Revolution#141, August 24, 2008
Shifts and Faultlines in the World Economy and Great Power Rivalry
What Is Happening and What It Might Mean
Part 4. THE RESURGENCE OF RUSSIAN IMPERIALISM
This is the fourth in a series of articles about major changes taking place in the imperialist world economy—and some of their larger geopolitical implications.
The analysis began with a survey of recent trends and key developments in the world economy. This was followed by an examination of the ascent of China in the world system and its growing capacity to project power internationally. The analysis then turned to the European Union and its emergence as a highly integrated, coordinated, and increasingly assertive imperialist bloc.
The United States remains the dominant imperialist power, economically and militarily, in the world. The U.S. is the guardian of a global capitalist order that benefits, at least for now, all the big powers. But the U.S.’s global position is weakening. At the same time, the potential is growing for various powers, or alliances of powers, to mount more formidable international challenges to U.S. imperialism—economically and strategically.
The rise of China is perhaps the most significant tectonic shift in the global economic landscape. But the rebound of Russian imperialism is perhaps the most dramatic and unexpected.
A decade ago, the Russian economy was practically flat on its back. Today, the Russian ruling class wields growing economic power in the world and is pursuing a strategic agenda that is coming into sharper conflict with U.S. imperialism.
I. END OF COLD WAR,
AND CRISIS: 1991-1998
For some thirty-five years, the Soviet Union was a genuine socialist society. The Soviet revolution of 1917 created an economy no longer based on exploitation. It took radical and inspiring measures to uproot the oppression of women and to achieve equality between nationalities. But the Soviet Union ceased being a socialist country in the mid-1950s.
A new bourgeois class came to power and transformed Soviet society into a particular form of capitalism-imperialism. This was a capitalism in which a state bourgeoisie exploited wage labor. This was a capitalism in which competition among blocs of capital took place within a framework of state ownership. When the Soviet Union collapsed in 1991, this state capitalism also collapsed.
The Cold War between the U.S. and the Soviet Union ended with the demise and disintegration of the Soviet Union. This was a decisive change in the whole international situation. It opened new economic and strategic opportunity for U.S. imperialism: for investment, for resolving conflicts in different parts of the world (like the struggle in South Africa) to its advantage, for extending its main military alliance, NATO, into Eastern Europe.
In Russia, a new regime, led by Boris Yeltsin and backed by the U.S., sought to restructure the Russian economy along lines similar to the institutions and practices of the Western capitalist countries. It threw the doors wide to Western investors. A new Russia was emerging within a framework of U.S. global dominance.
A). Economic Reform in the 1990s
The Yeltsin regime, with prodding and assistance from Western advisers and the U.S.-dominated International Monetary Fund, carried out a series of reforms to remake the economy and stimulate growth. It deregulated prices, eliminating special subsidies and government controls on prices. It promoted the formation of financial and stock markets. It presided over a massive program of privatization, selling off former state-owned enterprises to private investors and investment groups. It curbed social spending.
The IMF provided credits and loans on condition that the Russian government enforce and carry through with this “shock therapy.”
Privatization had the most sweeping effects of the various reforms. In the former Soviet Union, industrial, commercial, and financial activity was overwhelmingly carried out through state-owned enterprises. By 1997, the private sector accounted for more than 70 percent of Russia’s economic output.
Many new private businesses had been created. But control had fallen into the hands of a small but powerful new stratum of wealthy investors and entrepreneurs. This stratum reaped enormous profits and accumulated vast wealth from buying, selling, and consolidating rights to ownership of former state assets.
The rapid restructuring of the Russian economy did not lead to economic recovery and growth. Foreign loans and foreign direct investment did not materialize on the scale anticipated by Russia’s rulers. Corruption and short-term profit grabbing mushroomed. Infighting within the Russian capitalist class escalated. Industrial investment dropped off sharply. Russia entered into crisis.
The statistics are staggering: between 1991 and 1997, Russia’s economic output plummeted by more than 40 percent (a decline greater than that in the U.S. during the Great Depression of the 1930s). Unemployment averaged 13 to 15 percent.
For the general population, the results of “shock therapy” were grim. Income inequalities increased significantly. The breakdown of basic public services and massive dislocation led to a sharp rise in crime, mental illness, and suicide rates. Life expectancy fell from 70 to 65 years—unprecedented in modern industrial societies in peacetime.
