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A class analysis of the Ukrainian crisis
US Republican and Democrat politicians on the stage at the Maidan Square.
More on Ukraine HERE.
June 13, 2014 -- The social and class origins of the Ukrainian crisis have not been well researched. Attention has been focused mainly on the political side of events, and their socio-economic basis has been allowed to drop from sight. What were the class forces behind the overthrow of the Yanukovich regime, the installing of a new regime in Kiev, and the rise of the anti-Maidan and of the movement in the south-east?
The crisis of Ukrainian capitalism
The Ukrainian crisis is not a unique national phenomenon. For a number of reasons, Ukraine has been a “weak link” and has become the first victim of the collapse of the economic model based on the rule of the dollar as the world reserve currency and on the stimulation through credit of consumer demand as a mechanism of economic growth. Ukraine’s economy has been among the most vulnerable in the context of the global crisis, and this has resulted in a split within the ruling class and in a fierce political struggle that has been visible now for several months.
The economy of Ukrainian capitalism acquired its form in the course of the collapse of the Soviet economic complex, the privatisation of socially owned property, and integration into the world market. These processes had the effect of degrading the economic structure of the Ukrainian Soviet Socialist Republic, which in terms of economic development had ranked 10th in the world. Ukraine in Soviet times had a complex, developed economy in which a leading role was played by machine building and the production of goods with a high degree of added value.
Integration into the world market led to the collapse of the high-technology sectors. “While the economy of the USSR was oriented toward satisfying the needs of production and personal consumption within the country, and developed in a more or less complex and rounded fashion, Ukraine’s capitalist economy is ‘formatted’ in line with the demands of the world division of labour. The main victim of this process has been knowledge-intensive production – machine building, light industry, output of machine tools, instruments and radio-electronics, and the production of turbines, aircraft and automobiles.”
Once complex production had been destroyed, the role played by the export-oriented raw materials sector and by sectors with a low degree of added value took on a catastrophically high level of importance. The owners of enterprises in these sectors formed a layer within the oligarchy that has controlled the bulk of the country’s economy throughout almost the entire period of “independence”. This layer, oriented toward the production of raw materials for export, has ruthlessly exploited the productive potential inherited from the USSR. As a result of its economic position, the Ukrainian oligarchy has not only been uninterested in developing the country’s internal market, but in many cases has also taken a predatory attitude to its own productive assets, preferring to export capital to offshore havens instead of using it to develop production. A total of more than $165 billion has been taken out of Ukraine and invested offshore.
The model of the peripheral export economy had a “cannibal” character, and was based on consuming the inheritance from the Soviet Union. Even before the onset of the global economic crisis, ferrous metallurgy – the “locomotive” of Ukraine’s peripheral economy, providing 40-50 per cent of exports – showed “obvious structural weaknesses: outmoded technologies, high labour intensity (producing a ton of steel in Ukraine required 52.8 work hours, compared with 38.1 in Russia and 16.8 in Germany), high energy consumption and dependence on foreign (mainly Russian) energy sources. So long as prices were high these weaknesses were not of decisive importance, but any worsening of the conjuncture made them a serious threat.
“The other competitive sectors of the Ukrainian economy – agricultural production (in part, industrial crops); the chemical industry (mainly the production of mineral fertilisers); and extractive industry (iron ore and coal) – were also concerned mainly with raw materials, and were oriented toward exports.
“Because of the narrowness of the internal market, the remaining sectors of production (with the exception of food products) developed only to the degree to which they served the export-oriented sector. As a rule, these areas of the economy were marked by lower wages and rates of profit.”
With the decline of national production in areas outside the export-oriented raw materials sector, dependence on imports increased. The share represented by Ukrainian-produced goods in the structure of trade turnover fell steadily, while the proportion of imports rose. From the mid-2000s imports consistently exceeded exports. The difference was made up by an increase in the foreign debt, both state and corporate.
With the global crisis that began in 2008, demand for Ukraine’s exports tended to fall, while the price of imports rose at the same time as dependence on imports was increasing. The model of Ukrainian capitalism was clearly headed for collapse.
