#Kissinger on the #MiddleEast: Too much of our public debate deals with tactical expedients. What we need is a strategic concept" @WSJ

Finally some intelligent analysis on the current situation in the Middle East. 

A Path Out of the Middle East Collapse

ENLARGE

Syrians in Damascus thank Vladimir Putin for aiding the Assad regime, Oct. 13. Photo: SANA/Associated Press

By

Henry A. Kissinger

Oct. 16, 2015 7:18 p.m. ET

The debate about whether the Joint Comprehensive Plan of Action with Iran regarding its nuclear program stabilized the Middle East’s strategic framework had barely begun when the region’s geopolitical framework collapsed. Russia’s unilateral military action in Syria is the latest symptom of the disintegration of the American role in stabilizing the Middle East order that emerged from the Arab-Israeli war of 1973.

In the aftermath of that conflict, Egypt abandoned its military ties with the Soviet Union and joined an American-backed negotiating process that produced peace treaties between Israel and Egypt, and Israel and Jordan, a United Nations-supervised disengagement agreement between Israel and Syria, which has been observed for over four decades (even by the parties of the Syrian civil war), and international support of Lebanon’s sovereign territorial integrity. Later, Saddam Hussein’s war to incorporate Kuwait into Iraq was defeated by an international coalition under U.S. leadership. American forces led the war against terror in Iraq and Afghanistan. Egypt, Jordan, Saudi Arabia and the other Gulf States were our allies in all these efforts. The Russian military presence disappeared from the region.

That geopolitical pattern is now in shambles. Four states in the region have ceased to function as sovereign. Libya, Yemen, Syria and Iraq have become targets for nonstate movements seeking to impose their rule. Over large swaths in Iraq and Syria, an ideologically radical religious army has declared itself the Islamic State (also called ISIS or ISIL) as an unrelenting foe of established world order. It seeks to replace the international system’s multiplicity of states with a caliphate, a single Islamic empire governed by Shariah law.

ISIS’ claim has given the millennium-old split between the Shiite and Sunni sects of Islam an apocalyptic dimension. The remaining Sunni states feel threatened by both the religious fervor of ISIS as well as by Shiite Iran, potentially the most powerful state in the region. Iran compounds its menace by presenting itself in a dual capacity. On one level, Iran acts as a legitimate Westphalian state conducting traditional diplomacy, even invoking the safeguards of the international system. At the same time, it organizes and guides nonstate actors seeking regional hegemony based on jihadist principles: Hezbollah in Lebanon and Syria; Hamas in Gaza; the Houthis in Yemen.

Thus the Sunni Middle East risks engulfment by four concurrent sources: Shiite-governed Iran and its legacy of Persian imperialism; ideologically and religiously radical movements striving to overthrow prevalent political structures; conflicts within each state between ethnic and religious groups arbitrarily assembled after World War I into (now collapsing) states; and domestic pressures stemming from detrimental political, social and economic domestic policies.

The fate of Syria provides a vivid illustration: What started as a Sunni revolt against the Alawite (a Shiite offshoot) autocrat Bashar Assad fractured the state into its component religious and ethnic groups, with nonstate militias supporting each warring party, and outside powers pursuing their own strategic interests. Iran supports the Assad regime as the linchpin of an Iranian historic dominance stretching from Tehran to the Mediterranean. The Gulf States insist on the overthrow of Mr. Assad to thwart Shiite Iranian designs, which they fear more than Islamic State. They seek the defeat of ISIS while avoiding an Iranian victory. This ambivalence has been deepened by the nuclear deal, which in the Sunni Middle East is widely interpreted as tacit American acquiescence in Iranian hegemony.

These conflicting trends, compounded by America’s retreat from the region, have enabled Russia to engage in military operations deep in the Middle East, a deployment unprecedented in Russian history. Russia’s principal concern is that the Assad regime’s collapse could reproduce the chaos of Libya, bring ISIS into power in Damascus, and turn all of Syria into a haven for terrorist operations, reaching into Muslim regions inside Russia’s southern border in the Caucasus and elsewhere. 

On the surface, Russia’s intervention serves Iran’s policy of sustaining the Shiite element in Syria. In a deeper sense, Russia’s purposes do not require the indefinite continuation of Mr. Assad’s rule. It is a classic balance-of-power maneuver to divert the Sunni Muslim terrorist threat from Russia’s southern border region. It is a geopolitical, not an ideological, challenge and should be dealt with on that level. Whatever the motivation, Russian forces in the region—and their participation in combat operations—produce a challenge that American Middle East policy has not encountered in at least four decades.

American policy has sought to straddle the motivations of all parties and is therefore on the verge of losing the ability to shape events. The U.S. is now opposed to, or at odds in some way or another with, all parties in the region: with Egypt on human rights; with Saudi Arabia over Yemen; with each of the Syrian parties over different objectives. The U.S. proclaims the determination to remove Mr. Assad but has been unwilling to generate effective leverage—political or military—to achieve that aim. Nor has the U.S. put forward an alternative political structure to replace Mr. Assad should his departure somehow be realized. 

Russia, Iran, ISIS and various terrorist organizations have moved into this vacuum: Russia and Iran to sustain Mr. Assad; Tehran to foster imperial and jihadist designs. The Sunni states of the Persian Gulf, Jordan and Egypt, faced with the absence of an alternative political structure, favor the American objective but fear the consequence of turning Syria into another Libya.

American policy on Iran has moved to the center of its Middle East policy. The administration has insisted that it will take a stand against jihadist and imperialist designs by Iran and that it will deal sternly with violations of the nuclear agreement. But it seems also passionately committed to the quest for bringing about a reversal of the hostile, aggressive dimension of Iranian policy through historic evolution bolstered by negotiation.

The prevailing U.S. policy toward Iran is often compared by its advocates to the Nixon administration’s opening to China, which contributed, despite some domestic opposition, to the ultimate transformation of the Soviet Union and the end of the Cold War. The comparison is not apt. The opening to China in 1971 was based on the mutual recognition by both parties that the prevention of Russian hegemony in Eurasia was in their common interest. And 42 Soviet divisions lining the Sino-Soviet border reinforced that conviction. No comparable strategic agreement exists between Washington and Tehran. On the contrary, in the immediate aftermath of the nuclear accord, Iran’s Supreme Leader Ayatollah Ali Khamenei described the U.S. as the “Great Satan” and rejected negotiations with America about nonnuclear matters. Completing his geopolitical diagnosis, Mr. Khamenei also predicted that Israel would no longer exist in 25 years.

Forty-five years ago, the expectations of China and the U.S. were symmetrical. The expectations underlying the nuclear agreement with Iran are not. Tehran will gain its principal objectives at the beginning of the implementation of the accord. America’s benefits reside in a promise of Iranian conduct over a period of time. The opening to China was based on an immediate and observable adjustment in Chinese policy, not on an expectation of a fundamental change in China’s domestic system. The optimistic hypothesis on Iran postulates that Tehran’s revolutionary fervor will dissipate as its economic and cultural interactions with the outside world increase.

American policy runs the risk of feeding suspicion rather than abating it. Its challenge is that two rigid and apocalyptic blocs are confronting each other: a Sunni bloc consisting of Egypt, Jordan, Saudi Arabia and the Gulf States; and the Shiite bloc comprising Iran, the Shiite sector of Iraq with Baghdad as its capital, the Shiite south of Lebanon under Hezbollah control facing Israel, and the Houthi portion of Yemen, completing the encirclement of the Sunni world. In these circumstances, the traditional adage that the enemy of your enemy can be treated as your friend no longer applies. For in the contemporary Middle East, it is likely that the enemy of your enemy remains your enemy.

