ECONOMIC PERSPECTIVES – 113

[MARCH 2022]

 

UKRAINE CRISIS – AN OBJECTIVE ANALYSIS

 

Last month I wrote about the massive waste implicit in government-sponsored bureaucracy – at local and central levels. The craving for a sense of importance leads small-minded apparatchiks to seize power over others by controlling their expenditure budgets. It works both ways, of course. By endowing underlings with the sense of importance that requires them to spend money that was never theirs, the folly is replicated whenever departmental budgets are allocated to projects that no one in their right mind would launch – particularly if it meant using their own money.

 

This phenomenon belongs in the realm of psychology as much as economics and it applies everywhere: NGOs, congressional think-tanks, state sponsoring organisations, standing committees, space agencies, aid agencies, research entities, internationally funded institutions – you name it. If the licence to spend is lost, many mighty egos are deflated and suddenly find themselves bereft of the raison d’etre that justifies their existence, and on which they have been feeding.

 

Two observations: firstly, the entity’s power-base and the size of its budget are mutually reflective; secondly, when the entity has become administratively and organisationally entrenched in its field of activity it is nigh impossible to unwind it.

 

 

Even NATO

 

NATO was established in 1949 with twelve original members and the following three founding aims:

(i) to serve as a bulwark against the threat of Soviet expansion in Europe after WW2;

(ii) to prevent the resurgence of nationalist tendencies in Europe; and

(iii) to foster political integration on the continent.

 

It was never set up to serve as every member country’s surrogate defence force, which is why Donald Trump issued his warning in 2019 that unless EU nations are prepared to stump up a realistic contribution to the immense, and growing, cost of sustaining the top-heavy industrial-military-surveillance defence machine that is NATO, the US would stop subsidising it for everyone else’s benefit – the USA itself was not subject to any existential threat.

 

Since its formation NATO has granted membership to a number of Eastern European nations. Yet in the context of the above founding aims it is now largely redundant – no existential threat was overtly posed against any of its (now 30!) members.

 

But my theme of squandering the public’s resources certainly applies to NATO. Even Trump recognised that like any bureaucratic entity with a pyramid of egos and a national budget to protect, NATO took on a life of its own with no need to consider whether its unaffordable continuance was warranted. As a government agency its heavily enforced but diffuse chain of command and inflexible operating procedures are not focused on anything vaguely commercial – such as elimination of waste.

 

Before risking the loss of all credibility by saying something nice about Trump, I should add that he is guilty of stoking the inflation-induced price-spiral by spending trillions of dollars signing cheques to ordinary citizens as a Covid stimulus package. Raising demand while destroying money’s purchasing power is the classic recipe for economic food-poisoning.

 

 

Putin & NATO: no peaceful coexistence

 

Putin’s mistrust of NATO and its Western sponsors is no mystery. In the course of negotiating German reunification in 1990 US secretary of state James Baker reassured Mikhail Gorbachev that if reunification went ahead NATO “would not expand one inch to the East” – taken at the time to connote NATO expansion into former East German territory. But since then NATO’s membership has expanded to incorporate no fewer than nine central and eastern European states – which hardly pleased Putin: “they conned us – they simply cheated us” was his comment only last month.

 

Although the issue of expansion of NATO into other former eastern bloc countries was not tabled when German reunification was being negotiated, Western leaders were hardly silent on the subject. UK Foreign Secretary Douglas Hurd stated in 1991 that there were “no plans” for NATO to expand into Eastern Europe.

 

Nor would the provocation of Ukraine’s untested application join NATO in 2008 have been lost on Putin. Even though it was withdrawn in 2010 by President Viktor Yanukovych, Ukraine’s democratically elected, but pro-Russian, President, who preferred Ukraine to remain unaligned, to Putin it was consistent with typical Western hypocrisy: as the Cuban Missile Crisis showed in 1962, the US was then, like Russia now, deeply averse to hostile military alliances in its own backyard.

 

In 2014 Yanukovych was overthrown in a violent coup, “funded, organized and choreographed by Washington-based neocons, busy-bodies and arms merchants”. According to David Stockman they were

all pariahs with no stake in Ukraine other than their own self-seeking mercenary interference in the internal governance of another country.

