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26 September, 2019  ▪  Oleksandr Kramar

Stop the vicious cycle

As long as the oligarchic-proletarian model remains in place, Ukraine will not be able to develop successfully

The notion that the level of a country’s standard of living has a nearly direct relationship to its level of democracy: The more democratic, the better chance for its citizens to be well off. The belief that a hungry society has no time for democracy is also a popular belief. In Ukraine, people often espouse these ideas to pacify themselves: Until we become richer, what’s the point of democratic institutions? However, the connection between the level of wealth and democracy or autocracy is not really that direct, after all. There are plenty of examples in the world of both authoritarian countries whose economies are quite successful, as well as democratic states with an extremely low level of development.

The interrelationship is lies somewhere else. The standard of living in a country directly depends on the connection between key socio-economic priorities: encouraging entrepreneurship and economic engagement among ordinary citizens versus the symbiotic domination of an oligarchic elite and a proletarian mass keen to appropriate what national wealth there is. The former is often evident even in authoritarian environments, while the later can be found even in a nominally representative democracy.

Both oligarchs and the lumpenized classes are, by their very nature, antagonistic to private initiatives, competition and the other conditions for widespread prosperity in a given society.  For the oligarchs, it’s because this complicates their economic and political dominion – or even makes it impossible. For the lumpenized, it’s because this goes against their demand for “equality in poverty” – if not of their entire society, then at least the vast majority of the fellow-citizens they see around them in their daily lives. For the lumpen mentality, successful members of society are a far greater irritant than the few members of the privileged classes that keep apart from the rest of the population.

The degeneration of representative democracy that can be seen against a background of flourishing populism and a growing indifference to politics in general confirms, yet again, that Ukraine suffers from just such an oligarchic-proletarian model of society. A new generation of politicians is effectively exploiting the inclination to populism among a broad swath of people who are uninterested the real intentions of any politician or their readiness to carry out what they promised.

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Meanwhile, their very envy of the wealth of others in contrast to what they perceive their own poverty that is deliberately being turned into one of the main factors for dissatisfaction. Overcoming social inequality, rather than an overall rise in the standard of living thanks to an expanding economy and “national pie,” is being offered as a panacea to poverty in Ukraine. This not just fails to provide the foundation for some kind of social justice – a socialist utopia of material equality – but it actually makes it impossible to establish social justice by offering equal opportunities to realize the varied potential of every individual and of the society as a whole.

Soviet genes?

The model of society that has a tiny layer of oligarchs at the very top, super-wealthy individuals who monopolize influence over the distribution of resources and crush any form of opposition, while at the bottom is a vast layer of the poor that are dependent on the oligarchs and are happy with any scraps handed down by them, is not a Ukrainian invention. However, Ukraine had fertile ground for this model to develop, prepared by three generations under communism. For seven decades, the majority of the people were cut down and any sense of ownership and of entrepreneurial initiative were leached out of them, at the same time as a privileged caste of “nomenklatura” formed at the top. As the 1990s saw only imitation reforms, rather than real ones, the oligarchic-proletarian model was constantly being shaped and renewed, despite the two revolutions of 2004 and 2013-14 that were so closely associated with the middle class and civil society.

To this day, commercial success depends, not less on effectiveness than on proximity to the national or local political elite, while getting in to power at all levels depends on the ability to manipulate the lumpen mass of voters. Oligarchs are interested in maintaining a low cost of labor and in getting rents in raw materials and other monopolized sectors, their goal being to acquire all the available national wealth for minimal labor costs. What’s more, their business empires typically do not enjoy the advantages that private business normally has over state-run ones: the desire to improve and develop its own assets with a focus on the future.

For instance, a slew of countries really did place their bets on supporting so-called national champions – major corporations or financial industrial groups (FIGs) in sectors where they had objective competitive advantages or very strong market positions. They were supported by the state, often even had direct tax breaks, and their interests were lobbied at the political level. On the other hand they had to align their own strategies with interests of their country of origin. This last aspect is fundamentally different in the model of interaction between a country and its economic champions compared to the oligarchic model of economic parasitism on the country of origin. 

The succubus of oligarchy

Having sucked out all the juices out of what were the basic sectors of Ukraine’s economy until not long ago, the oligarchs have been actively looking for new “victims” that they can capture in their characteristic proprietary model of business. This could very soon become those sectors where SMEs dominated because of their smaller scales and profitability: light industry, wood processing, furniture making, food processing, and non-oligarchic agribusiness. Other sectors that so far have remained community or state-owned, such as healthcare, residential services, some areas of power generation and gas extraction, and the military-industrial complex (MIC), are now also in the risk zone. If the oligarchy manages to swallow these sectors as well, destroying the remnants of competitiveness and the seedlings of non-oligarchic national business, the country is likely to lose what is possibly the last chance for non-oligarchic development, together with what remains of its economic competitiveness.

