The oligarchic democracy. The influence of business groups on Ukrainian politics

I can thoroughly recommend a superb, recently published piece of work entitled:  "The oligarchic democracy. The influence of business groups on Ukrainian politics", from the excellent Polish 'Centre for Eastern Studies' [OSW]

"A definite majority of papers concerning contemporary Ukrainian politics as a rule disregard or deal with this subject very superficially, while it is impossible to understand modern Ukraine without understanding a number of dependencies existing between the political and business elites there.."

Below is a summary:

• The Ukrainian oligarchic system developed into its ultimate shape during Leonid Kuchma’s presidency (1994–2004). Although this system has undergone some form of evolution, it appears to be very durable. Oligarchic clans emerged in the mid 1990s and would gain a dominant influence on the country’s political life over the course of a few years. The Orange Revolution triggered a reshuffle among the oligarchs, but the system itself has remained unaltered. Representatives of big business still have a decisive impact on the politics and economy of Ukraine.

• Big business not only controls entire sectors of the Ukrainian economy and the electronic mass media—it also has a vast influence within political parties. It is often the case that the overriding goal of a given grouping’s existence is to represent the oligarchs who sponsor it. A network of mutual connections exists between politicians and oligarchs. In some cases these connections are so durable that it is fair to say that oligarchic groups have been formed (consisting of businessmen, politicians and state officials who support each other). Representatives of big business are often much more important players on the Ukrainian political scene than the politicians themselves. One may risk stating that it is the interplay of the interests of the oligarchs that is the real mechanism which shapes Ukrainian politics. When giving their support for a given political grouping, representatives of big business are guided by nothing more than their own interests, and they do not identify themselves with the views of the political parties and politicians they are offering financial support to. If the political configuration changes, the oligarchs usually have no problems finding common ground with the new government.

• Although the oligarchic system does have some positive elements (for example, it contributes to pluralism in political life and the media), it needs to be stated that the overall influence of Ukrainian big business is harmful and hinders the country’s development in both political and economic terms. The monopolisation of the key economic sectors has constrained competition and is one of the causes of the unfavourable investment climate in Ukraine. The dependence of most political forces on big business means that the government in many cases is guided by the interests of the oligarchs who are sponsoring it instead of the interests of their country; this often leads to multi-billion dollar losses in the Ukrainian state budget.

• The influence of the oligarchs on Ukraine’s foreign policy is limited when compared to economic or internal policy. They do not seem to have a coherent strategy in external relations, but their actions resulting from their individual interests often have a significant impact on Ukraine’s behaviour on the international arena. Sometimes their influence serves the Ukrainian national interest. However, where the interests of big business come into conflict with the interests of the state, oligarchs lobby (often successfully) for their own benefit.

• In some sectors (primarily metallurgy), representatives of big business are the main barrier to Russian capital expansion in Ukraine. Russian business is their key competitor on foreign markets. However, oligarchs are sometimes forced by the circumstances to sell their businesses, and Russian investors are often the only prospective buyers in such cases. Given the high degree of ownership concentration in the hands of relatively few oligarchs, it is very likely that Russia would take control of a number of Ukraine’s strategic companies should an emergency situation arise (for example, the second wave of the economic crisis).

• When Viktor Yanukovych won the presidential election in 2010, representatives of one political grouping, the Party of Regions, gained strength to an extent unseen so far in Ukraine’s history, and completely monopolised political power in the country. The coalition partners of the Party of Regions and opposition groupings have been marginalised to a large extent. The network of the groups of influence which emerged after the Party of Regions took power has remained essentially unchanged over the past two years. The government and the presidential administration have been divided between the RUE Group and the ‘Donetsk clan’, currently the two strongest groups.

• The emerging business of ‘the family’ – this term is used to refer to the people who are directly linked to President Viktor Yanukovych and his sons – is a new phenomenon. The political and economic expansion of ‘the family’ began shortly after Yanukovych took office as president of Ukraine, and gained momentum in 2011 and in early 2012. Although Yanukovych’s political power is stronger than that of any other president in Ukraine’s history, the financial strength of ‘the family’ is still limited.

• A further strengthening of‘the family’s’ position in business atthe expense of other oligarchic groups is very likely to bring about a conflict between Yanukovych and most representatives of big business. The consequences of this are difficult to predict. The concentration of huge political power in the hands of Yanukovych has already given rise to concern among oligarchs, including those who have so far formed his political base.

• It seems quite unlikely that a system resembling the Russian model, where big business is subordinate to the government, will be created. Yanukovych’s main weaknesses are the limited number of people who he can see as unconditionally loyal to him and the strength of the other oligarchic groups. It seems that the most likely scenario for the development of the situation in the next few years (at least until the presidential election in 2015) will be the development of a compromise between the oligarchs and President Yanukovych. If this is the case, ‘the family’ would gain an important but not dominant position in the model of power and business in Ukraine.

• The political influence of those oligarchic groups which are not linked to the governing Party of Regions has lessened significantly since 2010. However, this has not led to any major ownership changes so far. Other groups have managed to keep their assets, although the government has taken some action aimed against their representatives. However, financial support from big business for opposition political parties has either ceased or been significantly reduced.

Proof of the influence of 'the family' was provided at the Donbas Imternational Investment Summit which was addressed by Yanukovych Sr. today.  His eldest son was constantly in the company of Ukraine's top bananas - photos here