By Noah Schwartz
As the world holds its breath awaiting the upcoming Ukrainian counteroffensive, many commentators are assigning great ideological weight to the next phase of the war.
The Atlantic’s latest cover echoes the sentiment as it opens with, “The future of democracy worldwide depends in part on whether the Ukrainian army can break the current stalemate and achieve complete victory.”
The dubious claim is only one of many recently made by Western commentators pronouncing Ukrainian triumphalism while offering a subliminal message: Ukraine redeems their own preconceived ideologies.
Nowhere is this ideological posturing more evident than discourse surrounding the Ukrainian political economy and the reconstruction of the country.
In November 2022, BlackRock, the world’s largest asset management firm, signed an agreement with the Ukrainian government to offer its financial market advisory services to the country. The partnership will work with the goal of “creating opportunities for both public and private investors to participate in the future reconstruction and recovery of the Ukrainian economy.”
BlackRock CEO Larry Fink outlined his ideological vision of post-war Ukraine, saying, “If we can rebuild Ukraine, it can be a beacon to the rest of the world of the power of capitalism.” The revealing comment betrays a long history of Western economic statecraft that has primarily viewed Ukraine as a laboratory for newer, more extreme free-market reforms.
Strict and Unpopular
After the fall of the Soviet Union, Ukraine was subject to a series of free market-minded reforms. Western pioneers behind reforms in the Soviet Bloc, such as Larry Summers and Jeffery Sachs, operated under the assumption that the liberalization of the economy would lead to flourishing, stable political democracies.
The policies they recommended called for “stabilization, liberalization, and privatization” macroeconomic measures to be rapidly applied to the former Communist states. This grouping of policies came to be known as ‘shock therapy.’
The economic and human cost of these policies on Ukraine was immense. As former Soviet Bloc counties accelerated the privatization of former state-run industries, former communist bosses scooped up assets and smoothly transitioned to capitalist oligarchs.
Many reforms and privatization measures were deemed necessary to access Western capital. To secure a $371 million International Monetary Fund (IMF) loan, Ukrainian President Leonid Kuchma acknowledged that “Strict and unpopular measures will have to be taken.”
By the early 2000s, the effects of the Western-backed shock therapy regime had become apparent.
From 1991 to 1996, Ukraine’s GDP contracted annually between 9.7 and 22.6 percent. Even more concerning, the death rate jumped from 12.9 percent in 1991 to 16.4 percent in 2008. It would take until 2011 for the average Ukrainian to have the same life expectancy they had in 1989.
The West did not confine the policy to the 1990s; even after the 2014 Maidan revolution in Ukraine, the West looked to impose another round of economic reforms on the country. IMF conditioned its aid on a series of land reforms that would allow foreign corporations to scoop some vast plots of Ukraine’s valuable fertile farmland.
While all should celebrate the heroism of the Ukrainian people during the Maidan Revolution, the weak economy helped contribute to continuing political instability and a sense of frustration that helped propel Volodymyr Zelensky’s outside presidential campaign to power.
Looking back on the West’s post-Maidan failures, the former Canadian ambassador to Ukraine, Roman Waschuk, wisely said, “Your partner country is not a laboratory for ideal-world experimentation. Enemies of change who know their system far better than you do revel in the dilatory power of complexity; don’t add to it unnecessarily.”
An Unorthodox War Economy
The brutal Russian invasion in February 2022 further revealed a state hamstrung by economic dogma. Historically, states fighting a war of existence pursue massive economic interventions. In Ukraine, the opposite has occurred.
While the Ukrainian Undersecretary of the Interior, Vadym Denysenko, has gone so far as to call for the direct state management of the economy, he has been the exception. The government has largely financed the war through heterodox loose monetary policies and an accelerated sale of state-run industries.
In July 2022, under the newly approved law 7451, 420 state-owned entities were transferred to the State Property Fund for liquidation, privatization, or reorganization. In August 2022, Zelensky signed law 5371, effectively removing labor protections from 70 percent of Ukrainian workers. The British Foreign Office has long been instrumental in pushing for a crackdown on Ukrainian labor organizations. The combination of loose money, privatization, and disciplining of labor, led famed economic historian Adam Tooze to accurately dub the Ukrainian wartime economy as a form of “neo-Keynesian shock therapy.”
Even with this record of failure, the West is gearing up for another round of shock therapy as part of the reconstruction process for the country.
Consulting giant Deloitte recommended continued privatization for state-owned industries, “State-owned enterprise and privatization is an important part of domestic revenue reforms. USAID and other donors already have programs dealing with these issues. As the economy recovers, they should look for additional opportunities to encourage competition in key industries.”
Meanwhile, a report from the influential Centre for Economic Policy advocated for a “radical liberalization of markets,” loosening of labor market regulations, and the appointment of a “deregulation chief” to oversee the process.
If one positive has come about the war, it is the renewed confidence that Ukrainians have in their government.
Instead of promoting post-war economic measures that look to trim away the state, the United States should seek to harness the newly found sense of civic nationalism to promote a post-war Ukrainian state that takes an active role in promoting its own defense industrial policy, expropriating oligarchs, and managing its own economic affairs.
To help support this, the United States can push for debt forgiveness measures for Ukraine that will help its economy breathe. Additionally, the United States and EU should no longer seek to exempt themselves from law 3739, a measure meant to localize production passed in 2021 that made an exception for the United States and EU after much protests from the West.
Localizing industry, particularly defense, will also help build a post-war Ukraine less reliant on Western aid.
A 2019 poll of Ukrainians found that 73 percent wanted the state to play an active role in the economy. Despite this, the West is gearing up to impose another round of shock therapy upon the country and reduce the state’s power in favor of private enterprise. Ukrainians who have fought and died for their country deserve more than a gaggle of overpaid Western consultants tinkering with their economy.
Noah Schwartz is a graduate of George Mason University with a Bachelor’s degree in Government and International Politics. He specializes in Chinese grand strategy and Left Realism.