The Coming Post-War Reconstruction
Seeing Beyond The Past
Editor’s Note: First, we are going to start putting Editor’s Notes on pieces to let people know what they are in for. The questions this piece asks are “When is the right time to start thinking about post-war Ukraine?” and “What ought post-war Ukraine be?”.
The time for thinking must be now, for post-war Ukraine will not emerge virginally from the skull of Jove at the end of the war but evolve continuously from Ukraine’s recent past. In addition, uncertainty about the post-war environment increases the human and economic cost of war.
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In the first part of this piece, we establish the long term and large-scale facts about the Russo-Ukrainian War. The facts so presented prepare us for an analysis of what has happened in terms of the creation and destruction of rational modes of thought themselves. In the field of rationality creation, we find that the classic work of Clausewitz gives the most useful intellectual architecture to work with. After expounding a relevant and useful nerve of Clausewitz’s work, we move on to the economic content of post war planning. In contrast to other proposals, we center the choice between empowering local public administration and empowering what we term “the police/gangster nexus”.
Finally, we give some brief proposals on the second question. These concern chiefly how the international community can use forward guidance to help create a prosperous and stable post-war environment.
If I may start by speaking personally, until outlining this piece I didn't want to write on the Russo-Ukrainian War until active warfare had subsided. Taking long views and dealing Socratically with trends in the history of thought has long been the forté of this magazine, but there are times when long views are inappropriate. Simply by talking about the “long run,” one is already assuming that survival is assured. It is not always – or even generally – a sign of seriousness to talk about “the long run,” a point most famously made by JM Keynes in reference to the American Civil War.
In fact, the genesis of this piece was just such an unserious report on the war. As you will see, the ‘long run’ view of the conflict that this report takes imagines Ukraine’s long run as something already given and in fact rather dismal. We cannot afford this all-too-easy cynical determinism economically or politically. The ‘long run’ flows forward from the present, and the eventual shapes of the outcomes depend on the running decisions of the various participants. If there is a point to this piece it is that we can – and even ought to – provide forward guidance on the path of a positive post-war reconstruction programme to reduce the economic and hopefully the human cost of war today. Failing to do so because the long-run is already given is simple abdication.
In the past 20 years, Ukraine has had, in essence, three tightly linked revolutions: Orange, Euromaidan and the current Russo-Ukrainian War. The failures of the Orange Revolution were rooted precisely in the lack of imaginative system construction which could replace the system of shady deals. If this third revolution is to be a lasting one, then we must make the space for a new social contract between Ukrainians which will be stable, prosperous and free of corruption.
Stylized Facts, Definitions, and Goals
So far, the Russo-Ukrainian war has been uniquely characterized by conflicting and even manipulative narratives about pace, intentions and success. In light of this shroud of darkness, any engagement must start with a review of the broad and basic facts.
The Russo-Ukrainian War began in 2014, the year of the Euromaidan Revolution. The background to this was Ukraine’s Parliament voting to join an agreement which formalized relations with the European Union. Ukraine’s corrupt and incompetent then-president Victor Yanukovych attempted to single handedly veto this agreement. Yanukovych preferred instead to align with the Russian-led Eurasian Economic Union. Following this, Ukraine faced a constitutional crisis as Yanukovych attempted to assert control via a police-mafia nexus loyal to himself personally rather than the formal or legal apparatus of the state. Following the ouster of Yanukovych, Ukraine immediately - albeit somewhat symbolically - signed the original EU deal. Since then, Russia has all but declared the Ukrainian parliament illegitimate.
In February 2022, Russia invaded Ukraine. Despite early predictions of a rout, Russian conquest was frustrated in April 2022 as the Northern Campaign meant to drive from Minsk to Kyiv was thwarted. At the same time, Russian forces were expelled from Kharkiv in the northeast. By September 2022, Russia declared that they had annexed the eastern provinces of Kherson, Zaporizhzhia, Donetsk and Luhansk, roughly one-sixth of the country by area. This territory is still in violent dispute today, slightly less than 10 months into active conflict.
With the basic political geometry established, we can turn to the more abstract matters that interest us—in particular, the political decision making. Again, we must start with the facts: what is the political outlook? Although statements by political leaders are often dismissed as mere propaganda, it is worth thinking through what they mean as facts. That is to say, we must ask what they reflect about the political outlook, rather than what they reflect as potentially-true descriptions of events.