B). International Factors and the 1998 Crisis
This was the dynamic in play: Russia’s inefficient and chaotic economy could not competitively and profitably “plug in” to the international economy; at the same time, instability in the world capitalist economy was reacting back on Russia.
In the summer of 1997, East Asia was rocked by a major financial crisis. Investors had pulled out of real estate, stock, and currency markets. Now pressure was mounting on Russia. Loans from foreign banks and governments were coming due, but there were few signs of economic growth.
Russia could not meet its loan payments. Investor confidence eroded quickly. And on August 13, 1998, the Russian stock, bond, and currency markets collapsed. Russia’s currency, the ruble, lost 60 percent of its value just over several months. Five of the ten largest banks went under. Real wages plummeted by two-thirds. Yeltsin had lost just about all credibility. 1
It is helpful to step back to gain some historical perspective.
The collapse of the Soviet-led imperialist bloc in 1990-91 led to a new wave of globalization under U.S. dominance. Markets and regions of the world, including in the former Soviet bloc, were further opened up to imperialist capital. An integrated, global, cheap-labor manufacturing economy was being forged—with China being transformed into the “workshop/sweatshop” for international capitalism.
Russian monopoly capitalism integrated into this more globalized world economy but suffered two disadvantages. First, it was integrating from a position of internal weakness. The Russian economy was plagued by industrial inefficiencies that carried over from the 1970s and 1980s. And the privatization and price deregulation reforms of the Yeltsin era had initially destabilizing effects.
Second, the external international context was unfavorable for Russian capital. Turmoil in international financial markets made it difficult to stabilize the ruble and to attract foreign investment. World prices for commodities like oil, natural gas, and other raw materials that are plentiful in Russia were low. This put a crimp on Russia’s ability to boost export earnings.
The period of the 1990s was also one in which U.S. imperialism under then-President Clinton was aggressively seeking to restrict Russian imperialism’s maneuvering room. In particular, Clinton was pushing NATO, the U.S.-led military alliance in Western Europe, to expand into and incorporate former Soviet bloc countries in Eastern Europe and the Baltic.
II. THE PUTIN PRESIDENCY:
A NEW IMPERIAL PROJECT IN
A CHANGED AND CHARGED INTERNATIONAL SETTING
The financial crisis of 1998 was a kind of turning point. The Russian economy hit bottom. Struggle within the Russian ruling class was intensifying—over issues of economic control and management and international policy and posture. In this setting, “a new type of contender posture, capitalist but with restored primacy for strategic direction by the state, and under a broadly `Eurasian’ [less Western-oriented] ideology, began to take shape.” 2
A). A Re-Restructuring
Vladimir Putin articulated and fought for this new orientation.
Politically and economically:
- To rebuild the power of the Russian state.
- To break the power of what the Putin forces called the “new oligarchs”—that wealthy new stratum of investors; to wrest control of their holdings, especially in oil and natural gas; and to reestablish strong state control over the energy sector—as well as over banking and communications (to muffle opposition).
- To assign priority to the raw materials industries—like natural gas and oil, as well as minerals and metals and to take economic and strategic advantage of growing global demand for industrial raw materials. Russia has the largest natural gas reserves in the world and is the second largest producer of oil.
- To revive the state-run military industry and increase its share of global arms markets, and to expand and restructure funding for the armed forces.
- To reassert Russian influence over what the Russian rulers call the “near abroad.” This refers to countries like Georgia and Ukraine and others in the Caucasus and central Asia which had been part of the former Soviet Union but which became independent after its collapse.
- To counter U.S. imperialism by “looking east” to China for geopolitical alliance…and by “looking west” for geoeconomic engagement to the European Union, the economic-political bloc led by the West European imperialist powers.
Ideologically, Putin would fan a nationalist-chauvinist political atmosphere and movement to create a social base for a resurgent Russian imperialism.
B). International Setting
A combination of favorable international factors made it possible for Putin to move on this agenda. These factors included: the rising price of energy resources; China’s rapid economic growth; and the enlargement of the EU, the consolidation of the euro, the currency of the European Union, and its expanding role in international transactions, including oil (See Part 3 of this series, “The European Union as a Potential Rival to U.S. Dominance” in Revolution No. 138, August 3, 2008, available online at revcom.us).
At the same time, another international factor confronted the Russian ruling class with new necessity.
The Bush regime had seized on the 9-11 attacks to launch a war for greater American empire—doing so under the cover of a “war on terror.” The goal of this “war without end” has been to secure U.S. global dominance for decades to come. The first act was the overthrow of the Taliban regime in Afghanistan.
