The country’s postwar future is almost as riven as the war itself.
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At a breakfast discussion at Davos in January 2023, the BlackRock CEO Larry Fink said that Ukraine’s postwar recovery could become “a beacon to the rest of the world about the power of capitalism”. The scene could have been a parody of Russian propaganda: the head of an American asset firm telling a rapt crowd of the Western business and political elite that Ukraine’s reconstruction would not only be a cash cow but would be touted as a capitalist success story – presumably something to congratulate themselves about at future breakfasts in Davos. For Fink, Ukraine’s reconstruction presented not just a business opportunity but an ideological one. If Western political leaders saw the war in Ukraine as an occasion to reinvigorate EU and Nato enlargement, then Fink and his ilk viewed it as an opportunity to revive a waning faith in capitalism.

The idea sounds somehow familiar. Fink’s words reflect the continuation of a more than 30-year project adopted by – and in some ways, imposed on – Ukraine and its neighbours. The “disaster capitalism” of the current war was preceded by the administration of 1990s “shock therapy”, a series of radical neoliberal reforms following the fall of the Soviet Union, from which the country never fully recovered. The current war has introduced an innovation on the old formula: the fusion of neoliberal economic policies with cowboy advances in technology, particularly artificial intelligence (AI) and digitalisation. Wartime Ukraine has already seen a dramatic influx of Western donor funds, consultants, experts, engineers and Silicon Valley venture capital. The result has been radical experiments in the introduction of AI-enhanced platforms for mine clearance and the rapid collation of commercial satellite data (both supplied by Peter Thiel’s Palantir); and economic strategies like the “fast state”, a Ukrainian government proposal that envisions a state so streamlined that it “disappears in one’s own efficiency”.

 Ukraine’s reconstruction will be an unimaginably daunting task. The World Bank recently assessed that it would cost close to $500bn. Beyond the staggering cost in human life, war has devastated the economy: in the first year of the conflict, the country lost between 30-35 per cent of its GDP. Poverty more than quadrupled and one in three families are now food insecure. Over 15 per cent of Ukraine’s territory – comprising some of the most fertile farmland on Earth – is now contaminated with landmines and unexploded ordnance.

Ukraine’s reconstruction are being built now. Yet, as the political economist Oleksandr Svitych told me, the current strategy is misguided, reflecting “the global and still dominant liberal rationality, whereby everything must be modelled according to the market”.

Ukraine’s reconstruction is complicated by how it had already been mired in economic crises for years prior to Russia’s war. When the country gained independence from the Soviet Union in 1991, the early transition was ruinous. Privatisation of state property was rapid and largely arbitrary. An oligarchy crystallised in the 1990s, and proved to be one of the country’s most resilient institutions.

“Post-Soviet transformation turned out to be de-modernising rather than modernising, with no new vector of development to replace a Soviet project which had itself been stagnating by the 1970s,” the sociologist Volodymyr Ishchenko writes in his book Towards the Abyss: Ukraine from Maidan to War. Through deindustrialisation, jobs disappeared. And soon, so did people. On the eve of independence, Ukraine had a population of 52 million; in 2020, it was just 44 million. Many of its well-educated, highly skilled labour force sought work abroad, and in 2020, Ukraine was one of the top recipients of migrant remittances in Europe with respect to GDP.

Volodymyr Zelensky’s party Servant of the People (SN) won power in 2019 in part due to his popular TV series of the same name, which satirised this post-Soviet neoliberal reforms” was introduced, including budget cuts, sales of public property and slashing of labour protections. Meanwhile, technology was adopted as a symbol of the modern government, and a ministry of digital transformation was established. Though it would be easy to dismiss as a gimmick, the idea built on one of Ukraine’s undeniable strengths: the country’s burgeoning IT sector. IT exports tripled to nearly $7bn a year between 2016 and 2021 alone. The “start-up nation” idea has become integral to Ukrainian national identity in wartime.

Yet some of the government’s early policies drew criticism. Beginning in 2020, Zelensky attempted to introduce reforms that would limit the role of trade unions and scale back regulations around hiring, firing and management. This drew backlash from the EU as it conflicted with the bloc’s “social market economy”.

Luke Cooper, Director of PeaceRep’s Ukraine programme at the London School of Economics, said that “while Ukraine’s trade unions had initially been successful in mounting opposition to reforms to the labour code that reduced collective bargaining rights, these were passed after the full-scale invasion in the context of martial law (with protests forbidden)”. The war also prompted further liberalisation, sometimes as a requirement of international aid: last year’s $15.6bn loan from the International Monetary Fund was reportedly conditional on Kyiv cutting back on social expenditures.

