Chapter 4: Governance, Economy, Foreign Policy

Some working definitions:

Politics is the set of activities that are associated with making decisions in groups, or other forms of power relations among individuals, such as the distribution of resources or status.

Liberalization is a broad term that refers to the practice of making laws, systems, or opinions less severe, usually in the sense of eliminating certain government regulations or restrictions.

Europeanization refers to a number of related phenomena and patterns of change: the process in which a notionally non-European subject adopts a number of European features.

Democratization

Following post-independence 1991, Ukraine adhered to the idea of universal respect and tolerance for more than ten years. Regional, linguistic, and ethno-national identities were heavily politicized in the 2004 presidential election (Wilson, 2018).

Democracy is a form of government in which the people have the authority to deliberate and decide legislation, or to elect governing officials to do so. A system of government by the whole population or all the eligible members of a state, typically through elected representatives. The term “post-Soviet democracy” indicates a country with a free press, freedom of association, a multiparty system, a variety of political views among its populace, fair and free elections, and a strong civil society. In over three decades of building Ukrainian democracy since 1991, there have been many challenges in developing these institutions. Ukraine today is a fully sovereign and independent state, with its sovereignty now under threat due to the unlawful annexation of Crimea and the continued existence of unregulated territories in eastern Donbas. Nevertheless, Ukraine enjoys one of the most free and open political regimes among the post-Soviet territories.

For liberal democracies, statistics show that the first half of the 1990s and the period from 2005 to 2009 were some of the best periods for the development of democratic institutions. But with political development progressing unevenly in Ukraine, two major political crises punctuated the post-Soviet era marked by the Orange Revolution of 2004 and the European Maidan of 2013-2014. Thus, the path to democratization shows mixed results, with freedom and its antithesis coexisting and competing amid Ukraine’s ongoing political development. The promise of a free Ukrainian state and an open Ukrainian society has yet to be fully achieved according to the founders of the modern state (Minakov, 2021).

Due to its history as a former Soviet republic, present-day Ukraine is effectively a bilingual country, with both Ukrainian and Russian being used by a large portion of the population. Political parties developed the habit of mobilizing their electorates by highlighting the language issue and exacerbating regional divisions before the elections of 2014, a move that has unavoidably weakened societal cohesiveness. In the spring of 2014, confederates supported by Russia contended that the only way to safeguard the rights of Russian language speakers in the southeast regions of Ukraine was to establish a separate state. However, both Ukrainian and Russian speaking inhabitants mobilized in great numbers to fight against the separatist effort.

In actuality, support for Ukraine’s independence and sovereignty has been consistent across all language groups within the country. That said, some political government programs and language policies continue to weaken social cohesion along linguistic and regional lines. Distrust between local communities and the capital of Kyiv has increased since the so-called “Decommunization Laws” were put into effect in 2015. Additionally, there may be more hostility between Russian and Ukrainian speakers as a result of language restrictions in Ukrainian news outlets and efforts to outlaw Russian-language social media. As per the recently enacted education law, minority language and Russophone schools may soon be shut down. All of these initiatives depart from Ukraine’s prior reputation as a civic, inclusive, multiethnic nation (Wilson, 2021).

Ukraine and Europe

The European Union is currently negotiating an agreement with Ukraine to strengthen ties and potentially join. The plan is part of a larger political move towards integrating Ukraine to become part of Europe. Politicians in Ukraine claim that their country has complied with all requirements imposed by EU officials. In the interactions between Russia and Europe, Ukraine is crucial. Ukraine was torn for more than 20 years between two opposing geopolitical movements: Eurasian re-integration and European integration (Hryaban).

