The three years of economic growth from 2016–8 saw Ukraine’s nominal GDP increase by 45% to $131 billion and real wages restored to their 2013 level. They followed the sharp collapse of 2013–15, triggered by the Euromaidan protests, which followed the refusal of the then President Yanukovich to sign the Association Agreement with the European Union. The agreement eventually came into force in 2017, helping Ukraine to restore its foreign trade after it lost significant access to the Russian market. Gradually unemployment levels fell. Ukrainian banks accumulated record profits. The currency, the Hryvnia, strengthened and for a period, was recognized as one of the strongest in the world.
Behind these naked statistics, the reality was based on the dynamic growth of some sectors and regions, while the majority of the rest sank into a drawn out depression. Ukrainian capital is interested only in making the maximum profit in the shortest term, so while production of agricultural goods grew by 10% from 2014–19 taking advantage of the growing world market, the volume of industrial production, which depends on outdated technology and infrastructure remains at two-thirds of the pre-crisis level.
In the financial sector, growth disguises the fact that the solution of current problems is put off to the future. Bonds to cover foreign debt have been issued with one of the highest real interest rates in the world. The foreign debt was converted from dollars to hryvnia, so that it can be reduced through planned devaluations, in effect passing the repayment burden onto working people, who are paid in hryvnia.
Low-wage high-tech economy
When the average wage is about $500 a month, and the workforce is well-educated, the IT sector with its relatively high wages, at least by Ukrainian standards, sometimes exceeding $1000 a month has attracted many thousands, particularly young workers. Ukraine is now the largest exporter of IT services in Eastern Europe, although the sector is too small to become a real driver of growth, accounting for just 7% of exports in 2019. Ukraine acts as a provider of cheap labour for outsourcing, while hardly attracting any capital investment to the country.
Another lifebelt for over 2 million workers, mainly seasonal workers and those in the healthcare and hospitality sectors, is the possibility of travelling abroad to earn money in the EU. In 2019, they sent home $12 billion through official channels, with a further unknown sum brought back across borders. These remittances amount to much more than the credit provided by the IMF, contributing to the strength of the hryvnia and restoration of consumer demand.
Zelensky’s false hopes
When Zelensky came to power, his policies, promises and plans were based on the optimistic forecast that the economy would continue to grow. But his claims that GDP would grow by 40% over 5 years were based on hopes and maybes. His government’s budget forecasts simply indexed previous incomes and expenditures, in other words making no attempt to change priorities by copying what the last government did.
Then the economic situation started to worsen. The GDP growth rate in the last two quarters of 2019 dropped from 4,5% to 1,5% as investment and consumer demand dried up, industrial production fell by 8% by the end of the year, unemployment figures began to grow. By December, budget expenditures had to be cut because of the drop in income. Even Aleksey Honcharuk, then Prime Minister was recorded at a government meeting admitting that the President and government were economically incompetent.
Neo-liberal ideals
Honcharuk’s government mainly consisted of the children of corporation heads, careerists who had studied in expensive western universities, and representatives of the Ukrainian oligarchs. Their aim was to change the rules of the game in their own favour. They had a picture in their mind of what an ideal market economy should look like, believing that all that was needed was to create an ‘attractive investment climate’ for business and all other problems would resolve themselves.
They proposed the selling off of agricultural land and communal services, the privatisation of large companies, attacks on workers’ rights by adopting a business friendly labour code, the reduction of subsidies, the freezing of the minimum wage. Further the healthcare and education systems were to be reformed so that they no longer serve the interests of the doctor or patient, teacher or student, but instead the ‘effective’ use of resources and commercialisation. All this was intended to increase Ukraine’s investment ratings, or to put it another way, to simplify profit making and the export of capital abroad.
They were shaken when economic growth slowed and the popularity of the President and government began to fall. What support they did have was very fragile, based on the lack of a viable alternative, particularly a left force representing the interests of the working class. By the Spring of 2020, Zelensky’s own party “Servant of the people”, named after his TV satire show and which had been the first party since 1990 to rule on its own, began to break up into fractions representing the interests of different oligarchs. He no longer has a majority in parliament, he relies instead of horse-trading with the minority parties.
Honcharuk replaced
In March, Honcharuk was replaced by Denys Shmyhal, with ministers who are more conservative and experienced in political intrigues, in balancing the interests of the different oligarchs. His government immediately faced the developing world recession and the pandemic.
The Ukrainian health system has managed to cope with COVID 19 so far and with much lower casualties than neighboring Belarus and Russia, managing to avoid the extreme pressure that other countries have faced. To some degree this is a result of its Soviet heritage — a relatively high number of doctors and beds, direct state financing and a strong pharmaceutical sector, which has enabled the production of test systems.
