From Oligarch to Benefactor? The role of business magnates’
philanthropy projects in welfare funding in post-Soviet Ukraine
Presented at Swedish Economic History Meeting in Göteborg, 2011-08-27
Hanna Söderbaum
PhD student
Department of Economic history, Uppsala University
hanna.soderbaum@ekhist.uu.se
INTRODUCTION AND PURPOSE
This is an introduction to the research I am intending to conduct on philanthropy foundations
initiated by wealthy business magnates in post-Soviet Ukraine.
The role of the state in relation to the role of private actors constitutes a crucial basis for most
political economy debates. The state should take on a minimal role as in the night watchman
state or the state should be a welfare state to varying degrees, serving the public by offering
health care, education and other basic social (and cultural) needs. Wherever the state takes on
a minimal role, or when it fails to offer the social needs of the population, private actors may
meet this need instead, or they may be expected to meet it for one or another reason.
In Esping-Andersens welfare regime typology, the liberal welfare capitalism model is
characterized by a minimum of state expenditures on welfare, relying to a large degree on
private initiatives. Ukraine has not been fitting into any of the models in Esping-Andersens
typology, nor his successors’ attempts.1 My research will take a qualitative look at the role of
private philanthropy by wealthy business magnates and maybe be able to complement
existing research in the field with an essential dimension.
Given the increase of private foundations globally, it is crucial to grasp the role that these
foundations are currently playing. In the international development debate, these foundations
are often referred to as ‘neutral’, much due to the uncritical acceptance of ‘philanthropy’,
sustained by the historical relationship to ‘goodness’ and ‘benevolence’ (traced to 17th century
Baconian concepts, and further to Aristotle’s conception of ‘virtue’).2 However, nowadays the
understanding of philanthropy is more often placed on donating money through organized
structures rather than performing benevolent acts of virtue as in the classical notion, while still
retaining that association.3 And the concept is still defined in neutral terms: “private initiatives
and voluntary action for public good and for improving the quality of human life”. 4 All these
Esping-Andersen, Gösta (1990) “The three worlds of welfare capitalism”. Wilhelmus Antonius Arts
and John Gelissen: Three Worlds of Welfare Capitalism or More? A state-of-the-art report. Journal of
European Social Policy Issue 12:137, 2002. Romaniuk, Nicholas Scott: Welfare State Reform in
Ukraine: A Case Study of Law of Ukraine on State Assistance to Families with Children. Research
Journal of International Studies, Issue 10, April 2009.
2
Sulek, Marty (2009). “On the modern meaning of philanthropy” Nonprofit and Voluntary Sector
Quarterly 39 (2) March.
3
Srivastava, Prachi and Oh, Su-Ann (2010). “Private foundations, philanthropy, and partnership in
education and development: mapping the terrain.” International Journal of Educational Devlopment
30. p. 462.
4
Srivastava - Oh (2010). p. 462.
1
projects also have scarce resources and obviously choose to support some activities and not
others, why it becomes interesting to critically inquiry these phenomena. Globally, we have
during the last decades seen an increase in these type of initiatives stemming from a myriad of
actors of different kinds, among them non-profit organizations and corporations within their
Corporate Social Responsibility programs5.
If we want to learn about the role of these foundations, we can assume the philanthropist’s set
of motives are highly relevant. Srivastava and Prachi contains that “there is little systematic
examination of the motivations and aims of private foundations, particularly those that have
been more recently established.”6 However, as any “real” motives are hard to reach as we
would need to dig deep into human psychological nature, the perception of motives becomes
not only feasible to study, but also more interesting as they are closer to the reality of most
people. The set of motives will here be understood through the attitudes and perception of
those affected by the private philanthropy foundations, their stakeholders. These foundations’
operational setups varies, but can be classified into two groups: Foundations as grant-makers
of finance projects and programs which are implemented by other actors (typically NGOs),
and foundations as operational actors financing and implementing their own projects and
programs, either alone or in cooperation with other actors.7
The role of private philanthropic foundations can thus be reached in the combined findings
you get from studying the motives behind the philanthropist’s initiatives, the perception of the
public, the effects of the initiatives, and the initiatives’ relations to the state and civil society.
