Category Archives: Emerging Markets

America would gain nothing from cosying up to Putin’s declining Russia

It has been three years since Russia’s stunning annexation of Crimea. It is the worst kept secret in Washington that the new administration of Donald Trump would like to turn the page on the US-Russian hostility that followed, in a transactional effort to remake US foreign policy.

At the heart of Trump’s Jacksonian nationalism is his transactional view of the world, a state of mind that is confounding allies and enemies alike. Unsentimental in the extreme, the President is singularly unimpressed by alliances in both Europe and Asia (held in almost sacred awe by the discredited America foreign policy establishment) that he senses may be past their sell-by dates if they don’t deliver in terms of immediate American interests.

In the same vein, the Trump White House has not let a long history of US-Russian bad blood get in the way of his desire to pursue closer ties with Vladimir Putin’s Russia, if doing so—and despite Putin’s well-deserved reputation for thuggery—serves American goals. And oddly enough–for all that readers of this column know I am no friend of the current President–I have absolutely no problem with his more transactional approach to foreign policy, as it amounts to a breath of fresh air, rightly questioning intellectual sacred cows that ought really to have been thought through again following the debacle of the Iraq war.

The problem with President Trump’s outreach to Russia is not that he is attempting to work with a far from savoury (alright let’s admit it, Putin is my favourite Bond villain) partner to further American interests; it’s that he will receive almost nothing for his bold efforts. And getting a good deal– which is largely the basis of Trump’s popularity and narrative—is, after all, the point of the whole exercise.

But what does America get from such a shift in its foreign policy? ISIS is already on its last legs, with Mosul in Iraq—by far the largest city the caliphate controls—set to fall later this year. Its capital (Raqqa in Syria) will surely be next. The key strategic point remains what it has always been: in both Iraq and Syria disaffected Sunnis must be included in the governing process, or there will surely be another—and perhaps even more hideous—vampire-like rising of radical Sunni Islam, following on from Al-Qaeda in Iraq and ISIS. And absolutely none of this is affected in any material way by whether Trump and Putin reach an understanding or not.

Nor is there an obvious economic reward flowing on from a rapprochement with the Kremlin, as there would be say, if Trump and Xi Jinping (another strongman nationalist) reached a broad accord. Russia is an aging, corrupt gas station with nuclear weapons, with its economy wholly precariously tethered to the spot price of oil and natural gas. Russia’s economy is merely the size of Texas. The country is a great power in decline, not one on the rise. There is simply no economic pot of gold at the end of the rainbow for Trump here, either.

As for Russia and the US more broadly sharing intelligence and in some sort of coordinated way working together to combat global terrorism, that will happen in any event, if it suits the eminently rational Putin’s interests, and will not happen if it does not. Reaching a Grand Bargain has nothing to do with what amounts to a rational second order decision the Kremlin will make, based on an evaluation of its own interests.

So, closer ties with Putin does not dramatically change the facts on the ground over ISIS in Syria, facilitate a new economic renaissance for the US (as such a deal with China or, better, India, would do), or cement a joint front in the global war against terror. In other words, at the end of Trump’s transactional approach to Russia, there’s nothing there. In hard-headed realist terms, there simply is no deal available that makes calling NATO into question, or abandoning with the embattled (but getting better) Ukrainian government of President Poroshenko, worth it.

For on its own self-interested terms, this dreamed-of alliance simply makes no sense, in terms of America’s basic interests. A declining Russia simply does not offer the US anything remotely strategically attractive enough to ignore Russian adventurism in Crimea and eastern Ukraine. By all means, let’s move away from the gormless era when American neoconservatives and liberal hawks fought wars that had almost nothing to do with direct American interests. But any cursory glance at those interests means that this putative deal is merely intellectual fool’s gold.

Published in City AM London, February 27, 2017

Putin is dangerous not because Russia is strong–but because it’s so weak

Putin isn’t dangerous because Russia is strong—but because it’s so weak

“Some people without brains do an awful lot of talking.”

-L. Frank Baum, The Wizard of Oz

As a child, I remember being fascinated by the populist allegory The Wizard of Oz. My favourite part of the story—sure to cause me to burst out laughing even when I knew what was coming–came when the supposedly omnipotent Wizard was humiliatingly revealed to be a mere mortal, and a terrified one at that. It was an early lesson for me that things are not always as they seem in terms of power, and that conventional wisdom could (and often was) entirely off base.

Recently I have thought of the unmasked Wizard in the context of the seeming rise and rise of Vladimir Putin’s Russia. Having decisively intervened in the Syrian Civil War, ruined for all time through military meddling Ukraine’s efforts to join the West (in the guise of EU and NATO), and being seen as playing a nefarious and important role in President Trump’s shocking victory (though for all the hyperventilation I am still waiting to hear how these dark arts actually determined the election), Putin bestrides the world like a colossus. Or so the gormless global commentariat would have you believe.

In actuality, even at this surface level, the Kremlin sees the world more as the hapless Wizard might do. In the Middle East, it has one war-ravaged ally (Syria); the US has literally a dozen. Ukraine may have been decisively prevented from joining the western bloc, but it is not safely the Russian satellite it used to be. And while the Trump administration is likely to reach out to Russia in search of some sort of geopolitical accommodation over ISIS and radical Islam, it is hard to think of any other major policy areas where the interests of the two powers actually line up. So much for the Kremlin’s Oz-like omnipotence.

But graver, more intractable problems lurk just beneath the surface. Russia’s economy amounts to an ageing petrol station, a one trick pony wherein nearly two-third’s of Russian exports are oil and gas. While oil prices have gotten off the floor, the miracle of America’s shale revolution (a great curse to the Kremlin) provides an enduring new ceiling for oil prices, preventing Russia merely riding out bad times, waiting for the oil price to ride to its rescue.

