Four Steps to Ukraine’s Freedom, or A Plan for Taming Ukraine’s Oligarchs

The richest Ukrainain oligarchs, from left to right: Dmytro Firtash, Rinat Akhmetov, Viktor Pinchuk, Petro Poroshenko, Ihor Kolomoyskyi. Graphics by: Ganna Naronina, Euromaidan Press

The richest Ukrainain oligarchs, from left to right: Dmytro Firtash, Rinat Akhmetov, Viktor Pinchuk, Petro Poroshenko, Ihor Kolomoyskyi. Graphics by: Ganna Naronina, Euromaidan Press 

2017/02/28 • Analysis & Opinion, Featured, Infographics

Article by: Neil A. Abrams and M. Steven Fish

The oligarchs have to go. We offer a four-step plan to take them out. But it can’t succeed without the West’s help.

The prescription for taming Ukraine’s oligarchs that we propose may seem radical. But it is nothing new. Even in early-modern Europe, emerging states tamed grasping nobles and corrupt mercantilists by attacking their economic privileges, hiring competent administrators, and, when necessary, employing a bit of coercion. Doing this in Ukraine would be difficult, but certainly not impossible. It is up to the people of Ukraine to make the first step.

Ukraine’s oligarchs must be brought to heel. On that point, almost everyone is agreed. How to make it happen is another question, one to which remarkably few observershave offered an answer. Claims that the oligarchs control upwards of 70 percent of the economy are probably an exaggeration. But it is not their wealth per se that sets them apart; it is their political influence. The legislative and judicial branches are instruments of oligarchic power. The executive branch is headed by President Petro Poroshenko, himself an oligarch with a questionable past. A mere six individuals control the bulk of Ukraine’s print, radio, and television media.

The oligarchs first came to prominence in the mid-1990s. All of them built their fortunes through dubious means. Whether by securing special privileges in the gas market, raiding private companies, trading on advantageous terms with state enterprises, or privatizing those same enterprises in rigged sales, select government cronies came into massive wealth.

The illicit dealings that lie at the root of their fortunes give the oligarchs a powerful stake in keeping state officials corruptible, market competition anemic, and democratic institutions feeble. Clearly, Ukraine cannot become a Western-style democracy and market economy while its magnates reign supreme.

No more Potemkin palliatives

That the oligarchs must be sidelined is beyond doubt. But more government reshuffles, Western-sponsored rule-of-law programs, and stern warnings from the IMF will not do the trick.

Far more fundamental change is needed. We propose a four-step plan to get the job done.

First, the people of Ukraine must finally bring down the political class that has ruled the country since independence. That might sound like a tall order, but until it happens there will be no real reform. The governing elite is simply too compromised by its ties to the oligarchs to carry out the far-reaching changes the country needs. Instead, Ukraine’s citizens must elect a parliamentary majority from outside the post-communist establishment. That majority must then appoint a government of reputable technocrats.

Second, the new government, once in charge, must replace corrupt officials in the state administration with motivated activists and outsiders. It should start with the judiciary, where crooked prosecutors and judges advance the oligarchs’ interests and protect them from prosecution.

Surely Ukraine’s reformers cannot be expected to replace 10,000 judges and 20,000 prosecutors overnight. What they can do is create a special prosecutor’s office and special courts staffed by honest professionals and charged with pursuing high-level corruption cases.

In December 2015, a new National Anti-Corruption Bureau (NABU) came into force. It has scored some notable successes, even bringing cases against prominent allies of the president. Not surprisingly, however, its prosecutors have come under attack from myriad state bodies under the oligarchs’ thumbs, from the general prosecutor’s office to the security services. They have also encountered a wall of resistance from the country’s notoriously corrupt courts. To become effective, the NABU not only requires a set of complementary special courts in which to try cases; it needs the political class to get out of its way and exit power.

If the first two steps are designed to weaken the oligarchs’ control of the state, the third and fourth aim to reduce their economic clout.

