Report from Kiev
am in Kiev as the pampered guest of a Baltic offshore company which helps CIS
nations avoid taxation by incorporating in the Channel Islands, Cyprus, the
Cayman Islands, or even the US's own outlaw banking state of Delaware.
Granted, many of the CIS nation's tax laws are so onerous that business would
be impossible if all were followed, but I also doubt whether better laws result
in dramatically reduced offshore activity.
addition to the legions of pensioners and single women with children seeking
spare kopecks for bread, there are also young women openly selling themselves to
the highest bidder. Our local host in Kiev went on a disciplined workout and
“beauty” regimen until she bagged a local hustler that made off with one of
the state's pharmaceutical factories. As his kept woman (I assume he has a
spouse also), she enjoys the prestige and pleasures of weekend junkets to Milan
for opera and taking in Europe's best resorts.
As the supply of robber barons is in limited, other women must find alternative patrons. Next to our table is a mid-50ish American interviewing potential spouses. The interviewee appears to be in her early 20s. Our unexceptional American, with all the characteristics of someone his age, is trying to find common ground with the woman who might prove his new wife. After all attempts fail, he pulls out the failsafe option of Bruce Willis films. She only vaguely knows who he is, but his frustration boils over to near anger that she can't discuss this actor's films with the same passion they arose in him. The discussion finally turns to business, as he informs her that America is full of pitfalls, and if she hopes to have any success she needs a guide: him. More spice for this evening's dinner is provided by a delegation from the People's Republic of China, including uniformed officers, which one might hazard a guess are there to draw upon the remnants of Ukraine's military industrial complex.
How has Ukraine come to this?
By the early 1990s it was already apparent that the Sachs/Summers Washington Consensus model had indeed transformed the CIS nations making up the former Soviet Union. They called it a “transition.” Yet, it was a transition to poverty rather than prosperity. The idea was that a short period of pain would be followed by rapid growth and prosperity for all. The West's most prominent establishment intellectuals pitched neoliberal shock treatment nostrums with simple slogans such as “you can't jump a canyon in two steps.” This was the intellectual equivalent of flubber. Quite true, one can not jump a canyon in two steps. But, neither can you jump a canyon in one. Canyons are traversed by carefully constructed bridges, not cartoon like leaps by the Incredible Hulk. Those who should have known better at the time, should have seen through the flawed metaphors describing the strategy.
As the failures mounted, ever more clever ideological cover was blown to obscure the mounting disaster unfolding in the former USSR. In Ukraine, one of the most developed areas in the Soviet Union, yet also one of the worst hit by the transition, new ways of explaining the failures were manufactured to maintain a modicum of respectability by the bearers of the new ideology for development in post-communist nations.
1993, US ambassador to the Ukraine cleverly remarked that the chaos and creation
of a new rich class driven to
engage in the crassest consumption, was merely like the US Gilded Age with its
robber barons. What the ambassador failed to mention was that despite all the
horrors of late 19th century industrialization, with its primary accumulation
grounded in full-scale repression of workers and hyper-exploitation of
immigrants, it at least industrialized the US. By contrast, CIS nations, such as
Ukraine, were being deindustrialized by the new robber barons.
has never been pleasant affair. It has always ground up at least one generation
whose labor was undercompensated in order to pay for its machines, factories,
and technology. In the USSR, this period was condensed in time, but retained the
full horror of all primary accumulation. Industrialization came at a price too
high to contemplate repeating. Yet, it had been achieved, and with it, living
standards and quality of life improved dramatically. Just as criminal were
Stalin's methods for industrialization, it was reprehensible to throw it away
during the post-communism transition. In this sense, Ukraine suffered two great
tragedies: industrialization, wrought at such high human costs, and then its
planned deindustrialization, with the loss of all the benefits industrialization
had brought. The costs are incalculable. The numbers defy understanding as the
cascading individual tragedies and personal humiliations can never be fully
grasped by one mind.
of Ukraine's industry lay in ruins. Indeed, one measure of its
deindustrialization and poverty has been Ukraine's drastically cut power
consumption. Its power system is only operating at half capacity. Much of what
was of value, such as high tech machinery, was spirited away early in the
“transition.” It is unlikely that this equipment can be acquired again soon.
At the same time, Ukraine continues to compete globally in the steel and
chemicals. Indeed, Ukraine exposes the lie of free trade and reveals the
historically iron law that rich nations protect their own industries, but demand
free trade of others. Ukrainian steel is so price competitive that rich nations
ban it, especially the US, but some escapes into the world market anyway.
continue. Like many nations the past 25 years, Ukraine has fallen into a debt
trap. In most CIS nations the deal between them and the West has been to keep
their economies open. They are to let out the vast wealth of their raw materials
and machinery. In return the IMF will protect the government overseers of this
system with enough money to keep their states operating, along with ample
opportunities for government officials to skim. The money flowing out of CIS
nations far exceeds what the West has sent in loans. The West gains long-term
advantage from this system in Ukraine and CIS nations generally. Not only have
these states been kept open for capital and resource flight to the West, but the
interest payments on IMF and private loans ensure priviataztions continue apace.
