Ukraine: Kuchma launches the wrong reforms

Issue 

By Renfrey Clarke

MOSCOW — Amid bitter protests from miners, teachers and other sections of organised labour, Ukrainian President Leonid Kuchma has begun implementing a program of "reform" designed to wipe the last traces of socialism from the country's economy and public life.

Since late October, living standards in Ukraine have fallen sharply, as centralised subsidies for almost all food products have been eliminated and the prices of virtually all consumer goods and services have risen by five to seven times. Price controls have already been lifted from a wide range of goods, and further broad price liberalisation is to follow next year. In one of the heaviest blows to the population, housing rents have begun a steep increase.

The compensation available to the population is sadly inadequate. Pensions have been doubled to US$10-12 per month, while the maximum wage increase that enterprises can pay without incurring punitive taxes is 60%.

After the price rises, the next round of "reforms" will include a sweeping campaign of privatisation. So far only about 10% of enterprises in Ukraine have been sold off. But under a plan now close to completion, all of the country's 70,000 to 90,000 small enterprises are to be disposed of by the end of 1995. Using a variation on the Russian government's voucher scheme, privatisation of an estimated 10,000 large enterprises is to be completed within three years.

Kuchma evidently hopes to avoid some of Russian President Boris Yeltsin's most catastrophic errors. For example, price controls will still apply to monopoly producers. Nevertheless, the Ukrainian government will be pursuing policies similar to those of Yeltsin, in an even less auspicious setting.

Formerly one of the most heavily industrialised areas of the Soviet Union, Ukraine also possesses a relatively developed and productive agriculture. But unlike various countries of Eastern Europe, Ukraine is not so small that the quantities of foreign aid and investment likely to flow into it can revive its economy to a marked extent.

Meanwhile, as many as 80% of Ukrainian industrial enterprises are critically dependent on suppliers or customers in other former Soviet republics. When these ties are broken, or placed on a hard-currency basis, giant industrial plants can be left operating at a fraction of capacity. In addition, Ukraine suffers from a heavy energy deficit, and is forced to pay large sums in hard currency for oil and natural gas.

These and other specific problems helped ensure that Ukraine's political evolution following independence in 1991 would be markedly different from that of Russia. In Ukraine, as in other parts of the former USSR, enterprise managers were able to exercise many of the powers of capitalist owners after state planning broke down in 1990 and 1991. But in the comparatively unpromising circumstances of Ukraine, these proto-capitalists were much less ready to sever the ties of state ownership and support.

As a result, the privatisation effort remained half-hearted. The "corps of directors" of state-owned enterprises remained much more cohesive than its Russian counterpart, and much more determined to defend its political base in the country's parliament. Ukraine's first president, Leonid Kravchuk, was never able to establish the same semi-dictatorial authority as Yeltsin.

Despite the political strength of the industrial managers, the eventual crash of the "nomenklatura-state capitalism" that arose in Ukraine at the beginning of the 1990s has never been in doubt. Throughout the period since independence, Ukraine has suffered from huge budget deficits — currently around 20% of GDP — and often from hyperinflation. Industrial output has slumped, underemployment has become a mass phenomenon, and average wages have sunk to little more than $20 a month. As many as 30% of the work force are now partly or wholly employed in the semi-legal "shadow economy".

Quiet opposition

The sufferings of the mass of citizens ensured a strong showing for the left in parliamentary elections held during March and April. The Communist and Socialist parties now command about 120 seats in the 450-member assembly, and form the core of a considerably larger bloc of sympathetic deputies. In presidential elections in July, Kuchma was able to oust Kravchuk partly by hinting that he intended to keep large industry in state hands, and that he favoured a degree of state planning.

Once Kuchma gained the presidency, however, his genuflections to the left came to an end. Holding discussions with International Monetary Fund representatives and taking on former Yeltsin consultant Anders Aslund as a key adviser, Kuchma made clear his adherence to the theories of radical monetarist "shock therapy".

At the same time, he began a campaign to concentrate authority in the presidency and limit the influence of the parliament. There could be no compromise with the legislature, he insisted, on radical reforms, and a clear hierarchy of executive power. If the parliament stood in his way, he would start ruling by decree.

The deputies found themselves in a quandary. Even if many of them were alarmed by the course Kuchma was taking, they had no alternative program or perspectives, and no stomach for a real fight. The parliament fell into line behind the president with almost indecent ease and haste. On October 19 the deputies voted by 231 to 54 to accept the "main points" of Kuchma's program.

