Skip to main content

Russia’s Weakness Is Its Economic Policy



By Paul Craig Roberts and Michael Hudson

According to various reports, the Russian government is reconsidering the neoliberal policy that has served Russia so badly since the collapse of the Soviet Union. If Russia had adopted an intelligent economic policy, Russia’s economy would be far ahead of where it stands today. It would have avoided most of the capital flight to the West by relying on self-finance.

Washington, however, took advantage of a naive, gullible and demoralized Russian government which looked to Washington for guidance in the post-Soviet era. Russians thought that the rivalry between the two countries had ended with the Soviet collapse and trusted American advice to modernize the Russian economy with best-practice Western ideas. Instead, Washington abused this trust to saddle Russia with an economic policy designed to carve up Russian economic assets and transfer ownership into foreign hands. By tricking Russia into accepting foreign capital and exposing the ruble to currency speculation, Washington made sure that the US could destabalize Russia with capital outflows and assaults on the ruble’s exchange value. Only a government unfamiliar with the neoconservative aim of US world hegemony would have exposed its economic system to such foreign manipulation.

The sanctions that Washington imposed – and forced Europe to impose – on Russia show how neoliberal economics works against Russia. The policy’s call for high interest rates and austerity sank the Russian economy – needlessly. The ruble was knocked down by capital outflows, resulting in the neoliberal central bank squandering Russia’s foreign reserves in an effort to support the ruble but actually supported capital flight.

Even Vladimir Putin finds attractive the romantic notion of a global economy to which every country has equal access. But the problems resulting from neoliberal policy forced him to turn to import substitution in order to make the Russian economy less dependent on imports. It also made Putin realize that if Russia were to have one foot in the Western economic order, it needed to have the other foot in the new economic order being constructed with China, India, and former central Asian Soviet republics.

Neoliberal economics prescribes a dependency policy that relies on foreign loans and foreign investment. This policy creates foreign currency debt and foreign ownership of Russian profits. These are dangerous vulnerabilities for a nation declared by Washington to be “an existential threat to the US.”

The economic establishment that Washington set up for Russia is neoliberal. The head of the central bank Elvira Nabiullina, minister of economic development Alexei Ulyukayev, and the current and former finance ministers, Anton Siluanov and Alexei Kudrin, are doctrinaire neoliberals. This crowd wanted to deal with Russia’s budget deficit by selling public assets to foreigners. If actually carried through, this policy would give Washington more control over Russia’s economy.

Opposed to this collection of “junk economists,” stands Sergey Glaziev. Boris Titov and Andrei Klepach are reported to be his allies.

This group understands that neoliberal policies make Russia’s economy susceptible to destabilization by Washington if the US wants to punish the Russian government for not following Washington’s foreign policy. Their aim is to promote a more self-sufficient Russia in order to protect the nation’s sovereignty and the government’s ability to act in Russia’s national interests rather than subjugate these interests to those of Washington. The neoliberal model is not a development model, but is purely extractive. Americans have characterized it as making Russia or other dependencies “hewers of wood and drawers of water” – or in Russia’s case, oil, gas, platinum and diamonds.

Self-sufficiency means not being import dependent or dependent on foreign capital for investment that could be financed by Russia’s central bank. It also means strategic parts of the economy remaining in public, not private, hands. Basic infrastructure services should be provided to the economy at cost, on a subsidized basis or freely, not turned over to foreign owners to extract monopoly rent. Glaziev also wants the ruble’s exchange value to be set by the central bank, not by speculators in the currency market.

Neoliberal economists do not acknowledge that the economic development of a nation with natural resource endowments such as Russia has can be financed by the central bank creating the money required to undertake the projects. They pretend that this would be inflationary. Neoliberals deny the long-recognized fact that, in terms of the quantity of money, it makes no difference whether the money comes from the central bank or from private banks creating money by making loans or from abroad. The difference is that if money comes from private banks or from abroad, interest must be paid to the banks, and profits have to be shared with foreign investors, who end up with some control over the economy.

