Stuffy, pompous New York Times columnist forever Thomas Friedman begins his most recent offering – reprinted in the Kyiv Post, where I saw it – thus: “One thing I learned covering the Middle East for many years is that there is “the morning after” and there is “the morning after the morning after.” Never confuse the two.”
Generally speaking, if you are going to tell porkie pies (“lies”, in the rhyming cockney slang which lends its name to The Porkie Pies News Network, Kremlin Stooge slang for the mainstream media) in your opinion piece, doing so in the first four words of it is starting a little early. Typically, you want to soften up your audience a bit before you trot out the whoppers. So, make yourself comfortable – coffee? Tea, anyone? – while I demonstrate that in reality, Thomas Friedman has learned nothing at all.
Really, I would have been happy with just leaving a comment on “Putin and the Laws of Gravity“, but the New York Times cuts off commentary ridiculously early, so if you didn’t see the piece come out (it’s dated yesterday, or what was yesterday when I began this post) chances are good that comments will be closed before you get the chance to make your own opinion known. So, that’s why we’re going this route, which is all to the good because now I will get to hear your opinions as well.
Anyway, Thomas Friedman has the dubious honour of having a unit of time named after him – a “Friedman”, which represents six months. This unit got its name from his repeated assurances in his NYT columns that “the next six months” would surely see the United States turning the corner in Iraq; the occupation which ground on and on like an Yngwie Malmsteen guitar solo would at last bear fruit, the resistance and sectarian strife would subside and Iraq would settle down to becoming a prosperous, western-oriented market democracy.
He continued to announce this deadline for about two and a half years. The embarrassment finally culminated in the anguished “Dancing Alone“, in which Friedman admitted that perhaps he was a little slow, but that it was finally time to put the toys away and start growing up, because his vision for Iraq was much too far over the horizon to be glimpsed and perhaps always would be. He put up a brief defense by saying that when he forecast something which meant a lot to him personally, he assumed it also meant a lot to the Bush administration, but that they were too interested in getting re-elected to pay due attention to their nation-building responsibilities…but his heart wasn’t really in it. The Bush administration had “no clue how to export hope”, but he – Thomas Friedman – was dancing alone in the world, just like his lost-sight-of-the-goal country.
But now here he is again, advising us that if we will only wait a Friedman, the cracks in Vladimir Putin’s apparent strategy will start to show, and while he might look like he is kicking ass and taking names right now, he is riding for a big fall. Those whom the Gods would humble, they first make proud. “Well, let’s see what Putin looks like the morning after the morning after, say, in six months.” A Friedman, for those in the know.
He then goes off the reservation in high-flying style which suggests his recent diet has relied almost exclusively on peyote buttons.
No wonder, he tells his agog audience, that Ukraine wanted to break free of the toxic orbit of Russia: it had only to look at its successful neighbours who took the plunge and joined the EU. And lo! happiness burst forth and spontaneous Lancashire clog dances of exultation broke out across the beaming faces of those giddy lands. “A recent article in Bloomberg Businessweek noted that, in 2012, G.D.P. per person in Ukraine was $6,394 — some 25 percent below its level of nearly a quarter-century earlier. But if you compare Ukraine with four of its former Communist neighbors to the west who joined the European Union — Poland, Slovakia, Hungary and Romania — “the average G.D.P. per person in those nations is around $17,000.” Can you blame Ukrainians for wanting to join a different club? “
I’m going to go ahead and say either Thomas Friedman or Bloomberg did not research that article too carefully. As we’ve discussed before, per-capita GDP is just the total GDP of the country divided by the population; its upper limits can be – and are- skewed by such things as the number of Billionaires and Millionaires in the country. Take America, for instance – mouth-breathers like La Russophobe are always capering and throwing poo about how great the USA’s per-capita GDP is, way higher than just about any country you care to name. It’s actually $45,336.00 as of 2012; economics figures almost always lag by at least a Friedman, because they have to be tabulated and analyzed and it’s hard to do that in real time. Does that mean everyone in the United States has an annual income of more than $45,000.00? Of course not; the poverty line for the 48 contiguous states for a family of 8 people is less than that, and more than 31% of people in the United States experienced poverty for at least 2 months of the year between 2009 and 2011; by all indications, poverty in the United States is increasing. However, the USA is also home to more Billionaires than anywhere else in the world. It’s amazing how much a couple of hundred billion added to your GDP can alter the per-capita figure.