A great deal depends on how the parties interpret recent events. Can the disillusionment of some of our Sunni allies be mitigated? How will Iran’s leaders interpret the nuclear accord once implemented—as a near-escape from potential disaster counseling a more moderate course, returning Iran to an international order? Or as a victory in which they have achieved their essential aims against the opposition of the U.N. Security Council, having ignored American threats and, hence, as an incentive to continue Tehran’s dual approach as both a legitimate state and a nonstate movement challenging the international order?

Two-power systems are prone to confrontation, as was demonstrated in Europe in the run-up to World War I. Even with traditional weapons technology, to sustain a balance of power between two rigid blocs requires an extraordinary ability to assess the real and potential balance of forces, to understand the accumulation of nuances that might affect this balance, and to act decisively to restore it whenever it deviates from equilibrium—qualities not heretofore demanded of an America sheltered behind two great oceans.

But the current crisis is taking place in a world of nontraditional nuclear and cyber technology. As competing regional powers strive for comparable threshold capacity, the nonproliferation regime in the Middle East may crumble. If nuclear weapons become established, a catastrophic outcome is nearly inevitable. A strategy of pre-emption is inherent in the nuclear technology. The U.S. must be determined to prevent such an outcome and apply the principle of nonproliferation to all nuclear aspirants in the region.

Too much of our public debate deals with tactical expedients. What we need is a strategic concept and to establish priorities on the following principles:

• So long as ISIS survives and remains in control of a geographically defined territory, it will compound all Middle East tensions. Threatening all sides and projecting its goals beyond the region, it freezes existing positions or tempts outside efforts to achieve imperial jihadist designs. The destruction of ISIS is more urgent than the overthrow of Bashar Assad, who has already lost over half of the area he once controlled. Making sure that this territory does not become a permanent terrorist haven must have precedence. The current inconclusive U.S. military effort risks serving as a recruitment vehicle for ISIS as having stood up to American might. 

• The U.S. has already acquiesced in a Russian military role. Painful as this is to the architects of the 1973 system, attention in the Middle East must remain focused on essentials. And there exist compatible objectives. In a choice among strategies, it is preferable for ISIS-held territory to be reconquered either by moderate Sunni forces or outside powers than by Iranian jihadist or imperial forces. For Russia, limiting its military role to the anti-ISIS campaign may avoid a return to Cold War conditions with the U.S.

• The reconquered territories should be restored to the local Sunni rule that existed there before the disintegration of both Iraqi and Syrian sovereignty. The sovereign states of the Arabian Peninsula, as well as Egypt and Jordan, should play a principal role in that evolution. After the resolution of its constitutional crisis, Turkey could contribute creatively to such a process.

• As the terrorist region is being dismantled and brought under nonradical political control, the future of the Syrian state should be dealt with concurrently. A federal structure could then be built between the Alawite and Sunni portions. If the Alawite regions become part of a Syrian federal system, a context will exist for the role of Mr. Assad, which reduces the risks of genocide or chaos leading to terrorist triumph.

• The U.S. role in such a Middle East would be to implement the military assurances in the traditional Sunni states that the administration promised during the debate on the Iranian nuclear agreement, and which its critics have demanded.

• In this context, Iran’s role can be critical. The U.S. should be prepared for a dialogue with an Iran returning to its role as a Westphalian state within its established borders.

The U.S. must decide for itself the role it will play in the 21st century; the Middle East will be our most immediate—and perhaps most severe—test. At question is not the strength of American arms but rather American resolve in understanding and mastering a new world.

Mr. Kissinger served as national-security adviser and secretary of state under Presidents Nixon and Ford.

A Path Out of the Middle East Collapse - WSJ

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When #Iran, #Israel, and #Turkey Worked Together @ForeignAffairs

Between 1956 and 1979, Israel shared intelligence with Iran and Turkey on a scale not seen since, was one of Israel’s most far-reaching and comprehensive foreign policy accomplishments.

Trident’s Forgotten Legacy

Yossi Alpher 

May 7, 2015 Foreign Affairs 

The Trident alliance, through which, between 1956 and 1979, Israel shared intelligence with Iran and Turkey on a scale not seen since, was one of Israel’s most far-reaching and comprehensive foreign policy accomplishments. The program represented the vanguard of Israel’s doctrine for dealing with its neighbors and provided the nation with a grand strategy for the first time since its creation. Jerusalem’s relationship with Tehran lasted more than 20 years, until the fall of Iran’s Shah Mohammad Reza Pahlavi in 1979. Israel’s strategic relationship with Turkey continued on and off for several decades, ending with Turkish President Recep Tayyip Erdogan’s acerbic comments at the Davos summit in 2009. Although ambitious, Trident was just one in a series of Israeli attempts to find common ground with non-Arab allies—most of which yielded only fleeting success.

Iran and Turkey voted against the creation of Israel by the United Nations in 1947, and neither supported Israel’s request for UN membership in 1949. Nevertheless, both proceeded to recognize Israel on a de facto basis, establishing low-level or thinly concealed relations through trade missions. Iran and Turkey had a number of motives to enter into relations with Israel and maintain them at low and often deniable levels. For one, those countries’ relations with their Arab neighbors were often tense, and warming or cooling to Israel was useful leverage. Additionally, there was the U.S. dimension: Israeli Prime Minister David Ben-Gurion marketed Trident to Washington as an asset to the West against Soviet inroads into the Middle East and as a force to fight Arab radicalism. Both Iran and Turkey understood Jewish influence in the United States and perceived that a close relationship with Israel would mean that the U.S. Jewish lobby would convey their needs to Washington.

Although ambitious, Trident was just one in a series of Israeli attempts to find common ground with non-Arab allies—most of which yielded only fleeting success.

Trident also wrought regional geostrategic incentives. Israel’s achievements in the 1956 Sinai campaign, Gamal Abdel Nasser’s erratic regime in Egypt, the Iraqi coup in 1958, and growing fears of Soviet incursion all brought Iran, Israel, and Turkey into an intelligence relationship that took form in a series of separate meetings in Europe, Ankara, and Tehran from 1956 to 1958. At the first triangular meeting, heads of each national intelligence organization established an impressive array of cooperative intelligence ventures, some leading to subversion projects directed against Nasserist and Soviet regional influence.

The chutzpah! #Putin Defends #Ukraine’s Jews, Slams Ukraine’s Jewish Oligarchs

The chutzpah!

Putin Defends Ukraine's Jews, Slams Ukraine's Jewish Oligarchs

Cites Ukraine's appointment of oligarchs as governors as reason for unrest
Yesterday morning, Vladimir Putin, president of the Russian Federation, gave his first post-Crimea invasion press conference. What rapidly became apparent, as he slouched in a gilded hall studded with Russian flags, was that the combination of Putin's surreal interpretation of events with his lavishly baroque epistemology has given form to some bizarrely contradictory dualities in his worldview. He railed against a politicized judiciary selectively prosecuting the enemies of the chief executive, overlooking that it's exactly what the Russian Judiciary does routinely; he argued the change of government in Kiev was an armed coup, but the one in Crimea was entirely legitimate. The usage of force by Ukrainians is unjustified, but completely justified from the Russian side.

The Russian leader also insisted that Ukraine's deposed president, Viktor Yanukovych, retains authority as the country's elected head of state, but also described him as a corrupt failure whose political career was finished. Putin also admitted that he understood well popular demands for "cardinal changes in government" by Ukrainians—demands, he asserted, that simply stemmed from their "having become habituated to switching one thief and opportunist for another thief and opportunist." He spat out the word "opportunist" in disgust.

