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?

 

Russia’s economic prospects: the short-run

 I will consider in two parts what seem  to me the short-term and long-term prospects for the Russian economy. 

            I begin with the short term. It is based on the assumption that the shooting war in Ukraine ends within months (that is, that it does not continue at its current intensity for years) and that there are no drastic internal changes in Russia, in the form of a coup, revolution etc.

            To answer the question of the short-term effects, it is useful to go through some history for which, unfortunately, Russia, thanks to its circular economic history, provides several examples. The most calamitous declines in income in the past 100 years occurred during the later stages of the First World War and the ensuing Civil War, as well as during the transition to capitalism in the 1990s. (Enormous decline in GDP, and especially consumption, happened also during the Second World War but they are more difficult to interpret.)

Between 1917 and 1922, Russian GDP was halved (all numbers given here are in real terms, i.e., adjusted for inflation); the industrial output in 1921 was 18% of the pre-War level; the agricultural production was 62% of the pre-War level. (The data are from Kritsman, 1926, quoted in Pipes, 1990; and from Block 1976; see also chapter 1 of my “Income, inequality and poverty during the transition from planned economy”). During the transition episode, Russian GDP per capita decreased between 1987 and 1995 by almost 40% (much greater decline than during the Great Depression in the United States).  The greatest one-year decline was in 1992 (16 percent), followed by the next two years of respectively 8 and 13 percent. (The data are from the World Bank.)

We can also take the third example of the 1998-99 financial crisis and the Russia’s default on government debt. In 1998, Russian GDP went down by 5 percent. The financial crisis and the general disorder of 1998-99  probably led Yeltsin to the realization that he could no longer control the Russian society and the economy: in a quick succession he appointed several Prime Ministers (all of them in one way or another linked to KGB—seemingly realizing than no one else could salvage the situation), and the rigmarole ended with Putin’s appointment on 31 December 1999. This  opened to Putin the venues of being elected president after Yeltsin’s early resignation (Yeltsin’s term would have normally ended in June 2000).

            The 1920s Civil War (obviously) and the transition were both greater economic shocks that the current one. The period of the early 1990s involved a wholesale change in the way enterprises functioned, the break-up of almost all economic ties with other Soviet republics, privatization, government’s inability to implement policies, and corruption on an epic scale. Today’s sanctions, however onerous for the economic activity, are unlikely to have the same impact in the short-run. But they would certainly have much more of an impact than the 1998-99 financial crisis. One can thus, very roughly,  put the expected decline in 2022—23 at high single digits, or low double digits: it is not going to be as sharp as in 1992, nor as (relatively) mild as in 1998.

            It is of course unclear how the costs of the decline will be distributed. Russian government has recently introduced a new, more favorable, indexation of  pensions (30% of Russia’s population are pensioners) but it is doubtful that, under the new conditions, it would be able to delivers that policy. The same is true for greater income-tested child benefits, voted in by the Duma. The withdrawal of many foreign firms, de facto embargo on a number of imports, and surely a decline in foreign and domestic investments, will increase unemployment. Currently, Russian unemployment is low, but it could go back to 7-8% or more, as it was in the 1990s. Russian safety net is simply not institutionally nor financially strong enough to maintain these people’s incomes at a reasonable level. The institutional weaknesses were revealed  by the effects of covid: the total number of registered covid deaths was 360,000 and Russian excess deaths are, according to some estimates, among the highest in the world. One can compare these results with those of China, which had 4,600 registered covid-related deaths, i.e. about 1% of Russia’s, with a population almost ten times as big as Russia’s.

            Inflation that will accompany the fall in the ruble will also affect the poorest the most. Although Russia’s food prices may not increase as much as in food-importing countries, they will go up (domestic production in some areas not being able to compensate for lower imports, and foreign inputs increasing due to the depreciation of the ruble). Sporadic shortages might develop, The news already report the run on a number of essential items, including the shortage of sugar. Faced with such unstable and volatile relative prices, under the condition of return of high inflation, the prudent policy would be to impose rationing for all essential items.  In the Soviet Union, rationing was eliminated in 1952, and then briefly reintroduced for some goods in Russia during the early 1990s. It may have to be reintroduced again, probably more broadly. The rationale of rationing is of course to protect the welfare (and even the survival) of the poorest classes, but it obviously blunts the incentives for producers. In the Soviet Union, this did not matter much since production was based on planning, but in Russia of today, incentives do matter.