In the run-up to the Afghanistan war, the U.S. began to establish military bases in several Central Asian countries. U.S. imperialism was now right on Russia’s doorstep, with growing military capacity to assert a presence far beyond Afghanistan. And U.S. imperialism was ratcheting up the contest for control over oil and natural gas production and transport in central Asia.
III. RESURGENCE: ENERGY AND MILITARY
Between 1999 and 2007, Russia’s economy grew 7 percent a year—a growth rate higher than that of any of the other G-8 major industrialized countries. Russia’s stock market is one of the world’s fastest growing. 3 Russia now holds the world’s third-largest international currency reserves, after China and Japan. Foreign exchange reserves are earnings in dollars, euros, and other major world currencies from exports and various capital flows—and Russia’s decisions to hold or sell dollars can significantly influence the dollar’s international strength. 4
Russia’s economic turnaround is the product of two interrelated factors.
First, world market prices for oil, natural gas, and other natural resources rose in the 2000s—and Russia’s export earnings soared as a result.
Second, export growth has stimulated the Russian economy more broadly beyond the raw materials sectors, reactivating some of the idle industrial capacity from the pre-1991 era. Export earnings have also made it possible to import advanced equipment and technology to retool some of Russia’s aged industrial capacity.
A progressive Russia scholar seems correct in characterizing a core element of Russia’s imperial project as the “use [of] the country’s resources to leverage a greater role in global affairs, and to carve out further opportunities for the internationalization of Russian capital.” 5
A). Energy as Strategic Sector
As Russia’s economy rebounded, Putin oversaw the consolidation of the natural gas and oil sectors. He asserted state control over the most promising new energy sources in Russia’s Far East. He set strict terms of operation for foreign energy firms.
Gazprom, the Russian natural gas company, is the centerpiece of Russia’s strategic energy sector. Gazprom accounts for 8 percent of Russia’s GDP. Its major shareholder is the Russian government. Dmitry Medvedev, who succeeded Putin as president in early 2008, had been the chairman of Gazprom.
Gazprom is the world’s largest gas-producing company. It is the third largest company in the world, after Exxon-Mobil and GE. Gazprom holds somewhere between a quarter and one-third of the world’s estimated natural gas reserves and possesses the largest pipeline network in the world. 6
Through Gazprom, Russia controls gas supply routes and exports from the Caspian and Central Asian regions to Europe. This has involved a series of agreements with Kazakhstan, Turkmenistan, and Uzbekistan.
Gazprom has also been stepping up its direct presence in the European market. This has involved purchase of West European companies or shares in companies, infrastructure construction, and what are called swaps: West European capital acquires holdings in Russian oil and gas fields while Russia acquires holdings in West European transport and distribution facilities.
Western Europe relies on Russia for close to 25 percent of the natural gas it consumes. In 2010, the North European gas pipeline, traveling under the Baltic Sea, will further link Russia and Germany. Russia in turn needs the European market, which absorbs 75 percent of Russia’s crude oil exports. 7
Russia under Putin is seeking to spread its influence in Europe, locking countries into long-term energy deals and aiming to weaken the EU-NATO alliance. There is increasing industrial-technological cooperation between Russia and EADS, the West European aerospace company, and Russia is seeking to increase shareholdings in the company.
At the same time, there is concern within the EU that growing dependency on Russia for energy will limit its freedom of maneuver—and the EU has been seeking to diversify its energy sources, even as economic ties with Russia have deepened.
Russia has used energy as a political weapon. In January 2006, it temporarily shut off natural gas deliveries to Ukraine. A former republic in the old Soviet Union, Ukraine is an independent state that has been seeking NATO membership.
B). Military Dimensions
Flush with export earnings, the Putin regime boosted military spending. Russia now has the world’s third highest military expenditure (as measured in terms of comparative purchasing power). 8
Between 2003 and 2007, Russia has been the world’s second largest weapons merchant, closely trailing the U.S. 9 Russia relies heavily on weapons exports to maintain its industrial and technological base. Weapons production is a sector in which Russia has developed and deployed cutting-edge technology.
Weapons sales and transfers are also a vehicle for Russia to spread its geopolitical influence in Central Asia, the Middle East, and Latin America (Venezuela is a major customer). Russia’s delivery of advanced weapons systems to Iran has allowed Russia to expand its presence in the Middle East and influence U.S. freedom of action towards Iran, without directly confronting U.S. imperialism.
