The Ukrainian economy is expected to shrink by one third in 2022. The war has kept people from their homes and their normal jobs, some 13 million civilians have been displaced and 700,000 Ukrainians (mostly young men) have left the workforce to serve in the armed forces. Factories and houses have been destroyed, and the Kyiv School of Economics estimates that Ukraine’s infrastructure losses as a whole 115 billion dollars. Some of these problems will of course be resolved when the war is over, but most will not be. Many of those displaced will be without homes or jobs, and the wholesale rebuilding of homes, schools, hospitals and other infrastructure needed to kick-start economic recovery will come at a huge cost. Ukrainian economists estimate that the restoration of the lost infrastructure will cost at least $200 billion— and the longer the war goes on, the bigger the bill will be.
Given that these amounts are equivalent to Ukraine’s pre-war GDP, the Ukrainians cannot be expected to pay for the reconstruction themselves. Ukraine’s European neighbors will need to make a significant financial commitment to help rebuild its economy. Fortunately, doing so will serve their own interests. Economic instability in the region is fertile ground for political instability. An unstable Ukraine cannot be a strong ally.
American leaders recognized as much in the post-World War II era when the Marshall Plan was channeled 130 billion dollars (in 2010 dollars) to facilitate European reconstruction. As in Ukraine today, infrastructure across the continent (railways, electric utilities, port facilities, roads, bridges and airports) had been badly damaged by aerial bombardment, and disruptions to agricultural production and transport meant that many people fled high risk of starvation.
The Marshall Plan had two goals: European economic recovery and containment of the Soviet Union. Economic stabilization of Europe was seen as a prerequisite for building stable institutions that would promote income growth and consolidate liberal democracy.
The plan was largely successful. In Italy, this growth stimulation and encouraged industrial growth through the rapid construction of infrastructure, creating the conditions for the strong economic expansion of the post-war decades. In German, led to new industrial policies and revitalized growth. And throughout Western Europe, it played a crucial role restoring financial stability, boosting economic liberalization and (moderate) comforting resource shortages.
By the 1960s, all 17 countries that received aid—Austria, Belgium, Denmark, France, West Germany, Greece, Iceland, Ireland, Italy, Luxembourg, the Netherlands, Norway, Portugal, Sweden, Switzerland, Turkey, and the United Kingdom— they had recovered economically and become stable liberal democracies.
The Marshall Plan offers many important lessons for today. First, large infusions of cash to rebuild infrastructure can yield large returns. On average, Marshall Plan transfers from 1948 to 1952 represented less than 3 percent of GDP in host countries. But because the financial injections were front-loaded, they helped stimulate sustainable growth. For example, Italy received aid equal to 11.5 percent of its GDP in 1948.
Second, although a substantial aid and reconstruction package for Ukraine will be expensive, it is entirely feasible. In 1948, US GDP was 3.5 times larger from France, Germany and Italy combined. Today, the GDP of the EU countries more than 85 times larger than that of Ukraine.
Of course, there are significant differences between Western Europe after World War II and Ukraine, Russia, and Belarus today. The recipients of the Marshall Plan were among the world’s most advanced economies at the time, while the former Soviet republics suffered from fundamental, systemic problems even before the war. In 13 of the 30 years from 1990 to 2020, Ukraine recorded negative GDP growth. These starting conditions suggest that economic stabilization will take much longer than in post-WWII Europe. But that’s all the more reason to start planning now for a massive injection of aid.
Third, sometimes it pays to be generous to former enemies as well as friends. The Marshall Plan allocated large sums of money to countries that had fought against the US during the war. It was understood that continued stability in the Allied countries would require stability in the wider neighbourhood. Francewhich was partly administered by the Vichy government, received the largest share (20.8%), followed by West Germany (10.9%) and Italy (10.6%). The implication for today is that under the right political and strategic conditions, investing in the Russian and Belarusian economy could have long-term geopolitical benefits. This is still affordable compared to the Marshall Plan because the GDP of the European Union is more than eight times greater than that of Ukraine, Russia and Belarus combined.
Regardless of whether the West provides aid to Ukraine or also includes Russia and Belarus, the full cost of recovery will exceed the immediate costs of the war. In total, the Marshall Plan represented 5 percent of America’s GDP in 1948. If EU countries committed 5 percent of their combined GDP to postwar reconstruction, they could finance an aid package of $870 billion. American contributions can further increase the aid package.
Ultimately, Ukraine’s long-term success will depend on the commitment of its allies to its economic recovery. Without sustained financial support and thoughtful implementation, any peace achieved by a military victory will likely be transitory.
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This article originally appeared on Project Syndicate.