            Government policies, unveiled so far, whose objective is reduce the impact of sanctions, are very weak. To declare a temporary tax holiday for small and medium size enterprises makes sense in order to avoid massive layoffs, but it cannot be a medium-term policy. It obviously affects the budget, and also  opens the way to what seems inevitable, namely a monetary expansion followed by inflation. As already mentioned, inflation was extraordinarily high in the early 1990s (the annual level was at three figures between 1992 and 1995) and also in 1999, when it reached 90 percent. It is hard to see how it may not return:  already by February, the inflation was 10% on an annual basis. The March numbers will be certainly higher. 

Another government measure aims to encourage repatriation of Russia’s foreign investments. But why would people bring back to Russia money that, under the regime of capital controls which are already in place and will become stricter, will be impossible to move back abroad, if needed?

The problem is not that the government is making wrong policy choices; the problem is that, in the current situation, there are almost no good policy choices to make. The range of what the government can do is extremely limited, and is determined by foreign policy decision made by Putin (probably without any consultation of the economic ministries) and by foreign sanctions. Between the two, there is very little that any economic policy can do other than be led by the events in becoming more and more restrictive. It is important to point out that the restrictiveness will be mostly forced by the events. Ideologically, the Russian government is technocratic and neo-liberal. Putin himself had always had a neoliberal approach to the economy. The first day after the invasion of Ukraine, he called a meeting with the big business and promised them a “fully liberalized economy” (actuality, practically asking them to do whatever they want). He, and probably them, might not have  been at the time fully aware of the deleterious effects of sanctions. As that becomes increasingly clear, the field of decision-making for economic policy will be drastically reduced. It will no longer be the question whether one likes price controls or not: it would be a question of having massive riots without them. Thus restrictive policies will be dictated by the events. But once adopted, they will be difficult to alter.

            Another aspect should be also mentioned. Sanctions and any kinds of limitations always call for work-arounds. They are indeed  possible: imports may be made from (say) Armenia and then resold in Russia; Russians abroad might share their credit cards with cousins at home etc. But such “creative solutions” are expensive. People who engage in them take risks for which they have to be compensated. The Russian papers have already reported the emergence of “speculators”, a term which hails back to a revolved era. The increase in prices due to clever work-arounds is not the only effect. A more socially pernicious is the emergence of smuggling and crime networks that will control such schemes. This is the same as with drugs. Once a good is illegal, underpriced or difficult to obtain, it will be brought to the market but at a high price and by people who are willing to defy the law. The criminalization of the Russian society,  which has gone on since the 1990s and that exploded under Yeltsin, will come back in force.

            The coming years of Putin’s rule will thus look very much like the worst years of Yeltsin’s rule. Putin was brought out of the deep shadows with the idea that he would protect the gains of Yeltsin’s family and the oligarchs while reimposing some degree of internal stability. In his first two terms, he was successful in doing that. But at the end (or whatever the current point it is) of has reign, he brought all the original diseases back and made them in some sense worse because his policies stuck the country in an impasse and thus closed off all the venues of escape.

            In the next post I discuss the longer-term prospects.    

The end of the end of history: what have we learned so far?

 Wars are the most horrible events. They should never happen. The entire human effort should be directed toward making wars impossible. Not just illegal, but impossible, in the sense that no-one would be either able or have incentive to start them.

But we are, unfortunately, not there yet. The humankind has not evolved that far. We are now in the midst of a war that may become a very murderous war.

Wars are also an opportunity  (however cold-hearted this might seem) to reassess our priors. Things are suddenly thrown into a much sharper focus. Our beliefs are transformed into illusions. The nostrums become meaningless. We have to deal with the world as it is, not with the world we imagined until a day before.

So, what have we learned after one week of the Ukraine-Russia war? I will try not to speculate about the outcome. Nobody knows it. It can end with the occupation and subjugation of Ukraine, or it can end with the break-up of Russia. And everything in between. Neither I, nor the reader, nor Putin, nor Biden know it. So I will not speculate on it.

But what do we seem to have learned so far?

