Tuesday, December 30, 2008

Revival of Stalinism in Russia shows gap between neighbors

Russia's refusal to heed Yushchenko's call for a mutual recognition of the famine as genocide says a lot about the rehabilitation of Stalinism under Putin. Russia supported calls five years ago by President Leonid Kuchma to recognize the famine as genocide. Ukraine's position on Soviet crimes has, therefore, not changed. Under Putin, Russia has moved from condemnation to celebration of Stalinism.


Revival of Stalinism in Russia shows gap between neighbors

17 December, 19:56 Taras Kuzio, Special to Kyiv Post

Revival of Stalinism in Russia shows gap between neighbors
An OMON (riot police) officer violently
grabs a young woman around the neck,
part of a heavy-handed official
response to a peaceful anti-Kremlin
rally in Moscow on Dec. 14.
Russia's embrace of the dictator shows Ukraine is going down a better path

In November, Ukraine commemorated the 75th anniversary of an artificial famine that claimed more than four million lives. The official commemoration – timed to coincide with Liberty Day, a holiday established four years ago to celebrate the Orange Revolution – was attended by 44 foreign delegations, including four European leaders.

Russia's rehabilitation of Stalinism that began under Vladimir Putin precluded an official Russian presence and President Dmitry Medvedev refused to attend the commemoration. Anger over President Victor Yushchenko's criticism of Medvedev's snub has probably led to a new gas war and exposed sensitivities over the past. Yushchenko called upon Russia to follow Ukraine's path in denouncing Stalinist crimes committed on Russian territory.

Medvedev's refusal to attend Ukraine's famine commemoration contributed to the daily war of words between both countries. Ukraine's image in Russia is now the worst it has ever been since the disintegration of the Soviet Union. Diverging attitudes towards Soviet crimes against humanity have expanded the list of the more commonly known areas of conflict between Ukraine and Russia, such as NATO membership, energy, the Crimea, the Russian Black Sea Fleet and the status of the Russian language.

How a country relates to its past is a mirror image of what kind of regime it is building. And here, Ukraine's condemnation and Russia's rehabilitation of Stalinism are indicative of the growing divergence. Think of the alarms that would have gone off if, two decades after the defeat of Nazism, Germany conducted a state-sanctioned rehabilitation of Adolf Hitler and the country was led by a former Gestapo officer? In Russia, in the second decade after the fall of communism, the country is led by a former KGB officer, while the U.S.S.R. and Josef Stalin are back in vogue.

Yushchenko has taken personal leadership in reviving the historical memory of famine as a crime against humanity, both inside Ukraine and internationally. But it would be wrong to believe that the famine issue is only promoted by Ukrainian nationalists. The famine issue has been consistently raised by all three Ukrainian presidents who had already laid the groundwork in denouncing Soviet crimes and the famine. Yushchenko is, therefore, no more of a nationalist on the famine question than his two predecessors.

Yushchenko's greater determination to revive memories about Soviet crimes committed in Ukraine builds on a long-established process. Ukrainian diaspora began the process of setting the record straight and reviving historical memory on the 50th anniversary, in 1983, at a time when the Soviet Union was historically revisionist in claiming there had never been a famine.

In the 1980s, the United States established a government commission headed by James Mace to study the famine. The well-known historian of Soviet crimes, Robert Conquest, authored the book "Harvest of Sorrow." Later in the 1980s, Ukrainian intellectuals took up the process of reviving historical memory during Soviet leader Mikhail Gorbachev's perestroika.

Russia's refusal to heed Yushchenko's call for a mutual recognition of the famine as genocide says a lot about the rehabilitation of Stalinism under Putin. Russia supported calls five years ago by President Leonid Kuchma to recognize the famine as genocide. Ukraine's position on Soviet crimes has, therefore, not changed. Under Putin, Russia has moved from condemnation to celebration of Stalinism.

In the first decade after the fall of Soviet communism, President Boris Yeltsin continued the denunciation of Stalinism that had begun under Gorbachev. Putin radically reversed Russian attitudes towards the "greatest tragedy of the 20th century," as he defined the collapse of the U.S.S.R. Next came a complete rewriting of Soviet history. Crimes against humanity were studiously ignored. Stalin was praised as the Soviet leader who transformed the U.S.S.R. into a respected and feared superpower.

Most telling is the different treatment of history in school textbooks. For the last two decades, Ukraine's textbooks have taught new generations of schoolchildren about the horrors of Soviet crimes against humanity. Opinion polls show that this educational work has reinforced negative attitudes towards extremism and totalitarianism. Young Ukrainians overwhelmingly are pro-Western, wish to see their country inside NATO and supported the Orange Revolution.

In Russia, school textbooks were rewritten under Putin to ignore Soviet crimes in the 1930s and instead focus on Stalin as the great leader of the 1940s. The result has been that a new generation of Russians has accepted the rehabilitation of the U.S.S.R. and Stalin. Young Russians will become Russian leaders in the not-so-distant future, taking with them their neo-Soviet attitudes and a view of Russia as a great power.

Young Russians flock to nationalist youth groups such as Nashi and hold negative views about the Orange Revolution as a U.S.-backed conspiracy against Russia. It is little wonder that a majority of young Russians hold anti-American views or that an overwhelming majority of Russians supported the invasion of Georgia. Young Ukrainians do not hold anti-American views and did not support the invasion.

Ukraine and Russia's diverging paths began before the Orange Revolution, but have deepened after Yushchenko's ascent to power four years ago. Russia's rehabilitation of Stalinism stands in stark contrast to Ukraine's condemnation of Soviet crimes against humanity. This shows the difference between an authoritarian, neo-Soviet Russia and a still young and imperfect – but nevertheless democratic – Ukraine. Ukraine has taken the right path by following post-war Germany in repudiating totalitarianism.

