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Is Ukraine next?

With Georgia in pieces, Ukraine could be the next to fall to Russia's territorial ambition, separati

Ukraine's political summer season was cool and quiet, despite air temperatures in the high thirties (centigrade) and the war in Georgia, which the Ukrainian president, Viktor Yushchenko, tried hard to make a matter of personal significance for each Ukrainian.

The president's speeches in defence of Georgia's territorial integrity and against Russian aggression were published regularly in the papers. Television covered the Stop Russia Now! meeting of four presidents in Tbilisi, while the idea that Russia's next target would be the Crimea sparked discussion among Ukrainian politicians and political scientists. Yushchenko put on combat gear that made him look like Fidel Castro and it was announced that Ukraine would be the first to join any international "anti-Russian" alliance - although it remains unclear how such an alliance would act, and the idea now seems to have been put on the back burner.

The political battle cries over the conflict have gradually died down. Despite protests by many politicians, Ukraine's Independence Day on 24 August was celebrated in Soviet style with a military parade down Kiev's main street. Two days later, near the country's second-largest city, Kharkiv, a huge arsenal of ammunition caught fire and, for several days, bombs and mines were exploding, firework-style, over a five-kilometre radius. The minister of defence, Yuriy Yekhanurov, was forced to admit that the ammunition was to have been sold to the government of Chad. At the same time Yushchenko, in his combat suit, was bestowing the rank of general on 117 officers and government administrators.

Thus, Ukraine begins the autumn season of 2008. The start of parliament's first sitting will be dominated by a motion, tabled by the opposition, to recognise the independence of Abkhazia and South Ossetia. Parliament will not recognise them, just as Kosovan independence is not rec ognised or even discussed. But this only underlines how stable is Ukrainians' "many-sidedness" and how split the political sympathies of the country's eastern and western territories.

For many Ukrainians, the recent military conflict was yet another phase in the ongoing personal war between the Russian prime minister, Vladimir Putin, and the Georgian president, Mikhail Saak ashvili. The first phases of this war were purely economic. There was the ban on imports to Russia of Georgian wine (the wine war) and mineral water (the Borzhomi war, after a famous Georgian water). Then came the ban on imports of Georgian oranges and tangerines (the citrus war). After that began the countrywide campaign against Georgians residing - legally and illegally - in Russia, involving the deportation of illegal "guest workers" and the harassment of others, some of whom were very well known. One of Russia's best-known authors, Boris Akunin, whose real name is Grigory Chkhartishvili, suddenly found himself terrorised by the Russian tax authorities.

However, in response to the most recent Russo-Georgian conflict, Georgians living in Russia have banded togeth er against President Saakashvili. It is not a question of who did what and who is to blame. Georgian Russians simply want to get on with their lives in peace.

People in Ukraine also want a peaceful life, but Ukrainians have been more disturbed by the recent events in Georgia than western Europeans. Russia repeatedly declared that the Georgian army was using Ukrainian arms and that Ukrainian mercenaries were fighting on the side of Georgia in South Ossetia. Although neither charge has been proven, these repeated accusations serve to illustrate Russia's political antagonism towards Ukraine.

Moscow's politicians have repeatedly responded aggressively to Ukraine's demand that Russia prepare to remove her Black Sea fleet from Crimea in 2017, the year the contract under which Russia leases the Crimean naval base expires. The mayor of Moscow, Yuri Luzhkov, once called Sebastopol "a region of Moscow", and Moscow has been financing the construction of apartment buildings in the city. Luzhkov has also demanded the return of the Crimean peninsula to the Russian Federation. (Crimea was "gifted" to Ukraine by Nikita Khrushchev in 1954 to celebrate the 300th anniversary of Ukraine's voluntary integration into the Russian empire.) There are many in Russia who share Luzhkov's views, and few Ukrainians believe Putin's statement, made in an interview on CNN, that Russia has no territorial quarrel with Ukraine.

The perils of Russophobia

Ukrainians note that Russia seemed to have no territorial quarrel with Georgia until the beginning of last month. The suddenness of the Georgian crisis, and that Ukraine has approximately equal numbers of pro-Russian and pro-European politicians and regions, only underlines the complexity of the situation in which Ukraine finds itself. A referendum held in 2006 showed that a majority of South Ossetians did not wish their country to remain as part of Georgia; similarly, if a referendum were held in Crimea today, it would show that most people there do not want to live as part of Ukraine.

In an attempt to transform the south and east of the country, Yushchenko has tried to "Ukrainianise" secondary and tertiary education in the Russian-speaking regions. This has drawn protests from the local popu lation and politicians, and the policy has only increased pro-Russian sentiment in these regions. Yush chenko, called a "Russophobe" in the Russian press, has never been so unpopular. Ukrainian polls give him only 5 to 6 per cent support, the same as the Ukrainian Communists. His chances of winning a second term in office in the 2009 presidential elections are practically nil.