The third step is to scrap the subsidies on which the moguls depend. To begin with, the government should privatize the state enterprises that serve as feeding troughs for oligarch-controlled firms. But the sales must break with tradition by taking place on honest terms and allowing competition from both foreign and domestic suitors. This is the only way to price the oligarchs out of contention and put the enterprises into capable hands. If necessary, the government should blacklist certain businesspeople from participating.

By insulating them from market competition, Ukraine’s byzantine system of regulation and taxation also subsidizes the oligarchs; after all, it is they who are best positioned to bribe their way around the complex and mutually-contradictory rules. This system must be overhauled, simplified, and clarified.

How Estonia did it

The case of Estonia shows how the rise of a reformist coalition, the appointment of competent professionals to state posts, and the eradication of subsidies for grasping elites can pave the way for the rule of law. Estonia was an unlikely success story. When it became independent from the USSR in 1991, it was home to a burgeoning class of economic criminals. At the same time, the former colonial outpost of Moscow lacked even the most basic trappings of a state administration.

But in 1992, Estonians elected a parliamentary majority made up of parties from outside the former communist establishment. The reformist government appointed motivated activists and honest professionals to state positions, most crucially in the sphere of law-enforcement. This helped deprive political capitalists of patrons in the state. In addition, Estonia’s new leaders reined in the crony-engineered loans, underpriced privatizations, and other forms of state support, which would have otherwise spawned a class of predatory oligarchs. With crony capitalists out of the way, Estonian leaders were free to reform the country. In time, Estonia would become the model of a post-communist democracy governed by the rule of law.

An offer they can’t refuse

Unfortunately, Ukraine’s plutocrats are far more entrenched today than Estonia’s were in the early-1990s. To cut them down to size, a fourth and final step is needed.

Namely, the newly-appointed special prosecutors should make the oligarchs an offer they can’t refuse: Either pay a massive, one-time tax on their ill-gotten gains or face prosecution for their past misdeeds. A similar strategy worked in Georgia after the Rose Revolution of 2003. It could work in Ukraine too.

The point is not to punish the oligarchs; it is to sap their wealth to such an extent that they can no longer use it to hijack the state. True, a plea bargain would allow scores of law-breakers off the hook. But Ukraine’s prosecutors are in no position to pursue complex corruption cases against the entire oligarchic class. It is far more realistic to conclude plea bargains with most while prosecuting the holdouts.

How the West can help

The West can assist Ukraine’s reformers in their battle to subdue the oligarchs. In particular, tax havens in the United States, the United Kingdom, and the European Union service oligarchs and kleptocrats in Ukraine and beyond. For the plea-bargain strategy to work, Western law-enforcement agencies must provide their Ukrainian counterparts with information on the oligarchs’ offshore holdings.

A commitment to such bold action would do more for Ukraine’s future than would yet another round of seminars on the rule of law in Kiev or still another IMF bailout backed by solemn promises by the elite to clean up its act.

But does the plan have a chance?

The prescription we propose may seem radical. But it is nothing new. Even in early-modern Europe, emerging states tamed grasping nobles and corrupt mercantilists by attacking their economic privileges, hiring competent administrators, and, when necessary, employing a bit of coercion.

Unfortunately, it is a difficult feat to pull off, not least in a country like Ukraine where predatory plutocrats are so entrenched. The chance that Ukraine’s nascent reformers will be able to gain a parliamentary majority and form a government in the next five years is low. Even if they do, they may not find much support from abroad. With Western Europe distracted by economic turmoil and populist agitation, and a Putin suck-up in charge in Washington, the task of reforming Ukraine will not be high on the West’s to-do list.

Nevertheless, one can already see the stirrings of change. Ever since the Maidan uprising of 2014, Ukrainian civil society has flourished. It even has representatives in parliament in the form of a “Euro-optimist” group of MPs, whose young leaders might one day form the basis for a credible and independent opposition capable of unseating Ukraine’s long-dominant political class.

