Interviews and articles

23.12.2005

Capital. Victor Pinchuk

At the approach of the regular elections to Verkhovna Rada it is getting much clearer that several political forces, running for the parliamentary mandates, are determined to set up their campaigns against large-scale business, indulging in classical "anti-oligarch" eloquence. Despite of the fact that election lists of these parties will include rather notable pundits of the large-scale business, and its most prominent lady (who, in fact, officially quitted the sphere, allegedly with hundreds of millions of US dollars) who is to head of these blocs, being the major source of "people's" anger against the so-called oligarchs. 

The oligarchs, who, allegedly, were enjoying a complete support of the authorities bribed by them, misappropriated hundreds of millions of US dollars. One has to redress an injustice i.e. to take away all major production enterprises from the present owners and to give them back to - whom? To the people of Ukraine? No – to the other owners, not oligarchic, but to good ones. 

I am not a writer, a reporter, or a journalist. Generally speaking, I would not define myself as a public politician. Alas, silence means consent. However, sometimes there happen such moments in the country that it's next to impossible to keep silent and agree with the nonsense, because  Ukraine and its people may eventually pay too dear a price for this nonsense or, to more exact, for it embodiment in the current political reality. That is why I, whose name is the most frequently used with the word "oligarch", would like to take advantage of my right for a public response. 

There is one condition, though: as a self-defining term, I would prefer a concept implying not "oligarch" but a "representative of a big domestic business'. This is a bit longer and wordy but more meaningful, understandable and closer to the truth. This is, actually, what I am going to speak about. 

The question is: why in most of the world's countries a domestic capital is being respected and even the Marxist ideology considered it as an basis for domestic independence, and in our country some disobedient children are usually threatened with a domestic capitalist? Why do I maintain that such concepts as a "domestic businessman" and a "patriot" are synonymous? Could the Ukrainian statehood possibly emerge, as such, without a strong domestic capitalist? And what can and must we, the Ukrainian domestic capitalists, do in order to strengthen our country both from inside and within inter-domestic level?

The Ukrainian politicians are not the earliest explores at all as pertaining to anti-oligarch dirty tricks and ideological war waged against wealthy fellow citizens. Suffice it to recall Sharikov and Shvonder (characters from a story "Heart of a Dog" by Mikhail Bulgakov.). Some recent events of the last year makes one to become suspicious that: if someone starts to fight against oligarchy, it means that he/she wants to add several points to his/her rating, and at the same time, if lucky, to take away several finely-operating enterprises, the ones that were set up and tuned by a present owner-capitalist. Unfortunately the domestic Ukrainian capital have managed so little to be tuned properly so far. As a matter of fact, the present Ukrainian statehood itself is very much obliged for its forming to the domestic business.

After the collapse of the USSR there were created not 15 new states but lesser than that, because most of the former union republics, having received the statehood attributes, did not, in fact, manage to grow to it. We are ok in this respect. For last 14 years Ukraine has gained strength as a dull-scale state – without wars and blood separatism. 

The State has been shaped. The regions of out country, being so different both in cultural, mental and historic aspects did become, thank God, irreplaceable components of the more powerful and modern mechanism called "Ukraine". The State that upon the collapse of the USSR fell to its share under the succession right for neither jointly accumulated reserves  of the old empire nor subsoil energy resources, has reached such pace of development, that in order to protect themselves from our exporting impudence the most powerful countries of the planet have to hide behind discriminatory import restrictions. Who should thank? Who has created a strong and united Ukraine?

The answer is very simple: the Ukrainian state has been created by the Ukrainian people. But its most efficient and modern tool during the development of the state has become a power that needed particularly such Ukraine – a stable, safe, placid and respectable one. A united one, which means having a maximum market capacity and production potential. Being rationally balanced in terms of globalization trends and closed cycles. Being open for cooperation within various aspects that might appear useful for it and not refusing, for the sake of existing geopolitical dogmas, any prospects. The domestic capital has become the executor of such mega-project. 

Should there was no energetic, young and ambitious economic power after Ukraine had gained its independence, an alternative history of our country could have followed central-Asia or African, neo-colonial pattern. We, the businessmen (some of them would later be defined as oligarchs) understood immediately then, what a tremendous value the independence was. 

Big Ukrainian business emerged in the east of the country, in the mainly Russian-speaking industrial centers such as Dniepropetrovsk, Donetsk, and Kharkiv. However, from the very start it was the domestic one, per se. We, the Ukrainian capitalists, even if we speak Russian we think in Ukrainian anyway, and we want Ukraine to be independent and European area to the maximum, since these are the major conditions whereby we can hope for the most efficient and sage principles of conducting business. During 14 years of the Ukrainian independence we have been pursuing such policy not through really eloquence but in practice, using our brains, money, political and lobbying opportunities. 