What #Russians Think of the Intervention in #Ukraine @ForeignAffairs

By sending troops into Crimea, Russian President Vladimir Putin has amplified Ukraine's turmoil and set off the most dangerous crisis Europe has seen this century. Less noted, however, is that the move portends a significant change in Russia's domestic politics. Putin has abandoned the strategy that has underwritten his political dominance for the last 14 years. And in doing so, he has bet the throne on an approach that is likely to fail.

The secret to Putin's past political success is simple: Presiding over years of rapid economic recovery, he could claim credit for restoring stability after Russia's chaotic transition from communism. During his first two presidential terms, from 2000 to 2008, the country's growth rate averaged seven percent a year. In fact, that success mostly reflected factors beyond Putin's control, including surging oil prices and a flood of liquidity into emerging markets. But it did also require a commitment to open borders, integration into international institutions such as the World Trade Organization and the Organization for Economic Cooperation and Development, cordial relations with Western business circles, and efforts to project an image of modernity and increasing sophistication. A 13 percent flat income tax and a conservative macroeconomic policy did not hurt.

As Russians' incomes soared, so did Putin's popularity. His consistently high approval ratings -- since 2000, they have never fallen below 60 percent on polls conducted by the Levada Center, a Russian nongovernmental organization -- have rallied Russia's fractious elites to the president's side and kept naysayers at bay. The global financial crisis in 2008–9 threw Putin's strategy into doubt. By massively boosting spending, the government managed to protect Russians' living standards. But in the last two years, the public has recognized that the growth rates of Putin's first two terms are not returning. Since late 2011, quarterly growth has fallen steadily from 5.1 to 1.2 percent a year.

Recharging the economy would require a serious commitment to safeguarding property rights and attacking corruption. As stagnation deepened, rumors circulated in Moscow last year that Putin would reinstate his competent and respected former finance minister, Alexei Kudrin, and allow him to introduce political and economic reforms. But that did not happen.

Instead, with the invasion of Crimea, Putin appears to have settled on a Plan B for mobilizing support. Whereas the first approach demanded integration, the second embraces isolation. It involves appealing to emotional nationalism, berating the West, and rallying the public against supposed attempts at cultural imperialism. Plan B is not entirely new. In fact, Putin has been flirting with it since the mid-2000s. Since then, the two approaches have coexisted awkwardly. He has managed to slip back and forth between aggressive rhetoric -- for instance, comparing NATO foreign policy to that of the Third Reich -- and signing deals with Wall Street executives.

But with Russian troops now in Simferopol, Putin appears to have doubled down on nationalism and given up on rapid growth. The great champion of "stability" has taken to tearing up the map of Europe. Whatever the ultimate outcome of the recent intervention, it has already done serious damage to Russia's economic prospects.

The military operation itself will not cost much, although perhaps more if Putin extends it to other regions of eastern Ukraine. Subsidizing the Crimean economy -- and perhaps even that of Ukraine's Russian-speaking rust belt -- is not even the main concern. Nor is the ruble's fall, which the Central Bank slowed on Monday with a frantic raise in interest rates and the sale of $12 billion of currency reserves. That will drive up prices of imports, which will surely anger consumers, but it will help exports and ease pressure on the budget.

The real problem is the potential medium-run fall in foreign investment and acceleration of capital flight. Wars tend to elevate perceived political risk -- and that goes double when leaders' decisions appear erratic. Western sanctions, if they materialize, will add to the discomfort. Few investors will want to tie up money in companies whose executives may be banned from travel to the West, whose accounts may be frozen, and whose board meetings may be upstaged by the home country invading another of its neighbors.

Putin may have discounted such economic consequences based on the short-lived and moderate international reaction to Russia's 2008 war with Georgia. But that was quite different. Russian troops intervened only after Georgian artillery fired on Russian peacemakers and local South Ossetian civilians. In the Crimea, no one had shot at the locally stationed Russian troops with so much as a peashooter. The Ukrainian case looks more like unprovoked aggression. It also starts to look like a pattern -- one that already has other countries with large Russian-speaking minorities, such as Estonia, Latvia, and Kazakhstan, worried.

If Putin has decisively embraced anti-Western nationalism as his mobilizing strategy, evidence suggests that it will not work.

For one thing, Russians, in general, do not like foreign adventures. A survey one month ago by the polling firm VCIOM found that 73 percent of respondents were opposed to Russia getting involved in Ukrainian politics. Not even supporters of the ultranationalist Liberal Democratic Party or the communists favored intervention. Of course, at the time of polling, Putin's supporters might have thought that he favored staying out as well.

No polls have yet appeared on the Crimean operation. When they do, we should expect a temporary rally. Still, after previous comparable incidents, the immediate boost has been fleeting. In late 1999, Putin, then prime minister to President Boris Yeltsin, sent troops into Chechnya and saw his approval rating leap to 79 percent. By June 2000, it had tumbled to 61 percent. In March 2000, 73 percent of Russians favored continuing the military operation that Putin had started. By January 2001, that had fallen to 38 percent, and a majority already supported negotiating with the Chechen guerrillas. Russians rallied behind Putin in 2002, when Chechen terrorists took hostages in a Moscow theater. But just two months later, the six-point jump in his rating had evaporated. Similarly, as Russian troops fought in Georgia in September 2008, Putin's approval surged by eight percentage points. Yet by February 2009, it had fallen back below the initial level.

Second, playing the anti-Western card may also work less well than Putin imagines. Strange as it may seem, Putin is actually much less popular among Russians who are hostile toward the West than among those with pro-Western views. After 13 years of hobnobbing with former Italian Prime Minister Silvio Berlusconi and German Chancellor Angela Merkel, it is hard for him to play the anti-establishment nationalist. In a November 2012 Levada Center poll, 72 percent of those who said they felt "very positive" about the United States approved of Putin. Among those who said they felt "very negative" about the United States, his approval rate was only 42 percent.

By reaching out to Russian patriots, Putin risks splitting his elite supporters. For his friends in business, the Ukraine operation creates enormous headaches -- from potential sanctions and travel bans to market volatility and tighter Western credit. They will see the vulgar nationalism of some of Putin's other friends costing them money and respect, and Putin's unpredictable behavior threatening their investments. Their loyalty will become more conditional than it already was. And as economic conditions worsen, protests are likely to break out among ordinary Russians.

Putin's Crimean adventure thus promises to accelerate the degeneration within his regime that started with the December 2011 demonstrations and the economic slowdown. Even if the Kremlin finds a quick and face-saving exit, it will have to juggle a multiplying series of challenges -- dealing with the Ukrainian aftermath, minimizing international fallout, reassuring other neighbors, managing economic turbulence -- just as differences of opinion within the inner circle make action more difficult.

Read the article online here: http://www.foreignaffairs.com/articles/141005/daniel-treisman/watching-putin-in-moscow?cid=soc-twitter-in-snapshots-watching_putin_in_moscow-030614

#Khodorkovsky Pardon Underscores #Russia’s Special Ties with #Germany @iimag

Or money talks...

