Zelensky Will Struggle to Rebuild Ukraine

Zelensky Will Struggle to Rebuild Ukraine

The country never recovered from the collapse of communism, and now it has the trauma of war holding it back.

When Ukraine’s President Volodymyr Zelensky attended the Davos conference earlier this month, he spoke at an invitation-only event titled “CEOs for Ukraine.” In contrast to his earlier Davos appearances, his focus this year was not on the war, but on the aftermath. He did not promise any new military offensives. Instead, he told the 70 CEOs in attendance, “We need you in Ukraine to build, to reconstruct, to restore our lives…because people need jobs.”

In Simon Shuster’s new biography of Zelensky, The Showman, he describes a funny moment from 2018 when an old friend saw Zelensky reading a book about Lee Kuan Yew. The friend, who knew Zelensky from show business, asked him, “You ready to do that?”—meaning, are you ready to do in Ukraine what Lee Kuan Yew did in Singapore, the economic development as well as the authoritarian discipline? Zelensky gave an evasive answer. A few months later, he officially registered as a presidential candidate.

Zelensky should pick up that book again, because economic development in Ukraine will require a domestic revolution as dramatic as Singapore’s. Not only must Ukraine overcome the difficulties caused by war, it must finally address the problems left over after the fall of communism, which, more than thirty years later, remain unsolved.

One of the most important facts about Ukraine is that, uniquely among eastern European nations, its economy did not recover after the fall of communism. Every other post-communist economy had a rough time in the 1990s but soon returned to prosperity—even Russia, where the poverty of the 1990s was extreme. Poland tripled its GDP per capita between 1991 and 2013. Ukraine, by contrast, had a smaller economy in 2013 than it had in 1991.

The reason for this dismal performance is political. Communism is a system that, by its nature, breeds corruption. During the transition to capitalism, each post-communist country found its own way to tame the networks of bribery and self-dealing that had grown up under the old system, either by leaning into the free market as Poland did or by taming the oligarchs politically as Vladimir Putin did. Ukraine chose neither. Its oligarchs remained powerful and numerous.

The country’s position between east and west made some things difficult, but it also could have worked to Ukraine’s advantage. Savvy leaders could have played the two geopolitical sides off each other, gaining benefits from each camp as it tried to woo Ukraine’s favor, in order to achieve economic development. But the entrenched corruption of Ukraine’s oligarchs prevented this. Any investment was quickly stolen or squandered. 

The uncertainty of Ukraine’s geopolitical alignment also raised the stakes of the costly (and often deadly) battles between oligarchs and factions. The rewards of being in power were great, but the penalty for losing could be catastrophic. This made oligarchs more willing to loot with abandon in good times and also made them fight more desperately to retain their positions.

This dysfunctional dynamic continued right up to the Russian invasion of 2022, which of course will have its own economic consequences: lost territory; destroyed infrastructure; hundreds of thousands of young people killed or wounded; even more fled abroad, perhaps never to return.

The CEOs at Davos probably assume that, with the right level of investment, Ukraine will be able to get its economy going again. But Western experts assumed the same thing in 1991. What Ukraine needs is capitalism, they thought. Once we introduce property rights, the rule of law, and the free market, recovery will follow naturally. 

Those experts were disappointed. The internal problems holding Ukraine back were not going to be solved just by introducing the basic framework of a capitalist market. Ukraine will certainly need all the investment it can get when the war is over, but it will also need deeper reforms than it has ever seen. 

The New York Times ran a story on January 15 speculating that the end of the war could be a chance to tame the power of the oligarchs. “They are weak, and it’s a unique opportunity to achieve justice in terms of how the country should be run,” per a quote from Ukraine’s justice minister.

But Valeria Gontareva, central bank governor from 2014 to 2017, is more pessimistic. She notes that many assets have been nationalized or confiscated during the war, which could set off a scramble for those assets when the war is finished. “Now the threat is not the old oligarchs, but the new ones who benefit from the war through the redistribution of assets and business segments,” she told the Times.

If Gontareva is right, then the billionaires and power brokers at Davos should have a plan before they open their checkbooks. Otherwise, the investment they send to rebuild Ukraine will be caught in the same vortex of corruption as before.

The post Zelensky Will Struggle to Rebuild Ukraine appeared first on The American Conservative.

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