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Gold Price Trend Forecast Summer 2019

Russia Regroups Twenty Years After the Fall of the Berlin Wall

Stock-Markets / Articles Nov 09, 2009 - 07:32 PM GMT

By: STRATFOR

Stock-Markets

Best Financial Markets Analysis ArticleWe are now at the 20th anniversary of the fall of the Berlin Wall and the beginning of the collapse of the Soviet empire in Eastern Europe. We are also nearing the 18th anniversary of the fall of the Soviet Union itself. This is more than simply a moment for reflection -- it is a moment to consider the current state of the region and of Russia versus that whose passing we are now commemorating. To do that, we must re-examine why the Soviet empire collapsed, and the current status of the same forces that caused that collapse.


Russia's Two-Part Foundation

The Russian empire -- both the Czarist and Communist versions -- was a vast, multinational entity. At its greatest extent, it stretched into the heart of Central Europe; at other times, it was smaller. But it was always an empire whose constituent parts were diverse, hostile to each other and restless. Two things tied the empire together.

One was economic backwardness. Economic backwardness gave the constituent parts a single common characteristic and interest. None of them could effectively compete with the more dynamic economies of Western Europe and the rest of the world, but each could find a niche within the empire. Economic interests thus bound each part to the rest: They needed a wall to protect themselves from Western interests, and an arena in which their own economic interests, however stunted, could be protected. The empire provided that space and that opportunity.

The second thing tying the empire together was the power of the security apparatus. Where economic interest was insufficient to hold the constituent parts together, the apparatus held the structure together. In a vast empire with poor transportation and communication, the security apparatus -- from Czarist times to the Soviet period -- was the single unifying institution. It unified in the sense that it could compel what economic interest couldn't motivate. The most sophisticated part of the Russian state was the security services. They were provided with the resources they needed to control the empire, report status to the center and impose the center's decisions through terror, or more frequently, through the mere knowledge that terror would be the consequence of disobedience.

It was therefore no surprise that it was the security apparatus of the Soviet Union -- the KGB under Yuri Andropov -- which first recognized in the early 1980s that the Soviet Union's economy not only was slipping further and further behind the West, but that its internal cohesion was threatened because the economy was performing so poorly that the minimal needs of the constituent parts were no longer being fulfilled. In Andropov's mind, the imposition of even greater terror, like Josef Stalin had applied, would not solve the underlying problem. Thus, the two elements holding the Soviet Union together were no longer working. The self-enclosed economy was failing and the security apparatus could not hold the system together.

It is vital to remember that in Russia, domestic economic health and national power do not go hand in hand. Russia historically has had a dysfunctional economy. By contrast, its military power has always been disproportionately strong. During World War II, the Soviets crushed the Wehrmacht in spite of their extraordinary economic weakness. Later, during the Cold War, they challenged and sometimes even beat the United States despite an incomparably weaker economy. The Russian security apparatus made this possible. Russia could devote far more of its economy to military power than other countries could because Moscow could control its population successfully. It could impose far greater austerities than other countries could. Therefore, Russia was a major power in spite of its economic weakness. And this gave it room to maneuver in an unexpected way.

Andropov's Gamble

Andropov proposed a strategy he knew was risky, but which he saw as unavoidable. One element involved a dramatic restructuring of the Soviet economy and society to enhance efficiency. The second involved increased openness, not just domestically to facilitate innovation, but also in foreign affairs. Enclosure was no longer working: The Soviet Union needed foreign capital and investment to make restructuring work.

Andropov knew that the West, and particularly the United States, would not provide help so long as the Soviet Union threatened its geopolitical interests even if doing so would be economically profitable. For this opening to the West to work, the Soviet Union needed to reduce Cold War tensions dramatically. In effect, the Soviets needed to trade geopolitical interests to secure their economic interests. Since securing economic interests was essential for Communist Party survival, Andropov was proposing to follow the lead of Vladimir Lenin, another leader who sacrificed space for time. In the Brest-Litovsk Treaty that ended Russian participation in World War I, Lenin had conceded vast amounts of territory to Germany to buy time for the regime to consolidate itself. Andropov was suggesting the same thing.

