Thursday, June 2, 2022

What if Putin’s true goals are different?

 By any standard indicator that measures the achievements by the extent to which the stated objectives have been realized, Russia’s war against Ukraine has been a failure. Ukraine is much more militarized than ever; it is probably one of the most militarized countries in the world right now; Russia’s security has markedly deteriorated; NATO has not returned to its 1997 positions, but has further advanced and become much more consolidated. The West is stronger than before. So, is Putin failing?

Perhaps. Or perhaps not. For suppose that the real objectives of the “special military operation” were not the announced ones, but very different.

Sovereignty vs. income. To see what they might be, I have to go back to my October 1996 paper published as a World Bank Working Paper and later in an edited volume (available here) which I recently briefly summarized on Twitter here. The paper is pretty complex because it deals with economic and political forces that lead countries to create unions and conglomerates, or to prefer secession, but its core model is simple. It is as follows. Countries (and their leaders) aspire to two goods: sovereignty and wealth. Sovereignty means freedom to make political and economic decision as little constrained by other countries as possible; wealth means having high income level (high GDP per capita). Now, the problem is that there is a trade-off between these two objectives. Countries can become rich only if they become less sovereign, that is more globally integrated. To be rich requires to trade, develop technology jointly with others, send people abroad to learn new skills, consult with and even hire foreigners. All of this implies much greater interdependence between the economies and observance of international norms and rules regarding trade, intellectual property rights, domestic economic policies, convertibility of currencies and the like.

To fix the ideas take the two extreme examples: North Korea and Belgium. North Korea is practically unconstrained in its economic and political decision-making: it can make nukes because it is not a signatory to the non-proliferation treaty, it can impose tariffs or ban imports of goods as it likes, it can print as much or as little money as it wants because its currency is not exchangeable for any other etc.  But, for all these reasons, it is also very poor. On the other end of the spectrum is Belgium, which does not have own currency, whose fiscal policy is hemmed in by the EU rules (the Maastricht treaty), trade determined by the EU and WTO (Krugman, as cited in my 1996 paper: "Europe’s 1992 is not so much a trade agreement as an agreement to coordinate policies that have historically been regarded as domestic”), foreign policy decided by the EU, and military engagement by NATO. In terms of domestic policy autonomy or sovereignty, it practically has none. But it is rich.

Other countries will be aligned along the different points of the sovereignty-income trade-off.  The size of the county will matter also: the US will enjoy more sovereignty for a given level of income because it is a big country: it issues a reserve currency, it is the main actor in a number of trade negotiations, it leads NATO etc. But it will not be immune to the trade-off. Consider Trump’s decision to start the trade war with China. It gave greater political space to the US (including the very ability to impose new tariffs), but it probably reduced its income.

Russian isolationism. Now, with this idea of a trade-off between these two desirable things, let’s go back to Putin and his group of advisers from the power ministries. Suppose that they came to the following conclusion: Russia’s attempts to Westernize since Peter the Great have been a failure. Russia failed to catch up with the West prior to 1917, it then it adopted an extreme Westernizing doctrine that diminished Russia by giving independence outright to Finland, Poland etc., and then proclaimed equality of nations and self-determination for all which ultimately led to the break up of the country in 1992. Afterwards, it adopted liberalism, also imported from the West, whose results were the dramatic impoverishment of the population, increased mortality and suicides, and the astounding stealing of assets created by the millions of Russian citizens. During that period Russia lost its ability to decide alone on its policies: it blindly followed the West. It offered its military bases in Kyrgyzstan to the US; it got nothing in return; it acquiesced to limited expansion of NATO, but was treated to an expansion up to its borders; it joined various European bodies, but only to be criticized by them; it privatized its economy as Western experts suggested, but all the money went abroad. Thus, in order to regain its economic and political autonomy, it needs to break decisively with the West. It needs to become an independent Eurasian power whose interaction with Europe will be limited to the minimum. Eventually, Russia has to move in the direction opposite from the one charted by Peter the Great in the early 18th century.

West builds the Iron Curtain. Such increase in sovereignty would lead to lower income. But the problem is: neither would the break with Europe, if announced by the leaders, nor lower income, be welcome by the population. Russian government cannot thus, on its own, begin to create a new Iron Curtain. But what if the Iron Curtain were built by the West against Russia as a punishment for something that, from the Russian point of view, could be considered an entirely justified policy? Enter Ukraine. Reconquista, in some ways, was always popular among the Russian public. But the West will not see it as such but will impose sanctions and pile up costs on Russia. The West would,  by its own will, cut Russia off from Europe. It will build a new, impenetrable Iron Curtain. The objective of detaching Russia from the West –desired under this scenario by the Russian leadership—will be achieved not by the Russian leadership, but by the West. The Russian leaders will not be seen by its population (or at least not by the majority of the population) as responsible for undoing Peter the Great’s dream. On the contrary, the West will be seen as unwilling to accept Russia as an equal partner, and Russia hence will have no option but to become a Eurasian power, fully sovereign, untrammeled by treaties and rules, and free of Western ideologies of Marxism and liberalism.