Compare the special Liberation Day address of President Volodymyr Zelensky to Putin’s speech at the plenary session of the Valdai International Discussion Club. On a date designated to celebrate the expulsion of Nazis from Ukraine, Zelensky affirmed the Ukrainian government's commitment to expelling all ‘Rashist’ (Russian Fascist) forces from Ukraine’s long established borders. Putin, by contrast, used the speech linked above to reaffirm his position that, because the borders of Ukraine “[were] created [by Russia] as an artificial state”, he has the right to alter the borders at will–in particular absorbing the parts of the world he calls “New” and “Little” Russia. Each speech may be propaganda, but together they paint a clear picture of the stakes of the situation for each side and the kinds of propaganda each leadership believes most effective, which is often more telling about the actual situation at hand.
Procedural and Substantive Rationality
“Man’s rational life consists in those moments in which reflection not only occurs but proves efficacious. What is absent then works in the present, and values are imputed where they cannot be felt. Such representation is so far from being merely speculative that its presence alone can raise bodily change to the dignity of action.” George Santayana, The Life of Reason, Introduction
The last fact I would like to establish about the political situation requires a bit more setup, since it is about a political and administrative dynamic rather than a simple state of affairs. Mr Putin’s speech above shows that what one might call “effectively substantive rationality” collapsing into “merely procedural rationality.” There is a deep problem here: as long as the war proceeds on the grounds of merely procedural rationality, uncertainty will dominate risk. This can, and actually has, both increased the human and economic cost of the war and made negotiations effectively impossible.
Since the difference between effectively substantive and merely procedural rationality will be critical to the rest of the piece, we should define them briefly and memorably. These terms arose in the psychological study of consumer behavior. In “From Substantive To Procedural Rationality”, economist and model-theorist Herbert Simon defines ‘substantive rationality’ as the approach wherein one’s behaviors can be predicted from one’s goals. This is the standard assumption of economics: you don’t need to know how a household is choosing among different washing machines, you just need to know the goal of getting washing services for the best price. Simon defines substantive rationality in order to contrast with ‘procedural rationality’, where behaviors are chosen as the consequence of some particular process for choosing behaviors. Anyone who has been in a failing organization has experienced some version of “we are buying this service that will not work because the rules say that that is what we have to do right now and who are you to disagree with The Rules.”
Of course, all actual decision making is procedural. Ideally, the decision making processes that power procedural rationality are somewhat appropriate to the task, and therefore is scarcely distinguishable from substantive rationality. Thus I use the term 'effectively substantive rationality’. But procedures can just as easily become stale routines practiced for their own sake, or chosen for reasons other than their sensitivity to ends. For the purposes of this piece, rationality is ‘merely procedural’ when it is detached from the exercise of substantive rationality.
The discussion above is already a bit abstract. In a different discussion, CVAR Editor Alex Williams suggested some ways to remember ‘effective substantive rationality’. He brought to mind the image of octopus learning to open a jar to find a treat [link]. Despite the fact that the jar was designed for operation by humans, the octopus can use an effectively substantive rationality to see that it contains a treat and figure out how to use abilities it has to get the treat it wants and can see. The octopus’s behavior is effectively predictable solely from the fact that the octopus likes treats. Merely procedural rationality often looks, from outside the system, like machines for accomplishing nothing. Think about how the rube-goldberg morning routine contraptions from Wallace and Gromit miss disastrously at every turn when it is Gromit, rather than Wallace, going through the course [link].
Okay, we can now come back from whimsical illustration. As mentioned, for well-functioning institutions, the distinctions between substantive and procedural rationality are mostly academic. However, when institutions break down – as they often do in open warfare – the difference can quickly become sharp. An overreliance on merely procedural rationality disrupts the ability to change beliefs as situations change, almost like denial in a psychoanalytic framework.
In some situations, merely procedurally rational beliefs may change too quickly to be contextualized by the procedures set up to establish them. Instead, the procedures in place simply swap out new untruths for old. As in Orwell’s 1984, the lie that Oceania has always been at war with Eastasia has no institution to refute it.
Contrariwise, in other situations, an overreliance on merely procedural rationality can dramatically slow down the process of changing beliefs. Certain costly errors simply continue when the procedures in place have no sensitivity to them, nor avenues by which the procedures themselves might be altered in response to changes in the actual environment. Think about a chemical plant just before an industrial disaster, where everyone is simply “following the rules” as best they can while pressure builds in some reactor offscreen.
