(Article by Yves Smith republished from NakedCapitalism.com)
At the end of this post, we are embedding a chapter on the devastation in Russia in the 1990s to give an idea of what the downside in Ukraine might look like.1 Recall that even though the USSR had suffered from underinvestment in many sectors, it still had ample resources and considerable manufacturing capacity. It did not, as Ukraine has, suffer from considerable infrastructure destruction, a fall in its population to half its former level, through flight, annexation, and death in the war, and the loss of some of its most economically developed areas.
The war is now entering a critical phase, with experts now warning of a breakdown of the Ukraine military in the not-terribly-distant future or using formulations that amount to the same thing. Scott Ritter had predicted that outcome for late summer-fall based on Ukraine’s dwindling missiles supplies, but that horizon has been extended by the US supply of cluster munitions, whose use is considered a war crime by many countries.
An indicator of the increased willingness to admit the inevitable military disintegration was coming is the early September article, How Ukraine’s Heroic Stand Against Russia Could Collapse Into Failure by Daniel Davis in 19FortyFive. Some parts of the press are admitting that the much-ballyhooed counteroffensive has failed; others are following official messaging via the revisionist history of claiming it had limited objectives and holding out the laughably false hope that Ukraine might still puncture Russian fortified defense lines and reach Tokmak before the fall mud season starts.
Seymour Hersh’s latest newsletter depicted both Biden and Zelensky as dug in on continuing the war (without mentioning that Banderite guns at the back of Zelensky’s head mean he cannot act otherwise even if he wanted to). But as the saying goes, if wishes were horses, beggars would ride. And there is a noteworthy failure of wishes to translate into improved capabilities. From Hersh:
There are significant elements in the American intelligence community, relying on field reports and technical intelligence, who believe that the demoralized Ukraine army has given up on the possibility of overcoming the heavily mined three-tier Russian defense lines and taking the war to Crimea and the four oblasts seized and annexed by Russia. The reality is that Volodymyr Zelensky’s battered army no longer has any chance of a victory….
“There were some early Ukrainian penetrations in the opening days of the June offensive,” the official [ with access to current intelligence] said, “at or near” the heavily trapped first of Russia’s three formidable concrete barriers of defense, “and the Russians retreated to sucker them in. And they all got killed.” After weeks of high casualties and little progress, along with horrific losses to tanks and armored vehicles, he said, major elements of the Ukrainian army, without declaring so, virtually canceled the offensive. The two villages that the Ukrainian army recently claimed as captured “are so tiny that they couldn’t fit between two Burma-Shave signs”—referring to billboards that seemed to be on every American highway after World War II….
“The truth is if the Ukrainian army is ordered to continue the offensive, the army would mutiny. The soldiers aren’t willing to die any more, but this doesn’t fit the B.S. that is being authored by the Biden White House.”
This outcome is not a surprise to anyone who has ventured outside mainstream reporting to find sources that have been paying attention to what is happening on the battlefield and with weapons supplies. Russia was outproducing the entire Collective West in artillery when the war began, and if anything, that gap has widened. Russia also has the advantage in missile production, has substantially increased drone output, and already had the most advanced air defense systems. The West despite handwaves has done little to increase capacity.
Worse, Russia burning the hodge-podge of supposedly game-changing Western tanks and armored vehicles had been both so embarrassing and effective that Ukraine has been reduced to moving men on foot to assault Russia positions, resulting in predictably horrific loss rates. Alexander Mercouris has correctly called the results a killing field.
As the offensive has quietly slowed down, Ukraine’s support is also breaking down. Even if resolve had held, there was the unanswered question of where adequate weapons supplies would come from and how Ukraine would build yet another army, since by my count, its third is in the process of being destroyed. The idea of forced repatriation of military-aged men from the rest of Europe was a joke, another demonstration of Ukraine’s sense of entitlement.2
But Zelensky’s effort to drum up more money and goodies from the West via his UN and Washington sales effort fell worse than flat. For one-stop shopping, see Simplicius the Thinker in Zelensky’s Terrible, Horrible, No Good, Very Bad D.C. Snubfest.