The new Brest-Litovsk. But, in the longer-run –the leaders might fear—would not people, having realized that the greater sovereignty comes with lower income, try to find some accommodation with the West? How to avoid this? How to make the rupture permanent? The only way to do so is to make the costs of returning to the West extraordinary high. That is, to make sure that, when the first feelers of reconciliations are sent by the post-Putin governments, the bill submitted by the West will be so high that most of the Russian policy-making elite and the public opinion will reject it out of hand. Think of another Brest-Litovsk, but this time without Lenin who put all his power and authority on balance to have it accepted. The new Brest-Litovsk may include not only the withdrawal of all Russian forces from the Ukraine, and the return of Crimea to Ukraine; it might include reparations, extradition of officers responsible for war crimes, reduction in the size of the army, limits to military exercises, even possibly control of Russia’s nuclear program. Thus, the Putin government has an incentive to make the West pile up demand upon demand from which it will have hard time climbing down. For only such extensive and even unreasonable demands will ensure that they are rejected by the successor Russian governments, and that the anti-Petrine policy favored by Putin and his entourage will remain in force for a very long time.

This does not mean that the current government is totally indifferent to the cost of sanctions. But it will accept increased sanctions so long as the income cost of new sanctions is less than the gain in sovereignty. At some point, it will decide that the trade-off had gone far enough, and at that point it will negotiate. But before it does so it will make sure that it has gained sufficiently, and for a long time, in the ability to independently decide on its policies.

The implication of this way of seeing the Russian objectives is that sanctions and decoupling between the West and Russia are no longer seen only as costs that Russia is paying, but rather as West doing what the current leadership believes is in the fundamental long-term interest of Russia: breaking off of all links between Russia and the West, and thus freeing Russia to follow its own course.

 

Sunday, May 22, 2022

From dilettantism to war: a review of Andrei Kozyrev’s political memoir

 Russia is remarkably ill-starred by having had very incompetent leaders. They have done the opposite of what they intended to accomplish. Brezhnev planned to introduce a degree of predictability in domestic and foreign policy; he presided over a long period of technological decline of the Soviet economy.  Gorbachev wanted to create a democratic federation; he ended by having to accept the break-up of the Union and the rise of nationalism everywhere. Yeltsin set out to create a democratic Russia; he oversaw the greatest plunder of assets in history and in the end could rely on old KGB hands only.  Putin’s objective was to overturn the decay of Russia, but when he leaves the office, Russia will be weaker, smaller, and more isolated than it has been in at least 250 years.

Andrei Kozyrev was Yeltsin’s minister of foreign affairs between 1990 (when Russia was still part of the USSR) and 1996. He was the most pro-American foreign minister in Russia’s history, dubbed the “Mr Da” as a contrast to Andrei Gromyko, the long-serving Soviet minister of foreign affairs, who was called by the Western press “Mr. Nyet”. In “Firebird: The Elusive Fate of Russian Democracy”,  Kozyrev has written the political reminiscences of his ministry. They are well-written and easy to read. (The subtitle is misleading: the book has hardly anything to do with democracy, but a lot with Russia’s foreign policy.) The book however lacks any analytic framework whether regarding diplomacy or international relations, and has none of the usual scientific “apparatus”: there is not a  single footnote in the book, nor reference to anything –article or book—except various Russian and American newspapers.  One has the feeling that Russian foreign policy was conducted unencumbered by any theory of international relations. (Compared to similar political memoirs by Henry Kissinger “On China”, reviewed here, and Soviet diplomat’s Ivan Maisky’s extraordinary war diaries, Kozyrev’s book is much inferior.)

And whatever “theory” existed was an incredibly naive view that Kozyrev held throughout the first half of the 1990s, that “democracies” have a specific “friendly” relations amongst themselves, and “totalitarian” counties like the Soviet Union have an entirely different, imperialist foreign policy. It was, unawares of Kozyrev, just the same old Soviet theory, except that the absence of contradictions that was supposed to adorn communist regimes, was now transposed to democratic regimes. Kozyrev uses the same “boxes” but just fills them with a different content. Both “theories” were, of course, unrealistic: countries have interests and fight for them regardless of the domestic political set-up. Kozyrev was soon, if grudgingly, to realize this in face of American intransigence and contemptuous treatment of all Russian demands. The second part of the book is thus much darker.

All the problems that have led to the Russian invasion of Ukraine are already there—and one somehow feels that the current war was almost preordained. (That was not the objective of the book, published in 2019, however. And Kozyrev has been scathingly critical of Putin’s decision to invade Ukraine.) The Russian-Ukrainian problem emerges from the moment No. 1 of the Belovezha accords that dissolved the USSR (Kravchuk’s aides, while being in Belovezha, refused to participate in the drafting of the accords, and the Ukrainian parliament passed the version of the accords that included an additional amendment regarding inviolability of the republican borders). The accords themselves were of the most dubious legality: not least because presidents of the three republics made a decision that properly should have been made by the presidents of all fifteen republics. (Predictably, Kazakhstan’s president was not amused by having to read that the USSR was dissolved, and that his republic became independent, in a morning paper.)

The NATO expansion takes the center-stage commencing from the second year of the Clinton administration and never leaves its role of the most important issue in the US-Russian relations all the way to 1996 (when Kozyrev resigns). It is very clear that the conflict over NATO expansion cannot be thought of as originating in George W. Bush 2007 explicit invitation to Ukraine and Georgia to join the military alliance, nor in Putin’s 2007 Munich speech, but at the very beginning of the debates as to how to transform/expand NATO, i.e. basically to the early- to mid-1990s.

That history is full of bizarre details, related by Kozyrev, including Lech Wałęsa’s sly organization of a tête-a-tête meeting with Yeltsin where the Russian president is supplied by endless quantities of vodka so that he accepts a sentence to the Polish-Russian communiqué agreeing to Poland’s NATO membership. Alarmed Kozyrev (having seen an earlier similar “treatment by vodka” of Yeltsin by Nursultan Nazarbayev) walks into Yeltsin’s room to find him incapable of rational conversation. The next day, the Russian ministry tries (so to speak) to water down the sentence, but most of the damage has already been done.