How was it done? In any case, not the way it is written in anti-oligarch leaflets. One should stop believing in tales that Ukrainian business allegedly emerged because of secret privatization "for close friends". A large-scale privatization started in the mid 1990s. The domestic capitalists had started to play the major role in the Ukrainian economy at least several years earlier. 

As I told already during one of my recent interviews, I raised my first big money, when I used to be a young scientist, inventing and introducing new technologies in pipe production field. But a story on how I became a dollar millionaire a representative one. It was in the Fall of 1991. Pipe production of Ukraine turned out to be on the verge of full halt, having lost its trustee-leader represented by the collapsed State Planning Committee of the USSR and not realizing that there appeared the very market requiring totally new approaches, skills and talents. Cast iron was needed for the production of pipes. Metallurgical works, producing it, were experiencing acute shortage of coke. The coke producers, in their turn, were experiencing acute shortage of coking coals. And the coal-miners needed ... pipes. As a result my company "Interpipe" played a role of a non-governmental State Planning Committee. We repaired the damaged links between the confused producers, and the production, once in chaos, was restored with our help. And I also received my profit share – in pipes. 

And I am sure the same was happening in other corners of Ukraine where other young businessmen of the first domestic call-up were picking up the country's industry bit by bit. We were creating a new economy of a new Ukraine from chaos, from dust of the first post-soviet years, when it seemed that, in a new and torn up by contradictions country, there was no and could not possibly be any laws or even informal rules of play. Back then businessmen from respectful countries would not even want to listen about investments in Ukraine, which most of them considered as a gamble-country without having clear past nor a guaranteed future. Who, ultimately, made the West change its mind? Do you think the corrupted bureaucrats? No, what they did was frightening away everybody and making them compare Ukraine with a central-African country. A normal reputation of the country, a normal business-climate was being created by us – entrepreneurs. 

We were learning ourselves and we were teaching others. We knew about banking more than the new domestic banks that were providing services to us, and we also knew about tax laws more than the tax inspectors who were auditing us. We knew better than the politicians what laws would be to the advantage of the economy, and that is why, starting from the mid of 90s we ran for the Verkhovna Rada. That is the very thing that the parliament approved necessary economy legislation. 

We did not let the country freeze to death during cold winters in the mid 90s, finding possibilities to provide gas supply from Russia and Central Asia. Now, when we are facing similar problem, turning into a pattern of geopolitical confrontation, I remember how we were contriving ways of handling it, paying for the gas by galoshes, pipes and sometimes by means of bilateral clearing with the Russian Defense Ministry... 

We, the domestic capitalists, have created the most efficient sector of the Ukrainian economy, turning it from a one-sided chunk of soviet domestic economy into a rapidly developing economy, a promising and investment friendly one. I have not make excessive use of statistical data in this text so far, but I am going to produce several figures anyway. From the date of acquiring my works, hundreds of millions of dollars have been invested into them. Production volume has increased twice as much and the salaries thrice as much. An such trend is not an exception but a rule applied for managerial and production efficiency of the domestic capital. 

I am truly proud of belonging to the one of the "old guards" – the very first echelon of the Ukrainian business. But do not believe to anyone from us who will claim as if they got through everything sinless. If the first capitals had been impeccable they would not need amnesty then. 

We really need it now. We did a lot of wrong things. The one who is the first to pave the untrodden way, does not usually think of traffic regulations. Especially when there are no approved and applicable regulations. 

Our first taxes should have been paid when there was no tax legislation applicable to the new reality. Our first accounts with foreign banks appeared when no one even thought of prohibiting it and when none of the domestic banks was able to properly accept such deposits and service them. We gave lots of short to the State (which was not able to request for anything then) not because of greediness but because we were afraid to loose everything. We, being naïve sly boots, used to trust to the off shores the most inmost in such a way as if Cyprus was somewhere on Mars. 

At the beginning of my activity not all of the major businessmen would invest into social infrastructure, and not all of them would focus attention on philanthropy. And such light-mindedness that could be witnessed at the beginning of the last decade adversely affected perception of the business-community by the Ukrainian people. We would always understand the social and political context in a proper way, within which our activity was perceived. I wish I could not have defined "us" all of this time as a typical, corporate single whole since I personally made some of the mistakes and there is no doubt about that. 

