Spontaneous Decentralization

19 june 2015

Outlines of a Compromise on Ukraine

Alexei Slavich-Pristupa is an economic strategy advisor.

Resume: In the next three to five years, Ukraine’s political system will most likely be a mosaic of virtually independent autonomous territories nominally united in a single state. Such a compromise would be acceptable to all the main actors – Moscow, the West, and the central Ukrainian government.

Several fundamental factors are propelling Ukraine into disintegration. In the medium term, however, a more likely scenario is the existence of several autonomous regions, nominally united in a single state but actually independent of the central government.

RUSSIA’S INTERESTS

Ironically, Ukraine is only indirectly related to that aspect of the Ukrainian conflict that Moscow considers most fundamental: Was it permissible for it to “swallow” the demonstrative encouragement and approval by the West of a coup d’etat in the area of Russia’s basic interests?

By incorporating Crimea and supporting Donbass separatists, Moscow has not only shown its readiness for tough confrontation but also forced the West to assume responsibility for the outcome of the conflict and for keeping Ukraine afloat. Under this strategy, support for separatist territories in Donbass, as an almost independent autonomous area, has become significant for Moscow all by itself – not only because a “surrender of Novorossiya” would be viewed as Russia’s defeat but also because it is an important tool for influencing the situation.

And as concerns the prospects of Ukraine’s integration, it is actually its maximum decentralization that would be more preferable for Moscow in the long term. The formal status of the Ukrainian central authorities is not really so important; what is important is a real possibility of direct interaction with Ukrainian regions in trade, investment and information spheres. Decentralization is also an additional means of blocking Ukraine’s possible accession to NATO (although the probability of this happening in the foreseeable future is already quite speculative, primarily due to the lack of interest on the part of the allied countries).

If Moscow successfully passes through the Ukraine crisis, it will gain substantial strategic dividends:

  • Russia’s elites and the whole of society will consolidate (in addition, the presidential campaign in 2018 may be much simpler and cheaper to conduct).
  • Russia’s international role in changing the world order will grow significantly,  above all, among its potential allies. Russia’s opponents may start to behave more carefully in the area of its interests.
  • Russia will pass stress tests and eliminate key system vulnerabilities (in the credit/financial sector, IT infrastructure, communication networks, access to critical technologies, etc.).
  • Russia will test the combat capability of its Armed Forces and security services.

Many analysts dramatize restricted access to western funding. True, this is a very sensitive issue for businesses. But the “all-good globalization” paradigm aside, the fall in foreign investment can clearly make a positive impact. First of all, political risks inherent in external financing are decreasing. In addition, Russia is getting a chance to increase its technological independence (cheap special-purpose funding for investment often comes without basic know-how) and financial stability (foreign portfolio investments are very volatile and timid). In general, Russia’s current economic losses from the war of sanctions will hardly exceed 1-2 percent of GDP a year, which is quite unpleasant but largely not critical.

At the same time, an escalation of the conflict will apparently lead to excessive losses and risks. In particular, several long-term strategic problems will arise:

  • Loss of access to many important technologies.
  • Negative impact on Eurasian integration, primarily with Kazakhstan and Belarus.
  • Slowdown in the development of some basic industries (machine-tool industry, heavy engineering, etc.).
  • Deceleration of the defense industry and rearmament programs (including the mobile component of the nuclear triad).

Considering the tangle of factors, Moscow should better think not of a “victory at all costs” but of a reasonable compromise with acceptable basic terms. Judging from the “Minsk process” and other signals, Russia is already moving in this direction.

INTERESTS OF THE WEST

It is widely believed, especially in Ukraine, that the West has some substantial interest in Ukraine as an economic and/or military-strategic partner. Yet today Ukraine accounts for about 1 percent of the EU’s foreign trade and about 0.1 percent of the Americas’ trade operations, which speaks quite clearly about the country’s economic significance.  In addition, about 90 percent of Ukrainian exports to the West are raw materials and semi-finished products that do not belong to strategic resources.

