Putin and the International Economy (2007)

February 25, 2007

By Matt Johnson

In a little noticed article in Pravda, Putin’s government, under the Ministry for Economic Development, has begun to draw up conditions, so to speak, to be placed on foreign investors considering investment in Russia. Given that most Russia watchers in America are laughable incompetent as they are overpaid, it was no surprise they took little notice of this announcement. It represents nothing else than another line in the sand against the west on Putin’s part.

Little in terms of public policy makes the hair of the global oligarchy stand on end like governments creating “conditions” on foreign investment. The oligarchy has been clear: global free trade, and the concomitant destruction of ethnic cultures are the sine qua non of international economics. Super elite ruling cliques such as the Trilaterals, who make their claims public, and Bildeberg, who keep them private (but are discoverable) have make this overarching global policy goal first and foremost. Part of that global oligarchy are the New York Times, The Washington Post (and their endless media satellites within Russia), The Carnegie Institute, The Jamestown Foundation and the Ivy League’s in America, all touting the very same line, even using the same jargon: Free trade-no exceptions.

The prattle about Russia’s entering the WTO or Serbia’s entering the EU have utterly nothing to do with the prosperity of the countries involved. Eastern Europe has nothing to gain from entering these institutions. In no manner does Germany consider Bulgaria to be an equal partner to it, but rather sees a playground of quick profits through the radical exploitation of a well educated and hard working Slavic population. Though Germany is a bit more squeamish about new arrivals to the European institutions she dominates, she does see quite a bit of opportunity among the Slavic countries. Investment means control, it means westerners have a foothold in the internal politics of a country. Elites in small countries such as Serbia feel “part of a big guys club” when accepted into such institutions, regardless of the fact that Serbia will be treated as little more than a backwater of the great powers (as she has always been treated).

Therefore, Putin’s “restrictions” on investment are a specifically painful jab at western financial interests, nearly all of whom financially support Khordokovsky’s and Soros’ “Open Society” foundations and their various fronts. Further, the global oligarchy is quickly gearing up for the 2008 electoral cycle in Russia, trying desperately to revive the pathetic SPS’ or Yabloko’s chances at actually cracking 3% combined.

Russians who are politically aware know that there were no effective restrictions on foreign takeovers during the besotted years of Yeltsin, and public policy on these matters has been haphazard and mired in backroom deals. Putin said this earlier this year: “It is about time we should precisely identify the economic spheres, in which Russia’s independence and security interests dictate the necessity of primary control on the part of the national and state capital.” This seems little more than political sloganeering, but only for Russia scholars at Stamford. In reality, it is a declaration of war, however worded in the dry language of politicians. Putin is in effect saying to the west that Russia will not be an economic colony of the west, and that also means that she will not be an ideological colony of the same imperial powers.

An analyst for the Center for Macroeconomic Analysis, Dimitri Belousov, stated the following about the government’s concern: “We need to understand for a start, if we play this game in general at all or not, and if we can let foreign investors access Russian markets and where exactly such access can be granted. It goes without saying that there are certain areas, not only in the oil and gas industry of the country, where foreign presence is excluded.”

Of course, the question, both for Russia as well as her potential investors, is not merely security, for that is the “reasonable face” on this view of political economy. The further issue is one that has been faced by the developing world since the post-World War II world saw the explosion of western direct investment abroad, and that is of the quid pro quos that surround the act of profit-making in a foreign country. Russia, being able to control more of the economic shots than say, Paraguay in the 1970s, might consider a few items to debate, and these notions finally link Russia’s future with the ideas of national-communitarianism outlined above:

  1. Profits need to be shared with Russian workers. Direct foreign investment must come with guarantees for worker safety and a rate of pay that is proportional to the profitability of the enterprise.
  2. Russian workers will need a say in management. Worker’s councils should be convened as a matter of government policy to consult with management concerning pay, safety and any grievances that might arise.
  3. Foreign investors will continually be under the surveillance of the state in terms of the treatment of the natural environment.
  4. All foreign investors will be required to support local institutions, including Orthodox churches, theater companies, health clinics, libraries, local artists and social insurance.
  5. Under no circumstances should foreign money be channeled into political parties, candidates or causes.
  6. All food purchased by the investing firm must come from local agriculture if possible.
  7. The labor force in any given enterprise, at all levels, must be at least 80% Russian.
  8. Foreign enterprises will have at least some responsibility to work with local government to improve local infrastructure.

This is merely a beginning, but policies such as this will show foreign investors that Russia will not be treated as a mere source for raw materials and apathetic labor. It will not affect the desire of foreigners to invest in Russia, for the profits to be made are substantial, but it will force westerners, who, frankly, are not used to having a social conscience at all, to finance the rebuilding of Russia while making profits from her. Only these conditions will provide a measure of equality between foreign capital and Russian labor. It is a simple contract: if one wants to profit in Russia, one will then have a responsibility to rebuild her. Ultimately, such improvements will be in the interests of the investors themselves, in that it will improve the living standards of the community and provide outlets for worker-management tension. Putin, as could be expected, has made a few first steps in this direction.

