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Ukraine’s Big Mistake

May 8, 2023

By Natylie Baldwin / Covert Action Magazine

Renfrey Clarke is an Australian journalist. Throughout the 1990s he reported from Moscow for Green Left Weekly, of Sydney. He is the author of The Catastrophe of Ukrainian Capitalism: How Privatisation Dispossessed & Impoverished the Ukrainian People published by Resistance Books in 2022. Here is my interview with him, earlier this month.

Natylie Baldwin: You point out in the beginning of your book that Ukraine’s economy had significantly declined by 2018 from its position at the end of the Soviet era in 1990. Can you explain what Ukraine’s prospects looked like in 1990? And what did they look like just prior to Russia’s invasion?

Renfrey Clarke: In researching this book I found a 1992 Deutsche Bank study arguing that of all the countries into which the U.S.S.R. had just been divided, it was Ukraine that had the best prospects for success. To most Western observers at the time, that would have seemed indisputable.

Ukraine had been one of the most industrially developed parts of the Soviet Union. It was among the key centres of Soviet metallurgy, of the space industry and of aircraft production. It had some of the world’s richest farmland and its population was well-educated even by Western European standards.

Add in privatisation and the free market, the assumption went, and within a few years Ukraine would be an economic powerhouse, its population enjoying first-world levels of prosperity.

Fast-forward to 2021, the last year before Russia’s “Special Military Operation,” and the picture in Ukraine was fundamentally different. The country had been drastically de-developed, with large, advanced industries (aerospace, car manufacturing, shipbuilding) essentially shut down.

World Bank figures show that in constant dollars, Ukraine’s 2021 Gross Domestic Product was down from the 1990 level by 38 percent. If we use the most charitable measure, per capita GDP at Purchasing Price Parity, the decline was still 21 percent. That last figure compares with a corresponding increase for the world as a whole of 75 percent.

To make some specific international comparisons, in 2021 the per capita GDP of Ukraine was roughly equal to the figures for Paraguay, Guatemala and Indonesia.

What went wrong? Western analysts have tended to focus on the effects of holdovers from the Soviet era, and in more recent times, on the impacts of Russian policies and actions. My book takes these factors up, but it’s obvious to me that much deeper issues are involved.

In my view, the ultimate reasons for Ukraine’s catastrophe lie in the capitalist system itself, and especially, in the economic roles and functions that the “centre” of the developed capitalist world imposes on the system’s less-developed periphery.

Quite simply, for Ukraine to take the “capitalist road” was the wrong choice.

Baldwin: It seems as though Ukraine went through a process similar to that in Russia in the 1990s, when a group of oligarchs emerged to control much of the country’s wealth and assets. Can you describe how that process occurred?

Clarke: As a social layer, the oligarchy in both Ukraine and Russia has its origins in the Soviet society of the later perestroika period, from about 1988. In my view, the oligarchy arose from the fusion of three more or less distinct currents that by the final perestroika years had all managed to accumulate significant private capital hoards. These currents were senior executives of large state firms; well-placed state figures, including politicians, bureaucrats, judges and prosecutors; and lastly, the criminal underworld, the mafia. […]

Baldwin: The Oakland Institute published a report in February of this year about a specific aspect of the western-influenced neoliberal policies on Ukraine — agricultural land. One of the first things [Ukraine’s President Volodymyr] Zelensky did after he took office in 2019 was to force through an unpopular land reform bill. Can you explain what this law was about and why it was so unpopular? 

Clarke: By 2014 Ukraine’s farmland had almost all been privatised and distributed among millions of former collective farm workers. Until 2021. a moratorium remained on sales of agricultural land. This moratorium was overwhelmingly popular among the rural population, who distrusted the land-office bureaucracy and feared being swindled of their holdings. With only small acreages, and lacking capital to develop their operations, most landowners opted to lease their holdings and to work as employees of commercial farming enterprises.

The result has been described as a “re-feudalisation of Ukrainian agriculture.” Entrepreneurs with access to capital — often established oligarchs, but including U.S. and Saudi corporate interests — amassed control of vast lease holdings. With land rents cheap, and wages minimal, the new land barons had little reason to invest in raising productivity, which remained low despite the rich soil.

To this situation, already deeply retrograde, the International Monetary Fund and other institutional lenders brought the wisdom of neoliberal dogma. For many years, structural adjustment programs attached to IMF loans had insisted on the creation of a free market in agricultural land. Ukrainian governments, aware of the massive hostility to the move, had dragged their feet. It was Zelensky whose resistance finally broke. Since mid-2021 Ukrainian citizens have been able to purchase up to 100 hectares of agricultural land, with the figure to rise to 10,000 hectares from January 2024.

In theory, large numbers of small landowners will now sell their land, move to the cities, and take up life as urban workers, while rising land values will force commercial farmers to invest in raising their productivity. But these calculations are almost certainly utopian. Unemployment in the cities is already high, and housing tight. Small farmers are unlikely to risk mortgaging their land to improve their operations while profits remain slender, interest rates high, the banks predatory, and officials corrupt at every level.

The real logic of this “reform” is to strengthen the hold on agriculture of the oligarchs and international agribusiness. […]