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Economist Brian Easton asks: What do economic events since the Russian invasion of Ukraine tell us about globalisation?

Public Policy / opinion
Economist Brian Easton asks: What do economic events since the Russian invasion of Ukraine tell us about globalisation?
ukraine-war

This is a re-post of an article originally published on pundit.co.nz. It is here with permission.


The economists’ profession has long seen economic interdependence as an alternative to military conflict. A number of trading integrations – the US, the EU and ASEAN – arose out of conflict avoidance. Sometimes one sees the downsides of such arrangements – yes, there are some as well as the upsides – and thinks ‘well, they are not as bad as the war alternative’.

Putin was long aware of this and embarked on a strategy to insulate Russia from the world economy; whether he always had military ambitions or whether he feared invasion, I leave others to discuss.

He knew that Russian oil and gas would be tradeable even under war conditions, they being too important to be shut off (although Iran’s have been). He used the proceeds from them to build a huge war chest of foreign exchange reserves. And he has gone to war.

The economic side has not worked out as he planned. The West has imposed sanctions. As expected they are not on oil and gas. However, Europe is not expecting a lot of Russian gas as it goes into spring. Its reserves and alternative sources will probably get it through summer; what happens next winter is uncertain. The rest of Europe has long been uneasy about its dependence on Russian gas and has been building terminals for shipping more expensive gas from other sources. The system is not perfect. Spain has terminal ports but its network cannot reticulate a lot of gas into France.

Oil at first seem to have got off lightly, but the West’s financial sanctions against Russian banks and their use of the (Swift) payments system seems likely to handicap Russian oil sales. Russia has also been diversifying sales of gas and oil towards China but the physical links are not yet strong enough to take a big expansion.

The financial sanctions have also limited Russia’s war chest. About 60% has been blocked and some of the rest is gold which is not instantly accessible or tradeable.

The West is also blocking access to its goods, which includes technologies, and withdrawing from investing in Russia. These will have not have a quick effect. War plans are often based on quick victories. A long-drawn-out one favours the invaded and the economically stronger West.

 The Russian economy is beginning to tank. In the past economic contractions, the Russian people have faced hardship but have had little redress. This is because they have little say in running the dictatorship. But the taking over of the Crimea shows that many were willing to trade a bit of economic pain for improvements in Mother Russia. (This may be less true in Moscow and St Petersburg, from which our journalists report – if they are allowed. The rural areas may be more patriotic and less globally focused.)

Whatever the views of the Russian people, those who surround Putin are critical. Apparently most oligarchs will not make a major move without his approval, even when they reside offshore. They are being targeted by the sanctions. The exact effect is difficult to judge but surely some of their recent actions are not a part of Putin’s plans. Perhaps some are becoming more independent of him. Whether they and internal forces will destabilise Putin is a matter I leave Kremlinologists to judge, although it is very hard to envisage a Western ‘win’ without ‘regime change’. There is not a lot of talk of this yet.

We need to learn from the mishandling of events after the fall of the Soviet Union in 1991. The mood of those days was dominated by a nasty capitalism which greedily descended upon Russia to profit by hijacking property rights – ‘neoliberalism’ is a genteel name for it. There was little thought given to the social infrastructure on which a modern non-Communist democratic state depends. (I was involved with one project. The tsar owned all the land and so did his successor communist state. That meant there was no comprehensive record of each property's boundaries (cadaster), so that lenders were reluctant to make an advances on a property (mortgages) since the ambiguities meant they could end up in complicated litigation. The Dutch won the tender to provide one.)

A more thoughtful approach would have been a slower unwinding of the communist mess supported by a Marshall-Aid type program in which grants from the West were made to ease the Russian transition. Perhaps this was too idealistic but with hindsight we can see today’s problems arise from the bungled transition.

So we need to signal to the domestic forces contemplating a regime change that we will do better this time; that we will not try to impose capitalism red in tooth and claw, but support them towards evolving a Russian kind of social democracy which is more akin to that in Western Europe. It wont be easy as what has happened to many of the countries from the Soviet Empire which joined the EU show; it will take a long time.

We need to emphasise that the intention is not to humiliate Russia, but to respect Russians and their achievements. I have been particularly disappointed by what has happened to various cultural Russians activities in the West. The first case I saw was the Wolverhampton Grand Theatre cancelling performances of the Russian State Ballet of Siberia. To be clear, had they gone ahead and I had been near, I would have joined the picket line (much more civilly than the protestors outside our parliament) but it would have been with sadness.

I have been intrigued by the numerous cultural events in the West involving Russians, a reminder that the account of globalisation which focuses on the trade of goods is too narrow. This column has also mentioned financial services, cultural services and migration. It could have added information flows.

The great globalisation driver of exports and imports of goods may be coming to an end. It is impossible for exports to continue to grow faster than GDP forever and there will be limitations on services too.* Yet it is going to be a far more integrated world; one in which it is harder to wage war.

Whether it is sufficient to protect Ukraine this time, I cannot tell.

* There are still areas, such as agriculture, which need trade liberalisation, still a need to roll back administrative barriers, still a need for harmonisation and still a need to enforce agreements.

** An earlier dreadful treatment of Ukraine by Russia was the Holodomor famine, described here.


Brian Easton, an independent scholar, is an economist, social statistician, public policy analyst and historian. He was the Listener economic columnist from 1978 to 2014. This is a re-post of an article originally published on pundit.co.nz. It is here with permission.

