The catastrophe of Ukrainian capitalism

June 17, 2022

The Catastrophe of Ukrainian Capitalism: How privatisation dispossessed and impoverished the Ukrainian people
By Renfrey Clarke
176pp, $25
Resistance Books, 2022

The blurb on the back of Renfrey Clarke’s important new book on Ukraine asks: “In the years before its independence in 1991, Ukraine had been among the most industrialised, technologically advanced regions of the Soviet Union. Thirty years later, it was being rated by the [International Monetary Fund] as the poorest country in Europe — its people poorer, on average, than those in many countries of the developing world.

“Why did Ukraine’s transition to capitalism result in such a disaster?”

The Catastrophe of Ukrainian Capitalism was written in early 2020, well before Russia’s invasion in February. Thus it does not deal with the current conflict or its immediate genesis.

However, unlike the torrent of lies and distortions that pass for mainstream media coverage of the Ukraine war, Clarke’s book tackles the reality of modern Ukraine, providing essential background to the political and economic state of the country in the lead up to Russia’s invasion.

Clarke’s preface notes: “The focus [of the book] is on the economy and general social system of Ukraine in the decades since independence, and in a more limited way, on the country’s labour movement. The specific aim is to throw light on the reasons why, following independence and despite Western tutelage, the attempt to install capitalism in Ukraine has fared so badly.

“The causes relate in the immediate sense to the economic structures inherited from the [Soviet Union], to the mechanisms of managerial control and to the closely associated political culture that became fixed in the country as it emerged from central planning.

“But Ukraine also shares in a wider fate: it has been turned into a broadly typical part of capitalism’s world ‘periphery’, ruled by a weak, often dysfunctional state apparatus and possessing an economy fitted to the needs of the ‘core’ of the global system for a low-wage, semi-developed hinterland.”

Clarke stresses that the central theme of his book is “the inability of world capitalism to solve the economic and social problems of a country now very much part of the world’s ‘periphery’.”

He explains that Ukraine, as a key victim of this process, suffered from low investment and reduced productivity, because the logic of accumulation within global capitalism today means that the most profitable functions are increasingly centred in the developed ‘core’.

The patterns of trade and investment, within which post-Soviet Ukraine has been trapped, systematically stripped the country of capital and assigned it the role of cheap producer of low-value commodities, including primary products. After the “Euromaidan Revolution” of 2014, previously strong economic ties to Russia began to be downgraded.

The pro-Europe, post-Maidan government led the country into a classic “development trap”, Clarke explains. The years following the “turn to Europe” were a period of crushing depression, from which Ukraine has barely recovered.

Ukraine joined most of the post-Soviet Union countries, notably Russia itself, in being transformed into the social and economic order now described as “oligarchic capitalism”. In essence, a process of “exchanging power for property” was implemented.

This involved senior Communist Party state officials and industrial managers turning the authority of their posts, via various corrupt means, into the solid legal entitlements of asset ownership, Clarke explains. Applied throughout a large part of the former Eastern bloc, this created possibly the greatest “kleptocracy” in modern history.

“The ‘turn to Europe’ of the years since Euromaidan has not addressed the causes of Ukraine’s decline. To the contrary, it is seeing the country driven further into a trap of Western-enforced marginalisation, dependency and de-development,” Clarke explains.

Privatisation of large and small industry, as well as agriculture, was rampant from the early 1990s. This process led to a significant rise in inequality, with one study noting that during the pre-Euromaidan period, 100 plutocrats owned 80–85% of the country’s wealth.

As of 2016, official statistics reveal that the bulk of Ukrainian workers received incomes below the “ethical poverty line” — calculated as the necessary amount to allow a chance of normal life expectancy — of US$7.40 a day. Workers in Ukraine at that time received wages around one-tenth of those in Western Europe.

The post-Euromaidan government signed an Association Agreement (AA) with the European Union (EU) in March 2014. The AA was not strictly economic: it required Ukraine to make a definite political and military commitment to the West.

The logic of the AA was for a steady growth of military cooperation between Ukraine’s armed forces and the North Atlantic Treaty Organization (NATO), with the goal of eventual NATO membership. “Signing the [AA] ... thus guaranteed a dramatic heightening of tensions with Russia,” Clarke stresses.

While the growth of far-right organisations received limited popular support, reflected in low votes in national elections, their increased organisational strength after Euromaidan led to burgeoning attacks on the left and labour movements, including the surviving Communist Party of Ukraine (CPU). Ultra-right groups also played an increasing role in combating pro-Russian forces that emerged after Euromaidan, demanding autonomy for the majority Russian-speaking Donbas region in eastern Ukraine.

While attempts were made by reformist forces to reduce the levels of nepotism and corruption during the post-Euromaidan period, little progress was made. At the same time, the left and labour movement has struggled to make significant impact on the growing crisis, Clarke writes.

“The oligarchic system, in sum, was not being challenged at any fundamental level. It retained substantial control of the state apparatus, and this power encompassed not just administrators, but also the mechanisms of state coercion.

“The reform effort had never made much impact on the prosecution system, and despite the setting up of the new patrol police, the country’s criminal investigation police continued robbing and brutalising ordinary citizens while protecting well-heeled malefactors.

“Additionally, the deeply corrupted security service, the SBU [Security Service of Ukraine], remained an organ of extralegal harassment — and in some cases, violence — employed by powerful figures against opposing business interests and reform activists,” Clarke notes.

The sudden rise of actor turned “anti-politician” Volodymyr Zelensky to the presidency of Ukraine was a sign of the alienation of the mass of people from the established political system. But Zelensky, despite his popularity, was hiding his own private wealth and links to one particular faction of the oligarchy.

Despite the weakness of the left and labour movement in Ukraine, Clarke expresses hope that developing forces of the working class and the progressive movement will grow from the current crisis. The Russian war against Ukraine has caused huge destruction of the country. Whatever the final outcome of the conflict, popular pressure for progressive change in Ukraine away from its system of “oligarchic capitalism” will undoubtedly strengthen in the coming period.

Amid the “fog of war” we face in the West over the realities of Putin’s unjust invasion of Ukraine, Clarke’s detailed and fascinating account of the harsh truth about Ukraine’s recent history is an essential backgrounder to the current crisis.

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