It is essential to understand that Andropov was a Party man and a Chekist -- a Communist and KGBer -- through and through. He was not proposing the dismantling of the Party; rather, he sought to preserve the Party by executing a strategic retreat on the geopolitical front while the Soviet Union regained its economic balance. Undoubtedly he understood the risk that restructuring and openness would create enormous pressures at a time of economic hardship, possibly causing regime collapse under the strain. Andropov clearly thought the risk was worth running.

After Leonid Brezhnev died, Andropov took his place. He became ill almost immediately and died. He was replaced by Konstantin Chernenko, who died within a year. Then came Mikhail Gorbachev -- the true heir to Andropov's thinking -- who implemented Andropov's two principles. He pursued openness, or glasnost. He also pursued restructuring, or perestroika. He traded geopolitical interests, hard-won by the Red Army, for economic benefits. Contrary to his reputation in the West, Gorbachev was no liberal. He actually sought to preserve the Communist Party, and was prepared to restructure and open the system to do so.

As the security apparatus loosened its grip to facilitate openness and restructuring, the empire's underlying tensions quickly went on display. When unrest in East Germany threatened to undermine Soviet control, Gorbachev had to make a strategic decision. If he used military force to suppress the uprising, probably restructuring and certainly openness would be dead, and the crisis Andropov foresaw would be upon him. Following Lenin's principle, Gorbachev decided to trade space for time, and he accepted retreat from East Germany to maintain and strengthen his economic relations with the West.

After Gorbachev made that decision, the rest followed. If Germany were not to be defended, what would be defended? Applying his strategy rigorously, Gorbachev allowed the unwinding of the Eastern European empire without intervention. The decision he had made about Germany amounted to relinquishing most of Moscow's World War II gains. But if regime survival required it, the price had to be paid.

The Crisis

The crisis came very simply. The degree of restructuring required to prevent the Soviet Union's constituent republics from having an overarching interest in economic relations with the West rather than with Russia was enormous. There was no way to achieve it quickly. Given that the Soviet Union now had an official policy of ending its self-imposed enclosure, the apparent advantages to the constituent parts of protecting their economies from Western competition declined -- and with them, the rationale for the Soviet Union. The security apparatus, the KGB, had been the engine driving glasnost and perestroika from the beginning; the advocates of the plan were not going to shift into reverse and suppress glasnost. But glasnost overwhelmed the system. The Soviet Union, unable to buy the time it needed to protect the Party, imploded. It broke apart into its constituent republics, and even parts of the Russian Federation seemed likely to break away.

What followed was liberalization only in the eyes of Westerners. It is easy to confuse liberalism with collapse, since both provide openness. But the former Soviet Union (FSU) wasn't liberalizing, it was collapsing in every sense. What remained administratively was the KGB, now without a mission. The KGB was the most sophisticated part of the Soviet apparatus, and its members were the best and brightest. As privatization went into action, absent clear rules or principles, KGB members had the knowledge and sophistication to take advantage of it. As individuals and in factions, they built structures and relationships to take advantage of privatization, forming the factions that dominated the FSU throughout the 1990s until today. It is not reasonable to refer to organized crime in Russia, because Russia was lawless. In fact, the law enforcement apparatus was at the forefront of exploiting the chaos. Organized crime, business and the KGB became interconnected, and frequently identical.

The 1990s were a catastrophic period for most Russians. The economy collapsed. Property was appropriated in a systematic looting of all of the former Russian republics, with Western interests also rushing in to do quick deals on tremendously favorable terms. The new economic interests crossed the new national borders. (It is important to bear in mind that the boundaries that had separated Soviet republics were very real.) The financial cartels, named for the oligarchs who putatively controlled them (control was much more complex; many oligarchs were front men for more powerful and discreet figures), spread beyond the borders of the countries in which they originated, although the Russian cartels spread the most effectively.

Had the West -- more specifically the United States -- wanted to finish Russia off, this was the time. Russia had no effective government, poverty was extraordinary, the army was broken and the KGB was in a civil war over property. Very little pressure could well have finished off the Russian Federation.