Apparently, Russia’s neoliberals are insensitive to the threat that Washington and its European vassals pose to the Russian state. On the basis of lies Washington has imposed economic sanctions on Russia. This political demonization is as fictitious as is the neoliberal economic propaganda. On the basis of such lies, Washington is building up military forces and missile bases on Russia’s borders and in Russian waters. Washington seeks to overthrow former Russian or Soviet provinces and install regimes hostile to Russia, as in Ukraine and Georgia. Russia is continually demonized by Washington and NATO. Washington even politicized the Olympic games and prevented the participation of many Russian athletes.

Despite these overt hostile moves against Russia, Russian neoliberals still believe that the economic policies that Washington urges on Russia are in Russia’s interest, not intended to gain control of its economy. Hooking Russia’s fate to Western hegemony under these conditions would doom Russian sovereignty.

Dr. Paul Craig Roberts was Assistant Secretary of the Treasury for Economic Policy and associate editor of the Wall Street Journal. He was columnist for Business Week, Scripps Howard News Service, and Creators Syndicate. He has had many university appointments. His internet columns have attracted a worldwide following. Roberts' latest books are The Failure of Laissez Faire Capitalism and Economic Dissolution of the West, How America Was Lost, and The Neoconservative Threat to World Order.

Michael Hudson is research professor of economics at University of Missouri, Kansas City and a research associate at the Levy Economics Institute of Bard College

Comments

Popular posts from this blog

Why States Still Use Barrel Bombs

Smoke ascends after a Syrian military helicopter allegedly dropped a barrel bomb over the city of Daraya on Jan. 31.(FADI DIRANI/AFP/Getty Images) Summary Barrel bombs are not especially effective weapons. They are often poorly constructed; they fail to detonate more often than other devices constructed for a similar purpose; and their lack of precision means they can have a disproportionate effect on civilian populations. However, combatants continue to use barrel bombs in conflicts, including in recent and ongoing conflicts in Africa and the Middle East, and they are ideally suited to the requirements of resource-poor states. Analysis Barrel bombs are improvised devices that contain explosive filling and shrapnel packed into a container, often in a cylindrical shape such as a barrel. The devices continue to be dropped on towns all over Syria . Indeed, there have been several documented cases of their use in Iraq over the past months, and residents of the city of Mosul, which was re

Russia Looks East for New Oil Markets

Click to Enlarge In the final years of the Soviet Union, Soviet leader Mikhail Gorbachev began orienting his foreign policy toward Asia in response to a rising Japan. Putin has also piloted a much-touted pivot to Asia, coinciding with renewed U.S. interest in the area. A good expression of intent was Russia's hosting of the Asia-Pacific Economic Cooperation summit in 2012 in Vladivostok, near Russia's borders with China and North Korea. Although its efforts in Asia have been limited by more direct interests in Russia's periphery and in Europe, Moscow recently has been able to look more to the east. Part of this renewed interest involves finding new export markets for Russian hydrocarbons. Russia's economy relies on energy exports, particularly crude oil and natural gas exported via pipeline to the West. However, Western Europe is diversifying its energy sources as new supplies come online out of a desire to reduce its dependence on Russian energy supplies . This has

LONDON POLICE INDIRECTLY ENCOURAGE CRIMINALS TO ATTACK RUSSIAN DIPLOMATIC PROPERTY

ILLUSTRATIVE IMAGE A few days ago an unknown perpetrator trespassed on the territory of the Russian Trade Delegation in London, causing damage to the property and the vehicles belonging to the trade delegation , Russian Foreign Ministry Spokeswoman Maria Zakharova said during the September 12 press briefing. The diplomat revealed the response by the London police was discouraging. Police told that the case does not have any prospects and is likely to be closed. This was made despite the fact that the British law enforcement was provided with video surveillance tapes and detailed information shedding light on the incident. By this byehavior, British law inforcements indirectly encourage criminals to continue attacks on Russian diplomatic property in the UK. Zakharova’s statement on “Trespassing on the Russian Trade Mission premises in London” ( source ): During our briefings, we have repeatedly discussed compliance with the Vienna Convention on Diplomatic Relations, specif