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Russia’s invasion of Ukraine has already destroyed billions of dollars’ worth of infrastructure, blocked exports from key Black Sea ports, and displaced more than 12 million people.
The World Bank predicts the war will cause Ukraine’s economy to shrink by 45% this year. And as Russian forces now focus on the Donbass region, the war shows no signs of letting up.
But Ukrainian and Western leaders are already talking about what it would take to rebuild Ukraine, if and when the war ends.
Ukraine’s President Volodymyr Zelenskyy gave a rollcall of devastation in a videoconference in late April: 1,500 educational facilities destroyed or damaged, along with 350 medical facilities, 1,500 miles of roads and 300 bridges. In all, Zelenskyy estimated 32 million square meters of living space had been impacted so far.
“It’s not just statistics. This is Mariupol, this is Volnovakha, this is Okhtyrka, this is Chernihiv, this is Borodyanka – dozens and dozens of our cities, towns and villages,” Zelenskyy said.
It’s estimated the cost of rebuilding the country could amount to hundreds of billions of dollars.
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When it comes to addressing this, one comparison that many leaders are making is the Marshall Plan – when the United States distributed more than $ 13 billion in economic aid after WWII (or more than $ 150 billion in today’s dollars) to rehabilitate the 17 European economies. nations.
To break down what rebuilding Ukraine could cost, how it could be done, and what lessons could be learned from the Marshall plan, NPR spoke to Yuriy Gorodnichenko and Barry Eichengreen, both economists at UC Berkeley.
Gorodnichenko is a Ukrainian economist who recently co-authored a blueprint for the reconstruction of Ukraine, published by the Center for Economic and Policy Research. Eichengreen is an economic historian who has researched Europe’s postwar development.
How much would rebuilding cost?
An ongoing study from the Kyiv School of Economics calculates that every week, Ukraine suffers about $ 4.5 billion worth of damage to civilian infrastructure, and the country’s total economic losses could rise to around $ 600 billion.
“All of us see images of total destruction in Ukraine. You look at big cities like Kharkiv, Mariupol, and barely any building is not damaged,” Gorodnichenko said. “But it’s not just residential. You see the critical infrastructure is being destroyed: bridges, roads, refineries, steel mills and railroads.”
Gorodnichenko said that economists use several methods to put a number on the damage, despite the fog of war.
“One way to look at this is to do an inventory of damaged bridges, buildings and so on and calculate the cost of replacement. That would be easily somewhere between $ 100- and $ 200 billion,” Gorodnichenko said.
“We can also look at other measures and similar efforts that were done in the past. For example, what was the cost of reconstructing Iraq or Afghanistan? If you look at the size of these countries, the level of damage, and scale it to The Ukrainian case, you come to somewhere between 500 billion, maybe $ 1 trillion. “
How should Ukraine rebuild?
Although Russia’s invasion has caused massive damage, some experts also see reconstruction as a once-in-a-generation chance to modernize Ukraine.
Gorodnichenko believes the country’s newly rebuilt cities should be carbon-neutral and dense, with much needed upgrades to housing and public transport.
He said that when Ukraine gained its independence from the Soviet Union in 1991, it had spent decades integrated into the Soviet economy, and much of its infrastructure still dated back to that time.
“When you look at energy consumption per unit of GDP, it was one of the highest in the world,” Gorodnichenko said. “So that was very bad for the climate, for the economy. Over the years, Ukraine was increasingly more and more efficient, but it was a slow process.”
Ukraine’s aged, inefficient infrastructure contributed towards pollution and climate change, but it also made the country heavily dependent on Russian oil and natural gas.
“We should really rebuild Ukraine up to modern standards,” Gorodnichenko said. “And this is going to be good not only in terms of climate change … but it also makes Ukraine less vulnerable to future blackmail from Russia … So you can kill two birds with one stone.”
Where will the money come from?
The European Union (EU) pledged about 9 billion euros to Ukraine last week in the form of loans. It also committed to setting up a “Rebuilding Ukraine” international platform that would allow countries to donate towards a reconstruction plan “drawn up and implemented by Ukraine, with administrative capacity support and technical assistance by the EU”.
The US and several other nations have announced they support a comprehensive plan for supporting and rebuilding Ukraine. The US Senate passed a $ 40 billion aid package for Ukraine last week, but Treasury Secretary Janet Yellen said at a speech in Brussels that “eventually, Ukraine will need massive support and private investment for reconstruction and recovery, akin to the task of rebuilding.” Europe after 1945. “
“What’s clear is that the bilateral and multilateral support announced so far will not be sufficient to address Ukraine’s needs, even in the short term,” Yellen said.
In addition to support from allied nations, Gorodnichenko said Russian assets seized as a result of sanctions could be used to foot the bill. Yellen, however, said last week that, “While we’re beginning to look at this, it would not be legal now in the United States for the government to seize those assets.”
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Gorodnichenko said the international community could also use historical precedent to find ways to make Russia pay for Ukraine’s reconstruction, even if it did not agree to pay reparations. He said that after WWII, American officials froze Nazi assets in the US, and then used those to compensate victims of war crimes.
He also pointed to Iraq, which paid about $ 50 billion in reparations to Kuwait over 30 years in the form of taxes on its oil to compensate for the damage caused by its invasion in 1990. Gorodnichenko suggested “effectively a tax on Russian energy, and a fraction of that tax is going to flow to Ukraine to pay for the reconstruction. “
Both Gorodnichenko and Eichengreen worry, however, that the EU’s aid seems to be mostly in the form of loans.
“A country that is destroyed by a big war is not going to have the capacity to repay loans anytime soon,” Gorodnichenko said, adding that 90% of the Marshall Plan’s aid was given in the form of grants.
Eichengreen said the EU had demonstrated it did have the resources to dedicate more funding to Ukraine in the form of grants. He pointed to 2020, when the EU borrowed 750 billion euros to establish a recovery fund for the pandemic coronavirus.
“They could do that again if they thought this was a priority,” Eichengreen said.
How would this effort compare to the Marshall Plan?
Eichengreen said it wasn’t a simple one-to-one comparison, but a lot could still be applied from the Marshall Project to rebuilding Ukraine.
He argues that the international community needs to learn the right lessons from history, rather than simply seeing the Marshall Plan as one giant cash transfer.
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The Marshall Plan succeeded, he said, because it didn’t just transfer money. There was a significant exchange of knowledge as European officials, engineers, and workers traveled to the US to understand the latest construction and manufacturing techniques.
Eichengreen said that similarly, Ukraine would need to reverse its skilled brain drain and encourage refugees to return to the country, as well as source engineers from around the world for a massive undertaking.
And Marshall Plan funds actually took a few years to arrive in Europe following WWII. Gorodnichenko said the period from 1945 to 1948 was very painful for Europeans.
“This is why these conversations about the reconstruction of Ukraine should be happening now, so that by the day when the war is over, there is a facility or program or administration already set ready to go,” he said. “We should learn from our mistakes and make sure that there is no unnecessary suffering in Ukraine.”