C). Reality Check
The revival of the Russian economy has hardly led to a more just society.
In some industrial sectors, workers are compelled to put in long overtime hours. Pensions have been cut or scrapped. With economic recovery, incomes and wages have risen, but social inequality remains wide. In 2005, the average income of Russia’s richest 10 percent was 15 times higher than the poorest 10 percent. In 2008, Forbes reported 87 billionaires in Russia, with a total wealth of roughly half a trillion dollars—making Russia second only to the United States in the billionaire ranking. 10
One of the dirty little secrets of Russia’s recovery is that immigrant workers are playing an increasingly important role in the functioning of the economy. Some estimates put the number of legal and undocumented foreign workers at 14 million—or about 10 percent of the entire Russian population. 11 Racist and anti-foreigner incidents and attacks have been on the rise.
Health care remains a major social problem. Indeed, as late as 2005, one in five hospitals in Russia was without hot water and sewage facilities. 12
A large underground or unregulated economy, overlapping with organized crime, thrives. Russia is a major transit point for the international sex industry.
IV. GREAT POWER RIVALRY
IN CENTRAL ASIA,
THE CHINA CONNECTION
Russia is unique among the major imperialist powers in not being dependent on imports to meet energy needs. But like all imperialist powers, Russia is driven to expand globally. And Russian imperialism faces a particular necessity: control over energy production and energy pipelines in Central Asia is essential to Russia’s economic expansion and accumulating strategic strength.
Meanwhile, U.S. imperialism has its own plans and agenda to expand influence and control in the Central Asia and Caspian Sea region—and to roll back Russian influence.
A). Energy Rivalry
The Caspian Sea region is divided among eight new states formed when the Soviet Union collapsed, including Azerbaijan, Georgia, and Kazakhstan, plus Russia and Iran. This region has the potential to become a major oil and natural gas producer over the next decade. It has been a crucial arena of investment by international oil companies.
Right now, Russian imperialism enjoys privileged access to Central Asia’s energy resources and a near monopoly on the transport of natural gas out of Central Asia. But the struggle to control the flow of oil and natural gas from the Caspian Sea basin to markets in Europe and Asia is heating up.
U.S., West European, and Japanese companies have collaborated on the so-called BTC pipeline. This pipeline transports oil from Azerbaijan through Georgia to Turkey, bypassing Russia totally. The U.S. has given strong financial and political backing to this pipeline as a means to weaken Russian influence. 13
Russia and the U.S. are engaged in intense competition in this region. This involves diplomatic maneuvering, the establishment of military bases and arms agreements, military exercises, and security alliances. Recently, this imperialist competition has broken out into open military conflict between Georgia, a close ally of the United States, and Russia.
The U.S. has been leading the way in transforming Georgia into a bridgehead of U.S. and Western imperialism in the region. Russia, for its part, has been aiding breakaway regions. Russia views the Caucasus and Caspian Sea region as a “zone of special influence”—the more so as NATO has pressed eastward.
B). Emergent Russia-China Alliance
As the world economy has undergone great shifts, and as great power rivalries have heated up, Russian imperialism has moved to more closely ally itself with China and its larger and more dynamic capitalist economy.
China is Russia’s second largest trade partner, after Germany. China’s vast financial clout has made possible a growing number of joint exploration ventures between Russian and Chinese state oil firms in Russia’s Far East. China has also been Russia’s number one weapons customer for the last 15 years.
Both Russia and China are maneuvering for position in Central Asia. Both have condemned the U.S. for its meddling and attempts to forge a network of forward military supply outposts in the region. Both have mutual interests in combating Islamic fundamentalist movements that come into opposition to the ruling regimes and threaten separatism. 14
In 2001, Russia and China joined together to form the Shanghai Cooperation Organization (SCO). The SCO is a military and security alliance in Central Asia. Its other core members include Kazakhstan, Kyrgyzstan, Tajikistan, and Uzbekistan. Iran and India have an observer status in the SCO.
The SCO has changed the dynamic in Central Asia. In 2005, Russia and China backed the embattled president of Uzbekistan and his suppression of protest. This was followed by Uzbekistan’s eviction of U.S. forces. In 2005, the SCO conducted its first joint military exercises in China; and in 2007, the SCO held its first military exercises in Central Asia. 15
The SCO is a major development in international relations.
