Ukraine 2. A political earthquake for Europe and Russia

By AM Saturday, March 8, 2014

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Gabriel Levy with the second part of an interview he had composed on the situation in Ukraine. It initially featured in People and Nature in February 2014. Part 1 also appeared on TPQ. 

Q: Where did the impetus for Yanukovich’s removal come from? And what else was the Maidan movement demanding, exactly?

GL: Yanukovich was always a corrupt bully. Even so, it was remarkable to see how, over the last couple of months, his awful capacity for cruelty helped to tie together the political threads that led to his removal. Each police attempt to clear Maidan brought thousands of extra people into the square, and intensified the level of resistance, and violence, by demonstrators: on 11 December (when a police attempt to clear the square sparked a counterattack), on 19 January (when Yanukovich’s anti-protest laws reignited Maidan), and again on 18 February.


In Maidan’s politics, democracy – the right to demonstrate without fear of brutal police assault, the right to free speech, and so on – was important. Beyond this, the target perhaps most often identified by protesters was “corruption”. It’s worth thinking about its meaning in post-Soviet states. When their economies began to be merged with world capitalist markets, after the Soviet system collapsed in 1990-91, the transition was far from smooth or comprehensive. Some of them – Ukraine’s neighbour Belarus is the obvious example – have retained many Soviet economic methods (state ownership of most industry; state direction of investment; heavy regulation of markets, prices, cross-border capital transfers, etc). In Ukraine and Russia, most of these methods are no longer used: most but not all industry has been privatised; many but not all prices have been deregulated.

But there are other Soviet-era survivals, particularly in the relationship between the state and the capitalist class. Who owns what, and how business is regulated, is often decided privately between politicians, capitalist owners and managers. Western capitalists who try to do business in Russia and Ukraine go crazy about this: they are used to relatively open competition. Apart from corruption in the strict sense of the word (e.g. bribes collected by state officials from firms, or individuals, in exchange for decisions made) there is also a mass of opaque relationships between state officials and businesses. These may or may not be law-abiding (the laws are often left deliberately complex, so that a transaction cost can be created e.g. for delivering court judgements one way or the other) – but they certainly don’t meet the “standards” for competition developed in American and European markets, especially during the age of neo-liberalism.

Ukrainian rage against “corruption”, as far as I can tell, is not only from working-class and middle-class families who have to bribe traffic cops, doctors, university admission boards, and the rest, but also from small, and even large, businesses who are shut out of this disposition of power and money by state officials and their favoured capitalists. It’s a cry for “normal” capitalism; capitalism that plays by “normal” rules and works “properly”. For upper- and middle-class Ukrainians, Europe is the place where these normal rules apply.

But Europe means something to working-class Ukrainians too. Before the 2008 crisis there were 3 million or more migrant Ukrainians working in the European Union, many illegally. Much of this migration was temporary; it probably dipped post-crisis, but picked up again.[1] These people are surely not influenced by lying promises from Brussels; they may not even have heard them. They just know that, even in precarious work, wages in Europe are much higher than at home. For many young Ukrainians, Europe’s comparatively tolerant culture and social liberalism surely strikes a welcome contrast to Russia’s increasingly stifling conservatism.

I have heard western leftists argue that Ukrainian workers need to beware of Europe because EU labour regulations compare poorly with the letter of Ukraine’s labour law. Maybe true, but surely irrelevant. Ukraine’s labour law is rarely enforced to workers’ advantage, because workers’ organisation is not widespread enough or strong enough to enforce it. Whether Ukraine ends up imposing legal frameworks from the Eurasian customs union (Russia-Belarus-Kazakhstan), or the EU, or neither, it will be the level of organisation that matters most. In the meantime, for young Ukrainian workers “Europe” means “higher wages”.

On Monday 24 February in Kyiv, completely by chance, I came across about 2000 medical students from one of Ukraine’s most prestigious universities on a spontaneous demo. They were demanding the dismissal of their rector, who had threatened to discipline students who joined the Maidan medical corps. Chatting to some of them, it seemed to me that they look at the world much as do their counterparts right across Europe (or in Russia for that matter). I was struck by how their transnational outlook contrasts with the nationalist symbols on Maidan – legacies of the process of national self determination that Ukraine didn’t complete in the 19th or 20th centuries, and that in the 21st seem like an echo of the past. Just impressions, but I’m sharing them. …

Q: Where does the workers’ movement fit into all this?

GL: Ukraine’s biggest concentration of industrial workers, mostly Russian speaking, is in the east. That’s where most of Ukraine’s iron ore, and steel (its no. 1 export), is produced; chemicals and machine-building are also significant. Eastern Ukraine, which sits on gigantic coal reserves, was developed as one of the Soviet Union’s biggest centres of heavy industry, and there are strong social, industrial and cultural legacies.

