ANN CROTTY: Why Ukraine is the poorest country in Europe
Home-grown oligarchs have been keeping the former Soviet republic poor, even in days of plenty
Yanis Varoufakis, the former Greek finance minister, is absolutely right when he upbraids the Western powers for limiting their scrutiny of oligarchs to the Russian version of this particular parasite.
While there’s good reason to focus on Russian money, now that Russian bombs are destroying Ukrainian cities, says Varoufakis, it’s puzzling that only Russian billionaires are called oligarchs. What of their US, Saudi, Chinese, Nigerian and Greek counterparts?
By Varoufakis’s reckoning, Russia’s wealthiest 0.01% have taken about half their wealth, about $200bn, out of Russia and stashed it in the UK and other havens. “At the same time, the US’s wealthiest 0.01% have taken about $1.2-trillion out of the US, principally to avoid paying taxes.”
As for the political clout that comes with oligarch status, as Varoufakis points out, it’s difficult to say who has more. Since the deregulation of political campaign financing in the US, the oligarchs there have provided 40% of all campaign contributions. In exchange, they enjoy the lowest tax rate in more than a generation.
That’s just part of the package. In general, they are guaranteed a legislative environment more attuned to their needs than those of the majority of Americans, many of whom probably fall into that basket of deplorables identified by Hillary Clinton.
Strangely, one country omitted from Varoufakis’s list is Ukraine itself. This could be down to nothing more than an oversight or, perhaps more worryingly, the current beatification of that country. The disturbing reality is that on February 24, all Russians became baddies and all Ukrainians became goodies. That is the unfortunate Hollywood way the Western media has of covering major events — that is, without much nuance.
Ukraine ranks as the poorest country in Europe, with gross national income per capita of just $3,540
The fact is Ukraine is as blighted by oligarchs as Russia. Consider that the country’s effective “ring-fencing” from the world economy has resulted in widespread disruptions of essential food supplies across the globe. In addition, it holds the second-biggest known gas reserves in Europe. And yet Ukraine ranks as the poorest country in Europe, with gross national income (GNI) per capita of just $3,540. That’s less than neighbouring Georgia with $4,290 and Moldova, which is tucked between Ukraine and Romania, with $4,570.
As it happens, ring-fencing the five wealthiest European countries (in terms of GDP per capita) would disrupt no-one but the world’s oligarchs. Monaco, Liechtenstein, Luxembourg, Switzerland and Ireland could be ring-fenced for years without fear of much disruption.
How is it that a country with so much potential is so poor? The long-term distraction of the tense relationship Ukraine has seemingly had with its powerful eastern neighbour is partly to blame, especially since the war in 2014. But it can’t fully explain why the country has done so badly since the USSR was broken up in 1991.
According to the World Bank, Ukraine is 20% poorer now than it was in 1990. At that stage, its living standards were on a par with Poland and many of the other Iron Curtain countries. Poland’s GNI per capita is about $15,270 at present.
A much more useful explanation is the stranglehold that a handful of home-grown Ukrainian oligarchs have been able to exert for much of the past 30 years. These well-placed individuals got hold of the old, inefficient Soviet-era manufacturing facilities and have been able to prevent the establishment of more efficient competitors that would help drive development.
Corruption and tax avoidance are rife, with the shadow economy accounting for as much as 50% of the total at one stage. It’s the sort of thing that might have happened here if the Guptas’ grand plan had worked.
Over the decades, various presidents who came to power on promises of reform failed to make any progress in part because of their ties to one or other of the oligarchs. Last September President Volodymyr Zelensky, who had been elected on a cleanup ticket in 2019 but was suffering a slump in popularity due to the total absence of any cleaning up, passed a “de-oligarchisation” law. The law was aimed at reducing the power of Ukraine’s oligarchs, including Ihor Kolomoysky, who happens to be a close ally of Zelensky.
Perhaps the best Ukrainians can hope for from this war is that its ending presents an opportunity for a hugely invigorated Zelensky government to reduce the stranglehold that enabled a handful of oligarchs to block development and keep 40-million citizens in relative poverty.
As Varoufakis suggests, the powerful Western countries can help. Instead of enabling these baddies as they usually do, they must make life cripplingly difficult for them. The five wealthiest European countries should be called on to help.
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