Lessons from the past for Ukrainian recovery: A Marshall Plan for Ukraine

I Introduction

Dear members of the Committee, it is a pleasure to appear before you today to discuss the lessons from the past for Ukraine's economic recovery, and rebirth as a full member of the group of advanced democratic market economies and the EU.

Following an approaching military victory over Russia, Ukraine stands before a double political and economic challenge—it must rebuild its war-ravaged economy, and it must reform its economy and state apparatus to enter the EU. History teaches us important lessons for these challenges. The Marshall Plan for the economic recovery and reconstruction of Europe, and the successful accessions of previously planned economies to the EU after 2004. I will now discuss both in further detail.

II The Lessons from the Success of the Marshall Plan for Ukraine Today

The US Marshall Plan to aid 16 European countries from 1948 to 1952 is arguably the most successful program for post-war economic recovery in world history. It teaches both the giver and recipient of economic aid important lessons.

First of all, the Marshall Plan highlights the importance of making a large sustained economic commitment to post-war economic recovery. US Secretary of State George Marshall noted so himself in testifying before the Committee on Foreign Relations in the US Senate on January 8, 1948:

"The objective of the European recovery program … is to achieve lasting economic recovery for western Europe; recovery in the sense that after our aid has terminated, the European countries will be able to maintain themselves by their own efforts on a sound economic basis.…. An inadequate program would involve a wastage of our resources with an ineffective result. Either undertake to meet the requirements of the problem or don't undertake it at all."

The Marshall Plan was BIG - $13.3 billion was appropriated by Congress from 1948 to 1952, or roughly $130 billion in today's dollars. It was 90 percent grants, frontloaded, and amounted to roughly 2 percent of US GDP in its first year in 1948.¹ For comparison, 2 percent of EU27 GDP in 2022 of €15.8 trillion would approximate €300 billion. In other words, the initial financial burden taken on by the United States far exceeds that agreed by the EU27 for Ukraine to date. About 270 million Europeans lived at the time in the 16 countries benefitting from the Marshall Plan, comparing to about 40 million—or about 15 percent of the Marshall Plan's beneficiaries—inhabitants in Ukraine today. Still scaling to population, the US first year commitment in 1948 would approximate an EU outlay of €45 billion (15 percent of 300) for Ukraine in 2022. Despite its proximity, Europe is yet to match for Ukraine the American generosity it enjoyed at the outset of the Marshall Plan, which of course did not include America's simultaneous military aid to Europe.

At the same time, reconstruction of Ukraine has not yet fully commenced, and the EU hence will have future opportunities to scale up its financial assistance to Ukraine. But the scale of the 1940s Marshall Plan highlights the economic challenge facing the EU, as it approaches the cost of Ukrainian reconstruction. Many traditionally frugal EU members are typically sceptical of common EU level financial commitments but are also today among the strongest supporters of Ukraine's cause in the EU. Especially this group of mostly Northern and Eastern members face a choice between their traditional EU-level frugality and the sizable long-term economic commitment to Ukraine that the Marshall Plan embodied and which can only be matched if implemented at the EU level. Do you want to remain traditionally frugal, or do you favor the timely and comprehensive Ukrainian reconstruction that could propel Kyiv's expeditious accession to the EU? You will have to choose; you cannot be both.

Secondly, the Marshall Plan highlights that successful recovery aid is not charity but assistance granted to a country, or countries, when it is in the national self-interest of donor. Again, quoting George Marshall's Senate testimony on the rationale for his Plan:

"A nation…. cannot embark on an undertaking of such magnitude and significance for light or purely sentimental reasons. Decisions of this importance are dictated by the highest considerations of national interest."

Only then will it be politically feasible to appropriate adequate financial sums and sustain the effort over multiple years, and only if donor governments invest sizable political capital in swaying domestic public opinion. Yes, many Americans wanted to help, but the United States government assisted Western Europe after 1948 partly to prevent communist parties from taking power, and partly to help generate—in due time—new markets for American exports. EU funds to help rebuild Ukraine should be granted with the same clear-eyed view of European interests. A successfully rebuilt and vibrant market economy in Ukraine will better carry part of the defence burden of deterring future renewed Russian aggression, providing territorial security for also EU members. And a rapidly growing Ukrainian post-war economy will also purchase large amounts of EU exports—an economic scenario that especially the member states that take particular pride in their trade surpluses should recall.

Thirdly, the Marshall Plan with its explicit policy conditionality and demand for sizable European counterparty funds to complement the American aid embodied the need for recipient countries to now "do things differently" and of course put their own resources to use, too, for the recovery. As George Marshall made clear to the US Senate:

"The concept of American assistance to Europe, has been based on the premise that European initiative and cooperation are prerequisite to European recovery. Only the Europeans themselves can finally solve their problem."

While undoubtedly the US government exerted firm control over the use of the resources made available to Europe, starting with the formation of the Committee of European Economic Cooperation (CEEC) in the summer of 1947, it was participating European nations that spearheaded the identification of production target areas, reduction in regional trade barriers, and the promotion of internal monetary and financial stability that accompanied the Marshall Plan's financial aid.

EU accession and ultimate adoption of the EU Acquis will invariably put great strains on Ukraine, while granting the EU arguably unprecedented political influence in Kyiv. However, to be ultimately successful EU financial assistance and the accession process must—like the Marshall Plan—embody  a partnership unleashing the domestic reform urge and initiative of Ukrainians to successfully propel their country towards a rules-based and entrepreneurial economic revival. Only then can Ukraine's European integration, transparent government, and much improved living standards be secured.

III Ukraine's Economic Prospects Are Very Good

Finally, a word on Ukraine's economic prospects. Developed countries recovering from wars won can, if they retain responsive democratic governance institutions, have access to adequate financial resources, foreign investment, and broad international market access, recover very rapidly from the tragedy of war. Ukraine may well get access to adequate reconstruction aid from—mostly—the EU and has the market access embodied in the EU Association Agreement and suspension of Ukrainian import duties. Adding to this, the growth boost from reconstruction and the legal modernization and business predictability coming from adopting the EU Acquis, Ukraine's post-war growth prospects are very good.

In line with earlier successful EU accessions, Ukraine—given considerably lower labor costs compared to existing EU members and already present market access—should expect large inflows of foreign direct investment. This is particularly the case at a time when many multinational firms are looking to diversify their operations away from China and will be looking for production locations in or near the EU to supply the European market.

The economic base case for post-war Ukraine is therefore that it—with adequate assistance—can easily grow faster than China and become an important growth driver for the entire region.

Let my closing remark be that EU governments considering the scope of a potential Marshall Plan for Ukraine should keep these good growth prospects in mind.

Thank you—and I look forward to answering any questions you might have.

Note

1. US GDP in 1948 was $274 billion, and the initial Marshall Plan appropriation by Congress in April 1948 was for a total of $6.2 billion. See CRS (2018) for details at https://www.everycrsreport.com/reports/R45079.html#_Toc504143856