Common Cents

Neo Soviets

Ralph Murphy

(2/2014) Recent violence in the Ukraine has deep rooted, socio-economic origins that are not likely to quickly or easily resolve themselves given the history and nature of the nation’s divisions. In most basic terms, the current conflict stems from the belief of anti-government sympathizers that the nation should look to the West, especially toward the troubled European Union for its economic partnerships and social identity. The regime in power appears to side with the Russians as they draw closer to out and out conflict.

The Ukraine has a significant manufacturing base including the production of transportation equipment, chemicals, commodities, and they are a major steel producer. The nation is weak in energy resources, which has led to a close reliance on the Russians who are strong in that area.

The Ukrainian nation is a member of the Commonwealth of Independent Nations - a loose, economic and political grouping formed and largely run by the Russians following the dissolution of the Soviet Union in 1991. Russian President Vladimir Putin has always derided that event which created 16 independent nations. Through clever, political maneuvers and creation of a Customs Union made up of Belarus, Kazakhstan and Russia- he appears to be positioning Russia to restore economic control over these three nations and other new members in the future. It might have already happened, but the European Union is trying to do the same thing.

Russian ethnicity accounts for about 17.3% of the Ukraine's 45.5 million people. Unfortunately their current President Victor Yanukovych and his Prime Minister Mykola Azarov are ethnic Russians. One of the leadership’s first acts was to sign an extension of a Russian lease for a Naval base at Sevastopol in the Crimea in April of 2010. It was set to expire in 2017. It is now set to expire in 2042 with an additional, five year option to extend the Russian naval presence through 2047. The base is more than symbolic, but arguably less troubling than the courting of the Ukraine into the aforementioned Customs Union which seeks economic, social, and political union among its members along EU lines. It also advocates a single, common currency among its members. Putin is a strong proponent of this arrangement.

The Customs Union created the 5-member, Eurasian Economic Community, that seeks to create a "single economic space" while diplomatically claiming interest in better economic ties with the international community. Armenia, Moldova, and notably Ukraine are approved observers. This is an apparent step towards their future assimilation into the expanding Customs Union if political conditions allow.

Street violence is intensifying in the Ukraine, as pro-European Union demonstrators battle the minority, but aggressively-potent, pro-Russian leaders. The protestors draw inspiration from former Prime Minister Yulia Tymoshenko (the "Ukrainian Gas Princess"), who is the leader of the opposition Fatherland party. Tymoshenko received what is considered a politically motivated, seven-year,hospital sentence in 2011. This was supposedly for abuse of power in her dealings with the Russian, joint stock company and natural gas producer Gazprom. Tymoshenko led an Orange Revolution that brought pro EU President Viktor Yushchenko to power in 2005. They ruled on and off together for the rest of the decade, but the alliance was unstable, and the pro-Russian grouping took advantage of the disarray to win in 2010.

Putin has expressed a goal of enlarging the economic, and in large measure political and social control of the Customs Union to include "all past Soviet states"- excluding the three Baltic nations of Estonia, Latvia and Lithuania that are now EU members. The economic numbers of the undertaking are less than daunting. Germany and France alone account for more GDP income than the entire Commonwealth of Independent Nations even if they could further integrate. Strategically, however, the landmass incorporating parts of Europe, Central Asia, and the Far East is of major concern to the Western powers. It could grow, despite being saddled with EU-style disincentives for production, if the Customs Union were expanded to include the Ukraine.

Judging from recent "Pravda" articles, not all in Moscow relish Putin's hegemonic gains associated with the Customs Union. Quiet dissent fears a Brussels-type bailout of participating nations. And Kiev was also looking their way for a $15 billion dollar loan package coupled with a 33% gas price drop from the Kremlin. That's likely to be the start of a costly association if the Russians could be trusted to honor their newfound economic commitments and the Ukraine were to be further integrated into the Russian scheme of things.

The International Monetary Fund has expressed concern that structural reforms in the Ukraine have been dropped since the Russian monetary provisions were introduced. Following an Oct. 2013 visit to the Ukraine, IMF bank official Nikolay Georgiev expressed concern about emerging, economic problems in the Ukraine to include "limited exchange rate flexibility, a large budget deficit, and a large, current account deficit." The "current account deficit" is defined as – current exports minus imports plus foreign direct investment.

The EU is still angry about the pro-West Ukraine majority being "muscled out" of a political role, as are the Ukrainian, street demonstrators who have lengthy experience with Moscow oversight and want out.

A nation’s Production is based on its available human and natural resources along with associated productive capital (i.e. its educated workforce, equipment, buildings and the infrastructure needed for a successful economy). A nation should provide the climate for optimal productivity by multi-national corporations in an atmosphere of relative, social harmony.

By ensuring competition, providing the necessary infrastructure, and protecting the environment as regards health concerns, the government is important. By taking over productive capacity they become a threat.

The Ukraine is bowing to foreign dominance. Street violence is the result.

Ralph Murphy is a former member of the CIA Headquarters Staff in Langley, VA.