Khodorkovsky Pardon Underscores Russia’s Special Ties with Germany

Mikhail Khodorkovsky showed an affinity for things American during his glory days as CEO of Yukos Oil Co. in the early 2000s. He discussed selling Yukos to Exxon Mobil Corp., acted as an adviser to an energy investment arm of the superconnected Washington-based private equity firm Carlyle Group and donated $1 million to the Library of Congress at the request of then–First Lady Laura Bush. But he has German politicians to thank for his freedom after ten years in Russian prisons on dubious charges of fraud and embezzlement.
Hans-Dietrich Genscher, the 86-year-old former foreign minister who oversaw German reunification in 1990, reportedly laid the groundwork for Vladimir Putin’s presidential pardon of Khodorkovsky with two-and-a-half years of quiet negotiation. He flew personally to pick up Russia’s most famous prisoner from his camp near the Arctic Circle and whisk him away to Berlin; on German television, Genscher described the mission as “a humanitarian action.” Chancellor Angela Merkel did not hide her own participation in the release. Genscher “worked successfully on possibilities for a solution with a great level of commitment and the support of the chancellor,” she told a news conference shortly after Khodorkovsky’s arrival on German soil.
Genscher, who was Germany’s top diplomat from 1974 to 1992, crafted an elegant compromise between two stubborn antagonists, Khodorkovsky and Putin. The deposed magnate evidently agreed to leave Russia, stay away from politics and not fight to reclaim Yukos assets, most of which were scooped up by Russian state oil company Rosneft. Putin commuted Khodorkovsky’s sentence without a customary admission of guilt, a step that the former billionaire said would have put ex-Yukos colleagues at risk.
Merkel had reasons of her own to press Putin for a human rights concession. She has long been caught between a German business community pressing for warmer ties with Russia and civic groups that abhor the country’s autocratic ways. In 2012 a Bundestag dominated by her Christian Democratic Party passed a motion “expressing concern” about Russia’s law forbidding “homosexual propaganda.”
The timing was also ripe for Putin to toss a bone to Western neighbors enraged over Russia’s torpedoing of a free-trade agreement between the European Union and Ukraine, which provoked huge popular protests in Kiev. Khodorkovsky’s abrupt late-night release came just four days after Putin announced that Russia would buy $15 billion in new Ukrainian bonds, staving off for a few years the threat of bankruptcy for the government of President Viktor Yanukovych. The release also came seven weeks before the opening of the Winter Olympic Games in Sochi, Russia. Putin personally lobbied for Russia to host this spectacle, which official media have trumpeted as an event of national prestige. Two terrorist attacks that killed 30 people in the southern Russian city of Volgograd on December 29 and 30 underscored the vulnerability of the Games, and Russia generally, to terrorism, and hence Putin’s need for international moral support.
But the Russian leader’s concession to the German establishment has much deeper economic roots. Americans like to assume that Washington speaks with the loudest voice on any foreign affair, but the U.S. is something of an afterthought for Russia, being only its eighth-largest trading partner. The EU remains Russia’s economic lifeline, and Germany its gateway to the EU.
Germany on its own holds sway as both the top market and supplier for Russia. It bought €39.8 billion ($54.5 billion) in Russian goods and services in 2012 and sent €37.9 billion in exports to the country, according to Eurostat. “Russia believes its historic reconciliation with Germany is creating a partnership that will bring immense benefits to both sides,” Foreign Minister Sergei Lavrov said in a speech in April.
The EU bought €213 billion of Russian exports and sent €123 billion worth of goods and services to the country. Those amounts dwarfed Russia’s two-way trade with China, which amounted to $88 billion in 2012, according to the Chinese General Customs Administration. The rebound in cross-border commerce has been a conspicuous bright spot for both the EU and Russia as they struggle to recover from the aftershocks of the 2008-’09 financial crisis. The two-way trade hit a record high in 2012 and was up 83 percent from the dark days of 2009. EU countries — including Cyprus, which largely recycles Russian oligarchs’ own capital — account for 75 percent of foreign direct investment in Russia, according to Eurostat figures.

The mutual dependence between Russia and Western Europe persists despite a decade of efforts on both sides to reduce it. Putin has sought to foster closer economic relations with China as a counterweight to the West, but efforts to strike a 30-year agreement to supply natural gas to China have stalled after nine years of negotiation, reportedly because Beijing is demanding much lower prices than Russia’s Gazprom charges European customers.
The EU has tried to cut its dependency on Russian gas with alternative pipelines stretching out to Azerbaijan, Turkmenistan and even Iraq, but none have yet borne fruit. The most persistent project, Nabucco-West, which was meant to bring fuel from Azerbaijan’s giant Shah Deniz field through Turkey to Central Europe, was abandoned in July 2013 after 11 years of planning. Russia accounted for 34 percent of EU natural gas imports in 2012, according to the BP Statistical Review of World Energy.
Russia has also had limited success disentangling its all-important natural gas trade from Ukraine, which became an unreliable partner from Moscow’s point of view after the Orange Revolution of 2005. A new undersea pipeline direct to Germany, known as North Stream, started operating in 2011 (with Merkel’s predecessor as chancellor, Gerhard Schröder, as its chairman), and the Blue Stream pipeline underneath the Black Sea has enabled modest Gazprom exports to Turkey. But a more ambitious end-run around Kiev, known as South Stream, has bogged down. Some 80 percent of supplies to Europe still flow through the pipelines Soviet planners laid out beneath Ukrainian soil.
Against this backdrop of Russia’s economic imperatives, Putin’s zigzag behavior during an eventful December looks less puzzling. The Kremlin feels it cannot afford to “lose” Ukraine. It scuttled Kiev’s pact with the EU not just from knee-jerk imperialism but also as a potential threat to its gas-fueled cash flows. Yet cordial relations with Western Europe, particularly Germany, remain essential. The release of Khodorkovsky, a man for whom Putin has never hidden his personal disgust, can be seen as an easy way to buy some goodwill.
Kremlin watchers hold out little hope that the Khodorkovsky release, and a broader year-end amnesty that also included the jailed rockers from punk group Pussy Riot, herald a Russian tack toward a liberal reform course. Earlier in December Putin disbanded the most respected state-owned news operation, RIA Novosti, and transferred its staff to Russia Today, which will be headed by a conspicuous Kremlin propagandist.
“Putin’s pardon of Mikhail Khodorkovsky is a confirmation of the omnipotence of one man who rules Russia and the fluctuation of his moods and whims,” Lilia Shevtsova, a senior associate at the Carnegie Moscow Center, wrote on the think tank’s web site. “It is definitely not a confirmation of a political thaw.”
But the move does at least show that Putin remains in touch with reality after 13 years in autocratic power, and committed to a pragmatic course by his own lights.

http://www.institutionalinvestor.com/Article/3293805/Banking-and-Capital-Markets-Banking/Khodorkovsky-Pardon-Underscores-Russias-Special-Ties-with-Germany.html#.UssiwX-9KSN

Khodorkovsky Pardon Underscores Russia’s Special Ties with Germany

Foreign Affairs: Coming Clean on Chemical Weapons

Coming Clean on Chemical Weapons

Israel Abandoned Them a Long Time Ago. Why Won't It Say So? September 19, 2013 Avner Cohen and Shane Mason Summary: It is time for Israel to ratify th...

Source: http://www.foreignaffairs.com/articles/139942/avner-cohen-and-shane-mason/coming-clean-on-chemical-weapons

#America, #Russia and #Syria: The weakened West | The Economist

The deal over Syria’s chemical weapons marks a low for those who cherish freedom

1972 Anwar Sadat, president of Egypt, suddenly decided to turf out thousands of Soviet military advisers. Menaced by Egyptian leftists and undervalued by the Kremlin, he calculated that he had more to gain from siding with America. Henry Kissinger, Nixon’s secretary of state, administered some deft diplomacy to broker a ceasefire between Egypt, Syria and Israel in the Yom Kippur war, and American aid duly flooded into Cairo. So did American influence: the Soviet hold over the Middle East never recovered.

The plan to wrest chemical weapons from Syria, shortly to be embodied in a UN resolution, has echoes of that era—except that the modern Metternich is a serial abuser of human rights and occasional op-ed writer on democracy for the New York Times, called Vladimir Putin. Russia, the country he leads, is too frail to regain its place in the Middle East. But this week, a decade after the invasion of Iraq, it suddenly became clear just how far the influence of the West has ebbed. The pity is how few Americans and Europeans seem to care about that.

