Russian President Vladimir Putin talking to Russian oligarch Mikhail Khodorkovsky in May 2001. In the center between them is another Russian oligarch, Mikhail Fridman.
Wikimedia Commons / Kremlin.ru

Russia  represents a real and present danger to the Western world. However, the autocrats ruling the Russian Federation also possess weaknesses that can easily be exploited. If Putin’s blatant threats to the West continue, the NATO alliance should not hesitate to yank his many chains. Among those chains is his dependence on the support of the Russian oligarchs.

A Short History of the Development of Russian Fascism

The Russian Federation  is almost universally considered to be a classically fascist state. Not that Russia’s present fascism is much different from the communism of its predecessor, the Soviet Union. Fascism and communism are both forms of socialism. The German and Italian versions of fascism in the 1930s were characterized first and foremost by the supremacy of the state over the individual citizen. In particular, that supremacy extended over all the nation’s economic institutions. Although the ownership of companies might formally be held by private individuals, control over them was firmly held in the iron fist of the state. This control was achieved sometimes by expropriation from private owners, sometimes by regulation, and sometimes by exerting a strong directive influence over investments. As Friedrich Hayek noted in his classic, The Road To Serfdom [E2], there was no real difference between communism and fascism.

[As an aside, I can not help myself from making the following comment. The remarks in the last paragraph demonstrate just how ridiculous the progressive accusations are that Donald Trump is a fascist. Were Trump a second coming of Benito Mussolini or Adolf Hitler, he would be feverishly trying to maximize the powers of the federal government. Instead, he is doing the opposite by cutting taxes and deconstructing the federal regulatory state. Progressives should relearn the meaning of the word “fascist.”]

A review of the history of how Russia went from communism to fascism would be helpful. We begin with the unexpected dissolution of the Soviet Union on December 25, 1991. At the time it failed, almost no one, either in Russia or anywhere else, believed the Soviet Union was about to fall. Many credit the military and economic competition with the West as causing the collapse. No doubt that played a large role, and that competition might have been the final straw to break the camel’s back. Even so, the Soviet Union at the time was at the height of its international power and prestige.

In a persuasive 2011 Foreign Policy article, Leon Aron argued the Soviet Union fell predominantly because Russians themselves lost confidence in the moral rightness of their ideology and government. Aron wrote:

Like virtually all modern revolutions, the latest Russian one was started by a hesitant liberalization “from above” — and its rationale extended well beyond the necessity to correct the economy or make the international environment more benign. The core of Gorbachev’s enterprise was undeniably idealistic: He wanted to build a more moral Soviet Union. … there is little doubt that Gorbachev and his supporters first set out to right moral, rather than economic, wrongs. Most of what they said publicly in the early days of perestroika now seems no more than an expression of their anguish over the spiritual decline and corrosive effects of the Stalinist past.

Given this moral anguish, it was only to be expected Russians would want to make their new country the exact opposite of the Soviet communist system. They would convert themselves into a capitalist society. Under the first president of the Russian Federation, Boris Yeltsin, they set about to do exactly that. For a short time after the dissolution of the Soviet Union, there were high hopes Russia might evolve in a more neoliberal direction. Unfortunately, Yeltsin made an historic mistake in his method of attempting privatization of the Soviet economy. The details of how this happened are relatively complicated, and we need not go into them here. The upshot was that Yeltsin’s methods ensured ex-Communist Party apparatchiks, or their relatives or close associates, ended up as owners of the newly “privatized” companies. They became the crony-capitalist seeds for the fascist evolution of Russia, and are often referred to as the “Russian oligarchs”.

By late 1993 Yeltsin was faced with growing popular unrest with deteriorating living standards (the GDP had declined by half since 1989) and with the developing crony capitalism. It seemed that the crony-capitalists were earning their sobriquet as oligarchs as they were becoming increasingly influential in politics. They played a significant role in the re-election of Yeltsin in 1996.  Faced with growing political discontent, Yeltsin was replaced as president in 2000 by an ex-KGB Lieutenant Colonel, Vladimir Putin.

After Putin succeeded Boris Yeltsin, he began a power struggle with the oligarchs. This ended in 2004 with a “grand bargain” allowing the oligarchs to maintain their wealth and positions so long as they supported and cooperated with Putin. The deciding moment determining the submission of the oligarchs to Putin was the arrest of the billionaire Mikhail Khodorkovsky in October 2003. Putin’s government then nationalized his oil company Yukos for what they cited as tax-evasion. After that, the fight was taken out of the oligarchs, and not wanting to risk continued struggle with the ex-KGB officer, they submitted. Russia had totally collapsed into fascism.