The presidential race is expected to be between Yulia Tymoshen ko and Viktor Yanukov ych. Both would be acceptable to Moscow. Both would be prepared to negotiate an extension of lease for the Crimean naval base and to postpone the question of Ukraine's Nato membership - unless Nato acts swiftly to make Ukraine a member while Yushchenko is still in power.

With regard to the European Union, most Ukrainians understand that they won't get in for at least another 20 years, leaving Ukraine economically dependent on Russia for the foreseeable future. Each anti-Russian move by the Ukrainian president has resulted in the sort of economic sanctions employed by Russia against Georgia, except that now it's Ukrainian meat and dairy products that Russia has banned. Thus, American chicken and Ukrainian dried milk have been the first victims of the current stand-off between the west and Russia.

Ukraine, an industrially developed country, could be seriously harmed by Russian sanctions. Most thinking Ukrainians appreciate that the country requires super-competent politicians if it is to maintain its political independence while being economically dependent on Russia - about which Ukraine has no choice. Unfortunately, the present level of political corruption puts Ukraine a long way from seeing the necessary calibre of politician in its corridors of power. Sadly, Yush chenko has not fulfilled his central election promise to overcome corruption.

But Saakashvili, his good friend and the godfather of one of his children, seems fully to intend to carry out his own election promises. Having been re-elected in January this year, Saakashvili sought to strengthen his position by reinforcing the territorial integrity of Georgia, a task made urgent by the obligation on all countries aspiring to join Nato not to have any unsettled territorial disputes. It is my belief that, in rekindling the South Ossetian conflict, Saakashvili planned to speed up the process of his country's entry into Nato. Perhaps he hoped Nato would join in the conflict on Georgia's side. Surely he could not have imagined that Russia would not respond to artillery fire over a town where a battalion of Russian peacekeepers was stationed, or that the Georgian army could win the ensuing battle on its own. Nato remained outside this conflict, as I believe it would in the case of any military confrontation with Russia, because doing otherwise could take the world to the brink of disaster.

A Pandora's box

The Ukrainian president, like the Georgian leader, wants Ukraine to join Nato as soon as possible, and though Ukrainians themselves are less enthusiastic, right-wing politicians maintain that if Georgia had been a member of Nato, Russia would not have dared to protect South Ossetia or march into Georgian cities and ports.

However, most Ukrainians doubt that the west will put any significant pressure on Russia, and expect that any protests will be confined to hard-hitting rhetoric, along the lines of David Miliband's recent speech in Kiev. On returning to London, he admitted that Europe needs Russian gas and also noted that Gazprom needs European clients and investors.

Meanwhile, untouched by western opinion, Russia has boosted its image as a country prepared for brutal confrontation with neighbours. As Putin put it on 29 August, the west started the business of redrawing the map of Europe when it recognised the independence of Kosovo, thus "opening a Pandora's box". South Ossetia and Abkhazia are only the second and third "evils" to have flown out of that box since Kosovo. Might there be others?

For 17 years, the "independent" state of Transdnestria has existed on the boarder of Ukraine and Moldova. It is populated by Russians, Ukrainians and now well-rooted settlers from the 14th army of the USSR, which was stationed there when the Soviet Union broke up. There are other unrecognised "independent" territories, the leaders of which are now looking hopefully towards Moscow, which is ready to expand its political territory under the banner of the CIS (Confederation of Independent States), a friendly enough sounding union.

All that will be required, from Moscow's point of view, will be the recognition of these states by each other and by Russia - and, in the end, eastern Europe, the Caucasus and central Asia will be firmly within the Russian sphere of influence. The western border of this sphere could very well be drawn through the middle of Ukraine, slicing the country in two.

Andrey Kurkov is the author of "The President's Last Love" (Harvill Secker, £12.99)

Picture: Archives Charmet / Bridgeman Images
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What Marx got right

...and what he got wrong.

1. You’re probably a capitalist – among other things

Are you a capitalist? The first question to ask is: do you own shares? Even if you don’t own any directly (about half of Americans do but the proportion is far lower in most other countries) you may have a pension that is at least partly invested in the stock market; or you’ll have savings in a bank.

So you have some financial wealth: that is, you own capital. Equally, you are probably also a worker, or are dependent directly or indirectly on a worker’s salary; and you’re a consumer. Unless you live in an autonomous, self-sufficient commune – very unusual – you are likely to be a full participant in the capitalist system.

We interact with capitalism in multiple ways, by no means all economic. And this accounts for the conflicted relationship that most of us (including me) have with capitalism. Typically, we neither love it nor hate it, but we definitely live it.

