No Marshall Plan for Ukraine – Benn Steil

Perhaps the most enduring legacy of the Marshall Plan, the massive U.S. program to rebuild Western Europe’s economy after World War II, is the endless desire to repeat it. Daunting geopolitical challenges invariably spawn appeals for new Marshall Plans to foster stability and prosperity. The global financial crisis seeded in 2008 brought forth calls for a Marshall Plan in southern Europe. The Arab Spring did the same in the Middle East. Ditto the civil war in Syria.

Today, Ukraine, victim of horrific mass brutality and destruction, is only the latest in a procession of stricken countries spurring calls for the legend’s reapplication. “There will be a new Marshall Plan for Ukraine,” declared Ukrainian President Volodymyr Zelensky in March. European Council President Charles Michel concurred, announcing that a May donor conference was “the starting point for [a] kind of European Marshall Plan for Ukraine.”

On its surface, Ukraine would appear to be fertile ground for a Marshall Plan. It is, much like most of the 16 Marshall Plan recipients of 1948–1952, a market-oriented European country with democratic foundations, anxious to integrate more closely with its neighbours to the west. It has great untapped potential in energy production, chemicals, agriculture, and industrial manufacturing.

Yet Ukraine suffers from an immutable characteristic that even the most noble and generous of foreign saviours cannot change: geography. Ukraine borders a powerful country to the east, Russia, whose government does not wish it to look westward for salvation or to succeed as a prosperous, independent country. And Russia is fully capable of undermining, with mere threats, any steps Ukraine may take in this direction.

To be sure, Ukraine’s rich friends in the United States and western Europe can do much to aid the country’s suffering people and to rebuild its damaged infrastructure. Yet without Russian cooperation or at least committed non-interference—a non-interference that is inconceivable currently or in the foreseeable future—the robust and enduring revival experienced by the Marshall countries is simply beyond Ukraine’s reach.

BUTTER, AND GUNS

The fundamental error made by champions of new Marshall Plans is to presume that the essence of the original program was simply the application of vast amounts of government money. The sums committed by the Truman administration between 1948 and 1952 were indeed substantial: about $160 billion in current dollars. During that period, the 16 Marshall countries rebuilt and recovered rapidly, with economic output expanding nearly 60 percent. This fact underlies the belief that those dollars were the source of its achievement. Yet economists who have analyzed the aid’s direct impact on Western Europe’s economic revival have concluded that the effect was modest. My own research suggests that other, less quantifiable, factors were comparably or more important than those dollars or, at the very least, vital complements to them.

No doubt, Marshall aid did serve to reverse the rising tide of communist political influence, particularly in France and Italy. But an indispensable complementary factor in the success of that aid was credible U.S. security guarantees. These had been wholly absent from the original State Department blueprint for the Marshall Plan, which aimed to boost production capacity in the recipient countries as quickly as possible so they could provide for their own defense. At the insistence of France and the United Kingdom, however, U.S. defense pledges quickly became integral to the program.

Ukraine suffers from an immutable characteristic that even the most noble and generous of foreign saviours cannot change: geography. Ukraine borders a powerful country to the east, Russia, whose government does not wish it to look westward for salvation or to succeed as a prosperous, independent country. And Russia is fully capable of undermining, with mere threats, any steps Ukraine may take in this direction.

Without Marshall aid, Paris and London, fearing an industrially revived Germany, would never have cooperated with U.S. plans for quickly repairing German infrastructure and ramping up the country’s industrial production, which proved a major engine of Western Europe’s stunning recovery. But even that aid would not have been sufficient to overcome French and British resistance had the United States not also agreed to provide them with security guarantees—guarantees against aggression by either the Soviet Union or Germany. Those guarantees, enshrined in Article 5 of the 1949 North Atlantic Treaty, represented a fundamental shift in U.S. policy. This policy had, until 1948, been to continue rapidly withdrawing troops and materiel from Europe. Between 1945 and 1948, annual U.S. defense spending plummeted from $963 billion to $95 billion. In 1949, however, it increased sharply, to $128 billion, and U.S. troops began surging back to the continent. It was this reversal of earlier U.S. designs for de-industrializing Germany (known as the Morgenthau Plan) and disengaging from Europe that animated the revival of business confidence and private investment in the region.

Because the countries ultimately covered by the Marshall Plan were not as geographically vulnerable to the threat of Soviet attack as, for example, the eager but unfortunate Czechoslovakia and Poland, the United States could credibly underwrite their security. This fact allowed the Marshall countries to quickly integrate economically rather than pursue hopelessly inefficient autarkic policies of the sort necessary to assure supplies of steel and other commodities critical to unaided self-defense.

It is notable that the United States committed large annual sums, comparable to those of the Marshall years, to European relief efforts in 1946 and 1947—with no material effect on economic recovery. This earlier pan-European aid, funneled through the new United Nations Relief and Rehabilitation Administration, was undermined by the Soviet Union, which subverted democratization, economic reform, and private investment in Eastern Europe, as well as by communist Yugoslavia, which shot down U.S. relief planes. Going forward, the Truman administration was therefore determined to take full control of U.S. aid dollars, focusing them on only those countries capable of making full and productive use of them.

Fast forward to the new millennium, and the same challenges exist. The United States committed $210 billion to war reconstruction in just two countries, Afghanistan and Iraq—$50 billion more than it committed to the 16 Marshall countries, in current dollars. Yet there is precious little to show for that money. The main reason for this failure was the inability of the United States to defeat the Taliban insurgency in Afghanistan and Iran-sponsored militias in Iraq. In such inherently fragile security environments, in countries never friendly to Western-style market reform to begin with, the private domestic and foreign investment necessary to generate sustained transformational economic growth never materialized. The lesson for today is clear: security must come first. Positive political reform and economic revival, assisted by foreign aid, can only follow in stability’s wake.

THE RUSSIAN SHADOW

 Ukraine’s remarkable courage and will to resist foreign aggression have earned it enormous respect and admiration around the world. The country will, however, never attract large-scale investment while it remains under the shadow of a hostile Russia, which is willing and able to unleash devastation at a moment’s notice. Whereas the creation of NATO was integral to the success of the Marshall Plan, ending the prospect of Ukraine’s incorporation into NATO is a stated Russian war aim. Unless the United States is willing to escalate all the way to nuclear confrontation with Russia, it will never be able to neutralize the ongoing threat to Ukraine and its economy.

The regrettable but inescapable conclusion is that long-term, credible internal and external security is a precondition for a successful Marshall Plan in Ukraine, and that the United States and its allies are incapable of providing it. If the latter were to mount a massive aid program aimed at cementing Kyiv’s western orientation, Russia could credibly threaten Ukraine, its officials, its allies, its trading partners, and any enterprises operating there with costly cyber, military, and economic attacks. To be clear, Russia may never be able to conquer Ukraine, but it is more than capable of making it a hellish place to live and do business.

Humanitarian relief aid is, of course, desirable in its own right. But it will not seed a stable, prosperous democracy without major domestic and foreign private investment, and such investment will not be forthcoming unless it is safe from expropriation and destruction. When it comes to making a Marshall Plan, there are simply no substitutes for auspicious geography and donors willing and able to deter or defeat determined opponents. The Marshall countries had both. Ukraine, sadly, has neither.

(Foreign Affairs)

————————————————————————————-

ABOUT THE AUTHOR:

BENN STEIL is Director of International Economics at the Council on Foreign Relations and the author of The Marshall Plan: Dawn of the Cold War.