See the rest of the article on the Economist website here:  America, Russia and Syria: The weakened West | The Economist

From #Russia with love: In plea 'directly to the American people,' #Putin pokes #Obama on #Syria - Vocativ

Joke’s on Putin, Americans don’t read newspapers. He should’ve made a vine or some shit.

— Allison F. (@ablington) September 12, 2013

From Russia with love: In plea ‘directly to the American people,’ Putin pokes Obama on Syria

Dear inglorious country, you are not so special.

That was the essence of Vladimir Putin’s letter “directly to the American people,” published on the website of the New York Times on Wednesday. The op-ed, which ran under the byline of the Russian president, urged the United States not to strike against the Syrian regime and to stop thinking of America as “exceptional.”

You have to hand it to Putin, despite his dry apparatchik style, the guy knows how to play to his audience. “We are all different,” Putin writes, seemingly channeling Sylvester Stallone in Rocky IV, “but when we ask for the Lord’s blessings, we must not forget that God created us equal.”

Sadly for Putin, many journalists and celebrities quickly took him to task on Twitter. Maybe they felt the article lacked the passion and wit of Putin’s 2012 op-ed on “true democracy.” Or maybe they simply noticed the distance between the former KGB man’s rhetoric and his cuddly record on gay rights.

Either way, below are some of our favorite tweets. Vladi, perhaps you should keep your day job.

Putin has NYT op-ed out tonight and is also working on 20 Russian bears who would be so disappointed if you bombed Syria for BuzzFeed.
— pourmecoffee (@pourmecoffee) September 12, 2013

It’s always nice when a guy who thinks homosexuality is contagious gives the world lectures about dangerous ideas. #Putin — LOLGOP (@LOLGOP) September 12, 2013

Good thing we don’t run photos of op-ed writers. Putin might want one with his shirt off. — Nicholas Kristof (@NickKristof) September 12, 2013

Did the New York Times announce a joint venture with RT and I missed it? — Tom Watson (@tomwatson) September 12, 2013

Putin just won the world champion belt in concern trolling http://t.co/tBPbQP56FC
— AdamSerwer (@AdamSerwer) September 12, 2013

“Vlad? Barry. Just calling to say that everyone loves it. It had exactly the intended effect. Next week, write one trashing Obamacare.” — Duke (@DukeStJournal) September 12, 2013

Now that Putin is technically a Russian journalist, will his phone be bugged, his work self-censored, I wonder? — Amie Ferris-Rotman (@Amie_FR) September 12, 2013

Overheard at NYT: “Bad news is Assad bailed on his piece. Good news: We landed Putin!”
— Jonah Goldberg (@JonahNRO) September 12, 2013
Let’s speed up the lede RT @jackshafer “We really like your piece, Vladimir. But it’s way, way long and you need to grab the reader sooner.” — Blake Hounshell (@blakehounshell) September 12, 2013

Joke’s on Putin, Americans don’t read newspapers. He should’ve made a vine or some shit.
— Allison F. (@ablington) September 12, 2013

I was kind of hoping the Putin op-ed would start in a cab.
— Tim Murphy (@timothypmurphy) September 12, 2013

“Tom Friedman is on vacation. His column will return next week.” — Ryan Lizza (@RyanLizza) September 12, 2013

At least Russia is the kind of free, open society that will allow President Obama to respond in their biggest newspaper. Oh wait. — Jon Favreau (@jonfavs) September 12, 2013

I never thought I would see the day when Vladimir Putin would become both the world’s leader AND moral authority.
— Rob Lowe (@RobLowe) September 12, 2013

In Russia, the op-ed writes you! (Drops mic, picks up mic, apologizes, stares into space)
— Seth Meyers (@sethmeyers) September 12, 2013

@sethmeyers you’re going to love the Sunday crossword puzzle written by Kim Jong-un.
— Dave Itzkoff (@ditzkoff) September 12, 2013

From Russia with love: In plea 'directly to the American people,' Putin pokes Obama on Syria - Vocativ

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________________________ The MasterBlog

Why Is Vladimir Putin Acting So Crazy? #MasterEnergy

Or How America's Energy resurgence is making him crazy... From BusinessWeek:

Why Is Vladimir Putin Acting So Crazy?

Global Economics

By Brian Bremner August 29, 2013

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(Corrects spelling of Vladimir Putin's name in the headline.)

Behind this week's cover
For Russian leaders, sticking it to the Americans has long been a source of both personal satisfaction and political gain. By that standard, President Vladimir Putin is riding high. He’s enraged Washington officialdom by supporting Syrian President Bashar al-Assad—despite his apparent use of chemical weapons against civilians—and obstructing efforts to rein in Iran’s nuclear ambitions. Activists in the U.S. and Europe have called for a boycott of the 2014 Winter Olympics in Sochi over the country’s harsh new antigay law. The Kremlin’s decision to shelter National Security Agency contractor Edward Snowden, wanted on espionage charges in the U.S., prompted President Obama to nix a one-on-one meeting ahead of the Group of 20 summit in St. Petersburg, Russia, on Sept. 5 and 6.
Since reclaiming the presidency in May 2012, Putin has become the biggest impediment to the Obama administration’s foreign policy aims. That’s undoubtedly played well with Russians yearning for the days when the country was a superpower. Yet beneath Putin’s swagger lie weaknesses at the core of the economy that threaten Russia’s future—and with it, his power base. And for that, he can blame a familiar nemesis: the U.S.
His difficulty has nothing to do with intercontinental ballistic nuclear missiles—and everything to do with natural gas that’s cooled to -260F at normal pressure, condensed into liquid form, and transported on special tankers to markets around the world. America’s surprising return as an energy superpower is complicating life for the Russian petro state. The rise of a vibrant, global, and pipeline-free liquefied natural gas (LNG) market is a direct threat to Russia’s interests in Europe, where Gazprom (GAZP:RU), the state-owned energy giant, supplies about 25 percent of the gas. So is the shift in pricing power from suppliers to consumers as a result of the huge supply shock emanating from North America.
Russia is still the world’s biggest overall energy exporter: It’s the No. 1 oil producer and No. 2 in gas after the U.S. However, the country’s known oil reserves—primarily between the Ural Mountains and the Central Siberian Plateau—are enough to sustain current production levels for just 20 years, according to a study in December by the European Bank for Reconstruction and Development (EBRD), vs. 70 years for Saudi Arabia and 90 years for the United Arab Emirates. Untapped oil and gas reserves in eastern Siberia and the Arctic will take massive investments to explore.