The lack of economic diversification when times were good is Putin’s original sin, as Russia’s economic woes over time will directly threaten its continued great power status. And if Russia did not manage to fix the roof when the sun shined in terms of the commodities boom, now is the rain. In 2015, Russia’s GDP actually shrunk (hardly the calling card of a great power) by 3.7%.

While Russia has stagnated, others have moved ahead. Calculated on a current dollar basis, Russia’s GDP is puny, less than seven percent of America’s, roughly the size of the state of Texas. Between 1992-2016, the real compound annual growth rate of Russian per capita GDP has been 1.5%; over that period of time it was a healthy 5.1% in India and an eye-catching 8.9% in China. Other rising powers are running rings around the Kremlin.

So let us be crystal clear in a Wizard of Oz type way; Russia is a great power in all kinds of long-terms trouble. However, the peril it poses stems from its weakness, and not its supposed strength. Wounded animals are often dangerous, and the bear did strike out—especially in Ukraine—to secure its primary interests when it felt itself under threat. While this make keep the wolf away from the door now, structural economic decline (there is no movement toward systemic reform) awaits the former superpower.

Yet in the short to medium term, the Kremlin still has some good cards to play, even if it is on course to lose the trick in the end. Putin’s approval rating remains a stratospheric 82%. As such, he remains the undisputed master of the country, capable of acting quickly and decisively and of using an army (compare all this with the neutered, divided EU in the Ukraine crisis) to further his immediate interests. Weakened and wounded, in terms of hard power Russia does remain a force to be reckoned with.

At the end of the Wizard of Oz, the chastened real-world shell of Oz does cause some unwitting mischief, as the balloon designed to send Dorothy home flies off with the Wizard instead. But Dorothy surmounts this obstacle, at last making it back to Kansas. The Wizard, like Russia, is a wrecking power, capable of upsetting aspects of the present order. But in their weakness that is all they are; neither the Wizard nor Russia can create anything like a new order in place of today’s imperilled world.

Published in City AM London, January 30, 2017

Mrs. May must be even bolder to make Global Britain a free-trading success

“Fear not, we are of the nature of the lion.”

–Queen Elizabeth I

There was just enough in Theresa May’s speech today to reassure those who campaigned to leave the EU. Crucially, she made clear we are definitely leaving the Single Market and taking control of our borders. She suggested only a great deal would keep us in the Customs Union in some form, a highly unlikely event. Her tone – and such things matter – was forthright and constructive. Blessedly, we all know where she stands.

At one level, all she really did was confirm that we are going to be leaving the EU. But such has been the paranoia amongst eurosceptics about the prospect of some sort of excessive accommodation that just hearing we are going to be leaving will be enough to have Tory backbenchers cheering.

It was a speech long overdue. Having been almost completely silent on the EU as Prime Minister, May had well and truly lost control of the debate. Eurosceptics, dominant in the Tory Party, feared the worst and the media questioned whether she had meaningful plan. As such, despite addressing EU leaders, it was mostly a speech for a domestic audience – designed to assert control over the debate and to reassure Leave voters that she is on their side.

From that perspective, it was a job well done. But it is hard not to come away from the speech thinking that we should be further ahead by this point. When May took over back in the summer, some Leave campaigners were worried that, as a Remain supporter and someone who has spent relatively little time thinking about the future of Britain’s role in the EU and the world, she would not be well placed to help create a new role for Britain.

To be fair, the physical backdrop to the speech called for a “Global Britain”. And there were many points within the speech where she underlined her aspiration for Britain’s global role – not least in a very upbeat, internationally focused introduction. However, by this time in the process it is not good enough to merely speak in generalities, even if the Prime Minister’s impulses are clearly on the mark. It is time to talk about the specific, glittering geopolitical possibilities that can make May’s Global Britain a success.

While all the world is now to be now Britain’s oyster in terms of securing free trade deals, obviously some bilateral arrangements matter more to London than others. Indeed, in the media’s obsession about the terms of negotiations with the EU, a much larger strategic point has been almost entirely missed: the success or failure of Brexit will have far more to do with whether Britain can secure free trade deals with the Commonwealth countries (Australia, New Zealand, Canada), the US, India, and China, than whatever are the specific terms reached with the economic basket case that is the EU. That is where Britain’s Drakean, swashbuckling, energies must lie.

The great news (it is far better than good) is that the May government is pushing on an open door. Australia, New Zealand and critically Donald Trump’s America (once again the Project Fear establishment should never leave their day jobs and attempt to become actual foreign policy analysts) are itching to quickly negotiate and secure trade deals with the UK. As these three countries all have a solid record of growth–certainly compared with a becalmed EU—this is the first step toward Global Britain. But this is just the low-hanging fruit. The medium-term test is whether India and China (probably in that order) can also reach trade agreements with the UK. This is what the May government should actually be worrying about.

There is a further Holy Grail to attain if Brexit is to lead to a new Elizabethan Age: the Global Free Trade Alliance (GFTA). This proposed trading group would be a coalition of genuinely dynamic economies, voluntarily committed to pushing the free trade envelope. A legislative initiative rather than a trade deal, Parliament would offer GFTA members (chosen by neutral numerical criteria relating to their economy’s openness) access to the UK market with no tariffs, quotas, or other trade barriers, on the single condition they offer the same to the UK and the other members of the club. Such a radical move would over time do nothing less than remake both the UK and the world.

May gave a very solid speech which should encourage everyone that believes in a new, global future for Britain. She gave a speech that even five years ago would have been unimaginable. But we are where are and now is the time to think big. We look forward to hearing a detailed vision along these lines in the next few months.

Written with James Frayne and published in City AM London, January 7, 2017