1. Power of oligarchy. The power of oligarchy when it encounters le raison d’état is limited. We tended to believe that Russia, being an oligarchic capitalist economy, is also one where the rich decisively influence policy. Perhaps that in many everyday decisions that is the case. (I do not have in mind here the oligarchs who live in London and New York, but those who live in Moscow and St Petersburg and who may be also heads or large shareholders of powerful private and semi-state-owned companies.) But when the matters of state are serious, for the organized power, that is, the state, oligarchy is no match. The threat of sanctions, so visibly displayed and trumpeted by the US weeks before the war started, might have influenced Russian oligarchs to move their yachts as far as possible from US jurisdiction, or to engage in fire-sales of their property, but it made no difference to Vladimir Putin’s decision to go to war.

Nor did all the buying of influence by the rich Russians among the Tories in the UK or both political parties in the US matter. Neither did the “sanctity of private property” on which the United States was created (and which so much attracted  the oligarchs to move their stolen wealth there in the first place). The US proceeded to probably the largest inter-state transfer of wealth in history. It is the equivalent of Henry VIII’s seizure of church lands. While we have seen such gigantic confiscations within countries (the French and Russian revolutions) we have never seen it, in one fell swoop, in 24 hours, between the countries.

2. Financial fragmentation. The corollary of this point is that extremely rich people are no longer safe from political forces—even if they change citizenship, contribute to political campaigns, or dedicate a wing of a museum. They can fall victim to geopolitics they do not control and which are much beyond their remit—and at times beyond their understanding. To remain excessively rich would require more than ever political nous. Whether the globally rich will interpret this confiscation to mean that they must more seriously than ever capture the machinery of the state, or they interpret it to mean that they should find other new havens for their investments is impossible to tell. Most likely it will lead to the fragmentation of financial globalization and to the creation of new and alternative financial centers, probably in Asia. Where will they be? I think the strong candidates are the democratic countries with a degree of judicial independence, but also enjoying sufficient international political clout and margin of maneuver not to yield to the pressure of the US, Europe or China. Bombay, Djakarta come to mind.

3. The end of the end of history. We—or at least some people--tended to believe that the “end of history” meant not only that the ultimate political and economic system was discovered in one night in November of 1989, but that the old-fashioned tools of international struggles will not reappear. The latter was shown wrong several times already, from Iraq and Afghanistan to Libya. A more brutal demonstration is in the process of being executed right now where borders are being redrawn using the instruments that the world has practiced for 5,000 years of recorded history but that were thought obsolete.

The current war displays to us that the complexity of the world, its cultural and historical “baggage”, is great and that the idea that one type of system will eventually be embraced by all is a delusion. It is a delusion whose consequences are bloody. To have peace, we need to learn to live while accepting differences. These differences are not trivial differences that go under the current title of being open to variety, in way we dress, in our sexual preferences or the food we eat. The differences we need to accept, and to live with, are much more fundamental and they relate to the way societies function, what they believe in, and what they think is the source of legitimacy of their governments. That of course can change in the course of time for any one given society, as it did many times in the past. But at a given point, it will differ from country to country, from region to region, from religion to religion. To assume that everyone  who is not “like us” is somehow deficient, or not aware that they would be better off being “like us” will –if we maintain this flawed belief—remain the source of endless wars.  

 

How modern bombings look: The bombing of Belgrade in 1999

 The Russian bombing of Kiev brought back very painful memories of a similar bombing of Belgrade (1.5 million people) by NATO forces in the Spring of 1999. I was not then in Belgrade and I watched the bombing, as long as I was able mentally to do so, on US evening news. I noticed that while watching I almost had no feelings: seeing streets and houses which I knew well, including the building where I lived and where I still have an apartment, getting suddenly lit by the flame from the nearby explosions left me almost numb—as if my mind migrated somewhere else. The bombing lasted 78 days. I think I stopped watching the news after a couple of days. That whole period is just a blur for me. (I could not watch the much more brutal bombing of Baghdad in 2003, nor can I watch now the bombing of Kiev.)

Many of my family and friends were in Belgrade during these 78 days. There are several interesting experiences that are useful to share about high-precision bombing as was practiced at the end of the 20^thcentury. NATO bombing was always conducted at night. The planes flew at high attitude at which the Serbian air defense could not reach them. Only one US plane was brought down (the pilot catapulted) out of probably hundreds of sorties that were made. Most of the sorties were from an air base in Italy, eponymously called Aviano, but some planes flew ten or more hours from US bases, just to bomb for a hour or so and then fly back to the US.