I don’t have sufficient information to say how workers in the east are reacting to events in Kyiv. Sections of the local elite are hostile to the new government (see below), but even this is not uniform. The west vs east dichotomy is an oversimplification. I have seen reports of pro-Maidan actions in the east, including big demonstrations in Kharkiv, and a blockade of the main Dnipropetrovsk-Kyiv railway on Thursday 20 February to stop a trainload of troops being moved to Kyiv.

I have not seen reports of the miners’, steel workers’ or factory workers’ reactions. But that may say more about the low level of collective activity in these industries than about their support or opposition to Maidan.

It would be stupid, though, to equate the Ukrainian working class with factory-based trade union organisation. For a start, with few exceptions, the workforce in eastern Ukraine is aging; young people don’t work in the factories, and, increasingly, don’t live in eastern Ukraine at all. (A recent UN report on the world’s cities showed that, in the top ten of fastest-shrinking cities, Dnipropetrovsk is no. 1, Donbass is no. 3 and Zaporizhzhya is no. 4. That’s partly low birth rates and high mortality, but also a great deal of migration.[2]) For another thing, other economic sectors – services including IT, food and consumer goods production, and so on – have expanded in post-Soviet times while heavy industry and mining has contracted. At a trade union activists’ conference in Kyiv in November, most reports at a session on rank-and-file organising were from these sectors.

There were myriad ways in which working people were involved in Maidan, but far fewer examples of collective participation. If the sort of popular mobilisation we have seen in recent months continues, it will surely be important for activists to find points through which the Maidan and the workers’ movement can strengthen each other.

Q: What might happen to workers’ social and economic conditions under the new government? And in which way is the Ukrainian economy developing?

GL: This is a big “x” factor, to my mind. Ukrainians’ living standards are low, but the state budget – via a comparatively decent pension system, public sector workers’ wages and a range of benefits and relatively cheap services – helped it to rise before the 2008-09 economic crisis, and has prevented it from going too much lower since then. So in 2002, according to the World Bank’s definition, 47% of Ukrainians were below the poverty line; that number fell to 12.3% in 2007 and has rebounded to about 16% in 2009-10.[3]

All this spending has aggravated the state’s serious financial problems. The political crisis of recent months has made things worse. Now there is too little foreign currency in the kitty (governments generally regard enough cash to buy three months’ worth of imports is the minimum; after spending a couple of billion trying to slow down the fall of the hryvna this month, Ukraine’s national bank has $17.8 billion left). Politicians have already come up with some eye-watering figures (e.g. $35 billion) of what they want to borrow; financial analysts are talking about $20 billion, which is still a fair bit. Whether Ukraine borrows from the USA and Poland and/or the EU, and/or the IMF, the lenders will demand huge cuts. Battles over public spending and other social issues are bound to break out, sooner or later.

Q: What about the Ukrainian economy? What is the longer-term background to the crisis?

GL: In the mid 1990s, Ukraine was thrown into a slump even deeper than Russia’s. Large swathes of Soviet-era industry closed, unable to compete in world markets. In the late 1990s and early 2000s, parts of the industrial base that could compete were bought up by oligarchs via privatisation, and consolidated into the business empires that dominate today. The largest is Rinat Akhmetov’s SKM group, which started with steel-making and machine-building plants, and has expanded into metals mining, the power sector and telecoms. Alongside these empires, a great deal of the transport and construction sectors, as well as municipal services, education, health and welfare, all remained in the state sector.

Successive governments in Ukraine have been politically weak, both in the face of oligarchical influence, and with respect to potential working-class discontent – even though labour unrest has not been really widespread since the mid 1990s. So, on one hand, the oligarchs dodge tax. On the other, the cost of public sector wages, plus pensions and other social benefits, is comparatively high per dollar of tax collected. (A World Bank report complained that “successive governments hiked public sector wages and pensions”, and that in 2009 public spending was 47% of GDP, including pensions (18%) and public sector wages (12%).[4])

So Ukraine’s state finances have been kept afloat with a wish and a prayer. Up to 2008, the international boom in commodity prices meant that exports of steel, ferrous metal alloys and chemical fertilisers – and, in some years, wheat and other agricultural produce – helped a great deal. There has been a good chunk of foreign currency in the bank and that has helped the Ukrainian hryvna to be reasonably stable.
After the 2008-09 crisis, Ukraine qualified for one of the biggest rescue packages. Both the IMF and the European banks, some of whom had invested heavily in Ukraine from the mid 2000s, were desperate to ensure that both the state finances and the banking system emerged unscathed. An IMF loan programme was arranged for Ukraine, with typical neo-liberal conditions attached: the public sector wage bill had to be cut; the pensions system had to be reformed; and gas, water and electricity tariffs must rise above cost-recovery levels. Both Timoshenko up to 2010 and Yanukovich since then have artfully avoided keeping the promises the government made to the IMF at that time.