For this research I have chosen one of these roads, subsequently this dissertation aims at
contributing to the understanding of role of the philanthropist, by studying the perception of
the initiatives as well as the communicated motives and goal-formulations of the foundations.
However, in order to gain a deeper understanding of the phenomenon, a literature study of the
role of enterprises in welfare provision during the Soviet Union will be undertaken with the
purpose of comparing today’s role of the business magnate with yesterday’s “red directors”.
The role of directors at factories and kolkhozes in the Soviet Union was not only to manage,
but also make sure that the social needs of workers and their families were met, as well as to
provide support of infrastructure on a local level. May the self-ascribed role in society of
present day business magnates have a history in the role of the Soviet directors, or is present
day development solely reflecting the outcomes of the transition period?
As little research exists within the contemporary academic literature that analyses or examines
the role of private philanthropy foundations in post-Soviet states, this thesis will take on an
explorative approach. Findings will be based on (philanthropy projects goal formulations and)
perceptions of the impact of these foundations in Ukraine, and will be understood as
Ukrainian specific mainly, although a country comparative approach of business magnate
philanthropy cultures in a welfare funding context may be interesting to develop in the future.
Venture philanthropy or philanthrocapitalism is defined as ‘the use of business and the market to
transform philanthropy and foreign aid”. Edwards, Michael (2009) “Gates Google, and the ending of
global poverty: philanthrocapitalism and international development” Brown Journal of World Affairs
15(2), 35-42.
6
Srivastava - Oh (2010). p. 464.
7
Typically, foundations as grant-makers are more common in countries with a strong civil society.
Srivastava - Oh (2010). p. 460
5
By understanding the perceptions of how these philanthropy projects function, and what
motives that lies behind, we will be able to give prospects of future development of this type
of welfare funding. Is there a new welfare model developing and if so, is it any sustainable?
RESEARCH QUESTIONS, BRIEF THEORY AND METHODOLOGY
1) What is the perception of the general public as well as stakeholders (the business magnates
themselves, involved staff and beneficiaries and grantees - both those who received funding
and those who were rejected)8 of the foundations under study on how can these grants
contribute to bringing short- and long-term effects on economic transition, political stability
and sustainable welfare provision in the society? Methodology and material: Ethnographic
methodology including omnibus surveys, interviews, observation studies, media discourse
analysis.
2) Based on the results of previous analysis I will discuss the origins of this type of
philanthropic engagement in relation to the role of the ”red directors”. These ”red directors“ at
the state-owned enterprises were responsible for the social safety net and not only public
works but also health care and infrastructure etc. Are the big business players of today taking
on the same role as the red directors but now with a different relation to the state, and which
are the implications for welfare provision? Methodology and material: Literature study of the
Soviet enterprise system in addition to above mentioned methodological approach. Theory:
Institutional path dependency (D. North), State versus Corporate Social Responsibility,
Individual Social Responsibility (because of shareholder concentration).
Having answered the questions above, I would like to discuss wether we can distinguish an
important source of welfare funding here and if so, what are the opportunities and
restrictions/risks within this kind of welfare funding structures from a democracy input
(accountability, participation, agenda-setting opportunities) and output perspective
respectively (quality, availability)? And/or Amartya Sen’s “Capability approach”, and/or
service delivery/capacity-building theory.
Findings will be based on case studies of the philanthropy foundations of between two and
five among the top rated philanthropists, which to a large degree coincide with the rated
richest individuals and business magnates.9 Several projects are running within these
foundations and it is my aim to select cases to study also at this level.
BACKGROUND: THE POST-SOVIET UKRAINIAN ECONOMIC ELITE
The economic elite that evolved during the 1990:s when the planned economy was replaced
by the market economy on a shaky institutional basis are exposed to criticism and admiration
interchangeably from different angles. However, it seems as if their appearances are perceived
better since they introduced their private philanthropic foundations, and sometimes are taken
as more responsible than the state, which is often criticized for offering social services in a
very bad shape. The Ukrainian public social service infrastructure is suffering from low
quality. A sociological survey made by Kharkiv University shows that ninety percent of social
service seekers search it within the community. Only 10 percent call on the organized state8
I might as well interview politicians, PR and CSR experts, and people working in alternative
institutions.
