Industry

Industry. An important economic sector, subdivided into branches including electric power; the fuel industry; ferrous metallurgy; non-ferrous metallurgy; the chemical industry; the petrochemical industry; machine building; the metalworking industry; the lumber industry; the woodworking industry; the paper industry; the building-materials industry; the construction industry; the glass industry; light industry; the food industry; the microbiological industry; the medical technology industry; flour milling; the mixed-feed industry; and the printing industry.

History to the mid-19th century. As human civilization developed on the territory of Ukraine, so did various non-agricultural economic activities (see Crafts). Small-scale manufacture in Ukraine began developing in the 17th century. The Polish-ruled regions of Western Ukraine and Right-Bank Ukraine remained economically backward agricultural lands, where the population (four-fifths serfs) eked out a subsistence form of living; their meager demand for non-agricultural goods was satisfied by a widespread cottage industry. The needs of the nobility, their retainers, and the burghers were met primarily by goods imported from abroad and by products crafted by domestic artisans, many of them Germans, Jews, and Armenians.

In Left-Bank Ukraine and Slobidska Ukraine, however, conditions for industrial development were relatively favorable. Low population density, greater personal freedoms, and fertile land there fostered a higher standard of living and a concomitant increase in the demand for manufactured products, particularly in the growing cities and towns. This demand was met less by imports and increasingly by local production stimulated by the mercantilist policies of the hetmans. Such policies, especially by Ivan Mazepa and, after the demise of the Hetman state, by certain Russian tsars, led to a growth in the manufacture of saltpeter, salt, window glass, crude iron, distilled liquor, and woolen textiles. These products not only were sold on the domestic market, but were also exported to Russia and other countries. Several large enterprises were founded in the early 18th century: a textile factory in Putyvl, a tobacco plant in Okhtyrka, sail-and-linen plants in Pochep and Sheptaky, a gunpowder plant in Shostka, and silk plants in Kyiv and Nizhyn.

After southern Ukraine was incorporated into the Russian Empire in the second half of the 18th century, the tsarist government promoted its settlement by granting land to both nobles and peasants. The rapid agricultural development was not accompanied by any immediate industrial growth, although some industry was developed in a few of the new port cities, such as Odesa, Kherson, and Oziv.

Modern industrial development in Ukraine began at the end of the 18th century. The tsarist government in Saint Petersburg established new factories and managed them or leased them to private entrepreneurs. Industrial enterprises were also founded by the landowning nobles, especially on the Right Bank, to process agricultural raw material—sugar refineries, distilleries, and flour mills. Between 1825 and 1860, the number of mechanized plants in the nine Ukrainian gubernias of the Russian Empire increased from 674 to 2,709, the number of industrial workers grew from 15,200 to 85,800, and the value of output rose from 15.7 to 34.4 million rubles. In 1860, Ukraine accounted for 17.6 percent of the empire's plants, 15.1 percent of its workers, and 11.8 percent of the value of its output. Kyiv gubernia, with its various consumer-goods industries in Kyiv and sugar refineries in the countryside, was the most developed and accounted for 38 percent of Ukraine's workers and 42 percent of its output. Kharkiv gubernia and Chernihiv gubernia were second and third in terms of industrial development.

The mid-19th century to 1914. The turning point in the economic modernization of Ukraine and of the Russian Empire as a whole was the abolition of serfdom in 1861. This measure was motivated by the need for a solid economic foundation for the empire's political aspirations, ie, a modernized agricultural system, greater labor mobility and industrial growth, and increased financial liquidity. Of particular importance for Ukraine's economy was the construction of railroads during the 1870s and 1880s. The railroads brought many benefits through low-cost transportation. Cheaper coal from the Donbas and iron ore from the Kryvyi Rih Iron-ore Basin led to phenomenal growth in ferrous metallurgy and related industries. Cheaper transport stimulated exports of grain, other agricultural products, and various industrial products (sugar, spirits, coal, rails). Railroad expansion gave impetus to industries ancillary to railroad construction. Finally the linking of Right-Bank Ukraine and Left-Bank Ukraine with southern Ukraine integrated the various Ukrainian regions into an economic entity, a national economy, and gave rise to common economic interests that were occasionally different from those of other parts of the Russian Empire.

