What type of capitalism in Ukraine?

Transcription

1 What type of capitalism in Ukraine? Vlad Mykhnenko International Policy Fellow, CEU & Open Society Institute Ph.D. Candidate, Faculty of Social and Political Sciences, University of Cambridge Paper presentation, 13 th Annual Managing the Economic Transition Research Workshop, Jean Monnet Centre for Excellence, University of Cambridge, UK (12 March 2004) 04)

2 Key concepts for a variety of capitalism analysis! The French Régulation R School and comparative political economy approaches: the capitalist mode of development = RoA + MoR outcomes a) Regime of Accumulation = a production system with a specific technological style: - extensive - intensive (Fordism) - super-intensive? (post-fordism / new economy ) b) Mode of Regulation = a set of institutional forms ( structural( mediations ) to guide and stabilise the accumulation process, i.e. to promote coherence of capitalism - competitive mode laissez-faire capitalism, 1800s-1930s 1930s - monopolistic mode organised (co-operative operative corporate) capitalism, 1940s-1970s 1970s - neo-liberal mode disorganised capitalism, 1980s present c) performance = economic development + social progress ( long( waves upswing v. long waves downswing )

3 Problematic issues! The dichotomy of organised & disorganised capitalisms v. the diversity of capitalism approach (German, Anglo-American, American, Scandinavian, Japanese, etc.)! Methodology for studying the most advanced Western societies (G-7; high-income income OECD)! Traditional v. post-communist types of capitalism (e.g. oligarchic / hybrid / mutant )

4 The post-communist transformation of the Ukrainian political economy Issues to be addressed:! Performance under post-communism: economic growth and social progress! Instruments of control and regulation! What type of capitalism for Ukraine?

5 105 Ukraine's post-communist economic trajectory Volume index, 1990 = GDP Industrial output Agricultural output Electricity consumption

6 20% Ukraine's annual growth patterns 15% 10% 5% Annual growth 0% -5% -10% -15% -20% -25% -30% GDP Industrial output

7 Two stages of Ukraine s s post- communist transformation I. Decline: II. Recovery: 1997 present " Two transformation phases two different modes of regulation I. Chaotic capitalism (Lane 1999; 2000) Ukraine s s Great Post-Communist Depression II. Combine capitalism (= state-initiated conglomerate-propelled) economic recovery and growth; and social progress?

8 What is a chaotic capitalism?! A A chaotic social formation may be defined as a social and economic system which lacks institutional coordination and promotes social fragmentation: goals, law, governing institutions and economic life lack cohesion. Its characteristics are uncertainty about the future, elite disunity, the absence of a dominant and mediating class system, a mixture of media of exchange, criminalisation and corruption, rent-seeking entrepreneurs, inadequate interest articulation and an economy in decline characterised by inflation, unemployment and poverty. Whereas disorganised capitalism does not lead to breakdown, a chaotic social formation is perverse and system is precarious (Lane 2000: ). 98).

9 Ukraine s s post-communist modes of regulation: from chaotic to combine! MoR spheres of guidance and stabilisation: a) the role of the state and form of state economic management b) the form of capital labour relations c) the nature of competition between firms (from plan to market?) d) motivational system (values, profits, investments) e) the place of national economy within the international system

10 The chaotic mode of regulation: major features in Ukraine! a rapid withdrawal of the state from the economy and de-statisation of social welfare; no industrial policy is the best industrial policy! the most unbalanced monetary and credit arrangements; repeated monetary m validation of ever-continuing inflationary shocks; deficit budget spending accommodated via escalating money emissions (= cash printing)! no mediating role for the state within increasingly antagonistic industrial relations; the hegemony of capital over labour no wage bargaining occurs; earned wages and salaries are regularly unpaid to be used by the owners and managers m as a cushion against bankruptcy; the minimum wage, if exists at all, is set by the state at a level far below the physical subsistence level! under macroeconomic instability accompanied by the privatisation drive, microeconomic competition is not carried out though the price mechanism within the regulated market place between various firms, but is conducted in a form of ungoverned and physically most brutal struggle between individual l entrepreneurs themselves for the chunks of state-owned property and for free or even negatively charged loans issued directly by the central bank! motivational system is based upon rent-seeking and assets-stripping stripping! on a global scale, the national economy which is governed by the chaotic mode of regulation fails to diversify its major trading partnership and remains on the periphery of the international economy