Monday, December 29, 2008

Russia’s response to crisis: Crackdown


Russia's response to crisis: Crackdown

17 December, 21:12 James Marson, Kyiv Post, Staff Writer

Russia's response to crisis: Crackdown
Police officers in St. Petersburg,
Russia, detain a demonstrator during a
peaceful anti-Kremlin protest on Dec.
14. Police broke up a similar
opposition rally that day in Moscow

Use of force is preferred method against protesters in Moscow and St. Petersburg

MOSCOW – In Ukraine, politicians have debated the International Monetary Fund loan and anti-crisis measures in full public view. In Russia, the effects of the crisis have been hushed up, and an opposition protest on Dec. 14 was violently crushed by police.

"We're back to where we started," said Dmitry, 45, who attended the unsanctioned protest on Dec. 14 and declined to give his surname. "We had sausage and repression in Soviet times as well."

The "sausage" has been Russia's recent economic boom, built on high oil prices. But the global crisis has hit the country hard, and the sausage appears to be running out, as the price of oil has dived from a high of $147 per barrel in July to under $50. With next year's budget calculated on the basis of an average of $95 per barrel, analysts say that Russia's failure to diversify away from oil has left its economy weak.

Not that you would know it from watching television. While Ukrainians have been able to watch debates over the unfolding political and economic drama on television and in the press, Russians have been presented with a sea of calm. The word "crisis" was reportedly blacklisted from use on television in October and references to the global turmoil are usually accompanied by a statement blaming the United States for the problems.

In his annual, televised question-and-answer session at the beginning of December, Russian President Vladimir Putin sought to reassure Russians that the impact of the crisis would be minimal, and blamed the United States for the crisis. "The crisis began in the United States, whose financial and economic policies led to the crisis that infected the economies of practically all major countries of the world," he said.

"The authorities are like a person who has been diagnosed with cancer who refuses to believe that it's terminal," said Yevgeny Kiselyov, a political analyst who was ousted as director general of NTV during Putin's presidency. "Russian leaders and the media have tried to convince the public that there is no crisis at all."

But the squeeze is already being felt in the private sector. A November poll by the Levada Center revealed that 20 percent of the working population has been affected by layoffs, salary cuts or unpaid leave. There is increasing dissatisfaction with the authorities, who have relied on increases in material wealth to boost their popularity.

"Putin is Teflon-covered. The things he is responsible for never seem to stick," Kiselyov said. "But it can't go on forever. If the crisis continues, people will start opening their eyes. Then he will have to answer for all the disproportions and mistakes." A large-scale survey by the Public Opinion Foundation (FOM) at the end of November suggests that, on average, 39 percent of people across the country are dissatisfied with the authorities, reaching 54 percent in some regions. Twenty-one percent of those surveyed said they were prepared to take part in a strike.

In November, sociologist Yevgeny Gontmakher wrote in the financial daily Vedomosti of a possible scenario next year in which the closure of a factory leads to protests and the complete paralysis of authorities in a provincial town, followed by the spread of protests to Moscow. Vedomosti was warned by the media watchdog, the Federal Service for Oversight over Communications and Mass Media, for inciting extremism with the article.

The authorities, it appears, are becoming concerned. Russian President Dmitry Medvedev last month ordered law enforcement agencies to suppress any social unrest connected with the crisis. "If someone tries to exploit the consequences of the financial crisis … they should intervene, bring criminal charges. Otherwise, there won't be order," he told senior Interior Ministry officials in St. Petersburg.

At the protest on Dec. 14, organized by opposition movement Other Russia, police seemed keen to put his words into action. The protest had been banned by local authorities (a nationalist protest on the evening of Dec. 12 had been allowed to go ahead), but dozens of people still turned up at Triumfalnaya Ploshchad. They were met by hundreds of police officers, reinforced by feared OMON special police units.

The arrests began immediately, with the police detaining several activists as they arrived. When violent attempts to tear a placard of an elderly lady with a crutch brought cries of "Shame!" from the crowd, the police moved in to violently seize those shouting loudest, carrying them off and stuffing them into waiting vans.

"I came here by chance," said Galina Belova, 52, who stopped to watch as she passed by with her husband. "I can't believe what they are doing."

One woman was dragged off by her hair and another protester was hurled to the ground, where he hit his head. The arrests became increasingly arbitrary, as the police asked everyone in the area what they were doing there. A reporter from the Moscow Times newspaper was among dozens arrested. "There were isolated attempts at hooliganism and illegal activity, which were suppressed in time by law enforcement officers," a spokesman for the Moscow police force told Interfax news agency.

The concentration of power in the hands of Putin and his allies allows them wide scope for action, unlike in Ukraine. "Luckily for the Ukrainian people, political power is not monopolized in one group as it is in Russia," said Kiselyov, the political analyst.

This includes changing legislation. Last week, the Duma voted to end jury trials for cases of terrorism or treason. On Dec. 12, a bill was submitted proposing to expand the definition of treason to "a deed aimed against the security of the Russian Federation, including her constitutional order, sovereignty, territorial and state integrity."

Kiselyov said these moves reminded him of 1937, the start of Josef Stalin's Great Purge, when any public criticism of the authorities could be interpreted as high treason. "It reflects certain trends in the corridors of power. People in the Kremlin and the government are playing with these ideas of how to deal with the opposition."

Thursday, December 25, 2008

Estonia Shaken by Pro-Russia Spy Midst Its High Officials

Ukraine needs to seriously look into its own vulnerabilities to Russian intelligence penetration, which are considerably greater than those of Estonia.