Russian Economic Weakness

Having a fascist economic organization,  Russia today has all the economic weaknesses of any socialist state. As far as we can learn from history, no autocratic nation has ever been able to substitute for free-markets in wisely allocating their economy’s economic assets. They have never been able to solve the economic calculation problem. This is the problem of finding the best uses for scarce resources to maximize growth and to meet the people’s needs. Yet, that is a problem free-markets have always been able to solve. The fact that Russian autocrats (or Chinese autocrats for that matter) do not believe in free-markets condemns them to a perpetually weak economy.

The proof is in the pudding. In discussing the probability of a trade war with China, I showed the Chinese economic weakness compared to the U.S. We can show Russian weakness vis-à-vis the United States in the same way, by comparing GDPs and GDP growth rates. First, if we wish to compare the absolute ability of the two countries to marshal resources for a conflict, i.e. to support their armed forces, what we should compare is their total real GDP. If we would like to see how vulnerable the two countries are to social discontent because of economic want, we should compare their per capita GDPs.  Let us first look at Russian and American real GDPs in constant 2010 U.S. dollars.

Clearly, the Russian economy can not provide as many resources to support a conflict against the West, as the U.S. can devote against them. The Russian GDP per capita compares only slightly better.

Moreover, the growth rates of the Russian economy show Russia will not be able to overtake the U.S. anytime soon.

Being a still developing economy, Russia should show much higher growth rates than the U.S. until they catch up. That is, it would show higher growth if its fascist socialism did not retard their development. The notes in the last plot point out a very serious problem for the Russian economy: Its dependence on the export of Russian oil and oil products. Not being able to generate robust growth from within, Russia depends inordinately on exports of commodities, mostly oil and petroleum products, but also including iron, steel, aluminum, gems and precious metals.

The first point on the Russian curve begins almost two years before the Soviet fall. The economic free fall ended under Yeltsin in 1992 with the per capita GDP contraction bottoming at -14.57 percent. From there, the Yeltsin regime effected halting improvement with its liberalization program, until it reached a peak of 10.46 percent in 2000, the same year Yeltsin was forced to abdicate to Putin. From there, the GDP growth bounced around on a plateau between five and nine percent. This plateau lasted until the advent of the Great Recession of 2008-2009. The plateau’s maintenance was greatly aided by the world-wide shortage of oil causing high oil prices. However the start of the Great Recession generated a collapse in demand, and a consequent precipitous fall in oil prices and Russian growth. Following the Great Recession, oil prices began to rebound with the Russian GDP recovering right along with it.

Unfortunately for Russia, this recovery was very short lived. The U.S. shale oil boom due to “fracking” began to increase natural gas production in 2005 and oil production in 2008. By 2010 the increase in American oil production began to seriously drag down the international price for oil, as well as Russian economic growth. In December 2015 President Obama signed a bill lifting a ban on U.S. oil and gas exports that had existed since the global oil shortages of the 1970s. In addition, Western economic sanctions motivated by Russia’s invasion of Ukraine, beginning in 2014, added to Russia’s problems. From 2014 to 2016 Russia was in recession, although it returned to a low level of growth, 1.5 percent, in 2017.

With the Russian economy being so fragile, we should be able to find ways of dissuading Putin from foreign mischief.

A New Cold War With Russia

The Democratic Obsession  with Russian electoral interference merely scratches the surface of Russia’s hostility to the West. A much greater threat comes from Putin’s desire to reconstitute the Russian empire lost with the dissolution of the Soviet Union. Russians call this their “Russian World” project. The term “Russian World”, sometimes also called Russia’s “near abroad”, should be understood to mean that part of the world  culturally dominated by Russian civilization. Unfortunately, in the view of the Russian Federation’s President, Vladimir Putin, and a great many other Russians, this includes the East and Central European nations they controlled from the end of World War II to the fall of the Soviets. It also includes the Baltic Sea states — Estonia, Latvia, and Lithuania — that they had ruled since the early 18th century.

After regaining their independence at the demise of the Soviet Union, each of the Baltic Sea states joined the North Atlantic Treaty Organization (NATO) as soon as they could. In addition, a number of East European states that had been a part of the Soviet empire — Albania, Bulgaria, Croatia, the Czech Republic, Hungary, Montenegro, Poland, Romania, Slovakia, and Slovenia — have joined NATO. Should Russia attack any of these countries to regain them, all the other NATO countries must go to war with Russia to honor Article 5 of the NATO treaty. NATO stands in the way of Putin’s ambitions.