If there was any proof, downright incontrovertible proof, that the cult of billionaires that control the economy of the globe loathe Russia and seek her eternal subservience, the latest news on Russia’s debt service is it.

The Russian economy is doing extremely well, helping to raise Russian living standards as well as buttressing Putin’s already enviable popularity ratings. Due to world oil prices, as well as due to the significant diversification of the Russian economy those prices have made feasible, Russia is breaking all records in debt repayment. In fact, the Russian Ministry of Finance, according to Pravda, has offered the Paris Club a deal where Russia will repay their debt early in return for discounted rates, among other things.

The Paris Club is a group of billionaire bankers who, like all banking cults, want the world to believe that individual national governments have control over international finance and debt. Of course, all global debt is held by a tiny handful of international bankers, a portion of these make up the Paris Club.

No one need sit on the edge of their seat to predict the Paris Club’s answer: no. It is often portrayed among journalists who deal with economics that important banks are primarily interested in the repayment of debt with interest. Very few writers deal with the question, central to the discipline of International Political Economy, of the ratio between debt and international oligarchic control over the host country’s internal politics. The fact that the handful of men who control the economics of the world refused to have Russia’s debt paid back early says many things about the nature of global control: that debt is part of this control; that Russia is an enemy that needs to be controlled though debt; and that Russia’s financial health is detriment to the global oligarchy.

Of course, Russia is sending early payments to the Paris Club, however, there has been no reduction in the rate of repayment, nor in the principle, which is customary banking practice, particularly in a age where global debt is in the trillions.

The Regime made a show of forgiving African debt, but refuses to budge an inch with Russia, who, it might be added, is paying the debts of Ukraine and Kyrgyzstan, both of which are overtly hostile to Russia.

What is the most humorous is the reason that the Paris Club refuses to lower the rate of interest or accept any discount: it is because the Russian economy is doing too well. In other words, Putin is being penalized for his successes. Let’s use this as an excuse to deal with the Russian economy in general. Russia’s GDP stands at nearly $500 billion (i.e. a purchasing power parity of just over $1 trillion), and is approaching 10% yearly growth in general, and Russia stands at the 12th largest economy in the world, just above Canada. (There is the old joke that Russia “needs to catch up to Portugal.” It is propaganda, as Portugal ranks at 43 on the list)

Russian industrial growth last year increased well over 6 percent (about that of Japan), putting to rest the notion that the economic growth of Russia exists solely in the sphere of resource extraction. Even better, Ukraine under President Kuchma approached an increase of 17% in industrial investment and output. Russia exports $170 billion as of last year, while importing only $92 billion. Of Russia substantial exports, nearly 20% of manufactured exports are in the high technology sector. In terms of industry, well over 30% of the country’s GDP is value added in this sector. In terms of the traditional breakdown of economic performance into agriculture-industry-services, Russia maintains a ratio similar to any other modern economy. In Russia, services account for about 62% of GDP, while industry accounts for about 35%, proving the Russian economic success cannot be laid at the feet of global oil prices. In terms of industrial production, between 2000 and 2004, this indicator increased from 4 trillion roubles (about $400 billion) to about 11.2 trillion roubles. (Consider about 28 roubles to the dollar)

Breaking these down by sectors, of course, oil has done well, approaching 10% increase from 2003- 2004. But, contrary to the myth makers, Russia has also performed extremely well in other forms of industry. For example, in terms of machine building, this has outstripped oil extraction, increasing over 10% during the same time period (2003-2004). Metallurgy has increased over 5%, and chemicals (excluding petrochemicals) has increased to over 9%.

Now, please take note that I am not necessarily making the claim that Russia should be a primarily industrial economy, or that this is the optimal economic aspect of national life. This is just to show that, as always, the received wisdom about Russian economics is wrong. That Russia is resource dependent is simply incorrect, and that, as the statistics prove, Russia has diversified her economy substantially.

The most significant point, however, is that if Russia is to fulfill her historic role, that is, to defend Orthodoxy against the coming antiChrist, a modern economy she must have, regardless of the negative affects of industry and the “service sector.” A modern military based on that economy she must have as well. As Russia becomes a net creditor nation, her historic role will become even more clear, as it is possible that Russia can challenge the oligarchy on their own terms, buying up the debt of Americans and Europeans. Given the amount of debt China already owns, the new China-Russia axis will have more than a loathing of the west in common, but we might find ourselves in the hilarious position of making American spending habits dependent on the new alliance’s whims. It may be far fetched, but the continued diversification of Russia’s economy, coupled with China’s economic and diplomatic surge, it may be the worst nightmare the neo-cons in Fairfax county have ever imagined.

To be a bit optimistic, one might look out at recent events and make a broad statement that the Regime is currently dealing with what is often called a “legitimacy crisis.” It seems that every event is linked to every other into a rather complex chain of reality that takes a systemic style of analysis to figure out.

Many years ago, Rockefeller foundation hack Herbert Marcuse made a significant point: that the western adoption of nominalism as an epistemological axiom made it more and more difficult to envision things systematically. Recent events, however, might be reversing this trend.