Putin’s aware of the problem. “For many years we have had a situation when prices for our main export goods rose fast and almost without interruption, and this made it possible for Russian companies and for the government to cover high expenses,” he told global executives at the St. Petersburg International Economic Forum on June 21. “But this situation has changed now. There are no simple solutions and no magic wand we can wave to change things overnight.”
That may be true, but the country has little time to waste. Many Russians, and in particular members of the president’s inner circle, have benefited hugely from the country’s energy-export windfall. Now that foundation is slipping away. The question is whether Putin’s power will, too.
When he took over at the start of the last decade (he served as president from 2000 to 2008 and premier for four years after that), the global economy was in the early stages of a commodities supercycle. Accelerating global demand, led by a China growing at about 10 percent annually, coincided with rising prices for oil, gas, copper, coal, and other natural resources. Political instability in Venezuela, the start of the Second Gulf War, and Hurricane Katrina all constrained supply and refining capacity, sending energy markets into overdrive.
Through 2008, Putin oversaw an average of 7 percent growth in gross domestic product and a huge expansion in Russia’s middle class. At its 2007 annual meeting, Gazprom, the world’s largest gas producer, served red and black caviar. Management Committee Chairman Alexey Miller said the company, whose market value at the time was $360 billion, would someday be worth $1 trillion.
Russia’s phenomenal run of prosperity would have been an ideal time to diversify the economy beyond energy, a goal that harks back to the days of Soviet leader Leonid Brezhnev. Instead, energy’s share of the economy actually increased; as of late 2012, oil and gas accounted for about 70 percent of exports, compared with less than 50 percent in the mid-1990s, providing half of the government’s revenue and roughly 17 percent of GDP, according to the EBRD. Gazprom alone represents 14 percent of the Russian stock market’s total capitalization. “It has been an issue since the late 1970s and early 1980s, and it has gotten worse,” says Alexei Kokin, an energy analyst with UralSib Financial. “I don’t see that changing.”
Russia’s energy dependency problem became impossible to ignore in 2009 as the global recession crushed oil prices, which fell to $34 a barrel from a precrisis high of $147. Russia’s economy contracted almost 8 percent, the steepest drop among the G-20 industrialized nations that year. Since 2010, the economy hasn’t come close to hitting the 5 percent to 6 percent mark that Putin has said it needs to close the gap with leading developed nations. On Aug. 9 the government said the roughly $2 trillion economy unexpectedly slowed in the second quarter, growing a below-expected 1.2 percent from the previous year, the sixth consecutive quarterly deceleration. As for Gazprom, it’s worth all of $94 billion, down 74 percent in six years.
Photo illustration by Crash!; Putin: www.kremlin.ru
Putin, 60, has long viewed the nation’s natural resources as a foreign policy lever. He learned about the economics of scarcity growing up in the 1950s in a decrepit communal apartment complex in postwar Leningrad (now St. Petersburg). “There were hordes of rats in the front entryway,” Putin said in an autobiographical compilation of interviews, First Person, published in 2000. “My friends and I used to chase them around with sticks.” In a 2012 interview he said that his elder brother died from diphtheria during the Nazi siege of Leningrad; his father barely survived his combat tour with the Soviet army.
Many years later, as deputy mayor of St. Petersburg, Putin wrote an academic thesis advocating that Russia flex its energy muscles. Once in power, he did just that: In price disputes, Russia turned the taps off on its gas pipelines to Ukraine in 2006 and 2009 in the dead of winter, causing shortages elsewhere in Europe. Gazprom has been able to extract high prices, particularly in former Soviet states, by indexing its long-term contracts to the price of oil.
Putin renationalized the oil industry and dialed back the involvement of Western oil companies. Authorities arrested and later convicted Yukos Chief Executive Officer Mikhail Khodorkovsky in 2003 on tax charges just as the company entertained selling stakes to ExxonMobil (XOM) and Chevron (CVX). Approximately $27 billion in state tax claims bankrupted Yukos, whose assets were sold off to other companies. After pressure from Moscow, Shell (RDSA) gave up part of its stake in an LNG venture in Sakhalin to local interests. British Petroleum (BP) sold its stake in an Anglo-Russian joint energy venture called TNK-BP to Rosneft (ROSN:RU) after a dispute with investors in the country.
At the same time, Putin placed loyalists throughout most of the oil industry or secured the allegiance of executives. In December a report by Yevgeny Minchenko and Kirill Petrov for Moscow-based consulting firm Minchenko Consulting Communication Group portrayed Putin as an energy czar with direct control over “long-term gas contracts, management of the gas industry, and, basically, Gazprom, as well as the control over backbone Russian banks” such as VEB, VTB, and Sberbank.
Taxes on the energy industry are vital to the Kremlin patronage system. They give Putin the means to woo key constituencies such as the military, security, and political elites; to improve government pensions; and to spend in poorer regions in the Muslim North Caucasus and other rural areas. During his 2012 campaign, he promised to improve wages for doctors and teachers, increase retirement checks, and invest in Russia’s military arsenal. The former KGB career officer is unlikely to loosen his grip on the state-owned energy sector, because that would endanger his grip on power, says one economic adviser who declined to be identified for fear of offending the president.
Five years ago, peak oil theorists predicted that global production would soon hit its high-water mark and then decline inexorably, with the U.S. growing even more dependent on overseas energy imports. Those trends seemed to play into Putin’s hands. What he didn’t anticipate was that U.S. oil production—thanks to horizontal drilling and hydraulic fracturing technology, in which pressurized water and chemicals are blasted into rocks to release energy—would increase 46 percent. That equals the entire output of Nigeria, estimates Daniel Yergin, vice chairman of consulting firm IHS. “Think of it like a non-OPEC country appearing in North Dakota or southern Texas,” Yergin told executives at the St. Petersburg forum in June.
Between now and 2018, North America will provide 40 percent of new supplies through the development of light, tight oil and oil sands, while the contribution from the Organization of Petroleum Exporting Countries will slip to 30 percent, according to the International Energy Agency, which also sees the U.S. emerging as the biggest oil producer by 2020 and a net exporter of oil by about 2030. Meanwhile, the agency trimmed global fuel demand estimates for the next four years.
The U.S. is also on pace to add 2 trillion cubic feet per year of natural gas once three just-approved LNG projects start operating, an 8 percent increase in total U.S. capacity based on 2012 production levels. More LNG facilities are coming onstream in Australia, South Korea, Mozambique, and Tanzania. Yergin predicts natural gas, both conventional and liquefied, will be the No. 1 energy source by the end of 2030.
Russia’s worry is twofold: An expanding supply of affordable LNG, which is transported by ship, is forcing Gazprom to either cut prices or lose share. (Weird and surprising fact: As American utilities shift to gas, displaced U.S. coal is flooding into European markets. The U.S. may supplant Russia as the world’s No. 3 coal exporter by yearend, according to Goldman Sachs (GS).) Second, the Russian gas giant is under pressure to adopt spot-market pricing instead of tying its prices to oil. In June, Gazprom agreed to revise its gas contracts with German utility RWE after losing an arbitration case; it’s renegotiating supply contracts with other utilities, including Eni (ENI:IM) and EconGas. The European Union is also drafting an antitrust complaint against Gazprom for abusing its dominant position, say three people familiar with the probe who asked not to be named. The company declined to comment. Longer term, the Russians may even have to contend with shale energy assets being developed by Western oil majors in Poland, Ukraine, and Lithuania, all Gazprom profit sanctuaries.
With the LNG trade expected to almost double to 450 million tonnes a year, according to Bloomberg New Energy Finance, the Russian government is expected to take up legislation that would for the first time allow companies other than Gazprom, which has been slow to respond to big industry changes over the last decade, to export LNG. Energy Minister Alexander Novak said in June the country is also committed to building out its LNG capacity—Russia has just one plant up and running in Sakhalin—and more than doubling Russia’s share of the LNG trade from 4 percent to about 10 percent by 2020. With Gazprom’s traditional gas business facing pricing and demand pressure in Europe, Russian companies need to be bigger players in faster-growing Asian markets. “We are really behind the curve and need to accelerate,” says Ildar Davletshin, an oil and gas analyst with Renaissance Capital.
The challenge for Putin is to simultaneously revive the country’s colossal energy sector—and then place Russia on a track to break free of its hydrocarbon dependency. The country needs to make huge infrastructure investments in the east and to expand nonenergy sectors where Russia has real potential, such as information technology, airplanes, helicopters, engines, turbines, and industrial pumps and compressors.
The country’s recent entry into the World Trade Organization could be an opportunity to reduce or eliminate import tariffs and trim domestic subsidies. Putin’s near-total control of Russia’s political apparatus—he’s marginalized, intimidated, or silenced any potential opposition—gives him the space to push through painful reforms. It would require not only the kind of tough-mindedness the bare-chested outdoorsman and YouTube sensation is known for but also a fair amount of business savvy and strategic vision. Failing to reform risks condemning Russia to a future of middling growth, declining standards of living, and diminished stature abroad. If Putin truly wants to restore the country to economic greatness, Russia will need a 12-step program for its energy-addicted economy.

