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How Ukraine's economic decay fueled protests

By DAVID McHUGH

The battle in Kiev is, in large part, a fight for the country's economic future a¿¿ for better jobs and prosperity.

Ukraine's protesters want to pry their country away from Russian influence and move closer to the European Union. A look at neighboring Poland, which did just that, suggests why.

The two countries emerged from the collapse of the Soviet Union two decades ago in roughly similar economic shape. But Poland joined the EU and focused on reforms and investment a¿¿ and by one measure is now three times richer than Ukraine.

Ukraine, on the other hand, sank in a post-Soviet swamp of corruption, bad government and short-sighted reliance on cheap gas from Russia.

Per capita economic output is only around $7,300, even adjusted for the lower cost of living there, compared to $22,200 in Poland and around $51,700 in the United States. Ukraine ranks 137th worldwide, behind El Salvador, Namibia, and Guyana.

Protests broke out in November after President Viktor Yanukovych backed out of signing an agreement with the EU that would have brought the economy closer in line with European standards. After violent protests resulted in scores of deaths, the government and the opposition signed an agreement on Friday. But it is unclear whether it will succeed in providing a stable government that can heal the rifts and improve the economy.

It didn't have to be this way, experts say. Ukraine has a large potential consumer market, with 46 million people, an educated workforce, and a rich potential export market next door in the EU. It has a significant industrial base and good natural resources, in particular rich farmland.

How did things go so wrong? Here are the main reasons.

OLD INDUSTRY: Ukraine did little to move away from Soviet-era industries producing commodities such as steel, metals and chemicals. Former communist state companies, often privatized to politically connected figures, relied on cheap gas from Russia and growing demand from the world economy for their raw materials.

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