"Primary Accumulation is Permanent Accumulation.
The Apparent Gentrification of Oligarchs in Ukraine"
Speaking points prepared for the Workshop on Business and State Relations in Russia and Ukraine,
Jacyk Program for the Study of Ukraine and CERES
University of Toronto, November 30, 2006
Rosaria Puglisi *
(Draft! Please do not quote without the author’s permission)
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Ambivalent reaction to the idea of oligarchs in Kyiv these days. Caught in
between:
1. resentment towards business people who not only made their money in
dodgy deals, but also got involved in politics to pursue further their
personal interests and
2. gratitude towards a business class that is somehow responsible for the
economic development of the country, the fact, as Mostovaya puts it, that
Ukrainians can afford going to cafes and restaurant and don’t walk the
streets wearing the same clothes as before. 1
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Oligarchs have been engaged themselves in activities aimed at “clearing up their
names”:
9 Pinchuk: documentary of the Shoah, opening of the Pinchuk Art gallery,
establishing of YES;
9 Surkis: support to the Polish-Ukrainian joint bid for the 2012 European
Football Championship
9 Akhmetov: MP. Quote: “I want a government of economic growth to be
formed, […] I want to defend Ukraine’s national interests, […] I want
Ukraine to become rich, […] I want there to be no poor people in
Ukraine” 2
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Trend towards “gentrification”, i.e. make the general public forget their less than
transparent past, while promoting a positive image for themselves:
philanthropists, people caring deeply for the economic development of Ukraine,
*
The views expressed in this paper are purely those of the author and may not in any circumstances be
regarded as an official position of the institution she works for.
1
Mostovaya, Yu. (2006), “Self-destruction Strategy” , Zerkalo Nedeli on the Web, no 39 (618), 14-20 October
2 Ukraina TV, Donetsk, 19 gmt 20 February 2006, as reported in BBC Monitoring Service, UK, in English, 20
February 2006.
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its integration in the international community.
“Routinisation”. 3
Social legitimisation.
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Part of this strategy has been the attempt to get rid of the label of oligarch that
got stuck to them. Some interesting quotes:
9 Akhmetov: “I am not an oligarch, he said, oligarchs are in government.
For them being in government is the only way of making money. I can
tell an oligarch from afar. […] Oligarchs have not found their place in
business and they never will. […] in business they look like cows walking
on ice. I realised myself as a businessman and made my money a long
time ago”. 4
9 Surkis: “We are used to say “oligarchs”, but in other countries the word
oligarch does not exist. In stead [expressions like] businessman,
millionaire, billionaire [are used]. These are the most law-observant
members of society, they pay taxes, they create working places, they
create progress […]” 5
9 Pinchuk: claiming the titles of “representative of big business” and
“national businessman”, which, he maintains, are synonymous of
“patriot”. “The Ukrainian state owes its existence to the national business
to a great extent”, as the high development rates achieved in its postindependence years and the emergence of a “strong and united Ukraine”
were due to their work. “If soon after independence, Ukraine had not had
a young, powerful and ambitious economic force that tied itself to the
national interest, its alternative history could have followed either a
Central Asian or a neo-colonial path. We, the entrepreneurs (some of
whom later would be called oligarchs) at once appreciated the value of
independence”. 6
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The general idea behind these positions is that switching from an early stage of
“primary accumulation”, during which their wealth was created through dodgy
deals and tight relations with politics, the Ukrainian oligarchs are now prepared to
become “ordinary businessmen”, if you want politically neutral capitalists.
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Since after the revolution, Anders Aslund has promoted this idea.
points were:
7
His main
Balzer, H. (2003), “The Routinization of the New Russians?”, The Russian Review, n. 62 (January), pp. 15-36
Ukraina TV, Donetsk, 19 gmt 20 February 2006, as reported in BBC Monitoring Service, UK, in English, 20
February 2006.
5 Paskhaver, A. (2006), “Delo Pakhnet Miliardov”, Korrespondent, n. 38 (227), 30 September, pp. 58-60.
6 Pinchuk, V. (2005) “We, the National Capitalists”, Zerkalo Nedeli, 17-23 December, available on
http://www.mirror-weekly.com/ie/show/577/52113/
7 Aslund, A. (2005) “Comparative Oligarchy: Russia, Ukraine and the United States”, CASE Centre for Social
and Economic Research, Studies & Analysis (Warsaw), April. See also Andres Aslund (2006), “The Ancient
Regime and the Oligarchs”, in Aslund A. and Mc Faul (eds) Revolution in orange : the origins of Ukraine’s democratic
breakthrough, (Washington, D.C.: Carnegie Endowment for International Peace), pp. 9-28
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1. Oligarchic structures are the result of economically rational behaviour, a
way to protect one’s economic activity in an environment characterised by
poor governance and weak rule of law,
2. Having made the shift from rent to production, the oligarchs (both in
Russia and in Ukraine) have become the “generators of an unprecedented
boom” and have “led to [their countries’] economic recovery”.
