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

Forget Russia: Trump’s China trade war risks breaking Asia’s fragile peace

 

“I see myself as an instrument of the Almighty and go on my way, regardless of transient opinions and views.”

–Kaiser Wilhelm II, 1910

While he was diabolically poor at follow-through, former President Barack Obama has the makings of a first-rate political risk analyst. Early on in his term, Obama keenly saw that Asia was where most of the future global growth in the world would come from, but was also the region where most of the global geopolitical risk lay. This basic insight was the motivation for Obama’s ill-starred Pivot to Asia, where the region was to rightly receive more strategic involvement from America.

Risk has been dangerously bubbling up in Asia for two basic reasons. First, and unlike in Europe where Russia is kept at bay and Germany caged, there is no multinational military organisation like NATO that both deters revisionist powers (in this case China) and keeps possibly frightening allies (in this case Japan) on the reservation.

This is largely because of the hugely counter-productive insistence of Japan’s elite to regularly pray at what my staff have come to call ‘The War Crimes Shrine’ at Yasukuni. Japan’s grudging failure to come to terms with its barbarism in World War II has alienated would-be allies such as South Korea, making the formation of a NATO-like organisation to keep the peace—and to keep America’s allies on the same page–impossible.

Second, the rise of China has created a state of being problem in East Asia; the United States is the dominant power there, and the Chinese wishes to re-claim its traditional historical dominance in the region. This basic fact—and the obvious tensions that flow from it—can simply not be wished away.

In typical business-like fashion, the Chinese leadership commissioned a study to look at historical examples over the past 500 years of what happened to the world when an emerging power (such as the China) collided with a status quo power (such as the US).

The doleful conclusion of the Thucydides study—so named for the geopolitical rivalry between Athens and Sparta that ignited the Peloponnesian War—was that, in 12 of the 16 past cases, the result has been bloodshed. Given that historical reality, the structural peril to the present world is so great only a statesman of great ability and subtlety is likely to buck the odds.

Instead of this, we have newly-inaugurated President Donald Trump, who so far has passed his audition to be the neurotic Kaiser Wilhelm of this era with flying colours. Whereas under Obama the US and China increasingly engaged in a strategic competition in East Asia in the South China and East China Seas, Trump seems intent on increasing the danger by adding an obviously harmful trade war to the menu.

Given that—unlike the Cold War where the Soviet and Western economies were strikingly separate—China and the US are inextricably linked economically, this is bound to hurt both countries, and nobble the world’s hopes for decent rates of growth. Beyond even this, it is pouring gasoline on the open fire of the inevitable Chinese-American competition in East Asia, making avoidance of the Thucydides trap infinitely harder.

Far worse still, Trump is heading into his showdown with China having just greatly alienated his many prospective allies in the region, in his breathtakingly counter-productive abrogation of the Trans-Pacific Partnership (TPP), an ambitious trade pact that would have welded America economically closer to key allies such as Japan, Australia, New Zealand, Vietnam, Malaysia, and Singapore.

Instead, by unilaterally walking away from the meticulously negotiated pact, Trump’s White House has allowed Beijing to whisper the poisonous words to America’s Asian allies, ‘The US is not to be trusted.’

So in his Wilhelm II audition—a vainglorious bumbler who bluffed the world into an avoidable conflict—Donald Trump seems a cinch for the part. He is taking China on over the wrong issues (macro-economics not geo-strategy), with the wrong balance of power (having just spurned America’s regional allies), at the wrong time (when the world desperately needs all the global growth that it can muster).

Under Obama, the US was firm but business-like with China, defending freedom of navigation in the seas there but working with the Chinese where it could, and furthering joint economic links that make it ever harder for Beijing to turn its back (due to its vast economic interests) on an American-dominated order. The results were impressive strategically, with much of East Asia openly and increasingly siding with the US over the neighbourhood bully.

Trump’s Kaiser Wilhelm impersonation throws all this out the window, imperilling America’s favourable strategic position. As as true when Obama came to power, Asia is once again the region in the world to watch, but for far more terrifying reasons.

Published in City AM London, January 23, 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