You can’t win a war without a war economy

By Paul Mason

During the past three months, miners in Volyn have protested against what their leaders allege is management corruption. Nurses in Ivanovo Frankovsk have protested against unpaid wages. At the Lviv academy of Typography students demonstrated against the institution’s closure, as what they say is part of a World Bank-funded asset grab.

Meanwhile in Kryivy Rih, miners at four mines carried on working underground despite the shutdown of electricity supplies, in order to go on extracting ore — and had to be rescued by the authorities.

In short, the class struggle is alive and well in wartime Ukraine; and so is the heroism and self-organisation of its working class.

Resistance to attacks on labour rights have not dimmed workers’ support for the war effort. But as Russia adopts a strategy of humanitarian catastrophe, degrading energy infrastructure to the point where Ukrainian cities become unliveable, we may be approaching a crunch point.

The more Ukraine achieves battlefield success using American military technology and money, the more diplomatic leverage it hands to the Biden administration to determine the conditions of victory.

Likewise, the more it tries to run a war economy without state direction — relying on foreign aid, its own central bank and deregulated labour markets — the more it requires the Ukrainian working class to shoulder the burdens of war.

That’s the preoccupation behind two reports produced this week: the first is from PeaceRep — a UK Foreign Office funded project based at Edinburgh University; the second from the Atlantic Council’s Strategy Consortium headed by George Bush’s former national security adviser Stephen Hadley.

Despite their radically different political starting points, the two reports throw into sharp focus the same central questions:

  • What is Ukraine’s theory of victory?
  • What is the USA’s theory of victory?
  • To what extent do they align?
  • Does the present political economy of the war facilitate victory or — as proposed by PeaceRep — raise the prospect of Ukrainian state failure?

In this article I use the term “theory of victory” in the basic Clausewitzian sense: if Russia’s ability to resist is a combination of its will to do so and its means to do go on fighting, how can its willpower and resources be degraded to the point where resistance is zero?

Russia’s altered strategy

It’s already clear from (among other sources) this week’s RUSI report, that Russia’s initial concept of victory was thwarted in the first 37 days of fighting.

Its aim was to decapitate the Ukrainian state; paralyse the international community with the swift seizure of Kyiv; mobilise the supposed apathy and sympathy of an unheard Ukrainian population by degrading energy and water supplies; pin Ukraine’s army in the Donbas; and defeat it in detail within 10 days. After that it would annex some or all of the country and enact the de-Ukrainisation strategy outlined in the Timofey Sergeytsev’s infamous RIA-Novosti article.

This failed because: a) the decapitation operation was defeated; b) the international community was mobilised and stood firm in defence of Ukraine’s right to exist; c) popular support for Russia was vastly over-estimated, and the resistance of the people was heroic; d) the initial strikes did not cripple Ukraine’s infrastructure; e) the Ukrainian army moved “three or four echelons” out of the Donbas by rail into a meeting engagement with the attack on Kyiv; f) Ukraine was able to mobilise large numbers of reservists and, as a result, defeated Russian forces north and east of Kyiv by Day 37 of the war.

After this, Putin moved to a fallback strategy: he would take and annex the whole of Donbas, claiming Kherson and Zaporizhzhia oblasts (possibly for negotiation purposes) with the aim of seeking: i) international recognition of the Crimea annexation; ii) the lifting of sanctions; iii) acceptance by the USA/NATO that the rules-based global order has ended and that Great Power systemic competition has replaced it.

The starting point for any discussion of Ukraine’s best-case outcome is that — despite the Kherson and Kupyansk counter-offensives — such a Russian victory remains possible.

Putin’s best hope of achieving it is by creating a humanitarian crisis this winter, propelling ten to 15 million new refugees westward, and inducing Ukrainian state failure. At this point, he might gamble, the will of the West to go on backing Ukraine military offensives could crumble.

It should go without saying that Ukraine has the right to self-determination; that the Ukrainian people alone must set the terms of any negotiations and ceasefire through their elected government; and that Western governments should stand with Ukraine unconditionally.

However, the range of opinions now being expressed in the West also reflects disagreements within the Ukrainian political scene, and the class conflicts that will inevitably intensify as the question “who pays for the war?” looms larger.

A war economy without the state

As Adam Tooze memorably put it in September, the Zelensky government has been trying to wage total war without serious state direction of the private sector.

Ukraine has made itself reliant on a mixture of external payments — aid and loans from the West — and its own central bank’s money creation, to fund a $5bn a month budget deficit. Despite this, its GDP is collapsing, 25% inflation is eroding real incomes, and there is 35% unemployment.

It has been egged on in this strategy by free-market luminaries from the Centre for Economic Policy Research (CEPR), who in August called on Ukraine to impose a mixture of tax rises, labour market reforms and radical deregulation, in order to head off hyper-inflation and economic collapse.

Unlike all previous modern states faced with total war, argued the CEPR without any substantial evidence, Ukraine lacks the capacity to run a command economy.