Ironically, the Kremlin has unwittingly made such a scenario more likely. Putin’s war in Ukraine has cut off the most russophilic territories from the country. Electorates in these regions and their representatives in Kiev had long impeded pro-Western, reformist leaders from taking and consolidating power at the national level.

Ultimately, it is up to the people of Ukraine to dislodge their political masters and put the reformers in charge. Until they pull off this first step, none of the next three steps we propose stand a chance of being implemented. Ukraine’s democracy may not be perfect. But unlike in Russia, elections matter; the people still have the power to choose who governs them. With a crop of new leaders, a few good policies, and a little help from the West, Ukraine might finally see its age of oligarchy draw to a close.

Neil A. Abrams holds a PhD in Political Science from the University of California, Berkeley

M. Steven Fish is a Professor of Political Science at the University of California, Berkeley

Source: voxukraine.org

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  • http://www.krantvannederland.nl/ Cees Boogaart

    Oligarchy in its purest form and corruption can be called financial terrorism cause it can like violent terrorism disrupt a country. Those can be battled with paragraphs in constitution which strip financial/violent “terrorists” of their assets (even if hidden elsewhere (in the family)) civil rights and jobs (in public sector). Like with e-declarations they should declare how they became oligrachs (which can’t be in a normal/moral way) or give it to the state.
    BEFORE all news-media should become of a state-wide multi-lingual network which they no longer own, in fact it’s given to the state, which gives them a independent protocol/charter under which they can work.

  • Dagwood Bumstead

    The current blockade of the so-called LNR and DNR should be continued and extended. This will at the very least affect Akhmetov and Pinchuk negatively; they both have considerable business interests in the occupied part of the Donbas and a continuation wil see their losses mount, especially if Zakharchenko and Plotnitsky “temporarily nationalise” their companies. Once these are “nationalised” they will most probably be stripped of anything useful with the proceeds being shipped to Dwarfstan either as scrap or for further use by Dwarfstanian companies. These losses will cut them both down considerably. Zakharchenko and Plotnitsky will be doing Kyiv a real service if they go ahead with their plans.
    Firtash is in deep trouble; if Austria does extradite him to the US he will face the very real possibility of spending many years behind bars. His dubious empire will probably be dismantled if he’s found guilty, though it remains to be seen who will benefit.

    • veth

      Russia threatens Ukraine with more violence if blockade will not be stopped soon.: Kremlin.

      • Dirk Smith

        So now that they’re acknowledging involvement, deeper sanctions must be implemented immediately; at a minimum.

    • laker48

      The blockade should be comprehensive, and include food and water supplies, while the surplus electricity should be sold to the neighbouring EU member states at market prices, as Poland, Slovakia, Hungary and Romania’s grids are compatible with Ukraine’s. That would have been a fatal blow to the local Donbas terrorists and heavy net drain on RuSSia’s resources. Anthracite coal is readily available in Rotterdam at prices only a small fraction higher than those paid by Kyiv to the terrorists.

      • Njordheim

        *YAK….DISGUSTING POLAK IS BACK !!*

        • Alex George

          Thanks Andrew. ‘o)

  • veth
    • Dagwood Bumstead

      And about bloody time too! The Savushkina trolls aren’t going to like this one bit after repeatedly saying that the Ukrainians would never get visa-free travel to the EU.
      Eat your heart out, Dwarfstanians. YOU won’t be geting visa-free travel!

    • Njordheim

      What a Joke!

      • Alex George

        Yes, you don’t like it, do you? ;o)

  • zorbatheturk

    Very important to go after these economic criminals with their ties to the Kremlin and special deals and subsidies which distort productive investment.

    • Alex George

      True, but I had to laugh when I read the article:

      “First, the people of Ukraine must finally bring down the political class that has ruled the country since independence. … Ukraine’s citizens must elect a parliamentary majority from outside the post-communist establishment.”