The SBU has been successful in some areas, such as preventing the hiring of any Ukrainians to fight against Russians in Georgia, which the Russian secret services put no small effort into doing in the run-up to the Georgian war. The goal was obviously to discredit Ukraine as much as possible. Which they then attempted to do with constant denunciations and condemnations of Ukraine for selling weapons to Georgia, as if it was somehow illegal or immoral. Ukraine sells much more weaponry to Russia than to Georgia, such as supplying all of the rocket engines and military jet engines, which were undoubtedly used against Georgia in the war.


Estonia Spy Case Rattles Nerves at NATO

Published: December 24, 2008

TALLINN, Estonia — As an independent state emerged here after 47 years of Soviet rule, a jovial, meticulous police official named Herman Simm was promoted again and again. By 2001, he occupied a post that satisfied his fascination with secrets: As chief of the National Security Authority, his job was to secure all classified communication between Estonia and its allies.

And prosecutors say they have established why he was so interested in secrets: They believe he was passing information to an undercover agent for the Russian Foreign Intelligence Service. The contact is identified in documents as “Jesus” and is likely to be a citizen of Portugal, said Mr. Simm’s defense lawyer, Owe Ladva.

Though the authorities have not said when they believe the spying began, Mr. Simm was in place during a critical period, from 2001 to 2006, as Estonia became a member of NATO and Moscow’s frustration at the Western military alliance grew into a hostile standoff. He was arrested in September on suspicion of treason.

The case has unnerved NATO as it prepares to integrate more Eastern European nations once in the grip of Soviet security services. It is a serious blow to Estonia, which has made challenging Russia a central aspect of its political identity. And throughout the region, it has stirred up fears that Russian intelligence networks may survive, in dormant form, even at the highest levels of government.

“The Simm case is a serious sign of the situation in today’s world,” said Jaanus Rahumagi, chairman of the Estonian Parliament’s committee overseeing security services. “While all of Western Europe was looking to the Middle East and Asia, Russia was building up an efficient system in Europe.”

Aleksei Pavlov, a Kremlin spokesman, dismissed the notion that Russia was stepping up spying and said Mr. Simm “never had any connection with any type of Russian government agency.” He added that domestic considerations, including terrorism, were the priority for Russia now.

“It is not exactly the case where we will be activating our international network,” he said.
Mr. Simm is cooperating with Estonian authorities and has offered useful information about modern Russian spying, Mr. Rahumagi said. As for his contact, he said, “the alliance has full control over this person, and I can’t offer more information than that.”

Over recent months, Mr. Simm underwent questioning — without a lawyer present, by his own choice — about people he met with, Mr. Ladva said. He said that his client would not comment on the charges, but that based on his knowledge of Mr. Simm, “it is very difficult to believe that he would plot to do something damaging to Estonia.”

The scope of the damage to NATO and to its member countries is not clear. A team of NATO investigators is at work in Tallinn, Estonia’s capital, trying to determine what information Mr. Simm shared with Russia, said Andres Kahar, a spokesman for Estonia’s security police.
The German magazine Der Spiegel reported this month that Mr. Simm was also selling secrets to the German external intelligence service, the BND, informing on Russian spying in the Baltics.

Mr. Kahar said Mr. Simm lacked access to critical streams of information, including plans for a NATO cyberdefense center based in Estonia, the identity of Estonian and foreign intelligence agents and details about plans for missile defense systems in Poland and the Czech Republic.

A NATO spokesman, James Appathurai, would not speculate on the extent of the damage. The case raises clear issues for the alliance, which recently welcomed Romania and Bulgaria, is preparing to admit Albania and Croatia and may eventually accept Ukraine and Georgia, against Russia’s protests. For years, skeptics have questioned whether former Soviet allies and republics were prepared to safeguard Western intelligence.

Estonia was seen as particularly careful, said Olga Oliker, a senior policy analyst for the RAND Corporation., so much so that in the 1990s the government was made up almost entirely of people in their 30s, who traded jobs back and forth rather than risk admitting officials with Soviet connections.

“The more interesting implication is, what does it mean for all the post-Soviet countries — and even for Russia — that think they have a pretty good handle on who they can trust?” Ms. Oliker said.

Mr. Rahumagi, the chairman of Parliament’s security committee, said this case would be the beginning of a new, more effective era in Estonian security.

“If Russia left here the old K.G.B. connections, they all know these days that they will be recovered, because of Simm,” he said. “The shadow after the Simm case — the shadow is very big.”

A congenial man — the kind who never forgot to bring flowers when women in the office had a birthday — Mr. Simm was among the few officials who survived Estonia’s transition to independence. A graduate of a Soviet police academy in Moscow, Mr. Simm was in his 40s when Estonia left the Soviet Union, noticeably older than most of his government counterparts.

Some saw him as patriotic because of an episode in his past. On May 15, 1990, when a pro-Soviet crowd tried to seize control of the Parliament, Mr. Simm was injured while protecting the building.

After a short stint as chief of Estonia’s police force, Mr. Simm was transferred to the Ministry of Defense. In 2001, he was appointed director of the National Security Authority.

He was known as a stickler for regulations, gravely serious at the hint that a document had gone astray. He frequently told colleagues that he felt he was being followed or listened to.

In 2006, Jurgen Ligi, then the defense minister, removed Mr. Simm from the helm of the National Security Authority, keeping him on as an adviser. Mr. Ligi said he made the decision because he had doubts about Mr. Simm’s “character, profile and ability,” though not his trustworthiness.

Jaak Aaviksoo, the current defense minister, said he believed that Mr. Simm did considerable damage to Estonia. He said the vigorous investigation that led to Mr. Simm’s arrest should enhance Estonia’s international credibility.

Still, he said, the notion of an internal traitor is deeply painful for many who worked alongside Mr. Simm.