It should leave Western NGOs to fulfil the functions of the state, cancelling welfare obligations, avoiding price controls and abolishing most regulations protecting workers — in order to facilitate the geographic migration of the productive economy to safer areas West of the Dnepr.

It was a classic, neoliberal solution to a political problem: everything must be tried except state ownership, control and social justice. What Napoleon, Lincoln, Wilson, Roosevelt and Ho Chi Minh achieved by diktat, Zelensky is supposed to achieve using Adam Smith’s hidden hand alone.

Unfortunately it is what Zelensky has tried to do. His Servant of the People party was elected on an anti-oligarchic platform. It continues to associate state direction, pre-existing labour rights and price controls with “inefficiency” and corruption, while embracing deregulation as the supposed gateway to faster integration with the European Union.

For example, railway workers I met in Kyiv in February, resisting the seizure of union property, were told by their managers that “unions are not part of the EU reality”.

And there’s more to come. In June a group of right-wing Ukrainian economists published a reconstruction plan called Imagining Ukraine in 2023. They advocated wholesale marketisation of healthcare, ‘total privatisation’ of state assets and a post-war programme of public service and welfare cuts.

This mixture of external advice and internal neoliberal pressure is well known to all those who witnessed the shock therapy applied to Eastern Europe by the IMF/World Bank in the 1990s. In contrast the Atlantic Council report is a clarion call to prioritise winning the war over deregulating the economy.

Making Putin pay

The Atlantic Council report argues that the USA must explicitly declare:

“that it supports Ukrainian victory and Russian defeat in terms of the Kremlin’s strategic goal of destroying the Ukrainian nation and Ukrainian identity”.

It should double down on military, financial and diplomatic support for Ukraine, refusing to be cowed by Putin’s nuclear threats.

The Council’s substantive proposal is for the USA and allies to confiscate $316bn of Russia’s frozen foreign exchange reserves (the majority held by France, Germany and Japan) and — under limited conditionality — hand the money to the Ukrainian government.

Done right, that could fund the Ukrainian state budget for the next five years — and would relieve both the USA of the need to hand over $2.5bn a month in non-war spending, and the Ukrainian state of the need to print, borrow or tax-raise the money itself.

It is a bold proposal and has already been advocated by the Ukrainian left and labour movement.

Most importantly, argues the Council, US diplomats should “raise” political and economic reform with the Ukrainian government, but not demand such reform as a condition for disbursing aid.

Unlike the CEPR, the Atlantic Council report makes no substantive economic demands on Zelensky’s government, but instead signals dissatisfaction with the continued political tolerance of oligarchic power. It wants urgent reform of Ukraine’s judiciary and new guarantees for media plurality — but says nothing along the lines of the radical deregulation demanded by CEPR.

The Atlantic Council report can be read as the US diplomatic and security establishment saying to the neoliberals: defeating Putin is so important that we need to put warfighitng and democracy first, free-market ideological purity second.

PeaceRep — a warning from the left

The PeaceRep report, authored by leftwing LSE academic Luke Cooper, is one of the first Western interventions to focus comprehensively on the fraught political economy of Ukraine’s war effort, which according to local testimony is now coming under increased strain.

Though Western media coverage has made voters well aware of the physical degradation of Ukraine’s infrastructure — leading to energy blackouts, household energy insecurity and internal migration — few understand the scale of the economic collapse this is causing.

Unlike the states that fought the Second World War — and unlike its enemy, the Russian Federation — Ukraine has left its economy largely marketized and undirected during the conflict. The downsides, says Cooper, are as follows:

a) It cannot effectively co-ordinate a highly disrupted private sector to service both war needs and consumption; nor can it use the public sector to offset the collapse of the private sector

b) Its elites continue to prosecute class struggle objectives against the trade unions — pursuing privatisation, property grabs, de-recognition and the widely criticised Law 2136 which suspends labour rights for the duration of the conflict.

c) This leaves Ukraine is entirely dependent on Western aid and on its own expansionary monetary policy; this in turn fuels double digit inflation, eroding real wages — and undermines the very economic sovereignty Ukrainians want to fight for.

d) Further down the line, argues Cooper, a policy of radical marketisation in the context of an armed population and a weak national state could lay the foundations for state failure:

“It is essential that the Ukrainians avoid a scenario in which its democratic public authority breaks down under acute socioeconomic pressure”.

Cooper argues the present approach is unsustainable. Not only is the attempt to run a war economy without substantial state direction, ownership and control unprecedented, he writes, it bucks the current trend of thinking within the IMF and G7 economies.

In the developed world, policymakers responded to the Covid induced recessions, and to the demands of climate change, by moderating their opposition to state intervention, high borrowing and pro-active industrial strategy.

Cooper recommends that the Zelensky government should embrace European style partnership with trade unions, and build on recent attempts at state allocation of labour resources:

“In the short-term, Ukraine should move rapidly to a system of central state allocation of resources, and seize the chance presented by the impact the war has on voluntary compliance to raise taxes, tackle corruption and sharply improve the state’s institutional capacity.”