But never mind that. It is perfectly true that the GDP per-capita figures, adjusted for PPP (Purchasing Power Parity), for the countries he cited are “around $17,000.00” (sometimes more). Like per-capita GDP, PPP is just the total income of the country, divided by the population, adjusted for inflation. If a higher per-capita GDP adjusted for PPP meant you should pull up stakes and move your tents closer to someone who has a higher figure, the USA would be sucking up to Qatar like ought to be X-rated – because according to the CIA World Factbook, Qatar’s per-capita GDP adjusted for PPP is more than twice that of the USA at $102,800.00. Lichtenstein and Luxembourg blow the doors off the USA. Bermuda beats America’s GDP PPP by $20,000.00: the Falkland Islands kick sand in the USA’s face. Obviously, just this parameter alone is not a reliable indicator of prosperity on a national scale – 11% of the population in Luxembourg lives below the poverty line, and their per-capita GDP PPP is $80,700.00.
Friedman is arguing – short-sightedly, in my opinion – that Ukraine shows good sense by wanting to be part of the EU rather than Putin’s stupid dysfunctional Eurasian Union because being part of the EU would very quickly resolve Ukraine’s economic troubles, and cites four countries which are EU members and have per-capita GDP PPP figures much higher than those of Ukraine to back his case. So let’s have a closer look at that.
Hungary has a per-capita GDP adjusted for PPP of $17,032.56. Prosperous country, then, right? Ummm….not so much, actually. Although its economic figures are really pretty steady, Hungary is (according to The Telegraph) “the EU’s Enfant Terrible”, and was directed by the EU in 2012 to repay Billion in debt as well as raise external funds equal to 18% of GDP; the highest in Eastern Europe. Public debt was near 80% of GDP. The EU sent the Hungarian government three “Formal Notices” over its “assault on the independence of the judiciary, the central bank, and the data protection ombudsman”, pointing out that failure to comply with direction “could ultimately lead to loss of Hungary’s voting rights under Article 7 of EU treaty law. ” Doesn’t sound much to me like an example Ukraine wants to emulate, despite its smokin’ hot per-capita GDP.
It’s hard to beat Poland as a success story, it’s true; its economy has really taken off. Still, “the banks’ large foreign-currency liabilities and the reliance on potentially volatile portfolio inflows represent potential sources of instability in the event of a deeper liquidity crisis”, says the OECD. They’re in good shape so long as the zloty remains strong. What kind of shape is the hryvnia in? What kind of shape is it likely to be in for the foreseeable future? I also can’t help marveling at the sanguinary nature of the OECD, as they speak of “removing pension privileges for selected occupations and continued tightening of eligibility criteria for disability support.” I can’t imagine Ukrainians looking forward to the tender mercies of the EU, as its organizations and the Western Bigs such as the World Bank and the IMF look for what might be cut next to get the economy back on the rails.
Slovakia also is a high-income country; however, it relies heavily on foreign investment – which can be turned off in displeasure if the national government does not perform as investors expect it to do – and nearly everything is privatized. I imagine this is the goal for an EU-oriented Ukraine as well – the western democracies worship privatization – and factors which make Slovakia an attractive choice for foreign investors are its flat tax rate of 19%, no dividend taxes, a weak labour code and an abundance of cheap, skilled labour. The latter two should bring a prickle of unease to Ukrainians, who are already a cheap labour force. Considering that the goal for them is, you know, improvement.
I’m not sure why Romania was included in the Happy Quartet, because its per-capita GDP adjusted for PPP is far below the vaunted $17,000.00 at $11,443.49, and its per-capita GDP is worse, around $5,500.00. Perhaps he was just boosting the numbers, or copying the article he referenced without looking into it any closer. Romania is pushing its homebuyers away from foreign-currency mortgages after the kick in the slats Hungary took – nice to see someone actually learning from others’ mistakes rather than insisting on making them themselves – but bad loans made up 22% of all lending at end-November 2012, the sixth-worst rate in the world according to the World Bank. As Europe’s second-poorest country, again, not an example to emulate.