11 Changing the role of the post-communist state in Ukraine: slowing down the state s s withdrawal average per period 6.5% 6.0% 5.5% 5.0% 4.5% 4.0% 3.5% 3.0% 2.5% 2.0% 1.5% 1.0% 0.5% 0.0% The pace of Ukraine's de-statization Average annual decrease in the public ownership of physical capital stock

12 Mixed property rights structure Ukraine: ownership structure, 2002 Industrial production Agricultural production Agricultural land Fixed capital assets Total labour force percentage of total Private ownership (individual or collective) Public ownership (state or municipal)

13 Returning to welfare provision 100% Changing public spending priorities share of total budget expenditure 90% 80% 70% 60% 50% 40% 30% 20% 10% 53.7% 46.3% 63.7% 36.3% 43.9% 56.2% Other public expenditure Public expenditure on social welfare provision (health care, social work and protection, culture, science & education) 0%

14 Facilitating the business environment! The Business Environment and Enterprise Performance Surveys (World Bank and EBRD). Qualitative assessments of the business environment: average score by dimension on a scale from 1 (=minor obstacle) tot 4 (=major obstacle) Ukraine Post-communist countries median

15 Business environment, 1999 Corruption Finance Infrastructure Crime Taxation Judiciary Regulation Poland Ukraine

16 Business environment, 2002 Corruption Finance Infrastructure Crime Taxation Judiciary Regulation Poland Ukraine

17 60% The Ukrainian state: from pulling out to bringing back? Ukraine's public spending trajectory 55% 50% Share of GDP 45% 40% 35% 30% 25% 20% 15% 10% 5% 0% General government sector expenditure Consolidated budget expenditure

18 The form of capital labour relations: from social antagonism to social accord? Increase in tripartite wage bargaining and decrease in industrial l disputes 180,000 85% number of strikers 160, , , ,000 80,000 60,000 40,000 20,000 80% 75% 70% 65% 60% share of total workforce Striking w orkers Collective wage-rate aggrements coverage, percentage of total workforce 55%

19 annual growth 30% 25% 20% 15% 10% 5% 0% -5% -10% -15% -20% -25% -30% -35% -40% -45% -50% -55% Real wage growth

20 More secure jobs? share of total economically active population 15% 14% 13% 12% 11% 10% 9% 8% 7% 6% 5% 4% 3% 2% 1% 0% Ukraine: ILO unemployment

21 Long way round neo-corporatism wage level of the highest paid division (= 1.0) v. the lowest paid division Wage differentiation within manufacturing Ukraine Sweden Germany UK USA S.Korea Malaysia

22 Information and co-ordination ordination structure: towards the full combination of available mechanisms State intervention + Markets + Networks! Industrial policy (since mid-1990s): subsidies for mining and quarrying; tax allowances, pro-innovation preferential treatment and co-investment projects in other industries! Regional policy (since late 1990s): special economic zones (tax-free areas) and priority development areas (special investment regime)! However, active developmental policies are hindered by low state expenditure! Two-tier corporate structure: giant conglomerates and small & medium firms

23 Ukraine s s Five Grand National Masters Five players have appeared on Ukraine s s business field. The five players who have reached not only the level of masters but that of grand masters. We would like the rest to catch-up with them We should also draw a thick line and not allow foreign penetration into strategic sectors Foreign penetration could be a threat to this state s s national economic interests - Mykhailo Chechetov Head, The State Property Fund of Ukraine (press-conference in Kyiv, 26 December 2003)

24 Ukraine s s largest conglomerates! The Big Five: 1. The Industrial Union of the Donbas (ISD( ISD; ; Donetsk- based; owners: Vitaliy Hayduk, Serhiy Taruta and Viktor Yanukovych) 2. System Capital Management (SCM( SCM; ; Donetsk-based; owner: Rynat Akmetov) 3. The Interpipe Group (Dnipropetrovsk-based; owner: Viktor Pinchuk) 4. The Private Bank Group (Hrupa( Pryvat; ; Dnipropetrovsk- based; owner: Ihor Kolomoyskyi) 5. The Ukrainian-Siberian Bank (UkrSybBank( UkrSybBank; ; Kharkiv- based; owner: Oleksandr Yaroslavskyi)

25 The rest: 1. The Donbas business group members: D.A.N.K.O (Donetsk-based; co-owner: owner: Serhiy Momot) and A.R.S. (Donetsk-based; owner: Ihor Humeniuk) 2. The Finance & Credit Bank Group (Hrupa( Finansy i Kredyt; Kyiv-based; owners/associates: Kostiantyn Zhevaho; Volodymyr Khlyvniuk) 3. The Ukrainian Industrial Investments Group (UkrPromInvest;; Kyiv-based; owner: Petro Poroshenko) 4. Dynamo Kyiv F.C. Group (Hrupa( Dynamo; ; Kyiv-based; owner: Hryhoriy Surkis)