For instance, I, Victor Pinchuk, being a son-in-law of the Country's President, should not have participated in privatization of "Kryvorizhstal". It was absolutely legal de jure; however, it was absolutely wrong from the political standpoint. Businessman sense of fervor should not have won the political intuition. Moreover, I was too late to understand that in our country, a President's son-in-law was a political function. May be, from the point of view of the political correctness a President's son-in-law should better be a teacher, physician, journalist, whatever, but not a businessperson. I must say that I was not looking for father-in-law, but for a woman I fell in love with. And secondly, I happened to be the President's son-in-law during several years only and I believe I will be a husband forever.

However different our performance and mistakes are, they have one common feature – they have been made already. They are the history on how the country had been created. New time issues new challenges for the country and for us, being the domestic business. I sure that such challenges may defined together as European Integration. And just as it was at the start of Independence period the business's interests fully coincide with the interests of the country. 

We, Ukrainian businessmen, are able and have to build a bridge called "Ukraine-Europe". This we have to use our best endeavors both for integration of Ukraine into European structures and for importing and implanting European civilized values, norms, and standards into our reality. 

We must strengthen harmony and cooperation between various groups of the Ukrainian community. Europe is a very social "planet". However, we have a huge experience as well. When in September 2005, several thousand of workers from different enterprises (in which I am a shareholder) of Dniepropetrovsk Region, took to the streets to protect Nikopol Ferroalloy Works from a takeover attempt (arranged by Yulia Tymoshenko and my competitors under the guise of alleged "domesticization"), those people did not stand for Pinchuk at all, but for themselves. They remembered pretty well what had been happening at the enterprises before I came. They just did not want to return to that time. 

During "Nikopol Maidan", when thousands of workers stood up maintaining the common cause, I could draw a direct confirmation as for soundness of my concept regarding labor and capital alliance. I came up with the concept for the first time eight years ago when I was running for the parliament within the most working District of Dniepropetrovsk City. For a person of my non-proletarian descent it was somewhat an eccentric choice, but I was sure that the workers of K. Liebknecht Factory, the first factory I used to work for, would understand and support me. And it happened the way I'd excepted. At the meetings with the workers, I managed to explain to them a genetic unity of interests advocated both by hired workers and capitalists. Any enterprise must be working efficiently. Full stop. In this case workers are provided with stable salary and confidence in the future, and the owner gets revenue and the same confidence in the future, enabling him  to further invest, expend production capacity, create more jobs, improve social infrastructure and, after all, to increase salaries. 

Consistency in relations between workers and owners is a European value, indeed. Moreover, it is quite natural when an ordinary worker may eventually turn into one of the owners of its enterprise. We have to lay basis for a real people's capitalism whereby the workers, being minority shareholders, would have their share in the enterprises they work for and feel that they are really theirs, and to get a stable salary the amount of which would directly depend on the performance of an enterprise. 

We have to provide a maximum support for small and medium businesses, which are the foundation for a middle class, and hence, a guarantor of social stability in a country. Big business should grow upwards without choking the "undergrowth" of small business, providing it with space and facilitating its development. 

We have to expand social and charity activity of the business, ensuring its consistency and nation-wide spread. The key objectives must be education, health care and culture. 

As I have told already, many things are being underway. I would not like to specify intentionally, for example, volumes or spheres of my charitable and social activity because: a. the list will be too long and b. it would be unfair to speak about myself only, since such type of activity aimed at providing aid to elderly people, hospitals, schools and cultural institutions is being carried out by a number of large corporations and individual businessmen. However, such uncoordinated activity is, by definition, less efficient compared to a teamwork. I am absolutely sure that everything what is being done by the representatives of the domestic capital, be it "in good conscience" or for the purpose of creating a favorable social infrastructure at the local level, has a good chance of becoming a solid foundation of a new social policy of the State, which, and it's not a secret anymore, bears more social commitments than it is actually capable of coping with. 

Everything that is considered a constitutional commitment for the State is a human and civic duty for all of us. It's just ridiculous to contemplate that our art museums or schools for our children would be opened by Indians. I am saying this in an absolutely in a figurative sense, without having in view Mr. Lakshmi Mittal, with whom I have rather friendly relations, and even so, I must admit, that he does not really care about our schools and museums (he doe not have to, actually). Conditions and instruments for a cooperation agreement, whereby the domestic business would undertake to consistently assist the State to educate children, care for elderly people and let the young people to earn a living, is a separate issue that is likely to be discussed by all or almost all of my "workshop" colleagues. It's high time to start discussing the issue. 

