Can Ukraine escape the post-communist trap?

Photo: fb.com/pg/NeinteresniyKiev 

Op-ed

Article by: Thomas Barrett

The last six months in Ukraine have generated a level of optimism not seen since the 2014 Maidan revolution. The country is about to enter a parliamentary election with a new President who is a fresh face in Ukrainian politics yet has been satirizing the country’s chronic corruption throughout his career. His electoral success seems to have breached Ukraine’s strong West-East divide, winning over bastions of Ukrainian nationalism and predominantly Russian-speaking regions alike.

Yet many Ukrainians are justifiably wary of optimism. The Maidan revolution was followed by war, annexation and severe economic collapse. Meanwhile, the 2014 parliament and Petro Poroshenko’s government are widely perceived to have returned to old corrupt practices despite the inclusion of civil society activists and reformers. Unlike neighboring Russia and Belarus, Ukraine has seen multiple handovers of power since its independence in 1991. Yet none have had any success in reforming Ukraine’s stagnant system. How can Ukraine prevent history from repeating itself and break free of endemic corruption?

It is important to understand that Ukraine’s oligarchic system is substantially different from “elites” which are often discussed in the West. The root of this lies in Ukraine’s communist legacy. It is often assumed that the mistake of post-Soviet countries was to crash from communism to neoliberal capitalism on steroids, with a society ruled by wealthy oligarchs. This is a misrepresentation. In fact, Ukraine remains in a limbo between communism and capitalism, with devastating consequences.

The defining feature of Soviet economics was the monopoly of the state. For each industry, there was perhaps only one factory in each region, and they did not compete with each other, but simply competed to meet state production quotas. Profitability was subordinate to productivity, and many factories received large subsidies from the Soviet budget.

What happens when suddenly, a decision is made that all these industries should be converted to private enterprises? An economics student would hope that the new owners of factories will be forced to compete with new market entrants. But this never happened. Communist officials (mainly managers and those connected to Soviet financial organs) were best placed to acquire these assets through insider deals and often outright criminality. This occurred to varying degrees in all post-communist countries initially. However, in the case of successful reformers such as Poland and the Czech Republic, privatization was quickly followed by measures to enforce competitiveness. State subsidies were cut and prices were liberalized rapidly.

This never happened in Ukraine. The initial winners of liberalization had no interest in following privatization with competition. The communist system of monopolistic businesses remained, but instead of being owned by the state, they were controlled by individuals.

It is, therefore, no surprise that Ukraine’s first two Presidents, Kravchuk and Kuchma, were both leading members of the Ukrainian Soviet Socialist Republic. Even today, many industries in Ukraine are dominated by monopolies, enforced through control of the political system and the suppression of competitors. Substantial sectors of the economy which remain wholly or partly nationalized, such as the railway monopoly (Ukrzaliznytsia) and the state oil and gas company (Naftogaz), are also treated as fiefdoms by government allies. This was partly facilitated by the ambivalence of the Ukrainian people towards the collapse of communism. In much of central Europe and the Baltic, national independence movements had been growing for years, and in the first post-communist elections voters elected politicians promising a return to the liberal democracy represented by the West. Ukrainians were far more conflicted, with early elections involving a chaotic swirl of communist, nationalist, agrarian and liberal parties.

Bleak, run-down Soviet architecture in all Ukrainian cities is emblematic of the Communist past of the country. This photo was taken in Kyiv. Source: fb.com/pg/NeinteresniyKiev

This paints a bleak picture of Ukraine’s prospects for change. Yet in comparison to Russia, which possesses a similar economic system, there is a key difference which might give a ray of hope to Ukraine.

Since independence, Russia has never had a democratic handover of power (Putin was appointed President by Boris Yeltsin). Under Putin, the monopolistic oligarchs we have described were forced into line through arrest and exile. The electoral system in Russia is simply a tool of Putin’s to gain legitimacy while never fighting truly competitive elections. In Ukraine, however, no oligarchic faction has ever emerged victorious, and elections are a major site of contestation. Viktor Yanukovych seemed on the way to consolidating his power before being overthrown in 2014.

Hence Ukraine’s democratic institutions are not a sham as in Russia, Belarus and most of Central Asia, but places where powerful interest groups compete for dominance.