At first,  NATO thought that Serbia will surrender quickly (meaning that President Milosevic, the then autocratic even if democratically elected leader of Serbia, would withdraw the troops from Kosovo where they were engaged in, or about to start, conducting military operations and atrocities). So, at first NATO targeted only non-civilian objects, many of them empty: different ministries which were previously evacuated (especially Ministry of Defense and Ministry of Internal Affairs), the HQ of the General Staff, Milosevic’s personal residence, the building of Socialist (formerly Communist) party etc. They were all fully or largely destroyed. These were  ritualistic bombing because almost nobody was left in these building and  all documents were taken out or burned. The only exception was Milosevic’s residence where NATO did hope to catch him and kill him. (More on that later).

How did my family and friends react? They were not too scared and they also believed that the bombing would last only a few days. Three days, many thought. Some slept in the basements of large buildings, others in their bedrooms. A friend refused to ever move out of her bedroom as she believed that Americans were not going for civilian targets and were so precise that the only thing she feared was that the Serbian air defense might bring down a US bomber and the debris might fall on her building. A bit like Obelix.

Since the bombing was always at night (it was in the months of March, April, May and early June) life during the day was more or less normal. There were no shortages of essential goods. The sirens would blast at the sunset or later and then people would run to the shelters, or just head back home. The US weapon of choice was the smart Tomahawk cruise missile. A  friend told me that he watched it from his window fly several meters above the water for a kilometer (Belgrade lies on two rivers), make a turn exactly where the river bends and hit its target on the shore. Like in a video game.

But as the surrender was not forthcoming, NATO decided to up the ante. They began targeting thermal plants, factories, refineries (which led to frightful fires) etc. I was later working with a team that tried to assess the damage. It was difficult to do: do you use the accounting value of  destroyed factories or the net present value of future income? I think we came up with $25 billion. (I will try to find the booklet and get the correct number.)

Yet the surrender was still not forthcoming. So NATO then decided to invent what its inimitable spokesman, cynic and liar, the brother-in-untruth of Maria Zaharova,  Jamie Shea decided to call dual-use facilities. These are things that could be used for both civilian and military purposes, like,  for example, a bakery: it sells bread both to solders and to civilians. Things started getting ugly. In addition, NATO came up with the so-called carbon bombs which disable the system of electricity transmission (they accumulate on the wires) and thus leave the city entirely in darkness until things are fixed. This sometimes  took a whole day. But when there is no electricity, there is also no water in large apartment blocks, and when there is no water toilets do not function properly. Elevators also do not work. I had a friend who lived on the 20^th floor of an apartment building. He  almost never went out, to the ground: neighbors would organize teams of several young persons to buy bread, milk etc. and bring it up.

Belgrade was fortunate that the bridges on which the city depends were spared. Without them the city would have almost died. Every night, crazily brave groups of some 100-200 people would gather on the bridge, singing songs and expecting (but hoping not) to die. Luckily, it never happened. Apparently, French President Jacques Chirac refused to clear bridges as targets. However, in the second largest city in Serbia, Novi Sad, two bridges were destroyed.

NATO used cluster bombs and depleted uranium (both banned by international conventions to which the US is a signatory). Several kids were killed by cluster bombs. Depleted uranium has long-term effect on higher cancer rates (although  these finding are disputed by some). The effect of the depleted uranium was the greatest (because the delivery was the greatest) in Kosovo. But, since Kosovo’s  population saw the bombing as liberation, there was not much incentive to research later if bombing was linked to the increase in diseases. The overall civilian toll was between 1500 and 2000 deaths (less than a half of that in Belgrade).

When I talk (rarely) about this episode, people always ask me about the US bombing of the Chinese embassy. The embassy happens to be some 300 meters  from my apartment (as I said, I was not there then, but my friend was). She heard a powerful blast that broke many windows on the nearby buildings, but not hers. It killed three Chinese journalists, injured more. Was it a mistake or not? The ostensible ritualistic target was, according to the US, the Federal Office of Special Goods Exports (i.e. of arms exports). But that building is much bigger, has an entirely different shape, is two blocks away, and even the angle at which it sits is different. So I am skeptical. I think that the bombing was motivated by the stories that circulated –even I heard them—of Milosevic staying overnight in the Chinese embassy on the assumption that the Americans would not bomb a diplomatic compound. So I do not think it was an accident,                            

Of course, it was also the time when Novak Djokovic trained during the day only and in a swimming pool. This is often presented in the news as some funny story, but it was far from funny. As he himself has said, it has been a traumatic experience that had marked him for life.

