Cooperation or Confrontation. Analysis of Economic Aspects of Putin’s Article

Ivan Sichen

As you know, in July this year Russian President V. Putin published an odious article “On the Historical Unity of Russians and Ukrainians”. Given its authorship and content, it provoked widespread comments in the media. Nevertheless, the article remains of interest for further discussion. In particular, this applies to Putin’s allegations about Ukraine’s economic losses as a result of its independence and a possibility of its economy’s recovery exclusively in close alliance with Russia. At this, V. Putin did not mention Russia’s own economic problems, which remain unresolved. Taking into consideration that these issues have much to do with Ukraine, we will consider them in more detail from the point of view of the state and prospects of the economic situation in the Russian Federation.

We will not retell everything that V. Putin said in his article “On the Historical Unity of Russians and Ukrainians” on issues related to Ukraine’s economic problems. The article is available in the media and anybody can read it freely. We will present only some theses of the propaganda maxims of the President of Russia and look at what happened and is really happening. Thus, according to V. Putin:

• “Ukraine and Russia had been developing together for centuries; as a result, they became complementary economic partners”;
• “Under the Soviet Union, Ukraine had a strong economy, including a gas transportation system, advanced shipbuilding, aviation, missile and instrument engineering industries; and now it does not; Ukraine, in fact, is de-industrialized”;
• “After the collapse of the USSR, Russia rescued Ukraine from economic catastrophe; only due to low gas prices in 1991–2013, Ukraine saved 82 billion US dollars for its budget; therefore, had the two countries maintained the economic ties, the positive effect for Ukraine would have been tens of billions of US dollars”;
• “Ukraine is the poorest country in Europe; the level of GDP per capita in Ukraine is lower than in Albania, Moldova and Kosovo”;
• “The responsibility for all these problems lies with the Ukrainian authorities, which has wasted and frittered away the achievements of many generations of Ukrainians”;
• “Radicals and neo-Nazis were open and more and more insolent about their ambitions. They were indulged by both the official authorities and local oligarchs, who robbed the people of Ukraine and kept their stolen money in Western banks, ready to sell their motherland for the sake of preserving their capital”;
• “Even after the events in Kyiv in 2014, Russia tried to maintain economic ties with Ukraine, but the Ukrainian authorities refused to do so; despite this, Russia remains Ukraine’s third largest trading partner”;
• “Long before 2014, the United States and EU countries systematically and consistently pushed Ukraine to curtail and limit economic cooperation with Russia; such actions were directed both against Russia and the people of Ukraine itself”.

What can one say in response to all these maxims? Some of them are true. However, for the most part, Ukraine’s economic problems are not explained by the reasons mentioned by V. Putin.

Firstly, the economic crisis in Ukraine in the 1990s was not caused by its independence at all, but by the problems of the entire USSR, which began even before its collapse. At this, the reason for such problems was the collapse of the Soviet, but, in fact, Russian, economic system, which was based on the export of oil and other natural resources, and had a command-and-control character. In view of this, the sharp fall in oil prices in the late 1980s dealt a devastating blow to the Soviet economy, which was the main reason for the further disintegration of the USSR;

Secondly, the weakening of economic ties between Ukraine and Russia was again caused not by the withdrawal of our state from the USSR, but by the crisis of the Soviet/Russian economy for the reasons mentioned above. As a result of the crisis, a significant number of enterprises in all subjects of the Soviet Union, including Russia and Ukraine, were closed, which led to the termination of cooperation between them.

Since the early 2000s, an additional factor that has brought this problem to a qualitatively new level has been Russia’s transition to an aggressive neo-imperial policy. As part of this policy, in 2005 (after the Orange Revolution in Ukraine) Moscow launched systematic trade and economic wars against our country. In particular, termination of joint economic projects important for Ukraine, as well as the closure of the Russian market for Ukrainian goods.

Examples of this are Russia’s refusal to participate in the joint program of production of the An-70 military transport aircraft, as well as the ban on imports from Ukraine of large-diameter metal pipes, sunflower oil, meat and dairy and other products. Not to mention Russia’s “gas wars” against Ukraine in the winters of 2005–2006 and 2008–2009.

Thirdly, the so-called deindustrialization of Ukraine was also a consequence of the shortcomings of the Soviet/Russian economic system, primarily the technological lagging behind the West, as well as the “skew” in the production of military equipment. As a result, after the decision of the leadership of the USSR, but in fact — Russia, to open the Soviet market for Western goods, the products of Ukrainian enterprises lost their competitiveness. The same applied to the enterprises of other Soviet republics of the time, including Russia itself.

In addition, about 60 % of Ukrainian industry belonged to the military-industrial complex of the former USSR. Therefore, after a sharp reduction in the production of military equipment in the Soviet Union, and then in Russia, our enterprises were virtually left without orders and stopped working. And, therefore, they were closed. Moreover, in the conditions of the economic crisis in the USSR and its technological lagging behind the West, it was impossible to reorient them to manufacturing civilian products that would be in demand in domestic and foreign markets.

Fourthly, Russia’s assistance to Ukraine in overcoming the crisis in the 1990s was not for free. Moscow deliberately raised the price of gas for Ukraine to a world level, and paid almost three times less than world standards for its transit through Ukrainian territory.

Due to this, Russia deliberately “drove” Ukraine into debts and forced it to pay for them with its economic assets. This is how the Russian oligarchs, and through them Russia, established control over a large part of Ukrainian industry. First of all, the most profitable industries, namely — energy, oil refining and metallurgy, as well as enterprises producing high-tech products. This is precisely the reason for Russia’s alleged assistance to Ukraine.

