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The Roots of 1989's Economy by Michael Canale

A Land of Many Masters
by Jacek Wypych, March 2001

The Roots of 1989's Economy

by Michael Canale, March 2001

The Ukraine was one of the republics of the USSR with some of the most favorable conditions and resources for sustaining economic international relations and continued development second only to the Russian Federation. The lack of size compared to other sectors of the republic makes the Ukraine an interesting economic case. The economic history and wealth of resources allowed the country to become one of the most important pieces of the Soviet puzzle. The economy of the Soviet Ukraine was spawned during the 17th century and transformed into the communist state that would play a key role in the republic during the cold war.

The roots of the Ukrainian economy spawned from the National Revolution of 1648 (Chirovsky, 250). The result was the Ukraine ceased being a small part of the Polish-Lithuanian Commonwealth, and became its own national economy. The transfer of power in ethnic rulers affected the changing economy. The Kievan empire was dead and now the Cossacko-Hetmanic rulers wanted a large scale, imperial, economic system. War also devastated the country, destroying a large portion of the population. However, the economy would be rebuilt as a result and the new circumstances surrounding the reconstruction allowed the economy to prosper. A complete overhaul of the economy also forced the colonization of vacant lands in the Ukraine. Hunting and fishing, cattle and horse breeding, and ultimately agriculture were resorted to in order to get the economy moving.

The early economy was vastly different from that of cold war Ukraine. For example, small-scale peasant landholding, based on the idea of individual ownership, took over. The next one hundred and fifty years would be an agriculturally driven economy (Chirovsky, 251). Individualism was the new ideal and it spread throughout many sectors of the economy including commerce, trades, and crafts. The end result was a struggle between the idea of freedom and individual ownership with that of communal ownership. During this time, individual ownership had higher support than communal. Although the small-scale peasant landholdings fought off collectivism, eventually large-scale estates would return. The end of peasant owned land came and nobles retook the land for themselves. Concentration of ownership had become the ideal. “The process of concentration of aristocratic land possession developed parallel with a concentration of office holding and political power in the hands of the upper Cossack hierarchy. (Chirovsky, 253)” These changes would lead to the modern economy of the Ukraine. The future of the Ukraine would be centrally planned, and not individually owned.

The Ukraine’s favorable conditions extended through industry, agricultural industry, and a strong scientific base. In 1989 the country boasted a population of 52 million strong, which extended over a territory of 603 thousand square kilometers (Koropeckyj, 23). However, the Ukraine only accounted for 2.7 percent of the overall Soviet territory and contained 18 percent of the population (Koropeckyj, 23). But the small country produced industrial output of 17.6 percent and an agricultural output of 22.6 percent of the USSR’s total economy (Koropeckyj, 23). The result is a place atop all other Soviet Republics with the exception of the Russian Federation. The Ukraine was able to maintain its place atop the other republics by holding a land rich in mineral resources, water, flora and fauna, and vast productive social and cultural resources.

The manufacturing of defense has been a main concern in the Soviet economy, and the Ukraine also followed this precedent. Since the Ukraine was one of the largest scientific resources in the republic, they were also one of the largest contributors to defense manufacturing efforts. The defense industry did not contribute to the civilian or consumer sector and as a result helped lower the standard of living in the Ukraine. The central planning of the Soviet Union did not allow the Ukraine proper funding to maintain its most profitable industries including agriculture and other industries which maintained rapid turnover, leading to more profit. Giving funding to the less effective sectors of the Ukrainian economy forced the people to suffer. Under a normal functioning economy, funding would have been spread to the most effective branches and profitability would be maintained. The country grew because of increases in heavy industry and urbanization. However, the utilization of resources was far below the efficient rate and began eating into consumption and growth.

Furthermore, the centrally planned government abolished the private farming sector. Owners were displaced and the agricultural industry would be weakened beyond repair. The government set prices for agricultural goods and the result was a less than one third cover of production costs (Koropeckyj, 24). The farming sector could not survive on these kinds of losses. Storage and processing facilities throughout the USSR were not as advanced as the facilities in developed countries. The result was around one third of the agricultural products would spoil due to faulty storage and transportation (Koropeckyj, 25). The problems in agriculture served as a sign of the underlying trouble throughout the Ukrainian economy.