26 The Industrial Union of the Donbas (ISD) Chairman of the Board: Mr. Serhiy Taruta (aged 48); CEO: Mr. Oleh Mkrtchian(aged 36) Conglomerate headquarters: Donetsk, Ukraine; Conglomerate total revenues: US$ 5.1 billion (2003) Founded December 1995; reportedly by Messrs Akhat Brahyn (a.k.a Alek The Greek, assassinated 1995), Yevhen Shcherban (assassinated 1996), Vitaliy Hayduk et al; formal institutional founders: Vis-a-Vis Close Joint-Stock Co; AzovInTex Ltd; Ukrainian Technological Sciences Academy; Ukrainian Economic Sciences Academy; Donbas Chamber of Commerce and Industry Shares Strategic Alliances Shares Strategic Alliances Shares Shares Shares Alchevsk Iron & Steel Combine Kramatorsk Kuibyshev Iron & Steel Combine Alchevsk Coke & Chemicals Markokhim Mariupol Coke Works Khartsyzsk Tube Works Dniprovsk Tube Works DunaFerr Iron & Steel Combine (Hungary) Energomashspetsstal Engineering Special Steels DniproDzerzhynsky Iron & Steel Combine Duferco International Steel Trading (US-Brasilian TNC) Dnipropetrovsk Petrovsky Steelworks AzovZahalMash Mariupol Machine-Building Ferrous Metals: over 95% share control on average DONETSK INDUSTRIAL UNION, Subsidiary Northern Iron Ore Concentrating Combine Krasnyi Lyman Coal Mine Panteleimonivka Fire Clay Factory Kramatorsk Pushka Cement & Slate Combine Fedorov Mining Mechanics R&D Institute Region-wide Electricity & Natural Gas Whole-sale Distribution Krasnoarmiisk Coal Mine Rodynske Coal Mine, KrasnoarmiiskCoal Mining Association Kholodna Balka Coal Mine, MakiivCoal State Holding Co. Northern Coal Mine, MakiivCoal State Holding Co. Communist Coal Mine, OctoberCoal State Holding Co. Bazhan Coal Mine, MakiivCoal State Holding Co. Energy Construction and Operation projects: 3 Gas pipe-lines (=200 km-long), Donbas; 1 Gas pipe-line (150 km) and 2 Oil Storehouses (3 mil. barrels), Uzbekistan Mining and Quarrying, Fuel and Power: > 60% control Horizon Mining Rescue Machinery Plant Shakty Machine- Building Factory (Russia) Kramatorsk Heavy Machine Tool Construction Factory Snezhnoe KhimMash Chemical Machinery Old Kramatorsk Heavy Machine- Building Factory Kamiansk Machine- Building Factory DonHirMash Donetsk Mining Machinery Factory UkrVuhleMash Coal-Mining Machinery AzovMash Mariupol Machine- Building Factory Sloviansk Heavy Machine- Building Factory Druzhkivka Machine- Building Factory UkrIndustry Metals Engineering Consortium Krasnyi Luch Machine- Building Factory Engineering: > 30% control Ol'ha Agro Firm Zoria Agro Firm Dianovske Poultry Farm Bakhmut Agricultural Union Horlivka Meat Packing factory Karanske Grain Elevator InvestAgroService Agriculture: 100% control Donetsk Stock Exchange Keramet Investment Company Donbas Bud Construction Trust Co. UzNaftoHazBud Uzbek Oil & Gas Construction (Uzbekistan) Azov-Eastern Special Economic Zone Various construction projects (motorways, buildings, stadiums) Finance, Investment, and Construction: > % Shares Metalurg Donetsk Football Club ISD-AVIA Air Company Yalta-Intourist Hotel Complex Other Service Activities: >80-100% control

