Michael Hudson: The agreement, by worsening economic conditions of Ukraine, will guarantee unending violence in the east
ANTON WORONCZUK, TRNN PRODUCER: Welcome to The Real News Network. I’m Anton Woronczuk in Baltimore. And welcome to another edition of The Hudson Report.
Now joining us is Michael Hudson. Michael Hudson is a distinguished research professor of economics at the University of Missouri-Kansas City. His two newest books are The Bubble and Beyond and Finance Capitalism and Its Discontents.
Thanks for joining us, Michael.
MICHAEL HUDSON, ECONOMICS PROF., UNIV. OF MISSOURI, KANSAS CITY: Good to be here.
WORONCZUK: So, Michael, let’s talk about the economic association agreement that Moldova, Georgia, and Ukraine signed with the E.U. last week. Let’s get a sense of what are the details of the agreement. And how does this differ from–let’s say, in economic terms, from a full-fledged membership with the E.U.?
HUDSON: Well, I’m going to begin by putting it in the big picture, and then I’ll get to the details. The big picture is that this is a form of colonialism almost identical to what Europe did in Africa and Latin America and the Near East. What it did in the 19th century in Africa, where property was owned communally, was it would go to the chieftains of a given tribe, as it did to the Saudi Arabian chieftains, and it would say, well, to make an agreement, you have to register all this oil of your country, but you register it in your own name. And once they registered it in their own name, then Britain or France or the other European powers could make a deal that the chieftains could then sell this property or make contracts on behalf of oil or minerals with the European colonial powers. And that’s how the colonial powers pried away all of this property from what had been tribal possession or communal possession.
Well, as you know, what happened in the Ukraine and the rest of Central Europe after 1991 was all of this public property that was the legacy of the Soviet domination was simply registered in the names of the factory managers. So Ukraine has been called the Nigeria of the North for a good reason. The factory managers and all the leading kleptocrats simply registered their factories in their own name and took it over. And now it’s time for stage two of the process, and stage two is basically the agreement that was signed last Friday.
And the agreement is not so much of a trade agreement, but it’s an investment agreement. Now, you’ve–as I think I’ve mentioned in an earlier so on The Real News Network, George Soros had wrote in The New York Review of Books, that the Ukrainian kleptocrats should make partners of the European, the Western Europeans and Americans like himself. They should sell out part ownership to the foreign investors that’ll take over. So, basically, this is the objective of Europe. They want–there’s been a very heavy purchase of Ukrainian farmland, and they intend to buy as much infrastructure as they can by the results of this deal, which are going to throw Ukraine’s trade balance and tax balance way, way into deficit. For instance, ten years ago or so, 20 years ago, when the E.U. made an agreement with Poland and the Baltics and the other Central European countries, this agreement went hand-in-hand with the E.U. putting investment money in–a huge–hundreds of millions of dollars went in to build up Polish infrastructure and roads and to make the economy more competitive, so that–whereas 20 years ago Poland and Ukraine had pretty much the same incomes and productivity. Today Poland’s four times as high.
But in the agreement that was signed on Friday, there’s no agreement at all for the E.U. to give any fiscal support to build Ukrainian infrastructure or Georgian infrastructure. There’s no support from Europe at all. It is only taking from the Ukraine. What it says is the Ukraine, by signing the agreement with us and potentially moving NATO in, you’ve got to stop exporting to Russia and you’ve got to give up 70 percent of your imports. You’ve got to lower your wages–already at the lowest in Europe–to absolute starvation levels because we don’t–you don’t have anything that you can export that we in Europe want. We’re not going to give you the support under the common agricultural policy that French farmers and German farmers and other European farmers get; you’re not going to get any of the subsidies that we give our own members.
WORONCZUK: But, Michael, when I’m reading the mainstream press here, it’s telling me that Ukraine is going to now have an export market of 28 nations, and that the economy is going to grow by 1 percent, and that this is especially going to make up for the loss of Crimea. How does this not equate to an economic gain for the nation?