2. Property rights are fundamental to capitalism . . . but they are not absolute

If owning something means having the right to do what you want with it, property rights are rarely unconstrained. I am free to buy any car I want – so long as it meets European pollution standards and is legally insured; and I can drive it anywhere I want, at least on public roads, as long as I have a driver’s licence and keep to the speed limit. If I no longer want the car, I can’t just dump it: I have to dispose of it in an approved manner. It’s mine, not yours or the state’s, and the state will protect my rights over it. But – generally for good reason – how I can use it is quite tightly constrained.

This web of rules and constraints, which both defines and restricts property rights, is characteristic of a complex economy and society. Most capitalist societies attempt to resolve these tensions in part by imposing restrictions, constitutional or political, on arbitrary or confiscatory actions by governments that “interfere” with property rights. But the idea that property rights are absolute is not philosophically or practically coherent in a modern society.

3. What Marx got right about capitalism

Marx had two fundamental insights. The first was the importance of economic forces in shaping human society. For Marx, it was the “mode of production” – how labour and capital were combined, and under what rules – that explained more or less everything about society, from politics to culture. So, as modes of production change, so too does society. And he correctly concluded that industrialisation and capitalism would lead to profound changes in the nature of society, affecting everything from the political system to morality.

The second insight was the dynamic nature of capitalism in its own right. Marx understood that capitalism could not be static: given the pursuit of profit in a competitive economy, there would be constant pressure to increase the capital stock and improve productivity. This in turn would lead to labour-saving, or capital-intensive, technological change.

Putting these two insights together gives a picture of capitalism as a radical force. Such are its own internal dynamics that the economy is constantly evolving, and this in turn results in changes in the wider society.

4. And what he got wrong . . .

Though Marx was correct that competition would lead the owners of capital to invest in productivity-enhancing and labour-saving machinery, he was wrong that this would lead to wages being driven down to subsistence level, as had largely been the case under feudalism. Classical economics, which argued that new, higher-productivity jobs would emerge, and that workers would see their wages rise more or less in line with productivity, got this one right. And so, in turn, Marx’s most important prediction – that an inevitable conflict between workers and capitalists would lead ultimately to the victory of the former and the end of capitalism – was wrong.

Marx was right that as the number of industrial workers rose, they would demand their share of the wealth; and that, in contrast to the situation under feudalism, their number and geographical concentration in factories and cities would make it impossible to deny these demands indefinitely. But thanks to increased productivity, workers’ demands in most advanced capitalist economies could be satisfied without the system collapsing. So far, it seems that increased productivity, increased wages and increased consumption go hand in hand, not only in individual countries but worldwide.

5. All societies are unequal. But some are more unequal than others

In the late 19th and early 20th centuries, an increasing proportion of an economy’s output was captured by a small class of capitalists who owned and controlled the means of production. Not only did this trend stop in the 20th century, it was sharply reversed. Inherited fortunes, often dating back to the pre-industrial era, were eroded by taxes and inflation, and some were destroyed by the Great Depression. Most of all, after the Second World War the welfare state redistributed income and wealth within the framework of a capitalist economy.

Inequality rose again after the mid-1970s. Under Margaret Thatcher and Ronald Reagan, the welfare state was cut back. Tax and social security systems became less progressive. Deregulation, the decline of heavy industry and reduction of trade union power increased the wage differential between workers. Globally the chief story of the past quarter-century has been the rise of the “middle class”: people in emerging economies who have incomes of up to $5,000 a year. But at the same time lower-income groups in richer countries have done badly.

Should we now worry about inequality within countries, or within the world as a whole? And how much does an increasing concentration of income and wealth among a small number of people – and the consequent distortions of the political system – matter when set against the rapid ­income growth for large numbers of people in the emerging economies?

Growing inequality is not an inevitable consequence of capitalism. But, unchecked, it could do severe economic damage. The question is whether our political systems, national and global, are up to the challenge.

6. China’s road to capitalism is unique

The day after Margaret Thatcher died, I said on Radio 4’s Today programme: “In 1979, a quarter of a century ago, a politician came to power with a radical agenda of market-oriented reform; a plan to reduce state control and release the country’s pent-up economic dynamism. That changed the world, and we’re still feeling the impact. His name, of course, was Deng Xiaoping.”

The transition from state to market in China kick-started the move towards truly globalised capitalism. But the Chinese road to capitalism has been unique. First agriculture was liberalised, then entrepreneurs were allowed to set up small businesses, while at the same time state-owned enterprises reduced their workforces; yet there has been no free-for-all, either for labour or for capital. The movement of workers from rural to urban areas, and from large, unproductive, state-owned enterprises to more productive private businesses, though vast, has been controlled. Access to capital still remains largely under state control. Moreover, though its programme is not exactly “Keynesian”, China has used all the tools of macroeconomic management to keep growth high and relatively stable.