Moving towards Europe, we may not have the right to provoke derision or astonishment. That is why we have to be very quick and efficient with reforming our judicial system. I think that today, owning to our courts the entire country is seeing double because of the number of general prosecutors. Almost every self-confident JS company has at least two competitive, and at the same time "legitimate" supervisory boards, boards of directors and registrators. I don't think any further explanations are appropriate here. Though, I might give one more argument in favor of carrying out immediate judicial reform. Do you remember this stale joke about two judges? One judge cannot make his mind on what is to be done: I've accepted $1 grand bribe from one client and $1.5 grand bribe from the other one. So, I've accepted bribe from the both. Now, in whose favor shall I award the judgment? And the other judge says: just you give the other one 500 hundred bucks and make a fair decision. Well, now, my friend's wife   was looking though some all magazines and came across this joke in two of them. And the most interesting thing about it is that two years ago the joke said about "one grand", and this summer – one "million". So, if are slow with carrying out the reform, the country may be in danger of hyperinflation again.

We have to do everything possible to ensure amnesty of capitals. And this is needed not only for big business but for the entire country. Undeclared "money-boxes" can be found in every layer of our society. They just differ from each another. There does not exist any bigger investment supply genetically prepared to come into the Ukrainian economy, except for the Ukrainian  money, without having some very transparent origin though, getting dusty somewhere in off-shore banks or in "stockings". The goal is, through a productive dialogue between all interested parties, to work out legislative guaranties that would overcome a distrustfulness of Ukrainian citizen, well-founded by the history and today's reality. 

We should do our best to facilitate legitimation of the privatization outcomes. Should we fail to ensure it we will never be able to count on getting rid of the permanent irritant of public consciousness. 

Each owner of the enterprises acquired during the recent decade's privatization is ready to prove that he/she had done legally and paid a fair price. Almost all of the enterprises, privatized within the depression, were unprofitable. During several first years, one had had to invest into them only before they started to make profit. Generally speaking, the moment they started to make profit was a sign that the economy of the country started to work. And this is why, as the economic climate was getting more favorable, standard of price for property was changing dramatically. 

Current high value of property (including the property acquired many years ago for immeasurably smaller amounts of money) is a result of hard work performed by the domestic business aimed at recovering the economy and increasing investment appeal. This being said, one would be definitely wrong in assessing justice injustice of the conducted privatization bases on today's standards and value of property. Let's imagine a person who bought a cabin located on marshland ten years ago. During those years he would builds a luxurious house on the site where the cabin and, in addition to it, he drains the swamp. As a result, this wasteland becomes a place for, say, a prestigious housing estate. Is it fair enough to bring charges against the guy now because he bought the property for a song in such a "hip" location? Finally, while putting aside for the time being the issue of business-activity and considering the situation from the point of view of a man in the street, we are likely to come to a similar conclusion: you bought a flat a year ago for, say, five hundred dollars per square meter. Even if you did not do any repair the prices have doubled anyway during the year. And now what? Are you expected to go the former owner and pay the remainder, huh? 

The current situation is at a stalemate because none of the ordinary Ukrainians, who found themselves during change of ownership with having nothing, will never accept all those arguments and will be cursing that "predatory "pri-GRAB-itization. 

It's very important for all of us so that the society would accept privatization.  A European-wise solution to this problem consists in finding amicable agreements. Thanks to this practice Europe has never had a single instance of expropriation. 

I may assume that, for the sake of ensuring social consensus, the Ukrainian business will be ready to exercise good will and execute amicable agreements. In fact, it may imply repayment supplement. However, under current circumstances such repayment must be targeted and specifically transferred to the social sphere. I does not matter much whether it will be transferred to a social fund or the owner would undertake to support one of the major social programs. What is important is that the society would finally feel that a privatized property was not stolen from him/her, more than that, it provides benefit for everyone. Indeed, this will be an amicable agreement between the business and community. 

We should use the best endeavors for Ukraine status to make a qualitative step forward in terms of inter-domestic relations. Domestic business ensured an economic take-off for the country, which is now being converted into political force within inter-domestic arena. Today Ukraine is, in fact, a serious inter-domestic player, possessing all necessary disposition and future pertaining to a sub-regional leader. With the help of the domestic business, Ukraine may gain not only political but transdomestic economic leverage. Unfortunately, for the time being, it is loosing it. 

Let's get back to the sore point - "Kryvorizhstal", dealing not with its confiscation from the legitimate owners but with its eventual transfer under foreign capital. The issue itself is much wider than just withdrawal one, though mega-enterprise, from under domestic control. The point is that in the spheres where Ukraine does not have big chances of becoming a legislator of the world's game rules, where it is not in a position to play first fiddle within global scale, emergence of a foreign owner is a justifiable deed. However, in the spheres we have something unique, in terms of capacity and quality (metallurgy, machine-building industry, arms production, aircraft and space industry); we'd better behave more adult-like. It's about time to understand that we are able to set up for playing in the global arena, not only for a mere purpose of rejoicing every single time when we achieve some success there, - no, not at all: it's about time that we should dictate terms  within the spheres where we really hold very strong positions. It's about time when we should set up our own trans-domestic corporations that will ultimately become global players within the world's economy. 