In response, Ukraine has frequently employed a “multi-vector” foreign policy that seeks to both profit from and contain external pressures through negotiations with Moscow, Washington, and Brussels. The Ukrainian government has cut links with Russia as a result of the Euromaidan, which was brought on by a crisis in the integration of Europe and Eurasia, and the Russian invasion of Crimea and Donbas that followed. By 2017, relations between Ukraine and Russia had reached an all-time low due to severe restrictions on trade, the media, and travel. Meanwhile, Moscow’s current Ukraine policy is to prevent Ukraine from joining NATO, to legitimize the annexation of Crimea, and to support the breakaway regions of eastern Donbas. Russia no longer participates in Ukrainian politics from within. Despite the clarity of Ukraine’s goals, the future of the nation is opaque. We are by now very familiar with the goals of Russia and Ukraine from their points of view. However, we are less certain of how things appear from within the EU. The extent to which European Union policy makers are willing to take the matter of absorbing Ukraine is still up for debate. The EU does fund Ukraine to some extent, but Russia dominates the Eurasian Customs Union, helping to fund their essential public services, macroeconomic stability, and restore critical infrastructure. The Customs Union is a collection of nations that have agreed to impose the same import taxes on one another and, typically, to allow free trade. By altering its development trajectory, Ukraine gains the potential to reach European markets, but it loses the ability to sell its goods throughout the Customs Union as a whole and within Russia (Minakov, 2021).

Zelensky

Volodymyr Zelensky is the current president of Ukraine. He was born in eastern Ukraine. Part of his past that is often brought up is his role as an actor; particularly in a television series in which he played a character who made it to the presidency on account of a rant criticizing corruption going viral. Volodymyr Zelensky received an amazing 73 percent of the vote on April 21, 2019, when he was elected president of Ukraine. When Putin announced his decision to grant Russian passports to Ukrainian nationals in separatist-controlled areas of the war-torn eastern Ukraine, the president-elect soon encountered his first foreign policy obstacle. Zelensky’s style of leadership, both as a performing artist and as president, pushed Ukrainians to self-mobilize for the sake of common goals. Overt combat prompted by persistent Russian aggression may continue in the midst of reconstruction, but the pace of violence and disruption may decrease enough for some Ukrainians to prioritize governance over crisis management. The Ukrainian people have responded to the needs of their countrymen in a chaotic environment of ongoing suffering as a result of Russia’s war. In a time when survival is the major concern, Zelensky’s style of leadership, which focuses on creating environments that allow others to respond creatively, has proven to be very adaptive (Pisano, 2022).

Ukraine’s Economy

After becoming independent in 1991, Ukraine struggled greatly to develop a decentralized market economy due to many factors. Ukraine’s ongoing fight for political and economic independence from Russia has come with many economic hurdles that were not foreseeable. Due to this fact, Ukraine’s economy swung into a deep recession in the 1990s, causing poverty rates to skyrocket to an all-time high. Eventually, things stabilized in the 2000s, and the country’s leaders were able to create a growing and stable economy. Since Russia’s invasion on February 24th, 2022, Ukraine has received 68 billion dollars from the U.S. alone. With a majority of this money coming from U.S. taxpayers, are these funds going to the right places? Would Ukraine have remained steadfast were it not for Western funds?

Part of Ukraine’s ongoing process of integrating more fully with Europe has involved adopting capitalist values and ideas, further developing its market-based economy, and moving away from Soviet-era economic models. Before Russia’s invasion in 2022, Ukraine had one of the weakest European economies per capita, even though it had the second largest economy in Europe next to Russia. Ukraine’s poverty rate before Russia’s full-scale invasion was 31%, making it an exceptionally poor country by European standards. Ukraine also ranks amongst the most corrupt countries in the world, ranking 122 out of 180 on the Corruption Perceptions Index. Mineral commodities and the light industry sector are central to Ukraine’s economy, explaining Putin’s decision to target mining facilities. Ukraine also has a very large maritime commercial port in the Donbas, which many speculate was a primary reason for Russia’s invasion. Ukraine has long had a reputation for being the “breadbasket of Europe,” with much of its GDP coming from its agriculture sector, especially grain exports. The temporary shutdown of this sector is already affecting reliant African client states. Ukraine’s predominant trading partners are in Europe and Africa, with Poland, Turkey, and Germany being its main partners. Energy and information technology are also important sectors, both of which are largely on hold during the ongoing war.