Crisis and split in the ruling class
Within the ruling class, the growing crisis provoked a serious internal struggle. By that time, the top group within the class – a dozen or so billionaires – was already prepared for integration into the world elites and was seeking a way to “register” its capital in the West. The billionaires had accumulated capital in sufficient volume to be able to transform it effectively into financial and industrial assets in the West, at the same time as the developing, systemic crisis in Ukraine meant that our country was no longer so attractive to large Ukrainian business.
The means chosen for legalising this shift was so-called “Eurointegration”, through which the Ukrainian billionaires, in exchange for ending protection of the internal market and effectively surrendering it to international monopolies, received recognition from Europe. The fact that the price would be the destruction of various sectors of industry and a new spiral of deindustrialisation, with an inevitable growth of unemployment and other social ills, did not trouble this peak ruling-class group in the least.
Middle and lower-ranking oligarchs who still viewed Ukraine as an arena for conducting business and who did not have sufficient capital for integration into the world elites mounted a half-hearted resistance to this process. These were people who had not yet exploited all the opportunities offered by the “independent” Ukrainian state for emerging into the “big league” of billionaires; consequently, they were reluctant to see a complete surrender of the internal market to European “partners”.
For an extended period, the country’s leadership, as personified by [the president elected in 2010, Victor] Yanukovich, wavered between the “party of billionaires” and the “party of millionaires”, seeking a mode of “Eurointegration” that would satisfy both sides. The upshot was that Yanukovich was forced to reject the planned signing in Vilnius in December 2013 of an agreement on a free trade zone, since the agreement threatened the economic interests of an important sector of the bourgeoisie and was fraught with catastrophic social consequences.
Also behind the need for “integration” processes was an acute requirement for credits, which could only come from international financial organisations (the International Monetary Fund) or from the Russian Federation. Unlike the IMF, Russia did not insist on anti-social reforms as a condition for providing credit; this also inclined Yanukovich to postpone the signing of an association agreement with the European Union and of the agreement on free trade.
The response from the “party of billionaires”, which had put its stake on integration with Europe, took the form of the Euromaidan.
Euromaidan: its instigators, core and social base
During the initial phase of the Euromaidan, participation in it by the popular masses was minimal. Those who were present during the first days were mainly employees and activists of pro-Western NGOs and members of neo-Nazi groups (the organisation Svoboda [“Freedom”] and other bodies that subsequently made up the Right Sector). The Euromaidan took on a genuinely mass character only after the demonstrators were driven from the Maidan Square on the night of November 30, 2013. This assault was shown live-to-air on all the oligarch-controlled television channels. Thereafter, their news programs broadcast endless clips featuring people who had been beaten, whose heads had been bloodied, and so forth. Society was subjected to a propaganda barrage,with information aimed at inducing citizens to take part in the protests put constantly into circulation. An example was a report that a student had been killed by the militia during the clearing of the square on November 30. It was later discovered that the student had simply taken a break for a few days in the company of nationalist friends and had not kept in touch with her relatives. Provocative disinformation of this kind was issued repeatedly, and each time was seized upon by the oligarchs’ media.
It was not only the television channels controlled by the oligarchs that were used to mobilise the masses of Kiev residents to the Sunday gatherings, termed “vigils”, on the Maidan. A broad, well-funded campaign of agitation was conducted; it included placing leaflets with appeals to come to the Maidan in every mailbox in Kiev, a city of 4 million people.
The leading force on the Maidan, constantly present and taking part in armed clashes with the organs of law enforcement, consisted of neo-Nazi militants (drawn mainly from among football fans), and of people without any particular occupation who had come from the central and western regions of the country. For several months, these people lived on the Maidan, where they were provided with food and money. This testifies to the well-organised financing of the Maidan on the part of the Ukrainian oligarchy. This financing was directed through the three parliamentary parties of the opposition bloc, and also through NGOs. It also went going directly to neo-Nazi paramilitary groups.