Zelensky’s visit revealed how the cost of Project Ukraine has become far too high as recognition rises that what would be required just to keep things going is an open checkbook…even before getting to the looming manpower problem. In an attempt to keep the optics up as Team Biden and other over-invested in Ukraine try to regroup, more and more spokescritters are shifting their patter from “Great Ukraine victory when it restarts the offensive” to the new sick fantasy of a multi-year war.
And even worse, European support is also buckling. As we discussed yesterday via Andrew Korybko’s post, Poland & Ukraine Have Plunged Into A Full-Blown Political Crisis With No End In Sight, both Slovakia and Poland have elections soon. Parties opposed to continuing high levels of support for Ukraine have good potential to win. If they were to prevail, it would knock the wind out of the pretense of NATO support for Ukraine.3
Poland in particular has been one of the most rabid supporters for Ukraine, and by virtue of location and inclination, has been imagined to be a source of troops if the US and NATO were to be so foolish as to put their own boots on the ground. Polish president Duda may be pandering to save his electoral hide by standing up to what he depicts as Ukraine’s abuse of the grain deal and describing Ukraine a drowning man that he will not allow to pull Poland down into the drink, even as Prime Minister Morawiecki says no new weapons will be sent to to Ukraine. But some things cannot be unsaid.
Now after that introduction, to the main event of the exceedingly poor economic prospects for what will be left of Ukraine… which is not even known. It’s pretty remarkable to see chipper talk in the West of rebuilding Ukraine, since it presupposes there will be a meaningful Ukraine left. It’s reminiscent of children discussing how much of an ailing parent’s wealth they expect to carve up when the process of dying could well wipe out the remaining assets.
The quality of data about Ukraine is terrible. Western reporters appear to have mainly visited Kiev, which so far has been spared most of the destruction, and only a few hardy souls have gone to the front lines. As far as I can tell, we don’t have sightings of conditions in much of Western Ukraine, save also for the shellings of Odessa. Note that Russia has increased its strikes on Lviv in the past month. So we don’t have much of an idea of how much physical damage has been done.
We have discussed Russia’s selective destruction of the electrical grid. Even though enough was patched up to keep it running, some have claimed that the repairs are glue-and-bandaid enough that parts will probably fall over on their own with increased winter load.
Russia has also been using drones a lot of late and holding back on missiles, which means it could easily rinse and repeat its grid attacks. Since only Russia makes the major components of the Ukraine electrical system, and Ukraine had been some of its replacements from former Warsaw Pact members, more Russian attacks would eventually put large parts of the electrical system beyond anyone’s ability to fix save Russia’s (the West is simply not going to build special purpose factories for the a big blip of Ukraine refitting).
So Russia if it wants to controls Western Ukraine’s future if it sufficiently takes out its power network.
Let’s consider other complicating factors. One is the loss of population, particularly of the working age. As Michael Vlahos pointed out:
However, Luttwak bases his prediction on Ukraine having a population of 30 million. That number comes from January 2022. In an analysis by the think tank Jamestown Foundation, which is connected to the American intelligence community, it is said that the Ukrainian population has today shrunk to just 20 million, slightly more than the Netherlands, but fewer than Taiwan. And of the 20 million, according to the Jamestown Foundation, retirees make up over half: 10.7 million.
Ukraine’s government is now substantially if not totally dependent on Western funding. Federal spending was $35 billion in 2021 and $61 billion in 2022. A substantial portion of US aid was to prop up the government.
And even if spending falls from war-level peaks, Ukraine’s fall in GDP (estimated at 25%, which seems low) in combination with not just an aged population, but now a large number of war disabled, including many amputees, means an increased social burden with greatly diminished productive capacity.
And we have not even factored in what happens if Russia eventually marches up to the Dnieper, getting even more of Ukraine’s most productive farm land, and/or takes the Black Sea coast, turning Ukraine into an even poorer landlocked rump state. The fact that the US is unwilling to make any concession to the key Russian demand of no Ukraine ever in NATO means Russia will prosecute the war until it has subjugated Ukraine, by whatever combination of conquest, installation of a captive government, and economic destruction needs to happen.
Consider what has happened to the hyrina under the tender ministrations of the US:
What happens when the Western budget support to Ukraine dries up? Huge deficit spending. And what do big deficits in combination with a big loss of economic productive capacity produce? Hyperinflation.