Other than by the absence any analytic framework, and thus the realization that the Russian foreign policy was conducted by dilettantism, the reader is also surprised that Kozyrev does not seem to realize the main contradiction which is at the heart of the US-Russian misunderstanding. Once the Bush administration that treated the USSR (and Russia) with respect gone, for the Clinton administration and, one presumes, increasingly so for the next US administrations, Russia was a supplicant country that would beg for financial help while asking to be treated as a global power. The gap between the two “roles” widened even further as Russia declined economically in the 1990s. Neither Yeltsin nor Kozyrev could expect that, while in the first part of the conversation, they would beg Clinton for money, their pretenses as to the global power status would, in the second part of the conversation, be taken seriously.

If Russia wanted to “punch in its desired weight” it had not to make meaningless claims to its democratic status, but to strengthen its economy, introduce order in its political system, reduce corruption, begin producing useful things that the world wants to buy, and cease being a petro-state. Had Russia done so in the next two decades, it would have been regarded entirely differently by the US. The US might not have ceased to see Russia as a strategic competitor (a thing which it did apparently since 1991), but it would have treated it with respect, the way that the US treated China until Trump came to power. But this simple truth seems inaccessible to Kozyrev who (explicitly) evinces no interest in economics, nor in corruption that was at the same time destroying the fabric of the Russian society and the foundations of Yeltsin’s regime.

Since Russia could not accept not to be treated as a great power, and was unable under either Yeltsin or Putin to transform itself into a meaningfully important international player, it could rely on only one type of power where it was indeed a force to be reckoned with: nuclear arms and the ability to annihilate half of the world. It thus had to rely on this “negative” power, that is, the power of destruction, because economically or ideologically (unlike during the Soviet times) it could provide very little even in the areas of the world where historically its cultural influence, language, and exposure to the great Russian art of the 19th century was common.

Kozyrev does not acknowledge, or perhaps realize, this main issue. His memoirs are interesting to read, but, above all, they illustrate, despite the author’s wishes, the amateurish nature of Russian diplomacy as it was conducted in the 1990s.

Wednesday, May 18, 2022

The many in one: A review of Amartya Sen’s “Home in the world: A memoir”

No contemporary famous economist has as broad interests and knowledge, nor as diverse life experience as Amartya Sen. It is not surprising that many have been looking forward to reading the first volume of his memoirs. It covers the period from his birth in 1933 to the beginnings of his academic career in the United States in the early 1960s. That very term “the beginning”, I realized as I wrote it, is misleading. Not for 99 percent of ordinary economists whom at thirty one might consider the academic beginners. But for Sen who got his first professorial position at 23, the age of thirty was that of an already “seasoned” academic!

The precociousness of the young Amartya is one of the two most striking things that every reader will notice.  At eight, Amartya is engaged into historical discussions with his father and grandfather. At 12 or 13, he is into the study of the Sanskrit (his first language being Bengali) and the foundational basis of mathematics. I do not think that I have read a memoir where such level of interest for very abstract topics is evinced by such a young person. Perhaps John Stuart Mill may be the only contestant.

The second striking thing is Sen’s passion for the intellectual history of India (as a subcontinent), and his disdain of ethnic and religious exclusivism. The first three  parts of the book, about 250 pages, that deal with India are written with an extraordinary passion, and for many readers (including this one) they are full of new things that one can learn from even the shortest discussions of the Indian Buddhist heritage, diverse interpretations of Ramayana and Mahabharata, the elegance of the Sanskrit.  The discussions are brief –by necessity since it is a book of memories, not a philosophic treatise—but coming from somebody as knowledgeable as Sen, these short one- or two- page commentaries inspire confidence, and may perhaps lead some readers to try to learn more. For we know that they are supported by much more evidence than can be produced in this book.  

The relationship between Amartya and his grandfather K. Mohan, a scholar and compiler of Hindu rural poetry, provides the backbone of the early—up to the university years—life of Amartya. Another influential person was Rabindranath Tagore, a close family friend. Amartya did his middle and high school in a school organized according to Tagore’s principles.  In a chapter entitled “School without  walls”, Sen describes the exhilarating atmosphere of a place where students are motivated not by a combination of incentives and punishments, but by being allowed to follow their inclinations while helped by committed professors. The idea is quite extraordinary even if one doubts that it can be expanded to a larger scale. But for students like Amartya, it was, as he writes, the best possible fit, much better than the more orthodox and competitive St. Gregory in Dhaka that Amartya attended only briefly, and gladly left, being ranked the 33rd of 36 students!

We are then taken, in several beautiful chapters, to the tumultuous life of Calcutta of the early 1940s, with the beginning of the World War II, Japanese invasion of Burma, formation of Bose’s Indian National Army, pro-independence effervescence among Calcutta’s youth and Sen’s own family (with several members kept in British jails), and the momentous split between the Hindus and the Muslims. The political excitement, the fear of war (the Japanese having bombed Calcutta’s harbor) and the looming intra-communal conflict are the background –and perhaps an indispensable condition—for the exciting intellectual life carried on in innumerable Calcutta’s cafés and bookstores. One almost wishes to have been there and then--obviously in the knowledge that he or she would have survived all the upheavals.