In wartime, most real actors are forced into mere procedural rationality, simply in order to cope with the sheer volume of uncertainty that war presents. However, this lapse increases the human, economic and political cost of war in ways that are directly interlinked. Furthermore, there is more direct evidence than the above speeches that Putin has shrunk his inner circle, choosing his procedures for decision making based on the loyalty rather than the effectiveness of his advisors.
Clausewitz and the Creation of Rationality
“Everything is simple in war. But the simplest thing is difficult.”
Clausewitz, On War, Book One (On The Nature Of War), Chapter 7 (Friction In War)
If war arises from, and continues on, merely procedural rationality, then it will be difficult to plan or negotiate a lasting peace. Our job as observers of the situation is to figure out as quickly as possible how effectively substantive rationality can be restored. In many ways, the uncertainty of war is not qualitatively different from the uncertainty of economics: in neither is there already a fixed long-run waiting in the wings.
A response that minimizes the long-term economic and human costs of the war will involve equal parts economic strategy, political negotiations, and successful prosecution of the war itself. The most straightforward way to do this is to create a context in which the real actors participating in the war can behave in ways that are effectively substantively – rather than merely procedurally – rational. To create rationality, we first have to create the conditions of possibility of rationality.
Creating rationality has been the central problem of life at least since the times writing began and the need is no less pressing today. In relatively recent years, developments in the theory and practice of war have focused on the reduction of specific and narrow uncertainties (how many helicopters will be in location X at time T) to create a sort of certainty, a mere ‘risk’ to use the technical language. For example, the network centric warfare concept is organized around the idea that success depends on leveraging information advantages by providing individual units with relatively exact knowledge of where things might be. Knowing this, offense and defense become “easier” as the fog of war becomes lighter. Yet although today’s military units have dramatically more information - and thus more certainty - available to them than at any earlier point, our ability to create rationality in conflict, rather than mere certainty, is little better than that of our forefathers.
To understand just how little progress has been made, we can rely on the favored forefather of most modern military strategists: Carl Philipp Gottlieb von Clausewitz. Nearly every large war – or at least every large war that involves Europe or the anglosphere – sees Clausewitz cast on one side or another. As early as 1915, Lenin had taken to referring to Clausewitz as a scientific and Hegelian authority on modern warfare. After WWI, Clausewitz was recast as the archetypal rear-guard staff officer sipping cocoa and musing about Hegel while rats ate the enlisted men. During Vietnam, Clausewitz was recast again as a man whose accent sounds oddly Kissingerian. Even as recently as the Iran-Iraq War, Clausewitz became a dogmatic to whom there was no alternative.
The Russo-Ukrainian War today looks, to an unserious observer, an awful lot like Clausewitz’s most famous cliché: that war is only ever “politics by other means.” In the world of this simple dictum, the war is a tale of two cities - Kyiv and Moscow - each of whom has a single leader who would like to dominate Luhansk. All they’re doing now is having the actual “discourse” about who “can.”
But, as some - such as Anatol Rapoport in his introduction to an abridged translation of Clausewitz’s On War - have noted, this is not a terribly enlightening account, least of all if our goal is to get to rationality. The assumptions behind this simple cliché are as ambiguous as those behind other maxims like, “the state has a monopoly on the legitimate use of force.” Which state? A monopoly where? Legitimate to who? What forces? In reality, states are not unitary actors who mechanically practice effectively substantive rationality. War is not an ordinary form of discourse between actors. Yet by looking beyond the cliché, Clausewitz offers us powerful tools to think through the war, provided we read him in context.
Like most 19th century Germans, Clausewitz understands his topic through a triad structure. In his case, the topic is war and the three points on the triad are violence, command and politics. Some read Clausewitz’s use of triads in a Fichtean lens, perhaps on the grounds that Clausewitz and Fichte – one of many philosophers caught between Kant and Hegel – were both Prussian nationalists. This may seem like a very obscure point, but it has substantial implications for how we ought to think of Clausewitz’s relevance to actual warfare.