“Handling the psychological shock is part of the problem,” Mr. Aaviksoo said. “Restoring the normal working atmosphere is a serious exercise.”

Crumbling Buildings in Ukraine Match Crumbling Economy

It seems like every year at least one building in Ukraine blows up because of gas leakage.

When I lived in Kyiv, there was a building not far from where I lived that had a gas explosion. It's always a horrifying sight.

Ukraine blast flattens apartment block, kills 19
Thu Dec 25, 2008 9:26am EST
YEVPATORIA, Ukraine (Reuters) - An explosion ripped through an apartment building in southern Ukraine, killing 19 people, and officials said Thursday they expected the toll to rise.

Twenty-four people were still unaccounted for, Emergencies Ministry spokesman Ihor Krol said, after 21 residents were pulled out alive from the five-storey block in the Black Sea resort of Yevpatoria in the Crimea peninsula.

The blast, probably caused by canisters of oxygen stored in the basement, flattened all five floors, leaving rubble several meters high strewn with wires, smashed furniture, children's teddy bears and shoes.

"As I was walking by, I heard a bang, and then I saw this building crumble," one eyewitness said.

Another, who lived opposite the apartment block, said: "We heard a terrible bang. We though our balcony crashed because of the way the windows vibrated. But when I went onto the balcony I saw smoke from the other side."

Television footage showed rescuers dragging out a man from underneath a heavy slab. Others scrabbled through wires, construction rods and boulders.

From time to time, they paused in silence, and incoming mobile phone calls were heard from under huge piles of debris.

Crimea's deputy prime minister, Eduard Grivkovsky, said rescuers were working through the rubble of the third floor to get to the first and second floors, "where there are probably more dead," Interfax Ukraine news agency reported.

President Viktor Yushchenko and Prime Minister Yulia Tymoshenko set aside their feuding to arrive in town together.

Yushchenko declared Friday a national day of mourning.

Tymoshenko promised families of the dead compensation and said they would be rehoused by the end of the year -- before Orthodox Christmas which Ukrainians celebrate on January 7.

"This is a huge tragedy. The government and local authorities have joined forces to help the suffering families, in order to mitigate this colossal tragedy," she told a news conference held with Yushchenko.

The two former allies, at loggerheads for months, patched up a governing coalition between their parties in parliament earlier this month.

Russian President Dmitry Medvedev offered his condolences to the relatives of the dead. Russians make up over half the population of Crimea, an autonomous region which used to belong to Russia.

Medvedev said Russia's Black Sea Fleet, stationed in the Ukrainian port of Sevastopol and at the center of a diplomatic spat between Moscow and Kiev during the summer, was ready to assist in the rescue efforts.

Casualties caused by gas blasts in often crumbling apartment buildings are common occurrences in former Soviet republics, particularly in winter when residents use more heating.

(Additional reporting by Yuri Kulikov, Writing by Sabina Zawadzki and Dmitry Solovyov; editing by Elizabeth Piper)

Monday, December 22, 2008

Latvia demands Russians learn Latvian

Latvia demands that their large Russian minority learn the Latvian language. Ukraine has chosen a slower, more evolutionary path in conversion to Ukrainian language.

Thursday, December 18, 2008

Entrepreneurship: The real source of China's economic miracle

An interesting article from a respected American management consulting newsletter McKinsey Quarterly. The basic point is that it was not foreign investment or state capitalism that accounts for most of China's spectacular economic rise - but homegrown entrepreneurship. Ukraine can and should learn from China's experience.

Entrepreneurial capitalism, unlike state-led capitalism, not only generated growth but also dispersed its benefits widely. Entrepreneurialism was virtuous as well as vibrant. ... Indeed, much of the history of Chinese capitalism can be characterized as a struggle between two Chinas: the entrepreneurial, market-driven countryside versus the state-led cities. Whenever and wherever rural China has the upper hand, Chinese capitalism is entrepreneurial, politically independent, and vibrantly competitive. Whenever and wherever urban China dominates, Chinese capitalism tends toward political dependency and state centricity.

Private ownership: The real source of China's economic miracle

Even many Western economists think China has discovered its own road to prosperity, dependent largely on state financing and control. They are quite wrong.

DECEMBER 2008 • Yasheng Huang


The credibility of American-style capitalism was among the earliest victims of the global financial crisis. With Lehman Brothers barely in its grave, pundits the world over rushed to perform the last rites for US economic ideals, including limited government, minimal regulation, and the free-market allocation of credit. In contemplating alternatives to the fallen American model, some looked to China, where markets are tightly regulated and financial institutions controlled by the state. In the aftermath of Wall Street's meltdown, fretted Francis Fukuyama in Newsweek, China's brand of state-led capitalism is "looking more and more attractive." Washington Post columnist David Ignatius hailed the global advent of a Confucian-inspired "new interventionism"; invoking Richard Nixon's backhanded tribute to John Maynard Keynes, Ignatius declared, "We are all Chinese now."

But before proclaiming the dawn of a new Chinese Century, leaders and executives around the world would do well to reconsider the origins of China's dynamism. The received wisdom on the country's economic miracle—it was a triumph of technocracy, in which the Communist Party engineered a gradual transition to the market by relying on state-controlled businesses—gets all the important details wrong. This standard account holds that entrepreneurship, private-property rights, financial liberalization, and political reform played only a small role. Yet my research, based on a detailed analysis of the Chinese government's survey data and government documents at the central and local levels, indicates that property rights and private entrepreneurship provided the dominant stimulus for high growth and lower levels of poverty.

