UKRAINE’S NEW LABOUR CODE – NEO-LIBERALISM IN ACTION
Ukrainian’s are suffering from ongoing war, austerity and now a Labour Code which marks a major attack on employment rights. Published here is a unique analysis by the leading trade union lawyer and campaigner for workers right Vitaliy Dudin.
Ukrainians are living in a unique era. The ‘Euromaidan’ demonstrations in 2014 did not lead to any social reforms and did not overthrow any oligarchs except for former president Viktor Yanukovich. Neo-liberalism continues despite its failure to improve standards of living. Millions are suffering under the neoliberal regime but there is no any political force strong enough to stand up to it.
NEW GOVERNMENT – OLD POLITICS
In April 2016 the neoliberal government of Arseniy Yatsenyuk resigned. People saw this as a positive step because the government was tarnished by corruption, growing costs of living and a fall in real wages. But the new government under Volodymyr Groysman has continued with market reforms – privatisation, deregulation and recruiting public sector managers from the private sector. Of course it is hard to call the new government ‘new’ in a literal sense – some officials were transferred from the old one.
For example, Pavlo Rozenko (the former minister of social policy, who supported pension reform and the new labour code) became the deputy prime minister; Arsen Avakov – the main patron of neo-Nazi ‘Azov’ – is still running the ministry of internal affairs; Pavlo Petrenko, who supported the so-called ‘anti-communist law’, has become minister of justice again. Volodymyr Groysman – the former chairman of the parliament and co-author of the draft labour code – was an old friend of president Petro Poroshenko. Effectively, ‘change of government’ is nothing more than a shuffling of oligarchs.
The government has a strong neo-liberal stance. The new minister of the economy Stepan Kubiv is an official co-author of the new labour code. He was a chairman of the National Bank of Ukraine during the high inflation in 2014 and was widely accused of conducting an improper refinancing of the banks. Alexander Danylyuk – the new
minister of finance – is well-known for a scandal involving real estate in London. Of course, as with previous ministers of finance, he made promises to businesses to impose liberal reforms and to continue collaboration with the IMF.
However, there seems to be limited anger towards the new government, partly because of some of the new ministers are not widely known. There are, however, serious causes for concern.
DOES THE IMF RULE UKRAINE?
There is a complex relationship between the Ukrainian authorities and the IMF. The government agrees with the IMF that ‘structural adjustment policy’ should continue until the economy has fully stabilised. But austerity policies have been ineffective: the economic growth forecasts have been postponed until next year. Salaries fell to the lowest in Europe (according to World Bank data the wage of an unqualified worker is about 119 USD per month). The Greek experience shows that freezing social standards simply reduces consumption and demand. But there is evidence that such policies were not intended to stabilise the economy, but to favour businesses. Oligarchs can compete with European producers in EU markets because of cheap Ukrainian labour; the government then tries to attract investors to Ukraine by using this advantage (but we see no interest from multinational corporations at all).
The Ukrainian cabinet is ready to push through pension reforms (the government is going to cancel simplified retirement for some categories of workers, including miners and railway workers). There are moves towards a mass privatisation of ‘strategic’ assets – railways, the energy sector etc. Under the slogan of decentralisation the government has tried to close local clinics and schools in regions.
The Ukrainian reforms go even further than those demanded by the IMF. For example, a higher tariff on gas. The national gas monopoly – Naftogaz of Ukraine – became profitable in 2015. The only thing that keeps gas prices stable is a system of subsidies for the poorest (it was a recommendation of IMF) but there have been attempts to cut those programmes and sell Naftogas into private hands. There is some conflict between the IMF and Ukrainian oligarchs. There were calls for radical tax reform, but the IMF did not agree. Social security contributions have been cut twice in 2016 (it is now 22 per cent). There are moves from the parliament for more
libertarian reforms: a draft law was signed by 140 deputies, who had argued that the ministry of finance it is a ‘representative of committee of creditors’. There is also widespread support for reducing taxes on employers (which would increase the pension fund deficit).
Some politicians who control large public entities are not interested in more transparent privatisation (the type promoted by the IMF): they are afraid of losing profits they have gained through corruption. In addition, in 2015 Ukraine was obliged to pay the IMF the highest sum of money in the country’s history.
Finally, during the last government there were no ‘technocrats’ in favour of the IMF, and ministers’ advisers have remained the same under the new regime, such as, for example, Ivan Miklosh, the former minister of finance of Slovakia. His mission was to prepare a new tax code that favoured businesses. He says that Ukraine has a very high rate of taxation. According to the World Bank, the total tax rate in Ukraine is 52.2 per cent and – in his opinion – that explains why Ukraine is 83rd in its ‘Doing Business’ rankings. But some developed countries have similar tax rates. In Austria (21) the rate is about 51.7 per cent and wages are radically higher (1,764 USD). France (27) has an even more serious rate – 62.7 per cent and the salaries are even higher (1,964 USD).