While reading that part of Sen’s memoirs, I thought of the two autobiographical books written by Sen’s Bengali compatriot Nirad Chaudhuri,  The autobiography of an unknown Indian” and “Thy Hand, Great Anarch!”, perhaps among the most beautiful books of political reminiscences ever. They, only in part, touch the same period (Nirad being much older), but convey to the reader the same intellectual fervor of Calcutta. Chaudhuri, not always liked by all Indians, was the proponent of the view that the mixture of European, i.e. British, and Indian, i.e. Bengali, cultures produced a unique Euro-Asian fusion. I thought that, in a brief chapter where Sen assesses the contributions of British colonialism—and damages it wrought (not least the Bengali famine of 1942)—he tacitly endorses, or comes close to agreeing with, some of Chaudhuri’s vision.

 The book is written in a simple, engaging style. It is a different style from that used by Sen in his economic and philosophical writings. I find the latter, to the extent that I understand them, written in, at times, unnecessarily obscure style. But here I had the opposite impression: I wanted to read more and wished that Sen’s recollections and discussions of political and ideological issues were more extensive. There is, for example, a story of the difference in the perceptions of Tagore in India and in Europe. For Sen, Tagore was a rationalistic thinker while in Europe he was praised and promoted by Yeats and Ezra Pound as a mystic. Yeats and Pound seemed to have seen in Tagore whatever they wanted to see and Tagore became a prisoner of that false image created in the West.

The last third of the book when Sen moves, temporarily, to the West, first to Cambridge, England and then (mentioned very briefly at the end of the book) to MIT in Boston, is much more “problematic”. While Sen’s youth is convincingly and absorbingly described in both its political and personal aspects (e.g., Sen’s bout with cancer), the European part takes place in a social vacuum. There is almost nothing that Sen tells us about the political and social milieu of Europe in the 1950s and 1960s. Even more surprisingly, there are hardly any observations, other than trivial ones, about the encounter of the East and the West that must have impressed such a brilliant and precocious mind like Sen’s. Even Sen’s European travel reads like a travelogue of places he has visited with no many insights offered: yes, we all know that Michelangelo’s David is impressive: is this worth repeating in a memoir? The only memory of Warsaw in 1956 is a one-sentence mention of a political conversation in a bathroom.  

The life in Europe seems to take place on campuses and among the multitude of students, teachers and philosophers. Now, this  would be interesting in itself since Sen had a chance to study with, discuss, and observe some of the most brilliant minds of the time: Piero Sraffa, Dennis Robertson, Joan Robinson,  Maurice Dobb, James Meade. Unfortunately for many of them, like for the cities in Europe he visited, Sen lists the names with a sentence or two of generic praise. (The only exceptions are Sraffa and perhaps Maurice Dobb; see below.) It seems that the ubiquitous mention of everyone who has crossed paths with Sen may have been done so that no one could feel slighted or excluded. Glowing adjectives are abundantly assigned (“most original”, “delightful”, “close friend”, “splendid economist”, “superb mathematician”, “astoundingly talented”). This somewhat skeptical reader cannot believe that several hundred people whom Sen had met had all invariably been extraordinary scholars and the kindest human beings.

Trying to be nice to everybody is a wrong approach in a memoir by one of the foremost intellectuals of our time. A memoir is not a letter of recommendation that one writes for his friends. Neither us, nor future readers, will be interested in the names of the multitudes who have met Sen. We, and they, are interested in Sen’s comments on the times and important people. There are, as I mentioned, indeed some, alas too short vignettes: on Dennis Robertson,  Joan Robinson, Sraffa and Dobb. By his own reckoning, Sen had spent hours and hours conversing with Sraffa and Dobb. But we are given much less of their personalities than is the case with Tagore and people from Amartya’s youth.

Rather unexpectedly, among the few persons who are openly criticized (even if mildly) is Joan Robinson for her “dogmatism” and unwillingness to listen to contrary opinions. Samuel Huntington is twice, very indirectly, criticized for his “clash of civilization” thesis that Sen quite convincingly debunks through his own experience. Aung San Suu Kyi, the Burmese president, who was Sen’s friend, and whose reversal from a pro-democracy martyr to de facto supporter of ethnic cleansing, is censured, and her transformation is found both disturbing and incomprehensible.

The non-Indian part of the book seems rather flat, offering less of original thinking than we get from Sen’s reflections on India and his life there. Perhaps Sen himself, by being not just an economist, but a historian and a philosopher, is “guilty” of having made us expect a uniformly high level of insight. But even with these minor flaws, “Home in the world” is an extraordinary book written by an extraordinary person.

Saturday, April 30, 2022

The novelty of technologically regressive import substitution

 In the next decade or so, the history of economic policy will be enriched by a new, never imagined, experiment: how to accomplish technologically regressive import substitution? This is the problem that Russia will have to face and that is entirely new. To explain why it is new, consider first what is import substitution. It was originally, at the time of Alexander Hamilton and Friedrich List, a policy whose objective was the technological catch-up of less developed countries through the use of high tariff barriers to enable local production of things that were  previously imported. The policy was imitated by many other countries, including the Imperial Japan after the Meiji Restoration and Czarist Russia under the Prime Minister Sergei Witte. Soviet industrial policies in the 1930s and even after World War II were also in the same mold. And, finally, domestic policies in Brazil and Turkey in the 1960-80s (among other countries) defined the meaning of import substitution for several generations of economists.

