Fool’s Gold in Ukraine

The proposed EU/Ukraine trade partnership extends the promise of European improved living standards for Ukraine. Oligarchs who privatized Soviet industry and frequently exported profits to offshore banks rather than re-investing in their own country have dominated Ukraine’s economy. Ukrainian desire for higher living standards and better government is understandable. The question is will partnership with the EU improve the lives of Ukrainians?

EU expansion has often produced disappointing results for people both East and West (although banks profited handsomely). The aspiration by Ukrainians for prosperous, egalitarian societies once associated with Europe’s social democracies is understandable.  This expectation of the EU bringing the ‘Social Europe’ model to Ukraine, however, might be dashed on the reality of the EU’s current neoliberalizing turbulent tides. While many hoped past EU expansion would represent an enlargement of the ‘Social Europe’ project, the really existing experience has been one of using (if not exploiting) East European labor that creates a ‘precariat’ of insecure migrant East European labor in West Europe. Meanwhile, West European wages have been kept down. Moreover, EU expansion into the former Warsaw Pact nations in the 1990s presented West European manufacturers with an El Dorado market for consumer goods. This worked to reduce West European unemployment created from the tight credit and fiscal policies of the Maastricht Agreement to create the euro. Furthermore, EU expansion has provided a bonanza for West European banks who loaded down previously debt-free East-European properties with big mortgages. This provided windfall profits for banks and well-connected East European insiders. It represents, however, a de facto tax for common people who must then take on huge mortgages to get housing.

West Europe is looking to get another injection of economic vitality by reprising the same game again through eastward expansion of its influence. The gains will not be as great with this reprise.  The markets east are poorer and smaller than from the initial West Europe expansion into the former Warsaw Pact nations. Europe’s eroding ‘Social Europe’ model is not for export, but its consumer goods and finance capital are. West Europe can expect in return to be on the receiving end of more social pathologies and crime from the East.

A better solution for Ukraine (and Russia alike) would be infrastructural investment at home, with roads being a top priority.  This would require clamping down on corruption in order to reduce price gouging by well-connected insiders: easier said than done, I know.  Identifying Soviet-era niche technologies (space, etc.) to develop in partnership with foreigners could also facilitate economic development.  These industries represent an equity requiring decades of investment for newcomers to enter. Ukraine and CIS states generally would be wise to retain and expand these advantages.

Ukrainians themselves must decide on their best course of action. Current conditions in both Russia and Ukraine are no model to aspire to. Yet, Ukrainians will be sorely disappointed if they think partnership with the EU will bring the Social Europe model (itself under serious attack in the West) to Ukraine. The better option is to pursue an alternative model based on local development and engagement with others from a position of autonomy. Many Ukrainians think partnership with the EU will provide a legal framework and enforcement of rules that will cleanse their economies of corruption and introduce European best practices.  The reality, however, may be to lock them into neoliberal legal frameworks that diminishes Ukraine’s prospects for development, while flooding Ukraine with West European products and speculative bank capital. This could leave Ukrainians with uncertain employment prospects, thus reducing them to a cheap ‘reserve army of labor’ for West Europe. Ukrainians and Russians have both been failed by their respective governments and economic elites. Expecting transformation to come from the EU, however, will likely prove disappointing and only further delay the major changes needed to transform their economies. Moreover, West European social democracies will be undermined by increased labor immigration. If ‘partnership’ ever evolves into full EU membership, West Europeans will also find the East’s rightwing politics further diluting the power of leftwing and Green politics in West Europe.

In short, there is much to support in the current protests against corrupt Ukrainian government rule. Yet, protesters should give more thought as to what alternative will deliver the goals they strive for. Entanglement with EU free-trade areas is likely to bring about as much ‘hope and change’ as NAFTA did for Mexican labor and the election of Barack Obama did for progressives in the US.

JEFFREY SOMMERS is an associate professor and Senior Fellow of the Institute of World Affairs at the University of Wisconsin-Milwaukee. He is also visiting faculty at the Stockholm School of Economics in Riga.  He is co-editor of the forthcoming book The Contradictions of Austerity. In addition to CounterPunch he also publishes in The Financial Times, The Guardian, TruthOut and routinely appears as an expert on global television.  He can be reached at: Jeffrey.sommers@fulbrightmail.org



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Jeffrey Sommers is Professor of Political Economy & Public and Senior Fellow, Institute of World Affairs of the University of Wisconsin-Milwaukee. He is Visiting Professor at the Stockholm School of Economics in Riga. His book on the Baltics (with Charles Woolfson), is The Contradictions of Austerity: The Socio-economic Costs of the Neoliberal Baltic Model

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