Postwar reconstruction is a good investment

Nine months after Russia invaded their country, Ukrainians are seizing back their territory and giving their people hope of a military victory. But when it comes to long-term peace and prosperity, a military victory would only be the end of the first phase. The next phase — reconstruction — will be much longer and harder, and it will require continued, extensive economic support from the country’s friends and allies.

Ukrainian economists estimate that restoring the lost infrastructure will cost at least $200 billion — and the longer the war lasts, the larger the bill will be.

Given that these amounts are equivalent to Ukraine’s prewar gross domestic product, Ukrainians cannot be expected to pay for reconstruction on their own. Ukraine’s European neighbors will need to make a major financial commitment to help rebuild its economy. Fortunately, doing so will serve their own interests. Economic instability in the region is a breeding ground for political instability. An unstable Ukraine cannot be a strong ally.

American leaders recognized as much in the post-Second World War era, when the Marshall Plan channeled about $130 billion (in 2010 dollars) to facilitate European reconstruction. The Marshall Plan had two aims: European economic recovery and containment of the Soviet Union. Europe’s economic stabilization was seen as a prerequisite to building stable institutions that would promote income growth and entrench liberal democracy. The plan was largely successful.

The Marshall Plan offers several important lessons for today. First, large cash injections for rebuilding infrastructure can deliver big payoffs. On average, Marshall Plan transfers from 1948 to 1952 represented less than 3 percent of GDP in the receiving countries. But because the financial injections were front-loaded, they helped stimulate sustainable growth.

Second, though a meaningful aid and reconstruction package for Ukraine will be expensive, it is entirely feasible. In 1948, US GDP was 3.5 times greater than that of France, Germany and Italy combined. Today, the GDP of EU countries is more than 85 times larger than that of Ukraine.

Third, it sometimes pays to be generous toward former enemies as well as friends.

The Marshall Plan allocated large sums to the countries that had fought against the US during the war. It was understood that ongoing stability in Allied countries would require stability in the broader neighborhood. France, which was partly ruled by the Vichy government, received the largest share (20.8 percent), followed by West Germany (10.9 percent) and Italy (10.6 percent). The implication for today is that, under the appropriate political and strategic conditions, investing in the Russian and Belarusian economies could have long-run geopolitical benefit.

Regardless of whether the West gives aid only to Ukraine or also includes Russia and Belarus, the full costs of recovery will exceed the direct costs caused by the war. Altogether, the Marshall Plan represented 5 percent of America’s 1948 GDP. If EU countries were to commit 5 percent of their combined GDP to postwar reconstruction, they could fund an $870 billion aid package. American contributions can further increase the aid package. Ultimately, Ukraine’s long-run success will depend on its allies’ commitment to its economic recovery. Without sustained economic support and thoughtful implementation, any peace that is achieved by a military victory will most likely be fleeting.