One can hardly expect – both for tactical and political reasons – NATO’s potential in Ukraine to be higher than that in Eastern Europe, where it is close to zero from the geostrategic point of view. In fact, at least half of the Russian nuclear triad is either stationed out of operational contact with the European theater or is mobile. Therefore, Ukraine is of little military importance to the West.

Despite courtesies towards Ukraine, like “Our doors are open,” NATO is very reserved and cautious about Ukraine’s possible admittance, and keeps emphasizing the need to “observe the alliance’s standards and principles.” Many analysts rightfully note that, in fact, the West is seeking the opposite by trying to  minimize Kiev’s integration with Russia. And it has actually succeeded to some extent as a large part of Ukraine’s elites and population is already prejudiced against Russia.

According to the Kiev International Institute of Sociology, the number of Ukrainians feeling negative about Russia almost quadrupled in 2014, rising from 13 to 48 percent. Although this effect is unlikely to last long (former opponents often resume “business as usual” after a few years of estrangement), it will certainly embitter their relations for some time.

The bureaucracy and part of the political elite in the EU savored the results of their work: “one more country has chosen the European path.” They even predicted a certain economic effect but so insignificant that no one mentions it any more amid the dramatic developments. However, as we noted above, the reformatting of the conflict by Russia has brought to the fore a completely different question: Is the West ready to assume responsibility for keeping Ukraine afloat? For Washington, which ambitions to be a global leader but has suffered a series of foreign-policy setbacks in similar situations before, this is a fundamental question, a question of precedent.

Obviously, an explicit “legal” separation of Donbass would definitely be viewed as another failure of the United States (and the West in general) and Moscow’s success. However, with the stakes raised, the West has come to face totally unexpected and serious expenditures:

  • Officially considered loans (which will hardly ever be repaid) and gratuitous financial aid to Kiev have already reached $40 billion to $50 billion, compared to a mere $5 billion  requested by Victor Yanukovich in December 2013. However, the EU snapped back by saying that the Association Agreement was an agreement on integration, prosperity and investment and did not require any compensation.
  • The war of sanctions (decrease in exports) costs Europe about $30 billion to $50 billion a year in direct losses alone.
  • Military expenditures make up an essential (and now largely probabilistic) part of the expenses. For all the absurdity of statements about a military threat from Russia, which holds its foreign exchange reserves in the West and which is 70-80 percent dependent on the West in terms of critical imports (pharmaceuticals, technologies, equipment, seeds, etc.), if a military threat has been declared, military spending must be increased from Europe’s current 1-1.5 percent to the long-promised 2 percent of GDP, as a minimum. This is about $50 billion a year.

Actually, for Europe, which bears 80 to 90 percent of the losses, this is not a critically large amount – about 1 percent of its GDP. Yet these costs can be acceptable only if they are found reasonable. No one wants to spend/lose this money for the sake of “Ukraine” or U.S. ambitions which no one really cares much about, especially at a time when Greeks, Italians, Spaniards, Bulgarians, Hungarians, and others keep asking: “And what about us?”

In addition, growing unemployment and mounting business problems in some economic sectors have made the social and political aspects of the war of sanctions very sensitive.

On the whole, due to the less centralized and more open structure of Western society, negative effects of the conflict appear to be much more painful for the Western establishment than for Russia, whose economy is objectively experiencing much more serious difficulties.

All things considered, a compromise would also be more preferable for the West than “the ultimate victory,” although for the United States the conflict is a matter of principle.

UKRAINE’S DOMESTIC DRIVERS

Societal divisions over values in Ukraine are graphically illustrated by the twofold difference in the number of people in different Ukrainian regions who feel negative about Russia. According to the Kiev International Institute of Sociology, the figures are as follows:

  • 33-36 percent of Ukrainians in eastern and southern macro-regions – Dnepropetrovsk, Donetsk (including territories controlled by separatists), Zaporozhye, Lugansk (excluding territories controlled by separatists), Nikolayev, Odessa, Kharkov, and Kherson regions;
  • 70 percent in western macro-region – Volyn, Trans-Carpathian, Ivano-Frankovsk, Lvov, Rovno, Ternopol, Khmelnitsky, and Chernovtsy regions.

