In my previous blog I came to the conclusion that during its post-Soviet history Ukraine has become a Kevin Philips nightmare. No matter who gets elected there, they are either oligarchs, or oligarch stooges. It appears that the oligarchs not only control the parties that compete against each other during the elections, the Ukrainian billionaires have also been the key players, behind the scenes, during the violent overthrow of the Yanukovich government (see The Power of Ukraine’s Billionaires).
And what has the oligarchic rule yielded for the well-being of the common Ukrainians? Let’s take a look at the Ukrainian GDP per capita, a flawed and limited indicator, but good enough as a starting point. According to the CIA World Factbook, the Ukrainian GDP per capita (PPP) in 2013 was $7,400. That’s far below Hungary’s (19,800), Poland’s (21,100), or Slovakia’s (24,700). It’s also far below that of Russia (18,100). Russia’s GDP per cap is 2.5 times larger than Ukraine’s??
Russia may not be a good comparison because of its vast mineral wealth in oil and gas. Worse, in some ways, Russia is even more oligarchic than Ukraine – it has a truly remarkable number of billionaires, for a medium-wealth country (I tried to count them in the Forbes’ list, but lost count after 100). Still, there is one important difference between Russia and Ukraine.
The Russian oligarchs, although they came very close to seizing power during the 1990s, ultimately failed to become the ruling class, as it happened in Ukraine. Following a struggle between the economic elites and administrative elites (the ‘State Nobility’), the latter won decisively, thus reverting to the historical pattern that characterized power relations in Russia since at least the fifteenth century. What we have now in Russia is the rule by fairly corrupt state officials working closely with their business cronies. Politically the business elites, unlike in Ukraine, are thoroughly subordinated to the bureaucrats. While the governance of the country is far from optimal, we should also note that, unlike in Ukraine, the Russian system does deliver better results for common people. This is based not only on the comparison between GDP per capita (a flawed measure of ‘per capita income’), but also on comparing average salaries and pensions (corresponding to Social Security benefits in the US).
Perhaps a better comparison is the one with Belarus, a country that lacks not only the mineral wealth of Russia, but also the excellent climate and rich “black soils” of Ukraine. Nevertheless, Belarus manages a very respectable GDP per capita of $16,100, more than twice as good as the one in Ukraine. Furthermore, Belarus doesn’t sport even a single billionaire in the Forbes list. This means that the median Belorussian income is way above that of Ukraine, and probably better than in Russia (a more equitable division of wealth elevates the median). It’s a remarkable achievement for a country that lacks any oil and gas, and is located in a rather unproductive ecological zone.
Of course, the ruler of Belarus, Alexander Lukashenko, is the “last European dictator.” But the political economists have known all along that democracy is not a necessary condition for rapid economic development. It’s enough to look at the history of Asian tigers to see this. Both Taiwan’s and South Korea’s economies grew very rapidly when they were dictatorships. Even Japan fits the pattern. We think of Japan as a democratic society, but until recently Japan was a one-party state. Between 1955 and 2009 (with the exception of 11 months in 1993–94), Japan has been ruled by the Liberal Democratic Party. And the greatest example of how an economic miracle can unfold in the absence of democracy is China, which doesn’t even bother holding elections.
Returning to our comparison of the three East Slavic countries, it is startling to observe that the least democratic, Belarus, is also the most egalitarian, while the people of the most democratic, Ukraine, are the poorest. And don’t forget, the GDP data were for 2013. Today, following the February 2014 Revolution, the GDP has likely declined even more.
To conclude, a structural-demographic analysis of the Ukrainian polity suggests that it is a failed state. All three conditions of a structural-demographic state collapse are present: population immiseration, elite overproduction, and the state fiscal crisis. Unfortunately, the IMF is planning to impose its typical program of ‘reforms,’ which will result in further immiseration of the population, as the subsidies on fuel and staples are eliminated and pensions and state employee salaries are slashed. As far as I can see, there is no effort to curb the power of the oligarchs. This means that the February revolution is not going to be the last one.