Behind the Donbass “Economic Offensive” – Part 1

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March 1, 2017 – Fort Russ – 

By Eduard Popov – translated by J. Arnoldski – 

Starting at midnight, March 1st, the republics of Donbass introduced external management at Ukrainian enterprises. In the Donetsk People’s Republic alone, more than 40 enterprises fall under the new rule. And we are dealing with rather large and, in rarer cases, mid-range facilities.

The question of transferring oligarchic property over to republican management is one of the most acute and important issues in the republics. Therefore, let us pay attention to the background of this matter.

Oligarchy is a phenomenon of the modern capitalist world. These are the owners of large fortunes whose influence is not limited to mere financial power. In accordance with Karl Marx’s formula, oligarchs convert economic power into political power (although the emergence of oligarchy in the former USSR was the opposite: access to political power opened up the opportunity for enrichment). Following President Putin’s rise to power in Russia, the oligarchs were subjected (albeit not completely) to the state. In Ukraine, the oligarchs proved stronger than the state. Their money organized the Euromaidan coup d’etat from the very beginning, after which the oligarch media-mogul Poroshenko became the head of state. 

In the Donbass region, even in comparison to the rest of Ukraine, the oligarchs played an extremely significant and even decisive role. It is well known that the Party of Regions was in fact the political institution of the Donetsk-based financial-industrialist group. An especially important role was played by the uncrowned “King of Donbass”, Rinat Akhemtov, the single wealthiest Ukrainian oligarch. With regards to the situation in the Lugansk region, we can speak of the backstage role of Alexander Efremov, the head of the Party of Regions faction in the Verkhovna Rada, and it is also worth mentioning Alexander Taruta, the head of the Industrial Union of Donbass and the ex-governor of the Donetsk region.

The preservation of the oligarchs’ property contradicted the slogans of the “Russian Spring” (as well as the Euromaidan). The question of nationalizing the Ukrainian oligarchs’ property arose already at the initial stage of the formation of Donbass’ independent state organs. In particular, the author of this article asked the chairman of the People’s Council of the DPR, Pushilin, in April 2014 about plans for nationalizing the oligarchs’ property, in particular the enterprises of Rinat Akhmetov (the owner of a whole chain of metallurgical enterprises and mines in the DPR). In practice, the republics’ leaderships were eventually compelled to show increasing loyalty to the business interests of the Ukrainian oligarchs. 

The maintenance of the Ukrainian oligarchs’ large properties in the DPR and LPR means that one cannot speak about the republics wielding genuine, fully-fledged sovereignty. Ukrainian oligarchs’ enterprises, according to expert surveys conducted by us, make up around 50% of all large enterprises in the DPR (there is no such available data for the LPR). However, these have been paying taxes into the Ukrainian budget and, as follows, are financing the war against the people of Donbass.

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According to the testimony of the leaders of the Russian Spring in the DPR with whom the author has had close contact, already at the first stage of the  republic’s founding there was some kind of tacit agreement with Ukraine that the enterprises would pay taxes into the Ukrainian budget and, in turn, Ukraine would pay out pensions and other social benefits to DPR and LPR citizens. The ratio of paid taxes and social payments would be approximately 2:1.

But soon enough, this principle was violated as Ukraine refused to pay pensions and social benefits to the residents of the “terrorist” DPR and LPR. Then the bank deposits of Donbass residents were frozen. Thus, continuing to allow taxes to be paid to Ukraine contradicted all the moral and logical principles of the existence of the People’s Republics. They were in effect continuing to finance the war against themselves.

According to big businessmen in the DPR and LPR whom we have surveyed, such a situation can be explained by two reasons: (1) the presence in the leadership of the republics of proteges of the Ukrainian oligarchs (in particular of Akhmetov); and (2) more complex issues related to the organization of labor, the supply of raw materials and investments, and subsequent market sales. We hope to prepare a separate article on this subject by interviewing representatives of the Donbass business elite.

The events tied to the blockade of the Donbass republics by Ukrainian neo-Nazi battalions has suddenly given impetus to the process of nationalization, breaking the deadlock so to speak. It has correctly been said that in so doing, the Donbass republics have effectively gone on the offensive.

The decision to enforce external management at Ukrainian enterprises is not only a most important step in the economic policies of the DPR and LPR, but also a move capable of leading to far-reaching changes in the political space of present-day Ukraine. We will devote the second part of our article to this aspect.

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To be continued in Part 2 

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