Now with these sorry prospects, we nevertheless have the touting of the reconstruction plans, because big private sector names like BlackRock are attached to them.
President Biden just appointed the multi-billionaire heiress Penny Pritzker – Obama's chief mega-donor – to oversee the profiteering plans in Ukraine of BlackRock, JP Morgan and Goldman Sachs: to "rebuild" the country with US funds once Raytheon and Boeing are done profiteering… pic.twitter.com/y10rI8alYx
— System Update (@SystemUpdate_) September 16, 2023
People like Greenwald are concerned, but not to worry. This rebuilding program is a hollow mandate. The fact that various players might skim some fees while spinning their wheels does not meant there is a prospect of anything meaningful happening. I could go on at great length and may do a fuller kneecapping later. But this will hopefully do for now.
First, those who remember the 2015 Greek bailout crisis may recall that the Trokia tried hawking Greek assets, hired agents, and had planned to reap €50 billion. As we wrote in Look What You Can Buy in the Greek Liquidation Sale!, that figure was wildly exaggerated. As far as I could tell, aside from the sale of the port of Pireaus, the effort was a huge flop. And remember, Greece was suffering merely from a very depressed economy and the related loss of workers with employment prospects in the rest of Europe, as it was nothing even remotely as bad a basket case as Ukraine will be.
Second, by making reconstruction a private sector initiative, governments are effectively washing their hands of Ukraine.4 The most critical parts of Ukraine to rebuild will be the foundations of functioning communities: roads, water systems, bridges. Those are built by governments because they are shared goods. Pray tell, what kind of society would Ukraine have if it ran on the infrastructure fund basis of having only/mainly toll roads and bridges?
Third, the numbers Ukraine needs are ginormous. Even the $300 billion of Russia assets that “seize not freeze” Ursula von der Leyen would like to get her hands on is not enough. Zelensky in July said Ukraine needed $750 billion for reconstruction.
Even if Zelensky were miraculously to get the funding, where would the know-how and skilled laborers come from? Very few Western countries (France and Australia high on the list) are good at large scale infrastructure. But all of the members of the Project Ukraine would want their piece of the reconstruction pie. Imagine the squabbling and the low odds that the best qualified players would get the green light.
Fourth, Zelensky is again selling hopium. Per the Daily Mail:
The meeting discussed the creation of a platform for attracting private capital to rebuild Ukraine. Zelensky also focused on directions of large investment projects in Ukraine specifically in green energy, IT, and agricultural technologies.
All those initiatives presuppose a functioning economy, such as a decent number of high-end professionals and well-functioning logistics. Those are conditions not likely to be much in evidence.
Finally, for an initiative this large to have any chance of success, you’d need to divvy the work among top infrastructure players around the world. Instead, Team Biden threw a US party. Note how far down on the Infrastructure Investor list below BlackRock is. Ukraine’s lead adviser JP Morgan is #78. KKR, which is #4, has strong Republican ties, which is the presumed reason for them not being much in evidence in this effort despite being the best qualified US player:
In other words, the Ukraine tragedy will not be over if and when the war ends. Americans should be embarrassed that we plan to add investor looting to the damage, even though as indicated that is actually unlikely to get much of anywhere.
1 Keep in mind that when the USSR broke up, the members of the Warsaw Pact had been as a whole net recipients of support from Russia (that does not mean that there were not serious economic consequences to Russian industry via enterprises having operated in an integrated manner in Russia and Warsaw Pact countries suddenly being balkanized).
2 Refugees and asylum-seekers are entitled to due process. They can’t be tossed out in bulk. They would need to be extradited individually for draft evasion. That means supplying names to the legal authorities in the country where they now reside. Tell me how Ukraine even would know that, before getting to the wee problems of whether those courts would even consider those cases and how many they could process.
3 Scott Ritter pointed out long-form in an important speech that the Ukraine conflict has revealed NATO to be a paper tiger.
.4 We do have the bizarre specter of the World Bank proposing to launder $25 billion through the Clinton Foundation, which has no track record in infrastructure-building. They do claim to have built “health infrastructure” in the DRC, whatever that means.
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