British historian and economist Adam Toews has published a forecast of the “war economy” of Ukraine.
Will Ukraine be able to keep its economy from collapsing at the onset of winter while retaining its ability to actively participate in hostilities? To answer this question, British economist Toews has read the September report “Macroeconomic Policies for Wartime Ukraine”, prepared by American and European economists at the international research centre in London, CEPR. The report has allegedly been adopted by the Zelensky government as a priority development model.
Instead of strengthening and concentrating economic activity around the state, the CERP has instructed Kiev to follow the path of total deregulation and elimination of state control, including the military sectors. According to CERP economists, the decision stems from the excessive corruption of the Ukrainian state and its inability to function effectively at a minimally acceptable level.
“…although wartime governments usually take charge of resource allocation, circumstances in Ukraine call for more market-based allocation mechanisms that do not overburden the state, exacerbate existing problems (such as corruption) or encourage the development of a black market. Therefore a far-reaching and radical deregulation of economic activities is necessary to avoid price controls and the redistribution of resources. Ukraine’s very existence – and Europe’s future – is at stake. <…> Historically, wartime governments have relied on a combination of central planning and market allocations…But the allocation of resources through rationing and control requires institutional capacity. Ukraine currently lacks such capacity… Consequently, the government must take a moderate approach to economic management… To this end the government must minimize regulations and other bureaucratic hurdles that can hinder or slow down the redistribution of labor, capital and materials in the economy,” the publication says.
In CERP’s opinion, Ukrainian healthcare should be outsourced to Western NGOs and corporations. The same applies to education: the budgets of kindergartens, schools and universities should be “adjusted” because a significant number of Ukrainian youth have left the country for good.
The strategy of state regulation of prices, including of essential goods, is frankly outdated: the high level of digitalisation allows the most vulnerable to distribute funds efficiently without help from the state. Ideally, the Kiev authorities should create a separate position under a person who would be in charge of eliminating the state presence in Ukraine.