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
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 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 programs[5].
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.
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 state-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 Vice-chairman 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 revolution[14], 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. 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 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.