3. The Orange government of Yuliya Tymoshenko engaged in an ideological
battle against successful capitalism and in personal revenge against
oligarchs who had supported the old regime.
4. People like Pinchuk and Akhmetov were now willing to conclude a “final
and definitive deal” with the new Ukrainian authorities, in exchange of
which they would be “happy to pay what the government demands”. In
other words, oligarchs were calling for an “amnesty for prior violations”.
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As appealing as Aslund’s argument might be, I have three main objections to it.
1. Oligarchic structures do not merely react to the economic and
political environment they are in, but they contribute in creating the
general conditions of that environment. In other words, the oligarchs are
not passive victims of poor governance and weak rule of law, but, by
pushing forward economic decisions that favour their specific economic
interests, they endorse and perpetrate this environment. They distort
competition; they impose decisions that do not necessarily reflect the
interests of the general public and, by doing so, deplete national resources,
rather than fostering economic growth. It is not a secret to anyone, and
prominent businessmen admit it openly, parliamentary deputies or
individual decisions are routinely bought up by big business.
2. The huge wave of protest expressed by ordinary Ukrainians during the
orange revolution was not ideologically directed against successful
businessmen, as somehow Aslund seems to claim, but, inter alia, against
well connected individuals who had blatantly bent the rules of the game to
their own personal advantage. Corruption, repression of critical views and
open disregard for the public interest were high on the list of compliances
that brought demonstrators out in the streets of Kyiv two years ago.
3. Aslund’s reasoning is that he treats oligarchs as a coherent social group,
with similar interests and views of the world (and politics). It assumes
that, as the first wave of oligarchs have become interested in setting up a
regime of transparency for their own business, this applies to all economic
actors who have connections with or are directly engaged in politics. My
view is that it cannot be given for granted that all the oligarchs (or aspiring
oligarchs) have overcome tout court their predatory phase and become
socially responsible.
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My argument is rather that:
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1. The practice of the last months, since the appointment of the Yanukovich
government shows that business influence over politics has consolidated
rather than decreased. Becoming directly involved in government
structures, powerful representatives of big business, especially from the
Donbass, have openly tried to make decisions that enhance individual
narrow interests. The following issues provide a clear example of this
trend:
9 Restoration of free economic zones, with decisions being proposed by
the VR committee on economic policy, of which Akhmetov is a
member;
9 Selective VAT reimbursement to export companies (with a 222% of
VAT returns to exporters from Donetsk versus a 2.4% of returns to
exporters from Volyn);
9 Government control over the process of land privatisation and
privatisation of regional energy plants;
9 Government’s proposal to introduce 0% VAT on energy trade.
2. The consolidation of the oligarchic structures is also the result of
inactivity on the side of the orange authorities that wasted the golden
opportunities provided by the orange revolution to restore a degree of
fairness in the business environment.
9 No coherent and structured approach to reforms corresponded to
the dramatic statements and the populist campaign of re-privatisation
launched by the first post-revolutionary government.
9 Despite the huge turmoil of the re-privatisation campaign, no other
re-privatisation took place in addition to Kryvoryzhstall in October
2005.
9 Attempts were made to work out a method of peaceful settlement of
disputed privatisations, according to which, in exchange of a
negotiated compensation, owners would be entitled to keep the
privatised object. Yet, no peaceful settlement has ever taken place. 8
9 Council of the oligarchs at the end of 2005 was a missed opportunity
for Yushchenko to dictate new rules of the game. Ekhanurov: “We
really want these people to become truly devoted, with a national
perception, [a] bourgeoisie, and [we want them to] be very sincerely
involved in our business promotion and development”. 9
9 Orange authorities had also structural reasons not to move massively
against the oligarchs, i.e. the presence of orange oligarchs with its
ranks (Poroshenko, Matvyenko, Zhvaniya).