A long-running side show features Russian gas imports. Ukraine’s Soviet-era industry and municipal infrastructure is heavily dependent on these; successive post-Soviet governments have spent far more time haggling with oligarchs over who will skim margins from the resale of gas than worrying about reducing Ukraine’s dependence on Russia for energy. For its part, Russia has sometimes offered price reductions in return for political concessions by Kyiv – although that often cuts across the aims of Gazprom, Russia’s big state-owned gas company, which (surprise surprise, there’s that “normal” capitalism again) sees selling gas as a way of making profit. In 2009, Gazprom sharply increased its prices (there were high oil and gas prices everywhere then) and Ukraine’s gas company has struggled to pay a gas bill that runs at $7-14 billion a year. It ended last year with a $3.3 billion back debt, of which it paid $1.6 billion last week.

The bottom line is that, with the Yanukovich meltdown, Ukraine’s state finances will be reorganised under the close attention of the international financial institutions. How much pain are they prepared to inflict on working people? Look at Greece.

Q: What about this tug-of-war between the western powers on one side and Russia on the other? Is the EU competing with Russia for economic hegemony over Ukraine?

GL: In some respects. Competition in the economic sense has been heightened by both sides’ broader political and strategic aims. The deal offered by Russian president Vladimir Putin, and accepted by Yanukovich as an alternative to the EU association agreement was incredibly costly to Russia: $15 billion in loans, lower gas prices and a bundle of measures to boost Ukrainian imports to Russia. (The loans were to have come directly from Russia’s “fund for national well-being”, and I doubt that struggling Russian families, who could probably use $15 billion worth of support themselves, were amused.)

As for the EU, after bringing in Bulgaria and Romania in 2007, and Croatia in 2013, politicians from the rich, dominant countries have drawn a line. Neither Turkey nor Ukraine – both large countries with big reserves of cheap labour, and heaps of political and cultural problems attached – will have any chance of joining the EU in the foreseeable future. (How many Tory MPs, under challenge from UKIP, would ever support that?!)

Ukrainian workers are well aware of this: access to EU labour markets via migration (whether legal or not) is not going to widen. For them, an EU “integration process” short of membership is pretty meaningless. For Ukrainian politicians, less so. Throughout the post-Soviet period, successive governments in Kyiv have proved adept at manoeuvring for concessions from Europe on one side, and Russia on the other, and playing one off against the other. The room for such manoeuvre was closed down by Putin’s “either/or” stance, and the resulting difficulty was one of the secondary causes of Yanukovich’s demise.

Q: Russian colonialism, to which Ukraine has historically been subjected, plays a real part here, doesn’t it?

GL: Of course. Ukraine was Russia’s oldest colony, and, just as northern Ireland is full of the descendants of (largely Scottish) protestant immigrants of the 19th century, so eastern Ukraine is full of Russian-speaking descendants of waves of immigrant workers who settled there during the industrialisation of the late 19th and early 20th centuries – in the first place, the industrial workers I mentioned above.

On the day Yanukovich disappeared (on Saturday 22 February), local politicians from Ukraine’s Russian-speaking regions gathered in Kharkiv. Claims were made that Maidan was anti-Russian; calls for regional autonomy and even separation were made. By Wednesday 26 February, in Crimea, which has long had political autonomy and where the proportion of Russian speakers is among the highest, pro- and anti-Maidan demonstrators clashed. Russian nationalist politicians made incendiary speeches.

Some gloomy Ukrainians point to Russian support for separatists in Abkhazia and South Ossetia, which helped to trigger the brief Russo-Georgian war of 2008. They say that, under Putin, Russia’s great-power ambitions have become so pronounced that Moscow will use any and every lever of control, even at great cost to itself. The Financial Times (Monday 24 February) suggested that Putin would “revert to type, plunging Russia’s neighbour into a bitter and destructive war”. I think this says more about its leader-writers’ two-dimensional view of the world than any serious assessment of what near-term possibilities.

I accept that, under capitalism, politics and ideology sometimes take over, and drive governments to do things that bring no economic advantage and in the short term do great harm. And for that reason, I would not rule out stronger Russian support for separatism in eastern Ukraine, or even, in extremis, civil war. But I don’t think these are the the most likely prospects right now.