            In all these cases, not surprisingly, the aim of policies was technological modernization. No one has ever tried to implement import-substitution policies with the objective of going backwards in the development chain. Neither would Russia were she not under the pressure of Western economic sanctions. Why does it have to go backwards? The reason is that Russian “inclusion” in the world economy over the past thirty years has left the country fully dependent on foreign technologies, as Russia has specialized in the production of raw materials, food and relatively unprocessed products. The industrial areas that are normally the backbone of traditional (predigital) development  were well developed in the Soviet Union, but have been abandoned, left to deteriorate and, even if barely existing, are today technologically obsolete. Almost all of what is technologically advanced was produced, or was dependent in part, on Western-made technologies.   

            In the next decade Russia will try to revive these industries (e.g. machine building for petroleum and gas exploration, avionics, car production) on the basis of technologies that have been left rusting for thirty years. For sure, Russia would prefer to catch up with Boeing and Airbus, but an endeavor of that kind requires years and years of development and tens of thousands of specialists. Instead, as the Russian Ministry of Transport’s just published plan for the period up to 2030 envisages, in order to (re)create domestic aviation industry Russia will have to go back to the Tupolev-like technologies and that of the rather unsuccessful Sukhoi Super Jet. Even if Russian regressive import substitution is successful in terms of output, which is very doubtful as it projects the increase of production from 18 domestic aircrafts in 2022 to almost 200 in 2030 (the rate of growth of 35% annually!), once the Russian market gets reopened and sanctions lifted, all that effort will be shown to have been in vain because the new and created-from-scratch Russian models would be less efficient than Western.  Thus, in the year X when sanctions are removed, Russia will be, under the most optimistic scenario, in the same position that the USSR was in the 1980s: it will have an industrial base but that base will not be internationally competitive.

            To further complicate the matters of technologically retrograde import substation, we need to take into account the labor force. In past import substitution episodes, workers were relatively low-skilled and import substitution policies were supported by policies of improved education in order to have workers able to “man” the new and more sophisticated machinery. In the Russian case now, the problem is exactly the reverse. Russia has a labor force that is highly  educated and tends to move towards post-industrial areas, like in other advanced economies. But here it would have to go down in its skills levels to be adequate for the operation or (re)creation of the technologically regressive  import substitution. To put it in graphical terms:  while the original import substitution required that semi-literate peasants learn a bit of arithmetic in order to “service” the machines, here we would expect software engineers to become metal-bashing workers or foremen in large factories. This is because the demand for their (advanced) kind of skills will be reduced as Russian economy is cut off from the global market, and domestically there will be few similarly advanced sectors that would employ them.

            There will be thus a mismatch between the skill level of the labor force and the skill level technologically needed. Suppose that workers  of high skill level (HW) are needed to work with highly sophisticated machines, say robots (HM).  But if HM are unavailable  because previously they were all imported and they cannot be produced at home, the technological level of home-produced machines will be medium, call it MM. For MM however, one does not need HW workers but medium skilled workers MW. Thus, one needs to proceed to the deskilling of high-skill workers or just simply to ignore their level of education and “allocate” them to the jobs for which they are over-qualified. It is hard to believe that workers would find such repositioning attractive whether in terms of income, or challenge of, or interest in, the work they do.   

From the economic point of view this forced experiment will be interesting to observe since, as I mentioned, nothing similar in modern history has ever  happened, but I do not think that it will be very much fun for the participants.

 

Saturday, April 16, 2022

The lessons and implications of seizing Russian oligarchs’ assets

 The first and the most obvious lesson that we can draw from the confiscation of Russian oligarchs’ assets is that the pre-February 24 Russia was not an oligarchy, as many believed, but an authoritarian autocracy. Instead of being ruled by a few rich people, it was ruled by one person. To draw this (rather obvious) conclusion, we need to go back to the initial rationale given for the threat of asset seizure. When US government spoke of the seizure of oligarchs’ assets, it was before the war and with the expectations that the oligarchs, faced with the prospect of losing most of their money, will exert pressure on Putin not to invade Ukraine.  We can assume that 99%, or perhaps all, targeted oligarchs (and even those who feared to be possibly targeted) realized the stakes and must have been against the war. But their influence was, as we know, nil. Ironically, they lost their assets because they were not powerful.

If their influence on such an important matter, on which their entire assets and lifestyle depended, was nil, then the system was clearly not a plutocracy, but a dictatorship. I wrote about that in my July 2019 piece “Oligarchs and oligarchs” distinguishing between the early Russian billionaires who manipulated the political system (one should not forget that it was Berezovsky who brought Putin to Yeltsin’s attention because he thought that Putin could be easily controlled), and more recent billionaires who were treated as custodians of assets that the state may, by political decision, take from them at any point in time. It happened –unexpectedly—that it was not the Russian state that took their assets, but the American state. But it did so precisely because it thought (probably not accurately in all cases) that billionaires were “state oligarchs”.

This is the lesson about the nature of the Russian political system. But what are the implications of the seizure of assets?  They are, I believe, two kinds of implications: global and Russia-specific.

The global implication is that foreign plutocrats who often moved their money from their own countries to the “safe havens” of the US, UK and Europe will be much less sure that such decisions make sense. This applies in the most obvious way to Chinese billionaires who might experience the same fate as Russian. But this may also apply to many others. The frequent use of economic and financial coercion means that If there are political issues between the West and (say) Nigeria or South Africa or Venezuela, the same recipe will be applied to the billionaires from these countries, whether simply as a punishment or because of the expectation that they should influence the policy of their governments. Under such conditions, they would be very unwise to keep their money in places where it may be as insecure as in their own countries. We can thus expect the growth of other financial centers, perhaps in Gulf countries and India. Financial fragmentation is very likely, and would be driven not solely by the fears of billionaires but by obvious fears of potential US adversaries like China that their governments’ assets may too prove to be just pieces of paper.

