In search of the na­tional bour­geoisie

Can the mid­dle class drive Ukraine's in­de­pen­dence and de­vel­op­ment?

The Ukrainian Week - - CONTENTS - Maksym Vikhrov

Can the mid­dle class drive Ukraine's in­de­pen­dence and de­vel­op­ment?

Ac­cord­ing to the clas­si­cal con­cept, the na­tional bour­geoisie is the driv­ing force be­hind the for­ma­tion of na­tion states. It was the force that de­stroyed monar­chies and em­pires, bring­ing na­tional states onto the arena of his­tory and lay­ing the foun­da­tions for democ­racy and mar­ket economies. In Ukraine, searches for a na­tional bour­geoisie have been con­tin­u­ing since the first days of in­de­pen­dence, but no par­tic­u­lar suc­cess has yet been achieved. The oli­garchy, which quickly flour­ished in the post-Soviet dis­or­der, did not even demon­strate united sup­port for the state in 2014, but openly sab­o­tages the es­tab­lish­ment of democ­racy and the in­sti­tu­tional mod­erni­sa­tion of Ukraine un­der the Euro­pean model. There­fore, ex­pec­ta­tions were pre­dictably ex­trap­o­lated onto the mid­dle class: en­trepreneurs, highly skilled spe­cial­ists, well-paid rep­re­sen­ta­tives of cre­ative pro­fes­sions and oth­ers like them. These peo­ple, in all re­spects, should be­come the afore­men­tioned na­tional bour­geoisie, and they are driven in this di­rec­tion not by myth­i­cal ku­lak archetypes or some other mys­ti­cal forces, but di­rect eco­nomic in­ter­ests.

Firstly, the mid­dle class is the most in­ter­ested in pre­serv­ing sovereignty. The ex­pe­ri­ence of the Crimea shows that the ar­rival of the oc­cu­pa­tion ad­min­is­tra­tion turned out to be the least painful for hired labour­ers and those who live at the ex­pense of the state bud­get (pen­sion­ers, those on ben­e­fits, etc.). But oc­cu­pa­tion brought the mid­dle class, be­sides new rules for do­ing busi­ness and re­stric­tions brought by sanc­tions and Crimea's un­recog­nised sta­tus, a bru­tal re­dis­tri­bu­tion of prop­erty in favour of the penin­sula's new masters. In ad­di­tion, the po­lit­i­cal cap­i­tal of Crimean busi­nesses was wiped out. Pre­vi­ously, it had sig­nif­i­cant in­flu­ence on the govern­ment of the au­ton­o­mous repub­lic and Kyiv, as a rule, did not in­ter­vene in the penin­sula, but now there is no chance at all for Crimean en­trepreneurs to in­flu­ence the oc­cu­pa­tion ad­min­is­tra­tion (not to men­tion Moscow). It is also well known what hap­pened to busi­nesses in the oc­cu­pied parts of the Donetsk and Luhansk Re­gions.

Se­condly, the mid­dle class is nat­u­rally in­ter­ested in the de­vel­op­ment of democ­racy and the for­ma­tion of a mar­ket econ­omy. Un­like oli­garchs, who are able to ma­nip­u­late even au­thor­i­tar­ian rulers, the mid­dle class is a nat­u­ral en­emy of au­thor­i­tar­i­an­ism, since, as Vik­tor Yanukovych showed, "strong arm" lead­er­ship starts with the usurpa­tion of power and ends with the re­dis­tri­bu­tion of prop­erty in favour of the group in power. There­fore, it is de­sir­able that the func­tions of the state be re­duced to the role of a "watch­dog" that pro­vides pro­tec­tion against ex­ter­nal threats and en­sures com­pli­ance with the rules within the coun­try. The­ory aside, this is con­firmed by the so­cial makeup of EuroMaidan par­tic­i­pants. In­deed, ac­cord­ing to a sur­vey by the Demo­cratic Ini­tia­tives Foun­da­tion con­ducted in early De­cem­ber 2013, 70% of the pro­test­ers were rep­re­sen­ta­tives of the mid­dle class (39.5% — pro­fes­sion­als with spe­cialised ed­u­ca­tion, 13.2% — stu­dents (fu­ture pro­fes­sion­als), 9.3% — en­trepreneurs, 8% — com­pany man­agers).