We often read that gradualism was the key to China's successful transition from Marx to the market; many accounts laud Beijing for eschewing Russian-style shock therapy in favor of a more pragmatic approach that created a hospitable business environment and allowed private companies to grow organically. This narrative suggests China's economy grew progressively more liberal and market-oriented through reforms that were introduced on a small scale in the 1980s and gathered momentum in the later half of the '90s. Not so. What actually happened is that early local experiments with financial liberalization and private ownership, in the 1980s, generated an initial burst of rural entrepreneurialism. Those earlier gains—not the massive state-led infrastructure investments and urbanization drive of the 1990s—laid the true foundation for the Chinese miracle.

Although many experts contrast China's grand infrastructure projects and gleaming factories built using foreign money with India's dilapidated highways and paltry foreign-direct-investment flows, this point of view overstates the contribution of public spending and foreign investment to China's growth. Neither of these forces assumed huge proportions in China until the late 1990s—long after relaxed financial controls and rural entrepreneurship prompted the initial growth surge, during the 1980s.

In that decade, China's economy grew more rapidly than it did in the 1990s and brought better social outcomes: poverty declined, the gap between rich and poor narrowed, and labor's share of GDP—a measure of the way average people benefit from economic growth—rose substantially. From 1978 to 1988, the number of rural people living below China's poverty line fell by more than 150 million. In the 1990s, their number fell by only 60 million, despite almost double-digit increases in GDP growth and massive infrastructural construction. What's more, in the 1980s China's growth was driven far less than it is today by investments as opposed to consumption. In other words, entrepreneurial capitalism, unlike state-led capitalism, not only generated growth but also dispersed its benefits widely. Entrepreneurialism was virtuous as well as vibrant.

Big cities like Beijing, Shanghai, and Shenzhen are routinely extolled in the Western press as vibrant growth centers (exhibit). China's rural areas, if mentioned at all, typically figure as impoverished backwaters. But a close analysis of the economic data reveals that these breathless descriptions of China's modern city skylines have it exactly backward: in fact, the economy was most dynamic in rural China, while heavy-handed government intervention has stifled entrepreneurialism and ownership in the urban centers.

The significance of this last point is impossible to overstate. Indeed, much of the history of Chinese capitalism can be characterized as a struggle between two Chinas: the entrepreneurial, market-driven countryside versus the state-led cities. Whenever and wherever rural China has the upper hand, Chinese capitalism is entrepreneurial, politically independent, and vibrantly competitive. Whenever and wherever urban China dominates, Chinese capitalism tends toward political dependency and state centricity.

Shanghai is the most visible symbol of China's urban development. Its modern skyscrapers, foreign luxury boutiques, and top-ranking GDP per capita make it China's model city—a glittering testament to the success of state-led capitalism. Or is it? By more meaningful measures of economic achievement, Shanghai's rise is far less impressive than that of Wenzhou, an enclave of entrepreneurial capitalism a few hundred miles to the south, in Zhejiang province. In the early 1980s, Wenzhou was known for little more than its struggling farmers. Of five million inhabitants, fewer than 10 percent were classified as urban. Today, Wenzhou is China's most dynamic municipality, teeming with businesses that dominate European garment markets. By contrast, Shanghai, once home to China's earliest industrialists, is now oddly bereft of native entrepreneurs.

Wenzhou's transformation resulted almost entirely from free-market policies. As early as 1982, officials there were experimenting with private lending, liberalized interest rates, cross-regional competition by savings and loans organizations, and lending to private-sector companies. The Wenzhou government also worked to protect the property rights of private entrepreneurs and to make the municipality friendly to business in many other ways.

Does indigenous entrepreneurship make a difference for human welfare? Abundantly. In GDP per capita, Shanghai is almost twice as rich as Zhejiang, where Wenzhou is located (detailed data on Wenzhou are harder to get). But if the measure is household income—the actual spending power of average residents—the two regions are equally prosperous. In 2006, a typical Shanghai resident earned a household income 13 percent higher than that of a typical Zhejiang resident, but in Shanghai the level of unearned income (for example, government benefits) was almost twice as high as in Zhejiang. Earned income was about the same for average residents of the two places. On average, Shanghai residents earned 44 percent less than their counterparts in Zhejiang from operating businesses and 34 percent less from owning assets. The implication: state-led capitalism may lift urban skylines and GDP statistics but not actual living standards.

The contrast is clearer still if you examine the economic profiles of Zhejiang province and its northern neighbor Jiangsu province. The two make for a near-perfect comparison. Their geographic conditions are almost identical: both are coastal, with Jiangsu to the north of Shanghai and Zhejiang to the south. They also have similar business histories: both contributed significantly to the ranks of industrialists and entrepreneurs in prerevolutionary Shanghai. During the postreform years, however, Jiangsu courted foreign investment and benefitted significantly from public-works spending; Zhejiang did not. The results of that difference are startling.

Jiangsu was richer than Zhejiang 20 years ago, but today it is poorer, lagging behind in every significant measure of economic and social welfare. On average, Zhejiang's residents earn significantly more from assets than their northern neighbors do, live in larger houses, and are far more likely to own phones, computers, color televisions, cameras, or cars. They also enjoy lower rates of infant mortality, a longer life expectancy, and higher literacy. Notably, income inequality is far lower in Zhejiang than in Jiangsu. How to account for Zhejiang's greater prosperity? The most compelling explanation is that in Jiangsu, the authorities meddled in the economy and discriminated against local businesses in favor of foreign capital. Officials in Zhejiang granted free rein to indigenous entrepreneurs, allowing them to build larger, more dynamic local supply chains.

