chapter  7
17 Pages

Post- crisis Russia: counting on miracles in uncertain times

WithSTEVEN ROSEFIELDE

The global financial crisis and subsequent recession/depression of 2008-10 have given Russia a reprieve from its “moment of truth” (Rosefielde 2009; Cooper, this volume). Until recently it seemed that unless the Kremlin disciplined the military-industrial complex to mass produce fifth-generation weapon systems, or embraced democratic free enterprise, Russia would be unable to support Vladimir Putin’s military and industrial ambitions, contenting itself instead with using natural resource rents to make insiders fabulously wealthy. However, hard times in America and the EU (Rosefielde and Mills 2012), Obama’s reset policy (see Marek Menkiszak’s and Pavel Baev’s chapters in this volume), and armsreduction program have increased Moscow’s degrees of freedom. Russia is not off the Chinese hook (Blank 2010), but there now seems to be time to temporize and dither. This characterization of the Russian problem supposes that the financial crisis and subsequent recession/depression of 2008-10 mark a sea change in the West’s economic and geopolitical outlook; that these events are extraordinary (Taleb 2007)1 or epochal, not transient business cycle outliers. It also supposes that post-Soviet Russia has not transitioned to a democratic free enterprise system capable of competing toe-to-toe with the West and market communist China, as Andrei Shleifer and Daniel Treisman claim (Shleifer and Treisman 2004; Rosefielde 2005a; McFaul and Stoner-Weiss 2008; Rosefielde and Hedlund 2009; Teplyakov 2009), nor is it on the cusp of doing so (Polterovich and Frolov 2009; Aron 2010a). In fact, Sergei Guriev, head of the New School of Economics, has suggested: “The reason Russia has failed to modernize is that its ruling class can pocket rents from things as they are. Serious modernization threatens them because it would require stronger institutions that would make this harder” (“Dmitry Medvedev’s building . . ” 2009). The case for an extreme and/or prolonged Western depression or some alternative epochal degeneration has been developed elsewhere (Rosefielde and Mills 2012). For the purposes of this chapter, suffice it to say that the West has saddled itself with politically unmanageable debts, private and sovereign (Dallago and Guglielmetti 2011), an addiction to derivatives, overregulation (Blinder and Zandi 2010; Razin and Rosefielde 2011a), and a blind faith in the curative powers of tax-transfer deficit spending (Buchanan 1999).2 America and the EU

hope to avoid the worst by improving regulations, refining transfer policies, bailouts, cheap credit, monetary expansion (printing money through quantitative easing), reflation, revived commodity and real-estate speculation, short-term increased fiscal deficit spending, global coordination inside G20, and ceaseless happy-talk or confidence building. They could succeed, but for the moment it seems wisest to suppose that the West will underperform historic norms for the foreseeable future. Russia, too, might surprise by abandoning its Muscovite rentgranting system in favor of democratic free enterprise, as Putin and Medvedev tirelessly promise. However, it would be imprudent to bet against cultural inertia (Aron 2010b) or anticipate superior economic performance. The Muscovite system is intrinsically flawed, and absent ever-increasing natural resource prices, Russia has scant prospects for catching up with and/or overtaking the West. The big economic and military pictures for Russia under these assumptions are dreary, despite Dmitrii Trenin’s surmise that “modernization” (acquisition and mastery of advanced civilian and military technologies) might suffice to prevent “marginalization” (Trenin 2010). If the West underperforms old benchmarks, the Russian Federation could catch up modestly with the EU in the next few decades, but if America and Europe recover more briskly, Russia will continue its five-century-long relative economic decline (Figures 7.1 and 7.2). Russia stands little chance of becoming a potent military player outside its Caucasian and Central Asian peripheries under its prevailing economic system unless NATO “cooperates” (Kupchan 2010), or the Kremlin returns to financially disciplined, mass weapons production/structural militarization (Rosefielde 2005b). From a Russian military perspective, this conjectured global post-crisis environment is a mixed blessing. On the plus side, sluggish or arrested Western economic growth will give Russia’s armed forces breathing room. However, this advantage is substantially offset on the negative side by a diminished aggregate effective demand for the Russian Federation’s exports and foreign direct

investment (FDI) inflows. Restrained natural resource price inflation will be an additional depressant. Post-crisis statistics reveal that Russia remains economically coupled with the West (Brunat 2011), hindering prospects for an independent surge, a problem compounded by intractable Muscovite anti-competitiveness (Gaddy and Ickes 2010, 2011). The net consequence of these forces on the Russo-West balance should not alarm either side, if Putin’s hegemonic aspirations are held in check. The 2008 global financial crisis and its aftermath do not materially change the status quo.3 Nonetheless, things look very different when China is factored into the equation. Unlike Russia, China claims to have successfully decoupled from the West, with both its economy and military capabilities bolting forward with no deceleration in sight. This places the Kremlin between a rock and a hard place. It cannot expect the Putin-Medvedev version of Muscovy to keep pace with Chinese economic and military advances, leaving the leadership with two unpalatable choices. As has been the case for the last decade, the Kremlin can ditch Muscovy in favor of democratic free enterprise, or revert to Soviet structural militarization, stressing continuous mass production of incrementally modernized weapon systems. The first option, which requires Russia to transition systemically, is a perennial pipe dream. Given Russia’s relative economic backwardness (Figures 7.1 and 7.2), it should have ample scope for rapid catch-up over the next few decades, permitting it to grow stride for stride with China. However, Moscow shows no signs of mustering its resolve to make this dream come true. The second alternative presents two hurdles. Putin must cease indulging loyal rentseekers in the military-industrial complex and the Kremlin must vastly improve domestic research and development (R&D) and foreign technology transfer mechanisms. If Moscow seeks hegemonic advantage anywhere in its neighborhood, the leadership will have to resurrect the Soviet military-industrial control system, and greatly improve its civilian and military technological modernization regimes.