Anyway, Ukraine. How is Ukraine unlike these countries, and why was it absurd for Friedman to throw them out there as a model?
There is a variety of reasons, and none of them are particularly compelling in favour of Ukraine’s taking off as a happy and successful EU project in anything like even the medium term – not unless all the western countries simply threw money at it every time it started to stagger, and that kind of money just isn’t there any more.
Let’s take a look at what made Poland a success. Poland distinguished itself by not collapsing during the global financial crash, and by instead actually showing respectable growth. To what did it owe this miracle? Different analysts have different perspectives. The Atlantic says currency liquidity: Poland allowed the value of the Zloty to fall sharply against the Euro. How far could Ukraine’s fiscal wizards and their western masters allow the Hryvnia to fall? It’s practically worthless already. That chart also provides a useful counter to the Kiev revolutionaries’ shouting that Yanukovych wrecked the economy – just look when the hryvnia started to tank. The Wall Street Journal offered several suggestions, all of which will make you laugh when you relate them to Ukraine in its present incarnation – strong institutions, a resilient economic structure, well-designed economic policy, trust in the government and a low level of financial leverage. Mr. Rostowski, the article’s author, was Poland’s finance minister at the time. Businessweek says Poland’s success is owed to a business-friendly political class, the lifting of price controls, capping of government wages, liberalization of trade. What is left unsaid is that Poland took a deep breath, and opened its entire economy to foreign ownership, and now at least 2,531 companies in Poland are 51% or more foreign-owned. Poland’s banking sector – the biggest banking market in the central and eastern European region – is 70% foreign-owned.
Curiously, the World Bank chided Poland for lagging in privatizing its state firms. Mind you, that was in 2001, and there has been a wave of privatizations since. But what interested me about this report was the comparison done using the World Bank’s transitional model. Interesting because it included Ukraine. And in all its modeling, Ukraine came out worst of all the available choices for economies in transition. Did worst of 14 transitional economies, not to put too fine a point on it, and results showed Ukraine’s GDP falling by 11% per year while income inequality doubled over the 8-year transition period. Do you think Ukrainians who were hopeful about joining the EU because it would boost their ailing economy would be all smiles at the thought of the nation’s GDP dropping by more than 10% a year while the income equality gap continued to widen? I’m afraid I don’t. I hope nobody is going to raise their hand and say, “But that was before the Orange Revolution”, because Ukraine’s external debt grew five-fold during the Orange Revolution and as a direct result of the political administration which grew out of it, from around $20 Billion to more than $100 Billion. Yushchenko was encouraged to borrow heavily, and Tymoshenko liked to spend. The EU made IMF loans conditional on reforms, just like it will do this time, and when Yushchenko refused to implement the rescission of the gas subsidy (because it would have meant political death), the IMF froze a second loan. Yanukovych inherited a massive debt, which – to be fair – he did nothing to bring down. Now it’s about $142 Billion. The global financial crash was in there, and Ukraine is a big steel exporter; the bottom fell out of steel. Both Yushchenko and Yanukovych spent heavily to stave off devaluation of the currency, which drained the reserves. Ukraine failed to learn anything from countries that had high debt in foreign currencies, and as the hryvnia slipped, the foreign debt became more expensive. A lot of things went wrong, but none changes the fact that Ukraine’s economy is about as horrible a prospective transitional economy as you could imagine. To put it in perspective, Poland’s external debt when it joined the EU was about $100 Billion. Ukraine’s is half again that, with a currency that is basically worthless, an unelected “transitional government”, a billionaire oligarch as the front-runner for president and a simmering revolution with the southeast of the country on the edge of revolt. It just lost most of its seacoast – and with it, its best port and much of its EEZ as well as lucrative gas and oil deposits, and relies heavily for its income on the exporting of gas while it actually has no appreciable gas reserves of its own. There probably is a country that’s less like Poland, but I can’t think of one off the top of my head.
But they could still get it together. And Putin could be forced to give Crimea back, and be humbled, and beg for forgiveness. Let’s wait a Friedman, and see if any of those things happens.