The real mystery of China's miracle isn't how the economy grew, but how Western experts got the growth story so wrong. One answer is that outsiders misunderstood the nature of one of China's most basic economic institutions: township and village enterprises, which some of the West's best-known economists have celebrated as the epitome of capitalism with Chinese characteristics—innovative hybrid entities that achieved high growth despite government control. Nobel laureate Joseph Stiglitz, for example, extolled them for offering an ingenious solution to a problem common to economies in transition from socialism to capitalism: asset-stripping by private investors.1 These enterprises, he argues, are a form of public ownership that prevents plundering while achieving the efficiency of private-sector companies.

In short, Western economists have often assumed township and village governments own these enterprises. As recently as 2005, Douglass North, another Nobel winner, stated in the Wall Street Journal that they "hardly resembled the standard firm of economics."2 But the evidence suggests otherwise. A policy document issued by the State Council on March 1, 1984, includes the first official Chinese reference to township and village enterprises. It defined them as "enterprises sponsored by townships and villages, the alliance enterprises formed by peasants, other alliance enterprises, and individual enterprises." The term "enterprises sponsored by townships and villages" referred to the collective undertakings townships and villages own and run. All the other entities mentioned in the policy document were private businesses: single proprietorships or larger private companies with a number of shareholders—precisely "the standard firm of economics." Official usage of the term "township and village enterprise" has been remarkably consistent: it always includes private businesses as well as those sponsored by governments.

Western economists erred because they assumed the term referred to ownership. But Chinese officials understood it in the geographic sense—businesses located in townships and villages. The records of China's Ministry of Agriculture attest that privately owned and run entities dominated the total pool of these enterprises. During the years from 1985 to 2002, the number of collectively owned ones peaked in 1986 at 1.73 million entities, while the number of private ones soared to more than 20 million, from about 10.5 million. In other words, the increase in the number of these enterprises during the reform era was due entirely to the private sector. By 1990, within the first decade of reform, such private businesses accounted for 50 percent of total employment in town and village enterprises and claimed 58 percent of their after-tax profits.

Confusion about the real origins of Chinese growth has clouded foreign perceptions of the emergence of Chinese companies in the international marketplace as well. It is often said China heralds a new business model for global competition, in which state ownership and the judicious use of government financial controls combine to create a unique source of competitiveness. The computer maker Lenovo is often touted as a product of China's unconventional business environment.

But Lenovo owes much of its success to its ability, early on, to establish legal domicile and raise capital in Hong Kong, arguably the world's most freewheeling market economy. Lenovo got its initial financing from the Chinese Academy of Sciences, in 1984, but thereafter secured all of its significant investment from Hong Kong.3 In 1988, the company received HK $900,000 (US $116,000) from the Hong Kong–based company China Technology to invest in a joint venture that would enable Lenovo to claim the city as its legal domicile. In 1993, Hong Kong Lenovo went public on the Hong Kong Stock Exchange in a US $12 million IPO. Lenovo is a success story of Hong Kong's market-based financial and legal system, not of China's state-controlled financial system.

As China absorbs the lessons of the Wall Street debacle and prepares itself for a global economic slowdown, the worst thing the country could do would be to embrace the notion that it has discovered a new development formula more effective than free markets. The real lesson of China's economic miracle is that it was actually remarkably conventional—based on private ownership and free-market finance. China's experience offers the world a timely reminder that reforms designed to encourage these forces really work.

About the Author
Yasheng Huang, an associate professor at the MIT Sloan School of Management, teaches political economy and founded and runs MIT's China and India Labs, which aim to help local entrepreneurs improve their managerial skills. This essay is adapted from his book Capitalism with Chinese Characteristics: Entrepreneurship and the State.

Wednesday, December 10, 2008

Tymoshenko, Yushchenko, Lytvyn Heading New Coalition

Finally, they got some sense...
INTERNATIONAL / EUROPE December 11, 2008
Ukraine's Leaders Reach Accord on New Coalition
After months of political discord, Ukraine's pro-Western leaders announced that they had patched up their differences and would not call new elections.

Tuesday, December 9, 2008

Ukraine’s Slow Movement to NATO Is Irrevocable Even without the MAP

An interesting perspective from the Ukrainian Center for Independent Political Research (UCIPR):

As long ago as the adoption of the NATO-Ukraine Action Plan in 2002, officials and experts noted that by its essence, the document is the Membership Action Plan. Then Secretary of the NSDC Yevhen Marchuk stated, "By its gist, the Action Plan is de facto the Membership Action Plan. It incorporates almost all activities provided for in the MAP"

Full Analysis:

Research Update. Vol. 14, № 40/558, 28 November 2008
Ukraine's Slow Movement to NATO Is Irrevocable Even without the MAP
By Vitaliy Martynyuk, UCIPR analyst

The issue of Ukraine's joining the Membership Action Plan (MAP) is getting more and more acute on the eve of the important for our country meeting of NATO Foreign Ministers in Brussels on December 2-3, 2008. Over the period after the Bucharest summit, positions of Member States actually remained the same. The United States, Poland, the Baltic States and some Central European countries support Ukraine on its path to NATO membership, whereas Germany, France, Spain, Italy and Luxemburg are restrained and believe the MAP premature for our country. Given the situation, the Alliance's problem is the absence of unanimity regarding Ukraine's membership provided that a respective obligation undertaken in Bucharest is carried out and that Ukraine determines its further progress towards its Euro-Atlantic integration.

There were statements that Ukraine and Georgia are not ready for the MAP. Yet, it is impossible to be ready or not ready for it because the MAP is neither an attribute nor a guarantee of membership but a mechanism of preparation for membership in the Alliance. Therefore, granting the MAP means a purely political and even geo-political signal. A failure to give the MAP to Ukraine might seem a little strange. Under the Declaration of the Bucharest summit, the political decision that Ukraine and Georgia will become NATO members has already been made and the MAP is a long-lasting procedure for its implementation. And the beginning of this procedure takes longer than planned.

