Ukraine 10 years on: a social and economic review

by Dr. David R. Marples

In December 1991, over 90 percent of Ukraine's residents ratified the declaration of independence in a national referendum. The new state was widely regarded as a potential economic giant. The second largest nation in Europe in terms of area, it possessed a population of 52.5 million, significant agricultural and industrial resources, and a highly educated workforce.

What followed was unforeseen: a spectacular decline in the standard of living, accompanied by several disturbing demographic changes.

In retrospect, Ukraine's position was never as good as it seemed. It was complicated by several issues: relations with foreign powers and reliance on them for energy requirements, especially Russia; and the need to focus on security issues, to define borders with neighbors, and to construct the infrastructure of the new state from the ruins of the Communist one.

Agriculture, the mainstay of the Ukrainian SSR was already producing less than Ukraine's proportion of the Soviet Union. The coal and steel industries had been declining for a decade. There was also a fear among political sectors of embarking too quickly on a program of radical economic reform, and perhaps above all the country was markedly regionalized, though this latter factor became more evident only in subsequent election campaigns and political events.

This brief paper will address the various sectors of Ukraine's social and economic life to analyze the situation after the first decade of independence. As a prequel, one might note that the retention and consolidation of independence are in themselves significant achievements.

However, the success of the transition ultimately will be measured by factors such as living standards and quality of life, and by the image of the state abroad. In these areas, the state of Ukraine has not lived up to the high expectations, but it should not be viewed in isolation. The changes have been equally difficult in other post-Soviet states, though it is arguable that, given Western aid, advice, advisors and general support over at least the past seven years, Ukraine's performance should have been better.

Along with Belarus, Ukraine has had to deal with a prolonged dilemma from the nuclear disaster at Chornobyl. Only in December 2000, after numerous discussions and an agreement with the G-7 plus Russia and the International Atomic Energy Agency was the nuclear plant finally closed. The repercussions on health, agriculture and the economy, however, will continue for several decades.

An overview

In a recent talk here at the University of Alberta, my colleague Oleksii Omelianchuk discussed the "state capture" in Ukraine by business groups or oligarchs who have succeeded in creating vast wealth as a consequence. Such affluence does not pertain to the state sector or to the population as a whole. As the decade has progressed, Ukraine's GDP has fallen below its 1991 value by 60 percent.

Only over the past two years has some slight recovery been manifest, but this improvement in GDP and industrial output is not expected to endure. The IMF, for example, forecast recently that the growth rate in Ukraine would slow in the year 2002. Prime Minister Anatolii Kinakh has pointed to some serious structural defects in the way the Ukrainian economy operates, noting in particular that the bulk of exports is raw materials and products that require finishing outside the country. The banking system, according to President Leonid Kuchma, is the weakest of all the post-Soviet countries, and the lending rates are so extortionate as to preclude factories and enterprises from being bold enough to run up debts.

The demographic structure of Ukraine has changed significantly over the past decade. Over 72 percent of the population of Ukraine lives in towns, while the rural population has shrunk to less than 14 million people. The population as a whole has declined more rapidly than in any other former Soviet republic as the mortality rate is now substantially higher than the birth rate. In the year 2000 the population fell below 50 million for the first time, and the total is anticipated to fall further to 48.1 million by 2015 and 45.9 million by 2025, assuming there is no significant in-migration.

Infant mortality in Ukraine, i.e., the deaths per thousand of babies that die before reaching the age of 1, is around 15 - three times higher than in Canada. Life expectancy at birth, which was 65.8 for men and 74.5 for women in the last five years of Soviet rule, today is 62.7 for men and 73.5 for women (14 and eight years, respectively, less than in Canada).

In June 2001, at the special session of the United Nations General Assembly dealing with HIV/AIDS, it was revealed that over 250,000 residents of Ukraine are HIV positive, and that the disease has reached the status of a national epidemic. Similar pictures emerge when examining other infectious diseases in Ukraine, and health standards in general have declined because of a shortage of funding.

Figures in Russia are comparable, with the proviso that one is not comparing like with like. As a federation, Russia possesses more extremes, from poverty-stricken regions such as Daghestan and the Far North, to the affluent and booming city of Moscow. Ukraine in that respect is much more uniform, though the agricultural regions of the west appear to have suffered more from the economic downturn than the industrial areas on the left bank of the Dnipro River.

The industrial workforce has been prone to protest and strike against existing conditions, particularly the delays in receiving wages. One of the more poignant experiences of the decade of independence was the sight of unpaid workers from the Chornobyl nuclear plant protesting in Kyiv. In the year 1999 there were 327 strikes in Ukraine. The two major problems of the Ukrainian economy in 2001 (aside from corruption, which merits a separate discussion) are inflation and unemployment.

Last year the inflation rate in Ukraine was over 25 percent, compared to 19.2 percent in 1999. Though the figure is well below the hyperinflation that pervaded the country in the early 1990s, it is still worrisome, and is accounted for by price increases for food and fuel. Recent agreements made with Russia on long-term payments for debts on imported oil and gas may help to reduce inflation in the future. State debt remains high at around 54.6 billion hrv (around $9 billion U.S.)

In the year 2000, the average wage in Ukraine was around $40 per month. According to the Infocus Program on Socio-Economic Security, about 37 percent of the population were considered to be living in poverty at the end of 1999, but this figure is likely an underestimate since the national minimum wage was around 41 percent of the average wage - a sum that would be unlikely to sustain minimal subsistence levels.

Unemployment officially stands at just over 12 percent of the workforce. But the real figure is also higher as numerous workers are on "administrative leave." If one adds to the official list those who are not seeking work but are nonetheless part of the "able-bodied" population, the figure is over 26 percent. Those who do work are often not at their desks or workplaces, as absenteeism is around 20 percent.