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18 Comments

We need to learn from the mishandling of events after the fall of the Soviet Union in 1991. The mood of those days was dominated by a nasty capitalism which greedily descended upon Russia to profit by hijacking property rights – ‘neoliberalism’ is a genteel name for it.

Western blocking sanctions prohibiting the Russian central bank accessing its foreign reserves lodged in European banks is no different. In fact these banks have defaulted on their obligations to this creditor.

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Audaxes,

While Russia has merely defaulted on its obligations to humanity. And i don't need another diatribe on the many sins of the US and other Western nations. They are real, but irrelevant. For example, does what Belgium did in the Congo or the Spanish in S. America somehow negate what Russia is now doing in the Ukraine? 

The only reasonable answer is NO.

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While I agree, the premise of our legal system (and of many others around the world) is based on precedent. So, many current sins are absolved due to past indiscretions being ignored.

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I find this aspect of the sanctions incredibly interesting.

Russia has had 300 billion of its fx transfers frozen.

https://fortune.com/2022/03/03/russia-sanctions-central-bank-ruble-us-e…

https://www.bloomberg.com/news/articles/2022-03-13/russia-lost-access-t…

There is no way Russia is going to just let this money disappear. There will have to be some sort of resolution here otherwise this conflict will end up spreading out of Ukraine.

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The request by Russia that Ukraine and Georgia remain neutral is a national security requirement consistent with rights every sovereign nation is entitled to. That it is a reasonable request is unassailable. Russia opened itself to the west in the aftermath of their bloodless government transition and they were predated upon. The oligarchic class was created by the west to subjugate the country economically. Since then the west has harassed and threatened Russia with NATO expansion. These are constant provocations that no one in the west would consider appropriate for itself but since it is Russia it is allowed. It is obvious that the west is determined to ruin Russia economically so that it can take over its resources, exactly as it did in Iraq. The selective outrage is a cover to justify American-style vulture capitalism, economic piracy. At the end of the day, it is all just business.

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Nonsense.

 

Ukraine and Georgia are free to pursue whatever foreign policy they choose. The fact that Russia thinks it is justified to invade these countries if they decide to pursue NATO membership is literally the reason NATO membership has value to these countries...

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Concur, the "NATO expansionism" argument has been done to death and is not convincing given countries are not pressured to join. In fact Ukraine applied in 2010 and where rebuffed for a variety of reasons and would not be eligible for membership today.

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And look how that worked out for both of them. The world is a more dangerous place if we don't respect the spheres of influence of powerful countries.

There needs to be a definitive negotiated security solution to issues here and in East Asia.

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What "sphere" though? Modern military alliances are less about local geographies and more about common goals, like the QUAD ("Asian NATO" as opposition countries started refer to it) or AUKUS.

There was a definitive security solution in the Ukraine in the Budapest Memorandum but one party decided it no longer liked the terms. We are not at this juncture for a lack of understanding one another or insufficient effort to reach international agreement.

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Clearly the recent AUKUS agreement is valid cause for China to stage a special military operation to de-nazify Australia... 

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Nonsense is thinking that any country can just do what it likes. Real world - no one is free to make whatever alliances it wants without consequences. Russia/Ukraine is a self-fulfilling prophecy signalled for months, years, decades of constant baiting and provocation to get Russia to react. NATO/US-trained and equipped troops, 8 years of civil war already. The history is ignored in the rush to war. No interest in diplomacy and negotiations. The same eagerness to annihilate a fabricated enemy rather than work for viable agreements that lead to peace. Since when is it acceptable to refuse negotiations? If the 'enemy' is willing to negotiate there is a moral imperative to do so. Or it is just anything goes.

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Negotiation is ongoing but the terms laid out are mutually incompatible at this point so the war will continue until the terms are the most palatable option. Most wars end in conversations.

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He used the proceeds from them to build a huge war chest of foreign exchange reserves. And he has gone to war.

He made a miscalculation though in that half of that ended up frozen, he under-estimated NATO and global solidarity.

My advice if you live in Russia is simple, get out now. The Kremlin has shown it will do whatever it takes to cling onto power even if that means smothering the vestigial rights Russians have remaining.

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US China talks in Rome soon. 

Is Vlad P peeping.

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Ukraine has every right to choose whoever they want to align with for their own interest. For them joining NATO would provide defense against threats from Russia. Imagine a few missile systems (can easily be armed with nuke) at the boarder with the Russian. Would we have this war now?

If we apply the same right/logic for every country on this planet. Why weren't North Korea and Iran allowed to develop missiles and nukes for their own self defense? I'm quite sure there are many American made missiles stationed in allies of the USA pointing at North Korea and Iran.

 

 

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A Post-communist Marshall plan would have been much cheaper in the long run, and ensured Russia was a bulwark against an inevitably resurgent China. Even at the time it was obvious instead of the diet of triumphant capitalism that was forced down their throats. That was always going to provoke the reaction that it did. Now to assuage Putin and make sure he doesn't double down the West will give him most of Ukraine. 

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I hadn't really linked the fall of the USSR & the rise of China in the same sentence before, but look at the history. There it is. Communism has a new face. And it is not an aging, balding fellow from St Petersburg.

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