Thirdly, the mid­dle class is of­ten called the most re­li­able ad­vo­cate of re­forms and the most con­sis­tent sup­porter of Ukraine's Euro­pean in­te­gra­tion. This seems to be self-ev­i­dent, since it is the mid­dle class that reaps the great­est ben­e­fits from in­te­gra­tion into the global econ­omy and also has the largest eco­nomic re­serves in or­der to sur­vive the dif­fi­cul­ties of a tran­si­tional pe­riod with the small­est losses pos­si­ble. All these con­sid­er­a­tions are quite rea­son­able, but the real sit­u­a­tion is not so clear. The mid­dle class is hin­dered from be­com­ing a pow­er­house of na­tional de­vel­op­ment by not only its small size, but also the het­ero­gene­ity of its in­ter­ests prompted by his­tor­i­cal cir­cum­stances.

De­ter­min­ing the size of the mid­dle class in Ukraine is one of the most dif­fi­cult is­sues, since var­i­ous cal­cu­la­tion meth­ods give very dif­fer­ent re­sults, which in turn of­ten form the ba­sis for po­lit­i­cal ma-

nip­u­la­tions. For ex­am­ple, in the 2014 Razumkov Cen­tre re­port The Mid­dle Class in Ukraine: Per­cep­tions and Re­al­ity, mem­ber­ship in the mid­dle class was de­ter­mined pre­dom­i­nantly by sub­jec­tive cri­te­ria: ac­cord­ing to staunch self-iden­ti­fi­ca­tion, self-as­sess­ment of fi­nan­cial sta­tus (any­thing above "I have enough"), the level of ed­u­ca­tion (no lower than vo­ca­tional school or col­lege), a sense of hav­ing com­mon in­ter­ests with the mid­dle class and the dom­i­nance of its rep­re­sen­ta­tives in one's im­me­di­ate sur­round­ings. As a re­sult, the re­searchers in­cluded 14% of re­spon­dents in the mid­dle class and an­other 35% in its pe­riph­ery.

How­ever, cal­cu­la­tions ac­cord­ing to an ob­jec­tive cri­te­rion — in­come — give a much more mod­est re­sult. Ac­cord­ing to Credit Suisse's method­ol­ogy, pop­u­la­tion in­comes are matched against wealth lev­els that are set sep­a­rately for each macro-re­gion. For ex­am­ple, in the US, the fi­nan­cial thresh­old for be­long­ing to the mid­dle class be­gins at an an­nual in­come of $50,000, in China $28,000 and $25,000 in Poland. For Ukraine, this fig­ure is $11,250 a year, i.e. up­wards of 23,400 hryv­nias a month. Ac­cord­ingly, Credit Suisse es­ti­mated that only 297,000 peo­ple, or 0.8% of the adult pop­u­la­tion of the coun­try, were part of the Ukrainian mid­dle class in 2015. This so­cial group dis­posed of 16.9% of the coun­try's eco­nomic re­sources. By com­par­i­son, 19.3% of the pop­u­la­tion of Poland be­longed to its mid­dle class in 2015, dis­pos­ing of 43.4% of the na­tional wealth. On av­er­age, the size of the mid­dle class in Euro­pean coun­tries was 33.1%, con­trol­ling 40.6% of eco­nomic re­sources. Based on this data, it is ob­vi­ous that the Ukrainian mid­dle class is still in its in­fancy. Even if we take into ac­count the more op­ti­mistic cal­cu­la­tions, the Ukrainian mid­dle class is still too weak to be­come the driv­ing force be­hind the coun­try's de­vel­op­ment.