To ensure the attainment of the emancipation reform's objectives, the central government intensified its intervention in economic life by introducing tariffs on certain products and thus facilitating their production at home, subsidizing certain enterprises, reducing taxes on others, and introducing the gold standard. The last measure in part increased foreign investment in the empire, while the convenient location of rich mineral resources attracted it into Ukraine. Thus, by 1913, Ukraine—which accounted for less than one-fifth of the empire's industrial output—was the recipient of about one-third of all foreign investment in the empire. Prior to the First World War, foreign-owned (mainly French, British, and Belgian) companies produced 70 percent of Ukraine's coal, 67 percent of its pig iron, 58 percent of its steel, and 100 percent of its machinery (see Capitalism). The sugar industry was a notable exception: it was overwhelmingly owned by local producers, many of them Ukrainian (such as the Yakhnenko, Symyrenko, Kharytonenko, Tereshchenko, Kandyba, and Arandarenko families).

Ukraine's industry expanded particularly rapidly during the last third of the 19th century. Between 1860 and 1895, the number of enterprises increased from 2,147 to 30,310, the number of workers from 85,800 to 205,300, and output from 47.2 to 260.9 million rubles. Table 1 shows the growth in output of some important products during this period. This remarkable growth was interrupted by the European economic crisis of 1900–3. Growth resumed soon after, however, with a noticeable shift in emphasis from the production of producer goods to that of consumer goods. The recovery is reflected in the increase in the number of industrial workers, from 354,700 in 1902 to 631,400 in 1914.

One of the characteristics of Ukraine's industrial development was its skewed structure. The extractive, industrial-materials, and food-products branches were generally better developed than the branches producing finished goods (see Table 2). The tsarist government's policies and Ukraine's resource endowment explain the unbalanced structure of Ukraine's industry. The railroad network and transportation tariffs facilitated the export of Ukraine's rich mineral, industrial, and agricultural raw materials resources to manufacturing centers in central Russia, mainly those of Moscow and Saint Petersburg, and customs duties favored the export of similar products abroad. This retarded the production of capital equipment and consumer goods in Ukraine.

The weight of the extractive and industrial-materials branches determined the regional distribution of Ukraine's industry; the regions that experienced growth were those with the necessary resources for the development of these branches. Table 2 illustrates the distribution of industrial output in 1910 within the present borders of Ukraine. The most developed was Katerynoslav gubernia in the southeast, mainly as a result of the rich mineral resources and ferrous metallurgy of the Donbas and the Katerynoslav and Kryvyi Rih regions. Mining, metallurgy, and some machine building in the southeast were supplemented by flour milling and some machine building on the Black Sea littoral. In the southwest (the Right Bank) and the northeast (the northern Left Bank), food processing (predominantly of beet sugar, but also of flour and liquor) was the leading industry.

Austrian-ruled Galicia, Transcarpathia, and Bukovyna were industrially less advanced than Russian-ruled Ukraine. Petroleum extraction was of great importance in Galicia at the turn of the century, while the woodworking industry predominated in Transcarpathia and Bukovyna.

The interwar period. Ukraine's industry was severely damaged during the First World War and the struggle for independence (1917–20). After the consolidation of Soviet rule, reconstruction during the period of the New Economic Policy proceeded swiftly, and Ukraine's industry regained its prewar output level by 1928. The first two five-year plans (1928–32 and 1933–7) were crucial for Ukraine's future industrial development: the planning and management system and industrialization objectives introduced at that time have largely remained in force until the 1990s (see Five-year plan). According to official Soviet statistics, which tend to bias indexes upwards, the output of Ukraine's large-scale industry (the bulk of all industry) increased 5.5 times between 1928 and 1937. According to revised Western estimates, Ukraine's total industrial output between the two benchmark years increased 3.4 times; the output of machine building and the metalworking industry increased 6.1 times; of other producer-goods branches, 3.1 times; of the food industry, 1.4 times; and of light industry, 3.0 times.