The Bush and Clinton administrations made a strategic decision to treat Russia as the successor regime of the FSU, however, and refused to destabilize it further. Washington played an aggressive role in expanding NATO, but it did not try to break up the Russian Federation for several reasons. First, it feared nuclear weapons would fall into the hands of dangerous factions. Second, it did not imagine that Russia could ever be a viable country again. And third, it believed that if Russia did become viable, it would be a liberal democracy. (The idea that liberal democracies never threaten other liberal democracies was implanted in American minds.) What later became known as a neoconservative doctrine actually lay at the heart of the Clinton administration's thinking.

Russia Regroups -- and Faces the Same Crisis

Russia's heart was the security apparatus. Whether holding it together or tearing it apart, the KGB -- renamed the FSB after the Soviet collapse -- remained the single viable part of the Russian state. It was therefore logical that when it became essential to end the chaos, the FSB would be the one to end it. Vladimir Putin, whom the KGB trained during Andropov's tenure and who participated in the privatization frenzy in St. Petersburg, emerged as the force to recentralize Russia. The FSB realized that the Russian Federation itself faced collapse, and that excessive power had fallen out of its hands as FSB operatives had fought one another during the period of privatization.

Putin sought to restore the center in two ways. First, he worked to restore the central apparatus of the state. Second, he worked to strip power from oligarchs unaligned with the apparatus. It was a slow process, requiring infinite care so that the FSB not start tearing itself apart again, but Putin is a patient and careful man.

Putin realized that Andropov's gamble had failed catastrophically. He also knew that the process could not simply be reversed; there was no going back to the Soviet Union. At the same time, it was possible to go back to the basic principles of the Soviet Union. First, there could be a union of the region, bound together by both economic weakness and the advantage of natural resource collaboration. Second, there was the reality of a transnational intelligence apparatus that could both stabilize the region and create the infrastructure for military power. And third, there was the reversal of the policy of trading geopolitical interests for financial benefits from the West. Putin's view -- and the average Russian's view -- was that the financial benefits of the West were more harmful than beneficial.

By 2008, when Russia defeated America's ally, Georgia, in a war, the process of reassertion was well under way. Then, the financial crisis struck along with fluctuations in energy prices. The disparity between Russia's politico-military aspirations, its military capability and its economic structure re-emerged. The Russians once again faced their classic situation: If they abandoned geopolitical interests, they would be physically at risk. But if they pursued their geopolitical interests, they would need a military force capable of assuming the task. Expanding the military would make the public unhappy as it would see resources diverted from public consumption to military production, and this could only be managed by increasing the power of the state and the security apparatus to manage the unhappiness. But this still left the risk of a massive divergence between military and economic power that could not be bridged by repression. This risk re-created the situation that emerged in the 1970s, had to be dealt with in the 1980s and turned into chaos in the 1990s.

The current decisions the Russians face can only be understood in the context of events that transpired 20 years ago. The same issues are being played out, and the generation that now governs Russia was forged in that crucible. The Russian leadership is trying to balance the possible outcomes to find a solution. They cannot trade national security for promised economic benefits that may not materialize or may not be usable. And they cannot simply use the security apparatus to manage increased military spending -- there are limits to that.

As a generation ago, Russia is caught between the things that it must do to survive in the short run and the things it cannot do if they are to survive in the long run. There is no permanent solution for Russia, and that is what makes it such an unpredictable player in the international system. The closest Russia has come to a stable solution to its strategic problem was under Ivan the Terrible and Stalin, and even those could not hold for more than a generation.

The West must understand that Russia is never at peace with itself internally, and is therefore constantly shifting its external relationships in an endless, spasmodic cycle. Things go along for awhile, and then suddenly change. We saw a massive change 20 years ago, but the forces that generated that change had built up quietly in the generation before. The generation since has been trying to pull the pieces back together. But in Russia, every solution is merely the preface to the next problem -- something built into the Russian reality.

By George Friedman

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Comments

Joe
09 Nov 09, 20:27
Russia dicatorship

Russia is far from being a democracy, until they become one with real freedom then corruption will ensure their development is capped.


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