In ad­di­tion, the mid­dle class is not a ho­mo­ge­neous com­mu­nity with uni­di­rec­tional in­ter­ests. First of all, the split in the ranks of the mid­dle class is due to the fact that a large part of it owes its sta­tus to non-le­gal eco­nomic prac­tices, i.e. the shadow econ­omy. The mag­ni­tude of this phe­nom­e­non is quite sig­nif­i­cant: ac­cord­ing to the Min­istry of Eco­nomic De­vel­op­ment, in 2017 the shadow econ­omy amounted to 31% of of­fi­cial GDP. This is 4% less than in the pre­vi­ous year, but it is too early to talk about over­com­ing this phe­nom­e­non. In dif­fer­ent years since in­de­pen­dence, ac­cord­ing to the IMF es­ti­mates, Ukraine's il­le­gal econ­omy has fluc­tu­ated be­tween 36.65% and 57%, but it never went away. In ad­di­tion, the cur­rent sta­tis­tics are im­proved by the fact that they do not cover the Crimea and oc­cu­pied Don­bas with their de­vel­oped il­le­gal in­dus­tries in tourism, coal min­ing and smug­gling. It is not known for sure what share of the Ukrainian mid­dle class is linked to the shadow econ­omy. For some Ukrainian busi­nesses, go­ing "off-the-books" is a forced refuge that makes it pos­si­ble to "sit out" un­favourable eco­nomic pe­ri­ods, but for the rest it is the op­ti­mal op­er­at­ing en­vi­ron­ment, the dis­ad­van­tages of which are off­set by the prof­its due to non-pay­ment of taxes, labour ex­ploita­tion, etc. There­fore, the lat­ter are keenly in­ter­ested in Ukraine pre­serv­ing all the patho­log­i­cal el­e­ments of the post-Soviet sys­tem, in­clud­ing cor­rup­tion, the in­ca­pac­ity of state in­sti­tu­tions and the lack of many mar­ket mech­a­nisms.

In this sense, in­vet­er­ate "black mar­ke­teers" are a no less an­tiEuro­pean and anti-re­form force than busi­nesses that are di­rectly ori­ented to­wards Rus­sia or even oli­garchs. The rea­sons are again purely eco­nomic, since in a trans­par­ent mar­ket econ­omy with ef­fec­tive rule of law, they will lose not only their com­pet­i­tive ad­van­tages, but also their liveli­hoods. It is not just about cor­rupt loop­holes and ways to evade taxes, but also about the huge il­le­gal labour mar­ket, which both small and medium-sized busi­nesses make ac­tive use of. Ac­cord­ing to the State Sta­tis­tics Ser­vice, it was made up of about 23% of the to­tal eco­nom­i­cally ac­tive pop­u­la­tion in 2017 — about 4 mil­lion work­ers. The in­tro­duc­tion of Euro­pean qual­ity stan­dards is also con­trary to the in­ter­ests of many Ukrainian pro­duc­ers. While large com­pa­nies can af­ford in-depth mod­erni­sa­tion of their pro­duc­tion fa­cil­i­ties, this bur­den will be un­bear­able for SMEs. Mar­ket re­forms are not roundly ac­cepted by Ukrainian busi­nesses ei­ther. For ex­am­ple, a land mar­ket could dec­i­mate the small farm­ers who lease land shares at low prices and then sell their crops on il­le­gal grain mar­kets. There are many such ex­am­ples, but the re­sult is the same: a cer­tain sec­tion of the Ukrainian mid­dle class was formed in the ecosys­tem of post-Soviet Ukraine and is in­ter­ested in pre­serv­ing it.

