Everyone Loses: The Ukraine Crisis and the Ruinous Contest for Post-Soviet Eurasia

Along with blocking resolution to festering conflicts, the stepped-up contest between Russia and the West has hamstrung the transition from communist rule in the In-Between countries. These states all suffer, to varying degrees, from a similar set of post-Soviet pathologies: dysfunctional institutions of modern governance; partially reformed economies that lack functioning markets; weak or absent rule of law; ‘patronal’ politics based on personal connections and dependence rather than ideology or coherent programmes;[40] pervasive corruption; and a close link between political power and control of major financial and industrial assets.[41]

Viewed in comparison with the post-communist countries that joined the EU in 2004 (Poland, the Czech Republic, Hungary, Slovakia, Estonia, Latvia, Lithuania and Slovenia; hereafter, the EU Eight), three of which were Soviet republics, the In-Betweens’ disappointing performance after 1991 comes into vivid relief. This can be seen in Figure 1, which shows the 2014 marks for the In-Betweens and a composite score for the EU Eight using measures of governance compiled by the World Bank’s Worldwide Governance Indicators project. Figure 2 compares them using Transparency International’s 2015 Corruption Perceptions Index. With the partial exception of Georgia, all of the In-Betweens score far lower than the EU Eight on all seven metrics. Figures 3 to 5 indicate the discrepancies in economic governance and democracy since the transition from communist rule began. The European Bank for Reconstruction and Development’s competition policy assessment (Figure 5), which measures efforts to reduce abuse of market power and promote a competitive economic environment, gives the In-Betweens and the EU Eight broadly similar marks in the early 1990s. By 2000, there is a significant gap, and it only grows over time. And while Freedom House’s political rights and civil liberties scores (Figures 3 and 4) deviate slightly at the start of the transition, that has now become a yawning chasm. Figure 6 demonstrates the meagre economic benefits populations have experienced since the end of central planning. Only Belarus (thanks to generous Russian subsidies) and oil-rich Azerbaijan are significantly better off than they were in the final years of the Soviet Union in terms of GDP per capita. Moldova and Ukraine are poorer today than they were when the transition began. When compared with Poland, Ukraine’s underperformance is particularly striking. Ukraine started with a higher GDP per capita, and it is now at less than one-third of Poland’s.

Figure 1: Governance

Figure 2: Corruption perceptions

Many factors contribute to these disparities. The contest between Russia and the West, while by no means the only one, did feed dysfunction in post-Soviet Eurasia in important ways. Firstly, it has helped sustain what Joel Hellman termed a ‘partial reform equilibrium’ in many of these countries.[42] Hellman noted that the post-communist countries that did not enact sweeping reforms early in the transition had, by the late 1990s, economies that concentrated gains among a small group of ‘winners’ at a high cost to society as a whole. The winners owed their wealth to the distortions and rents spawned by partial reform, and they used their economic power to ‘block further advances in reform that would correct the very distortions on which their initial gains were based’.[43] Hellman’s partial reform equilibrium has persisted in all six In-Betweens to the present day. Russian and Western willingness to subsidise political loyalty have played a part. Russia pours money into Belarus through waivers of oil-export tariffs and below-market gas prices; it was willing to demonstrate similar largesse to Ukraine under Yanukovych. The West has also played this game, often in breach of its policy of linking assistance to meaningful reform. Ukraine’s current US$17bn IMF programme is its tenth since independence; all previous ones have failed, in the sense that the Fund suspended lending because Kyiv did not implement the required reforms. Within 18 months of signing the current one, the IMF had to amend its by-laws to be able to continue dispensing funds. The notoriously corrupt Moldova would surely have gone bankrupt more than once without its EU lifeline.[44] Following the 2008 war, Washington committed US$1bn in assistance to Georgia, a country of fewer than 5m people. These financial infusions, spurred on by the Russia–West regional contest, made it much easier for governing elites to postpone structural reform indefinitely.

Figure 3: Political rights

Figure 4: Civil liberties

Figure 5: Competition policy

Figure 6: GDP per capita