      Sure thing. But zero explanation of how this miracle is to be achieved. And since everything else in the article is totally dependent on this first point, its really not proposing anything useful.

      We cannot expect the Ukrainian people to vote for politicians that they don’t known nor to ignore the various economic and other influences which oligarchs bring to ber to ensure their representatives are elected, unless circumstances change in Ukraine first. And that is slowly happening.

      “That might sound like a tall order, but until it happens there will be no real reform.”

      Its not a tall order, its impossible. Reform, however haltingly, must happen first, before there can be true democracy. Breaking the gas monopoly was part of the answer, creating the new police force was part of the answer, IMF and EU pressuring the government to get serious about prosecutor reform was part of the answer, continuing the pressure on the government to clean out the judiciary is part of the answer. And this latest blockade is part of the answer also.

      • Dagwood Bumstead

        The only current leading politicians who WILL tackle the problems are Saakashvili and Yulia. Poroshenko definitely won’t, he’s been instrumental in delaying or preventing the necessary reforms. But he will be out in two years, there’s no chance of a second term for him.

        • Alex George

          I agree with your sentiments, but let’s be realistic – I think Poroshenko has every prospect of being re-elected, although its too early to tell yet. He doesn’t deserve to be, but “deserves got nothing to do with it”.

          The un-braided one is unlikely to get in even if a way was cleared past factional voting – she is distrusted by many Ukrainians.

          Saakashvili has so far demonstrated that he is a novice at Ukrainiain politics and easily outmaneuvered by vested interests. Even other reformers criticise his naivete.

          • Dagwood Bumstead

            Poroshenko’s current ratings are dismal, on a par with Yushchenko’s and Yanukovich’s. He will only get a second term if he REALLY tackles the country’s corruption in what’s left of his term. Yulia may be distrusted by many, but despite hardly campaigning in 2014 easily finished 2nd in the presidential election, well ahead of all others. And don’t forget she was only narrowly beaten by Proffessor Viktor in 2010. As for Saakashvili, he was constantly thwarted by Poroshenko. With a reformist pres backing him as PM, he could probably achieve a lot.

          • Alex George

            Yulia’s ratings are just as bad as Poroshenko’s

            And I do find your faith that public perception will sway the election result touching!

          • MichaelA

            turchynov is a real patriot
            he rallied the duma when yanukovych was in kharkiv
            a quiet achiever even though he doesnt get the attention of yulia or saakash

        • Njordheim

          Of course, the very notion of “law and order” is largely meaningless in a country occupied by a regime which itself is totally ILLEGAL.

          Furthermore, “law and order” are also meaningless in a country where might – usually in the form of a gang of thugs with Kalashnikovs – makes right.

          Forget “central Europe” – think “Somalia” and you will be much closer to the truth.

          • Alex George

            That is an excellent descriptoin of Russia – thank you!

            Forget “central Europe” – think “Somalia” and you will be much closer to the truth about Putin’s Russia

          • Njordheim

            More blabbing incoherently! Just look where the leaders of the world are hurling this days Natanyahoo, Erdgona, Boris Johnson… in one week – all in Moscow, the Capital of the Free World! West is falling behind and the Worls is preparing for the Post_Western order thanks to corrupt Washington who ripped the taxpayers and left the industry, education, health care, military and infrastructure in sorry state. Oh common now deny it dear Libtard! :))

          • Alex George

            Except its not incoherent at all – you understood every word.
            You just can’t cope with the fact that Putin’s Russia is on the same level as Somalia .

      • zorbatheturk

        It calls for a magic wand, doesn’t it. Harry Potter for Prez.

      • Njordheim

        Ukraine is lawless semi-state in the process of disintegration. The blockade of the Donbass was decided by a rather small group of nationalist leaders who never asked for, or received, any authorization for their actions from the junta in Kiev.

        Furthermore, the junta in Kiev never officially endorsed or even supported that move. But most amazingly, the junta never sent any kind of official police/military/security force to regain control of the situation.