9
The magazine Kontraky recently published a list of the twelve biggest philanthropists in Ukraine.
http://companies.kontrakty.ua/rankings.html Accessed May 4th, 2011.
supported structures.10 Trust in the public sector is thus low, and it might be that more and
more people start to rely on the financially strong individuals in society. Is this something
new, as a result of non-working market economy or weak state, or is it a continuous
development since Soviet period or pre-Soviet?
‘Oligarch’ is a contested concept, and some prominent scholars in the field argue it is not
appropriate to use the term when referring to the political-economic elite in post-Soviet states,
as any similarities with the “oligarchy” in ancient Greece, as in the original meaning of the
term, are hardly found.11 However, the term is used colloquially why we must deal with it.
Mykola Tomenko, Director of a political think tank (?), manager of the publishing house
“Political thought”, Member of the Verchovna Rada (Ukrainian parliament) and Vicechairman of Yulia Tymoshenko Bloc, defines a Ukrainian oligarch as “a person who
independently, thanks to private capital and personal qualities, created an informal
(disregarding the laws of Ukraine) union of financial-industrial structures, political and public
institutions, and mass media”.12 Figures say that in 1994, owners of large enterprises became
the third largest group in Ukraine’s Parliament; in 1998 big business was represented by 28%
of deputies.13 These findings together with those of Kostuchenko and Wynnyckyj reveals that
the business and political elite is closely connected: Tetiana Kostiuchenko and Mychailo
Wynnyckyj, both researchers at the Kyiv-Mohyla Academy in Kyiv, have done thorough
research of the Ukrainian economic and political elite networks. Their findings show that the
young elite that was formed in the USSR Komsomol to a large degree continued to be
influential after independence, during the Kuchma-regime, after the Orange revolution14, as
well as after the “elite circulation periods” 2006 and 2007. The ability to stay put in the
political elite was shown true particularly for those with pre-1991 Komsomol leadership
experience. “This observation may be a testament of the flexibility and adaptability to
changes of such individuals, but it also reflects the stability (and importance) of informal
linkages within Ukraine’s ‘ruling class’.”15 The findings imply that the economic elite
constitute extremely important players in the Ukrainian society.
There is no doubt that some of the estimated top richest persons listed in Ukraine today are
either at present time actively involved in formal politics or previously held such a position.
10
Kuts, Svitlana (2002). “The role of the private sector in the public service of Ukraine: Social political
governance perspective” European Journal of Social Work, Vol. 5, No. 1 pp. 79-82.
11
Fortescue, Stephen (2006) “Russia’s Oil Barons and Metal Magnates – Oligarchs and the State in
Transition”, Palgrave Macmillan.
12
“Директор украинского Института политики Николай Томенко считает, что "украинский
олигарх - это лицо, которое самостоятельно, благодаря собственному капиталу и личным
качествам, создало неформальное (не предусмотренное законами Украины) объединение
финансово-промышленных структур, политических и общественных институтов, СМИ”.
“Президент Украины вступил в схватку с олигархами” Николай Вавилов 2000-12-06 /
Available online: http://www.ng.ru/cis/2000-12-06/1_oligarh.html Accessed May 30th 2011.
13
Puglisi 2003 referred to by Kostiuchenko, Tetiana and Mychailo Wynnyckyj (2009). “The
“Komsomol Economy” Twenty Years Later: Circulation and Informal Networks within Ukraine´s
Political Elite” Conference Paper (do not quote without permission...) presented at the Danyliw
Seminar, University of Ottawa.
14
198 deputies and ministers (i.e. 39% of total elite) from the previous, pre-Orange Revolution elite,
remained in power positions according to Kostiuchenko and Wynnyckyj (2009).
15
See also Avioutskii, Viatcheslav (2009). “The Consolidation of Ukrainian Business Clans”.
Conference Paper (do not quote without permission...) presented at the Danyliw Seminar, Chair of
Ukrainian Studies, University of Ottawa.
