have trouble paying its debts this year without outside help.


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