Table 3 reflects the remarkable growth of Soviet Ukrainian industry during the years 1928–40. It also illustrates the general Soviet approach toward industrialization: the emphasis on the production of producer goods over consumer goods and the shift in importance of producer-goods production from Ukraine to some Russian regions, mainly in the Urals and western Siberia, during this period. Ukraine's share of the USSR total declined chiefly in producer-goods production between the two benchmark years, while its shares in production of certain comsumer goods increased.

The rapid increases in industrial output took place mainly because of increases in inputs. The growth of resource productivity was negligible. The number of workers increased between 1929 and 1940 from 855,000 to 2,213,000, or 2.6 times. The increase in fixed assets was also considerable, because 47.9 percent of Ukraine's total investment was allocated to industry during the First Five-Year Plan, 46.7 percent during the Second Five-Year Plan, and 42.6 percent during the first three and one-half years of the Third Five-Year Plan. As a result, several important heavy industry enterprises were constructed during this period, including the Kharkiv Tractor Plant, the Dnipro Hydroelectric Station, the Zuivka, Sievierodonetsk, and Kryvyi Rih state regional power stations, the metallurgical plants the Mariupol Azovstal Metallurgical Plant and the Zaporizhstal plant in Zaporizhia, and machine building plants in Kyiv and Kramatorsk. As their locations indicate, industrialization efforts were concentrated in the regions with abundant raw materials—the Donets Basin and Dnipropetrovsk oblast—and the demographically and politically important metropolitan centers of Kharkiv and Kyiv.

Ukraine's share in the output and employment in the industry of the Union of Soviet Socialist Republics did not change noticeably between the benchmark years (see Table 4). But its share of investment declined steadily, reflecting the determination of the Soviet leadership to develop the Asian parts of the Russian Soviet Federated Socialist Republic, primarily because of the availability of the rich resources there and defense considerations. While this policy may have been justified in terms of long-term development and for reasons of defense, it was economically inefficient during the interwar period. Capital productivity was higher in practically all of the industrial branches in Ukraine than in the favored Asian regions. The industrial development of Galicia under Poland, Transcarpathia under Czechoslovakia, and Bukovyna under Romania stagnated during this period.

The postwar period until 1991. Because of Ukraine's geographical location, its industry was severely damaged during the Second World War. At the beginning of the hostilities, the Soviet authorities dismantled and evacuated 544 complete plants eastward, primarily to western Siberia, with the intention of reassembling them for use in the war effort against the Germans. Because of poor organization and the lack of supplementary inputs, only a small portion of these enterprises were actually put into operation. The remaining equipment and machinery were either included in the existing enterprises or remained unutilized, while unevacuated enterprises were systematically destroyed by the retreating Soviet authorities. The Germans were both unable and unwilling to revive industrial activity during their occupation of Ukraine, and whatever was still usable they destroyed prior to the return of the Red Army. According to Soviet statistics, the damage incurred by Ukraine's industry during the war amounted to 44 billion rubles (in 1941 prices); 16,150 industrial enterprises were completely destroyed or extensively damaged. It is difficult to apportion exactly the responsibility for this destruction, but it is safe to assume that the Soviet authorities were no less culpable than the Germans.

The main Soviet objective during the early postwar years was the speedy reconstruction of industry, even at the expense of other economic sectors. Because of great sacrifices by the population, the prewar level of output was already exceeded by 1950 (see Table 5). Reconstruction was facilitated by installing machinery and equipment taken by the Union of Soviet Socialist Republics as reparations from its former enemies. There is no indication that any of the assets of Ukraine's industry that were evacuated at the beginning of the war were ever returned.