For many industrial potentates who doubled as deputies, the switch to embracing privatisation and other monetarist passions was painless, and not really unexpected. But many workers and leftists were appalled by the readiness of communists and socialists to allow "shock therapy" to go ahead.

Parliamentary speaker and Socialist Party leader Oleksandr Moroz, once a fierce critic of Yeltsin-style strategies, described the adoption of Kuchma's program as "a major step forward", and pleaded with the population to bear with the hardships. Moscow News reported on November 4: "The bloc of communists, socialists and agrarians, which initially seemed powerful, now simply serves as the quiet opposition".

As a result, Ukraine is now in the spasms of monetarist shock. In addition to administering a stern dose of fiscal discipline —subsidies to industry are being drastically reduced — Kuchma has opted decisively for an "open economy", substantially unshielded from world economic forces. The list of commodities requiring export licences is being reduced from 50 to four: grain, coal, scrap metal and pig iron. The people and the blast furnaces will still be fed, but apart from that, Ukraine will be an open economic expanse across which corporate marauders can range at will.

Ruin of manufacturing

The results are fairly predictable. Now that almost all raw materials and all semi-finished products can be exported freely, domestic prices for them will rise to world levels. This will mean ruin for large sections of manufacturing industry, including many enterprises which until now have been more or less solvent.

According to neo-liberal dogma, the purging of enterprises that are uncompetitive in world market terms will create a Ukrainian economy which, if considerably smaller, is nevertheless stable and capable of paying its way. Foreign investors, the argument goes, will then flock in to take advantage of new opportunities.

But will they? What sort of stability can exist in a country where workers lucky enough to have jobs are earning a dollar a day, and millions of others are starving on a dole of $4 a month? What attractions can Ukraine have for foreign investors who have the choice of putting their money into countries of the long-time Third World where the commercial structures of capitalism are well established? If Russia with its energy surplus and far larger local market cannot attract large-scale foreign investment, what hope is there for Ukraine?

Only a fool would argue that the old command-administer economy, or the nomenklatura-state capitalism that succeeded it, did not need to be reformed. But the "reforms" chosen by Kuchma are the wrong ones. It cannot possibly be true that the best course for the mass of the Ukrainian population consists of wiping out most of their country's advanced manufacturing industries, in order to try to compete in chronically saturated world markets for such relatively low-technology goods as steel rails and caustic soda.

The possibilities of real reforms, which would make things better instead of worse, are obviously limited by the mayhem wrought by Ukrainian rulers during the past three years — including Kuchma himself during an extended period as prime minister. But proponents of real reforms could still do worse than to consider the model implemented in China after 1978. In China, an extremely dynamic mixed economy was created by grafting private and cooperative small and medium businesses onto a core of centrally planned, state-owned heavy and large-scale industries.

With its insistence on keeping the bulk of the means of production out of private hands, the Chinese model had its origins in a relationship of class forces quite different from that in Ukraine today. The key to successful reform lies in establishing the political hegemony of workers over property speculators, pyramid scheme operators, nomenklatura asset-strippers and mafia gunmen. In this area, unfortunately, the Ukrainian working class still has some way to go.

In Ukraine there is an abundance of popular discontent, and a certain degree of labour militancy. In announcing his program, Kuchma appealed for a six-month moratorium on strikes, but workers are most unlikely to grant it to him.

Early in November some 4000 iron ore miners in central Ukraine struck for more than a week in support of pay claims. On November 10 representatives of nine trade unions, including several hundred angry teachers, picketed government headquarters in Kiev demanding that the authorities guarantee social welfare and pay wage arrears. Leader of the Kiev trade unions Nikolai Veres was quoted as saying that if the government failed to hold constructive talks, the Federation of Trade Unions of Ukraine was ready to call a national protest action.

The most ominous development for the government came when a conference of miners decided, after hours of heated debate, to push for a general mine strike from November 21 unless debts were paid and the minimum wage was increased. The action, however, did not go ahead.

The opposition to Kuchma's strategies lacks organisational focus and a programmatic expression. Successful popular resistance to Kuchma's ruinous course is not excluded. But with opposition actions so far only scattered, the prospects for working people in Ukraine are grim.

If you like our work, become a supporter

Green Left is a vital social-change project and aims to make all content available online, without paywalls. With no corporate sponsors or advertising, we rely on support and donations from readers like you.

For just $5 per month get the Green Left digital edition in your inbox each week. For $10 per month get the above and the print edition delivered to your door. You can also add a donation to your support by choosing the solidarity option of $20 per month.

Freecall now on 1800 634 206 or follow the support link below to make a secure supporter payment or donation online.