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19 July, 2018  ▪  Maksym Vikhrov

In search of the national bourgeoisie

Can the middle class drive Ukraine's independence and development?

According to the classical concept, the national bourgeoisie is the driving force behind the formation of nation states. It was the force that destroyed monarchies and empires, bringing national states onto the arena of history and laying the foundations for democracy and market economies. In Ukraine, searches for a national bourgeoisie have been continuing since the first days of independence, but no particular success has yet been achieved. The oligarchy, which quickly flourished in the post-Soviet disorder, did not even demonstrate united support for the state in 2014, but openly sabotages the establishment of democracy and the institutional modernisation of Ukraine under the European model. Therefore, expectations were predictably extrapolated onto the middle class: entrepreneurs, highly skilled specialists, well-paid representatives of creative professions and others like them. These people, in all respects, should become the aforementioned national bourgeoisie, and they are driven in this direction not by mythical kulak archetypes or some other mystical forces, but direct economic interests.

 

Firstly, the middle class is the most interested in preserving sovereignty. The experience of the Crimea shows that the arrival of the occupation administration turned out to be the least painful for hired labourers and those who live at the expense of the state budget (pensioners, those on benefits, etc.). But occupation brought the middle class, besides new rules for doing business and restrictions brought by sanctions and Crimea's unrecognised status, a brutal redistribution of property in favour of the peninsula's new masters. In addition, the political capital of Crimean businesses was wiped out. Previously, it had significant influence on the government of the autonomous republic and Kyiv, as a rule, did not intervene in the peninsula, but now there is no chance at all for Crimean entrepreneurs to influence the occupation administration (not to mention Moscow). It is also well known what happened to businesses in the occupied parts of the Donetsk and Luhansk Regions.

 

Secondly, the middle class is naturally interested in the development of democracy and the formation of a market economy. Unlike oligarchs, who are able to manipulate even authoritarian rulers, the middle class is a natural enemy of authoritarianism, since, as Viktor Yanukovych showed, "strong arm" leadership starts with the usurpation of power and ends with the redistribution of property in favour of the group in power. Therefore, it is desirable that the functions of the state be reduced to the role of a "watchdog" that provides protection against external threats and ensures compliance with the rules within the country. Theory aside, this is confirmed by the social makeup of EuroMaidan participants. Indeed, according to a survey by the Democratic Initiatives Foundation conducted in early December 2013, 70% of the protesters were representatives of the middle class (39.5% – professionals with specialised education, 13.2% – students (future professionals), 9.3% – entrepreneurs, 8% – company managers).

 

Thirdly, the middle class is often called the most reliable advocate of reforms and the most consistent supporter of Ukraine's European integration. This seems to be self-evident, since it is the middle class that reaps the greatest benefits from integration into the global economy and also has the largest economic reserves in order to survive the difficulties of a transitional period with the smallest losses possible. All these considerations are quite reasonable, but the real situation is not so clear. The middle class is hindered from becoming a powerhouse of national development by not only its small size, but also the heterogeneity of its interests prompted by historical circumstances.

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Determining the size of the middle class in Ukraine is one of the most difficult issues, since various calculation methods give very different results, which in turn often form the basis for political manipulations. For example, in the 2014 Razumkov Centre report The Middle Class in Ukraine: Perceptions and Reality, membership in the middle class was determined predominantly by subjective criteria: according to staunch self-identification, self-assessment of financial status (anything above "I have enough"), the level of education (no lower than vocational school or college), a sense of having common interests with the middle class and the dominance of its representatives in one's immediate surroundings. As a result, the researchers included 14% of respondents in the middle class and another 35% in its periphery.

 

However, calculations according to an objective criterion – income – give a much more modest result. According to Credit Suisse's methodology, population incomes are matched against wealth levels that are set separately for each macro-region. For example, in the US, the financial threshold for belonging to the middle class begins at an annual income of $50,000, in China $28,000 and $25,000 in Poland. For Ukraine, this figure is $11,250 a year, i.e. upwards of 23,400 hryvnias a month. Accordingly, Credit Suisse estimated that only 297,000 people, or 0.8% of the adult population of the country, were part of the Ukrainian middle class in 2015. This social group disposed of 16.9% of the country's economic resources. By comparison, 19.3% of the population of Poland belonged to its middle class in 2015, disposing of 43.4% of the national wealth. On average, the size of the middle class in European countries was 33.1%, controlling 40.6% of economic resources. Based on this data, it is obvious that the Ukrainian middle class is still in its infancy. Even if we take into account the more optimistic calculations, the Ukrainian middle class is still too weak to become the driving force behind the country's development.