HUDSON: Well, absolutely right, they’re going to have an export market of 28 nations. The problem is: what are they going to export? Right now what they’re exporting is largely military and other goods to Russia from Soviet-era factories in the Eastern Ukraine. But essentially part of the deal that was made with Europe is in Kiev they say, okay, we’re going to appoint governors of the Eastern Ukraine. It’s as if there was a military takeover of the United States and the military said, okay, we’re going to make Donald Trump governor of New York, we’re going to make the Koch brothers governors of Kansas and Missouri. They appointed kleptocrats to be governors to essentially loot the Russian regions. This guarantees that there’s going to be continual fighting as the Eastern Ukraine says, wait a minute, we’re being robbed, we didn’t vote for this, this agreement was not made under a legal Parliament, which is what Putin and what Lavrov were saying over the weekend.
So there’s guaranteed to be labor unrest and strikes in the East.
There’s not going to be any exports to Europe, because Europe, the last thing the Europeans want is any competition from the Ukraine, until such time as the Europeans can buy out Ukrainian agriculture, kick the Ukrainians off the land, and turn them into mechanized farming, and then take all the food and the land rent and the value of the food to the West.
So what this is is almost like a repetition of the grabbing of Central Africa that you had in the middle of the 19th century applied to the Ukraine using a neoliberal rhetoric that all this is good and look at your exports. Well, you could say that of the Congo. You could say that of any country that’s taken over. By taking over and conquering you, we now give you access to our market, except we’re not going to buy anything from you. So it’s only on paper. All of this is just pretense.
WORONCZUK: Well, the terms of the economic association agreement also–from what I understand, the stipulation is that Ukraine now cannot join the Russian customs union. From what I understand, Russia is still Ukraine’s biggest export market. So how will this affect the Ukrainian economy?
HUDSON: Ha! That’s what nobody can figure out. Russia has already said, look, under the terms, if we were to let Ukraine continue to trade within the Russian Union, that means that we would let all the European goods go through the Ukraine and into Russia duty-free. And Russia’s already said that it has no intention of doing that. And it’s going to now have to raise the tariffs against Ukraine.
So in practice what’s going to happen is the goods that Russia used to get from the old Soviet-era factories in Eastern Ukraine–Russia’s going to build new, modern factories in Russia to make its own military goods and steel and the other things it got from Ukraine. So Russia’s going to become very quickly independent of Ukraine, leaving mass unemployment in the Eastern Ukraine and mass unrest. So you’re going to have Ukrainians without jobs and with nowhere to go, and it’s going to look like Greece or Ireland or Latvia without any of the European money that has gone into these associated countries.
WORONCZUK: So, then, what would a progressive trade policy between Ukraine and the E.U. look like?
HUDSON: Well, it would have been one that marked the very beginning of the common market and the beginning of the agreements with Poland. Western Europe would say, okay, Ukraine, we realize that your economy has not been modernized, unlike Poland and Czechoslovakia and the other areas, so now that we’ve agreed to sort of plan to take you in, we’re going to put a lot of investment in. We’re going to build roads and infrastructure and schools, and we’re going to make sure that what the kleptocrats have taken, we’re going to apply European-type progressive taxation. We’re going to tax, we’re going to put an economic rent tax in, and we’re going to recapture what has been privatized so that all of these natural resources–your land and your agriculture and your mining–can be the fiscal base. And we’re going to make sure that you the Ukrainian government can tax the wealthy like we do in Europe. But instead the Europeans are saying, don’t tax the wealthy, tax labor even more, squeeze labor by raising gas prices, by removing the subsidies of gas, so that your labor is going to be squeezed and we can grab what you have more easily. So the Europeans are treating the Ukrainians not like they’re treating themselves, not like they’re treating the former Soviet countries brought in, but really like a defeated enemy to be burdened with reparations, and especially to rule through their sort of proconsuls as the kleptocrats that have been assigned as governors by the military junta that took over in Kiev.
WORONCZUK: Okay. Michael Hudson, distinguished research professor at the University of Missouri-Kansas City.
Thank you for that report.
HUDSON: Good to be here.
WORONCZUK: And thank you for joining us on The Real News Network.
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