War is not fun. It is not good in Belgrade. It was  not good for the victims of the Sarajevo siege shelled by Serbian forces; it was not fun in Kosovo. And it is not fun in Kiev today. I wish that some of those who decide to bomb cities spend some time being bombed themselves. Perhaps they would think twice about ordering such attacks. We should all hope that none of them ever happens again..

Putin’s Century of Betrayal speech

Vladimir Putin’s speech on 21 February 2022 at the occasion of the recognition of Donbas and Lugansk republics is one of the most extraordinary political speeches of the present time.  It consists of more than 6,000 words, and it was delivered over 55 minutes without the help of a single piece of paper or without a single hesitation. To the extent that one can judge there was no teleprompter either.

It is a speech that lays bare, and intends to do so, Putin’s own philosophy of history. It covers the past one hundred years of Russia’s history. It gives one, not unreasonable, but very narrow version of that history, where historical events with multiple causes and multiple meanings are simplified to a single cause and single meaning.

It is a form of “J’accuse” speech that tells, according to Putin, a story of a century of betrayals of Russia: by Communists, by Russia’s own elites, and by Russia’s pretended friends. It is thus best to divide the text into three parts, the three betrayals.

Betrayal by Bolsheviks

The speech takes the reader over exactly the past century, from 1922 when the Union of Soviet Socialist Republics was formed. (The only two episodes, prior to that period, are  a very brief mention of the 17^th century Russia, and the Brest-Litovsk peace agreement of 1918.  The latter was also seen as a Bolshevik betrayal.)  

The Soviet Union, as created in 1922, involved the formation of ethnically-based republics and granted to each republic the right of self-determination, up to, and including, the right to secession. Putin says: “Leninist, substantially confederal, state structure and the slogan about each nation’s right to self-determination up and including secession were built in the foundation of the Soviet state: at first, in 1922 they were included in the Declaration on the Creation of the Union of Soviet Social Republics, and then after Lenin’s death in 1924, in the USSR Constitution.”

This was the land-mine, as Putin will later claim, that was installed in the very act of  the USSR creation and that will later explode, destroying the union, and thus directly leading to the problems faced today. Why, Putin asks, “was it necessary to satisfy the endlessly increasing nationalist ambitions of different parts of the former [Russian] empire? Why giving them newly-formed, often arbitrarily created, huge administrative units –union republics—that often had nothing to do with them [titulary nations]? To repeat, giving them the territories together with the populations of the historic Russia.”

Even if Putin does not use the term, it was clearly a move that can be explained only by the anti-Russian sentiment of the Bolsheviks: a betrayal. Putin does not stop to think about the fact that the Russian revolution was the revolution of social and national emancipation, that it included the components of both equality between citizens and equality between peoples who were oppressed in the Czarist Russia. This is the reason why Bolsheviks had in their ranks so many representatives of various ethnicities, and why they –and Lenin in particular—insisted on the need to fight Great Russian chauvinism.

They created republics so that the nations of the former Empire might feel to have a real stake in the new socialist commonwealth, and originally they even thought that the entire world, as it became Communist, would be unified in a single Soviet Socialist republic (hence, no geographical terms in the name of the USSR). This idea of a single world-wide socialist republic where contradictions between different ethnicities are overcome explains the annexation of the Baltic republics in 1940 (as opposed to keeping them as allied states, as happened after 1945 in Eastern Europe) as well as both Yugoslav and, more importantly, Chinese Communists, after their successful revolutions, suggesting to unify their countries with the Soviet Union.

 “Again I ask myself: why was it necessary to make such generous gifts, which the most ardent nationalists had never even dreamed of before, and even give the republics the right to secede from the united state without any conditions?”  The answer is simple: it was not some special anti-Russian feeling that motivated the creation of the Soviet republics. It was due to the origin of the revolt against the Czardom and the vision of a new world of national equality.

Such broad accusations against the Bolsheviks, of having arbitrarily surrendered vast Russian territories, implicitly question the legitimacy of all republics, not only of Ukraine. In the speech of course, Ukraine is singled out by showing that it was cobbled together first by Lenin, then by Stalin who gave it some Polish, Rumanian and Hungarian territories at the end of the World War II, and finally by Khrushchev who “for whatever reason” gave Crimea. 