It’s a strategy that has found support on the Ukrainian left. As one Kyiv based Ukrainian left activist put it this week:

“What in peacetime looks unfair now actually looks unworkable. So the discussion about the future of Ukraine is becoming broader: people are engaging in discussions in social media — about how should we govern our economy. A lot of people they think that our economy needs more socialisation. Industries should be controlled by the public — democratised through the control of workers collectives. All strategic facilities should be nationalised under workers control.”

A left theory of victory?

At the start of the war, the Ukrainian left’s rationale national self-defence might be summarised as follows:

  • Ukraine is the victim of the crime of aggression under international law, as part of a concerted Russian attempt to rip up the rules based global order, upon which our rights depend (eg via the ECHR, UN etc).
  • As shown in the LNR/DNR and Crimea, the basic functioning of an independent labour movement, the rule of law, a non-Stalinist political left and any human rights protection is impossible under Russian rule.
  • Therefore, we support the war effort, join the armed forces (in some cases in dedicated left units) while defending workers’ rights to self-organisation and the left’s right to exist — while fighting oligarchic capitalism. This was summed up in the call by Sotsialny Rukh on 22 February 2002:

“Only a socialist and democratic Ukraine can resist the oligarchic authoritarianism of the Russian Federation. Preserving the independence of our country depends on abandoning the model of oligarchic capitalism. These include the nationalization of the financial system and strategic enterprises, the confiscation of luxuries, and a ban on capital outflows. Without these measures, the burden of military spending will fall on the poor labor majority of Ukraine. Democratization and the unification of society require the rejection of scandalous decommunization laws.”

I said, at the time, that the opening line of this was too categoric. Today it’s clear that the self-deluding politics of the Putin regime have opened the possibility not just of military defeat but strategic collapse, without Ukraine having to go socialist.

Because the West has mobilised in Ukraine’s support — with the USA and parts of Europe becoming its arsenal, and EU countries absorbing a large refugee population — Putin is facing a country that cannot be defeated militarily (without resort to nuclear weapons).

Its will to fight is unbroken, while its ultimate means to fight (the factories that produce HIMARS and 155mm artillery shells, and the US satellites likely providing targeting intelligence), are located out of reach of Putin’s armed forces.

However there is a chance, as Cooper points out, that if Putin destroys the physical preconditions for human survival in cities like Kherson and Kharkiv over the winter, triggering a second mass movement of refugees, he can still force the West to pull the plug. With the right mixture of intervention from Republican lawmakers and pro-Trump media trolls, he could reduce the amount of active support the Biden administration can deliver.

So while “socialism” is not necessary for Ukraine’s victory, the socialisation of the war effort is — through state control, ownership, planning and centralised mobilisation of resources.

Ukraine’s failure to do so leaves it entirely reliant on foreign aid and unsustainable money creation — which in turn hands the US political elite a veto power over when and where Ukraine has to stop fighting.

In short, the to avoid both diplomatic dependency and potential economic collapse, the Ukrainian state must take command of the economy — even if this runs against the political instincts of the current government.

Putin must fall

The pro-Putin wing of the far left remains worryingly vocal, flooding the discourse with disinformation and calls to disarm Ukraine— but is practically sidelined.

The internationalist left’s “theory of victory” in Ukraine meanwhile has always been clear:

  • We defend the rules based order, despite its hijacking during the neoliberal era by the US unipolar power, because it was created by the anti-fascist struggles of workers (and social democratic governments) in 1945 and is the precondition for international law.
  • We defend Ukraine’s right to exist within its 1991 borders and to resist aggression.
  • We resist, and wish to prosecute genocide, war crimes and crimes against humanity.
  • We thus support Ukraine unconditionally for as long as its people want to go on resisting.

What the left has always added to the mix is its refusal to write off Russia’s workers and youth, and the desire to collaborate with a wide range of anti-Putin forces in Russia and the other CSTO countries.

Because unlike for the corporate elites, who have always been happy to accomodate dictators like Putin, the international labour movement is unashamed to see “victory” in terms of regime collapse in Moscow. We stand everywhere and at all times for the overthrow of genocidal dictators, no matter how big a headache that creates for the global investment climate.

The Ukrainian left’s rhetorical calls for an anti-oligarchic and democratic transformation in wartime can now be concretised: around the demand for state control of the private sector, partnership with the unions (as advocated by PeaceRep) and the decisive seizure and transfer of Russia’s foreign exchange reserves to Ukraine, (as the Atlantic Council advocates).

It’s not socialism but it’s the kind of war economy in which the social justice, anti-oligarchic reform, democratisation and mobilisation for victory work to the same ends.

To maintain diplomatic freedom of action Ukraine has to stop trying to run a wartime economy through laissez faire, and stop encouraging the prospect of mass privatisations and attacks on workers’ rights once victory is achieved.

I support the demand to seize Russia’s foreign exchange reserves and hand them to Ukraine. But the voters of Britain, Germany, France and Japan are not going to hand that money to the Ukrainian government unless they see it working towards some kind of vision of social justice, with some realistic understanding that a war economy demands redistribution of wealth and power.

Republished with permission from paulmasonnews.medium.com

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