That means China is still far from a “normal” capitalist economy. The two main engines of growth have been investment and the movement of labour from the countryside to the cities. This in itself was enough, because China had so much catching-up to do. However, if the Chinese are to close the huge gap between themselves and the advanced economies, more growth will need to come from innovation and technological progress. No one doubts that China has the human resources to deliver this, but its system will have to change.

7. How much is enough?

The human instinct to improve our material position is deeply rooted: control over resources, especially food and shelter, made early human beings more able to reproduce. That is intrinsic to capitalism; the desire to acquire income and wealth motivates individuals to work, save, invent and invest. As Adam Smith showed, this benefits us all. But if we can produce more than enough for everybody, what will motivate people? Growth would stop. Not that this would necessarily be a bad thing: yet our economy and society would be very different.

Although we are at least twice as rich as we were half a century ago, the urge to consume more seems no less strong. Relative incomes matter. We compare ourselves not to our impoverished ancestors but to other people in similar situations: we strive to “keep up with the Joneses”. The Daily Telegraph once described a London couple earning £190,000 per year (in the top 0.1 per cent of world income) as follows: “The pair are worried about becoming financially broken as the sheer cost of middle-class life in London means they are stretched to the brink.” Talk about First World problems.

Is there any limit? Those who don’t like the excesses of consumerism might hope that as our material needs are satisfied, we will worry less about keeping up with the Joneses and more about our satisfaction and enjoyment of non-material things. It is equally possible, of course, that we’ll just spend more time keeping up with the Kardashians instead . . .

8. No more boom and bust

Are financial crises and their economic consequences part of the natural (capitalist) order of things? Politicians and economists prefer to think otherwise. No longer does anyone believe that “light-touch” regulation of the banking sector is enough. New rules have been introduced, designed to restrict leverage and ensure that failure in one or two financial institutions does not lead to systemic failure. Many would prefer a more wholesale approach to reining in the financial system; this would have gained the approval of Keynes, who thought that while finance was necessary, its role in capitalism should be strictly limited.

But maybe there is a more fundamental problem: that recurrent crises are baked into the system. The “financial instability” hypothesis says that the more governments and regulators stabilise the system, the more this will breed overconfidence, leading to more debt and higher leverage. And sooner or later the music stops. If that is the case, then financial capitalism plus human nature equals inevitable financial crises; and we should make sure that we have better contingency plans next time round.

9. Will robots take our jobs?

With increasing mechanisation (from factories to supermarket checkouts) and computerisation (from call centres to tax returns), is it becoming difficult for human beings to make or produce anything at less cost than a machine can?

Not yet – more Britons have jobs than at any other point in history. That we can produce more food and manufactured products with fewer people means that we are richer overall, leaving us to do other things, from economic research to performance art to professional football.

However, the big worry is that automation could shift the balance of power between capital and labour in favour of the former. Workers would still work; but many or most would be in relatively low-value, peripheral jobs, not central to the functioning of the economy and not particularly well paid. Either the distribution of income and wealth would widen further, or society would rely more on welfare payments and charity to reduce unacceptable disparities between the top and the bottom.

That is a dismal prospect. Yet these broader economic forces pushing against the interests of workers will not, on their own, determine the course of history. The Luddites were doomed to fail; but their successors – trade unionists who sought to improve working conditions and Chartists who demanded the vote so that they could restructure the economy and the state – mostly succeeded. The test will be whether our political and social institutions are up to the challenge.

10. What’s the alternative?

There is no viable economic alternative to capitalism at the moment but that does not mean one won’t emerge. It is economics that determines the nature of our society, and we are at the beginning of a profound set of economic changes, based on three critical developments.

Physical human input into production will become increasingly rare as robots take over. Thanks to advances in computing power and artificial intelligence, much of the analytic work that we now do in the workplace will be carried out by machines. And an increasing ability to manipulate our own genes will extend our lifespan and allow us to determine our offspring’s characteristics.

Control over “software” – information, data, and how it is stored, processed and manipulated – will be more important than control over physical capital, buildings and machines. The defining characteristic of the economy and society will be how that software is produced, owned and commanded: by the state, by individuals, by corporations, or in some way as yet undefined.

These developments will allow us, if we choose, to end poverty and expand our horizons, both materially and intellectually. But they could also lead to growing inequality, with the levers of the new economy controlled by a corporate and moneyed elite. As an optimist, I hope for the former. Yet just as it wasn’t the “free market” or individual capitalists who freed the slaves, gave votes to women and created the welfare state, it will be the collective efforts of us all that will enable humanity to turn economic advances into social progress. 

Jonathan Portes's most recent book is “50 Ideas You Really Need to Know: Capitalism” (Quercus)

Jonathan Portes is senior fellow The UK in a Changing Europe and Professor of Economics and Public Policy, King’s College London.

This article first appeared in the 22 June 2017 issue of the New Statesman, The zombie PM

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