27 System Capital Management President: Mr. Rynat Akhmetov (aged 38; over 90% of shares); CEO: Mr. Ihor Prasolov (aged 42) Founded November 2000 by Mr. Akhmetov, formerly one of the principal ISD s share-holders Conglomerate headquarters: Donetsk, Ukraine Shares Strategic Alliances Shares Shares Azovstal Trading House (>52%) Kerch Iron & Steel Combine (>24%) Yenakieve Iron & Steel Works (>58%) Embrol Ukraine Ltd. Leman Commodities S.A. (Switzerland) DonMiskBank (Donetsk City Bank; 100%) First Ukrainian International Bank ASKA Insurance Company (>17%) Crimea Simferopol Brewery (93%) Donetsk Bakery Complex No. 1 (>24%) Sarmat Donetsk Brewery (98%) Luhansk Brewery (>90%) Dnipro Dnipropetrovsk Brewery (>51%) Poltava Pyvo Brewery (>50%) Kyiv Brewery No. 1 (>76%) Donetsk Bakery No. 14 (>46%) D.A.N.K.O. Khartsyzsk Tube Works (>24%) Azovstal Iron & Steel Combine Keramet Investment Company Banking and Finance Makiivka Bakery Complex (>23%) Food and Drink Donetsk Bakery Combine(>16%) Silur Khartsyzsk Wire Mill Zaporizhzhia Coke Works (>20%) Markokhim Mariupol Coke Works AzovMash Mariupol Machine-Building Plant (>50%) Kuybyshev Kramatorsk Iron & Steel Works (>24%) Kharkiv Coke Works (>80%) Avdiivka Coke Works (>57%) Donetsk Energy Plant (>24%) Druzhkivka Machine- Building Plant (>15%) Ferrous Metals and Engineering A.R.S. Shakhtar Donetsk Football Club (99%) Segodnya Publishing Group (85%) Atlant Hotels (>50%) Donbas Palace Hotel (99%) Shares Ukraine TV & Radio Company (98%) Digital Cellular Communications Joint-Venture Mobile Phone Network (>51%) Luxe Hotel (>60%) Ukrainian Industrial & Transport Company Transport, Communications & Other Service Activities Druzhkivka Ore Board (>27%) Joint-Venture Hefest Ltd Petrol Stations (>60%) Dobropillia Ores Concentration Factory Shares SkhidEnergo Eastern Electric Power & Heat Stations Central Iron Ore Concentrating Combine (>25%) October Ores Concentration Factory Resources and Raw Materials

28 Motivational system: from rent-seeking & rent-taking taking to capital accumulation via profit & investment 25% Fixed capital investment 20% 15% 10% 5% annual growth 0% -5% -10% -15% -20% -25% -30% -35% -40%

29 55,000 Profits and capital investments million hryvnia 50,000 45,000 40,000 35,000 30,000 25,000 20,000 15,000 10,000 5, Enterprise gross profits Fixed capital investment

30 percentage share of total 100 Positioning within the international political economy: from the Soviet autarky towards geographical diversification Ukraine: foreign trade distribution Australia and Oceania South America and the Caribbean North America Africa Asia Europe Former USSR Merchandise exports Merchandise imports

31 Climbing the exports ladder backwards 100 Ukraine: exports structure Articles non classified elsewhere Miscellaneous manuf. articles percentage share of exports Machinery and transport equipment Manufactured goods, classif. by material Chemical products Oils, fats and waxes Crude materials, minerals and energy Food and live animals, drink and tobacco

32 The combine mode of regulation: mixed signs of success a) the return to pro-active developmental state (=economic nationalism) and the increased level of intervention through industrial policy; yet hindered by low level of public spending b) the suspension of unregulated labour market policies and the establishment of certain neo-corporatist arrangements c) the combination of markets, indicative planning, and networks (hybrid contracting); two-tier tier corporate structure competition of conglomerates within international markets and negotiation between the conglomerates within the domestic market + competition of small and medium firms on domestic and world markets d) the return to accumulation of capital through profit and investment ent as the basis of value system e) the insertion of the national economy into the international system, occupying low value-added added niches # Will combine capitalism accelerate Ukraine s s social progress?

33 HDI value High human development Medium human development High-income OECD High HDI average Slovakia Post-communist average Bosnia Ukraine Slovenia Poland Hungary Estonia Lithuania Croatia Latvia Belarus Bulgaria Macedonia Russia Romania Kazakhstan Turkmenistan Azerbaijan Georgia Armenia Albania Uzbekistan Kyrgyzstan Medium HDI average Developing countries Czechia Moldova Tajikistan = poor human development; = medium human development; = high human development

34 What type of capitalism for Ukraine?! The shift from chaotic to combine capitalism economic recovery and growth! However, the pace of catching-up is sluggish; human and social development indicators are still far below the pre- transformation levels! There is a need for enhancing the state capacity, if industrial policies to be made effective! More state s steering of conglomerates towards the high value-added added technological style! New sources of capital investment to intensify the national regime of accumulation