One way or another, in order to achieve his aims, Putin must break NATO. This one dominating and overwhelming necessity explains almost the entirety of Russian foreign policy. It explains the de facto alliance with the West’s other major enemies, China and Iran. It explains Russia’s involvement with Syria, which has given Putin both a major airbase and a naval base threatening NATO’s southeastern flank. It explains Russia’s invasions of both Georgia and Ukraine when they appeared ready to slip Russia’s control to enter a European Union orbit. It explains Russian channeling of Syrian refugees into Europe to weaken the EU and to cover the infiltration of jihadist terrorists. Finally, it explains Russia’s interference in European and American politics. By interjecting itself into an already vigorous populist rebellion against Western dirigiste elites, it could hope to fatally divide Western citizens.

Putin was encouraged to engage in this kind of adventurism by the weak and pacific responses of Barack Obama’s administration to Putin’s probing. Since Putin knew Obama would never respond to repulse Russian provocations, the Russian President felt free to attempt dividing and weakening the NATO alliance. Putin was probably overjoyed to hear presidential candidate Donald Trump threaten to withdraw the U.S. from NATO if the other NATO members did not increase their contributions to the common defense. With the European members unilaterally disarming themselves by reducing defense budgets, Russia could then not only regain its lost possessions, but also obtain control over Western Europe. All Putin would have to do would be to drive a permanent wedge between Europe and the United States. Western Europe would then be easy meat.

However, the post-election President Trump has disappointed Putin in two ways. First, Trump has motivated NATO countries to increase their defense spending. Second, Trump has expressed renewed support for NATO, explicitly acknowledging U.S. support for Article 5 of the NATO treaty. What Putin will do in the face of this disappointment has yet to be seen.

Many have sought to characterize Putin’s motivations. In a recent Wall Street Journal commentary, Leon Aron wrote,

Seeking clues to his behavior, experts labeled him an “authoritarian modernizer,” a spy-agency “operative,” a “bureaucrat” and a Russian “nationalist.”

Yet what seemed to explain his policies most consistently was another gradually emerging identity: that of an ardent Soviet patriot. Mr. Putin’s speeches and off-the-cuff remarks seem to indicate that, unlike Western and Russian democrats, he never bought into the narrative that there were no winners in the Cold War. He appears to view the global order as unfair and immoral, having been hijacked by America. . . . The Russian president acts as if he imposed on himself a historical mission to rebalance the world’s “correlation of forces,” as the Soviets used to say in Brezhnev’s time. Resentment and restoration looked like his twin mottos. While leaving the door open to cooperation with the U.S. on antiterrorism, arms control and nuclear nonproliferation, Mr. Putin came to view the rest of geopolitics as largely a zero-sum game: If the West wins, Russia loses—and vice versa.

How To Blunt the Russian Threat

Until very recently,  the Western response to Russian provocations had been limited to financial and trade sanctions. These started in 2014 with sanctions to punish Russia’s invasion of Ukraine and its annexation of Crimea. Those sanctions, both from the U.S. and from the EU, were targeted on Russian state banks; banned further EU-Russia arms deals and exports of dual-use equipment that could be used for the military; and banned exports to Russia of a wide range of oil industry technology. By some estimations however, those sanctions had a very limited impact compared to the collapse of international oil prices.

More recently, Russia raised bipartisan American ire with their interference in the U.S. 2016 elections. Admittedly, the anger of Democrats appears to be an opportunistic response to explain how Clinton could have possibly lost the presidential election. Prior to her loss, Democrats — particularly during the Obama era — were very solicitous of Russia  and never, at least in my memory, offered any severe criticisms of that fascist state.

Even more recently, Russian agents tried to assassinate a former Russian spy, Sergei Skripal, and his daughter Yulia in the middle of Salisbury, England. The novichok nerve agent that was used as the weapon was developed by Russia between 1971 and 1993. Although the Russians immediately denied responsibility, there seems little doubt they were the culprits. They seem to be the only ones with both the motive and the means. The British Prime Minister, Theresa May, has been persuaded by her intelligence services the Russians are the guilty party. Indeed, recent history has shown Russia is becoming accustomed to making such assassination attempts inside Western nations. If this lethal activity is not harshly sanctioned, how long before Putin expands his target list beyond Russian dissidents to inconvenient Western citizens?

In response to this latest outrage, at least 20 Western allies of the United Kingdom have ordered more than 100 Russian “diplomats” (mostly intelligence agents) to return to Russia. The United States alone ordered 60 Russian “diplomats” expelled, and ordered Russia to shut down their consulate in Seattle.