The Ukrainian parliament has always been highly fragmented, meaning that governing coalitions have no choice but to ally with oligarch-controlled parties to pass legislation, in return for lavish privileges. Ukraine’s semi-presidential system does not grant much formal power to the executive. Although Presidents can effectively plunder the budget to reward allies and support their campaigns, they have seldom been effective at securing their reelection of building a parliamentary majority.

Presidents and Prime Ministers have always been forced to rely on alliances with oligarchs since they dominate the media and possess the finances to fight electoral campaigns. Even if President Poroshenko and his coalition with the People’s Front had been genuinely committed to reforming the system (which many doubt), they nevertheless lacked the resources to refrain from collaboration with oligarchs. The result – an astounding lack of prosecutions for corruption and a poor record for reform implementation. Most successful reforms were implemented half-heartedly at the behest of moneylenders and the EU. Ukraine remains in limbo.

So how can the cycle be broken? The first hurdle will be the snap parliamentary elections on the 21st of July. The two new reform-oriented parties, Zelenskyy’s “Servant of the People” (Sluha Narodu) and Svyatoslav Vakarchuk’s “Voice” (Holos) need to fill their party lists with respected and committed civil society activists and reformist politicians, and avoid the previous practice of selling off places on the list to gain funding. Even a parliamentary majority will not be enough to implement reforms if their own parliamentarians will demand concessions for voting. The parties also need to be clear from the get-go which reforms they are committed to and avoid vague rhetoric.

Zelenskyy managed to win an election with few concrete policy proposals, but this cannot go on for long. Both parties must make clear decisions on key areas for reform such as the judiciary, energy and public prosecutor’s office. Only by announcing their steps openly and transparently can they mobilize civil society to help them break the resistance of corrupt bureaucrats. They must also work in close cooperation with civil society and NGOs, and listen to journalists who expose corruption and criminality.

If these new parties are to make any impact they must act radically and decisively. They must order the ruthless prosecution of oligarchs and the confiscation of corrupt assets, and send a clear message that the only hope oligarchs will have of survival is conforming to the rule of law. They must refrain from the temptation of using control of appointments and the budget to reward themselves and cement their rule. Zelenskyy, in particular, must prove to his skeptics that he is not simply a puppet of oligarch Ihor Kolomoisky and will not exempt him from any anti-corruption drive. They must complete the faulty transition of the economy towards genuine competitiveness and the breakup of monopolies.

This last point will be especially tough. Ending subsidies to the rampantly corrupt energy sector will lead to unpopular price rises in the long term, hence the need to win voters’ trust that this is in their interest. This article does not intend to provide a list of the reforms which Ukraine needs to implement. Its point is to show that Ukraine doesn’t just need a list of reforms, but a government which is genuinely interested in pursuing them and creating the trust necessary for radical change. Only then can these parties avoid Ukraine’s historically high electoral volatility and stay in power long enough to see their ideas through.

Yet ultimately, success or failure will be decided by Ukraine’s people. Even if a government is elected that is genuinely committed to reform and has the will to fight oligarchic interests, it will fail if it cannot form a large enough coalition in the parliament. Every seat short of a majority will require buying the support of oligarch-dominated parties, and the price will be the usual one: immunity, money, and exemptions. The major oligarch-owned TV stations are already mobilizing to secure such a result, and campaign financing and dirty promises are undoubtedly already flowing. The Ukrainian people must choose wisely in this election and put aside the perennial problem of identity politics to elect a strong coalition. Perhaps President Zelenskyy’s election can give us hope that Ukrainians can put aside cultural and linguistic differences in the pursuit of a better future.

Russia supported separatists in Donbas because the regime fears the consequences of post-Soviet states choosing a liberal democratic path and succeeding. It did the same in Georgia in 2008 while the country was leading a remarkably successful fight against corruption after the Rose Revolution. Russia wants to convince its people that the overthrow of the corrupt post-Soviet system will only lead to further suffering. It is time for the Ukrainian people to prove Putin wrong.

Thomas Barrett is a master’s student of Eastern European Studies at the Free University of Berlin and a graduate of the History Faculty of the University of Oxford. His research focus is on the political economy of Ukraine and Georgia. He has taken part in numerous research projects in Ukraine and was a committee member of the Oxford University Ukrainian Society.

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