Konstantin Sonin: "Ukraine is a testing ground for new technologies"

How does the Ukrainian economy survive during the war with Russia?

According to the Stockholm International Peace Research Institute (SIPRI), Ukraine's military spending has reached a historic high. They amount to $84.1 billion, which is about 40 percent of the country's GDP. Today, 63 percent of all government spending in Ukraine goes to defense. How does the economy behave in an era of wars, sanctions and protectionism, when the main parameters of the modern world change under the influence of powerful cataclysms, and how will the war affect the economic development of Russia, Ukraine and the USA?

We will discuss these and other questions with economist, professor at the University of Chicago Konstantin Sonin .

Due to what the Ukrainian economy, which spends more than 40 percent of its GDP on war, now survives and holds on, said University of Chicago professor Konstantin Sonin :

I see a country that is alive and growing, and in some sectors is actually growing

-During the war, I spent several months in Kyiv - I taught at the university to help Ukrainian colleagues and students during the war. It is a little difficult to describe in a nutshell what is happening in Ukraine. On the one hand, I see a country that is living and developing, and in some sectors, especially in the military-industrial complex, is really growing. Moreover, there is actually a testing ground for various new technologies.

That is, what was considered advanced technology was delivered to Ukraine, used by Ukrainian soldiers for protection at the front, and it turned out that it was not such a good technology. This is a store of knowledge and skills of enormous importance. It seems to me that there are already no available premises in Kyiv, because new enterprises are being created so quickly that it is difficult to find labor for them. And it's the most highly skilled workforce and jobs that will really lead the way in the future when the war is over.

- That is, we can say that Ukraine in this sense represents not only a military-oriented, but generally a high-tech growth point. Is the European Union and the West as a whole aware of this?

IT technology leaders understand very well where technologies are developing and where money will be made.

- It seems to me that, as always happens, business realized this earlier. That is, I am not sure that the American administration understands this at a high level. But businessmen and large and medium-sized businessmen - leaders of IT technologies - understand perfectly well where technologies are developing and where money will be made. I also heard that the American military and military professionals understand this well. And whatever the political motives of the US administration, they know how important the information, the knowledge that the Ukrainian military is now receiving and accumulating.

-This is precisely a market sector, and over the years the Ukrainian economy has not shifted towards government regulation, at least government orders?

-This is an amazing story that will still be told. I hope that when those young guys who now head the Ukrainian government retire, they will write memoirs about what happened in the military-industrial sector of Ukraine. This is an example of its denationalization. In order to enable all these technologies to develop, to enable foreign investors to easily come, invest money, adopt technologies, build production, it was necessary, in fact, in an absolutely emergency mode, to pass the necessary laws, reduce government regulation, and reduce the burden.

When a country grows and there is an opportunity to make a profit, money flows into that place

Until recently, I thought that Ukraine had a complete foundation for rapid economic growth, which would be similar to the Italian growth after the Second World War, similar to the Polish economic miracle after the collapse of the Soviet bloc. But it seemed to me that the condition for this was the end of the war. And now I think that maybe, indeed, here it can be like in Israel, although Ukraine in many respects is absolutely not like Israel. Now there is a strong state there that is capable of mobilizing the economy, intelligently denationalizing it, and much more.

It is more capable of fighting corruption within itself than in many other countries. All this will help the development of Ukraine after the war.
In essence, both the United States and Europe are capable of doing something more for Ukraine than the Marshall Plan - it is not very expensive, there is money for it. I'm sure they will be highlighted. Moreover, major American businessmen, such as Eric Schmidt, will continue to invest in Ukraine, and a huge amount of money will go there. When a country grows and there is an opportunity to make a profit, money flows into that place. That is, it just seems to me that the problem with the Marshall Plan is that we need to stop the war. The war will stop, there will be a Marshall Plan. Or maybe there will be so much private money that no Marshall Plan will be needed.

- Let’s not forget that Ukraine is now largely supported by Elon Musk and Starlink terminals...

-It must be said that little is known about who pays for Starlin terminals. This doesn't look like pure charity. I am sure Ukrainians are grateful to Elon Musk for Starlink and for his participation in its restrictions for Russia. But as I understand it, he doesn’t lose money on this. I am also sure that when Eric Schmidt comes to Ukraine, when the IT corporation Palantir comes to Ukraine, it is because they are good people and want to help the victim of aggression. But they also mean that they will have factories and plants and technology, and they will participate in this future economic growth.

- If we move from America to Europe, how key is the 90 billion euros allocated to it by the EU now for Ukraine, its survival and development opportunities?

Ukraine is a country in which many public services work surprisingly well during the war

- This is a lot of money. They help the Ukrainian government finance and not reduce social spending. I can confirm what I saw with my own eyes. Ukraine is a country in which many public services perform surprisingly well during the war. In addition, this money is used to pay for the weapons that Ukraine receives from outside, and will continue to be paid for. Therefore this money is very important. But the fact is that, unlike America, Europe largely pays Ukraine for its security. It may not be said out loud, but it is indeed money that is paid in order to protect oneself. In this sense, this money is important, but we must understand that for Europe this is not charity.

- Let's look at the Russian economy. There are rumors about the resignation of Prime Minister Mikhail Mishustin and that the Russian economy is preparing for some new stage...

The Russian economy is already quite mobilized, but there are always opportunities

- It seems to me that the Russian economy is already quite mobilized, but there are always opportunities. As long as there is some private property in the country, it can be confiscated, a person can be put in prison, his business taken away, torn apart, given to his comrades, but some of this can be spent on military needs. I do not believe the statements of the Russian authorities that the Russian economy grew during the first four years of the war with Ukraine. Frankly speaking, I don’t see this in the statistics that are published. Our GDP there grew by 3%, which means that we produced 3% more goods. But there is no real growth.

There is no greater production in any consumer sectors. People don't consume more, people don't live better. The goods that existed before the war have disappeared by a corresponding percentage. I think that in 5 years 10-15% of growth has been taken away from the economy. Of course, this was enough for the production of missiles and drones. So this is not economic growth, but military redistribution. How can this be seen in statistics? Statistics are difficult to interpret even in peacetime, and in wartime everything becomes even more difficult,” said economist Konstantin Sonin.

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