Ukraine and the Crimea; what’s going on? Well I haven’t the faintest idea of that part of the world. Who does? But if I ever want to start to understand any conflict, I always start with, ‘Who’s collecting the rent?’
Most of that area’s economic rent is collected (since 1991) by fewer than 12 people. You could start by watching Rinat Akhmetov; he’s the richest. His SCM group controls about half the nation’s coal, steel and electricity sectors. Interestingly, he was a former ally of the now ousted Ukrainian President Viktor Yanukovitch.
Then there are the likes of Igor Kolomoisky (he controls most of the business in Eastern Ukraine), Dmytro Firtash (President of the Kiev-based Federation of Employers) and Serhiy Taruta (Chairman of the Industrial Union of Donbass).
Now ordinarily, these so-called Oligarchs are in raging competition and seek constantly to destroy each other’s businesses. I could put that better by suggesting they seek to recapture each other’s economic rent in an endless game of monopoly. But in recent weeks they have united to ‘protect their homeland’…or so it will be put in the Western Press. It’s not hard to work out why. If Russia goes in, the first thing they’ll do is nationalise the major industrial base and maybe even imprison the former owners on trumped up charges of having exploited the people.
An aside is worthy here:
a) It shows the ignorance of the people. Since none of those commodity based businesses need to be nationalised, a simple rent based royalty is all that would be necessary. Then they could leave the businesses in the hands of private enterprise that would better run it by far.
b) It also shows the intelligence of the new people coming in to power since they know that true power lies with whoever collects the rent.
This is where you need to be careful of what you read in the press.
Putin gets a hard time from the western viewpoint, but some of his first acts when he got to power years ago were to reclaim for the Russian people the resources rent that had been stolen by some now very rich other Russians.
All good, and it seemed to start out very well for both the Russian citizens and the State itself, but alas, along the way Putin seemed to say, ‘Well guys, you can keep a little of your rent if you support my way of doing things, or else you can go to jail.’
There are rumours and suggestions that perhaps Putin took some of the rent back for himself to such an extent that he is now one of the richest men in the world. Although it’s hard to determine if this is NATO propaganda too. Who knows? Certainly not me.
Anyway, Ukraine’s richest players are now being appointed by the new Kiev administration as regional leaders to try and hold Ukraine together. Hence you will read present Ukraine government statements like the one from Kolomoisky, ‘yes I agreed to the appointment as our homeland is in danger’. But what he could have said is ‘my rent collection is being badly threatened’, or from Mr Tatura, ‘calling upon all Ukraine citizens to unite’.
Western banks love these big industrialists in power because they borrow billions to finance takeovers and expansion of their powerbase, mortgaged against future rent collection (this is banks monetising the rent). And the very biggest of western banks love the conflict since should the new Kiev government hang on to power, they will be in debt for years, perhaps forever, to both Wall Street and the World Bank.
In fact it won’t matter if they hang on to power or not. Whatever loans are taken up by the current Kiev government will have to be repaid by future administrations. And anything that keeps oil prices high is always good for the Russian State.
So, in any future Ukraine economic downturn, watch out for the ‘austerity measures’ that will have to go into place to fight the downturn to ‘restore economic growth’. Read: pay back the debts first and foremost.
And history repeats.
for The Daily Reckoning Australia