The weaknesses in the health system were revealed where reforms are most advanced. The new system to define salary levels in some cases even saw a drop in pay for medical workers, which forced them, even in Kyiv, to take part in protests. The outsourcing of testing and reduction in the number of laboratories has left Ukraine lagging behind other European countries in the number of tests completed.
Poor management at government level, with three different health ministers in two months has meant local authorities are easing lock-down regimes even before any national decision has been made, while the police do little to prevent infringements either by big business. Instead they direct their forces at the easiest targets — small businesses and ordinary people.
Turn to neo-Keynesianism measures
Now the government plans to survive the crisis by dusting off a few neo-Keynesian measures and widespread state financing. Planned privatisations have been cut from $500 million to a nominal $2 million. Unemployment is being tackled, including for the millions of work migrants who are returning to Ukraine, with the creation of 700,000 jobs in the state sector. 4,2 billion dollars has already been used to support small business, the interior ministry and the health system.
This is a drop in the ocean. From May, the unemployed will receive about $40 a month, while those with children under 10 will get just $70. These payments are not enough to survive on. Moreover, even the Chamber of Commerce assesses real unemployment is six times higher than that officially registered, so many will not get any help.
If, before the virus, there had been a ghost of a chance of Ukraine surviving the year without a catastrophic collapse by relying on agricultural and IT exports, and new IMF loans, that possibility has now disappeared as the world economy faces its worst crisis for a hundred years. Further falls in living standards are guaranteed. The striking contrast between a few successful companies and state bureaucrats on the one side and the fate of the millions of unemployed and bankrupted small businesses on the other will become even more apparent.
Labour disputes temporarily on hold
It is, however, the working class who pay the highest price for the crisis. Even when the economy was being ‘restored’, sharp conflicts between employers and the workforce continued. In 2019, workplace disputes took place at 6,000 organisations involving 1,500,000 workers, and 45,000 workers took part in strikes. This is with 7,5 million Ukrainians officially registered as working. Gradually the proportion of conflicts in the export-orientated western regions has grown.
In addition, the main Trade Union Federation organised several protests against the new labour code and a huge demonstration against reforms to the education system, to tie teacher’s salaries to pupil numbers and to cut the number of teachers and schools. Unfortunately, the trade union hierarchy conduct negotiations behind closed doors, so only minimum or local demands are ever achieved. Typical is the strike at the Krivorozhsteel plant in 2018 to demand a 1000 euro wage, when negotiations achieved just 500 euros.
Workers without rights
There are a further 9 million Ukrainians working in the “grey” economy or registered as “individual entrepreneurs”, with no means of defending their rights, or protecting themselves from unemployment, wage cuts, or the bankruptcy of their employers.
Now, with Europe under lock-down, more than 2,2 million labour emigrants have returned to Ukraine. Officially unemployment has already increased by 50% since 2019 and unofficially 2,8 million people or 20% of the workforce are without work. This huge army of unemployed, deprived of rights, will play a role in potential protests in the coming period.
Unresolved war
Like a black cloud hanging over Ukraine since Euromaidan has been the unresolved military conflict in the two Eastern regions, Donetsk and Luhansk, which have even in 2020 claimed dozens of lives. Over the past months, demonstrations mainly led by “patriotic organisations” have taken place, often attracting tens of thousands of participants, to oppose what they see as ‘capitulation before the Russian aggressor’. As always in these negotiations, Zelensky tries to balance between the sides as long as his popularity ratings do not suffer. The conditions agreed for the recent exchange of prisoners of war, for the demilitarization of the “grey zone” and the acceptance of representatives of the two disputed republics as official participants in the negotiations remain secret. Of course, the prisoner exchange was a welcome success as many of those exchanged were ordinary people, nurses, sailors, journalists who had been in the wrong place at the wrong time before their capture and held hostage by both sides and, according to a poll conducted by “Democratic initiatives”, it was rated the second most significant event of 2019 after the election. But it should be remembered that secret diplomacy has always caused difficulties for Ukraine, a weaker side cannot negotiate a victory behind closed doors with a stronger aggressor.
There is, however, a tendency in these protests for divisions to develop between the organisers who promote the question of capitulation as most important, whilst amongst the rank and file participants social and even class issues are becoming more prominent.
Growing women’s movement
Significantly, the June 2019 March for Equality which attracted more than 7000 participants and the Women’s march on 8th March with 3000 were both records. Leaders of these are usually from liberal organisations, financed by European grants and often directly linked to the EU bureaucracy, who also have some influence on the Ukrainian political establishment. Several of the bourgeois liberal parties now have gender quotas in elections.