        There was a group of men who, armed with sticks and baseball bats, tried to remove the Ukronazi crazies from the tracks, but they were quickly beaten back.

        Keep in mind that there are tens of thousands of soldiers and policemen deployed in the immediate vicinity of these volunteer units, but nobody, absolutely nobody has made a move to restore law and order.

        • Alex George

          LMAO You really don’t like the blockade, do you?!

          But then you Nazis always did hate the people of Ukraine having a say – about anything!

          Don;t worry about law and order – it is firmly established. And you and your fuehrer Putin have zero say in what happens in Ukraine.

          • Njordheim

            You Banderite UkroNaZZis lost in WWII you would lose again.
            That’s for sure! Tick Tock…

          • Alex George

            And now you don’t even know your history. Ukraine defeated Nazi Germany

    • Alex George

      The biggest current issue in Ukraine is the courts. Even Lutsenko now acknowledges this.

      The legislation abolishing the Supreme Court and creating a new one was passed last September, as demanded by the IMF, but has not yet been implemented. Vetting for new judges is proceeding but won’t be complete for another two months.

      At least judge Chaus (of the infamous glass jars) has now been arrested in Moldova and will be extradited back to Ukraine.

      • Njordheim

        In the Ukrainian context, the expression “never say never” is probably even more important than usual, but I will say that if what I think is happening is really happening, that is, if the Donbass is now de-facto cutting its last ties with the Ukraine and integrating Russia politically and economically, and if the junta in Kiev appears to have been unable to prevent the Nazi volunteers from triggering this crisis with their blockade, then this potentially means two very important things:

        1.The Ukronazis have given up on the concept of reconquering Novorussia.
        2.The breakup of the rump-Ukraine has begun.

        • Alex George

          Ha ha, so because a few people in the occupied sliver of Donbass want to convince themselves that Putin intends to formally take over their area (he doesn’t), you then take a gigantic leap of illogic, and convince yourself that:

          (1) this somehow affects Ukraine’s intentions (if you think it has relinquished any claim over that area you are ludicrously naive) and

          (2) it has any relevance to an alleged “break up” of Ukraine – the separatists in eastern Donbass can say whatever they like and it is meaningless for the rest of Ukraine.

          And what is this about a “rump”? the Russian army holds less than 40% of Donetsk Oblast and about 15% of Luhansk oblast. That is a tiny sliver of Ukraine.

  • Njordheim

    There is a covert war going on between the Ukrainian oligarchs Rinat Akhmetov, Igor Kolomoiskii and President Poroshensko and there is also a not so covert war taking place between the Ukronazi opposition and Poroshenko.

    • Alex George

      LOL The only war is Putin’s nazi war of aggression on the Ukrainian people – a war he is losing.

      • laker48

        Fuhrer Shorty the Shirtless will drown Dwarfstan in its own feces.

  • Njordheim

    Being the sad pork chop that he is, Poroshenko has allowed the illegal blockade to continue, resulting in a nationwide energy crisis and untold millions in lost tax revenues.

    • Alex George

      Which would not have been necessary if Poroshenko had gotten rid of all dependence on coal from Russia and its stolen territory years ago.

      Not to worry. Ukraine will survive and its dependence on Russia for coal is coming to an end .

      • Njordheim

        Cough … cought… Sorry State Ukraine had difficulties surviving while paying half the market price, for oil, gas and coal, claiming it can now all of the suden pay double and survive is laughable. But such are the antics of the Libtards no-brains!

        • Alex George

          LOL Ukraine paid far more to Russia for oil and gas than it needed to. Russia gouged the prices, just as it did to all eastern European states. That is why they are all now finding alternate suppliers.

  • MichaelA

    Too many ukrainian oligarchs want to cut a deal with putin
    that would be a betrayal of the ukrainian people

    • laker48

      Saakashvili is rapidly uniting all democratic forces of Ukraine and wants to trigger early elections, perhaps as early as later this year. Let’s wait and see!