As early as December, the nationalist, ideological thrust of the Maidan movement was clearly detectable. As the left-wing coalition Borotba (“Struggle”) noted in a statement:
An undoubted success of the nationalists has been the fact that thanks to their high level of activity, they have managed to impose their ideological leadership on the Euromaidan. Evidence of this is to be found in the slogans that have become watchwords for the masses of people who gather on the square, and for the activists. These slogans include the cry “Glory to Ukraine – glory to the heroes!”, which together with the raised right arm with outstretched palm formed the party greeting of the Organisation of Ukrainian Nationalists in April 1941. Other such slogans are “Glory to the nation – death to its enemies!” and “Ukraine above all!” (a translation of the German “Deutschland überalles”). The other opposition parties have simply lacked any clear-cut ideological line or choice of slogans, and as a result, the liberal sector of the opposition has accepted nationalist slogans and the nationalist agenda… Clumsy attempts by the liberal wing of the protest to escape ideological control by the nationalists, for example by shouting something more politically correct in place of “Death to the enemies!”,have generally ended in failure. This is not only because the nationalist organisations are unique in having an active and ideologically impassioned mass following, but also because the liberal majority at the protests has failed to put forward any clear program of action. In this situation the nationalists, as the most active and radical element, have acquired the image of the vanguard of the entire movement.
A further sign of the dominant position of the ultra-right was the destruction by Euromaidan activists of the monument to V.I. Lenin on Bessarabia Square. This barbaric act was not condemned by the liberal wing of the Maidan. Pieces broken off the monument were displayed on the podium of the Maidan, to shouts of approval from the crowd.
The anti-left and anti-communist direction of the Maidan movement was evident in the beating of two Borotba activists, the Levin brothers, who had been standing with a trade union agitational picket near the Maidan. The brothers were said to have stood beneath a red flag. Shouts demanding that they be dealt with rang out from the podium. Directing the reprisals was the Svoboda parliamentary deputy Miroshnichenko.
By January, the ideological and political content of the Maidan was obvious to any unprejudiced observer. At that time, we characterised what was occurring as “a liberal-nationalist revolt with increasingly noticeable participation by the openly Nazi elements of the Right Sector”.
The core of the Maidan was thus made up of neo-Nazi militants and activists of the opposition political parties. Who, then, made up the “flesh” of the Euromaidan? Who were the thousands of people who supported the movement?
Of the participants in the demonstrations, about half were activists brought in from other regions. Of the respondents in one of the surveys that were conducted, 50 per cent were from Kiev and 50 per cent had come to the Maidan from other regions. Of the latter, 52 per cent were from western Ukraine, 31 per cent from the central provinces and only 17 per cent from the south-east. Of those who stayed constantly on the square, a disproportionately large number, some 17 per cent, were business entrepreneurs. Russian speakers were disproportionately few, some 16 per cent compared with 40-50 per cent in Ukrainian society as a whole. A definite idea of the social physiognomy of the Maidan can be had from the fact that among the “heavenly hundred” who perished, there was not a single worker.
The Euromaidan is thus a movement initiated and controlled by the largest oligarchs. Its political base consisted of radical nationalists and to a lesser degree of pro-Western liberals, while its social base was made up of petty-bourgeois and declassed elements.
By contrast, the resistance movement in the south-east is more proletarian in its composition, as independent observers have noted. Nor is it an accident that resistance to the junta of oligarchs and Nazis that came to power as a result of the Maidan has appeared primarily in the most industrially developed regions, where there is a preponderance of the working class in the population.
 Some 90 per cent of Ukraine’s direct foreign investment has been in Cyprus. The latter country is also the source of some 80-90 per cent of the direct foreign investment coming to Ukraine; this money is not, in fact, foreign investment, but simply represents funds that have been taken out of Ukraine and are later returned. During the decade of the 2000s, offshore investment in Cyprus provided a convenient way for the Ukrainian oligarchy to avoid paying taxes. In 2012, total direct foreign investment amounted to about $6 billion, while total money transfers by private individuals (these consisted principally of money transfers by guest workers to their families) came to $7.5 billion. Hired workers thus invested more money in the country’s economy than the bourgeoisie (see, for example, http://dt.ua/ECONOMICS/suma-groshovih-perekaziv-zarobitchan-vpershe-perevischila-obsyag-inozemnih-investiciy-119740_.html).