According to various estimates, “the choice of the European path” is now supported by 70 to 80 percent of Ukrainians outside separatist-controlled Donbass. However, as is always the case with people in general (especially in post-communist countries), this “choice” means, in fact, nothing more than their desire to have the same level of well-being as in Europe, but with no clear understanding that one has to pay a dear price for the high standard of living achieved by Europe’s mature capitalism – years of belt-tightening, high structural unemployment, loss of many kinds of habitual freebies, and drastic changes in lifestyle. Shock therapy by IMF prescriptions will inevitably lead to mass protests which, considering Soviet mentality, will be much more violent than those in Greece. Such unrest and disorders always dramatically intensify disintegration tendencies (as was the case in Russia in the 1990s).

Ukrainian elites  seem  unable to unite for building a united nation-state. There is, of course, a significant part of politicians, state functionaries and security officials who want to see a strong central government  and a “vertical of power” in Ukraine. But this group is disunited, loose and torn apart by rivalry and conflicting personal interests.

Outside Donbass, there have already emerged distinct regional “quasi-autonomies” (Dnepropetrovsk, Kharkov, Lvov, and others). The process of decentralization is already underway de facto, but it is covert, which is quite possible amid rampant corruption. Ironic as they are, popular metaphors like “Duke Kolomoysky” adequately reflect the “pseudo-feudal” structure of society in present-day Ukraine.

In addition, the autonomization of Donbass (it has become finally clear in the last few months that Kiev is unable to solve the problem of separatism militarily) has naturally provoked the emergence of a psychological matrix in other Ukrainian regions: “If they can, why can’t we?” One should not underestimate the role of the individual in history, of course, as a single person can literally work miracles in politics. But there are no signs in sight yet of a strong leader comparable with Louis XI, Ivan III, Bismarck, or Putin, who would be able to “put Ukraine together.”

PROBABLE SCENARIO

In the next three to five years, Ukraine’s political system will most likely be a mosaic of virtually independent autonomous territories nominally united in a single state. Such a compromise would be acceptable to all the main actors:

  • Moscow, which has demonstrated its ability for tough confrontation with the West and reasonable flexibility, would build up its political capital. Integration of Ukrainian regions could be resumed, using “soft power.” Strategic apprehensions of Kazakhstan and Belarus would be allayed. Most of the European sanctions (and probably part of the U.S. sanctions) would be lifted.
  • The West would proudly report that the world order has been preserved and the Ukrainian conflict (excluding Crimea) has been successfully resolved, and thus save its face. Europe would save money due to the lifting of sanctions and the cessation of armed hostilities as well as Russia’s possible participation in the financing of Ukraine’s reconstruction (at least, in Donbass).
  • The central Ukrainian government would trumpet its victory in fighting off the aggressor, thus saving its face and formal status of the main authority in the country, as well as sparing money due to the end of the war.

If the present balance of power and interests among major geopolitical players is generally maintained, Ukraine may stay in this intermediary/compromise state for a long time. However, history shows that autonomies with a high degree of real independence tend to separate completely, especially with external support for centrifugal tendencies, at least from Russia. After all, close integration with Ukrainian regions is Russia’s natural and fundamental geostrategic task. Its social and ideological aspect is probably the most important factor: reversing the signs of decline and boosting Russian society’s potential and passionarity.

Russia will hardly seek to seize Ukrainian territories (at least for as long as the incumbent regime abides by its basic political principles), with  the Crimean model likely to remain a contingency plan in case of emergency. Moscow will rather use the Transnistrian-Abkhazian scenario. As the last few decades have shown, Moscow has fully appreciated and adopted the concept and experience of the EU’s association agreements.

Quite possibly, Ukraine’s other neighbors (above all, Poland) may act similarly towards some of its regions – after all, the “European path” is a dialectical notion as the Yugoslav experience has vividly proved.

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