A trend of constantly declining growth rates could be observed in Ukraine during the postwar period, as in all of industry in the USSR. The decline was particularly sharp after the mid-1970s (see Table 6). The growth rates of individual industrial branches during the years 1950–65 and 1965–85 are presented in Table 7. The growth of the traditional branches of Ukraine's industry—fuels (especially coal mining), ferrous metallurgy, and food processing—slowed down relatively more than that of other branches. Soviet statistics tended to bias growth rates upwards, especially during the early postwar years, and give a growth rate for Ukraine's industry of almost 13 percent between 1950 and 1958. Although revised Western estimates show it was closer to 9 percent, even this lesser figure can be considered robust by world standards. Industry's share in Ukraine's net material product varied between 48.1 percent in 1960 and 50.5 percent in 1975. According to a Western estimate, its share in the gross national product was 39.3 percent in 1970. Ukraine never regained its prewar position within the entire industry of the USSR, however, even though the growth rates of its industry and that of the USSR as a whole have been almost identical during the 1950–85 period (8.0 percent), because Ukraine suffered much more from the war than the rest of the USSR.

The development of Ukraine's industry during the postwar period can be summarized by using the indicators in Table 8. The growth of output in the years 1965–85 was almost half that of the years 1950–65, although Ukraine's shares in the USSR for the three benchmark years did not change appreciably. The slowdown in output growth in Ukraine could be attributed largely to a slowdown in the expansion of inputs (labor and capital) rather than to the productivity. Employment growth fell sharply from 4.8 percent per annum over 1950–85 to only 1.9 percent over 1965–85. Also, the share of Soviet investment in Ukraine diminished steadily after 1960 (Table 8). Since Soviet fixed-capital growth declined after 1960, the declining Ukrainian share of investment means Ukrainian fixed-capital growth fell even more than the Soviet total.

Some reasons for the slowdown of industry during the 1970s and 1980s were applicable to the entire Union of Soviet Socialist Republics, including Ukraine. First, in view of the declining rate of entrants into the labor force and the continued high rate of capital formation, diminishing returns to capital were being experienced. Second, a decline in resource productivity—the result of inefficient and centralized planning and management, including a defective incentive structure—was often suggested as a cause of slowdown. There were also factors that were specific to Ukraine: depleted fuel (coal, oil, gas) reserves and the rising cost of their extraction, exhausted hydro energy sources, a water shortage, and an imbalance between the supply of agricultural raw materials and the necessary processing facilities. Perhaps of greatest importance was the relatively declining allocation by the central planners of investment in the economy of Ukraine, including its industry (Table 8). As a result, new technological processes and the modernization of the industrial structure could not be fully introduced in Ukraine. Instead, the allocation of investment to develop the Asian parts of the Russian Soviet Federated Socialist Republic, which began in the early 1930s, was intensified after the mid-1960s (eg, the construction of several territorial production complexes in Siberia and the Baikal-Amur Railway Trunk Line). From the standpoint of the entire Soviet economy, such investment distribution may have been inefficient. According to various Western studies, the productivity of capital and of total resources was higher for most of the postwar period in Ukraine than in the RSFSR, although a reversal in this trend seemed to have been taking place after the mid-1960s.

Several changes in the planning, management, and incentive structure of industry were introduced in the USSR during the postwar period. The system established under Joseph Stalin in the late 1920s and early 1930s was characterized by a strict centralization of decision-making powers in the hands of planners and union ministries in Moscow. The resulting stifling of local initiative proved to be detrimental to economic growth during the 1950s. The economic reforms of 1957 shifted the locus of decision-making from Moscow to regional authorities (see Regional economic councils) and, in some measure, the republics. But this relatively decentralized system was replaced in 1965 by one that revived the ministerial structure and, at the same time, allocated greater powers to individual enterprises. Because the subsequent performance of industry was unsatisfactory, the prerogatives of enterprises were gradually abrogated. A so-called economic experiment was introduced in 1983, according to which some planning and managerial powers, primarily with respect to the wage bill and incentive funds, were allocated to five ministries in Moscow and some republics (the Ministry of the Food Industry in Ukraine). It is safe to say that all these reforms did not exert a differential effect on Ukraine's industrial performance. The 1957–65 period of regional economic councils was, however, somewhat conducive to a limited widening of the Soviet Ukrainian government's autonomy.