Fichte famously labeled each member of the familiar dialectical triad thesis-antithesis-synthesis. To illustrate using a completely not-arbitrary example, consider subheading C of section 1 of part 3 of book 1 of Fichte’s The Science Of Rights, in particular the part on judicial power. The thesis is that rights of each individual are limited solely by the rights of each other individual. The antithesis is that conflicts should be solved by judicial disputes, in which each individual in the dispute gives up all their relevant rights to the judge. The synthesis is that the judgment must be fair, which is to say that the disputants should correctly trust the judge to respect their rights through the dispute process. Perhaps this explains why legal theorists love the Coase Theorem so much: it has been part of the justification for liberal law since 1796!
As I said, this example is not arbitrary. A war is a very extreme form of dispute in which the disputants refuse to give their rights over to a neutral judge. Putin clearly recognizes no concept of international law which does not include his right to arbitrarily redraw the boundaries of Ukraine. The problem with Fichte’s example for us is that he seems to imagine the disputants were living in full possession and knowledge of their rights before the dispute, as opposed to discovering what their rights actually are through the operation of the judicial system. Fichte’s fixed triad is thus inapplicable to the example of the Russo-Ukraine War. The war was preceded by a long period in which Russia explored the limits of its power over Ukraine through Yanukovych and the police-mafia nexus.
The problem with the Fichtean system for the purposes of analyzing warfare is simple: by leaving out time, it leaves out uncertainty. Hegel famously pointed out - at length - that unless the first term in the dialectic already contains some internal tension, the contradictory second term will never arise, and the situation will never move forward towards synthesis. Dialectics for Hegel are a question of time and uncertainty, rather than definition.
Seeing the flaws in Fichte, some read Clausewitz as a Hegelian. Hegel’s triad Being/Nothing/Absolute doesn’t have the same issues as Fichte’s trinity, as it was designed specifically to avoid these. The Hegelian reading goes something like this: “War’s essence is pure violence. But that can’t be right as there is violence that is not war (for instance, domestic abuse). So war is nothing, just another form of politics. But wait, war still occurs. Thus we discover war has some absolute character.”
However, this reading still fails. Mostly the problem is that it is too focused on time, where the Fichtean reading is not focused on time enough. Clausewitz is constantly reminding us the being of war is violence, especially when using ‘higher’ forms of critique to understand it. Absolute War is a theoretical construct, but at the same time it is still violence.
The only real solution is to read Clausewitz as a Leibnizian. Leibniz has been out of fashion for a while, but war is one situation where it is important to approach logic as geometric in the sense of characterizing relation across spaces, rather than dynamic in the sense of relations across time. Or, more prosaically, for Leibniz and Clausewitz, the members of the triad are different perspectives on the same reality. Instead of a dynamic in which distinct concepts obtain, there is something like “causal distance” that relates states of affairs. This is more like a metric for a manifold than Hegel’s straight line through History towards its Telos.
In practice, understanding this insight means taking seriously Tolstoy’s dictum that war is simply too complicated to understand in its completeness. Instead, we have a situation in which there are multiple perspectives. Each perspective is individually rational. Like the blind mice and the elephant, all of the descriptions are ‘correct’, even when they ‘contradict’ each other. Each description is a perspective on a local neighborhood. There is in general no way to compress all these local truths into a global truth. We as human beings are stuck with war operating as a system of relations of perspectives that don’t add up to a globally objective “fact of the matter.”. As Clausewitz phrased it “Experience [of war], with its wealth of lessons, will never produce a Newton or an Euler [of war], but it may well bring forth the higher calculations of a Condé or a Frederick.” (On War, Book Two ‘On The Theory Of War’, Chapter Two ‘On The Theory Of War’, Section 43 ‘The Nature Of Such Knowledge’)
As Leibniz said, perspectives are monads – the basic unit of his metaphysic – which are, ironically, windowless. The perspective which is each monad contains representations of all the other actors not as a true conscious unity, but simply as data points. What is a ‘rational’ choice for Putin or Zelensky is merely a fact about the world for the other.
“War is, therefore, not only chameleon-like in character, because it changes its colour in some degree in each particular case, but it is also, as a whole, in relation to the predominant tendencies which are in it, a wonderful trinity, composed of the original violence of its elements, hatred and animosity, which may be looked upon as blind instinct; of the play of probabilities and chance, which make it a free activity of the soul; and of the subordinate nature of a political instrument, by which it belongs purely to the reason. The first of these three phases concerns more the people; the second, more the General and his Army; the third, more the Government.”