Betrayal by communist elites

What happened next? “…[T]he Red Terror and the rapid transition to the Stalinist dictatorship, the dominance of the Communist ideology and the Communist Party's monopoly on power, nationalization and the system of the planned national economy - all this in fact turned [the right to secession] into a simple declaration, into a formality, the declared, but non the working principle of the state system”  The right of the republics to self-determination and secession was just a dead letter so long as the Soviet Communist Party was strong and centralized. The initial 1922 damage did not manifest itself.

That, however, began to change in the 1980s with the deep crisis of the Soviet economy and society. The crisis stimulated growing “appetites of local elites. Each of these elites…in order to expand the base of support, began to mindlessly stimulate, encourage nationalist sentiments, play on them, promising their potential supporters whatever they wished”. Since the legitimacy of the Soviet rule collapsed, the new legitimacy was to be found in ethnic nationalism, and the right to secession was the perfect tool to realize such objectives. Here Putin is indeed on very strong grounds. This was the process that broke up not only the USSR, but also Yugoslavia and Czechoslovakia and created 23 or, if we include all the additional republics, 28 new states. It was the process foreshadowed by Hélène Carrère d’Encause in her “L’empire éclaté” and by   Wisla Suraska “How the Soviet Union Disappeared?” (reviewed here). But it is hard to see how the process was specifically anti-Russian. All elites, including Yeltsin's which brought Putin to power, played the same game, dressing themselves up in nationalist garb.

Thus, in 1989, the CPSU Plenum adopted, Putin quotes, such statements as: “To the Union Republics belong all the rights, reflecting their status of sovereign socialist states” and "The highest representative authorities of the union republics may protest and suspend the operation of resolutions and orders of the union government on their territory." The break-up of the USSR was then only a matter of time. That break-up and the creation of newly independent states was not accomplished by nationalist leaders, Putin says, who now, especially in Ukraine, claim this but “[t]he break up of our country was brought by the historical and strategic mistakes of Bolshevik leaders, and the leadership of the Communist Party of the USSR.”

That was the second betrayal.

Betrayal by the USA

Russia, says Putin, accepted such uneven and unfair outcome and behaved toward the new republics in the spirit of friendship. Putin here lists, with respect to Ukraine, a number of “good deeds” done by Russia including massive subsidies between 1991 and 2013, estimated at $250 billion, payment of all Ukrainian debts (accrued under the Soviet Union), etc. This took place despite Ukraine’s constant attempts to cheat Russia (“banal stealing of gas”) and not to respect the undertaken commitments (to return some of Soviet assets that were allocated to Russia).

Russia also wanted to establish cordial relations of friendship with the United States. In 2000, Putin, in a detail that he says he publicly mentions only now, asked Bill Clinton how would US react if Russia asked to join NATO. He was, Putin says, taken aback by Clinton’s very reserved reaction. The more time passed, the more evident it became to Putin that the United States treated Russia as an enemy: the official US military plans say so. In these plans Ukraine is the spring-board for US ability to military threaten Russia. Americans have renovated a number of Ukrainian airports, and with new weapons, including tactical nuclear arms, the entire Russian territory up to the Urals, and apparently in the near future, even beyond the Urals is an easy target for American weaponry. Such systems can deliver Tomahawk rockets against Moscow in 35 minutes and hyper- sound missiles in five minutes.

All of this happened against the background of American verbal assurances that NATO will not expand “which turned out to be just words”, and moreover “later, they [the West] began to assure us that the accession to NATO of the countries of Central and Eastern Europe would only improve [their] relations with Moscow, relieve these countries of the fears of a heavy historical legacy, and even, moreover, create a belt of states friendly to Russia. Everything turned out exactly the opposite.”

This was the third betrayal.

What to do?

What can one conclude from this view of history which in many respects is accurate, but limited in the sense that all actions are viewed from only one angle: enmity to Russia. The rationale of everything is somehow the weakening of Russia and tricking her into submission. I think that hoping to change this view of the world through small adjustments in posture and relations is well-nigh impossible. It is such a well-established and strongly-held interpretation of history that perhaps only twenty years of explicitly pro-Russian policy by everybody might begin to change it. That, however is not forthcoming.

The only silver lining—if there is one—and assuming also that the world manages to survive the next years without a major conflict, is that reading Putin speech carefully and realizing that his views are shared by large segments of the Russian population and the elite might prompt Western politicians to treat Russia with greater awareness of these historical traumas and greater consideration in the future—in order to avoid another similar scenario.