What are the likely implications for Russia? Here we have to take a longer-term view, and to look past the Putin regime. The conclusion that billionaires and people close to power will draw is the one that was drawn a few times in Russian/Soviet history only to be forgotten. Leaving aside the conflicts between boyars and the czar, consider similarities with what happened now with Stalin’s regime. Stalin too was able, through skillful maneuvering to move from being a “gray blur” (as characterized by Trotsky) to the position of complete power including, in the last years of his rule, over the entire Politburo. Putin has not yet started executing people around him, but he has shown that politically they do not matter at all. The conclusion that the future Russian oligarchs will draw is the same that the Politburo members did: it is better to have a collective leadership where individual ambitions will be checked rather than to let one person take the full power.

I think that the future oligarchs (who are probably now making their first steps) will realize that they can either stick together or hang together. Under Yeltsin when they did dictate government policy, they preferred to fight each other, brought the country close to anarchy and even the civil war, and by doing so facilitated the rise of Putin who introduced some order.

Another implication is very similar to what I called the global implication. Again, it is useful to go back in time. When the original privatizations happened in Russia, the commonly-used economic logic was that it does not matter (for efficiency) who gets the assets because they would be bid out by better entrepreneurs, and everybody will have an incentive to fight for the rule of law simply to protect their gains. Communists will not be able to come back: “once the toothpaste is squeezed out, it cannot be put back” (that was a preferred metaphor used to argue for fast and inequitable privatization). The comparison was made with American “robber barons” who also often became rich by illicit means, but had the interest to fight for the safety of property once they became rich. The expectation was that the Russian billionaires would do the same.

These expectations were upended by billionaires’ finding a (seemingly) much better way to make their money safe: move it to the West. Most of them did so and it seemed an excellent decision—all the way to about six weeks ago. The new post-Putin billionaires will probably not forget that lesson: so we may expect them to favor a weak central government, that is, a true oligarchy, and to insist on the domestic rule of law—just because they will have no longer any place where to move their wealth.

 

 

 

 

 

Tuesday, April 5, 2022

The evolution of Karl Marx: a review of Kevin B. Anderson’s “Marx at the Margins”

 The goal of this very well-researched and well-written book is to show the evolution in Marx’s thinking away from the unilinear view of historical evolution, going  from primitive communism to slave-owning societies to feudalism to capitalism and, in the future, to socialism and communism. This unilinear scheme of history that in Capitalism, Alone I called the “Western path of development” (WPD) is the ”bread and butter”  of classical Marxism. It was based though, as many have argued, and Kevin Anderson very persuasively shows, on a generalization of West European history. It could not be transplanted elsewhere nor used to explain the rest of the world.

Marx was aware of that and introduced his famous “Asiatic mode of production” characterized by land ownership in common (whether by consanguine communities or not) and by an overarching hierarchical authority on the top. It was a prototype of what was later defined by the Marxist scholar Karl Wittfogel as the Oriental or “hydraulic” societies.  The Asiatic mode of production always sat rather uneasily within the Marxist framework because one could not say much about its evolution: whether such societies tended on their own to become capitalist, including by creating private ownership in land, or not. Even less could be said about their socialist prospects: but if so, how could “scientific socialism” argue for global validity?  

 Anderson shows that Marx in his early period, which we may date to the late 1850s, was both Eurocentric and, in a few passages where he discussed the Asiatic mode of production he assumed that it was ahistoric and unchangeable.

Things began to change in the 1860s, under the influence of political developments outside Europe. They led Marx to begin studying much more seriously non-(west) European  societies: the origin, history and class structure of agricultural societies without private ownership of land, their similarities and differences with such early European societies (of Germanic and later Slavic kind). The political events of late 1850s-early 1860 that attracted Marx’s attention and on which he wrote prolifically (mostly as the European correspondent of the New York Daily Tribune and also for Die Presse in Vienna) were the Taiping uprising in China (1850-64), the Sepoy rebellion in India (1857), the end of serfdom in Russia (1861), and the American Civil War (1861-65).

Anderson dedicates a whole chapter to Marx’s and Engels’ writings and mutual correspondence regarding the American Civil War.  As is well-known, both were strong supporters of the Union, and admirers of Lincoln—even if Marx tended to criticize him for timidity—but only to be pleasantly surprised and impressed when Lincoln fired General George McClellan and issued the Emancipation Proclamation. Engels, who had considerable military training, was less sanguine about the chances for an outright Northern military victory. Marx, who paid more attention to the social forces and the position of various classes and groups both in the South and the North, never doubted Northern victory, even at the times when Britain was on the verge on intervening on the side of the South.

The discussion of the American Civil War is important because it lets us see how Marx approached and combined the racial and the class questions. Perhaps this quote from a 1866 letter to François Lafargue (later repeated verbatim in Capital), “labor in the white skin cannot emancipate itself when in the black skin it is branded” summarizes best his opinion. But it leads us astray from the main point of the book, namely non-European nations’ transition to capitalism. Here India and, especially, Russia played a key role in the evolution of Marx’s thinking.

In the period up to the publication of Capital (volume I), Marx regarded Russia, as European liberals of the age did, as an extraordinary reactionary power, dictatorial internally and supporter of anti-revolutionary forces externally: “It is in the terrible and abject school of Mongolian slavery that Muscovy was nursed and grew up…Even when emancipated, Muscovy has continued to play its traditional role of a slave as a master” (p. 48; written in 1856). Russian  intervention on behalf of Austria in 1848-49, the creation of the Holy Alliance, the Crimean War, and bloody suppression of several Polish uprisings all fitted that image.