Clausewitz, On War, Book I, Chapter I, Section 28
The trinity of Clausewitz is the monads which are, to simplify, the perspective of the common people, the officer and the statesman respectively. Going in reverse order:
As already explained, the goal of the Russian government is to dominate ‘Malarusiia’. This mere desire for a slavishly pro-Russian Ukraine requires no explanation given Putin’s statements.
It is a fact of common observation that success in each theater of a given general and their army has largely been a function of management of war materiel, logistics and supply chains. The management of materiel is largely an entrepreneurial function of transforming the uncertainties of war into mere risks involved in getting the right stuff to the right place at the right time. Demolishing fascist romances about violence as pure reality may be fun, but it’s also good for you.
The strategic point of view of decisive activity in the teeth of uncertainty takes it far from other points of view: “The War upsets many of the maxims of the economists who take long views and preach against snatching small, temporary gains.”. Keynes, ‘War And The Financial System’.
The violence of war is plain to see.
The Post-WWI settlement was a terrifying example of what happens when Governments do not take their role as policy actors seriously. Clemenceau in essence saw himself as a general taking advantage of the situation against Germany rather than as a statesman with viable and rational policies to administer. We will return to Clemenceau’s style of thought in the next section. Contrariwise, the post-WWII settlement saw Governments taking their role as policy actors seriously. The invocations of Keynes and Versailles above should remind us that substantive rationality is, first and foremost, an economist’s presumption.
What we can take from Clausewitz here is the understanding that the political struggle of creating contexts in which effectively substantive rationality is possible is continuous with but distinct from the entrepreneurial function of officers managing materiel and the violence of battle. After establishing the basic facts in the previous section, we began this section with a hope that by creating rationality, the human and economic costs of war might be eased. The next step is therefore to combine the facts and theory to establish a path of action. In our case, that means doing economics.
The War and Reconstruction
Economics: History And Equilibrium
I would like to move to economics in a way that should be more unusual than it is: by criticizing a bad economic proposal. This particular proposal was brought to my attention by Adam Tooze, an economic historian who specializes in early 20th century Germany. The relevance of this formative time to the current world situation is all-pervading, and Tooze has not dithered in his zeal to apply his learning.
In a recent post, Tooze points to a CEPR report about the economic situation of Ukraine. The descriptive parts of the fiscal situation paint an unpleasant image of a small country with little leverage paying for a brutal war in an environment where prices have become completely unmoored.
Though this description is accurate in brief, the report has deep issues both descriptively and theoretically. Like most people working in positions of European officialdom, it takes state capacity and culture as constants when working up an economic analysis. Like much economic analysis, economic dynamics are discussed without any relation to calendar time. The analysis is instead presented in a chaotic mess of “short runs” and “long runs” of uncertain meaning and relevance.
However, much more important is their description of the political situation in pre-war Ukraine. The paper in general seems to be bent on repeating the failures of ‘04 and ‘14. Francis Fukuyama described those failures in stark terms eight years ago.
“If there has been a single problem facing contemporary democracies, either aspiring or well established, it has been centered in their failure to provide the substance of what people want from government: personal security, shared economic growth, and quality basic public services like education, health, and infrastructure that are needed to achieve individual opportunity. Proponents of democracy focus, for understandable reasons, on limiting the powers of tyrannical or predatory states. But they do not spend as much time thinking about how to govern effectively—they are, in Woodrow Wilson’s phrase, more interested in ‘controlling than in energizing government.’
This was the failure of the 2004 Orange Revolution in Ukraine, which toppled Viktor Yanukovich for the first time. Had an effective democratic administration come to power that cleaned up corruption and improved the trustworthiness of state institutions, it would have cemented its legitimacy across not just western but Russian-speaking eastern Ukraine as well, long before Vladimir Putin was strong enough to undermine its actions. Instead, the Orange Coalition wasted its energy on internal squabbling and shady deals, paving the way for Yanukovich’s return in 2010 and the crisis following on his departure in 2014.”
Francis Fukuyama, Political Order and Political Decay, Chapter 36 (Political Order And Political Decay), Section 7 (Future Models)
The paper as it stands today borders on self-contradiction. Ukraine is described as so intrinsically corrupt that it can’t be trusted with self-management, and must throw itself upon the mercy of NGOs. It seems this would entail that the citizens are self-absorbedly destroying public goods, as in the tragedy of the commons. The contrary evidence – that of massive monetary and personal donation to the state of Ukraine – is, in essence, dismissed. The people are simply not considered as rational actors, whether effectively substantive or merely procedural.
