Sunday, February 15, 2009

Seven Propositions: Russia, Foreign Policy, and the Financial Crisis

Although contemporary Russia resembles a jigsaw puzzle, there are some constants, which allow us to make some general predictions about what the future holds. These constants can be summarized as six propositions:

Proposition 1: Russia has become a KGB state and will behave as such in its domestic and international dealings unrestrained by the West.

The brief and chaotic flirtation with capitalism and democracy under Yeltsin ended at the turn of the millennium. Yeltsin and his oligarchs chose an unknown figure, Vladimir Putin, probably because of his KGB background, to guarantee Yeltsin’s safe retirement, to not change the results of privatization, and restore order. Putin kept his promise to Yeltsin, but drove uncooperative oligarchs into exile or prison, from whom he wrested control of the media. Putin’s media played up the danger of dark-skinned Central Asians and of the United States and NATO, and questioned the patriotism of opposition groups.
The expropriation of oligarchs through threats, the courts, the tax police, and direct force shifted power from “private” oligarchs to a “KGB state,” run by former KGB officers and their associates. The KGB state now commands industry, commerce, and banking, electronically monitors the population, controls nationalistic youth organizations, conducts covert operations at home and abroad, and operates its own prisons. Former KGB officers have accumulated incredible wealth, tied to their positions, which they lose if their positions vanish. They cannot tolerate any adverse change in the power structure in the high-stakes game of Russian politics.

Proposition 2: Russia is not motivated by conventional economic and political concerns. It will readily sacrifice economic gains to achieve its political goals.

KGB mentality says that the state, which the KGB represents and protects, is surrounded by evil forces that must be defeated. Were this not the case, the KGB state would not be needed. This battle must be conducted without mercy and without regard to conventional rules, and the KGB will win because its opponents are soft and are hampered by rules. The KGB state believes it can get away with the most extreme actions – a poisoning an enemy in a foreign capital, protecting the assassin with parliamentary immunity despite his clear plutonium trail, all evoking only a weak protest from the West. An invasion of Georgian territory planned well in advance becomes a defensive operation when Georgian forces are goaded into resistance . Its courts deny high-level responsibility for the Katyn massacre of Polish officers, despite indisputable archival evidence, and casually ignore Polish outrage. Investigative reporters are gunned down in broad daylight.
According to this KGB mentality, the purpose of business, especially big business, is to advance the interests of the state. Profits are secondary if they matter at all. Energy companies and transit pipelines serve as an arm of foreign policy. It does not matter whether the company is owned by the state. If private shareholders do not follow the dictates of the state, they will lose their investment. This philosophy explains the destruction of Yukos, the most efficient Russian energy company, the arbitrary expropriation of major Western investors by the courts, tax officials, and environmental agencies. Although Putin set a trillion dollar capitalization of Gazprom as a state goal, he willingly accepts its deeply-discounted capitalization in return for its doing his bidding in Ukraine and Europe.

Proposition 3: Putin and his administration will retain power even under extraordinary circumstances, such as extreme financial crisis.

The Russian KGB state is more bureaucratic than the Soviet period. This bureaucracy is divided into a number of interconnected “apparats” of back offices run by unelected officials, little known to the public and press but well known to one another. The KGB’s official apparat is the FSB agency, but beneath the surface is an unofficial network of former KGB officers, united by a common “corporate culture,” who run Russia’s large corporations, newspapers, television stations, courts, prosecutors’ offices, arms industry, and defense. This apparat is interwoven with (and often indistinguishable from) the Presidential Administration, which moved symbolically but not actually to the White House when Putin became Prime Minister. This apparat orders “telephone justice” (tell judges their verdicts), appoints officials, gathers compromising material, and orders character assassinations, poisonings, and contract killings.
Even under a weakened Yeltsin, his presidential apparat had the power to re-elect him, starting from a popularity rating of 5 percent. The Putin/Medvedev apparat dictates to television and media how to cover Chechnya, Georgia, or the financial crisis. When the financial crisis broke, the state media was instructed to avoid terms like “panic” or “collapse.” The United States was to blame anyway. The apparat decides what parties can run in elections; whether they can put up posters; the extent to which they will be harassed. It can even determine what ballots will be counted.
Putin insisted on unfair elections despite his soaring popularity, because he knew there could come a day when he would be less popular. Putin’s apparat’s control of political and economic life means that, no matter how bad the financial crisis, no matter how far the ruble drops, the governing apparat could easily win elections. They can do so more easily and with less manipulation with high popularity, but low popularity is manageable too. The lower the popularity, the more repressive the regime. It just ratchets up the costs of opposition.

