Ukraine may represent an existential crisis for Russia
PremiumThe geopolitical balance of the Cold War was beneficial in some ways to non-aligned developing countries that were not marked by either side as enemies and thus often helped
The Ukraine conflict has lasted a week and there is still hope that some settlement short of a wider conflict between Nato and Russia will soon be reached. The most likely scenario is a separation of West and East Ukraine (with some autonomy to the East) and possibly unwritten guarantees of Ukraine’s non-admission to Nato in the near future. However, the story is unlikely to end there, as history following Russia’s annexation of Crimea in 2014 has shown. In a sense, then, there is a return to the Cold War, but with new dimensions. To understand this, we need a brief history of the interplay of economics and politics, and of the evolution of the Cold War.
It dates back to the end of World War II and the setting up of the Bretton Woods twins (International Monetary Fund and World Bank) and some global regulation of world trade via the General Agreement on Tariffs and Trade (GATT). The main aim of these institutions was to integrate all countries into a global economic network. Simultaneously, America led the formation in 1949 of Nato as a multi-country organization to coordinate international political actions and prevent armed conflicts. Since Nato was aimed at the then USSR, the political response was the Comecon, a political and economic arrangement forged by Communist bloc countries.
The end of the war also implied that the economies of Europe and Japan were devastated and needed reconstruction. However, at that time, the only country in a position to implement this reconstruction was the US. Ergo, the Marshall Plan, which was a loan/grant from the US to the non-communist world to finance reconstruction. For the communist world, the counterpart was Comecon, with the Soviet Union and East European countries like Bulgaria, Poland, Czechoslovakia and Hungary. The interplay of these two blocs came to be known as the Cold War and lasted till the early 1990s.
A focus on economics by the US was evident in the way trade negotiations were conducted under GATT. For one, the US gave the rest of the democratic world greater tariff access to its markets in order to break the British-led Commonwealth’s preferential trade system and induce other countries to bring Germany and Japan into the fold. This last part was not easy, as these were the very countries that started World War II. But the US correctly recognized that it was an appropriate time to bring the two into the democratic fold. We thus had two opposing economic and political formations. A less important emerging part of the globe was the mass of developing economies, or the so-called least developed economies (LDCs) of the colonial era that emerged in continental Africa, Latin America and Asia as mixed political systems, including the ‘guided democracies’ of East and South East Asia and the ‘socialist’ economies of South Asia.
The GATT was enormously successful; the nearly 7% compound growth witnessed in world trade between 1950 and 1980 or so was largely responsible for the current-day prosperity of East and South East Asia, as also parts of Latin America. It was largely this that led most of these countries to move into the democratic fold, with the fastest growing forming the OECD group. The economic development of the Comecon group was largely led by the USSR, based on large resources of gas, oil and wheat but only limited production of consumer goods, with the Soviets focusing on high-tech defence products.
The Cold War was actually beneficial to LDCs. For example, India had poor political relations with the US in the 1960s and was much closer to the Soviet bloc. Yet, during the war with China (1962) and the great drought of 1965-66, it was the US that came to the rescue: India was the world’s largest democracy and had to be helped. Some have called this a ‘democratic dividend’. To cut a long story short, the Cold War led to a globally-stable political system. This was disturbed by the USSR’s Mikhail Gorbachev in the late 1980s with his ‘perestroika’ (restructuring). The disturbance led the EU to announce an expansion from 15 to 27 members, to bring in the now politically-footloose countries of east Europe. This process began in 1989 with the fall of the Berlin Wall, with the consumer prosperity of the democratic bloc an obvious attraction. Most other countries followed, though China stayed communist while adopting a free-market mechanism that would help it benefit from world trade. This ambivalence is China’s current internal contradiction.
It is to the credit of Vladimir Putin that he brought order to the political chaos in Russia as regional communist satraps broke away in neighbouring Kazakhistan, Uzbekistan, etc, and a mafia gained force in Russia. Yet, as he established peace, younger generations in Russia, Ukraine, Belarus are attracted by Western consumerism and have no great memories of the Soviet era. This ‘creeping capitalism’ and a failure of modern economic development left Ukraine Russia’s only bulwark against Western expansion.
So, this is an existential crisis for Russia. The ‘et tu Brute’ moment for Putin must be the refusal of China (which itself depends on the capitalist system) to openly come to his aid. Putin may subdue Ukraine, but he’s fighting a losing battle as the world remains unipolar in economic terms. As the era of a ‘democratic dividend’ fades, so will Putin’s power. He needs an honourable exit. Who’ll play that role next remains unanswered.
These are the author’s personal views.
Manoj Pant is professor of economics and vice chancellor, Indian institute of Foreign Trade
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