Pre-War Ukraine had major problems with corruption. In fact, the current president of Ukraine was elected on an anti-corruption platform. Until recently, President Zelenskyy lacked the state capacity to effectively fight the police/gangster nexus. This is a sharply distinct claim from saying that corruption is an essential part of Ukraine’s very being, that corruption is a fact like the names of the provinces. The bland assumption that Ukraine is permanently the state of Kuchma is the exact opposite lesson one should take from the ‘Culture Matters’ literature.
“Corruption As Essence” is a common point of view in state capacity development, especially with respect to countries like Somalia, Italy and the United States. The question of who is corrupt, and why, and how, cannot be dismissed so easily. In fact, reversing the dynamics of pre-war corruption will necessarily play a key role in post-war planning. We will return to the dynamics of corruption in the next section.
Returning to the CEPR report, Tooze concentrates his invective on a brutal assault on the third part. This chapter calls for the “radical deregulation of economic activity” which is intended to help by “reinvigorating the economy, thus providing a larger tax base.”. It seems trivial to say, but even if deregulation expands the tax base in some ‘run’, it would likely not do so for calendar years.
Tooze’s background as an economic historian is directly relevant to his assault on this proposal. Take the example of Etienne Mantoux, a French hard money man who had called for similar measures in the face of depression and war in the 30s and for their continuation in the peace.
Mantoux has sometimes been misunderstood as arguing that Germany could have simply paid the debts of the Versailles Treaty. This is the exact opposite of his argument. In fact, he argues that the payment was far in excess of German surplus and would have substantially hobbled German industry. He just also thinks that that outcome would have been good.
In a retrospective on the debate, contemporary economic historian Brad Delong understands Mantoux’s argument correctly, but de-emphasizes one critical point. He writes: “If you require not the franc to appreciate but the Reichsmark to depreciate, it is likely that there is no equilibrium: the more goods and services Germany transfers, the deeper in reparations debt it finds itself.”. This is not a logical flaw, it is in fact the intent of Mantoux’s argument. Mantoux’s entire thrust is that the only stable Europe is one in which Germany does not exist. This is exactly Clemenceau’s misguided opinion.
That said, there is a good reason Delong treats the argument as a refutation of itself: because it is incompatible with reasonable goals and substantive rationality. The elimination of the state of Germany is a procedural, rather than a substantive, goal, once one assumes one's job is to create a stably peaceful Europe in both economic and warfare terms. This is also not mere hindsight, but it is also not so different from Putin’s implied belief that there is no Russia with an independent Ukraine. Even at the date of translation of Mantoux’s argument about the war reparations, Hawtrey – a close associate of JM Keynes – carefully demonstrated these same flaws.
The Dark Fantasy Of Statelessness
In the previous section, we have what seems to be a hidden ideology within European liberalism which stretches from Clemenceau to Dean Baker’s think tank. These doctrines together outline an ideology very close to the one Francis Fukuyama calls ‘Fantasies Of Statelessness’. The convergent evolution of these disparate economists towards these flawed doctrines demonstrate that the problems involved in attempting to create rationality around warfare are deeper than technical issues. Fukuyama summarizes the moral issue in this way:
“Political institutions are necessary and cannot be taken for granted. A market economy and high levels of wealth don’t magically appear when you ‘get government out of the way’; they rest on a hidden institutional foundation of property rights, rule of law, and basic political order. A free market, a vigorous civil society, the spontaneous ‘wisdom of crowds’ are all important components of a working democracy, but none can ultimately replace the functions of a strong, hierarchical government.”
Fukuyama, The Origins of Political Order, Part 1 (Before The State), Chapter 1 (The Necessity Of Politics), Section 3 (Fantasies Of Statelessness).
Mantoux’s ‘Hard Money’ is more than the technical issue ‘Dear Money’ was for Ricardo or Keynes. Mantoux’s imagination was captured by the fantasy of an ‘automatic’ currency which – through being “extremely sensitive to government expenditure and even to attitudes or policies that do not involve expenditure directly, for example, to foreign policy, to certain policies of taxation, and, in general, to precisely all those policies that violate the principles of economic liberalism.” (Schumpeter, History Of Economic Analysis, Part 3 ‘From 1790 To 1870’, Chapter 2 ‘Socio-Political Backgrounds’, Section 5 ‘Gold’) – would make one’s preferences simply technical facts of the matter.