Argentina has an absurd figure of 137.4 per cent and a pay rate of over 1,184 USD. It is strange that Ukraine is trying to follow the experience of Slovakia and Georgia, where neoliberal reforms failed. Georgia has a minimum wage four times lower than in Ukraine. Social standards in Slovakia are two times worse. Surely it is naive to use official tax rates to analyse the level of freedom of entrepreneurs: Ukraine has a problem with tax avoidance – mainly though offshore profits. Undoubtedly the measures in this area have been made under pressure from Western partners.
So the IMF plays an ambiguous role in Ukraine: it pushes forward liberal reforms that damage social policies, while the ruling class thinks about the short-term benefits of those reforms. The current aim of neoliberals is to limit the country’s social policies through low taxes and cheap labour. Ukrainians now earn the least and have shortest holidays among neighbour countries. The next stage is the adoption of the new labour code, replacing the one that was enacted in 1972.
THE NEW LABOUR CODE
The new code was not demanded by the EU (as Ukrainian deputies had said in November 2014 when it passed the first reading) or by the IMF (as was the case in Russia). Only Ukrainian employers are interested in the document. The Yanukovich regime did not manage to enact it, so the post-revolution government is trying to finish his work. The government announced its aim to have a second reading in 2016. Some argue that nobody complies with labour rights so it is hard to enforce them. The state had aggravated the problem through a moratorium on labour inspection on small and medium businesses. Of course it is hard to use any rights if you have no trade unions in workplaces.
Neoliberals say that the current legislation is too socialist for a poor economy. However, a significant proportion of Ukrainian labour laws were enacted after the breakup of the Soviet Union. Empowerment of workers was a realisation of the democratic aims of the constitution of the newly-independent Ukraine. So the repeal of the “old” code is not anti-communist – it is an anti-democratic act.
THE PROVISIONS OF THE NEW CODE
The act introduces special regulations for small companies (up to 50 workers). Employers can give one month’s redundancy notice, and can also change conditions of work with one month’s notice. There is no guarantee that workers in small companies will be able to organise. Some experts predict discrimination and deterioration in workers’ rights. This is especially dangerous because about 99 per cent of registered companies are ‘small’. According to ‘Doing Business’, Ukraine ranks 30th in terms of starting businesses, so there is little need for stimulation and such businesses do not tend to make the economy any more productive or stable.
Employers will also be able to use fixed term contracts, and it will be open to workers to ‘request’ fixed-term contracts whereas previously the employer would have to prove that it would be in the worker’s interest. Within two months of the start of a contract an employer will be able to dismiss the worker for one instance of non-performance of duties. No doubt employers will take advantage of the new conditions of short-term employment relations. EU Directive 91/383/EEC recommends a prohibition on temporary workers for certain types of dangerous work. The new code allows the use of short-term contracts even in construction and mining.
Trade unions are still operating in several industries. Some of those are state-owned, such as Pivdenmash in Dnipropetrovsk (Ukrainian railways). Others belong to oligarchs, such as ore mines in Kriviy Rih, and play a dominant role in export. Private owners are trying to neutralise unions. Some are acting illegally by scaring or beating activists; and a few (such as Arcelor Mittal) offer huge sums of money for voluntary dismissal. The new code is very helpful to business owners because it will allow dismissal without the union’s permission for reasons such as truancy or ‘non-performance of duties’. It will make it quicker and easier to harm unions. It will also be easier to force employees to work on holidays (today employers need the union’s permission).
Some of the new code’s provisions pose dangers to all workers. For example, employers will be able to carry out video surveillance and control internet access (which are currently prohibited). Bosses can impose additional duties on workers if they think a worker has free time during the eight hour working day. Managers will be able to draw up their own local regulations.
The International Labour Organization has been very critical, but has not said that the new code must not be adopted. Therefore, only action from the working class can change the situation.
The current proposals would damage much of what Ukraine values (an educated workforce, prosperous industries and natural resources). The abolition of social obligations will make businesses less responsible for their management. Workers can only protect their rights by making strong demands – fair taxation on businesses, nationalisation of strategic industries, protection of strikes and higher minimum wages. Workers’ protests (‘Pivdenmash’) for wages, against closures of clinics and against the new labour code are encouraging. We need international support – but support that is independent of pressure from Russia or the IMF. Our government should realise that the welfare of the majority of people, rather than defending profits, should be the priority.
This was first published by affiliate to the Ukraine Solidarity Campaign the Haldane Society of Socialist Lawyers with whose permission we republish this article.