This week, the USA in the person of Secretary of State Condoleezza Rice has held a series of consultations with European allies on perspectives for Ukraine and Georgia's MAP in December 2008. On receiving a signal about negative attitude of some EU Member States and a high possibility that these countries, first of all France and Germany, will not support the MAP for Ukraine and Georgia, the USA changed rhetoric a little. Condoleezza Rice said about unreadiness of Ukraine and Georgia for membership and a possibility for their joining the Alliance bypassing current procedures as suggested by the Great Britain.

The USA did not convince the European allies to grant Ukraine the MAP as it happened on the eve of the Bucharest summit. First, the USA is on the verge of the change of Presidents, when political leaders avoid resolute actions. Next American President Barack Obama supports the MAP for both countries but is concerned about the attitude of the European allies and prefers to solve another problem, i.e. the support of NATO's military operation in Afghanistan.

Second, the Alliance, save different views on its further enlargement, has a number of other contradictions, in particular the further role of NATO in Afghanistan and the involvement of ISAF forces in the operation, the insufficient defense funding of some Member States, NATO further expansion and the content of its new Strategic Concept.

Third, NATO Member States, which are simultaneously the EU Members, especially Germany and France, gradually but persistently advocate the priority of developing the EU defense element, which has to become NATO's bulwark in Europe. The increase of pressure on the European allies might lead to the enhancement of the European Defense and Security Policy (EDSP) and the weakening of transatlantic ties. Notwithstanding France's statement that "the Atlantic Alliance play the core role in European security", and "is important for security of France" (see Livre blanc sur la d?fense et la s?curit? nationale), as long ago as 2007, French parliament assumed that the development of the European defense might erode the role of NATO with the lapse of time and, as a result, the gradual liquidation of the Alliance (see Rapport d'information N° 3700 sur les ?volutions des relations transatlantiques en mati?re de d?fense, Assembl?e nationale, France, 14 f?vrier 2007).

Fourth, Western European countries strive to develop stable and predictable relations with Russia. The fact that the EU decided to resume negotiations with Russia on the New Strategic Agreement despite its denial to let the EUMM mission's observers to the territory of the South Ossetia confirms the above. "Old" Europeans are against tension in relations and rapid steps that would irritate Russia, especially after the escalation of tension in the Caucasus this August.

As is evident, Ukraine just like Georgia shall not hope to get the MAP this December. The NATO anniversary summit is unlikely to result in the long-expected Plan as well. In Strasburg and Cologne, the allies will celebrate the anniversary, assess achievements over six decades and discuss plans for the future in the context of the new Strategic Concept. To make the ceremony more solemn, they might officially declare Croatia and Albania members of NATO, which has to demonstrate the progress in the enlargement process. The issues of Ukraine and Georgia will be considered though rather as a confirmation of the Bucharest obligations and opportunities for their implementation.

Should Ukraine speed up events and emphasize the need to get the MAP as soon as possible? Given the current situation, when Allied States are not unanimous, it should not. The allies will not yield unity, which serves as a basis for their collective security, for the sake of any other country. Neither will they want to sharpen the situation in Europe and in its eastern part, since the enlargement process must strengthen the Euro-Atlantic security and not generate challenges for it. Russia still views NATO eastward expansion as a threat to its national interests.

This is mirrored in the New Foreign Policy Concept of Russia reading, "Russia retains the negative attitude to NATO enlargement, especially as regards plans for membership of Ukraine and Georgia in the Alliance" (see the Foreign Policy Concept of the Russian Federation, July 12, 2008).

And the Alliance itself will not take such a rapid step. NATO strives to keep up the dialogue with Russia without sacrificing its values. At the 54th Annual Session of the NATO Parliamentary Assembly on November 11, NATO Secretary General Jaap de Hoop Scheffer said, "After all, NATO enlargement was never a goal in itself. It was, and remains, a means to an end: a stable Europe at peace with itself; a Europe in which all countries feel at home and secure. Achieving this end required a three-track strategy: a broad cooperative framework embracing virtually all the countries on our continent; a specific policy for those countries interested in joining NATO; and a determined attempt to draw Russia closer to the Alliance" (see Keynote address by NATO Secretary General Jaap de Hoop Scheffer at the 54th Annual Session of the NATO Parliamentary Assembly, 18.11.2008). Though participants in the Parliamentary Assembly stated that Ukraine's joining the MAP this December could signal the priority of East European Security for the Alliance, the support to Ukraine's integration movement and the inability of any third party to affect NATO decisions (see 164 PC 08 E rev. 1- NATO's Future Political Agenda).

So, what shall Ukraine do in this situation? Our country should rather count on NATO membership in the long-term perspective. After the Alliance passes the new Strategic Concept, a clear mechanism for coordination of the ESDP and NATO will be worked out and a clear and unanimous attitude of the Alliance Member States to Russia will be assumed with regard to NATO eastward expansion.

As it has been mentioned, Ukraine has to continue Euro-Atlantic integration whether it is granted the MAP this December or not. At the same time, it is necessary to proceed with democratization of the country, carry out reforms in all spheres to meet membership criteria, inform Ukrainian population about the Alliance in order to increase the support level and depoliticize the process of Euro-Atlantic integration. If the above conditions are fulfilled, in two years Ukraine might embark on the path ending in NATO membership.