In Keynes On Uncertainty And Tragic Happiness, Anna Carrabelli calls this type of thinking ‘unembedded liberalism’, a ‘liberalism’ which replaces deliberation and reason with mechanical responses to remove decisions. This is again a departure from effectively substantive rationality into the merely procedural. By forcing the system into a uniform sum, unembedded liberalism reduces policy space and diversity. The result is, as Schumpeter said, “extremely sensitive” - indeed it is a powderkeg.
To return one last time to the CEPR piece, one can see how directly it violates Fukuyama’s strictures. The bland and bald assumption it makes – that a market society and rule of law will just appear in the absence of regulation – simply does not hold. To parody Delong’s summary of Mantoux: if you require not state capacity to appreciate but the state to depreciate, then it is likely there is no equilibrium.
“When a whole nation renders armed resistance, the question then is no longer, ‘Of what value is this to the people?’ but ‘what is its potential value, what are the conditions that it requires, and how is it to be utilized?’”
Clausewitz, On War, Book Six (Defense), Chapter 26 (The People In Arms)
To summarize, the dismissive attitude of such unembedded economists towards Ukrainians’ economic support of the war is an assumption that what Clausewitz called “the energies of the people in arms” are temporary and will subside. Once the energies subside, the unembedded economists expect that Ukraine will be the land of Kuchma or Yanukovych again. Similarly with Mantoux and Germany.
To rebut this, we must return to the facts to observe the particular dynamics of corruption in Ukraine. During the Euromaidan Revolution, local militias in Donbas were controlled by the police/gangster nexus (naturally, I include other corrupt security forces in this nexus than the literal police). These filled the vacuum of the collapse of the old Donbas police/gangster nexus which supported the Yanukovitch circle. Ukraine took the mode of empowering local public administration - mayors, etc. rather than cops - as actors against corruption: see here and here.
The conclusion one must draw is that corruption is not an input - not a fact of life like gravity and defecation - but an output contingent on the absence of state capacity. The important thing in the fight against corruption - and even development more generally - is the dialectic of the passions of the people with the interests of the people.
This formulation of passions and interests in dialogue with one another in state developmental contexts is due to Albert O. Hirschman. The police/gangster nexus is no liberalism at all, it tries to create order through simple repression. But to do this, the police/gangster nexus requires the tacit consent of a conformist mass. The Euromaidan revolution itself shows the police/gangster nexus cannot simply repress the passions of the people.
The unembedded liberalism of Mantoux et. al. also predominately fears the passions of the people and tries to repress them mechanically and economically.
“The repressive solution to the problem posed by the recognition of man’s unruly passions has great difficulties. For what if the sovereign fails to do his job properly, because of excessive leniency, cruelty, or some other failing? … A solution that is more in harmony with these psychological discoveries and preoccupations consists in the idea of harnessing the passions, instead of simply repressing them. … Anticipating Adam Smith’s Invisible Hand, Pascal argues for man’s grandeur on the ground that he ‘has managed to tease out of concupiscence an admirable arrangement’ and ‘so beautiful an order.’”
Albert O Hirschman, The Passions and the Interests, Part One (How The Interests Were Called Upon To Counteract The Passions), Section Three (Repressing And Harnessing The Passions)
Economics is, at least in principle, about the analysis of choice and the equilibria that come about by choices. ‘Fantasies Of Statelessness’ empower the police/gangster nexus. What is necessary is to create a context in which rational men have no reason to be corrupt. In anticorruption reform, the choice we are faced with is between empowering mayors and empowering the police/gangster nexus.
How do we empower mayors and disempower the police/gangster nexus? Paolo Di Nola published a framework for thinking about empowering public authorities in an article published by A Colorni-Hirschman Institute. He describes successful public administration as combining ‘efficiency’ with ‘generosity’. Efficiency is the achievement of “victory with ease” as Sun Tzu put it. Generosity is the setting and achieving of goals beyond one’s mandate.
