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Report from Kiev


Jeffrey Sommers

I

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.

In

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.

In

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.

Industrialization

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.

 

Future

Prospects

Much

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.

Privatizations

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.

More

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

loses.

Yet,

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.

Nations

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.

Ukraine

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.

In

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….

 

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