THE RIPENING OF THE ORANGE REVOLUTION
...The by-election defused the threat of a Red revenge, which could bring the country to a dead end. The new lineup of political forces became obvious, among other things, when parliament considered the bill “On State Power and Local Governance.” An amendment emphatically proposed by the Communists and envisioning presidential powers for the parliament speaker was rejected even by a majority of socialists, even though their leader was the Verkhovna Rada chairman at the time.
The parliamentary and presidential elections of 1994 created a new situation in the country. Its novelty was only marginally due to name changes in the leadership of the “party of power.” Like his predecessor Leonid Kravchuk, President Leonid Kuchma had equally ill-defined powers. More importantly, the threat of a Red revenge prompted the pragmatists in the country’s leadership to give up their plans to create a Soviet vertical of power, and instead opt for a real division of powers between the legislative and executive branches, and rally around the new president. A Soviet vertical would only solidify the state of chaos, in which only the Communists were interested. Much like in 1917, they followed the principle: “The greater the country’s plight, the better it is for us.” Their chances of coming to power in a prosperous state were nil.
Kuchma realized that he had to pay for the support he had received. He won thanks to the backing of leftist parties, but pursued a policy that contradicted his election platform. In October 1994 he submitted to parliament a bill “On the Fundamentals of Economic and Social Policy,” outlining the strategy of market reforms, including a sweeping privatization plan. The plan served the interests of public corporation managers who were either represented in parliament or had influence over individual lawmakers. In this way Kuchma earned the support of majority deputies and representatives of non-leftist parties in his attempt to secure real powers for the president.
The newly-elected president submitted his own draft of the Constitution to the Verkhovna Rada and made efforts to get parliament to pass the bill “On State Power and Local Governance.” It was the first bill to specify the functions and powers of the president as the highest-ranking official in the system of government. To all appearances, his efforts were wasted. The bill, which would change the political system if passed into law, could be endorsed only by a constitutional majority of two- thirds of the lawmakers. Meanwhile, neither leftists nor rightists had a constitutional majority in parliament.
The adoption of this inoperative law was only the first step in the political scheme devised by the president’s team. Immediately thereafter, Kuchma engaged in a contentious political struggle with Mo- roz’s supporters in parliament and got them to approve extensive presidential powers envisioned in this law for one year as part of a constitutional agreement between the president and the majority of lawmakers. Kuchma used this year to build a vertical of executive power and began threatening his political opponents: either a legitimate adoption of the Ukrainian Constitution with a list of presidential powers (first outlined in the Law of Ukraine “On State Power and Local Governance”) or an illegitimate (i.e., not envisioned by the current legislation) nationwide referendum in support of the new Constitution as drafted by the president and without the amendments approved during deliberations in parliament. Neither the president’s supporters nor opponents doubted that the people would support the president’s draft of the Ukrainian Constitution. Ukrainians were fed up with the standoff between the president and parliament, which began in 1992, making it impossible to pull the country out of its deep economic crisis. Under the 1978 Constitution, the chief executive could not call a referendum without parliament’s approval. If he did, he would face accusations of an attempted coup. To end this standoff, both sides had to find a compromise on the basis of the approved but inoperative law “On State Power and Local Governance.”
On June 27, 1996, the Verkhovna Rada opened its historic session dedicated to the deliberations on the draft constitution. After a sleepless night, the lawmakers worked out a compromise draft that received 315 votes against the required minimum of 300 votes. The draft constitution was supported by 21 MPs of the Agrarian Party (2 MPs were absent and 2 more refused to vote) and 17 Socialists (6 nays, 2 abstentions, and 2 absentees). Demoralized by its allies’ behavior, the Communist faction splintered. Only 29 of 89 Communist MPs voted against the draft constitution (versus 10 abstentions, 10 absentees, 20 MPs who refused to vote, and 20 ayes). As a result, the Verkhovna Rada provided the majority of votes required to pass the Constitution, which turned Ukraine into a presidential-parliamentary republic. The prominent political analyst Dmytro Vydrin wrote ironically: “Kuchma wasn’t there to struggle for huge executive powers, which were approved and laid down in the Constitution. He woke up in the morning, fresh and well rested, while the lawmakers, unshaven and with dark circles under their eyes from sleep deprivation, brought him the Constitution, which clearly stated that the country has only one director with exclusive powers to decide everything and for everybody.”