There are huge risks for the Russian state. Not only would inciting conflict in Ukraine lead to a further deterioration of relations with the western powers, particularly Germany, but, above all, it could rebound in the form of social discontent in Russia. The many millions of Russians with family and friends in Ukraine would hardly take kindly to conflict that would be perceived as unnecessary. Moreover, however vaguely opposition to dictatorship and corruption has been articulated on Maidan, Putin has no way of knowing whether such demands might catch on in Russia itself.

Look at recent history. In 2004, the Ukrainian “Orange revolution”, triggered by Yanukovich’s victory in a falsified election, scared the hell out of Putin and co. They didn’t like the infatuation of Viktor Yushchenko, the “Orange” leader, with NATO. (Nor did the vast majority of Ukrainians, so NATO membership was surely never going to happen). But the Kremlin’s greatest fear, and rightly so, was that large-scale political discontent in Ukraine might help spark Russian social movements. In January 2005 came the largest wave of working-class protests during Putin’s first two terms (2000-08), sparked by attempts to cut and reorganise welfare benefits.

Fast forward to 2011, and the falsification of Russian election results sparked the biggest wave of protests Putin ever faced. I believe that has made Russian government wary of setting off chains of unpredictable consequences in Ukraine. And don’t forget that if Putin had wanted to raise the violent stakes in Ukraine, he had the perfect chance to do so last week, when Yanukovich (after all, the democratically elected president), was indeed threatened (after all, unconstitutionally and with violence) by Maidan. If any Russian support was offered behind the scenes, it was ineffective, as we all saw.

Surely nothing is more destructive of working-class solidarity and collective action than all kinds of nationalism, separatism and threats of civil war. But to gauge the real dangers correctly, we need to strip out the distortions and exaggerations by most mainstream media, and sections of the left too, who depict the relationships between Russia, Europe and the USA in geopolitical terms. This approach downplays the obvious fact that, since the break-up of the Soviet Union, Russia has been integrated into the world capitalist economy not as a great power or anything resembling one, but in an economically subordinate role – that of a supplier of oil, gas, metals and other raw materials to manufacturing economies elsewhere.
The share of oil and gas in Russia’s export earnings (now about 70%), its GDP (about a quarter), and its budget (about a third) tells a story of economic dependence on stronger nations. Throughout the Putin era (i.e. from 2000), all Russia’s efforts to revive its manufacturing sector, and start up high-tech industries, have met with little or no success. There just is no basis for Russia to develop as a 21st century great power. Whatever vicious military games Putin plays in the Caucasus, in central Asia Russia has been eclipsed by China as the main economic power, and is increasingly giving up ground politically.

Q: To conclude, what might all this mean for the left, and for labour and social movements, internationally?

GL: For working people – in the widest sense that I’ve suggested above, embracing the industrial workers of eastern Ukraine but also the working and middle classes of Kyiv who have been on the square, the students, and Ukrainian migrants working in the EU – this is powerful confirmation of the strength of collective action. The leaders sought a compromise with the old regime; the crowd said no; and so Yanukovich was destroyed.

Collective action isn’t a panacea on its own. It doesn’t follow the logic we socialists might think it should. It has ugly aspects, in particular the participation of extreme nationalists and fascists, and I wouldn’t downplay those. But Maidan has ripped politics out of the narrow confines of government, parliament and apparatus; it has put it in the streets.

Most importantly, though, this political earthquake will reverberate not only through Russia, but through Europe too. GL.

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[1] Since so much migration is illegal, statistics are never accurate. A research group at Oxford University estimated in 2008 that there were about 5 million Ukrainians living in emigration at any one time, mostly in Russia and the EU; and that 95% of Ukrainian emigrants were illegal and 70% were temporary. (Franck Duvell (COMPAS centre), Ukraine – Europe’s Mexico.) In 2012, official statistics in the EU countries registered 1 million Ukrainians; illegal migrants need to be added to that number. (European University Institute Migration Policy Centre, Ukraine report, June 2013.) In 2011, Ukrainian working migrants sent home $5 billion in remittances to their families. (International Organization for Migration, Migration in Ukraine: Facts and Figures, September 2011.)

[2] UN Habitat, State of the World’s Cities 2012/2013 (published on line), Table 4, pp. 152-168. The arithmetic was done by Mychailo Wynnyckyj of the University of Kyiv Mohyla Academy; see The Ukraine List no. 466 (http://www.ukrainianstudies.uottawa.ca/pdf/UKL466.pdf)

[3] World Bank Country Economic Memorandum: Ukraine, 2010, p. 7.

[4] World Bank Country Economic Memorandum: Ukraine, 2010, p. 17.

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