The change in Marx’s views, and greater interest in Russia, began after the publication of Capital when the Russian translation (which was the first translation of Capital, in 1872) attracted not only an unexpected interest among intellectuals and revolutionaries in Moscow and St Petersburg but also very astute and pertinent commentaries, quoted by Marx in extenso on several pages in his introduction to the second German edition of Capital.  

Marx new-found interests in things Russian, which led him to learn the language and read a number of Russian books in the original, had another important consequence. Russian Marxists posed the following question: could socialism in Russia sidestep capitalist development and use the land held in common (the Russian mir) as the basis for future socialization of the means of production? The question was whether the “natural” evolution was always such as to move from communal land ownership to private small-holding and then eventually into socialism, or could private small-holding be simply skipped?  

The same problem was faced elsewhere: in India and Algeria. In both cases, to which Marx directed his attention, the colonial authorities encouraged privatization of land. That was the way in which the colonists hoped to get hold of the land. If each parcel of land is held in common by a clan or extended family and cannot be alienated, how are French and British colonists going to get any of it? But if it is parceled out into private holdings, these individual lots can be either more easily expropriated or purchased from the new owners. This is why the French were keen to break clan ownership in Algeria, and the British helped zamindars become formal owners of land (zamindars were originally tax farmers who collected taxes from the peasantry and kept a part for themselves but did not own the land).

Everywhere thus, including in the Russian case (the land privatizations after the end of serfdom), the movement seemed to be towards the breaking-up of the communal ownership and the introduction of “land capitalism.” Still, the more Marx studied non-European societies, the more aware he became, Anderson argues,  that the WPD did not necessarily apply to them:  there was no equivalent to West European feudalism, and the future of rural communes was not preordained. It is in that context that Marx’s famous 1881 letter to Vera Zasulich, the Russian revolutionary, was written. The importance of Marx’s letter cannot be overestimated. It is shown by the fact that Marx, a compulsive and fast writer, made no fewer than five drafts of the letter, each more detailed than the short letter he finally sent. He explicitly circumscribed the validity of his analysis: “The ‘historical inevitability’ of this course [i.e. his analysis in Capital] is therefore expressly restricted to the countries of Western Europe”; and he allowed for the possibility of skipping the capitalist stage: “The analysis in Capital therefore provides no reasons either for or against the vitality of the Russian commune. But the special study I have made of it, including a search for original source­ material, has convinced me that the commune is the fulcrum for social regeneration in Russia. But in order that it might function as such, the harmful influences assailing it on all sides [meaning most likely the privatization of land] must first be eliminated, and it must then be assured the normal conditions for spontaneous development.”

Towards the end of his life, through an evolution driven largely by political events outside Europe and Marx’s extensive readings, Marx came to believe that the evolution he and Engels sketched in 1848 was valid for Western Europe alone and perhaps confined to it. It is only within this context that we can understand the apparently barren last decade of Marx’s life when, rather than completing the remaining volumes of Capital, he spent an inordinate amount of time studying the minutiae of Russian and Indian land ownerships, geology, the pre-historical societies and the like.

David Ryazanov, the first editor of Marx’s and Engels’ collected works, criticized Marx for this apparent waste of time: “Why did he waste so much time on this systematic, fundamental summary [of various books] or expend so much labor on one basic book on geology, summarizing it chapter by chapter. In the 63rd year of his life—this is inexcusable pedantry” (p. 249). However, according to Anderson, the “waste” can be understood  if we realize that Marx, unsatisfied with the WPD and his non-historical “Asiatic mode of production”, was, albeit unsuccessfully, trying to generalize the pathways of transition to capitalism by looking at the world as a whole, no longer Europe alone.

 

Friday, March 11, 2022

Long term: Difficulties of import substitution and delocalization

 When we look at Russia’s long-term economic prospects, it is also useful to begin with some assumptions and to look at historical examples. We can make two assumptions. First, that the current Russian regime, in one form or another, might continue for some ten to twenty years.

Second, we can assume that American and Western sanctions will continue throughout the entre period of say, 50 years that we consider here. The arguments for this are as follows. US sanctions once imposed are extraordinary difficult to lift. As of today, there are already 6,000 various Western sanctions imposed against Russia which is more than the sum of sanctions in existence against Iran, Syria and North Korea put together. History shows that US sanctions can last almost without any time limit: sanctions on Cuba are more than 60 years  old, on Iran, more than 40 years old, and even the sanctions on the USSR (e.g. the Jackson-Vanik amendment) that were imposed for one reason continued on the books during twenty years after the end of the USSR even after the original reason that led to sanctions (Jewish migration) had entirely disappeared.

When the post-Putin government tries to have sanctions lifted, it will be faced by a such a list of concessions that would be politically impossible to satisfy. Thus, sanctions, perhaps not in the exactly the same form, may be expected to last for the entire duration of what we call the long-term here (50 years).

It seems obvious then  that Russian long-term economic policy will have to follow two objectives: import substitution, and the shift of the economic activity away from Europe towards Asia. While these objectives are, I think, clear the realization will be extremely difficult.

As before, consider the historical precedents. Soviet industrialization can be seen as an attempt to substitute imports by creating a strong domestic industrial base. That process however was based on two elements that would be missing in Russia’s future.