In addition, the United States has placed additional sanctions on Russian companies and the Russian oligarchs. On April 6 the Treasury Department announced more sanctions on seven Russian oligarchs and on the 12 companies they own or control. These sanctions were slapped on Russia as an escalation to punish Putin and his cronies for all their aggressions: the 2016 election interference; Russia’s continuing aggressions in Ukraine, Georgia, and Syria; and all of their assassination attempts in the West. What the sanctions include are prohibitions against the oligarchs and their companies from doing business with U.S. banks, or with any U.S. citizen for that matter. This means the sanctioned oligarchs and companies can not buy any U.S. assets or invest in U.S. companies. On top of that, all assets belonging to the sanctioned parties falling within U.S. jurisdiction are frozen.

In focusing sanctions on the Russian oligarchs, the United States is going after the power structure that supports the Putin regime.Taking this route, Donald Trump is following the advice recently given by Mikhail Khodorkovsky in the Wall Street Journal. Remember Khodorkovsky? He was the Russian oligarch used by Putin as an object lesson to bring the other oligarchs to heel. Khodorkovsky declares the West’s real enemy is not the Russian people, but “a group of about 100 key beneficiaries of the Putin regime, and several thousand of their accomplices, many of whom hold posts in the Federal Security Service [once the KGB] and the presidential administration.” That is, the enemies are the Russian oligarchs, and those who serve them. Concerning these Russian oligarchs, Khodorkovsky writes,

Most of these people began their careers in the criminal underworld of St. Petersburg. Despite having now taken control of the presidency, the group retains every aspect of the criminal ilk from which they came. They are even conscious that they are a band of criminals whose goal is to steal money and avoid accountability by holding on to power. Their methods include buying people off, blackmail, murder and phony elections. But now they can operate world-wide, not merely in one city. . . .

They are unconcerned about people—to them ordinary Russians are mere cattle and rabble. They are unconcerned about the country’s long-term future—for them Russia is something to be plundered and, at the same time, serves as a means of protection. . . .

The effective method of fighting mafia groups is already well established. It isn’t diplomacy, though negotiations are necessary. It isn’t broad economic sanctions, which hit ordinary people but are ineffective against the mafiosi.

The best method of targeting Mr. Putin’s circle is to identify its individual members, along with their accomplices and the politicians they have paid off. Then, the U.S. and its allies could act to cut them off from the mechanisms of their influence loot—the people, money, and corporations they control in the West.

Khodorkovsky argues the U.S. should continue as it is now doing: To hit what he calls the Russian mafia directly and weaken their support for Putin’s regime. There is no need to antagonize the vast majority of all Russians in his view.

Unfortunately, Putin has already persuaded most Russians that the U.S. is their primary enemy, if you believe a December 2017 poll published by the Moscow Times. According to that poll by the Levada Center, two-thirds of all Russians say the biggest adversary of their country is the United States. Whether this poll is an accurate rendition of Russian opinion, or whether it is just another example of Russian propaganda is open to question. Nevertheless, it might well be true. Hence the wisdom of Khodorkovsky’s suggestion.

There are other actions the U.S. can take to counteract the Russian threats. Western Europe has been growing increasingly dependent on Russian Liquified Natural Gas (LNG) as an energy source. Although President Barack Obama initially resisted removing a ban on all oil and gas exports in 2015, he was finally persuaded to sign a bill lifting the ban in December of that year. Simply by continuing to produce and export more shale oil and LNG, we can help ensure the energy security of Europe. Also, because the oligarchs get so much of their foreign exchange from the export of oil and LNG, U.S. competition in energy can help limit the assets Russia has to support their military activity and threats to the West.

Putin has revived the old Cold War with the West from the communist era. Perhaps we should then revive old Cold War practices to counteract Russian government propaganda to their own people. During the Cold War, Radio Free Europe/Radio Liberty (RFE/RL) was a major tool for transmitting Western news and views to the Soviet Union and the Warsaw pact nations. Funded primarily by the U.S. Congress, RFE/RL redirected much of its operations following the fall of the Soviet Union. Instead of contradicting communist propaganda, its new primary mission was to counteract the ideology of militant jihadists in the muslim world. Perhaps RFE/RL should again take up the ideological opposition of Russia. If domestic dissent could be encouraged among ordinary Russians, that additional problem could help tie down the Russian government and military, keeping them from foreign adventures.

Finally, the United States could rebuild its own armed forces. During the Obama era they were beginning to be hollowed out. One of the reasons Putin had been emboldened to threaten NATO was the prospect of unilateral disarmament by both the European members of NATO and the U.S. “Peace through strength” should again become our motto.

One very real worry is if American progressives will continue to view Russia as a hostile adversary, once it becomes painfully obvious to everyone Trump is not and never has been a “colluder” with Russia. Let us hope Democrats would be too embarrassed to recant all the bad thoughts about Russia they have so publicly expressed.

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