Monday, May 31, 2010

The View from Ukraine

Some comments on an article that appeared in the July 2009 Country Guide about agriculture in Ukraine.  I sent this to the consultant who was the source of the article's information.  His comments were blunt but pretty close to the mark.

Privatization was a huge problem for the entire FSU.  Assets could not be sold as there was no money and the assets belonged to everyone i.e. everyone was entitled to the same amount as the next person.  The people who had accumulated money were those who were able to take advantage of their positions in the Soviet government to skim, collect bribes, etc.

Just an aside: In Stalin’s time, people were too worried about just staying alive to try to make money.  There was little or NO theft, bribery or corruption in those days, just the usual wide separation in living standards according to one’s position (the system that was supposed to do away with class structure actually exacerbated it, especially when goods were scarce).

Such enterprises that were privatized were sold for cents on the dollar, because no one had money to pay and because most was done on inside deals.  Also many were in similar shape to the farm machinery in the article and required huge investments to modernize.  The common masses felt (and still feel) cheated that the industries which used to bring revenue that was spent on everyone are now lining the pockets of the oligarchs while the general population is actually worse off than under Brezhnev, when as is pointed out in the article living standards were at their historical highest in the USSR. None of them understand why the system was unsustainable.  It had much to do with the lack of checks and balances.  There was no private sector, no NGO or civil society sector, there was only THE PARTY and non-conformists were frowned on to say the least.  Consequently for the last 30 years of the USSR, productivity of combined capital and labour actually fell 1% per year.
Decisions were made in Moscow at the highest level possible because taking responsibility was dangerous.  The only way to get ahead was to move up the system and there was only one system. So competition was more than fierce.  Any mistakes were immediately followed by seeking someone to blame (the system i.e. the party could NOT be wrong so it had to be someone’s fault.  In Stalin’s time it was “saboteurs and counter revolutionists – enemies of the people”).  So you handed responsibility off as fast as possible so you were not left holding the hot potato when the music stopped.  The results of that were evident through out the system.  Fish rotted waiting for Moscow to tell them to lift the nets.  Kazakhstan still starts seeding May 15 because that was what Moscow told them in previous times.

The bans on grain exports mentioned in the article were necessary because the grain companies would export all the grain, short the local supply, and then have to import grain to make up the short fall.  Of course they profited both ways and because the flour milling companies are subsidized by the government to keep the price of bread down, they had no incentive to buy ahead.  In fact anyone who could was likely in on the scam in one way or another.  And export permits are a great way to generate revenue too – for the guy who has to sign them.  Always remember that the status quo benefits someone and changes benefit someone else.  

There is no need for lobbyists in Ukraine.  The businessmen themselves are the deputies and that way can keep a close personal eye on the making of new laws.  And of course, any laws they pass will either benefit them greatly or are “just for other people”.  There are no real parties here, just extensions of the egos of the party’s leader.  E.g. Yulia’s party is known as Bloc Timoshenko.  There is no benefit in joining another party if your ego is big enough. Anyone can start a party and if they get enough votes are guaranteed a seat in the Rada as deputies are selected from party lists in order of “importance”. Wait until after the election and sell your block of votes to the highest bidder. 

The constitution does not allow individuals to “cross the floor” since they themselves were not elected.  Only the entire party block can decide which main party they will support – or not. This created problems for Yanukovich to cobble together a coalition government without going to the people.  He simply passed a decree ignoring the constitution and made it legal for individuals to cross the floor.  And of course, bought and paid for the ones that did.  It didn’t bother people that he did this as Constitutions do not hold the same legal power as we think.  People seem to understand constitutions as a vision of a perfect future, not as a basis for running a country. Stalin wrote one of the most enlightened, liberal constitutions ever. 

The circus of the past 20 years is the ONLY democracy that the citizens of the FSU have known.  To them it is a joke and is associated with crime, theft, corruption and the poorest standard of living they have had since the end of the Great Patriotic War.  They have never known anything except a “strong man on the throne”, whether Tsar or Party leader.  They never asked to be rescued from the previous system so one can understand why they would like some form of it back. Putin’s version of stage-managed democracy is familiar to them and not entirely unwelcome.

Another aside: some did want to change the system completely, obviously, recognizing all that was rotten with it, but the vast majority just wanted it fixed and run properly, (which has been the case with most riots and rebellions in most countries over the years, even in China, dating back centuries.. Rebellion and revolution anywhere is simply a sign of bad government.  Of course, those in power have no intention of giving up their positions so people are declared enemies of the people, terrorists, communists or whatever label suits the current politics of violently smashing the complainants instead of dealing with the problem).

