Babushka Russia

Writing in the Moscow Times Nikolai Zlobin, the director of Russian and Asian programs at the Institute for World Security in Washington, describes Putin’s “babushka” state:

The age-old question of which came first, the chicken or the egg, will probably never be put to rest since most people agree that one cannot exist without the other. The same could be said of the interdependence of politics and economics on the regional, national and global levels.

On the one hand, no one denies that the financial crisis has secured its grip on the world economy, and overcoming it will inevitably have to involve a cooperative effort on the part of all nations. The world’s financial and economic systems are so intricately intertwined that it would be impossible for any kind of recovery to take place by sparking another world war or a series of armed conflicts, as some experts like to suggest. If war were to break out, countries would be helpless in defending their national economies against crippling shocks. In an age of globalization, every nation is heavily dependent on the global financial system.

For the last several decades, the United States has had to play a delicate balancing act between protecting its national interests and not causing conflicts with the other leading economic powers on which it has grown to depend more and more. For example, U.S. President Barack Obama must deal with the country’s inflation and the unpaid debts of subprime mortgage holders while at the same time stimulating demand for U.S. goods on the global market and confidence in the dollar as the global reserve currency. In addition, he has to solve American workers’ social problems while protecting employment at U.S. corporations in Southeast Asia.

Obama has to consistently find a balance between domestic politics, protectionist measures and the steps needed to revive a global economy that opposes — at least on paper and in its declarative announcements — protectionism and other manifestations of “national egoism.”

Oil-dependent countries like Russia are stuck in a difficult situation. When energy prices are low, its budget is hit hard, but any attempt to artificially raise these prices — for example, by decreasing production — to stabilize the budget would inevitably lead to an even greater global economic slowdown and a drop in consumer energy demand. In other words, Russia’s domestic policy is constantly at odds with its economic policy.

The same situation is true in the West. For example, the United States’ financial problems have significantly complicated its ability to fulfill its foreign policy agenda. Washington is tightening its belt abroad as it walks away from high-cost foreign policy ventures. This may create rare opportunities for other nations — including China, the European Union and Russia — to increase their roles on the world stage. But by doing so, they could easily bite off more than they can chew and become entangled in new global and economic conflicts from which they may not be able to extricate themselves.

For the past decade, Russia has constructed a national economy whose main function was to serve as a huge gas pump to the world. The crisis has shown that the country cannot operate independently of global energy markets. It is extremely difficult for a country with a service economy to develop an independent and effective foreign policy. If it is serious about preserving its national identity and sovereignty, Russia needs to try and build a national economy that is not based on serving others. Russia needs to turn the tables so that the global economy will depend much more on Russia’s purchasing power and not the other way around.

The financial crisis may be the catalyst for this change, but if this does not take place, Russia will remain a natural-resource appendage for the West and China. When prices are high, Moscow can think big and boast of its economic — and foreign policy — achievements.

Yet when prices take a nose dive, the government turns into a poor babushka. Although she has been able to stow away a modest sum under her mattress for a rainy day, during the crisis she is forced to count how many more times she can afford to go to the grocery store before her savings are depleted.

Maybe the government will give her a completely new lease on life by quadrupling her pension one day, but whether she will live that long is an open question.

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