The economy of the Ukraine changed a lot over the period between 1648 and 1989. The freedom that came from rebuilding the economy was quickly squandered by the nobles of the 17th century. The result was a drive towards a more centralized and communal economy. The future would bring a joining of powers inside the refuge of the Soviet Union. As a republic, the Ukraine remained a strong asset to the USSR. Unfortunately, government powers misallocated funding and support to the less profitable sectors of the economy. Agriculture, which had been the main staple behind the Ukraine’s success, became a mismanaged burden. Ultimately the country would have to again restructure its economy after the fall of the Soviet Union.


  • 1. Chirovsky, Nicholas. Old Ukraine. The Florham Park Press: New Jersey, 1963.

  • 2. Koropeckyj, I.S. The Ukranian Economy. Harvard University Press: Cambridge Massachusetts, 1992.



A Land of Many Masters

by Jacek Wypych, March 2001

The Ukrainian economy has traditionally revolved around the agricultural sector. The rich, black soil and temperate climate have made Ukraine a very fertile land, an asset that many people have benefited from over the centuries – many people, that is, with the notable exception of Ukrainians.

The Great October Socialist Revolution of 1917 was merely a change of masters for Ukraine, a country that has known many. Before the Soviet Union, when Ukraine lay partitioned along its bloodline, the Dniepr River, the masters were Imperial Russia and the Austrian Empire. Before that, the Polish-Lithuanian Commonwealth called the Ukrainian steppes its own. Throughout history, the productive endeavors of the Ukrainian people had a tendency to enrich everyone but Ukrainians themselves. For long centuries they lived as oppressed serfs. When the serfs were finally emancipated, in the 19 th century, it was on terms that turned them into poverty-ridden subsistence farmers.

In Russian Ukraine, the government decided to create village communes from the land previously owned by large landowners – this was because it would have been impossible for most freed serfs to make redemption payments on the land they ‘received’ from the government. Towards the end of the 19 th century, 42% of the land had been organized into communes. The rest of the land belonged to peasants, but land holdings were extremely small. In 1900, the average size of a peasant’s lands was only 4.75 acres – it took 13.6 acres to support an average peasant household. Furthermore, these already-small plots of land only grew smaller with time because of the tradition of dividing the land among male offspring. Hardships brought on by these conditions motivated many Ukrainians to migrate eastwards. The government took note of these massive migrations and attempted to improve the situation.

Between 1906 and 1910, the system of communes was dismantled. Land ownership was now all private and occurred in two distinct patterns: the khutir was a farmstead in the country surrounded by a plot of land, and the otrub was a household in a village that had strips of land beyond the village center assigned to it. Roughly 75% of the land in Ukraine consisted of otruby. These reforms had positive effects on the economy.

Russian Ukraine had always been Russia’s most significant source of agricultural products and raw materials. Ukrainian production accounted for 98% of Russia’s wheat exports, 84% of corn, 75% or rye, and 73% of its barley exports. Furthermore, Ukraine produced 43% of the world’s barley, 21% of its rye, 20% of the wheat, and 10% of its corn. This extraordinary amount of trade made the south-Ukrainian city of Odessa into Russia’s busiest seaport and, by 1914, spurred the creation of over 10,500 miles of railroad track.

Although overshadowed by agriculture, Russian Ukraine had a small but rapidly-growing industrial sector. Its main industries included textiles, production of distilled alcohol, soap, and processed sugar. The work force increased from 82,000 to 6.3 million from 1860 to 1914, and the number of industrial enterprises increased from 2,300 to 30,000 in only thirty years, from 1860 to 1890. With over 250 mines by 1880, Ukraine was also Imperial Russia’s leading producer of coal.

Despite great potential for future industrial success, however, agriculture was Ukraine’s most significant economic activity by a vast margin. Unfortunately, virtually all the benefits of Ukrainian agriculture and industry went to the Imperial treasury and to foreign investors. The Ukrainians could not even appreciate the jobs created by rapid industrialization – because of low skilled labor in Ukraine and to provide jobs for the swelling Russian cities, most of the labor in Ukrainian factories was ‘imported’ from the heart of Imperial Russia.