As long ago as the adoption of the NATO-Ukraine Action Plan in 2002, officials and experts noted that by its essence, the document is the Membership Action Plan. Then Secretary of the NSDC Yevhen Marchuk stated, "By its gist, the Action Plan is de facto the Membership Action Plan. It incorporates almost all activities provided for in the MAP" (see "The Course of Geo-Politics", the "Day" newspaper, No. 86, May 22, 2003). Ukraine still holds the same position. Specifically, on November 27, 2008, ex-Foreign Minister of Ukraine Hennadiy Udovenko underscored that the MAP is not fundamental but rather moral aspect for Ukraine's Euro-Atlantic integration. The Defense Ministry of Ukraine also stated about a possibility to join NATO without the MAP. On November 24, 2008, Chief of the General Staff Department for Euro-Atlantic Integration Major General Borys Kremenetsky pointed out that Ukraine could pass this way due to the active involvement in activities of the NATO-Ukraine Commission.

In fact, there is no difference whether Ukraine will comply with the MAP to be a member of the Alliance or will implement any other procedure, e.g. a new NATO-Ukraine Action Plan and activities in the framework of the NATO-Ukraine Commission. The latter could be a body coordinating the implementation of needed reforms in Ukraine and the achievement of membership criteria or, in other words, a joint body responsible for the process of Ukraine's preparations for NATO membership. The main thing is to attain the ultimate goal that is guarantees of collective security of the North Atlantic Treaty Organization for Ukraine.
The Research Update bulletin is published in English and Ukrainian by the Ukrainian Center for Independent Political Research (UCIPR) in assistance with the National Endowment for Democracy since December 1995.

From December 2006, the Research Update is published in English in the framework of the "Increasing Institutional and Program Capacity/2006-2008" Project of the Open Society Institute Zug Foundation. Distribution of the bulletin is free.

Monday, December 8, 2008

Russia’s Bare-Knuckle Policy on Oil

The new Obama administration needs to realize Russia has a potential stranglehold on America's European allies and will play its energy card when it wants to: to block the further expansion of NATO, for example, or the EU. Russia's next likely move, which could be delayed until the global economy starts picking up again, will be an attempt to orchestrate a global natural gas cartel patterned on the Organization of Petroleum Exporting Countries. About 15 gas-producing countries, led by Russia and Iran, met in 2004 and agreed to establish an "executive bureau" to coordinate "interests" in the global gas market.

Russia's Bare-Knuckle Policy on Oil
November 23, 2008
William F. Shughart II
Washington Times

If President-elect Barack Obama and his top advisers learn nothing else from Russia's invasion and occupation of South Ossetia this summer it should be that Moscow aspires to be an energy superpower.

Russia already is the world's second-largest producer of oil, pumping nearly 10 million barrels a day, and is the largest supplier of natural gas. Like all energy-exporting countries, Russia benefited enormously from the run-up in prices over the last decade. Every $1 increase in the price of a barrel of oil transferred about $1 billion into Russia's state budget. As a result, Russian foreign exchange reserves grew from $12 billion in 1999 to $470 billion at the end of last year, a balance equaled only by such countries as China, India and the Middle East oil producers.

When its tanks rolled into Georgia, the Kremlin sent notice it intends to dominate the oil and natural gas resources of the former Soviet republics in the Caspian Sea basin, raising the threat of supply disruptions to Europe. That possibility could give Russia political leverage over Germany, the Czech Republic, Slovakia, Ukraine and other Central and East European countries that rely heavily on Russian fuels.

As rising oil prices strengthened the Kremlin's hand, Mr. Putin clamped down on Russian businessmen, most notably by prosecuting and imprisoning Yukos Oil Co. Chief Executive Officer Mikhail Khodorkovsky.

The company's assets were later sold at bargain-basement prices to state-owned enterprises, one of which—Gazprom—was headed by Dmitry Medvedev, Mr. Putin's handpicked successor as president.

Despite existing contracts with Western oil companies, the Kremlin voided exploration licenses held by ExxonMobil and Chevron, then forced Royal Dutch Shell to sell some of its holdings to Gazprom. Increasing the pressure, Russia then raised previously subsidized natural gas prices to Ukraine and Belarus, two important conduits for gas exports to the West.

The new Obama administration needs to realize Russia has a potential stranglehold on America's European allies and will play its energy card when it wants to: to block the further expansion of NATO, for example, or the EU.

Russia's next likely move, which could be delayed until the global economy starts picking up again, will be an attempt to orchestrate a global natural gas cartel patterned on the Organization of Petroleum Exporting Countries. About 15 gas-producing countries, led by Russia and Iran, met in 2004 and agreed to establish an "executive bureau" to coordinate "interests" in the global gas market.

As world demand for natural gas begins to outpace supply, incentives for collectively reducing production and increasing prices will strengthen.

For the United States, a combination of conservation, increased energy production and improvements in energy efficiency is the best defense against volatile oil and gas prices and Russian blackmail.

But congressional gridlock over energy policy—and lack of leadership from the White House—has blocked longer-term solutions.

While increasing domestic energy supplies by tapping proven oil and gas deposits in the Outer Continental Shelf, the mountain West and Alaska will help, the most important step the United States can take on the energy front is to use more coal and nuclear power.

America has a 250-year supply of coal, more plentiful on an energy-equivalent basis than the oil reserves of either Saudi Arabia or Russia.

The president-elect should re-examine his position on coal in particular. "Clean coal" is not an oxymoron. Building more coal-fired power plants that use new technologies to capture and store carbon dioxide emissions deep underground and converting coal into liquefied fuel for transportation are sensible policies.

Increasing our reliance on coal and nuclear power would free up natural gas for household and industrial uses and go a long way toward immunizing the United States from both OPEC and Russian blackmail.

William F. Shughart II is a Senior Fellow at The Independent Institute, Frederick A. P. Barnard Distinguished Professor of Economics at the University of Mississippi, and editor of the Independent Institute book, Taxing Choice: The Predatory Politics of Fiscal Discrimination.

Ukrainian R&B by Vova zi Lvova

Ukrainian R&B by Vova zi Lvova