After the Cold War, there was strong anti-communist sentiment in the U.S. and a desire to distance former Soviet client countries from communist vestiges. In the immediate post-Soviet period, the IMF, World Bank, and other partners employed a set of policies in Ukraine and other former Soviet republics known as “shock therapy.” This term can simply be described as rapid privatization and budgetary austerity. Shock therapy was the staple of the post-Keynesian World Bank, moving away from the idea of pumping liquidity into the system and having a strong central government control the economy. These policies were unmanageable for post-Soviet bloc countries for obvious reasons. Shock therapy has been criticized as an exploitative political tool used to further advance Western capitalist interests, particularly in terms of foreign market penetration. If Ukraine did not comply with directives from the World Bank and IMF, then the funds necessary to support human health and economic development would be withdrawn. This situation led to an unreadable scenario for all parties involved. While perhaps less so than other former Soviet republics, Ukraine suffered from these policies with increases in poverty and decreases in human development indexes. These outcomes came about mainly from forced decreases in funds to state works. Other problems arose from liberalizing financial markets and adopting austere fiscal policies, which prompted problematic debt-equity ratios, poor capital adequacy ratios of banks, and a lacking foreign capital portfolio. Mass asset stripping and corporate raiding only exacerbated this situation, with insufficient safety nets and regulations in place to prevent or moderate these economically disastrous conditions.

1991 to 2001

The decade spanning from 1991 to 2001 included many first-time events for Ukraine as an independent country. Before 1991, life in the Ukrainian Soviet Socialist Republic was relatively stable in the decades before independence from an economic standpoint. The Russian Republic provided low-cost gas to Ukraine, while export prices rose quickly. Over time, Ukraine became dependent on Russian gas and oil, which was highly subsidized, and today Ukraine imports up to 70 percent of its gas need.  Russia has always had a low cost of production in terms of oil and gas, which was one of the greatest benefits to Ukraine, since they were able to buy oil and other important commodities at cost of goods sold (COGS). Post-independence, Ukraine experienced periods of hyperinflation as goods and services drastically increased in price. By 1993, inflation in Ukraine reached in excess of 4,734%. To put that into perspective, the United States is currently increasing interest rates at the highest rate in decades to combat 8.5% inflation. Eventually, due to inflation Ukraine was pushed into a recession, made worse by a large decrease in overall output. From 1991 to 1996, the Ukrainian economy decreased by between 9.7% to 22.7% annually. Although poverty rates in Ukraine remained at an all-time high, inflation was soaring with no end in sight. In hindsight, we can think about this decade as a trial run, due to Ukraine’s being an independent country for the first time. It can be expected that things would not go perfectly, but nobody anticipated that the economy would increase as it did in the early 2000s.

2001 to 2011

During the 2000s, the Ukrainian economy began to accelerate for the better. This development can largely be attributed to metallurgy exports; an overall lower inflation rate achieved through currency price stabilization; and entrepreneurs finally succeeding in a private market economy. “Many of Ukraine’s large-scale capitalists—the oligarchs—are former Soviet-era industrial managers who succeeded on a grand scale when industries were privatized. Their wealth was originally based on a traditional, simple formula: convert cheap energy and raw materials into metals and manufactured goods” (Sutela 1). As industries were privatized, the true effects of capitalism came out and today all six of the billionaires in Ukraine are from the metallurgy industry. Although Ukraine drastically grew its economy from 2001 to 2008, the country was not immune to the 2008 financial crisis, which caused the Ukrainian economy to decline over 15% after years of growth. Although it was hit by the 2008 financial crisis, in less than one decade, Ukraine went from an economy less financially oriented to a banking sector comparable in relative size to that of many well established private equity oriented Western market economies.

2012 to 2022

Ukraine was ranking fairly high on the economic freedom metric and had a rising GDP until the advent of COVID-19, which led the country’s economy into a contraction and increased poverty levels to an all-time high. Additionally, many strict anti-corruption policies were put into place by President Volodymyr Zelensky that were working by observable metrics, with public works and state institutions rising in efficacy. In essence, the Ukrainian economy has been oscillating between depression and contraction, with some thin rays of light. This rapid-fire shift is perhaps best captured in the last decade, beginning with a depression and economic shrinkage, followed by a stable growth in GDP at small but progressive increments, then ending with another depression and economic crisis. Ukraine was never protectionist to the same extent as most developing countries, but any pretenses of that policy working were dashed in the last decade with its growing emphasis on international trade.

