This past week I spent three days in Kiev, as a guest of the Economics Education and Research Consortium (an economics program that is about to transform itself into the Kiev School of Economics), and Expert Magazine, a Russian-language journal that had a role in publishing a new Russian edition of my book Trust. Viktor Yanukovych, the former prime minister whose fraudulent election in 2004 triggered the Orange Revolution, returned to power last month. Viktor Yushchenko, the hero of the Orange Revolution, remains president, but has been rendered largely powerless due to changes in the constitution that moved Ukraine from a presidential to a premier-presidential system, as well as the poor showing of his party Our Ukraine in the last parliamentary election.
Hopes for the democratization of Ukraine would thus seem to be cruelly disappointed; but the reality is much more complicated. It was of course highly unrealistic that the Orange Revolution would transform Ukraine overnight into successful democracy. The Orange Coalition was far from united, and tensions immediately emerged between Yushchenko and Yulia Tymoshenko, whose prime ministership virtually all my interlocutors agreed was disastrous. Tymoshenko embarked on a populist program of re-privatizing various industries, which threatened the property rights of the oligarchs and foreign investors who own much of Ukraine’s industrial infrastructure. These economic policies led to the one serious break in the country’s otherwise impressive six-year record of economic growth.
The bigger problem was that the Orange Coalition was based on western, Ukrainian nationalist parties that excluded representatives of the eastern Russian speakers, like Yanukovych’s Party of the Regions. The latter won more than thirty percent of the vote in the last election, and holds the largest bloc of seats in the Rada. This meant that a successful Orange Coalition would subordinate ideology and economic policy to ethnic identity and foreign policy (i.e., the pro-Western orientation favored by the Ukrainian nationalists and the pro-Russian posture favored by the Russian parties). The current coalition, by contrast, unites Our Ukraine and the Party of the Regions, and looks much more like a national unity government. It will be able to present a much more coherent, pro-business economic policy than the Orange Coalition-based governments of the past two years.
Ukrainian politics continues to reflect the behind-the-scenes role played by the country’s oligarchs and big business interests. Yanukovych is supported by the so-called Donetskiy clan, people like industrialist Rinat Akhmetov (said to be worth close to $12 billion) and the Industrial Union of Donbass, representing the heavy industry in the East. Another oligarch, Viktor Pinchuk (with whom I talked extensively during my trip) has been using his money to support Western-leaning institutions (like the EERC) and parties.
The fundamental corruption and non-transparency of Ukrainian politics has not been changed by the Orange Revolution. The question for the future, however, is whether the beneficiaries of the original unequal distribution of state assets now have a vested interest in the growth of more predictable democratic institutions and secure property rights. Yulia Tymoshenko’s attempt to undo those privatizations were justified on the grounds that they would right the original wrong, but had the effect of killing new investment in an economy that for the first time since independence was growing strongly. (I heard, by the way, no lack of other interpretations of her motives for pushing re-privatization, like getting back at various of her enemies and rivals.) If one looks at the history of the institutionalization of property rights in the West, one would probably find a similar story: the early owners of property got theirs through their access to power and corrupt influence, but then realized that their future wealth (or that of their children) was dependent on the emergence of a broader rule of law. In a similar vein, several people made the argument to me that this time around, Yanukovych would have a stronger interest in being a national as opposed to a regional leader now that he was in a coalition with Our Ukraine.
The last night I was in Kiev, Anders Aslund and I were guests on Savik Shuster’s TV show, which is shown on Friday nights on one of Pinchuk’s stations. There was a studio audience “sociologically chosen” to represent a balance of gender, age, region, but divided between East and West, between those that were nostalgic for the former Soviet Union and those that weren’t. A poll showed that 58% of Ukrainians were glad that the USSR collapsed, versus 41% who were unhappy. The studio audience had buttons they could push to register approval and disapproval, so you can see the preferences of the Ukrainian versus the Russian speakers instantly portrayed in graphical form. The first guest, a Russian nationalist from Moscow, drew sharply polarized responses when he argued for a union of the three Slav republics, Russia, Ukraine, and Belarus’. The Russians I encountered in Kiev didn’t by and large favor such an outcome, but they bitterly resent what they perceive as American efforts to use Ukrainian nationalism to draw Ukraine away from Russia.
My comparative politics students should note that Ukraine switched from a strong presidential to a French-style premier-presidential system, in which the prime minister appoints the whole cabinet except for the power ministries (defense, foreign affairs, internal affairs). This reform was originally undertaken to weaken the power of the presidency when Leonid Kuchma was in power, and was enacted simultaneously with the Orange Revolution. It ironically took effect just after the moment that the presidency was captured by a forward-looking democrat. This is a lesson about the dangers of using constitutional reform as a short-term political weapon.
A final observation: according to the World Bank, Ukraine’s GNI per capita is said to be less that $1300. Looking around Kiev, it is extremely hard to believe that this can be true. I understand that there is a lot of rural poverty in Ukraine, but I also suspect that the official statistics are not picking up a lot in the country’s informal sector.