 

Unravelling the politics is never easy

 

 

Attempting to analyse, let alone rationalise, the mechanics of how we got to where we are is always hazardous and speculative. The retaliatory, tit-for-tat politics so far discussed is inherently irrational – especially when our main man is a tough nut with some 22 years of iron rule on his CV. Yet still we try to make sense of it – but how?

 

Compare-and-contrast: reason or dogma? Only this battle of wits can get us nearer the truth. Here’s an unrelated illustration: when arguing the case for free trade in the face of irrational arguments for protectionism, we know we have lost the battle the moment its terminology descends into ‘retaliation’, ‘requital’, ‘eye-for-an-eye’, ‘even-playing-field’, ‘provoked reprisal’ or ‘quid pro quo’.

 

But two wrongs never make a right: retaliatory banter tells us that reason has been sacrificed on the altar of dogma. Protectionism’s knee-jerk refuge when another nation dares to subsidise its own domestic production is to retaliate: “If they have the nerve to subsidise their domestic production, we’ll tax its entry to this country” – so there! And that’s just the start of a menace like the EU’s Common Agricultural policy. Its distortive imbalances finish up by ensuring that 70 percent of its massive budget goes to only 20 percent of its farms.

 

 

Trying to keep calm over Ukraine

 

All of which demonstrates that in politics there is no simple access to the truth. While we support, with heart and soul, Ukrainians facing merciless bombardment, we miss many important lessons if we blind ourselves to the geopolitical stresses and strains that provoked all the misery in the first place.

 

One of the most rational analyses is provided by Robert Service, 74, a veteran historian of Russia, professor emeritus at St. Antony’s College, Oxford and a fellow at Stanford’s Hoover Institution. He has written biographies of Lenin, Stalin and Trotsky.

According to Mr Service the Russian invasion of Ukraine resulted from a clutch of immense strategic blunders – the first on November 10th, when the U.S. and Ukraine signed a ‘Charter on Strategic Partnership’, which asserted America’s support for Kyiv’s right to pursue membership in the North Atlantic Treaty Organization. The pact made it appear likelier than ever that Ukraine would eventually join NATO—an intolerable prospect for Putin. Preparations immediately began for Russia’s so-called special military operation in Ukraine.

 

Five months earlier, at a NATO summit, Ukraine received a loose assurance that membership would be open to it if it met NATO’s criteria – a move that Mr Service characterises as ‘shambolic mismanagement’ by Western countries. They gave no thought to Mr Putin’s likely reaction – not hard to guess when in 2007, at the Munich Conference on Security Policy, he raged against the very notion of Ukraine joining NATO. But forget the military considerations – uppermost in his mind is the fear that Russian citizens might get dangerous ideas if a neighbouring Slav state gets a sniff of democratic development.

 

 

Putin’s own misjudgements

 

Robert Service opines that at Mr Putin grossly underestimated the Western rivals he implacably despises as corrupt, decadent and, compared with his 22 years in office, inexperienced.

 

After seeing the back of Trump and Merkel he believed there was nothing to impede a charge against Ukraine. Yet he faced the unexpected result that his machinations, by inadvertently uniting the West, had achieved the opposite of what he intended. Believing that massing troops on the border would trigger a collapse of the Ukrainian government, he also misjudged Volodymyr Zelensky, having given him a severe dressing-down when they met in Paris only months after he took office.

 

 

Terminating the Putin era

 

Right now it seems like fantasy even to raise this but one avenue for seeing the end of the dictator’s reign, according to Robert Service, would be a popular uprising in the form of placard-waving protest movements and vigils – a method with a surprisingly successful record in recent Russian history. Service cites 1905 (near-revolution), 1917 (actual revolution), early 1930s (anti-Stalin policies), late 1940s (labour camps), 1962 (meat prices), 1989 (coal-miners’ strike), 1991 (anti-Gorbachev coup).

Once formed they can be hard to contain, especially if their ranks include police who disobey orders to suppress them.  A cocktail of political disorder on the streets and the ruling group’s unsettling tensions could be a trigger for something powerful.

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[EMILE WOOLF, MARCH 2022]