V. CONCLUSION: SOME ISSUES AND QUESTIONS TO CONSIDER
With the resurgence of Russian imperialism, several issues and questions pose themselves:
- Russian imperialism has benefited from a long-term spike in energy prices. But Russia’s economic structure is skewed to energy exports (while Russia’s energy industry itself requires considerable technological renovation). What happens if energy prices decline or collapse? Clearly, current economic arrangements would not hold up. Russia has accumulated foreign reserves and the ruble has strengthened in step with rising energy prices. The 1998 ruble crisis devastated the Russian economy. How secure are the financial structures of this resurgent imperialism?
- Russian industry is still not operating at, nor receiving the investment to produce to, world market cost and quality standards. This is a weak link in the Russian capital formation and limits its international reach and competitiveness.
- The Russia-European Union (EU) relationship is a complex and contradictory one. Were the EU to move towards closer and more strategic ties with Russia, linking the EU’s far superior economic strength with Russia’s superior military capability—this could qualitatively alter great power balances in the world. Part of the reason the U.S. is pushing more aggressively into Central Asia is to limit Russian-EU energy linkages.
- If Russia’s economy falters, how might that affect Russia’s ties with China? And how might a sudden and unexpected jolt in China—including political or social upheaval—impact the overall international situation, including Russia’s strategic calculations?
- Alternately, if Russia continues to grow, begins to modernize its industrial base, and pushes forward its global agenda—how might U.S. imperialism react, or act “preventively,” to perceived challenges from Russia and a more assertive China-Russia bloc-in-formation?
The world economy and world politics are in great flux. The ground on which great power rivalry is taking place, and on which class and social and revolutionary struggles are taking place, is shifting dramatically.
NEXT, Part 5: Japan and India
1. For an account of the Yeltsin period and the 1998 crisis, see Gregory L. Freeze, ed., Russia: A History (Oxford: Oxford University Press, 2002), chapters 14 and 15. [back]
2. Kees van der Pijl, Global Rivalries: From the Cold War to Iraq (London: Pluto, 2006), p. 356. [back]
3. On Russia’s post-1999 economic performance, see Vladimir Popov, “Resurgent Russian Economy?” International Journal, Spring 2008; and Lucio Vinhas de Souza, A Different Country: Russia’s Economic Resurgence (Brussels: Centre for European Policy Studies, 2008), www.ceps.eu. [back]
4. For a detailed analysis of the strengthening of the ruble and how this might affect the international dollar regime, see Juliet Johnson, “Forbidden Fruit: Russia’s Uneasy Relationship with the U.S. Dollar,” Review of International Political Economy, 15:3 (August 2008). [back]
5. Tony Wood, “The Putin Era,” New Left Review, March-April 2007 (44), p. 68. [back]
6. Gazprom’s ranking as the world’s third-largest corporation is based on market capitalization. On Gazprom, see de Souza, Russia’s Economic Resurgence, pp. 73-82. [back]
7. International Energy Agency, World Energy Outlook 2004 (Paris: IEA, 2004), p. 284; Michael Richardson, “Russia Puts Energy Importers Over a Barrel,” YaleGlobal On Line, July 10, 2007, www.yaleglobal.yale.edu. [back]
8. SIPRI Yearbook 2008: Armaments, Disarmament and International Security (Oxford: Oxford University Press, 2008), Appendix 5A. [back]
9. The Economist, “The World’s Biggest Arms Exporters,” July 29, 2008, www.economist.com. [back]
10. Dmitri Trenin, “Getting Russia Right,” The Globalist, May 8, 2008, www.theglobalist.com; Luisa Kroll, “World’s Billionaires,” Forbes.com, March 5, 2008. [back]
11. Russian Federal Migration Office data, cited in Vinhas de Souza, Russia’s Economic Resurgence, p. 92. [back]
12. Economist Intelligence Unit, Russia Country Profile 2006, p. 24. [back]
13. On U.S.-Russian rivalry in the Caspian Sea region, see Michael T. Klare, Rising Powers, Shrinking Planet (New York: Metropolitan Books, 2008), chapter 5. [back]
14. On Russia-China relations and moves towards alliance, see Andrew Kuchins, “Russia and China: The Ambivalent Embrace,” Current History, October 2007; and Alexei D. Voskressenski, “The Rise of China and Russo-Chinese Relations in the New Global Politics of Eastern Asia,” (2007), available online. [back]
15. The Shanghai Cooperation Organization military exercises of 2005 and 2007 are discussed in Roger N. McDermott, The Rising Dragon: The SCO Peace Mission 2007, Occasional Paper, www.jamestown.org. [back]
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