 

In addition, the middle class is not a homogeneous community with unidirectional interests. First of all, the split in the ranks of the middle class is due to the fact that a large part of it owes its status to non-legal economic practices, i.e. the shadow economy. The magnitude of this phenomenon is quite significant: according to the Ministry of Economic Development, in 2017 the shadow economy amounted to 31% of official GDP. This is 4% less than in the previous year, but it is too early to talk about overcoming this phenomenon. In different years since independence, according to the IMF estimates, Ukraine's illegal economy has fluctuated between 36.65% and 57%, but it never went away. In addition, the current statistics are improved by the fact that they do not cover the Crimea and occupied Donbas with their developed illegal industries in tourism, coal mining and smuggling. It is not known for sure what share of the Ukrainian middle class is linked to the shadow economy. For some Ukrainian businesses, going "off-the-books" is a forced refuge that makes it possible to "sit out" unfavourable economic periods, but for the rest it is the optimal operating environment, the disadvantages of which are offset by the profits due to non-payment of taxes, labour exploitation, etc. Therefore, the latter are keenly interested in Ukraine preserving all the pathological elements of the post-Soviet system, including corruption, the incapacity of state institutions and the lack of many market mechanisms.

 

In this sense, inveterate "black marketeers" are a no less anti-European and anti-reform force than businesses that are directly oriented towards Russia or even oligarchs. The reasons are again purely economic, since in a transparent market economy with effective rule of law, they will lose not only their competitive advantages, but also their livelihoods. It is not just about corrupt loopholes and ways to evade taxes, but also about the huge illegal labour market, which both small and medium-sized businesses make active use of. According to the State Statistics Service, it was made up of about 23% of the total economically active population in 2017 – about 4 million workers. The introduction of European quality standards is also contrary to the interests of many Ukrainian producers. While large companies can afford in-depth modernisation of their production facilities, this burden will be unbearable for SMEs. Market reforms are not roundly accepted by Ukrainian businesses either. For example, a land market could decimate the small farmers who lease land shares at low prices and then sell their crops on illegal grain markets. There are many such examples, but the result is the same: a certain section of the Ukrainian middle class was formed in the ecosystem of post-Soviet Ukraine and is interested in preserving it.

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The part of the middle class made up of hired workers (skilled specialists, people in intellectual and creative professions, etc.) occupies a position that is not entirely clear. Of course, they are interested in bringing the labour market out of the shadows and are usually notable for their support of democracy and reform. But Ukraine's exit from the political and economic CIS ghetto will not be painless for them either. A positive example is Ukrainian IT professionals, who compete successfully on the world market and brought $3.6 billion into the budget in 2017 alone. According to website DOU, salaries in this field range from $450 to $4,700 depending on the exact specialisation. But not everyone can boast such competitiveness. The reasons are purely objective, because our higher education is desperately uncompetitive: in the QS World University Rankings 2019, Ukrainian higher education establishments did not even make it into the top 400 (the V. N. Karazin Kharkiv National University took an "honourable" 481st place). Combined with chronic underfunding and certain institutional disadvantages, this puts Ukrainian specialists in a very vulnerable position and causes a corresponding reaction. A recent example is the opposition of a number of scientists to new requirements from the Ministry of Education, according to which research findings should be confirmed by articles in publications included in the international Scopus or Web of Science Core Collection databases. Introducing this requirement will greatly complicate the life of the scientific community, in particular because a large part of it is not capable of producing materials that meet international standards.

 

Moreover, all of this does not even take into account the ideological pro-Russian (anti-Ukrainian, anti-European, etc.) circles that are rather well represented in the professional and entrepreneurial community. As sociological studies show, voters of pro-Russian, Eurosceptic and anti-reform forces are not lacking among the educated and more or less well off. Therefore, hopes that Ukraine will be saved and at the same time reformed by the efforts of the middle class alone are not entirely justified. Like all other strata of Ukrainian society, the middle class is heterogeneous both ideologically and in terms of its socio-economic interests. It is tempting to see the middle class as a collective Moses and this vision is actively bandied about by populist politicians who flirt with the existing "middlemen" and promise to raise the poor to this status. However, in practice, a reformist government will have to look for support at various levels of Ukrainian society, while the country's political leadership must look for a way to bring their diverse interests together under the common denominator of Ukrainian national statehood. In any case, the economic and socio-cultural decolonisation of Ukraine and its integration into the Euro-Atlantic world will only come through reforms, many of which are doomed to be unpopular due to objective historical circumstances.

Translated by Jonathan Reilly

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