The state of the economy on the Right Bank of the Dniepr, in Austrian Ukraine, was even worse than on the Left Bank. Like in Russian Ukraine, most of the population was involved in agriculture (3/5 of the population in 1910). Similarly, it consisted mainly of subsistence farming on ever-shrinking plots of land – in 1900 the average peasant landholding was 6 acres. Many Austrian Ukrainians emigrated to flee the economic conditions – 600,000 emigrated between 1881-1912, most of them bound for the United States, Canada, and Brazil.

To slow this massive emigration, the Austrian government attempted to improve the Right Bank’s economy by industrializing it. Until then, it relied on the Ukrainian provinces for agricultural products and raw materials. In response to provincial efforts to encourage investment, some industrial growth ensued: between 1902 and 1910, the number of plants increased from 335 to 448, and the number of workers employed in industry increased from 26,000 to 36,000. By 1914, Austrian Ukraine had laid 2,294 miles of railroad track.

The main industries on the Right Bank included food processing, employing 34% of the work force; lumber and wood processing, employing 20%; clothes manufacturing, employing 16%; mineral and oil extraction, employing 15%, and machine building and metallurgy, employing 10%. In 1870, the discovery of oil fields in eastern Galicia led to an eightyfold growth in the oil extraction sector between 1875 and 1910. By 1914, Galicia accounted for almost 4% of world oil production.

The economy of the region that is today Ukraine during those imperial times was backward in comparison to other countries. Its heavy reliance on inefficient subsistence agriculture was a problem that would prove difficult to solve – and though industrial growth was impressive in certain sectors, it would take many decades for the economy of Ukraine to catch up to a ‘worldly’ level. In 1917, the Bolshevik Revolution brought socialism to Ukraine, and with it, massive state-run industrialization.

By the 1960s, Ukraine had become a highly-industrialized republic. Industrial output increased by a factor of 48 in the period from 1913 to 1967 – and according to Soviet figures, U.S. industrial output only increased by a factor of 7 in the same time frame. The main industries in Ukraine in 1968 were metallurgy, at 22% of capital distribution; machine building, at 17%; fuel industries, at 18%; and food processing, at 10%.

Ukraine had become the Soviet Union’s most significant industrial center – producing 49% of its pig iron, 42% of its steel, 33% of its coal, and 96% of its railway diesel engines. In fact, Ukraine produced more pig iron, steel, diesels, and iron ore than any other European country at the time.

Although comprising only 23% of Ukraine’s output of goods in 1967, agriculture was still a substantial part of the economy. Ukraine produced 22% of the Soviet Union’s grain, 23% of its meat, and 22% of its milk. While these figures appear substantial, the grain yield increase from 1913 to 1967 was only 137%. And while in 1967 Ukraine produced 22% of the Soviet Union’s grain, between 1900 and 1913 it had produced 23% of the world’s grain. This demonstrates that although great improvements have been made to the industrial sector of Ukraine’s economy, not much was done to improve agricultural efficiency – or perhaps it demonstrates that although much had been attempted (i.e. collectivization of farms), the measures taken were ineffective.

Overall, the state of the Ukrainian economy significantly improved from the early 1900s to the late 1960s. The pace of industrial growth was amazing – although perhaps less amazing than the percentages show considering the growth occurred from nearly zero. The pace of agricultural improvements, however, was not as impressive as it could have been. Perhaps this demonstrates the inefficiency of a communal economy. The factories, after all, were not collective, and the industry did well. The collective farms, however, using modern techniques and machines showed only modest improvement in efficiency over the subsistence farming of the early 1900s.


  • Magosci, Paul Robert. _A History of Ukraine_. Seattle: University of Washington Press, 1998.

  • Soviet Ukraine  Kiev: Academy of Sciences of the Ukrainian S.S.R., 1969.

  • Hrushevsky, Michael. _A History of Ukraine_. Yale University Press, 1941.





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