The banks needed to support the Hrivna in 2008.  The value of my CAD pension went up 40% in UAH. Great for Tanya and I but terrible for everyone else that depended on anything imported.  Prices skyrocketed as goods adjusted to the new FX rates. And anyone foolish enough to borrow money in foreign currency with lower interest rates prior to the crash, to buy cars or other consumer goods, found themselves owning 40% more money than they thought.  There was a reason for high credit rates in Ukraine.  The Hrivna was vulnerable and banks knew it.

So now to reforming agriculture:  The collective farms (state farms, too but I can’t say for sure) were divided up among those who worked there, including pensioners.  Farms and factories looked after all the social needs of the workers, including health, education, village infrastructure etc.  That is how everyone ended up with a few hectares of land.  Not only did they not have management skills to farm on their own there was NO credit, as the article pointed out.  Land has been on the verge of being bought sold and collateralized since at least 2004 here in Ukraine but don’t hold your breath.

Land ownership is a serious issue in this part of the world as there has NEVER been private ownership of land.  Not in the Jeffersonian sense of inviolate property rights.  In Tsarist times, the nobility and the gentry owned vast estates, including towns and serfs.  Property was bought and sold BUT if you fell out of favour with the Tsar, it was all forfeit.  Peasants and richer farmers “owned” land in much the same way.  Bought and sold but no security of title. 

There is real fear in the minds of everyday Ukrainians that huge tracts of land will end up owned by outsiders who will indeed make them into serfs again.  Yet this is happening anyway.  First, look at Russia and Kazakhstan where huge corporations are buying up land consolidating it into 10’s and 100’s of thousands of hectares, including the villages where serfs, then collective/state farm workers once lived.  The villagers will either work for these farms or not at all. (How secure is the title on this land?  Well, you can ask Kodorkovsky how secure his title to Yukos was when he fell out of favour with Putin).  These giant corporations can get credit from banks (and quite often huge sums of money from government as well) because they are well connected or rich enough from other sources that they are better credit risks than a 2000 ha or even a 20,000 ha. small private farmer.

In Ukraine, giant corporations are putting together large tracts of land but renting it instead of getting title.  Lately they are signing 50 year leases and paying up front as a way to circumvent both ownership problems and the vagaries of fickle renters.  These companies bring their own money, earned in spare parts, in oil and gas, in grain trade, real estate, mining, iron and steel or somewhere.  Several are owned by foreign investors who supply money for equipment and operating.  They are also importing production technology that works from who ever has it. 

A great deal of land is still farmed by restructured collectives in what ever form and size they ended up – cooperatives, corporations partnerships.  They are running aged equipment like the stuff in the pictures, starved for operating cash and for new technology.  Former collective farm directors are the managers/owners of these farms as they are the only ones with any management experience, though there are young people coming up fast who do not have to unlearn everything in order to learn but they are still hampered by the agricultural research and education system in Ukraine which seems to have its head firmly up it rear end. 

And there is NO extension service, in spite of all kinds of encouragement from any number of countries.  I am not totally certain that the government is being quietly urged by other countries NOT to have a government extension service but rather depend on fee-for-service consultants.  What better way to make sure that their agriculture never catches up and becomes serious competition?  Only the big corporations can afford to acquire new technology.  All countries with developed agricultural industries had free government funded agricultural extension services for at least 100 – 150 years.  Once farms reach a certain size and sophistication they will automatically swing to fee-for-service, as is happening in Canada and the USA right now.  Government extension still serves a purpose but that is changing with the times.

What will come of it, I don’t know.  There is an article I just learned about from Al Scholz, Rethinking agricultural reform in Ukraine: . I have not had a chance to read yet.  FAO documents of 178 pages tend to frighten me.  I will read it eventually.  It was written in 2007 so should deal with today’s problems, I hope..


  1. I see so many similarities in your story to the U.S. it's not funny. The only difference is that corporations took over our government. Small and mid sized farms are all but gone, unable to get credit after the bank melt down even though banks got a multi billion dollar bail out and trillions in available credit.
    We've seeing the same things in the airline industries. Many fell out with deregulation while those that remained merged to keep operating.
    And what are banks doing with all this cash? The exact same things that got us into this mess selling derivatives and CDOs and naked shorts. Looks like all the U.S. produces anymore is paper promises.

  2. Don't ever kid yourself. Republicans would love a Putin-style managed-democracy.
    Here the companies ARE the government as the owners ARE the deputies.