The Economic Consequences of Peace in Ukraine

Absent nuclear armageddon, the current conflict will be resolved, one way or another--hence it's worthwhile trying to figure out what lies ahead: here are my 2 cents, please let me have yours!

Prefatory remark

The below essay isn’t me expounding wishful thinking or, in any way, shape, or form, an expression of condoning the assumed antecedents of an eventual resolution of the current Russian-Ukrainian (NATO/US) conflict. Barring the use of (strategic) nuclear weapons—that would quite likely render anything quite moot—the conflict will draw to a close at some point, and while I’d personally see that resolution come about sooner rather than later, the following consists of a couple of considerations that might inform future discussions about the nature of the settlement.

Preface: Money is the Sinews of War

To fight, any government needs men, matériel, and money, not necessarily in that order, but one needs, to cite a truism attributed to Roman statesman Marcus Tullius Cicero (106-43 BC), ‘money is the sinews of war’.

(Incidentally, this is quite close to my own academic expertise: for the past decade or so, I’ve been researching the fiscal-financial-military régimes of early modern Europe, hence, I feel quite competent to weigh in on this topic here. But I digress.)

Hypothesis: A Conflict Resolved

At some point, the conflict will end. From a purely operational standpoint, I consider it quite unlikely that the Ukrainian military can recapture the four regions that recently ‘joined’ Russia.

I base this not on sympathy with Mr. Putin or my personal dislike of Mr. Zelensky and the Kiyv régime—but rather on hard facts: those four regions constitute some 80+ percent of Ukraine’s pre-February 2022 economic potential, hence without continuous and increasing out-of-area life support, there’s simply no way the Ukraine will be able to sustain its efforts.

In light of the above—the Donbass area holds most of the famous Ukrainian Black Earth and most of its (quite dilapidated) industries, to say nothing about war damage. With these areas now in Russian hands, it is quite unlikely that Mr. Zelesnky is able to raise enough fiscal revenues from the remainder of Ukraine to continue fighting.

Sidenote: from purely fiscal-financial point of view, historically—from medieval Venice via early modern Britain to the contemporary United States—tax revenue (fiscal extraction from the domestic populace) has always served but one purpose: to service the financial side of things (i.e., credit). Wars are immensely expensive, and there’s no way regular taxation could possibly be used to pay for this most destructive of human endeavours. This has been the case from the Middle Ages onwards, and there’s simply no way modern, industrial-scale warfare could be sustained for any period of time without taking recourse to credit or debt-financing.

So, with Ukrainian capabilities—possibilities—to continue to use tax receipts to service their (external) debts, I hope that it is clear that any amount of funding pumped into the Ukraine is never going to be repaid. Period. If the creditors are lucky (ahem), they may get some debt-servicing for a few more weeks or even a couple of months, but that’s it. Anyone who tells you differently is, well, to put it politely, lying to you.

On the other side, Russia, while far from not being affected by the conflict, fares much better. Contrary to Ukraine and the West (whose economy is based to around 75% or more on services, i.e., consumption), the Russian economy is largely based on extraction of raw materials (primarily hydrocarbon energy) and industrial production.

The gravy train of Western financial and other assistance to Ukraine will come to a halt before too long, if only a lot of the products consumed by Westerners are being made in China anyways. The energy crisis in Europe will do the rest, i.e., bring Europe’s remaining manufacturing down and induce severe domestic stress across the continent.

Thus, in short, the conflict ends before too long with a settlement that will, perhaps, see more Russian gains and perhaps even EU/NATO members to try to take over parts of what is western Ukraine.

Long story short: at some point in the not too-distant future, the conflict will end, like all conflicts did, at the negotiating table.

Antithesis: Ukraine, a Failed State

Anyone who’s even vaguely familiar with the history of Europe understands one thing: to count on the charity of Europeans is, more often than it is not, a forlorn hope (and I’m being quite charitable here).

It stands to reason that some pledges for ‘reconstruction’ will be made, but as always, these will go to ‘domestic’ contractors that will get extra-well compensated for doing work with limited oversight, downsized (if existent at-all) regulatory oversight, and all the accoutrements of (post)colonial attitudes towards the ‘natives’ (as in: ‘don’t tell us this is shoddy, we know what we’re doing’).

If you elect to believe otherwise, be my guest (but do check out what happened to comparable ‘reconstruction’ efforts in, say, Bosnia-Herzegovina, Kosovo, Afghanistan, Iraq, and Libya, to say nothing of the mother of all such boondoggles, Palestine).

Still, such an avenue would depend on two other factors: the direct comparison to what transpires in the Russian parts of (formerly) Ukrainian territories—and the (re) action of Ukraine’s western neighbours that, after, of course, denouncing Russian aggression for some time, might also take over ‘historic’ lands.

Ask yourself: what could go wrong?

Mr. Zelensky might imagine Ukraine to ‘become a big Israel’, but in reality, if that analogy is to hold water, the NATO/EU cabal might be like Israel, with whatever remains of Ukraine being relegated to the role of ‘Palestine’.

Welcome, then, dear Ukrainians, to the reality of what is quite likely in store.

Synthesis: Who Benefits?

As in every war, there will be winners and there will be losers.

The Losers are Coming into View

The latter will, in all likelihood, be the Ukrainian people. It’s not that this sad fact wasn’t apparent during the last, say, roughly twenty years (since at least the runup to the first ‘colour revolution’ in 2004), but the poor Ukrainians who didn’t manage to get out to some Western country will pay a quite high price for staying home.