With Anna Shiryaevskaya and Jake Rudnitsky

Bremner is an assistant managing editor for Bloomberg Businessweek.

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©2013 Bloomberg L.P. All Rights Reserved. Made in NYCWhy Is Vladimir Putin Acting So Crazy? - Businessweek

#Berezovsky’s Dubious Legacy Lives on in the #Kremlin - The Daily Beast

#Kasparov's take on Berezovsky's legacy. One brave man to be talking like this in Putin's Russia. 

http://www.thedailybeast.com/articles/2013/04/01/berezovsky-s-dubious-legacy-lives-on-in-the-kremlin.html

Boris Berezovsky's Dubious Legacy Lives On in the Kremlin

By Gary Kasparov 

When Boris Berezovsky was found dead in his home in England last week, it was an abrupt conclusion to the long final act of a farce. Although after such a complicated life, even his death may turn out to be a question mark instead of a full stop. A kingmaker who was exiled by the man he made king, Berezovsky was the architect of the Russian "managed democracy" scheme now headed by his former acolyte Vladimir Putin, a system dedicated to finding every possible way to subvert real democracy and to centralize power in the hands of "wise men" like himself. Really it should be "wiseguys" in the Mario Puzo sense, as what this system most resembles is a mafia state with a few token democratic decorations.

Boris Berezovsky addresses the media outside the Royal Courts of Justice in London after losing his lawsuit against Chelsea FC owner Roman Abramovich in August 2012. (Warrick Page/Getty)

The task of burying Berezovsky is being taken care of with speed and diligence by his various enemies, especially the Kremlin and its wide circle of media lapdogs and employees inside and outside of Russia. Now that he is dead, and with that the possibility of being sued for libel, they are taking the gloves off and accusing him of everything under the sun, including murder. Here in Russia, Berezovsky has long been held up as a boogeyman along with other oligarchs driven into exile or otherwise persecuted by Putin and his allies.

What goes unmentioned in these tall tales of "Vladimir the Vanquisher of the Oligarchs" is what happened to the rest of them. Putin went after only those he perceived as a threat to his power and the state-security apparatus he quickly reestablished. The rest were given the opportunity to swear loyalty to him and become a partner in the greatest epidemic of larceny in world history. There was plenty of cash to go around. By the time Putin took power in 2000, Russia was seeing some of the benefits of economic reforms and access to the global marketplace. But what really made the difference was the decade-long 500 percent surge in oil prices that filled the state coffers no matter how much was skimmed off the top (and the middle).

The money may be long gone and hard to find—hidden as it is in Swiss accounts, New York real estate, and London football clubs—but there's a relatively easy way to check the results. Just look at the latest Forbes list of billionaires and compare it to those that came out when Putin first took office. The number of Russians on the list has gone from zero in 2000 to 110 on the latest edition. (And this is without one prominent name that would surely top the Russian list were his assets known. Unless of course you believe that the man who tightly controls the destiny of 110 billionaires is himself not interested in accumulating wealth.) Russia has nearly as many billionaires as China, whose economy is four times larger, and almost double the number of Germany, whose economy is 60 percent larger than Russia's. This incredible feat is hardly a reflection of a broad-based economic expansion. While the U.S. still has more billionaires per capita than Russia, it also ranks near the top in GDP per capita while Russia languishes in the mid-50s on that list, just ahead of Gabon and Botswana.

Putin's real achievement was to effectively coordinate the looting of the wealth of the Russian state and countryside. Perhaps Berezovsky's bitterness in exile was partially due to being deprived of the chance to participate in Putin's culmination of his schemes. From being the power behind the throne, Berezovsky spent a decade in London as little more than a jester, making wild statements and squandering his remaining assets on lawsuits and press battles. He never had the courage to fight against Putin from afar, as others have.

Putin's circle has achieved a legitimacy Berezovsky could scarcely have dreamed of, and the United Kingdom welcomes looted Russian assets with open arms.

It is still worth condemning the eagerness of some Western news outlets to assist in the Kremlin's propaganda campaign against Berezovsky. Surely there are enough objectionable facts about the dead man available to make spreading slanderous theories unnecessary. Yet Forbes still found it worthy to ask, in a headline, if Berezovsky killed Forbes editor Paul Klebnikov in 2004. Klebnikov was shot in cold blood in front of his office in Moscow, a crime that is still unresolved, like so many others acts of brutal violence against the press in Russia. Making unsupported accusations like this—nothing resembling evidence is provided in the Forbes article, and the charge was never made by Forbes while Berezovsky was alive—assists the Kremlin in discrediting a critic and in throwing chaff into the air to hide the fact that Putin and his cronies have continued Berezovsky's larcenous practices in Russia.

Those journalists who wish to display their investigative talents more usefully should not ask what happened to Berezovsky. Instead, they should look into the dealings of the other Russian oligarchs, the ones whose names are routinely celebrated in the London financial pages, not the obituaries. Putin's circle has achieved a legitimacy Berezovsky could scarcely have dreamed of and the United Kingdom welcomes looted Russian assets with open arms. Berezovsky may briefly be a story, but he was history long ago. What matters now is to investigate the crimes still in progress, those being committed by Berezovsky's most successful project, Vladimir Putin.

We're All State Capitalists Now -- By Niall Ferguson | Foreign Policy

We're All State Capitalists Now

If there is one issue on which the rival candidates for the U.S. presidency agree, it's that America's global leadership will endure. Mitt Romney insists it is not a "post-American century," while Barack Obama declared in his State of the Union address that "anyone who tells you otherwise, anyone who tells you that America is in decline or that our influence has waned, doesn't know what they're talking about."
They must enjoy this kind of chest-beating in Beijing.
That a resurgent China poses a challenge to American power -- especially in the Asia-Pacific region -- has been clear for some time to those who know what they're talking about. The real question is whether the United States has a credible response. Should it apply some version of the "containment theory" that the late George Kennan recommended for dealing with the Soviet challenge after 1945? Or something more subtle, like the "co-evolution" suggested by former Secretary of State Henry Kissinger?
Leave aside the military and diplomatic calculus and consider only the economic challenge China poses to the United States. This is not just a matter of scale, though it is no small matter that, according to the IMF, China's GDP will overtake that of the United States within four years on the basis of purchasing power parity. Nor is it only about the pace of China's growth, though any Asian exporter forced to choose between China and America would be inclined to choose the former; their trade with China is growing far more rapidly than trade with the United States.
No, according to some commentators, the contest between the two Asian superpowers is also fundamentally a contest between economic models: market capitalism vs. state capitalism. Speaking at the World Economic Forum in Davos this January, David Rubenstein of the Carlyle Group expressed a widely held view that the Chinese model of state capitalism is pulling ahead of the U.S. market model. "We've got to work through these problems," Rubenstein said. "If we don't do [so], in three or four years … the game will be over for the type of capitalism that many of us have lived through and thought was the best type." I think this view is dead wrong. But it's interesting to see why so many influential people now subscribe to it.
Market capitalism has certainly had a rough five years. Remember the Washington Consensus? That was the to-do list of 10 economic policies designed to Americanize emerging markets back in the 1990s. The U.S. government and international financial institutions urged countries to impose fiscal discipline and reduce or eliminate budget deficits, broaden the tax base and lower tax rates, allow the market to set interest and exchange rates, and liberalize trade and capital flows. When Asian economies were hit by the 1997-1998 financial crisis, American critics were quick to bemoan the defects of "crony capitalism" in the region, and they appeared to have economic history on their side.
Yet today, in the aftermath of the biggest U.S. financial crisis since the Great Depression, the world looks very different. Not only did the 2008-2009 meltdown of financial markets seem to expose the fundamental fragility of the capitalist system, but China's apparent ability to withstand the reverberations of Wall Street's implosion also suggested the possibility of a new "Beijing Consensus" based on central planning and state control of volatile market forces.
In his book The End of the Free Market, the Eurasia Group's Ian Bremmer argues that authoritarian governments all over the world have "invented something new: state capitalism":

