Ukraine’s wartime economy is defined by the massive mobilization of resources for the war effort, funded by tax revenue mobilization at home and large-scale inflows of external assistance from allies. Sometimes referred to as military Keynesianismwhere spending on defense and the military industrial complex supports domestic economic demand, this model entails a growing importance to the state of the economy. For Ukraine, whose government once identified as economically “libertarian,” this is a significant political change. And this transformation comes at a time when Western states are also revising their economic doctrines away from the “small state, free market” dogmas of the neoliberal era. As markets left to their own devices will not deliver on political goals like addressing inequality, climate change, industrial development, technological innovation, or deliver outcomes consistent with national security, it is not just war pushing states to become fervently interventionist.
While this return of the interventionist state is long overdue, how to manage the relationship between state and capital is not straightforward and involves various threats to the broader public interest. These problems are posed particularly sharply for a country like Ukraine that has long had a problem of public institutions being captured by private interests.
Ukraine’s wartime economy is defined by the massive mobilization of resources for the war effort, funded by tax revenue mobilization at home and large-scale inflows of external assistance from allies. Sometimes referred to as military Keynesianismwhere spending on defense and the military industrial complex supports domestic economic demand, this model entails a growing importance to the state of the economy. For Ukraine, whose government once identified as economically “libertarian,” this is a significant political change. And this transformation comes at a time when Western states are also revising their economic doctrines away from the “small state, free market” dogmas of the neoliberal era. As markets left to their own devices will not deliver on political goals like addressing inequality, climate change, industrial development, technological innovation, or deliver outcomes consistent with national security, it is not just war pushing states to become fervently interventionist.
While this return of the interventionist state is long overdue, how to manage the relationship between state and capital is not straightforward and involves various threats to the broader public interest. These problems are posed particularly sharply for a country like Ukraine that has long had a problem of public institutions being captured by private interests.
Now, in the face of a series of recent scandals, Ukraine’s government is coming under enormous scrutiny—and its present crisis provides a warning to the rest of the world.
Discussions at the annual Ukraine Recovery Conference (URC), which gathered in Rome in early July, tend to eschew political controversy as much as possible. The technocratic atmosphere of the conference maintains a veneer that the liberal international order continues to function. One term above all others has come to dominate URC meetings: “de-risking.” This refers to the use of state and multilateral resources to tempt private capital into Ukraine. While in Ukraine de-risking refers to war-related investment risks, it has a much broader contemporary use. Public discussions around mobilizing private-capital for expensive infrastructure projects tend to involve the concept of de-risking. Capital and states tussle over profit lines, insurance, and risk guarantees, with the private sector usually driving a hard bargain before signing up. Investors seek guarantees before committing funds—what one financier on a URC panel referred to as forms of “semi-sovereign investment security”—, while governments and donors want to steer capital toward their favored policy goals.
Analyzing the outcomes of these tussles over investment burden-sharing, Daniela Gabor draws a relevant distinction between the “de-risking state” and the “national security state.” In the former, public money de-risks private profit through subsidies and guarantees; in the latter, the state asserts more directional control over capital, steering it toward strategic priorities. She contrasts the Biden administration’s Inflation Reduction Act, and its loose and incentive-based structure (de-risking), with its CHIPS Act (national security), noting that the latter involved far more assertive interventions into the organization of supply chains.
For Ukraine, the relevance of this overall paradigm lies in how the various historical cases of rapid “catch-up” economic development like in South Korea and Taiwan in the 20th century saw states utilize both compulsions and incentives to pivot capital toward outcomes that grew the economy’s productive base. These industrial policy models combined competitive ecosystems of public and private firms within an overall political settlement that saw the state wield veto power to get its favored outcomes. At its best, there are signs that Ukraine’s military industrial complex is mimicking some of these methods. Kyiv’s Brave1 innovation platform for defense technology, which provides a competitive ecosystem of producers with grants and testing facilities, is a good example. Key to the success of such a framework, however, are strong institutions that are able to protect the public interest.
Unfortunately, a series of recent scandals has thrown this into question. Standing accused of growing authoritarianismthe Ukrainian government has blocked the appointment of an anti-corruption investigator to lead the Bureau of Economic Security, an agency that has been accused of extorting private businesses. It has engaged in the apparent persecution of prominent anti-corruption activist Vitaliy Shabunin, leading to 100 Ukrainian and international nongovernmental organizations, including the German Marshall Fund of the United States, to protest directly to the president. And—most egregiously—it has effectively destroyed the independence of the country’s anti-corruption agencies. In a sign of the trouble to come, the first mass protests since the full-scale invasion, in defiance of martial law, have erupted.