Political and market reforms, which became possible after the parliamentary and presidential elections of 1994, were implemented in concert. Leonid Kuchma requited the support he received in building a strong presidential vertical with reforms that most fully served the interests of the former Communist Party and Soviet nomenklatura. Whereas the building of national statehood in its internal and external dimensions had progressed without obstacles since 1991, democratic processes in society and the economy were stalled: under Kravchuk, because market reforms were completely ignored, and under Kuchma, because market reforms were implemented in the interests of the president’s cronies. Reforms continued in this direction after Kuchma received extensive powers in the 1996 Constitution.
Between 1991 and 1993 only 3,600 enterprises and organizations, mostly small firms, were passed into private (including cooperative) ownership. The privatization campaign, implemented and controlled by the Kuchma administration in league with the legislators, fundamentally changed the Ukrainian economy. In late 2001 the number of state-owned companies listed in the Unified State Register of Ukrainian Enterprises and Organizations was as follows: industrial companies — 2,808 out of 97,637; construction companies — 1,772 out of 53,530; commercial companies — 1,660 out of 232,464. The newly-fledged owners of privatized companies were public servants with business savvy. Nomenklatura bosses along with Soviet-era shadow businessmen, enterprising Komsomol functionaries, semi-legal cooperative bosses from the days of the perestroika, and criminal leaders converged on public enterprises, tearing away the choicest pieces. The prolonged absence of laws and procedures regulating privatization was no accident: they would only hinder the process popularly referred to as “prykhvatyzatsiya” [grab- it-ization].
In a short period a hefty part of the nation’s economy was carved up by several oligarchic clans that formed powerful financial and industrial groups. They established control of technologically related enterprises and banks that serviced them.
In evaluating the market reforms that began in 1994, one must bear in mind the following circumstance. Nobody could offer a rational way to privatize plants and factories that had been state owned for three generations. Moreover, only powerful financial and industrial groups that were formed on the basis of a hyper-monopolized and noncompetitive economy had a chance of gaining a foothold in international markets. However, the fact remains that these monopolistic cartels ensured themselves super profits by fusing with representatives of the executive and legislative power.
Leonid Kuchma’s record during his first term in office should not be viewed as either good or bad. Without a doubt, he was instrumental in averting the threat of a Red revenge from such a leftover of the Soviet period as the Communist Party of Ukraine. He was duty- bound to do so by the very post of president, which ran counter to the Soviet system of government. Nonetheless, it is impossible to view the de-ideologized component of the “party of power” as a political force that waged an all-out war against the “birthmarks of totalitarianism.” On the contrary, it used these birthmarks to prevent the democratization of politics and the economy. Much like the leftist parties, the de-ideologized element of the “party of power” was a leftover of the Communist era. Proof of this is the nature of the state that the president and parliament were building.
WHAT KIND OF STATE DID THE PRESIDENT AND PARLIAMENT BUILD?
After 1991 the elite and grassroots of Ukrainian society found themselves in different situations. An elite was organized and therefore capable of independent action. Most representatives of the former nomenklatura managed to preserve their grip on power and use the inevitable privatization of production facilities to their own benefit.
The grassroots were disorganized or, to be more specific, atomized. The Soviet Union had myriad organizations, but all of them were vertically structured and subordinated to party chiefs, and were based on the principles of “democratic centralism.” In plain terms, they were designed to convey the leaders’ will to the mass of members and not the other way around. When the regime collapsed, these organizations preserved their structure, for which reason the ruling centers of trade unions and civic political organizations remained part of the same “party of power” that personified the government. Officially, society rose above the state. In reality, every citizen remained in total economic and psychological dependence on the state.