That is why I am 100% sure that the re-privatization of "Kryvorizhstal" may be altogether defined as a step backwards, to the colonial-type economy, which we thought to have got rid of. Ukraine has lost its chance to become a global player within the world's metallurgical market, having created its own steelmaking empire with "Kryvorizhstal" (where it not so important whether it is state-owned or private) in the center. 

Speaking about inter-domestic structure of economy, I cannot but recall one more debt of honor of the domestic capitalist. What we need to do is to make the "illegally working abroad" Ukrainians come back to the country. They'll start coming back as soon as we have created enough new jobs in the regions from where they fled from hardship. And we will definitely do it. Therefore, the economically unbiased fact is that only we, Ukrainian domestic businessmen, are able to bring the people together. 

And the last issue but not the least: if we wish to accede to Europe we'd better normalize relations with Russia. We've lost several years in this aspect during this year. "Cold War", conflicts not for the sake of domestic interests, but for the sake of conflicts, possible cold winter without natural gas, plus a threat to gas-supply into Europe does not seem to be the best credit to us in the opinion of civilized countries. One is always tempted to cheat poor negotiators. Nobody likes trouble-makers. Generally speaking, if you cannot get along with a nearest-neighbor, do you think you will be suited to be a decent tenant in the big European house? 

I think a lot of what particularly the Domestic business is able to do in order to stabilize Ukraine-Russia relations, provided that it should not be a surrender, but а benefit for the domestic interests. I am not supportive of common shares in the Ukrainian gas pipeline. To my mind, the most promising aspect is creating global players, of which I've mentioned above, within different spheres, where Russia and Ukraine are able to enhance each other's capacity. There should be no confrontation or even competition but joining together efforts. This is exactly what enabled the European countries to create a world-known "Airbus", affecting the seemingly everlasting monopoly of "Boeing". What about a Slav Super-airliner? A Slav heavy-weight space shuttle? Slav nuke-machine building, metallurgy or chemical industry? Basically, all of the above-mentioned is possible. 

Everything I've written about needs one adjustment: we must, we wish and we will be building the country, moving it towards Europe. Moreover, we will definitely succeed in doing so, only if the challenges and difficulties Ukraine is facing are not aggravated by means of populism and demagogy. And if we, the domestic businessmen, are not interfered with what we are doing. There ARE "enthusiasts" on different political wings. And as the elections are drawing closer the itch for interfering with our business is getting more and more obvious. 

Ukrainian business usually prefers to keep silence, because there is no need in interrupting the vulgar speechmakers. We usually provide them with an opportunity to criticize us severely, believing that at the end of the day they will come to us in search of advice regarding some constructive ideas and ways of their implementation. There is nobody to ask for a piece of advice anyway. 

However, now the situation is somewhat different. After the elections, there is likely to be a real threat as for recommencement of economic insanity, from which the country was trembling for half a year. Last year's growth rates, worth of being fixed in the worlds' record book, dropped by six times during the half a year. Such an outcome may also be registered in the worlds' record book, but in a black one. Against the background of the then most optimistic expectations and a fantastic rate of post-revolution appeal towards Ukraine, we are now facing a catastrophe of investment appeal. Putting pressure upon political opponents and squeezing on big business and its leaders. This is what was happening not so long ago. 

It may well be happing very soon. The authors of "contra-economic miracle" are dead set to come back. And then a long-term social and economic stability of the State, mostly created by the big business, will become quite questionable. To be more straight, the State will find itself under the threat. 

We, the representatives of domestic capital, stick to different tactical objectives and different political appeals. We are competitors. We are not always willing to agree upon our business, but when it comes to building up a civilized country we may and ought to be partners. 

It does not really how bad or good we [domestic capitalists] are, since we've done a lot for Ukraine to become a modern and competitive State, deserving of its place in the center of Europe. We are the children of a country named Ukraine, and Ukraine as a State is our child in many respects. And we ought to and will be protecting it, no matter how rabble-rousers will define us, whose "social equity" consists in taking away from somebody else's hands and to give to their own people, or populists who stick to the "strategy of creation" that consists in guzzling away everything for a year that may well be used for providing food to the entire country during decades. 

This is not the words that are important but the backbone of the issue. So let them attach to us this, allegedly, offensive word "oligarchs". It is more important how they'll call us in Ukrainian history books. Say, in twenty odd years.

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