In view of conditions in Ukraine in the mid 1980s, Soviet leaders formulated a specific approach toward Ukraine's industrial development in official documents, which stated that Ukraine should specialize in energy-, investment-, and water-saving branches and processes. The decline in coal production should be arrested, nuclear-energy generation should be expanded, and various energy-saving measures should be undertaken; new investment should be allocated to prominent branches such as coal and ferrous metallurgy only for reconstruction and not for the construction of new facilities; Ukraine's industry should become specialized in (1) machine building (electricity-generating equipment, metal lathes, and livestock- and animal-feeds machinery), (2) certain skilled, labor-intensive industries (automobiles, computers, electrical and radio technology, and ball bearings), and (3) the output of certain raw and industrial materials (iron and manganese ores, electric power, gas, superphosphate) for export, primarily to the European Comecon countries; and new facilities for processing export products and imports should be constructed near the Black Sea ports. It appears that such an investment policy was followed in the past, especially after 1970 (see Table 9). Of all branches, only machine building received more investment, while the decline of investment in fuels and food processing was quite pronounced.

Table 10 presents the growth in output of individual products between 1940 and 1985 and their shares in the USSR for the benchmark years. The data by and large confirm previous findings in value and aggregate terms: the slowdown in the growth rate of all industry, a change in the structure of Ukraine's industry with an emphasis on machine building, and the decreasing share of Ukraine's output in the overwhelming majority of products in the USSR. Ukraine was an important world producer of various industrial products. For example, in 1983 Ukraine ranked 1st in the world in the output of manganese ore, 2nd in iron ore, 3rd in tractors, 4th in sugar and crude steel, 5th in TV sets, 6th in butter, and (in 1975) 8th in cement. It lagged behind, however, in the output of other commodities, particularly of consumer goods; eg, it ranked 17th in automobile production, and its output of chemical fibers and paper was surpassed by virtually all the industrialized countries.

Ukraine's industrial growth during the postwar period was low in comparison with that of other Soviet republics: it was 11.1 percent per year between 1950 and 1965 and 5.7 percent between 1965 and 1985 (9.8 and 5.8 percent respectively in the case of the Russian Soviet Federated Socialist Republic), thereby ranking Ukraine 9th and 11th among the 15 republics during the respective periods. At the same time, Ukraine's population increase—of 21.4 percent—was the lowest among the republics between 1959 and 1985. As a result, Ukraine's industrial output per capita has slipped from 4th place in 1960 to 6th place in 1985 among the 15 republics.

Ukraine's oblasts differed substantially in terms of the index of industrial output per capita (see Table 11). They can be classified into four groups: (1) five highly industrialized oblasts (an index above 115) located in the Donets-Dnipro Region (see also Donets Basin and Dnipro Industrial Region); (2) eight oblasts with an average level of industrialization (an index between 80 and 115); (3) six oblasts with a below-average level of industrialization (an index between 65 and 79); and (4) six poorly industrialized oblasts (an index below 65). The least industrially developed region in Ukraine was the southwest. The data in Table 11 reflect a tendency toward a decrease in interoblast inequality. For example, the ratio between the indexes of the most and least developed oblasts decreased from 5.1 to 3.4 between 1965 and 1978, primarily as a result of the relatively greater allocation of industrial investment to the western oblasts. Investment in Chernivtsi oblast, Rivne oblast, Ternopil oblast, and Khmelnytskyi oblast was 2.2 times, and in Volhynia oblast 7.5 times, larger in 1978 than in 1965, while investment in the Donets-Dnipro region's oblasts increased by only 68 percent during the same period. In spite of this progress, 63 percent of Ukraine's industrial assets and 54 percent of its workers were still located in the Donets-Dnipro region in 1979, while the corresponding percentages were 27 and 35 for the southwestern region and 10 and 11 for the southern region. The respective population shares were 42, 44, and 14 percent.

The uneven distribution of Ukraine's industry continues to result from its unbalanced structure, ie, the favoring of heavy industry before and even more after the Revolution of 1917. Since the necessary raw materials and subsequently industrial materials were readily available in the Donets-Dnipro region, heavy industry grew there. The necessary raw materials for the development of other industrial branches were distributed less unevenly throughout Ukraine; as a result, the distribution of these branches is also less uneven than that of heavy industry.

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Iwan Koropeckyj

[This article originally appeared in the Encyclopedia of Ukraine, vol. 2 (1989).]