Interestingly, the current oligarchic-proletarian system is adaptable enough to imitate reforms under pressure. But the various superficial and fragmentary transformations are not properly instituted, they are not designed to be systemic, and so they aren’t leading to the desired positive impact. Election campaigns end up being an expensive competition, not of ideas and platforms for improving society, but of representatives of different business groups vying for the right to run the country on behalf of their own interests. The inevitable “punishment” of the latest political projects and their replacement by similarly “new” ones are, in the end, just more lost time for the country. From the very start, the creators and sponsors of these parties are prepared for their ephimerality, have their Plan Bs, and are mainly concerned with ensuring that they get back a return on their “investment” during that brief time. 

What this costs society is not just economic stagnation as a result of the objective reluctance of monopolists to improve the efficiency of their companies and the inability of society itself to really influence those in power. After all, it doesn’t provide the socio-economic conditions necessary for a competitive democracy, such as a competitive business environment. Those who want to get out of the oligarchic-proletarian system are forced to either adapt themselves to the dominant model of relations or to more actively look for opportunities to realize their ambitions outside the country. A demonstrative comment on this came from an emigrant forum: “Better to show your child that its parents want to achieve something, that work should be valued and offer a decent wage, than to stay here! Surviving on subsidies and raise a child in misery with a slave mentality is the easiest way out.”

Over the last few decades, state policy was largely aimed at restricting competition and getting access to economic resources on behalf of the oligarchy, even though it seemed to have different objectives. What was called a “social state,” was primarily a fund for the ruling oligarchs to buy the necessary number of lumpen voters to ensure that their governing was legitimized through the formal appearance of a representative democracy. This downward spiral into which the country keeps falling ever more deeply through a poisonous mix of oligarchic lobbying and populism must be stopped.

A modest proposal

The current symbiotic model needs to be broken. Given where Ukraine is today, this can only be done through the instruments of government. Since the state itself and those in power are only instruments, it’s important that they be in the hands of people determined to see change through. More than this, both systemic and profound transformations in any country historically happened when there was a social basis for them to be accepted. Where they were able to mature properly, they were supported by an evolutionary process, but where there was strong resistance from the old system, a revolutionary process was inevitable. Even here, it’s important to recognize that Ukraine’s deeply paternalistic society cannot change on its own within the timeframes acceptable for the country’s survival. It needs a leader who will force things and teach people to survive in a capitalist environment without expecting freebies and social handouts from the state.

Ukraine’s relatively young and small middle class, which has taken shape between the lumpen masses and the oligarchic elite, has often been drawn into supporting political projects that had little bearing on its real interests and has generally been relegated to a secondary role. Meanwhile, all previous attempts to organize the middle class or elements of it and even to formulate its position in Ukraine were rife with infantile notions. Typically, it limited itself to protests against one action or another by those in power or demands to get or maintain certain privileges. It never demonstrated any particular desire to establish an independent game and to change the rules, rather than simply rotate those who established them based on the old patterns.

This middle class was shaped largely in opposition to the unfamiliar oligarchic-bureaucratic state as a mechanism for governing, based on its desire to minimize interactions with such a system. Still, its prospects and the necessary internal changes depend directly on its capacity to finally grow up and shift from resisting the state and sporadically protesting the most unacceptable actions of the government and the oligarchy linked to it, to a more mature, responsible approach that will make it possible to carry out healthy policies benefiting all of society. Operating on such principles as “avoiding paying taxes, no matter what, because they are being spent God knows how by others,” “not getting involved in politics because it’s a dirty mess,” and “treating the corrupt bureaucracy as the enemy and minimizing budget outlays for it” is futile.

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Under the current circumstances, the only way out for the middle and entrepreneurial classes in Ukraine is to take the initiative and responsibility to finally move from simply rejecting the “foreign” state to subordinating it and transforming it into a tool for carrying out the policies that make sense to them. The priority should be on measures aimed at demonopolizing the economy as quickly as possible. First, an end needs to be put to sectors whose access is restricted to the select few, who will no longer be able to corner corrupt or natural rents which hampers the country’s economic growth. Secondly, natural monopolies that can’t be broken up for objective reasons should be exclusively in the state’s hands. Income from natural resources should thus go to the state and be used in the interests of the entire society.

The alternative to the destructive oligarchic-proletarian model that has been operating for more than two decades now needs to be a model that allows the broadest swath of Ukrainians to put their energy into the country’s overall wealth through an expanding “national pie.” This means stopping the practice of the old method of simply redistributing this wealth. That share of Ukrainians for whom the opportunity to show entrepreneurial initiative was very important remains unusually large. The NAS Institute of Sociology’s long-term survey showed that it was more than 63% in 2016 compared to 46% in 2006, a decade earlier.  Still, this potential cannot be taken advantage of as long as the system is based on an oligarchic-proletarian model that involves the unfair and economically inefficient distribution of the nation’s wealth.


Translated by Lidia Wolanskyj

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