Kyiv has now backed down in the face of this fury and their motivation appears to have been growing scrutiny of state and market relations in Ukraine’s wartime economy. For a world that is turning toward “de-risking,” as economic growth becomes more challenging and crises increase investment risk, Ukraine’s experience provides a warning: that the return of the state as a crucial economic actor creates opportunities for cronyism and rentier capitalism. If not designed well it can cultivate a private sector that lives off state largesse with little risk and no public accountability. These problems arise particularly sharply in Ukraine because of its history of elites competing for political power in order to capture rents and revenues from other factions. The war had appeared to provide the impetus to break out of this circular logic, strengthening the independent organizing capacity of the state. But despite Ukraine’s strong military performance on the battlefield, this hopeful assumption is starting to look optimistic.
Privatization and nationalization programs—seemingly counterposed political policies—have both come under scrutiny owing to the risk that they can, in different ways, be used by private interests to seize control of resources. More than 160 companies, nearly 8,000 organizations, and almost 12,000 individuals have been subject to some form of asset seizure or sanctions. While this level of state intervention, above all to tackle Russian interference, is to be expected in an all-out war, Ukraine’s free press is increasingly monitoring what happens to these assets once they are taken and whether these powers are being used appropriately. The case of the trade union building in central Kyiv—seized as part of a dispute with the labor unions over Soviet-era property—has aroused particular concern.
Last year’s privatization of the United Mining and Chemical Company (UMCC) is equally illustrative of some of these problems. The company is Europe’s largest titanium producer, an important strategic resource used in defense production. As a state-owned enterprise, the firm was accused of illegally trading with Russia via third countries and shell companies—and some form of engagement from international investors may well have been helpful to clean up the company and strengthen accountability. However, UMCC was sold very cheaply in a single-bid auction to Cemin Ukraine, a subsidiary of the conglomerate, Neqsol Holding, which is 100% owned by Azerbaijan businessman, Nasib Hasanov. The conglomerate retains a major position in the Azerbaijani economy, reflected in its status as one of the largest tax payers. As Azerbaijan, despite recent tensionsmaintains close economic relations with Russia, the privatization was criticized by anti-corruption activists owing to the obvious risk that Ukrainian titanium simply ends up in Russia’s military industrial complex. While the government argues that, if such a security risk emerges, it could seize the company back using wartime laws, this is hardly a ringing endorsement of its original decision and undermines the stability of the business environment necessary for well-regulated markets.
Ukraine’s scandals are now being covered extensively in the western pressposing a strategic risk to its support. To recover its position, Kyiv should refocus its strategic narrative around strengthening public institutions, setting out to cultivate what Gabor calls a “national security state” in the face of Russian aggression.
Critical to this is learning to say no, something that, in fairness, Ukraine’s politicians have on occasion argued. Two years ago, Serhiy Marchenko, the finance minister of Ukraine, told URC delegates that “traditionally, we were very welcoming to any form of money. Now we are not. If you want to rebuild Ukraine, you must stick to the priorities of Ukraine.” Such common sense, which requires a state that takes seriously its role as the guardian of the public and national interest, sits uneasily with the sale of UMCC.
Politics only occasionally intrudes on URC gatherings. In Rome, it fell to the Trump administration’s representative, special envoy Keith Kellogg, to play this role. He used his speech to denounce environmental, social, and governance standards as a “globalist” conspiracy against the “rights and interests of sovereign nation-states.” Kellogg mixed this sovereigntist framing with leftist arguments, in a classic Trumpian mélange. He denounced, for example, the U.S. record in Iraq and Afghanistan, arguing that “outside corporations and entities exploited the vulnerability of these countries for profit.” The speech may well have been interpreted in Kyiv as giving the green light to its rollback on anti-corruption efforts. His critique of America’s record of liberal state-building is undoubtedly self-serving and hypocritical given President Donald Trump’s attempt to actively dismantle America’s own liberal state at home. But this does not invalidate the truth—however partial—of his attack on America’s record of neoconservative intervention. Ukraine’s liberal allies offered no progressive version of this argument; a sign of how they cede this space to the radical right.
The crisis in Kyiv shows that liberals have to be far less naive in how they relate to corporate interests. As Ukraine’s allies develop new instruments to support public-private investment in its economy, these will need to be carefully designed to ensure subsidies and guarantees come with tough conditions to protect the public interest. Beyond Ukraine, with the interventionist state back in vogue, strengthening democratic institutions will be essential if the world is to avoid following the Trump administration into an era of crony capitalism.
