Guest Post by Patrick Smith
You can look at the Russian economy two ways now and you should. So let’s: It is an important moment in the destruction of something and the construction of something else, and we had better be clear just what in both cases. The world we live in changes shape as we speak.
Truth No. 1: Russians are besieged. Sanctions the West has insisted on prosecuting in response to the Ukraine crisis — Washington in the lead, the Europeans reluctant followers — are hitting hard, let there be no question. Oil prices are at astonishing lows, probably if not yet provably manipulated by top operatives in the diplomatic and political spheres.
Truth No. 2: Russians are hot. With an energetic activism just as astonishing as the oil prices, Russian officials, President Putin in the very visible lead but with platoons of technocrats behind him, are forging an extensive network of South-South relationships — East-East, if you prefer — that are something very new under the sun. Some of us were banging on about South-South trade and diplomatic unity as far back as the 1970s; I have anticipated the arriving reality since the early years of this century. But I would never have predicted the pace of events as we have them before us. Stunning.
Holiday surprise: There is a Truth No. 3 and it is this: Truth No. 1, the siege of the Russian economy, is proving a significant catalyst in the advance of Truth No. 2, the creative response of a nation under ever-mounting pressure.
Timothy Snyder, the Yale professor whose nitwittery on the Ukraine crisis is simply nonpareil (and praise heaven he has gone quiet), exclaimed some months ago that Putin is threatening to undermine the entire postwar order. I replied in this space the following week, Gee, if only it were so.
Already it seems to be. But miss this not: Russia is advancing this world-historical turn with a considerable assist from its adversaries in the West, not alone. For all the pseuds who pretend to know Schumpeter but know only one thing, the creative destruction bit, how is this as a prime example of the phenom?
Details in a sec, but this thought first: We are all bound to pay close attention to these events because they matter to everyone, whether this is yet obvious or not. Probably in our lifetimes — and I had it further out until recently — we will begin to inhabit a different planet.
And it stands to be a better one, if you accept that equilibrium, interdependence, cooperation and all those other notions Washington is frightened to death of will make for a more secure world than our lopsided primacy, incessant confrontations, drone murders, waterboarding, nuclear arsenals and the National Endowment for Democracy’s subversions will ever deliver for us.
How much more capable, equally, will be a human community that addresses its problems with the wisdom not of one civilization, which happened by historical circumstance to modernize in the material sphere before others, but with the smarts and imaginations and perspectives of many?
Those details come in flurries now and fall into two files, destruction and construction. To the former first.
The economics ministry in Moscow has just forecast a swoon in its outlook for 2015. On a dime, it shifts from a prediction of 1.2 percent growth to 0.8 percent contraction. The math is easy: This is a rip of 2 percentage points right out of Russia’s middle. No sentient American should have any difficulty understanding what these numbers will mean to many millions of ordinary Russians.
The ministry’s report is the first to anticipate the consequences of the several rounds of sanctions imposed this year, the 34 percent drop in the ruble’s value this year and the collapse in oil prices. The last are now far below what Russia needs — about $105 a barrel — if the petroleum sector is to contribute to national revenues. As detailed in this space a few weeks ago, there are ample grounds to question whether price patterns in global oil markets are the consequence of American manipulations.
Reflecting the creep of interdependence in the global economy, financing from Western banks is vital to Russian corporations of all sizes. At this point, my sources in the markets tell me, the spigot is off: Credit and all customary loan rollovers are virtually unavailable across the board.
This is the anatomy of much suffering that is about to get done. Is the course wise? Is there a point? Is it other than ridiculous to posit some “net-positive” justification for this?
I see nothing good in this whatsoever. I see recklessness.
Think of it this way, as an old friend from Asia days suggests. Currency speculators abandoned the Thai baht en masse in 1997 and before we knew it Thailand had dragged all of East Asia into prolonged crisis. Remember? Now consider the size of the Thai economy — tiny in the scheme of things, and heavily agricultural still.
Now consider the size of the Russian economy. It is the world’s No. 2 producer of natural gas and No. 3 producer of oil. In terms of nominal gross domestic product — standard measure — Russia’s economy, at $2.1 trillion, is slightly larger than Italy’s. Another measure, purchasing power parity, values Russia’s economy at $3.5 trillion, but never mind: Even by nominal GDP, Russia is the world’s No. 8 economic power.