Recently, the war between Russia and Ukraine has required a large influx of funds from other countries to help Ukrainians in their fight against Russia. The total aid from the U.S. to Ukraine as of November 18, 2022, is $68 billion, with billions more waiting to be approved by president Biden and Congress. U.S. aid can be broken down into four main categories: short-term military support; long-term military support; U.S. military operations; and Department of Defense (DOD) general support. Short-term military support accounted for $17 billion of the total, supporting the transportation of weapons from the U.S. to Ukraine and training programs for Ukrainian soldiers. A portion of the weapons transferred to Ukraine were purchased from other countries with U.S. funds.

Next, long-term military support accounted for $10.4 billion. This category is related to increasing long-term assets for the military in the event that another war breaks out in the future. Most of these funds were used to purchase weapons, primarily from the U.S. We can think about this support as stimulus funds, whereby the U.S. government issued stimulus money to increase spending within the economy. These are very similar in that the majority of money flowed directly back into the pockets of U.S. companies like Lockheed Martin, Raytheon, and Northrop Grumman. Finally, U.S. military operations and DOD general support accounted for $10.8 billion. Most of this money went directly to the 18,000 U.S. troops sent to Europe (although many see this move as more of a scare tactic). Overall, it appears that aid was an absolute necessity for Ukraine, and that without it the outcome would likely have been different. The U.S. has a long-standing practice of sending aid as a way to silently deter Russia, while ensuring that it does not use direct violence, which would likely worsen the hostile relationship between the U.S. and Russia.

Foreign Policy

Post-independence in 1991, Ukraine has pursued a consistent platform of bilateral relations with the American and Russian poles, respectively. Being caught between these often opposing parties is the most well-known aspect of Ukraine’s foreign policy. In the wake of the 2022 Russian invasion, Ukraine has the directional goal to integrate with Europe to a greater extent than before. Ukraine’s actions concerning other nations have mostly, but not always, fallen under the umbrella of these aims, as you will see with evidence in the text that follows.

Russian relations have been and remain the most important. For what, in a post-1900 sense, is a relationship of Russian progenitor and Ukrainian vassal, the two countries have very little similarity in international political landscapes. They did, however, maintain relatively peaceful and economically interlinked relations until the color revolutions in 2004 and 2014, in which a series of protests took place that essentially led to mass resignation and a furthering from the Russian government. President Putin had long shown hostility towards Ukraine, stating publicly that it did not have the right to exist. In 2014, this Russian nationalism and aggression materialized into the annexation of Crimea, and in many respects, a shadow war that continued with looming aggression lasting eight years, until Russia finally launched a land invasion on February 24 of 2022.

The United States and Ukraine immediately enjoyed cordial relations, with Ukraine setting its goals of becoming a market economy and democracy. However, like many post-Soviet bloc countries, Ukraine has faced myriad challenges relating to privatization. The government had many reforms in the late 1990s that in retrospect created tension, but in effect led to respect for Ukraine as a sovereign country and met with support from the United States.

However, a problem emerged wherein U.S. national security interests conflicted with Ukraine’s foreign policy when Ukraine was discovered to have sold a sophisticated $100 million dollar defense system to Iraq in 2002, before the 2003 Iraq War, but after a strict sanctions regime had been put in place. This tension never materialized into anything but a rhetorical conflict, and Ukraine supplied 5,000 troops to the U.S.-led coalition in Iraq over the first ten years of the war, presumably patching up any old wounds.

The United States expressed support for both color revolutions in Ukraine in 2004 and 2014, which was perhaps the paramount engagement the countries had with each other until 2014. In 2014, the expansionary platform of Putin’s Russia became an apparent threat to its neighbors and the U.S. when the annexation of Crimea commenced. The international censure of Russia also was stoked by the 2014 Revolution of Dignity. From this point forward there were intense bilateral security arrangements between the U.S. and Ukraine. The United States frequently and publicly promised defense funds and support of Ukrainian sovereignty, culminating in a weapons and capital flow after Russia’s invasion. An interesting tangent from this support came in the 2020 extortion of the Ukrainian government on the part of the Trump administration for information on Hunter Biden in exchange for aid..