The destruction of New Orleans does not exist outside of politics: it has been commented on more than once now that the national guardsmen who normally would have been guarding the city against the all- black looters are in Israel’s war in the Mideast. Furthermore, it also has been commented on that heavy equipment, including helicopters, and money that normally would have been spent on the fortification of the city is now presently also serving in Iraq.

That’s one angle. Another is that the hits on America oil refining and piping have simultaneously are being taken very seriously, with some industry execs saying that jet fuel will reach critically low levels in as little as two days. Of course, due to the oil-industry driven energy policy the American have been following for decades, there is no slack whatsoever in the petroleum market. In other words, supplies are so tight, that any disruption in either supply of crude of its refining and transport can set the market into a tailspin. The French currently receive roughly 85% of their electricity from nuclear power, without the slightest accident or problem.

Now for another: the spike in oil prices, well over $3 per gallon at the time of this writing, comes at a time just days after Alan Greenspan admitted that the housing boom was over, and that the bubble will soon burst. Greenspan also intoned about a month ago that the American economy could not handle its current level of debt. And, lest I forget, bankruptcies are at their highest level since the Great Depression, and are considered out of control by most analysts who have bothered to study the numbers.

Now, here’s the clincher. No, it’s not the loss of the war in Iraq, now admitted by some (anonymous) military brass, but the nightmare of all nightmares: the possible, I dare say imminent, dumping of the dollar on currency markets.

Some years ago, statements such as that would have been dismissed. Even at the beginning of this year, such a view was considered “out of the mainstream.” However, none other than George Soros and Warren Buffet have made clear statements that this is a real danger.

Here’s how it works: Americans, in the main, are animalistic, consumerist pigs without a shred of decency or humanity. Presently, as they mouth off about corrupt politicians and the American debt, they themselves, on average, owe about $50,000 each to the American ruling classes. As a result, they spend money they don’t have, and are willing to give their own jobs away to save 15 cents on a pair of jeans that they don’t need. The result of the irrational level of American spending, the U.S. is running monstrous trade deficits. The oil price hike is due to the massive diversion of oil to lube the failed war in the Mideast and Central Asia, and the increasing number of large SUVs, Mustang Gts and other large and powerful cars Americans have been told they need. All of this has been done with little investment in alternative energies or even domestic refining capability. (And by the way, which former Soviet republic has the most potent oil refining industry: Belarus. Take that McCain).

Now, conservatives, who exist solely to whore for the capitalist bosses, for years were telling Americans that this deficit did not matter, and that the American market was too valuable for any real nasty aftereffects to occur.

Any deficit or debt of this type needs to be financed, and, in this case, the dollars needed have been sucked away to China, India and Russia, among other places (for heaven’s sake, the war in Iraq is being financed with Chinese liquidity). But as the dollar continues to suffer, as inflation haunts the U.S. over rising oil prices, many of these countries find they are holding currency they really don’t want, at least not in the quantities they currently hold. Now, it has been said that the Chinese, given they have an interest in the American market (as it is the engine of their economic boom), are likely to sit on the dollars they hold. On the other hand, China’s banking system is state run and controlled, and therefore, political, as much as market, concerns dictate economic policy at macro level. China needing America? Sure, but Wally and Wilma Wal-Mart need China more, as their whole consumption pattern is based upon this trade relation.

Some analysts have made the claim however, that India and Russia are not dependent upon the American market, and thus are more likely to get rid of dollars as it suits them. However, this is an argument for closer state control of the banking sector. Nationalists have always argued for the de- privatization of finance (and thus of usury), not for the least of reasons that it is as much a political area as an economic one. In other words, if the U.S. gets too McCainey in relation to Russia, Russia’s weapon of choice to respond is not the MiG, but rather the dollar. If one economy, particularly one as important as Russia’s (currently the 12th largest in the world, just after Canada), was to dump a few dollars, or even speculate about it out loud, a major waterfall of dollars would result, sending the American economy in to a well-deserved oblivion. The principle is clear: it is OK to be the first to unload dollars, but utter ruin for the last one, for by that time, the dollar would be worthless. As a result, even the speculation of dollar-dumping will cause a major dumping of dollars worldwide.

What is my point here? The point is simple: we are standing on a threshold where the Regime’s very legitimacy can be called into question now merely by the likes of me, but even from the likes of Carol and Carl Costco. I don’t care how TV-soaked Steve and Sally Stripmall are, or how numb their thought processes, a lost war in Iraq, extremely high gas pump prices, inflation , bankruptcy, looting in New Orleans, the collapse of the dollar, and the public exposure of the lies of the system in getting into Iraq, the Regime may be in a position where it may not be able to deliver the goods. Up until now, the Regime functioned because it could provide a modicum of comfort to most of its citizens (though for a very large price). But that era may be ending. That era was based on the very shaky hegemonic role of the United States after World war II. There can be no doubt that at least one other pole is forming- Russia and China, with India remaining as a wildcard, both politically and economically. The Regime is overstretched militarily and economically (via debt) and the economy can not take very much more.