It is noticeable too that, as these numbers have grown, the ultra-right opposition to them has weakened. In earlier protests, the opponents were mainly groups of ultra-right thugs and former military, now counter-demonstrators are usually conservative religious groups.
A calm before the storm?
The lock-down has simply created a breathing space for the ruling class, a calm before a new storm, when protests will develop with new strength, with new participants who will be motivated more with questions of survival, justice and their rights to participate in politics.
The new government is a complex and potentially conflicting alliance of new reformers, former political heavyweights, spin-doctors and oligarchs leaning on a passive, even if dissatisfied layer of the population. It lacks a wide layer of support among civil activists, ‘opinion leaders’ in the social network, and the rank and file of political organisations. It cannot mobilise people on the streets in the way the former ruling ‘Party of the Regions’ did.
This leaves Zelensky now relying on the support of a few oligarchs and the Minister of the Interior, Arsen Avakov, who has considerable influence on the largest ultra-right organisations, whose battle hardened fighters merged into the National Guard battalions formed in 2014 under his control. This puts Zelensky in a particularly vulnerable position if mass protests were to break out as the nationalist organisations will not unconditionally support the government.
The loyalty of the far-right organisations to the business interests of the bourgeoisie is much stronger. They opposed the creation of a market for agricultural land, which would harm the interests of the large agro-holdings, by breaking up the offices of deputies who supported the move and protecting demonstrations organised by the agro-holdings from the police.
Last year, things were beginning to resemble the run-up to EuroMaidan. Various civic organisations controlled by business were using any excuse to campaign openly against the government, supported to a large degree by the parliamentary opposition, which was testing whether workers could be mobilised against the government under their banners. But Euromaidan went further than the leaders intended, leaving them unable to resort to negotiations and compromise with their colleagues in the ruling elite.
It is likely that in the Autumn there will be a new wave of protests, this time around driven by the hungry unemployed, disappointed workers and impoverished civil servants, small business representatives. Today’s bourgeois and liberal leaders will have nothing to offer the protesters. In part this is because there is now so little difference between the government and opposition, they vote for the same laws, support the same budget and dream about the same reforms.
Socialist organisation needed
How this scenario maps out depends on the ability of the working class to mobilise, through their own organisations and with the wider working and unemployed masses, to give a voice and bring to life the demands of those who rely on their wages, and have no reserve aerodrome in London or elsewhere to escape to.
The need for such an organisation has existed for a long while in Ukraine. Opinion polls record a significant move to the left. Even the liberal bourgeois parties have had to recognise this in their electoral platforms. Of course in power they would have no intention of actually implementing their promises.
The next months and years are likely to see an even sharper political crisis than even Ukraine is used to, which will lead to further splits within the ruling elite, exacerbated by the most serious economic crisis. Attempts by the ruling elite to address the crisis by strengthening state control and delaying the more unpopular reforms will only undermine their position.
Ukraine now desperately needs a party, established by workers themselves and independent of any bourgeois influences so that the country can break out of the unending circle of never-ending crises and artificial booms.
The need for working class organisation, completely independent of the oligarchs and big business has never been so obvious. The recent strike and hunger strike by miners in Lugansk against the months’ long non-payment of wages and the viscous police repression used in an attempt to stop their protests by the Russian backed puppet government demonstrate that workers in all parts of Ukraine have common interests and need to unite in struggle whether against the Kyiv government or that in the Lugansk and Donetsk republics.
With the looming economic catastrophe, we need to unite to fight for decent wages and against unemployment. Those companies that don’t pay their workers or want to make people redundant should be taken into social ownership under the control of the workers. There should be no more attempts to reform the health and education systems that are based on the reduction of resources. Instead they should be cleared of the huge layers of bureaucracy and the country’s resources used in a programme of modernisation under the control of medical and teaching staff.
Only by ensuring the independence of working class organisation can the situation in which Ukraine is permanently the scene of struggle between the different imperialist interests for the right to exploit and rule us. It is only the oligarchs and big business who benefit from Russian intervention or the European Union plans to increase utility prices and deregulate the economy. The working class and poor pay for these plans with worsening living standards and even military conflict. If a genuine workers’ party existed, it could force the withdrawal of imperialist interest from Ukraine, only then would it be possible to reach a peaceful agreement to end the conflict in the East, if necessary by accepting regional autonomy for those who genuinely desire it.
But of course none of this would be possible if Ukraine remains a capitalist society. A workers’ party is needed to implement of a socialist programme based on democratic planning of the economy under workers control and management and ensuring the development of a democratic socialist and independent Ukraine as part of a democratic and voluntary socialist federation of European states.
