The divides
are really about demography and the economy. Eastern Ukraine is dominated by Soviet-era
large firms, often employing thousands.
They produce heavy machinery, iron, steel, coal, ore, and other Soviet-era
industrial goods. They survive on a
mixture of subsidies and largesse. A
consequence of this obsolete industrial economy is that wages remain low, as
does labour productivity. A move towards Europe will, sooner or later, mean an
end to protection. It may not spell the end of these firms, but will lead to
widespread unemployment and, at first, lower wages. Western
Ukraine by contrast, has a more nimble economy, dominated by smaller, more
flexible firms. In the short term,
energy prices may increase, and standards of living fall. However, as the
experiences of Poland and Slovakia show, after a short sharp shock, the economy
can take off. Ukraine, with over 40 million people, is larger than Poland or Spain.
As incomes rise, it will become a major market in its own right.
A second
divide is between those born before and after 1980. Younger Ukrainians don’t
miss the Soviet Union; some older ones do.
Younger Ukrainians have embraced the market economy; older ones resist
or resent it. Many younger Ukrainians
have travelled and worked in the European Union and elsewhere. They have seen
the benefits of EU membership first hand.
Many older ones have not. The current low level of wages in Ukraine
constitutes a defacto barrier to contact with the EU, and enhances contacts
with Russia. When a cup of coffee is
one-third of a day’s wage, people stay at home, even if they have a passport
and a visa.
Europe
represents not just political pluralism but economic pluralism –the rise of large
numbers of small firms, the rise of large numbers of owners, both domestic and
foreign, and the rise of competition among domestic firms for markets at home
and abroad. It represents the inevitable
spread of new ideas and new ways of doing things, as well as new technologies
and skills. In the end, it spells economic reform. Russia, it is often argued,
represents economic stagnation and the entrenchment of the current political
leadership. That is not true. Union with
Russia will also cause economic change. As has happened in Belarus, it will lead
to the gradual but certain take-over of the Ukrainian economy by Russian-owned
firms. Some will be controlled by Russian oligarchs allied to the Russian
government, and some controlled by the Russian state itself. Oil and gas will be subsidised, but profits
will flow to Moscow. Eventually, when there are no firms left to sell, Russia
will again raise the prices of energy and raw materials to draw Ukraine ever closer
into its orbit. In the meantime, Russian owners will modernise factories and
shed labour, close down Ukrainian acquisitions to keep their own Russian factories
alive, and charge ever higher prices for consumer goods. Educated young people will seek work abroad,
taking with them their skills and training. Often, they will be forced to work
illegally, for low wages in poor living conditions. The Ukrainian economy, if not its politics,
will be controlled by a remote Russian leadership. In the end, Ukrainians will be worse off than
if they had turned towards the EU.