 Dynamics of Ukraine’s balance of payments:
1999: +$1.658 billion
2000: +$1.481 billion
2001: +$1.402 billion
2002: +$3.173 billion
2003: +$2.891 billion
2004: +$6.909 billion
2005: +$2.531 billion
2006: –$1.617 billion
2007: –$5.272 billion
2008: –$12.763 billion
2009: –$1.732 billion
2010: –$3.018 billion
2011: –$10.245 billion
2012: –$14.761 billion
2013 (first 6 months): –$3.742 billion
Dynamics of Ukraine’s gross foreign debt (state plus private)
January 1, 2004: $23.811 billion
January 1, 2005: $30.647 billion
January 1, 2006: $38.633 billion
January 1, 2007: $54.512 billion
January 1, 2008: $82.663 billion
January 1, 2009: $101.654 billion
January 1, 2010: $103.396 billion
January 1, 2011: $117.345 billion
January 1, 2012: $126.236 billion
January 1, 2013: $135.065 billion
January 4, 2013: $136.277 billion
 For the consequences of economic integration with the European Union, see the report Mirovoykrizis i ukrainskiyperiferiynyykapitalizm (“The world crisis and Ukrainian peripheral capitalism”), compiled before the Maidan and available at http://liva.com.ua/crisis-report.html.
 “For a long period the oligarchs determined the internal character of the state system. But at a certain point they concluded that they had taken everything that was to be had from the independent Ukraine, and were now among the world’s super-rich. From this point they faced the question of how to retain what they had ‘acquired through unremitting labour’. To manage this within their own country seemed to them unrealistic, since at any moment a determined, unpredictable, charismatic leader or party might come to power and declare a reprivatisation… To avoid such a development, the oligarchs agreed tacitly among themselves to ‘hand over’ the sovereignty of Ukraine for ‘safekeeping’ within European structures. In exchange, they would secure the operation on Ukrainian territory of the laws of social and economic defence that ensure the inviolability of property on the territory of Europe. The oligarchsset out to achieve this by signing an association agreement with the European Union.” DmitriyVydrin. Evromaydan – bunt milliarderovprotivmillionerov (“The Euromaidan – a revolt by the billionaires against the millionaires”), http://glagol.in.ua/2014/01/23/dmitriy-vyidrin-evromaydan-bunt-milliarderov-protiv-millionerov/#ixzz2yHYP6PXR.
 See Sergey Kirichuk. Aktivnoeuchastienatsionalistov – klyuchevoyfaktorpadeniyapopulyarnostiMaydana (“The active participation of the nationalists – the key factor in the decline of the popularity of the Maidan”) http://borotba.org/sergei-kirichuk-uchastie-nacionalistov-factor-padeniya-populyarnosti-maidana.html.
 “The news of the barbaric destruction of the monument to V.I. Lenin did not meet with condemnation from the leaders of the Maidan”, Borotba wrote at the time. “To the contrary, the liberal oppositionists are supporting their neo-Nazi adopted brothers. As can be seen, the ideological face of the Maidan is not determined by the liberal sector of the opposition, but by the extreme right-wing, neo-Nazi forces” (http://borotba.org/oni-mogut-unichtojit-pamyatnik-no-ne-ideyu.html). From the podium, the deputy of the ultra-right-wing Svoboda party AndreyIlenko displayed pieces broken off the monument. (http://podrobnosti.ua/society/2013/12/08/946901.html?cid=5408279).
 See, for example, this article in The Nation: http://www.thenation.com/article/178013/ukrainian-nationalism-heart-euromaidan#.
 Survey conducted by the foundation Democratic Initiative on February 6, http://www.dif.org.ua/ua/polls/2014_polls/vid-maidanu-taboru-do-maidan.htm.
 “Another important feature of the list of victims is that of those who died, virtually none were members of the working class, workers in large industrial enterprises... This fact, that the spearhead of revolutionary violence in the Euromaidan consisted of members of the sub-proletariat and the intelligentsia (the ‘creative class’), together with people from outlying provincial districts who joined with them, reflects the fundamental difference between the social structures of eastern and western Ukraine, a difference that is superimposed on the mental split between the two parts of the country” (http://kavpolit.com/articles/litso_pogibshego_majdana-1526/).