The beneficiaries of the above-mentioned boondoggle will be, in ascending meta categories, the following groups (we’ll start from the bottom up):

Western peoples who will suffer most from limited access to energy, the accompanying economic dislocation, and the resultant problems to make ends meet. It’s an almost ‘perfect’ setup to introduce a ‘universal basic income’ (UIB) while simultaneously slashing welfare spending; perhaps, UBI will be ‘paid’ out on top of food and energy rations. Needless to say, any kind of UBI will quite likely be paid out in Central Bank Digital Currency (CBDB) and too little to survive, but a bit too much to forego. In addition, massive armaments bills to ‘counter Mordor’ (Russia) will be rushed through parliaments (if they still matter), offering countless menial ‘jobs’ to the population that, bamboozled into two-minute hate via gov’t-sponsored propaganda, work in our ever increasingly militarised economies. Add to that the countless opportunities to virtue-signal disapproval with those who ‘sympathise with Sauron’ (Mr. Putin), engage in anti-social behaviour (by liking freedoms), and the like. For the puppets who claim to govern us here in Europe, it’s a win-win-win; for Us, the People, there’s nothing to gain but bare survival—until, Starship Troopers like, we’ll be mobilised and sent to the front (even though Il Deserto dei Tartari, or The Tartar Steppe, written in 1940 by Dino Buzzatti, might be the more apt comparison).

Seriously, read the book—it’s awesome (and eerily prescient).

Western government contractors (who, incidentally, may be the only ones who still accept increasingly worthless Western paper moneys, such as US$, £, or €); perhaps, these contracts will be tied to the Central Bank Digital Currency that is tied to the public-private-partnership (a misnomer of ‘fascism’, or ‘corporatism’, if there ever was one) of a social credit system akin to the one in China. Of course, our western version will be indefinitely worse, for, say what you want about the Chinese, they still value their civilisational achievements while we, in the ‘oh-so-gloriously-advanced West’ are resembling more and more the Borg of Star Trek vintage). Of course, anyone who criticises these policies will be cast out or perhaps even drafted to man the frontier forts.

The Western elites, the ‘masters of mankind’ (Adam Smith), who will oversee the increasingly infernal places our once-great nations will turn into. I here recall Jordan Peterson’s adamant opinion, voiced in January 2022 (iirc) on Joe Rogan’s podcast: ruling over hell on earth isn’t success; it’s quite the opposite.

In short: economies, such as the ‘advanced’ (financialised) ones in ‘the West’, will lose on many fronts, in particular because there is one clear bully (the US), which will merely loot and pillage its ‘allies and partners’.

The Winner Takes it All

As to the true winners, well, it doesn’t take a genius to recognise that those areas that still focus on manufacturing and production—most notably China and Russia as well as those places in their orbits—will come out on top.

Already, most of the stuff Westerners consume is made elsewhere, and the impending drastic increase in financialisation and bespoke shenanigans will not change this fact of life one iota.

In addition, the sham masquerading as ‘Western values’ will be utterly and thoroughly discredited by simply looking across the borders to Russia and China: lots of new construction, finished quite on time (just do a quick comparative search of Moscow vs. Berlin airports), and with quite some multiplier effects for the wider public. (You can say what you want, I’m not endorsing their anti-freedom régimes, but they appear to be delivering for the masses in a way that’s certainly not without drawbacks, but appears to be quite better at getting stuff done than our systems.)

Needless to say, Westerners will quite likely be forbidden from travelling there, rendering virtually all of Eurasia into a large no-go zone for Western tourists (that is, those who could still afford to venture abroad…).

In short: economies, such as the Russian, Iranian, and Chinese ones, which are still revolving around manufacturing and actual production of goods, will come out on top. Producing goods will also incentivise their leaderships to make sure there will be consumers, either domestically or abroad, but it would be deranged to hope that the current system of East-Asians producing stuff for Westerners that is paid for by increasingly worthless Western currencies will continue indefinitely.

Bottom Lines

Manufacturing-based economies will come out on top, and they have an incentive to have customers; by contrast, the most heavily financialised economies will lose the most, as all they know to do is loot and pillage (which, to be frank, has its limits).

Financialised economies will lose, massively, especially as their incentive to create rising levels of prosperity is close to inexistent. All that is required for the ‘masters of mankind’ is a small subaltern minority of sycophants who oversee the looting on behalf of someone else (which is what the EU/NATO is right now).

Sidenote: truth be told, the US, which was about 50% of the world’s manufacturing output in 1945, recognised this conundrum, hence the ‘generous’, if ultimately self-serving, ‘aid’ (Marshall Plan) to rebuild Europe—by creating consumers for America’s excess production. It’s not that China (and, to a somewhat smaller degree, Russia) are doing anything that substantially differs here (except in terms of scale).

There is little hope, in the short term, that the European peoples will recognise this conundrum, even though there are indications that this might change sooner rather than later.

There is no more ‘collective West’. There’s but the increasingly erratic imperial overlord (the US) that is lashing out at its ‘allies and partner’, presumably because its proclaimed adversaries (Russia, China, Iran) are too strong.

If there’s no nuclear escalation (God forbid), we’ll see a major global realignment before too long.

That said, keep in mind that many of the major trendlines—from CBDCs to UBI to increased digitalisation—are shared by all competitors. It is quite certain, then, that what we’re observing here is an intra-elite struggle about the seating (pecking) order of the 21st century.

As always, those in the standing area and in the otherwise cheap(er) seats—that would be the likes of you and me, dear readers—will bear the brunt of the costs.