Kyiv Security Forum

What should be the economy of Ukraine to attain the guaranteed victory over the aggressor

Vyacheslav Butko, Managing partner of the Thomson & French investment project

In early July Lugano will be hosting the conference dedicated to revival and reconstruction of Ukrainian economy.It is of critical importance to define the basic characteristics of the post-war economy to prevent or, at least, to complicate to the topmost degree any new encroachments by Russia.

Arnold Toynbee, a British historian, has formulated a “Challenge and Response” theory stating that only those nations vanquish in international political and economic competition that give a dignified response to an external challenge. According to Toynbee, at one particular moment of time Austria turned into a mighty empire from a tiny political unit responding to pressure from the Ottoman Empire. When the “response” is feebler than the external “challenge”, states cease to exist. This is what happened to the mediaeval project of Burgundy that lost in a competitive battle to France and became the humble French province.

Ukraine now faces the challenge of a manifest destiny: Russia experiences phantom imperial pains and revanchist sentiments attempting to absorb Ukraine. To preserve its sovereignty and to restore its territorial integrity, Ukraine now must ensure a proper military “response” to the said “challenge” (according to Toynbee). Still, imperial thinking “stitched” into the Russian ruling elites and national thinking, as well as attempts to solve internal problems through foreign aggression, create preconditions for further military attacks by Russia. Therefore, prior to the strong military response Ukraine must demonstrate a potent economic one.

History gives clues. South Korea stands out as the most plausible example. As Ukraine today, in its own time South Korea was “challenged” by military aggression from the Democratic People’s Republic of Korea, China, and the USSR. As Ukraine today, South Korea received a strong military support from the USA assisting it to endure the war.After the war of 1950-1953, South Korean economy was in ruins, and this is what we currently witness in Ukraine.Nevertheless, due to the mentioned challenges and in a short-term perspective South Korea enforced its military might, and in the mid-term perspective joined the top-30 world countries by its per capita GDP, and became part and parcel of the top-15 world states by its GDP size.

The above was attainable because the leasers of South Korea declined to accept proposals voiced by foreignconsultants that the country ought to concentrate on rice-growing and similar practices only. Instead, the country put into practice the industrial protectionism strategy allowing it to plunge ahead and join the club of the industrially developed states.

In 2016, Steven Pifer, the then US Ambassador to Ukraine, claimed that Ukraine must become an agriculturalsuperpower. This has already happened as our country is the largest world exporter of sun-flower oil, and is among the three leading exporters of barley, and among the top-five exporters of corn, etc. Still, these achievements failed to force back the Russian military aggression. High-capacity industrial enterprises of the second technological system did assist,even though to a limited degree.

The Russian army outnumbers not only our human resources, but technical as well, even though the latter ispredominantly of the Soviet-times. To defeat such an army one needs a more advanced and efficient weaponry. We receive it, but in limited quantity. Ukraine can start producing its own advanced weaponry only provided it aims to build a high-tech national economy. Economic breakthrough demonstrated by South Korea at its initial stage copied foreign technology developments. Considering the fact that confrontation between the civilized world and Russia continues for a long time, key partners of Ukraine should give us the technological novelty developments to allow for a fast-track development of Ukrainian military and industrial complex.

However, it is not only the war we live by... Alvin Toffler, an American futurist, stated that waging a war reflectsthe way of the rise in prosperity. We all know about strong technological leaps during the First and especially the SecondWorld Wars. This trend goes on. In 1958, in response to the Soviet space program, the US President Dwight D. Eisenhower created the Defense Advanced Research Projects Agency (DARPA). And in 1983, President Ronald Reagan started the Strategic Defense Initiatives program. The mentioned programs, along with the military-industrial complex units created a great many technology novelties and inventions across many sectors of civil industry. According to Steve Blank, a venture entrepreneur, the most potent and advanced world technological cluster in the Silicon Valley became what it is predominantly due to military orders. Military technologies transfer into civil industry is indeed the way the modern innovative economy is built to provide high-paid job stations for the benefit and good of all citizens.

UAVs masterly strike ground locations of the Russian invaders, or precise the fire for our artillery. In peaceful life, drones and UAVs serve as the modern deliveries instrument for consumer goods. Sometime soon, this will change the transportation paradigm (and will question some investments into “Big Construction” scheme). Back to UAVs and drones, though. They demonstrate a classical example of the Internet of Things. The latter’s idea is to liaise people, information, things, and geolocation. Civil-purpose use means expanding internet-connections beyond computers and communication systems, and embracing into the structure such mundane things as cars and automobiles, watches, food packaging, household appliances, and much more. Using novelty materials in defense sector, for instance, graphene opens up expansive prospects for civil economy sectors as it means lesser dependence on metals.

Considering the fact that currently our army reflects the old industrial structure and not the modern post-industrialone, there is no sign of breakthrough technologies transfer from the national military and industrial complex into civiltechnologies sectors. The “challenge” manifested by the current and probable future military aggression by Russia leaves Ukraine with one sole possible “response”. In practically no time, Ukraine should drop off its outdated industrial structure and its exporter-country status of agricultural produce and mineral raw materials, and must turn into a high-tech state. In times of peace this shall mean sustainable rise of people’s benefit and quality of life.

Indeed, there are short-lived examples when countries ascended through trade in goods of low redistribution and remained heavily dependent on the world commodity terms of trade. Let us have a look at Argentina of early XX century. Ukraine lived through just the very situation in 2001-2007, when economy was growing rapidly, households’ welfare rosebecause of high consumer demand and favorable world terms of trade for metallurgy and chemical sector goods. Alas, this did not last long, and did not end up in an increased country’s resilience. A different story is told when a country produces high-tech goods with a high share of added value. Then the success story is of a stable and long-lasting nature.Countries that wish to be sustainable and resilient in a long-term perspective instead of being “caliphs for an hour” build up their national production systems aimed at high-tech goods and commodities. It was industrial protectionism strategy that allowed South Korea to ascertain its long-term sustainable position at the “Grand Chessboard” (the expression used by Zbigniew Brzezinski in his works).

In modern world, any country’s military might directly depends on its industrial competitiveness and efficiency.So, now we have two major tasks to accomplish: to withstand in the military confrontation with Russia, and to build-up, at an accelerated pace, our hi-tech economic sectors. The success of the latter task unambiguously means that we have successfully managed the former.

In his time Arnold Toynbee arrived at a very important conclusion: in the absence of “challenges” countries have very little chances to rise to importance, and they fester and rot for centuries at the backyard of history, including the economic one. Ukraine’s very existence is now challenged by Russia. The question is how well Ukraine can handle this challenge.To ensure the unwavering state sovereignty, Ukraine’s economy ought to be based on innovative high-tech industry. Thisvery focus should be the pillar for negotiations (at the conference in Lugano and onwards) with our partners on issues oftheir support of the post-war revival and reconstruction of Ukraine.


*Opinion articles express the views of the authors, but not necessarily of the team of the Kyiv Security Forum.

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