Gleb Garanich / Courtesy Reuters Ukrainian miners finish their shift at the Kholodnaya Balka mine in eastern Ukraine's Donbass coalfield, November 2009.

Rust Belt Rising

The Economics Behind Eastern Ukraine's Upheaval

In recent days, the armed conflict in eastern Ukraine has reached a new phase. With a political mandate to use force, and with Russian troops partially pulled back from the border, Petro Poroshenko, the newly elected president, has stepped up his government’s counterinsurgency operations in the east and vowed to end the separatist movement there within “hours.” Kiev has seen some successes in the new round of hostilities, wresting several towns back under its control. But the fighting has also exposed severe weaknesses on both sides and left little hope that peace will come anytime soon.

International observers have tended to paint the conflict as an ethnic dispute, engineered and coordinated by Moscow. Yet by attributing the conflict's causes and solutions to forces outside Ukraine, the West and Kiev risk misdiagnosing the ailment and writing the wrong prescription. Preliminary data suggest that the rebellion is more local than international, and that its domestic roots are more economic than ethnic.

ECONOMIC FAULT LINES

By now, the timeline of events in Ukraine is well known. Pro-Russian protests first swept nine southeastern Ukrainian regions after the Ukrainian parliament voted to impeach President Viktor Yanukovych on February 22. The participants denounced Ukraine's new authorities as illegitimate, waved regional and Russian flags, and -- adopting tactics used by anti-Yanukovych protesters in western Ukraine -- occupied government buildings. The government's initial response was to arrest key protest leaders, as pro-Euromaidan demonstrators staged counter-rallies.

This strategy came to a dead end in Donetsk and Luhansk, two provinces in Donbass, an eastern coal-mining region. Over the course of four weeks in April, angry separatist mobs and armed men overran regional administration headquarters, city councils, prosecutors' offices, police stations, arms depots, and television towers in 32 cities, and established some 280 roadblocks. Encountering little resistance -- and occasional support -- from local police, the rebels declared regional autonomy and held a controversial referendum on self-rule on May 11. By Kiev’s conservative estimates, turnout reached 29 percent, or 1.5 million people. The separatists estimated that 75 percent of eligible voters had shown up at the polls.  

But the standard account of events leaves one question unanswered: Why did the insurgency reach fever pitch in Donbass but not in Ukraine’s other protest hotspots with large Russian-speaking populations, such as Kharkiv and Odessa? Kharkiv had been the epicenter of anti-Kiev protests before April, with early violent demonstrations claiming twice as many casualties as in Donetsk. And on May 2, Odessa was the site of the deadliest clashes since the end of the Euromaidan protests, with 48 dead and hundreds injured, mostly on the pro-Russian side. Yet in neither region did the government’s opponents attempt to control territory through armed insurrection or to hold a referendum on independence.

Much of the difference is economic. Donetsk is Ukraine's most populous and heavily industrialized province. Donetsk and Luhansk regions account for a sixth of the country's economic output and most of its metallurgy, heavy machinery, and coal. They export up to 70 percent of local products, and Russia is their single largest customer. With almost half of its workers holding industrial jobs, Donbass was hit hardest by the collapse of the Soviet Union and stands to suffer the most from any future trade agreement with the EU.

Indeed, this region -- Ukraine's rust belt -- has been in constant decline since 1991. Over half of the local coal mines have shut down. Weak property rights have deterred new investment, and the area gradually devolved from a net tax contributor to a net receiver. Ukraine's new IMF-prescribed austerity measures -- expected to raise personal income taxes and monthly gas bills -- have only amplified local grievances. Opinion polls indicate that, for many years and to a far greater extent than in other parts of Ukraine, strong majorities in Donbass have seen Russia's economic standard of living as superior to their own

The pattern of violence in Donbass reflects this economic profile. Data gathered from Ukrainian and international news agencies show disproportionately high levels of fighting in coal-mining districts. Even after adjusting for other factors (such as Russian language, policing, population density, terrain, roads, and spillover from neighboring towns), the size of the local mining labor force remains the strongest predictor of rebel activity.

Activism by industrial workers is nothing new in Donbass. In a 1993 general strike, workers from 230 of the region's 250 mines -- and from 400 other industrial enterprises -- demanded a referendum on regional autonomy, closer ties with Russia, and the resignation of political leaders in Kiev. Under pressure from government and managers, the miners’ movement has since diminished in strength and numbers, but their core grievances remain unaddressed.

This April, many Donetsk miners stormed government buildings, voicing similar demands. But miners’ support for the rebel movement has not been unanimous, particularly after insurgents began looting mines and chemical plants for explosives. And here, the role of local mining oligarchs has also been ambiguous. Rinat Akhmetov, a local coal and steel magnate and Ukraine's richest man, tacitly supported the unrest at first. Eventually, however, he refused to turn over corporate taxes to the rebels and formed a rival militia from his own employees.

Kharkiv and Odessa lack many of these volatile dynamics. Their ethnic Russian minorities are indeed smaller -- at 21 to 26 percent, compared to almost 40 percent in Donbass. But they also have vastly different economies. There are no coal mines in either province, no similar history of mass political mobilization, and fewer resources and industrial targets for rebels to seize and loot. Unlike the heavily subsidized, inefficient, and export-oriented industrial economies of Donbass, Kharkiv and Odessa are net importers, and stand to benefit from reduced tariffs, lower prices, and freer access to capital. Although the regions have deep cultural ties to Russia -- and in Kharkiv’s case, a long and porous border -- integration with the EU presents a less existential economic threat for the local population.