Di Nola gives the example of his own administration of the ‘Great Pompeii Project’, which met with resistance from the local public authorities. However, while working together, it was realized that local administration had little knowledge with regard to organizational costs. The public administration took on the task of improving the self-knowledge of local administration, an act of generosity which reciprocally improved efficiency. The very economic activities of the Ukrainian people highlighted by the CEPR report demonstrate the willingness of Ukrainian citizens to show generosity. This energy must be captured by the reconstruction efforts if peace is to be stable.
Today’s Goals: Blessedness Is Virtue Itself
The creation of a context which engenders effectively substantive rationality does not just empower development, it is development itself. Hirschman correctly interprets the final theorem of Spinoza’s Ethica this way. Considering Spinoza’s origins, it is appropriate that the goal of development remains, as Fukuyama put it, ‘Getting To Denmark’.
“For people in developed countries, ‘Denmark’ is a mythical place that is known to have good political and economic institutions: it is stable, democratic, peaceful, prosperous, inclusive, and has extremely low levels of political corruption.”
Fukuyama, The Origins of Political Order, Part 1 (Before The State), Chapter 1 (The Necessity Of Politics), Section 4 (Getting To Denmark)
How can post-war Ukraine ‘Get To Denmark’? As Fukuyama said, there are two issues: first, states must build the “hidden institutional foundation of property rights, rule of law, and basic political order.”. The second is the promotion of economic full employment and sustainable economic growth.
One annoyance Tooze has with the CEPR paper is the vague analogies to WWII America as a model for Ukraine’s present. As a final point, I would like to propose a different analogy as an ideal for post-war Ukraine: post-war UK, the state of Aneurin Bevan and Clement Attlee.
To illustrate what is meant by this, we must go into the history a bit. In the 1931 parliamentary elections the victor was the so-called “National Government” coalition. The purpose of this coalition was to prevent a hung parliament and “do something” about the prevailing depression and the ensuing deficits. They succeeded wonderfully in enacting counterproductive austerity policies. This seeming austerity unity government papered over deep divisions in UK politics. However, in 1939 National Government coalition became a genuine unity government against the Nazi, Fascist and Japanese Imperialist forces spreading war and terror throughout the world. After the European War, the long delayed election was finally announced in 1945. A Tory victory was widely expected: the rank and file of the National Government coalition was Tory, nobody had strong complaints about how they managed the war and Tory leader Winston Churchill was one of the most popular men in the world. Despite this, Attlee’s Labour Party won in a landslide - the largest upset in UK electoral history. Of course, some of the reason was the weakness of Churchill’s campaign, which consisted partly of denunciations of socialism so vague and hyperbolic to reduce his credibility as a peacetime politician and partly of a platform so watery you’d think he was going back to the Admiralty.
But in the main, the reason for a Labour victory was the strength of the platform absolutely rather than merely comparatively. The Labour Party manifesto of that election enshrined Keynes’s new concept of ‘full employment’ as not a means but as an end in itself. Armed with the Beveridge Report’s detailed investigations and implementation plans, Attlee’s Labour Party was able to act with confidence and precision.
The greatest of their achievements was the establishment of the National Health Service (NHS), spearheaded by Aneurin Bevan. Bevan declared that his guiding principles in designing the NHS were universal access and progressive funding. He rejected what he called “the insurance principle” in favor of the principle that uncertainty would be born by those who can best absorb it. I would also be remiss if I didn’t mention Bevan’s concept of “Imaginative Tolerance” as a fundamental moral commitment.
Coming back to the future of post-war Ukraine, at a national level, adopting the model of Attlee and Bevan means committing to centralizing the healthcare and reconstruction processes to achieve efficiency. This means abandoning the idea that corruption is fought by deregulation for the idea that corruption must be fought politically through real achievement. Of course, there are also other reasons to abandon comforting lies for difficult truths. At an international level, such a model means abandoning the Merkelist policies which create a race to the bottom for labor in Eastern Europe.
For instance, the EU can commit to a build out of Nuclear and/or Renewable energy in Ukraine. This would create a stable demand for Ukrainian labor: the power plants have to be built somewhere anyway. Nuclear power and walkable cities would make a postwar Ukraine worth living in. I would be remiss if I didn’t also mention that this was Kojeve’s plan for post-war France.
This type of forward guidance for a stable post-war Ukraine would be a step towards creating the context for substantive rationality which could reduce uncertainties which increase the economic and human cost of the war. Just as importantly, it would be a more stable and humane post-war world.
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