First, Soviet access to Western technology that was at the origin of most large Soviet complexes like the Krivoy Rog  and the largest factory of tractors in the world in Tsaritsyn (later Stalingrad). The surplus extracted through collectivization, and hunger and death of millions, and even the gold taken from Orthodox churches, were used to purchase Western technology. There was never any doubt among the Bolsheviks, from Lenin to Trotsky to Stalin to Bukharin, that for the USSR to develop,  it had to industrialize and to do so it needs to import technology from the more developed countries. (That conscience of relative underdevelopment of Russia was extremely strong among all Russian Marxists who were all modernizers.)  The ability to import similarly advanced Western technology that could provide the basis for  downstream import substitution, will not exist under the regime of sanctions. Therefore such technology would have to be invented locally.

There is, however, a huge temporal break. Had anyone proposed import substitution approach in the 1990s, it would have been difficult to implement but not impossible: the USSR (and Russia) had at that time a broad industrial base (production of airplanes, cars, white goods; largest producer of steel etc.). The sector was not internationally competitive but, it could have been improved, and with right investments made competitive,. But most of these industrial complexes have in the meantime been privatized and liquidated, and whatever was not, is technologically obsolete. In thirty years after the beginning of the “transition”, Russia has not been able to develop any technologically advanced industry except in the military area.

Take the example of passenger airplanes. In 1970s, USSR was certainly ahead of Brazil, and even of ahead of Europe that began developing Airbus only in 1972. But that industry was destroyed during the transition, and the only remnant of it is Sukhoi Superjet that is currently used by several Russian airline companies but has not been sold (almost) anywhere else in the world. In contrast, Brazilian Embraer operates in 60 countries.

Doing import substitutions in conditions where both the base of such substitution will have to be recreated and then new industries created without much (or any) input through investments from the more advanced parts of the world is almost impossible to do. This is the problem that China was able to solve only after a dramatic foreign policy shift in the mid-1970s. But that option, by definition, will be unavailable to Russia.

The second factor underpinning Soviet industrialization was the increase in the labor force. It came from the supply of the surplus agricultural labor, increased overall population, and very important, from the improving level of education. The USSR in the 1930s used to produce annually hundreds of thousands of various types of engineers, scientists, doctors etc. None of these elements will hold in the next half-century. The Russian population is urbanized, shrinking in size, and is well-educated. Hence gains cannot come from any of the three sources that were used in the 1930s.

Of course, highly educated labor force is a plus. But that labor, in order to produce its maximum, needs also to work with top technology. If top technology is unavailable (for the reasons  explained above), highly educated labor will be wasted. Due to the shrinking population, even the overall pool of such labor will every years be smaller. Since it will not find adequate use and adequate pay in Russia it will tend to emigrate thus further shrinking the available number of highly skilled workers. It is not impossible that Russia might return to the Soviet policy of not allowing free migration—now under the pressure of economic factors. It was precisely the outflow of highly qualified workers that led East Germany to erect the Berlin Wall.

We can thus conclude that factors that made import substitution feasible in the 1930s and 1950s in the Soviet Union will not work in tomorrow’s Russia.

What are the prospect of shifting the center of gravity of the economic life from West to East? Technically, one can imagine a new type of Peter the Great move where Russia opens not a window on Europe (what St Petersburg was supposed to be) but a window on East Asia, by, for example, moving its capital to Vladivostok and trying to shift as much as possible of economic and bureaucratic life, together with the population East. If things could be moved by a decree, such a shift could even be arguably seen as quite reasonable. East Asia is, and will remain, the fastest growing part of the world. Leaving Europe, which in many ways is also a declining continent, could be seen as a right move. Russia is, with the United States, the only country in the world that can make such a radical move; for others, geography is much more of a destiny. Politically too, Russia is unlikely to be exposed to sanctions and political pressures by China, India, Vietnam or Indonesia in the same way as it is by UK, France and Germany. Finally,  a Pacific vocation could be seen as a replay of the American thrust to open the new frontier a century and half ago. Climate change might also help by making the Northern Russian territories more habitable.

            How feasible is such a change? It would require massive investments in infrastructure, including much better communication between the two far-flung parts of Russia: the flight from Moscow  to Vladivostok takes almost 10 hours and the train ride more than a week. Developing new cities along the way, expanding the existing ones etc. does not only require investments that a shrinking Russian economy cannot provide. It would also require creation of new jobs in such cities, the only thing that could attract the population to move from the European to the Asian Russia. The Soviet Union tried to do so by opening many Northern outposts in Siberia, paying workers higher salaries to move there, and did have some limited success. These towns and settlements have almost all died in the past thirty years though. It is difficult to see how such a massive shift of activity can be accomplished without huge investments and indeed some comprehensive urban and production planning.

            Both policies, namely import substitution and shift towards the East, will therefore meet with almost insuperable obstacles. It does not mean that they cannot be undertaken; some of them will by done, by necessity: Russian softwares will have to be produced to replace the 95% of western-origin software that is currently used in automated Russian companies (Russian newspaper sources). Closer economic ties with China would also imply some movement of companies and people East. A Siberian or a Pacific city can become the second capital (as Ankara did in Turkey). But a significant success in either of these two domains seems—the best that can be seen from today’s perspective—simply unreachable.

            So what happens then? As I mentioned several years ago in the introduction  to the translation of my “Global inequality” in Russian, the future of the Eurasian continent looks very much like its past: the maritime areas along the Atlantic and the Pacific coasts will be fairly rich, much better-off that the significant large continental areas in the middle.  The opens up the question of how politically viable will be such an uneven distribution of economic activity: will migrations, or political reconfigurations “solve” such disequilibria?