FRACTURED BUT NOT WEAK

Despite Kiev’s claims that insurgents take marching orders directly from the Russian government, the Donbass rebellion remains surprisingly fragmented. The self-proclaimed People's Republics in Donetsk and Luhansk are umbrella organizations comprising several dozen political parties and militias, including the Donbass People's Militia, Russian Block, Youth Guard, Oplot, Russkaya Obshchina, and members of the disbanded Berkut riot police. These groups are united in their opposition to what they call the fascist junta in Kiev but in little else. An influx of irregular fighters from other regions of Ukraine, Crimea, and Russia -- including army veterans, eccentric military history buffs, Don Cossacks, and militants from Chechnya and Ossetia -- has also made the rebellion difficult to control. For now, decentralization is a source of rebel strength: the elimination of a militia in Slovyansk may have little direct effect on the fighting in Luhansk. But, in the long term, it is likely to make Donbass hard to govern regardless of which side secures victory.

As a military entity, the rebellion is hard to classify. With an overall force estimated at 10,000 fighters, the separatists have used both conventional and guerrilla tactics. Large units of 300 rebels have besieged Ukrainian military bases, and smaller ones have operated checkpoints, ambushed military convoys, and detained suspected government informants. Operating in the open, however, has exposed them to the full weight of Ukrainian firepower. Unlike the forests and rural countryside of western Ukraine, where nationalist insurgents once fought a long and bloody war against the Soviet Union, the open terrain of the east offers little natural protection. With hundreds of rebels reported killed in recent air strikes, the attrition is beginning to take a toll. In the movement’s stronghold of Slovyansk in the Donetsk province, separatists have lost control of the television tower and most roads leading into the city, while government forces recaptured the nearby town of Krasny Liman. Yet the battle is far from over, with rebels continuing to expand their vast network of checkpoints and defensive positions across the region.

Kiev's response to the rebellion has grown increasingly assertive, but key challenges remain. In March, Ukraine's acting defense minister announced that only 6,000 of the country's armed forces were combat-ready. During Kiev's initial attempt to retake Slovyansk, one of the most capable of these units -- the 25th Airborne Brigade from Dnipropetrovsk, manned largely by soldiers from the east -- refused to carry out orders and surrendered six armored vehicles to the rebels. Since then, Kiev has relied increasingly on a newly formed National Guard, a volunteer force of former anti-Yanukovych protesters and Euromaidan self-defense units.

Unlike their regular army counterparts, many National Guard recruits are from western Ukraine and have few ties to the region in which they are now fighting. These demographics are both an asset and a liability. Although the guardsmen are highly motivated and ideologically unified, they have been unable to match the rebels' local knowledge and informant network. Early attempts to storm rebel-held towns were stymied by sniper fire, roadside bombs, and crowds of angry civilians. These days, apart from operating checkpoints and conducting occasional raids, National Guard troops generally stay close to their garrisons, which come under frequent rebel assault.

Ironically, Ukraine has dealt with these challenges by taking a page from Russia's playbook in Chechnya: cordoning off restive towns to prevent escape and reinforcement, using heavy artillery and air power to weaken the enemy, and sending light-infantry National Guard units to sweep the area of remaining pockets of resistance. But like Russia in 1995, Ukraine lacks the training and weapons to wage war in a densely populated area. Images of unguided munitions striking residential buildings, schools, and hospitals have provided fodder for Russian propaganda. As Kiev’s tactics draw more criticism from Western journalists and human rights groups, the current conduct of the war also threatens to erode previously overwhelming international support for Ukraine’s new regime.

POCKETBOOK DIPLOMACY

To regain control of Donbass, Kiev will need a new approach. Heavy bombardment will do little more than displace and alienate civilians. And on the political level, Ukraine's interim authorities have tied their own hands by branding the Donbass militias -- and their civilian supporters -- as Russian-backed terrorists, thereby ruling out the possibility of negotiation.

In the short term, Kiev cannot win the war without more local allies. One way to find them is to exploit emerging divisions within the rebellion -- between individual militia commanders as well as between the homegrown insurgents and the Russian tourists who have arrived in the region over the last several months. But in the long term, the solution is economic. Kiev will need to convince the region's large industrial labor force that it stands to lose more from rebellion than from cooperation. And, more important, it will need to convince them that the new government is on their side.

The first of these messages is by far the easier sell; coal mines and steel plants cannot function when railroads are shut down and borders are heavily militarized. It will be a much more difficult task to reassure miners and steel workers that their long-term economic prospects are best served in a unified Ukraine, particularly if that Ukraine continues on the course of European integration. For such an overture to be credible, Poroshenko will need to make hard choices, many of them unpopular with his constituents. His government may have to negotiate with the rebels on the decentralization of constitutional, legislative, executive, and judicial functions. Kiev may also have to permit regional autonomy in matters of trade, using Bosnia and Hong Kong as potential models.

Negotiations, of course, should be conducted from a position of strength. And Poroshenko has had the good fortune to assume power after the military momentum has shifted in Kiev’s favor, but before some of the inevitable downsides of the country's transition have had time to emerge. But if current trends continue, Kiev’s actions are more likely to reduce bargaining leverage than improve it. Even if Ukrainian forces manage to drive the rebels out of the main cities, a potentially protracted counterinsurgency campaign may be necessary to fully return the region to their control. Such a war will likely entail a long commitment, a swelling stream of refugees, and a significant loss of political support and capital. The window for pocketbook diplomacy is closing.

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