Victor Pinchuk is an excellent example of someone who argue he nowadays does not believe
in political institutions as a means for change, but instead uses his philanthropy foundation for
channeling his desire to engage… “I am a businessman, not an oligarch – I presently do not
have any relation with politics or power. I am a big Ukrainian businessman who wants to
actively participate in the country’s flourishing civil society.”16 He has also said “I generally
have a different relation to Ukrainian politics now compared to some years ago. Putin once
said that he would like to be indifferent towards all oligarchs. Well, I am struggling to
maintain neutral relations with all political forces.”17 This does not mean, however, that he
does not support some political forces from time to time.18 Rinat Achmetov, on the other hand
is more formally engaged in politics and posits a seat in the parliament.
…AND THEIR PHILANTHROPY PROJECTS
Some contend that ‘the oligarchs’ are cruel creatures who do not seek to legitimize even one
penny of their fortunes. Others argue that their wish for legitimization has grown during the
last decade. While the first decade of the transition was about making money, now the second
was to spend them. Obviously, spending money on the public, through charitable
organizations, culture institutions open for everyone, or the publication of non-profit
newspaper can be the act of an economic calculation, where legitimacy gives greater revenues
from other business in return. Irrespectively of the calculation and the aggregated financial
belongings of an oligarch, I am in this study interested in those projects that may, by some, be
seen as having a legitimizing effect. (Ethical motives can also be the basis for these projects
of course. A more thorough discussion about the motives behind will be carried out below.)
Freeland, whose study is of the Russian oligarchs, gives an example on the importance of
legitimacy, also in the 1990s. Vladimir Gusinsky funded the liberal newspaper “Segodnya”
(Today) and although the paper was on a continuous budget deficit, he kept flinging money
into it. “It’s not that he was a champion of the free press, although he sometimes posed as
such, but he had a keen interest in preserving Segodnya’s reputation. If his paper was credible
and influential, Gusinsky thought, then maybe some of its lustre would rub off on him.” … “at
the price of a few million dollars a year – Segodnya’s annual losses – it was a bargain.”19
While the wealthiest rated man in Ukraine, Rinat Achmetov, and some others in the Ukrainian
top economic elite are by far the most well-known among the Ukrainian public, almost all of
the Ukrainian big businessmen have their own philanthropy foundation. However, the share
of total net worth spent on philanthropy donations are relatively small (estimated to around
one percent at the maximum) if compared to giants in the US like Bill Gates, or the Russian
oligarch Vladimir Potanin who have promised all his fortune to charity after his death. The
potential force of the Ukrainians is however immense if the steady increase in these type of
engagements are continuing. Projects in which they engage in can be divided into whether
their aim is to contribute locally, nationally, or globally. Spheres of these projects can be
divided into infrastructure/leisure/sports (fine culture or popular culture) and social projects
16
“Я бизнизмен. Не олигарх - я сейчас не имею отношения к политике и власти. Я – крупный
украинский бизнисмен, который хочет принимать активнош участие в общественной жизни
страны.» Rudenko, Sergey (2008). 25 Bogachey Ukraini. Pilticheskaya Izdatelstvo. Sammit Kniga.
Kyiv. p 163.
17
Rudenko, Sergey (2008). p. 163.
18
Conversation with business manager assistent.
19
Freeland, Chrystia (2009/2000). Sale of the Century – The Inside Story of the Second Russian
Revolution. Abacus. p. 143.
such as health care and poverty reduction. Education and religious projects are also
widespread. From a Corporate Social Responsibility perspective, working conditions and
special benefits for workers at their business, also becomes interesting to look at. Well, the
historical view of the role of business in welfare provision must take these aspects into
account.
Yael Ohana (2007) suggests this absolute economic elite, or ‘oligarchs’ as he calls them, to
have a great potential and power but that the lack of accountability makes them capricious.
This group of individuals with very different preferences, he argues, may develop as a
constructive force for change, but it “remains to be seen if they will overcome the temptation
to play the role of “kingmakers”.” These potential philanthropists have large sums to spend,
but a number of ethical debates are raised by the involvement of such actors in philanthropy.