This overview of Ukrainian society and economy provides a portrait of a country in deep crisis. It is also one that is approaching a period when it may be cut off from trading links with neighbors such as Poland, which will become part of the European Union. Such a development will deprive Ukraine of significant border trade that provides a lifeline for many rural communities of western Ukraine. Though the EU appeared to consider associate membership for Ukraine several years ago, it has also made it plain that the present regime does not meet the rigid standards that would be acceptable to Europe.

However, the gloomy perception of Ukraine by the international community may reflect, in part, the country's inability to publicize its achievements, to "sell itself" to the West as a viable entity that still possesses the potential to develop a thriving market economy. Added to this problem is the dead weight of the legal intricacies and bureaucratic roadblocks that Western businesses face when they attempt to deal with Ukraine. President Kuchma has survived the political scandal of the death of journalist Heorhii Gongadze, but his standing could hardly be lower among those Western countries with which Ukraine wishes to deal.

Therefore, the question arises: Has the West been fair to Ukraine? Have we as Westerners expected too much too soon? Could one say that the problems that Ukraine faces today are a result more of the Soviet legacy than of its own making?

Ukraine's international image

One year ago, the president of the Ukrainian National Academy of Sciences, Borys Paton, published a bitter article titled "If They Had to Close Chornobyl in America," which essentially made this same argument. Dr. Paton noted that Ukraine made two huge sacrifices, namely removing nuclear weapons from its territory voluntarily and closing the Chornobyl nuclear power station on December 15, 2000. Dr. Paton noted that, despite their enormous significance both events hardly caused a stir within Ukraine.

In his view, President Kuchma deserved "at least" a Nobel Peace Prize for the decision to close Chornobyl (the role of the G-8, EBRD, IAEA and others who pressured the president into such a decision is not mentioned in the article.)

However, notes Dr. Paton, most Ukrainians care little about international prestige because they are "living in misery." In his view, Ukrainians should project a certain image abroad, adopt certain ideas that reflect Ukrainian society and convey them to the political elite of the world.

He points, in contrast, to the masterful way Russia handled the aftermath of the Kursk submarine tragedy, depicting on Russian television the images of the divers making repeated attempts to penetrate the submarine: "a devastating fiasco turned into a victory." Why, he wonders, can Ukraine not exploit the closure of the Chornobyl plant in the same way?

One answer might be that the Kuchma regime has destroyed its international credibility over the past seven years. The corruption (only Azerbaijan of the post-Soviet states is ranked as more corrupt than Ukraine according to Transparency International), the attacks on the media that include closures of anti-government newspapers and assassinations of individual journalists, as well as the general reluctance to permit large-scale private landholdings, to assist joint ventures and to undertake substantial economic reforms have all weakened that same public image.

Ukraine's Parliament has also acted as a millstone around the neck of the president, though the existence of a parliament with significant powers can be considered a democratic asset - no such Parliament exists in Belarus, and the Russian Duma is for the most part an ineffective talking shop. However, the plethora of political parties and electoral blocs only adds to the political stalemate and economic inertia.

The situation has only been complicated by the events of September 11. The new relationship that Russia enjoys with NATO can only put pressure on Ukraine, with its avowed multi-vectored foreign policy that until recently was more oriented toward Europe than to the east. Russia has appointed former Prime Minister Viktor Chernomyrdin as the plenipotentiary ambassador to Ukraine, and it has declared the year 2002 to be the Year of Ukraine. There could hardly be a better indication of President Vladimir Putin's intention to draw Ukraine more closely into the Russian orbit, but it is not a direction that the Ukrainian government has shown any inclination to follow in the recent past.

Conclusion

After a decade one can assert that Ukraine has succeeded in several areas: political survival, the avoidance of civil strife, the promotion of a Ukrainian linguistic and cultural presence, and the resolution of problems such as the existence of nuclear weapons on its territory and the operations of the Chornobyl plant.

However, even compared to its neighbors, it would hardly merit a passing grade if the last decade were regarded as an examination process. Ukrainians have suffered an unprecedented decline in living standards over the past decade.

Some of these dilemmas truly emerged from the Soviet era, such as obsolete industries in need of radical overhaul. But many of them did not, and can only be attributed to an uninspiring and often self-serving leadership that often seems to represent regional power blocs more than politicians with the interests of the country at heart.

Not everyone will agree with my assessment. I have often had people say to me: Look at Kyiv, at the Mercedes and BMWs hurtling down the Kreshchatyk! Surely this is a sign that life is improving for Ukraine. Unfortunately the visible evidence of the success of new businessmen is hardly a reflection of the staggering decline in living standards of the majority of the population over the past decade, and in fact only highlights the contrast between the different sectors of the population.

As for Ukraine's international image, clearly it could be better: but it is also at present a reflection of the demographic and social problems faced by the majority of the population.

Can things change? Of course! But the initiative under the present political structure must come from the top rather than the grassroots.

A ruling coalition has to take into account the very different perceptions and aspirations of the various regions of Ukraine, as well as the need to diversify the economy, to raise vocational programs for its young people, to challenge the hard-line Communists and Socialists of various hues who oppose change, and to convince and cajole the oligarchic clans that they must not exploit the country's resources. It is a formidable task.

David R. Marples is professor of history at the University of Alberta in Edmonton and director of the Stasiuk Program for the Study of Contemporary Ukraine at the Canadian Institute of Ukrainian Studies, which is based at that university.

This paper was originally presented at a panel titled "Quo Vadis, Ukraine?" held at the University of Alberta on December 3.

Copyright © The Ukrainian Weekly, January 6, 2002, No. 1, Vol. LXX

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