To prevent a social explosion, government officials took care to create elementary conditions for the survival of underprivileged social groups. But from the top down all of them were primarily concerned with their own welfare. The long period during which the Ukrainian economy remained in a state of semi-collapse and semi-chaos was not so much due to the lack of experience as to the ill-will of the former nomenklatura members, who were frantically exchanging power for property. The absence of regulations to prevent the use of power for personal enrichment was no accident.
The collapse of the planned economy instantaneously made professions that made millions of people redundant. When the borders were opened, Ukraine was flooded with comparatively cheap and quality consumer goods, which forced many domestic enterprises out of business. Millions of Ukrainians sought freedom from poverty and unemployment in European countries. To win over the public, politicians talked about European integration and plans to turn Ukraine into a social state after the fashion of countries beyond the former Iron Curtain. Too bad they didn’t understand what they were saying.
In the fall of 1992, when Leonid Kuchma was elected prime minister, he asked the lawmakers what they should be building. When he began market reforms in his presidential capacity, he was not alone in feeling inadequate to the task of building capitalism. Almost all the representatives of the “party of power” were thinking in terms of Marxism and Leninism, which divided the world into socialist and capitalist camps. In reality, the world was following a different path of development.
The Great French Revolution of 1789 and the European revolutions of 1848-1849 began a transition from a traditional and essentially feudal society to a democratic society that would evolve into a civil society. Western countries embraced the capitalist economic system based on the sanctity of private property and contractual, i.e., market economy, relations among owners. In this system, profits from business were the property of business owners. As a rule, they were capitalized, i.e., invested in production facilities to expand production. Only a part of these profits was set aside for personal consumption or charitable purposes and channeled into state coffers via the tax collection authority.
As the government grew more dependent on society, the capitalist economic system narrowed. Government institutions were formed by way of elections with the participation of all citizens (women too after World War I). The government began collecting tax money for its own needs (for the upkeep of the army, officials, etc.) and additional resources intended for education and health care, unemployment relief programs, and programs for pensioners and immigrants. Competing with leftist parties for votes, conservatives and liberals also spoke for the government’s active involvement in satisfying citizens’ social needs. Such a distribution of the GDP was socialist in nature (from the term “socium” for society). However, the Bolsheviks and national socialists hijacked the term “socialism.” Therefore the country that pursued a policy of redistribution of wealth was called a social state.
Lenin’s “commune state” and a social state were the products of social democracy. The difference between the Bolsheviks and Social Democrats was in their attitude toward private enterprise and private property. The Social Democrats wanted to create favorable conditions for free enterprise in a competitive environment. The Bolsheviks, on the other hand, resolved to eradicate enterprise as a form of human activity because public ownership and a government-controlled economy gave them power over society. The reverse side of this coin was the duty of the “commune state” to financially support the population. The mounting inability to fulfill this duty resulted in the self-disintegration of the socioeconomic system.
The “party of power” did almost nothing to create a social state in Ukraine. The words of the head of state himself support this conclusion. In November 2000 Kyiv hosted a conference dedicated to market transformations. The mastermind of reforms, Leonid Kuchma, then said: “The formula that was determined at the outset of reforms and followed during subsequent years — reforms come first followed by efforts to resolve social problems — was not only erroneous, but downright destructive. In practice, it boiled down to reforms at the expense of social factors. In many respects we undermined even those social achievements that we once borrowed from Western countries. As a result, these reforms proved a complete opposite to reforms implemented, for example, by Ludwig Erhard in Germany, or in other countries of postwar Europe, where the emphasis has always been on social aspects of economic transformations.”
Ukraine emerged from the protracted economic crisis in 2000 and increased its GDP by more than a third between 2000 and 2004. However, this again benefited the capitalists and not the working class. Real wages and pensions remained almost unchanged. The state, which was primarily personified by the president, didn’t care about the people, which only broadened the gap between the poor and the rich to horrific proportions. Yet again, this time in 2004, Leonid Kuchma recognized the failure of the state’s social policy, but distanced himself from the state. The book entitled Svoyim Shliakhom. Rozdumy pro Ekonomichni Reformy v Ukrayini [Our Own Path. Musings on Economic Reforms in Ukraine], which was published under his own name, reads: “I understand those of my compatriots, especially senior citizens, who look to the past with nostalgia. Our reforms, unfortunately, did not fulfill society’s hopes for swift social changes. I know that many people feel disgusted at hearing the word ‘reforms’.”