Proposition 4: Political change will not come from below but only from the top. Unless the center unexpectedly names a remarkable leader (such as the Gorbachev exception in 1985) who is in charge will make little difference.

Russia-KGB Inc. does not need Putin to win elections. It an elect virtually anyone it wants. Putin, like Stalin before him, is the current leader and has huge incumbent advantages. Any “reform” challenger who wishes to do away with Russia-KGB, Inc. stands no chance. If the challenger did, he or she would likely not survive. Only Quixotic challengers, like Gary Kasparov or the ever-handy Communist Party, are allowed in the game.
Any effective challenge must come from within, and the only potential challenger is Dmitry Medvedev.
For reasons that remain unclear, Putin did not amend the Constitution to continue as President. Instead, he took the post of Prime Minister, and installed a young protégé in the presidency. Putin’s “rating” is four or five percentage points above Medvedev, but Medvedev’s three quarters approval is more than sufficient. Constitutionally, Medevedev is Putin’s clear superior. He can dismiss Putin at any time, even if the Putin-dominated Duma objects. The Russian Constitution gives Medvedev a clear path to Putin’s removal. Like Putin and Yeltsin before him, the removal of a prime minister was routine. With Putin, it would be less routine and perhaps doable, especially if Putin’s popularity plummets and a scapegoat is needed. What we do not know is whether Medvedev, who lacks a KGB background can win over the apparat. Without its support, Medvedev would fail.
The scenario for Putin’s removal would be a sharp fall in the ruble, reminiscent of the summer 1998 collapse and default. The justified distrust by foreign investors means no more currency inflows no matter how high the return; in the meantime, Russian citizen discard rubles. The falling price of oil means lower dollar earnings. Currently, the ruble has fallen some thirty percent, and Putin has declared that it will fall further. If it were to plummet, say, 50 percent, Putin’s rating could no longer defy gravity. KGB Russia could decide to sacrifice him. Medvedev would then appoint a new prime minister. This scenario is possible but unlikely. Putin’s most likely exit would be to declare victory – to retire because his protégé can handle the job alone. A number of influential people are probably rooting for this scenario. Medvedev is not without personal ambition. Oligarchs faced with margin calls would want a change if they are not given bailout funds. Putin, who himself betrayed the oligarchs who put him in charge, surely understands Stalin’s adage: “Loyalty is a malady that affects dogs.”

Proposition 5: Putin’s Russia, like Stalin’s USSR, requires external enemies to justify itself. Therefore, there are few if any meaningful areas of cooperation or common interest with the West.

The KGB state mindset does not allow a scenario of a peaceful world of cooperating nations. It subscribes to Putin’s description of the loss of the Soviet Empire as the greatest catastrophe of the twentieth century. The immutability of this mindset is also captured in Putin’s expression: “Once KGB, always KGB.” Any support that the U.S. or NATO offers the Baltic states, Ukraine, Central Asia, or Eastern Europe will automatically be interpreted as anti-Russian. The encirclement by hostile powers also provides the justification for repression at home. Notice that virtually all “enemies” of KGB Russia are characterized as agents or pawns of foreign powers, instead of domestic enemies of the KGB state and what it stands for. It is therefore naïve for U.S. policy makers to think that they can make friends with Russia. This does not deny that some minor areas of overlapping interests might be found.

Proposition 6: Russia’s anti-Western foreign policy is popular with the Russian people.

If we examine the most recent polls of the Russian people, they show more satisfaction with foreign policy than with domestic policy. Only nine percent say that Russian foreign policy is too tough on the West. Only 12 percent of Russians are positive on NATO (63 percent are negative). These views are reinforced by the state media, of course, but they capture something deeper in the Russian mentality.

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