“Motivation and accountability come to the fore in discussions of the validity of their active
involvement. To the extent that the state claims not to be “in a position to say no” and
independent actors are simply not consulted, the Oligarchs are de facto implied in the
determination of public policy and gain even deeper footholds in the political decision making
sphere (whether formalized or not).” In contrast to the lines by the artists quoted above, he
contends that “many actors in the culture field feel very uncomfortable with what appears to
be the unchallenged ability of the very rich to determine public policy.”20 However, low trust
in political institutions may force an intensification of expectations on private philanthropy:
«The losers include hospitals, dispensaires, prisons; public libraries, swimming pools and
cafeterias; schools and museums. The public sphere is in bad shape; it is in greater need of
help than it is able to help those in need. But a private foundation sends fluorographs to
hospitals. The same foundation – not the state – has given us the opportunity to cut into the
walls of the National Art Museum. In the metro, photographs of sick children compete with
images of vacuum-cleaners for the attention of passengers-consumers and potential
benefactors. All over, crumbling state monopolism capitulates to private initiatives. Anarchocapitalism rules.»21
These words are composed by the artists in a philanthropy project transcending the boundaries
between health sector and art, funded by Rinat Achmetov. Even though this printed statement
naturally is under the control of Achmetov himself, one of the most influential actors in this
“anarcho-capitalism”, it is confirmed by the artists, which expose both societal criticism and
support for these initiatives.
REFERENCES
Antonius Arts, Wilhelmus and John Gelissen (2002) ”Three worlds of welfare capitalism or
more? A state-of-the-art report.” Journal of European Social Policy, Vol. 12, No. 2.
Avioutskii, Viatcheslav (2009). “The Consolidation of Ukrainian Business Clans”.
Conference Paper (do not quote without permission...) presented at the Danyliw
Seminar, Chair of Ukrainian Studies, University of Ottawa.
Edwards, Michael (2009). “Gates, Google, and the ending of global poverty:
philanthrocapitalism and international development” Brown Journal of World Affairs 15
20
Ohana, Yael (2007). Culture and Change. East European Reflection Group (EE RG) Identifying
Cultural Actors of Change in Belarus, Ukraine and Moldova. pp. 4, 10.
21
REP Group and Curator Lesia Ostrovska-Liuta (2010). “Great Surprise” National Art Museum of
Ukraine. Art project funded by Fond Rinat Achmetov – Development of Ukraine. p 41.
(2), (pp 35-41).
Esping-Andersen, Gösta (1990) “The three worlds of welfare capitalism”
Fortescue, Stephen (2006) “Russia’s Oil Barons and Metal Magnates – Oligarchs and the
State in Transition”, Palgrave Macmillan.
Freeland, Chrystia (2009/2000). Sale of the Century – The Inside Story of the Second Russian
Revolution. Abacus.
Kostiuchenko, Tetiana and Mychailo Wynnyckyj (2009). “The “Komsomol Economy”
Twenty Years Later: Circulation and Informal Networks within Ukraine´s Political
Elite”. Conference Paper (do not quote without permission...) presented at the Danyliw
Research Seminar in Contemporary Ukrainian Studies, University of Ottawa.
Kuts, Svitlana (2002). “The role of the private sector in the public service of Ukraine: Socialpolitical governance perspective” European Journal of Social Work, Vol. 5, No. 1 pp.
79-82.
Ohana, Yael (2007). Culture and Change. East European Reflection Group (EE RG)
Identifying Cultural Actors of Change in Belarus, Ukraine and Moldova.
Puglisi, Rosaria (2003). “The rise of the Ukrainian oligarchs” Democratization, 10: 3.
REP Group and Curator Lesia Ostrovska-Liuta (2010). “Great Surprise” by. National Art
Museum of Ukraine. Art project funded by Fond Rinat Achmetov – Development of
Ukraine.
Romaniuk, Nicholas Scott (2009). “Welfare State Reform in Ukraine: A Case Study of Law
of Ukraine on State Assistance to Families with Children” Research Journal of
International Studies, Issue 10, April.
Rudenko, Sergey (2008). 25 Bogachey Ukraini. Pilticheskaya Izdatelstvo. Sammit Kniga.
Kyiv.
Srivastavaa, Prachi; Ohb, Su-Ann (2010). Private foundations, philanthropy, and partnership
in education and development: mapping the terrain. International Journal of
Educational Development. Volume 30, Issue 5, September (The New Politics of Aid to
Education?).
Sulek, Marty (2009). “On the modern meaning of philanthropy” Nonprofit and Voluntary
Sector Quarterly 39 (2), March, 193-212.