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Shortchanging Labor in a Broken Economy

Challenging Operation Vulture in Ukraine

by MICHAEL HUDSON

Ukraine’s collapse since the February 2014 coup has become an umbrella for grabitization. Collateral damage in this free-for-all has been labor. Many workers are simply not getting paid, and what they actually is being paid is often illegally low. Employers are taking whatever money is in their business accounts and squirreling it away – preferably abroad, or at least in foreign currency.

Wage arrears are getting worse, because as Ukraine approaches the eve of defaulting on its €10+ billion London debt, kleptocrats and business owners are jumping ship. They see that foreign lending has dried up and the exchange rate will plunge further. The Rada’s announcement last week that it shifted €8 billion from debt service to spend on a new military attack on the country’s eastern export region was the last straw for foreign creditors and even for the IMF. Its loans helped support the hryvnia’s exchange rate long enough for bankers, businessmen and others to take whatever money they have and as many euros or dollars as they can before the imminent collapse in June or July.

In this pre-bankruptcy situation, emptying out the store means not paying workers or other bills. Wage arrears are reported to have reached 2 billion hryvnia, owed to over half a million workers. This has led the Federation of Trade Unions of Ukraine to picket against the Cabinet of Ministers on Wednesday (May 27). More demonstrations are scheduled for the next two Wednesdays, June 3 and 10. According to union federation Deputy Head Serhiy Kondratiuk, “the current subsistence wage of UAH 1,218 is 60% less than the level set in Ukrainian law, which is confirmed by the calculations if the Social Policy Ministry. … the subsistence wage in the country should exceed UAH 3,500 a month, but the government refuses to hold social dialog to revise standards.” [1]

The scenario that is threatened

Emptying out Ukrainian business bank accounts will leave empty shells. With Ukraine’s economy broken, the only buyers with serious money are European and American. Selling to foreigners is thus the only way for managers and owners to get a meaningful return – paid in foreign currency safely in offshore accounts, outside of future Ukrainian clawback fines. Privatization and capital flight go together.

So does short-changing labor. The new buyers will reorganize the assets they buy, declare the old firms bankrupt and erase their wage arrears, along with any other bills that are owed. The restructured companies will claim that bankruptcy has wiped out whatever the former firms (or public enterprises) owed to workers. It is much like what corporate raiders do in the United States to wipe out pension obligations and other debts. They will claim to have to “saved” Ukrainian economy...

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