The next most important aspect of Ukraine’s future-oriented foreign policy agenda is its push toward Euro-integration. Before Brexit, it could have been posited sympathetically that the U.K. was a chief member of the European structure. In the late 2000’s, Ukraine developed an intense strategic partnership with the U.K. The United Kingdom is the third largest investor in Ukraine and has had multiple, sophisticated public deals with the Ukrainian government. France has little substantive arrangement with Ukraine; however, trade in the years immediately preceding the war was increasing substantially. Spain and Portugal have had healthy but limited relations with Ukraine; in the prospect and aftermath of the war, both countries have expressed desires publicly to become closer.

Germany’s relationship with Ukraine is a bit more complicated, showing initial sympathy to Russian leadership when trying to exert control over Ukraine. Following that, it assumed a leading role in prioritizing bilateral deals with Russia, and a less rhetorically and fiscally muscular response to the invasion than comparable world powers. It has been hypothesized frequently that this stance follows from the hereditary guilt of WWll, leaving Germany in debt to the Russian nation. This position makes a good bit of sense: who can make a morally oriented political argument when the opponent crushed the most uniquely genocidal and evil regime ever, and that regime happens to have led your country?

Nordic countries and the Rumsfeldian “New Europe”— Poland, Estonia, and Lithuania — have had cordial bilateral security and trade deals with Ukraine. However, they are not prime investors, nor do they make up significant GDP portions in both Ukraine or the aforementioned Eastern European countries with the potential exception of Poland. Greece is one of the most ardent supporters of Ukraine due to its similar Orthodox Christian roots. Italy enjoys strong economic but limited political ties. On the other side, two European nations that have expressed sympathy for or a desire for sustained cooperation with Putin’s Russia are Serbia and Hungary. This pattern fits the behavior of each government in rejecting Western liberal principles.

As mentioned above, Ukraine held up economic and security deals with Saddam Hussein’s Iraq, a decision directly contrary to its platform of integration. So how exactly has Ukraine behaved with bad world actors? For reference as to what a bad world actor entails, George W. Bush’s “axis of evil” has been common topos; however, it is easier to interpret than to explain.

Ukraine was integral in the United Nations’ food and aid delivery to Iraq during the sanctions regime as a chief supplier of grain. While it has been proved beyond doubt that Ukraine had advanced security deals with Iraq, it also immediately supported the coalition efforts in the 2003 invasion of Iraq.

Relations with Iran followed a similar trajectory. The two countries have maintained economic and political ties on a very junior level; however, Iran’s support for Russia has led to tensions, and recently the infamous situation in which Iran supplied complex security equipment and attack drones to Russia has caused their relationship to deteriorate rapidly.

As the world’s largest grain exporter, Ukraine had special bilateral ties with nearly every African country, and their economies have become very interdependent. Ukraine supplies 40% of Africa’s wheat. However, Ukraine has never expressed political opinion towards or about African countries, and aside from the obvious chain of production clauses, has never had the conditionality of a trade center around human rights. This situation is further evidence of Ukraine’s struggle to reconcile its post-war order of tribune status and neutrality. Ukraine, unlike many Eastern European countries, did not object to the ICC and NATO coalition’s actions in the Arab Spring. South Africa and the Ivory Coast countries have had the strongest economic ties to Ukraine, but the more economically desperate countries to a greater extent have relied on grain imports, leading to the humanitarian crisis and famine we see today.

Another interesting facet of Ukraine’s foreign relations is how the government interacts with other post-Soviet bloc countries. This interaction can be easily bifurcated into two categories: pro-Putin and anti-Putin. This binarism may not have existed in the 1990s, but the paradigm was in play: the nationalistic, nostalgic state versus one with a future-oriented agenda. This point leads to an interesting paradigm shift that seems to be occurring, and is set to materialize after the war no matter the outcome: the rise of colonial powers and the question of entrenchment or disavowing the world order.

Ukraine has come to represent a beacon of hope or tribune for both nostalgic colonial powers and liberal rules-based order democracies, alongside a sense of nationalism and sovereignty. Strange as it may seem, the violation of sovereignty at play is becoming a philosophical hero to nations with right-wing movements who maintain that the post-war order (which the invasion transgresses) is robbing them of their sovereignty. In the aggregate, powers like China look to Ukraine as a green light for acceptable colonial aggression, and powers like the U.S. look to it as the tribune of success in moral rectitude.