Thursday, February 26, 2009

A Russian View of America's Financial Crisis

Sergei Karaganov's "The World Crisis – A Time for Creation" reads a bit like it might have been penned by Henry Kissinger, IMHO:
Back in late August it seemed that the political semi-farcical Cold War – unleashed by the United States and its allies and clients in Eastern Europe and in Britain and which many Old Europeans met with caution but also with sympathy – would be the main political trend for the next two to three years.

But then the global financial crisis broke out, which is now being followed by a global economic crisis. I think the United States and the Old West will now have other things on their minds than conducting a Cold War.

The acute crisis has forced countries to start correcting the entire system of global economic governance. The United States and its ideas of the superiority of liberal capitalism and the limited role of the state in the economy have been dealt a severe blow. Faced with a possible severe depression, comparable to the crisis of the late 1920s-1930s, Washington has decided to nationalize failed system-forming financial companies and banks and to invest hundreds of billions of dollars in the economy. This policy is directly opposite to the Washington Consensus ideology, which was so confidently imposed in recent decades on other countries, including Russia. True liberals should have let bankrupt enterprises and the bankrupt policy fail completely and should have made room for the sprouts of a new economy. The U.S. has been followed by other countries in resorting to “socialist” methods to save failed companies and banks.

Reasonable apprehensions have already been expressed that the retreat from the former ideology of super-liberalism may go too far toward an increased state interference and may make the Western economy even less competitive. (I wish these warnings were first heeded by Russia, which is successfully destroying its competitiveness by quasi-socialist and reckless increases of labor costs and by the massive interference of corrupt state capitalism.)

Meanwhile, the International Monetary Fund, the World Bank and even the financial G7 remain silent, although the crisis had been ripening for quite some time. Only Europeans are trying to act jointly, albeit inconsistently and with unknown results.


It is clear that the global crisis is only beginning and will affect everyone. But it is not clear how and when all countries will jointly start overcoming it.

But we should already sum up the preliminary results of the recent developments.

The period from August to October 2008 will likely go down in history as the start of the fourth stage in the world’s development over the past century, which began – really, not according to the calendar – in August 1914, closing the door on the splendid 19th century and ushering in the savage and revolutionary 20th century. Actually, the 21st century is beginning right now. (This idea is not mine, but that of Thierry de Montbrial, the founder of the Evian Forum and an outstanding French political thinker.)

This crisis and this new period in world history threaten to inflict inevitable hardships on billions of people, including Russians. Coupled with the aforementioned rapid geopolitical changes, with the collapse of the former system of international law and security systems, and with attempts by the weakening “elders” to stop the redistribution of forces not in their favor, this period may bring a dramatic destabilization of the international situation and an increased risk of conflicts. I would have dared to describe it as a pre-war situation and compare it with August 1914, but for one factor: huge arsenals of nuclear weapons remain, along with their deterrent factor, which makes politicians more civilized. Yet one must keep in mind the objective growth of military danger anyway.

The world economic crisis will fix the new redistribution of forces. But it can also change its speed. When the U.S. overcomes the crisis, it will end up with even less moral and political capital. I do not think that Barack Obama, now viewed as a ray of hope for America, would be able to quickly restore this capital as president. Quite possibly, the crisis will inflict even more economic damage on new industrial giants, especially at first. External markets, on which their growth largely depends, will shrink. The super-fat years will come to an end for oil producing countries, as well, including Russia, which has proved reluctant or unable to switch to a new economy and renovate its infrastructure.

The matter at hand is not just a deep financial and economic crisis. This is an overall crisis of the entire system of global governance; a crisis of ideas on which global development was based; and a crisis of international institutions.

Overcoming this overall crisis will require a new round of reforms, the construction of international institutions and systems for governing the world economy and finance, and a new philosophy for global development.

This crisis will clear out what has been artificially preserved or not reformed since the end of the Cold War. A new global governance system will have to be built on the ruins of the old one.

The time will come for creation.

When this overall crisis is over, its relative beneficiaries will include not only countries that will have been less affected by it, but also those that will have seized the initiative in building a new world order and new institutions. They will have to correspond to the emerging balance of forces and effectively respond to new challenges.

One must be morally and politically ready for that period of creation, and already now, despite the crisis, one must start building up one’s intellectual potential so that in a year or several years one could be ready to put forward one’s own, well-grounded proposals for rebuilding the international governance system on a more just and stable basis.

Russia has so far proposed a very modest plan for rebuilding the European security system and supported, at last, the idea to establish a new Concert of Nations as an association of not seven to eight old countries, but 14 to 20 of the most powerful and responsible states capable of assuming responsibility for global governance.

We need to go further and start thinking about the future already now – however difficult this might be during a crisis.

I would propose for discussion some principles for building the future system:

– Not boundless and irresponsible liberalism, but support for free trade and a liberal economic order coupled with basically stricter international regulation.
– Joint elaboration and coordination of policies by the most powerful and responsible countries, rather than attempts to establish hegemony by one country, or a struggle of all against all.
– Collective efforts to fill the security vacuum, rather than create new dividing lines and sources of conflict.
– Joint solution of energy problems, rather than artificial politicization of the energy security problem.
– Renunciation of the recognition of a nation’s right to self-determination up to secession if this is done by force. (The wave of fragmenting countries, which began in the 1950s and which received a fresh impetus with the recognition of the independence of Kosovo, South Ossetia and Abkhazia, must be stopped.)
– Russia and the European Union must strive not for a strategic partnership in their relations, but for a strategic alliance.
– The goal of development must be progress, not democracy. Democracy is a consequence and an instrument of progress.

Surely, many of the proposed principles will be objected to and rejected. But the habitual politically correct cliches will not help to improve the situation and build a new world. Meanwhile, the time is coming for creation.