Comfortable now with the sanctions regime, are we?
The cliques in Washington are because the U.S. trades very little with Russia and they have no grasp of limits of any kind. This is cynicism made flesh when you consider Europe’s vulnerabilities. The contagious economic and social crisis is already spreading to nations near Russia’s borders.
As Germans and other Europeans understand, take down this beast and the blood will spatter everywhere. Now you can see, maybe, why one consequence of the Ukraine crisis is a serious deterioration of relations between America and those known as “the allies,” a term that has masked many complications since the Cold War’s onset.
As to the point of it all, it gets bitterer the more we learn of Ukraine and its arriving future.
Long ago, an English diplomat in Tokyo wrote to his Foreign Office in London, “The Japanese can neither love the Americans nor endure being loved by them.” It is dead on the fate of Ukrainians so far as one can make out. All signs are they are in for the suffocating embrace. Here comes the neoliberal order. It will be very weird to watch.
My jaw hit the corner of my desk when I read last week that Ukraine’s new finance minister, one Natalie Jaresko, is 1) an American citizen, granted a Ukraine passport simultaneously with her cabinet appointment, 2) a former State Department officer, 3) recipient of hundreds of millions of dollars in that $5 billion Victoria Nuland famously bragged of spending in State’s effort to yank Ukraine westward and 4) a participant in apparently extensive insider dealing via the investment management company she co-founded after leaving State.
Jaresko served as president and chief executive officer of Western NIS Enterprise Fund (WNISEF), which was created by the U.S. Agency for International Development with $150 million to spur business activity in Ukraine. She also was co-founder and managing partner of Horizon Capital, which managed WNISEF’s investments at a rate of 2 percent to 2.5 percent of committed capital, fees exceeding $1 million in recent years, according to WNISEF’s 2012 annual report.
Her title at Horizon Capital must be CCIO, chief conflict of interest officer.
Full credit, given with gusto: The above passage is from the long exposé of this sordid business by Robert Parry, whose work on Ukraine is invaluable. Read this piece here: a riveting read covering a tangled web. Parry, in turn, cites John Hellmer, a former Moscow correspondent who recently explored Jaresko’s story as State Department official (and diplomat in post-Soviet Kiev) turned recipient of USAID funds.
Surely this is the right person to regulate Ukraine’s financial markets, counter corruption with archangelic purpose and negotiate with Washington, the Europeans and the IMF in behalf of Ukrainians’ interests. No wonder the parliament in Kiev erupted when Jaresko’s appointment was announced.
Footnote here: That $150 million fund State handed Jaresko has lost more than a third of its value since the Ukrainian economy tanked. As she steps into office, Kiev’s foreign reserves are down to $10 billion and shrinking, while inflation roars at 22 percent.
My jaw has been bruised, to be honest, since, as the Ukraine crisis got hot, Vice President Biden’s son, R. Hunter, was named to the board of Burisma Holdings, Ukraine’s No. 1 producer of natural gas. I cannot make out who is the chief conflict of interest officer here, Joe or the boy.
News comes of our Hunter, it turns out. The Wall Street Journal reported recently that he was bounced from the U.S. Navy Reserve earlier this year after a positive drug test. If the 44-year-old were Ukrainian (or any other nationality) and had been so charged, he would not be allowed into this country. This is the kind of person America is now happy to send abroad.
More substantively, Burisma announced last month that it will now commence drilling near Slavyansk, where Ukrainian troops have been dodging bullets while installing the company’s hydraulic fracturing equipment. Slavyansk, alert readers will recall, was the object of three months’ sustained bombing and artillery shelling prior to this announcement.
Overseeing all this is Jaresko and — second of three foreigners named to a new cabinet — Aivaras Abromavicius, a Lithuanian and a partner in an asset-management firm called East Capital. He will be the incoming economy minister, such as there is an economy.
Why these foreigners? In my read, Biden is a straight-out emissary sent to shepherd American corporations into the resource game via joint ventures or what have you, we will have to see, and the others are roughly the equivalent of compradors — in effect, bought-off locals.