The president was invariably defending the interests of the “party of power.” To ensure the stability of the governmental system that he had created, he did not pursue an effective social policy, but was instead betting on a numerically stronger army and special police units. So, what kind of state was Leonid Kuchma’s regime building?
Anders Aslund, an American professor of Swedish descent, who has studied the nature of market reforms in Russia, Ukraine, and Kyrgyzstan, calls them “states of rent seekers.” He used the term rent in the specific post-Communist sense of this word, referring to profits that exceeded many times over the revenues normally received by businesses in a specific environment. The super-profits came from businesses protected by government privileges and preferences; from government subsidies immediately converted into foreign currencies that were never returned because of galloping inflation; from tax-exempt brokerage operations; from foreign exchange margins skimmed by those with access to higher exchange rates. However, the main source of enrichment for “party of power” representatives were big enterprises that were sold to them or their relatives at token prices, and kickbacks in foreign currencies that they received for using their clout to further some political causes or give somebody a leg-up in business.
Bribes may or may not be offered. Those who built the state of “rent seekers” did not have the patience to wait until it occurred to somebody to give them a bribe. Their strategy, according to Aslund, was a blend of total economic freedom with numerous restrictions that had to be strictly observed. Uncovered violations with incriminating materials always produced the necessary result. Therefore, foreign observers often called the system built in Ukraine a “blackmail state.”
Can we fault individual politicians or the entire government corporation for the situation that Ukraine was facing at the turn of the new century? There is no doubt about that. It was they who built, in lieu of the self-destructed socioeconomic system, a system that earned such opprobrium from the West. However, perhaps we should not have expected such leaders to do things that they were incapable of doing at the genetic level. They took care of their own interests, while society in its atomized state was unable to stop them.
However, Ukrainian society has gradually formed economic and political structures that can speak out in defense of their interests. Under such conditions, a conflict between the “party of power,” which personified the Communist past, and society in the process of self-organization became inevitable. The people prevented the birth of a horrible mutant in Ukraine: Communo-feudalism with a capitalist face.
THE LESSONS OF 1998-1999 ELECTIONS
Before the election cycle of 1998-1999 Ukraine was in a unique political situation. On the one hand, the colossal protest potential that accumulated in the largely impoverished society promised a sure victory for leftist parties both in parliamentary and presidential elections. On the other hand, the voters’ generally high intellectual level prevented the spread of leftist populism. The danger of a Red revenge was further reduced by the fact that the former CPSU had split into two competing parties in Ukraine. The more influential CPU had a leader without a public image, while the numerically weaker Socialist Party was headed by a more conspicuous leader.
The parliamentary elections of 1990 and 1994 were held under a majority electoral system. Before the 1998 elections parties with developed structures and influence in the regions (the Communists, Socialists, SelPU, Rukh Popular Movement) attempted to introduce a proportional system that was more favorable to them. After signing a compromise agreement with the leaders of the influential parliament factions Yednist [Unity] (Pavlo Lazarenko) and Social and Market Choice (Yevhen Marchuk), they managed to introduce a proportional-majority electoral system. Under this system, nominees competed for one half of parliament’s seats in 225 majority constituencies, while parties and party blocs competed for the other half in a single nationwide constituency. A 4% hurdle was introduced for parties and blocs. Former Prime Ministers Pavlo Lazarenko and Yevhen Marchuk were preparing to compete for the presidential seat and needed to expand their party structures.
Then-incumbent president Kuchma was also preparing for re-election. In February 1996, his closest allies formed the People’s Democratic Party (NDP). Despite the lack of regional centers, the president’s party was influential in all but the western oblasts owing to the “administrative resource.” Its creation signaled the “partization” of the ruling nomenklatura.
In the spring of 1997 political parties started to announce their election rosters. Formed in January 1995, the Social-Democratic Party of Ukraine (United) announced a roster headed by Leonid Kravchuk and Yevhen Marchuk. This move provided a good chances of success for a party that at the time had only several thousand members.