The part of the mid­dle class made up of hired work­ers (skilled spe­cial­ists, peo­ple in in­tel­lec­tual and cre­ative pro­fes­sions, etc.) oc­cu­pies a po­si­tion that is not en­tirely clear. Of course, they are in­ter­ested in bring­ing the labour mar­ket out of the shad­ows and are usu­ally no­table for their sup­port of democ­racy and re­form. But Ukraine's exit from the po­lit­i­cal and eco­nomic CIS ghetto will not be pain­less for them ei­ther. A pos­i­tive ex­am­ple is Ukrainian IT pro­fes­sion­als, who com­pete suc­cess­fully on the world mar­ket and brought $3.6 bil­lion into the bud­get in 2017 alone. Ac­cord­ing to web­site DOU, salaries in this field range from $450 to $4,700 de­pend­ing on the ex­act spe­cial­i­sa­tion. But not ev­ery­one can boast such com­pet­i­tive­ness. The rea­sons are purely ob­jec­tive, be­cause our higher ed­u­ca­tion is des­per­ately un­com­pet­i­tive: in the QS World Univer­sity Rank­ings 2019, Ukrainian higher ed­u­ca­tion es­tab­lish­ments did not even make it into the top 400 (the V. N. Karazin Kharkiv Na­tional Univer­sity took an "hon­ourable" 481st place). Com­bined with chronic un­der­fund­ing and cer­tain in­sti­tu­tional dis­ad­van­tages, this puts Ukrainian spe­cial­ists in a very vul­ner­a­ble po­si­tion and causes a cor­re­spond­ing re­ac­tion. A re­cent ex­am­ple is the op­po­si­tion of a num­ber of sci­en­tists to new re­quire­ments from the Min­istry of Ed­u­ca­tion, ac­cord­ing to which re­search find­ings should be con­firmed by ar­ti­cles in publi­ca­tions in­cluded in the in­ter­na­tional Sco­pus or Web of Sci­ence Core Col­lec­tion data­bases. In­tro­duc­ing this re­quire­ment will greatly com­pli­cate the life of the sci­en­tific com­mu­nity, in par­tic­u­lar be­cause a large part of it is not ca­pa­ble of pro­duc­ing ma­te­ri­als that meet in­ter­na­tional stan­dards.

More­over, all of this does not even take into ac­count the ide­o­log­i­cal pro-Rus­sian (anti-Ukrainian, anti-Euro­pean, etc.) cir­cles that are rather well rep­re­sented in the pro­fes­sional and en­tre­pre­neur­ial com­mu­nity. As so­ci­o­log­i­cal stud­ies show, vot­ers of pro-Rus­sian, Euroscep­tic and anti-re­form forces are not lack­ing among the ed­u­cated and more or less well off. There­fore, hopes that Ukraine will be saved and at the same time re­formed by the ef­forts of the mid­dle class alone are not en­tirely jus­ti­fied. Like all other strata of Ukrainian so­ci­ety, the mid­dle class is het­ero­ge­neous both ide­o­log­i­cally and in terms of its so­cio-eco­nomic in­ter­ests. It is tempt­ing to see the mid­dle class as a col­lec­tive Moses and this vi­sion is ac­tively bandied about by pop­ulist politi­cians who flirt with the ex­ist­ing "mid­dle­men" and prom­ise to raise the poor to this sta­tus. How­ever, in prac­tice, a re­formist govern­ment will have to look for sup­port at var­i­ous lev­els of Ukrainian so­ci­ety, while the coun­try's po­lit­i­cal lead­er­ship must look for a way to bring their di­verse in­ter­ests to­gether un­der the com­mon de­nom­i­na­tor of Ukrainian na­tional state­hood. In any case, the eco­nomic and so­cio-cul­tural de­coloni­sa­tion of Ukraine and its in­te­gra­tion into the Euro-At­lantic world will only come through re­forms, many of which are doomed to be un­pop­u­lar due to ob­jec­tive his­tor­i­cal cir­cum­stances.

A POS­I­TIVE EX­AM­PLE IS UKRAINIAN IT PRO­FES­SION­ALS, WHO COM­PETE SUC­CESS­FULLY ON THE WORLD MAR­KET AND BROUGHT $3.6 BIL­LION INTO THE BUD­GET IN 2017 ALONE. AC­CORD­ING TO WEB­SITE DOU, SALARIES IN THIS FIELD RANGE FROM $450 TO $4,700 DE­PEND­ING ON THE EX­ACT SPE­CIAL­I­SA­TION

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