Here is a tableau worth a moment’s consideration: Over here, Vicky Nuland stands before a Chevron plaque as she explains to business executives how well the $5 billion was spent. Here we have Hunter Biden doing Burisma’s legal work. Over here we have a small-town mayor in Romania who is run out of town for selling Chevron a fracking lease. (This you can read of in the Times.) And over there, also in the Times report, we have the Lithuanians forcing Chevron to abandon a shale-drilling project after widespread demonstrations opposing it.
You want to know why I hold the neoliberal agenda and those who advance it in contempt? This is why. We watch a corporate shark-feed. It has nothing to do with democracy. There is nothing in this for Ukrainians. They are about to hear their first lectures on the virtues of “austerity.”
I have three remarks.
One, the greed at the cost of human life and society is so brazen here it causes me to stop typing to reread the sentences. Can market-consciousness have brought us this low?
Two, please count the number of times you have read the words “Chevron,” “Burisma” or “shale-gas interests” in any account of Ukraine by correspondents covering it. I can find no mention of any from those in the field. This is “the power of leaving out,” as I often put it, in spades. I rest the case (for now).
Three, there is a deeper tragedy. Ukrainians live between East and West. This is not only a matter of geography: There is among them a mix of Eastern consciousness and Western consciousness. Accordingly, they had a chance to stand as the very best the new century offers us, a planet whose old divisions could be erased in favor of a more fulsome idea of the successful society and its potential.
This chance is now all but lost — destroyed by those who resisted it.
What I find remarkable now is that Moscow does not seem to be taking Ukraine’s misfortune and the West’s aggressions against Russia itself passively — or even negatively, for that matter. So we pass from the destructive file to the constructive.
Neil MacFarquhar, a standout in the New York Times’ Moscow bureau for his full-frontal prejudices, gave as negative an account as he could when he covered Putin’s year-end address. I had another read. This guy is bloodied, O.K., but he is not bowed, and I would advise against waiting for it.
I did like the Times’ head, parenthetically: “Putin, Amid Stark Challenges, Says Russia’s Destiny Is at Hand.” Without going histrionic, that is likely to prove precisely what is at hand. My favorite MacFarquhar sentence: “Mr. Putin enjoyed ever-greater support from March to August, but in the months since, as sanctions began to bite with inflation, support began to erode — though his approval ratings remain in the 80s.”
You have to love a paper that will publish this. Somehow.
Look at Putin’s foreign agenda this past year: Latin America just as the sanctions came in — an intentional finger in Washington’s eye, as I read it — then China, China again recently, Turkey more recently, India just now. He has not been to Iran, but there, as in all these other places, he has forged or reiterated promising relations. The deals cut are too numerous to list.
A couple are worth mentioning. The twin gas deals with China, worth nearly three-quarters of a trillion dollars, are historic all by themselves. In six years’ time China will be buying more gas from Russia than the latter now sells to Europe. And do not miss this: My sources tell me that this gas can be priced such as to crowd the U.S. at least partially out of the Asian market.
Other side of the world: Putin has just canceled a planned pipeline to southeastern Europe, the South Stream. This is the defeat Western media put it over as, surely: Russia loses some customers. But two points: One, it was soon enough clear that the Europeans, having used South Stream as leverage in the sanctions game, probably overplayed their hand. The day following the announcement they were struggling for composure so far as I can make out.
Two, Putin stunned everyone with his decision from Ankara, where he stood with Recep Tayyip Erdoğan to announce that South Stream would be rerouted to serve the Turkish market. Think about this: It is more than a new deal; there are significant political and diplomatic implications in this, given Turkey’s traditional alliances, its EU aspirations and so on.
This is the way the world changes shape, the way new worlds get built. Think of these new ties in terms of the old trade routes. Many things other than goods traveled along them. As then, the traffic will run in both directions, making our latest globalization the two-way street it should have been from the first.
One could say it is not the West’s world any longer, and I called it “post-Western” in a book several years ago. This is not quite so. It is ours, but only to the extent that it is destined to be everybody’s, if I read history rightly. As an American, my biggest regret on this score — apart from all the suffering caused in our names — is that my country seems bent on doing almost everything it can to lose out on a great deal of what would be its share in the arriving era; this in the name of prolonging a time that is no longer.