In the near future, the military-industrial sector could become one of the drivers of economic growth, constantly increasing production and creating jobs.
There are very real prerequisites for this: Ukraine's military budget is almost $40 billion per yearwhich means that the state will spend almost all the money on the military-industrial complex and critical infrastructure.
However, there is a lack of budget resources to launch new projects. Furthermore, targeting military-industrial programs exclusively at state-owned enterprises may lead to corruption risks or reduced efficiency of such programs.
It is therefore better to include powerful private companies in the defense industry in addition to systemically important state-owned companies. An example of successful defense production by private manufacturers is the Lvivska Bronetkhnika company.
However, in order to activate private business projects, it is necessary to use credit incentives, since companies' own funds are obviously not sufficient to start projects with high capital investment.
The topic of Ukraine's transition to the so-called “war economy” has now become quite popular, although before the war the topic of the country's industrial development was usually not too unpopular both in society and at the level of political elites.
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The “grains and brains” concept of Ukraine's development, first presented at the Davos Forum before the full-scale war, did not include the development of industry as such.
This situation has not changed to date, as the government has not yet adopted an industrial policy that would define the main vectors of industrial development. including the military-industrial complex.
However, UNCTAD reports show that more than 100 countries, accounting for nearly 90% of global GDP, have such policies. They focus on either vertical expansion (building industrial strength), horizontal development (increasing labor productivity and minimizing the gap with the world's leading countries), or adaptation (adapting the economy to the sixth mode of technology).
Ukraine experienced the war in an active phase of deindustrialization, symbolized by the conversion of the Arsenal factory in the city center into a fast food restaurant. Whether it is necessary to produce military optics in the middle of the capital is another question, but a symbol is a symbolic unit, not a semantic one.
In short, the core of the economy is industry. The core of the industry is mechanical engineering. The outer contour of the industrial core is processing/manufacturing. This structure forms the contour of the military-industrial complex. Plus science and vocational education.
This architecture makes it clear that any stimulation of the military-industrial complex from the “end”, i.e. from the last part of the technology chain, will not work. At best, we will have a “screwdriver” defense industry based on imported components. It will face constant pressure from the supply chain of imported components.
So the algorithm of actions is very simple:
Vocational training + creation of innovation transfer centers in the industrial cluster (from science and innovators to production) + development of processing and manufacturing industries + development of mechanical engineering = competitive military industry.
So what should Ukraine do during the war, how should it adapt its economy to the specifics of martial law?
First, to accumulate revenues from the raw materials and services sectors for the needs of technical education, science, innovation and incentives for the development of breakthrough industries, including the military-industrial complex. That is, allowing the civilian economy to make money to finance the necessary branches of the military-industrial complex.
We must understand that the military-industrial complex does not arise in a vacuum. We need dual-use industries: related industries, components, raw materials processing, manufacturing and engineering. This requires public investment at the expense of civilian revenues and private investment under state guarantees, thousands of highly qualified technical specialists, increased labor productivity, generation of inventions, etc. Relatively speaking, we need a military-industrial cluster that is formed in the environment of industrial development, which technical education and science at the expense of civilian revenues and profits from raw material exports.
Mobilization economics or military Keynesianism in the specific conditions of the 21st century is the creation of economic incentives by the state to ensure victory in war. Systemic framework conditions and incentives are also about using the creative energy of entrepreneurs, provided the state has a corresponding policy. Synergy of government incentives and entrepreneurial activity.
In January-September 2023, industrial production grew by 2.4%.
In certain growth factors we can find indicators that obscure the indicators of the development of the domestic military-industrial complex.
This is the production growth in 2023: finished metal products – 38%; Weapons and ammunition – 76.1%; military vehicles – 97.3%; metal processing – 56.8%; mechanical engineering – 15.3%; electrical engineering, optics – 56.1%; electric motors – 19.6%; Wires, cables – 101.2%.
This means that, contrary to the stereotypical perception, the Ukrainian industry has restarted with the old industrial and human resource base and is working at the limit of its capacity (especially in connection with insufficient power sources).
Direct military production grows by 70-90%, while indirect industries grow by 10-100%.
All this does not negate the advisability of building a more efficient military-industrial sector and the industrial core as a whole. But the work here should be systematic and consistent, without incitement, demagoguery and economic fantasy like the “military economy”, the transition of which will only lead to the collapse of the civil economy, while workshops will not be built “in every house” on the one hand, and on the other On the other hand, an effective tertiary economic sector is being lost, which currently creates jobs and contributes taxes to the budget and GDP.
And one of the sources of this growth could be loans from international financial organizations, whose loans have a chance to become a significant incentive for launching effective private arms production in Ukraine during the war. In particular, loans from the EBRD and the EIB.
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