For example, in order to meet these crushing debt service IMF payments, Ukraine
is considering selling off half its telephone system, Uktelekom. Ukraine will
lose this source of state revenue, its customers will pay much higher phone
rates, with considerable profits exported, and in return will only receive a
one-time lump sum to pay the interest payments on loans designed to grease the
wheels of privatization to begin with. In other words, Ukraine gets nothing.
shocking yet, is that what is perhaps the world's second most productive black
earth farming belt in the world, is importing, rather than exporting, grain and
flour according to United States Department of Agriculture data. For the last
two centuries Ukraine has been the breadbasket for much of the world. Indeed,
from the Romanovs through Stalin, Ukraine's exported grain funded Russian
industrialization drives, and afterwards managed to feed much of the USSR.
Today, it can not even manage to always feed itself. Yet, there are
beneficiaries. The US based grain distribution giant, Cargill, is very active in
Ukraine, with their man in charge of Ukraine operations serving as President of
the US Chamber of Commerce in Ukraine. Indeed, they no doubt benefit handsomely
from selling US grain to Ukraine and look forward to controlling grain export if
this richest of agricultural areas can again become productive. Either way,
importing food, or exporting it, food giants like Cargill win, while Ukraine
after a decade of decline, there are signs of growth. Yevgeny Primakov was
brought in by Boris Yeltsin to apply a tourniquet to Yeltsin's hemorrhaging
economy in 1998. He stabilized Russia's economy, and was then quickly
discharged before he could threaten the Yelstin oligarchy. That oligarchy bled
Russia dry while also serving the West's interest of keeping Russia
uncompetitive in the world economy, and as an exporter of raw materials and
importer of manufactured goods. With the economy placed on sounder footing under
Primakov's tenure, the Russian economy also benefited from other developments.
The most obvious was the rise in oil prices, but more significantly, and yet
also more ignored, was the impact of the Russian rubles collapse. This was more
than a blow to Russia's elite accustomed to buying Western luxury imports
cheap on its overvalued currency; it also placed another chink in
neoliberalism's already battered armor.
with raw materials and an industrial capacity can benefit from a devaluation of
an overvalued currency. If the currency is low, they can both produce for the
home market, and be competitive for global export. This is exactly what Yeltsin
elites and his Western partners worked to avoid. Russia's new elites and
middle-classes preferred the over-valued ruble that made luxury foreign imports
cheap, and that brought them good returns on selling off its industrial
infrastructure and raw materials. The Yeltsin forces lived well, while the West
profited from selling in the Russian and CIS markets. Nobody cared if it was
done by killing the nation's economy. The collapsed ruble in 1998, however,
brought forth the possibility of resuscitating Russia's industry as Western
imports became expensive, thus requiring people to buy local products in a form
of import substitution. For the first time since 1991, Russia witnessed
investment in production following the 1998 ruble crisis. From dairy products to
consumer goods like tires, people were again buying Russian. This has led to
Russia again becoming a locomotive for growth pulling along neighboring nations
with it. From the Baltic down to the Ukraine, neighboring nations are slowly
benefiting from Russia's modest new prosperity.
is seeing the benefits of Russia's mildly revived industry. Moreover, the US
economy, and global economy generally, are providing high demand for Ukrainian
products such as its competitive steel. Granted, the US and other advanced
nations' do all they can to keep this steel out of their markets. This gives
lie to the free trade nostrums pushed by the planners of the new global economy.
The IMF and World Bank, constitute a new kind of GOSPLAN for the world system,
with commissars operating in universities and media to ensure the project is
undertaken with the right ideological elan. Yet, capital abhors a vacuum and
does circumvent rich nation restrictions on trade when it can. Thus, some
Ukrainian steel and other advanced products are leaking out onto the world
market. It is far below its potential, but it is enough to begin generating some
growth in the devastated Ukrainian economy.
sum, Ukraine is finally experiencing some genuine growth this year for the first
time since the transition began. It may witness 5% growth this year after a
decade of tumbling. Hardly stellar numbers for a nation that has sunk so low,
but it is progress. The reasons for this modest growth have largely arisen from
leaks in the dyke of Washington Consensus policies on matters of monetary issues
and industrial policy in Russia, and the limited failures of the West to fully
enforce its protectionism against the poor nations they helped to create. One
only hopes developing nations forced to take the neoliberal medicine and Western
intellectuals who traffic in it, take note….