How should a Marshall Plan for Ukraine work? | Barry Eichengreen

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Jdeveloping a Marshall Plan for Ukraine is a popular sport Nowadays. The game starts with throw a number for the cost of rebuilding Ukraine after the ravages of the Russian invasion – $250bn (£203m) or $500bn or $1bn, depending on assumptions about the amount destroyed, the cost of taking care of refugees, etc. The overall cost of the post-war Marshall Plan is then compared to US GDP in 1948, when the program started. This generally leads to the conclusion that the cost of Ukrainian reconstruction relative to the size of the donor countries will be of the same order as the Marshall Plan.

These types of comparisons are not, in fact, the best use of the history of the Marshall Plan. It is impossible to quantify the cost of reconstruction as long as there is uncertainty about the duration of the war and the extent of the territory which will be controlled by the legitimate government of Ukraine. The mere fact that the United States was prepared to provide postwar Europe with nearly 5% of its 1948 GDP, spread over four years, tells us nothing about whether this is the good level of support for Ukraine.

Other aspects of this story are more relevant to the situation in Ukraine. It is telling, for example, that Marshall Plan disbursements began while there was still fighting in Europe. Although the Greek Civil War continued throughout the summer of 1949, Greece received assistance from Marshall in 1948. In fact, Greece had already received $300 million in 1947 under the auspices of the US Greek Relief Mission, the structure of which served as a model for the Marshall Plan.

Similarly, aid to Ukraine can start now, although it must be used with discretion. Repairing bridges that are simply destroyed again by Russia would be pointless.

It is also important to remember that Marshall Plan funds were more than 90% subsidies and only 10% loans. Today, the Western powers are called upon to guarantee new obligations of the Ukrainian government. This would bring government borrowing costs down to single digits and provide funds for reconstruction. But that would leave Ukraine even more deeply indebted, when it already faces the challenge of restructuring of its inherited debt. Guarantees for additional Ukrainian borrowing would be just one way for Western governments to save on reconstruction aid.

Additionally, the United States created an independent agency to administer the Marshall Plan. Freed from the bureaucracies of the US State and Treasury departments, the Economic Cooperation Administration (ECA) could ramp up quickly. It was able to draw on the expertise of the private sector, starting with its leader, Paul Hoffman, the president of Studebaker. He avoided entanglements with the UN, where Soviet Union membership would have caused problems.

Similarly, aid to Ukraine should be administered by an autonomous agency accountable to donor governments. While it can consult and, ideally, coordinate with the International Monetary Fund and the World Bank, it should preserve its independence, given Russia’s membership in both organizations.

The architects of the Marshall Plan recognized the need for ownership on the part of aid recipients, while proceeding on a ‘trust but verify’ basis. European governments have submitted detailed information plans to spend US funds. These are the basis for painstaking negotiations with ECA before funds are disbursed. In countries like Greece, where corruption was feared, the ECA had hundreds of officers embedded in the relevant ministries. Administrative reforms were a goal and a prerequisite for Marshall Plan aid.

Ukrainians will naturally be sensitive to foreign interference in their reconstruction. But foreign surveillance is the price of foreign aid, especially on the scale that Ukraine will need. The Kyiv government can provide reassurance by improving the transparency of its spending, for example by expanding its online public procurement portal ProZorro.

The Marshall Plan gave priority to rebuilding export capacity. It recognized the dynamic effects of international competition and the political benefits of European integration. Ukraine almost certainly faces a long road to EU membership nirvana. But the journey can be accelerated if Western aid is structured to align Ukrainian institutions and policies with those of the EU.

Finally, the Marshall Plan enabled Europe to make a technological leap of a generation. Europe was decades behind the United States in adopting the “high speed flowthe manufacturing methods that underpinned the golden age of post-war economic growth. Rather than simply rebuilding European industry along pre-war lines, an effort was made to transfer advanced American manufacturing technology. European officials, factory managers and trade unionists traveled to the United States on Marshall Plan-funded productivity missions to learn about these techniques and returned with new knowledge, resulting in tangible benefits for productivity growth.

Similarly, Ukraine now has the opportunity to skip a generation of technologies – to green its energy system, modernize its transport and communication infrastructure and update urban planning. These are first and foremost tasks for Ukrainians. But the West can and must help.

Barry Eichengreen is a professor of economics at the University of California at Berkeley and a former senior policy adviser at the IMF.

© Syndicate Project

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