The government’s “fast state” scheme marries liberalisation with technology. The wildly popular app Diia, which was funded by the US Agency for International Development (USAID), places “the state in a smartphone”. It allows citizens to access a digital passport (the first in the world), birth certificate, register the birth of a child, and even report Russian collaborators. The app will also be critical to Ukraine’s war reconstruction efforts, as users can use the app to log war damage to property. With typical bombast, Ukraine’s Western partners are touting Diia as a revolutionary tool that will transform the globe. At an event showcasing the app in Washington last year, USAID administrator Samantha Power said that where Ukraine was known as the bread basket of Europe, the country would now also be renowned for the app, “an open source, digital public good”, a gift to the world. That objective would be fulfilled with Washington’s help.

For Western tech companies, the war was an opportunity to test their pioneering technologies in real time. The Silicon Valley firm Palantir has furnished Ukraine with cutting-edge AI that allows it to rapidly collate information from several sources, including commercial satellite data and app messages shared by soldiers on the ground. Previously, hundreds of analysts would have been required to do the same. Technology provided by Palantir can also map safe routes for Ukrainian drones, allowing them to circumvent air defences and Russian jammers.

Other Western companies have been assigned significant roles in Ukraine. Along with JP Morgan, BlackRock is assisting in the creation of a reconstruction bank, the Development Fund of Ukraine, which will be registered in Luxembourg; BlackRock will also coordinate investments in the economy. Ukraine “shouldn’t be talking to [BlackRock] or other big asset-manager funds whose model is very financialised and poorly calibrated to Ukraine’s specific needs,” Cooper at LSE told me. These needs include rebuilding critical infrastructure, providing housing to the internally displaced, and growing Ukraine’s production capacity. Predictably, Russian officials have seized on BlackRock’s involvement, claiming that Kyiv has “sold itself” to American firms. (Of course, officials there have said nothing of their own country’s long-running relationship with BlackRock, a major investor in Russian banking and energy enterprises until 2022.)

Critics are wary that foreign donors have reinforced rather than challenged the prevailing neoliberal approach of Western firms. “If you read USAID’s programmatic documentation, it emphasises the need for ‘entrepreneurship’, ‘empowerment’ and ‘resilience’,” Svitych, the political economist, said. “It may seem natural and even humane that donors encourage Ukrainian citizens to take control of their lives and become self-sufficient. The downside of this approach, however, is that it downplays structural inequalities – such as poor public infrastructure or lack of adequate labour protections – and injustices which the state – not individuals – has the mandate and capacity to redress.”

Western donors have also promoted hollow anti-corruption politics, which play important functions in Ukraine. The World Bank defines corruption as “the of public office for private gain”, but that definition shields the private sector is also employed as a catch-all excuse for the catastrophic failures of Ukraine’s transition to capitalism. In this self-serving view, the system itself wasn’t responsible; the failures of capitalism can be blamed on a few malign individuals.

Unsurprisingly, tech solutionism has also merged with anti-corruption politics: Diia has been touted as an antidote to corruption. As Zelensky has said of the app, “a computer has no friends or godfathers, and doesn’t take bribes”. But it is also incapable of empathy, which may prove desirable when cutting social benefits. A “new social contract” announced by the government in March 2023 envisions a reduced role of the state, slashing its support for citizens to a bare minimum. The new plan involves the digitisation of benefit payments as a way of “strengthening control” over their allocation. In practice, this means that fewer people will be determined eligible for government assistance.

Yet Cooper noted that there have also been tentative signs that the government is reversing some of the “liberalisation excesses” of recent years, such as rolling back unusually generous corporate tax rates. Cooper maintains that this shift was precipitated by wartime necessity. “You can’t fight a war with free-market economics,” he said. “You can’t make such enormous increases in defence spending without ending up with a state-dominated economy. And you can’t do that without raising taxes.”

Ukrainian officials have also indicated that they might be more discerning about foreign investors. Last year, the finance minister Sergii Marchenko gave a speech at the London Ukraine Recovery Conference that reflected this shift. “Traditionally, we were open to any form of money,” he said. “Now we are not. If you want to invest in Ukraine, you must accept the priorities of Ukraine.” The nationalisation of strategic assets throughout the war has also prompted a backlash among some supporters in Washington.

A mong Ukraine’s most daunting tasks will be convincing the 6.5 million citizens who have fled the war to return and rebuild the country. The government is in an unenviable position: to maintain interest from foreign investors, who are typically drawn to the region for its cheap labour force, it will also need to ensure Cooper stressed that the “turbo liberal regime” of the past must be abandoned for good. “Fundamental to all of this will be actively growing the incomes of the working population and not relying on the myth of ‘trickle-down economics’.” The availability of good jobs will also be essential to reducing dependency on post- conflict foreign aid.

Ukraine’s recovery will take generations. There is no doubt that “shock therapy 2.0” has provided a valuable military, technological and economic testing ground for liberal ideologues, Western governments and Silicon Valley companies. But the more important question – whether these things will also deliver durable development, opportunity and security to Ukraine – leads to a far more ambiguous conclusion.

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Originally published in The New Statesman