Fifthly, it was Russia’s attack on Ukraine in 2014 that marked the beginning of the process of the final rupture of trade and economic cooperation between the two countries. And how could it be otherwise? Who, for example, could imagine such cooperation between the USSR and Germany during the 1941–1945 war between them.

Especially as Putin’s occupiers, like Hitlerites, destroyed or looted major industrial enterprises in the occupied territories of the Donbas and Crimea. At this, while the German Nazis hid the fact, the Russian media openly boasted about how the equipment of Donetsk and Luhansk enterprises were taken to Russia. And who is then to blame for the “deindustrialization” of Ukraine?

Unfortunately, Ukraine cannot yet completely abandon cooperation with Russia because of the maintaining the same ties with it that have remained since Soviet times. However, Ukraine is doing everything possible to create opportunities to obtain gas from Europe and reorient trade from Russia to other countries.

V. Putin points out that Russia retains the third place among Ukraine’s trade partners. However, before the attack on our country, Russia’s was the first place. And then it gave way to the European Union and China. And who in their right mind could call this V. Putin’s “achievement”?

By the way, today Ukraine is one of the five main suppliers of food products to the EU, which shows the complete groundlessness of Putin’s statements about the alleged “collapse” of its economy. The same can be said about the alleged “deindustrialization” of Ukraine. In Ukraine, such world-famous concerns as the state enterprise “Antonov”, the joint-stock company “Motor Sich”, the Southern Machine-Building Plant “Pivdenmash” and many other high-tech industries continue to operate.

Sixthly, as noted above, the economic situation in Russia is no better than in Ukraine. Therefore, no alliance between Ukraine and Russia would in any way improve the state of the Ukrainian economy. Here we will dwell on this in more detail.

For example, according to official data from the Russian government, in 2020 the fall of the Russian economy was 3.1 %, which was the result of continued Western sanctions, the COVID-19 pandemic and a record decline in oil prices. At the same time, according to alternative estimates, including experts from the Institute of Economic Development and the Institute of Economic Planning of the Russian Academy of Sciences, this figure was 12–20 %.

In particular, due to the 2020 destabilization of the global energy market alone, the Russian budget lost about 40 % of foreign exchange earnings. In general, taking into account the losses from the pandemic, revenues to the state budget of the Russian Federation decreased by about 50 %. All this led to a sharp fall in the Russian ruble, which fell by more than 20 % against the US dollar.

At the same time, there was also a significant deficit of the state budget of Russia, which forced the government to start using funds from the National Welfare Fund as well as to resort to external borrowing. As a result, in 2020 Russia’s public debt rose to the highest level in 15 years — about 19 trillion rubles. Moreover, according to the report of the Accounts Chamber of the Russian Federation, resources for replenishment of the National Welfare Fund in 2021 practically do not exist. Given this, in 2021 the RF’s Ministry of Finance plans to borrow another 3.7 trillion rubles.

According to the forecast of the international rating agency S&P, due to rising oil prices and improving the situation with the pandemic, in 2021 the Russian economy may somewhat strengthen its position, but then its deterioration will begin again.

The reasons for these problems are: low efficiency of Russia’s economic system, which was built by V. Putin on archaic methods of state-oligarchic management of the most profitable segments of the Russian economy (primarily, extractive industries focused on the export of natural resources); low level of competition and innovation; mass corruption; inequality of different subjects of economic activity.

In particular, most of the state financial support and the most profitable orders are received by enterprises owned by Russian oligarchs close to V. Putin. At this, medium and small businesses are practically abandoned. As a result, in just six months of this year, more than 545,000 individual enterprises closed in Russia, which is almost twice as many as in the previous crisis year. So, not only “Ukrainian oligarchs are robbing their people”, as V. Putin puts it, but Russian oligarchs are doing the same to the Russian population.

The objective consequence of these trends is the difficult social situation in Russia, which is no better than in Ukraine. Thus, according to Rosstat, in 2020: real incomes of Russians decreased by about 10 %; the number of people with incomes below the subsistence level increased by one million; the number of unemployed increased to 4 million people (according to other data — up to 10 million people). These trends continue this year. In July of 2021 Rosstat acknowledged an increase in the number of the poor in the country by another 20 %.

As noted above, V. Putin’s article argues that Ukraine is “Europe’s poorest country” with a per capita GDP lower than in Albania, Moldova and Kosovo. At the same time, he did not say that Russia is lagging behind not only the leading EU countries, but also Greece, Croatia and Slovakia. At this, their GDP growth rates this year are expected to be almost twice as high as in Russia. And this is under conditions when they have neither their own oil, nor gas, nor other natural resources, which Russia flaunts.

It is clear why it is so. In today’s world, a country’s income is determined not so much by its possessing natural resources as by its technological development. And in this respect, Russia has long lagged behind not only the United States and Europe, but also China. There is a lot to be said about this, however, not in one article. For example, what “nanotechnologies” that V. Putin is proud of can be discussed, when Russia cannot produce computers or even mobile phones on its own…

So, the conclusions are quite obvious.

As always, V. Putin is trying to mislead both Russians and Ukrainians, as well as to shift Russia’s own blame for the problems of bilateral relations to Ukraine.

Russia continues to try to return Ukraine to its sphere of influence by any means, including through persuading Ukrainians that there is a need to deepen the integration of the two countries in the economic sphere.

Even if Ukraine agreed to resume such integration, it would not give it anything in the practical sense, as Russia’s own economic problems show. It would all result in Russian oligarchs’ getting easier access to Ukraine’s economy, and with it, to the robbery of the Ukrainian people.