List of prominent
businessmen who were included in the President’s inner circle and
were often awarded institutional positions. 10
Paskhaver, O. and L. Verkhovoda (2006), “Privatizatsiya do i posle Oranzhevoi revolutsii”, Working Paper
Tsentr Sotsialno-ekonomicheskikh Issledovanii, CASE Ukraina (Kyiv)
9 The Honorable Yurii I. Ekhanurov, Prime Minister of Ukraine, speech at the Carnegie Endowment for Peace,
Washington, 1 November 2005, published in the Ukraine Action Report, n. 597, article 1
10 Leshchenko, S. (2006), “Viktor Yushchenko’s Political Orbits”, Ukrainska Pravda website, 20 January, as
reported in BBC Monitoring Service, UK, in English, 5 February 2006
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However, and here is the good news, Yushchenko’s Ukraine is not Kuchma’s
Ukraine and it would be a mistake to say, as Mikola Tomenko did following
Yulia Tymoshenko’s dismissal, that a new Kuchma-like structure of power has
emerged in Ukraine. Yushchenko has become “hostage” of the old system. 11
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The political and economic landscape within which oligarchs operate is
qualitatively different. Here are three reasons to mark this difference:
1. The constitutional reforms have resulted in a dispersion of power, as
opposite to the concentration experienced during the Kuchma years.
Competing oligarchic groups are forced to work towards coalition and
consensus building. I am not claiming that the business grip over politics
is fading. Quite the opposite, if you look at today’s situation in Ukraine,
Donetsk clan’s representatives are firmly in power in the executive, the
parliament and in the presidential circles (although we are talking here of a
splintering faction connected to Taruta’s Industrial Union of Donbass).
2. An international dimension has opened up before the Ukrainian
oligarchs. Over the last couple of years, the Ukrainian economy has
been growing at a steady 6-7% a year. Increased energy prices seem to
have produced scarce effects on the competitiveness of Ukrainian export
goods, primarily steel. Some big Ukrainian companies have started
feeling more confident of their own internal positions, this has motivated
them to start operating abroad:
9 In addition to increased exports, some Ukrainian companies are now
investing abroad: Industrial Union of Donbass has bought up steel
mills in Poland and Hungary; Privat group has interests in ferro-alloy
plants in the US, Poland, Romania and Russia. 12
9 Some big business representatives have become champions of a
strategy aimed at pursuing Ukraine’s membership in international
organisations (WTO, EU) that would provide protection for their
business interests abroad (“It is good to make money with the
Russians, but it is better to defend it with the Europeans”). Pinchuk
sponsoring Ukrainian government bid into the WTO, creation of YES.
9 Trying to increase their market capitalisation, some Ukrainian
companies have started adopting business practices that would
introduce a degree of transparency. This would allow them to be
quoted on international stock exchanges, so attracting foreign
investments.
Top managers in Akhmetov’s Capital System
Management claim that they want to make Akhmetov’s companies “as
any other company in the world”. 13
11 Tomenko, M. (2005) “Changes are Only About to Begin, or is the Second Phase of the Orange Revolution
Possible?”, Ukrainska Pravda website, 30 September
12
Olearchyk, R. (2006), “Ukrainian Billionaire Oligarchs Eager to Westernise”, Financial Times, 31 October
13
Olearchyk, R. and S. Wagstyl (2006), “Reforms take a back Seta as Ukraine’s Leaders Struggle for Power”,
Financial Times, October 24
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3. Increased participation of the public opinion. Investigative journalism
increase scrutiny and might discourage dodgy business practices. This
does not mean that dodgy deals are not happening anymore, but they
happen in a glass house.
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Here are my Conclusions:
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Big business is still a key factor in Ukrainian domestic and foreign politics.
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The golden opportunity offered by the Orange Revolution to curtail the
pervasive influence of oligarchic structures over the country’s political and
economic life has been wasted. Today, big business representatives have not only
retained, but consolidated power over the political institutions, demonstrating
that the notion that oligarchs are, at this point in time, prepared to become
ordinary businessmen is a delusion.
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However, as a result of the Orange Revolution, oligarchs’ engagement in
politics, the complex landscape of the oligarchs’ interests and the political
framework within which they operate are qualitatively different.
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Thus, if, on the one hand, it is too early to assume that the Ukrainian oligarchs
have become “gentrified”, or, in other words, that they have embraced a concept
of fair play in business (as a number of top Ukrainian businessmen have been
keen to demonstrate), there are mixed signals indicating that in the medium,
long-run, more through the influence of external factors, rather than through
deliberate measure introduced by the state institutions, oligarchs might
evolve into a category of politically neutral “big businessmen”.
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While so far, transparency and respect for the rules are left to the good will of
individual businessmen, rather than to a universally applied set of laws, the
invisible hand of the market could indeed help introduce long term changes to
the whole Ukrainian system through increased involvement in the international
community and adoption of internationally accepted economic standards.
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