In this system, governments use various kinds of state-owned companies to manage the exploitation of resources that they consider the state's crown jewels and to create and maintain large numbers of jobs. They use select privately owned companies to dominate certain economic sectors. They use so-called sovereign wealth funds to invest their extra cash in ways that maximize the state's profits. In all three cases, the state is using markets to create wealth that can be directed as political officials see fit. And in all three cases, the ultimate motive is not economic (maximizing growth) but political (maximizing the state's power and the leadership's chances of survival). This is a form of capitalism but one in which the state acts as the dominant economic player and uses markets primarily for political gain.

For Bremmer, state capitalism poses a grave "threat" not only to the free market model, but also to democracy in the developing world.
Although applicable to states all over the globe, at root this is an argument about China. Bremmer himself writes that "China holds the key." But is it in fact correct to ascribe China's success to the state rather than the market? The answer depends on where you go in China. In Shanghai or Chongqing, for example, the central government does indeed loom very large. In Wenzhou, by comparison, the economy is as vigorously entrepreneurial and market-driven as anywhere I have ever been.
True, China's economy continues to be managed on the basis of a five-year plan, an authoritarian tradition that goes all the way back to Josef Stalin. As I write, however, the Chinese authorities are grappling with a problem that owes more to market forces than to the plan: the aftermath of an urban real estate bubble caused by the massive 2009-2010 credit expansion. Among China experts, the hot topic of the moment is the new shadow banking system in cities such as Wenzhou, which last year enabled developers and investors to carry on building and selling apartment blocks even as the People's Bank of China sought to restrict lending by raising rates and bank reserve requirements.
Talk to some eminent Chinese economists, and you could be forgiven for concluding that the ultimate aim of policy is to get rid of state capitalism altogether. "We need to privatize all the state-owned enterprises," one leading economist told me over dinner in Beijing a year ago. "We even need to privatize the Great Hall of the People." He also claimed to have said this to President Hu Jintao. "Hu couldn't tell if I was serious or if I was joking," he told me proudly.
Ultimately, it is an unhelpful oversimplification to divide the world into "market capitalist" and "state capitalist" camps. The reality is that most countries are arranged along a spectrum where both the intent and the extent of state intervention in the economy vary. Only extreme libertarians argue that the state has no role whatsoever to play in the economy. As a devotee of Adam Smith, I accept without qualification his argument in The Wealth of Nations that the benefits of free trade and the division of labor will be enjoyed only in countries with rational laws and institutions. I also agree with Silicon Valley visionary Peter Thiel that, under the right circumstances (e.g., in time of war), governments are capable of forcing the direction and pace of technological change: Think the Manhattan Project.
But the question today is not whether the state or the market should be in charge. The real question is which countries' laws and institutions are best, not only at achieving rapid economic growth but also, equally importantly, at distributing the fruits of growth in a way that citizens deem to be just.
Let us begin by asking a simple question that can be answered with empirical data: Where in the world is the role of the state greatest in economic life, and where is it smallest? The answer lies in data the IMF publishes on "general government total expenditure" as a percentage of GDP. At one extreme are countries like East Timor and Iraq, where government expenditure exceeds GDP; at the other end are countries like Bangladesh, Guatemala, and Myanmar, where it is an absurdly low share of total output.
Beyond these outliers we have China, whose spending represents 23 percent of GDP, down from around 28 percent three decades ago. By this measure, China ranks 147th out of 183 countries for which data are available. Germany ranks 24th, with government spending accounting for 48 percent of GDP. The United States, meanwhile, is 44th with 44 percent of GDP. By this measure, state capitalism is a European, not an Asian, phenomenon: Austria, Belgium, Denmark, Finland, France, Greece, Hungary, Italy, the Netherlands, Portugal, and Sweden all have higher government spending relative to GDP than Germany. The Danish figure is 58 percent, more than twice that of the Chinese.
The results are similar if one focuses on government consumption -- the share of GDP accounted for by government purchases of goods and services, as opposed to transfers or investment. Again, ignoring the outliers, it is Europe whose states play the biggest role in the economy as buyers: Denmark (27 percent) is far ahead of Germany (18 percent), while the United States is at 17 percent. China? 13 percent. For Hong Kong, the figure is 8 percent. For Macao, 7 percent.
Where China does lead the West is in the enormous share of gross fixed capital formation (jargon for investment in hard assets) accounted for by the public sector. According to World Bank data, this amounted to 21 percent of China's GDP in 2008, among the highest figures in the world, reflecting the still-leading role that government plays in infrastructure investment. The equivalent figures for developed Western countries are vanishingly small; in the West the state is a spendthrift, not an investor, borrowing money to pay for goods and services. On the other hand, the public sector's share of Chinese investment has been falling steeply during the past 10 years. Here too the Chinese trend is away from state capitalism.
Of course, none of these quantitative measures of the state's role tells us how well government is actually working. For that we must turn to very different kinds of data. Every year the World Economic Forum (WEF) publishes a Global Competitiveness Index, which assesses countries from all kinds of different angles, including the economic efficiency of their public-sector institutions. Since the current methodology was adopted in 2004, the United States' average competitiveness score has fallen from 5.82 to 5.43, one of the steepest declines among developed economies. China's score, meanwhile, has leapt from 4.29 to 4.90.
Even more fascinating is the WEF's Executive Opinion Survey, which produces a significant amount of the data that goes into the Global Competitiveness Index. The table below selects 15 measures of government efficacy, focusing on aspects of the rule of law ranging from the protection of private property rights to the policing of corruption and the control of organized crime. These are appropriate things to measure because, regardless of whether a state is nominally a market economy or a state-led economy, the quality of its legal institutions will, in practice, have an impact on the ease with which business can be done.
Table: Measures of the rule of law from the WEF Executive Opinion Survey, 2011-2012

(Note: Most indicators derived from the Executive Opinion Survey are expressed as scores on a 1-7 scale, with 7 being the most desirable outcome.)
It is an astonishing yet scarcely acknowledged fact that on no fewer than 14 out of 15 issues relating to property rights and governance, the United States now fares markedly worse than Hong Kong. Even mainland China does better in two areas. Indeed, the United States makes the global top 20 in only one: investor protection, where it is tied for fifth. On every other count, its reputation is shockingly bad.
The implications are clear. If we are to understand the changing relationship between the state and the market in the world today, we must eschew crude generalizations about "state capitalism," a term that is really not much more valuable today than the Marxist-Leninist term "state monopoly capitalism" was back when Rudolf Hilferding coined it a century ago.
No one seriously denies that the state has a role to play in economic life. The question is what that role should be and how it can be performed in ways that simultaneously enhance economic efficiency and minimize the kind of rent-seeking behavior -- "corruption" in all its shapes and forms -- that tends to arise wherever the public and private sectors meet.
We are all state capitalists now -- and we have been for over a century, ever since the modern state began its steady growth in the late 19th century, when Adolph Wagner first formulated his law of rising state expenditures. But there are myriad forms of state capitalism, from the enlightened autocracy of Singapore to the dysfunctional tyranny of Zimbabwe, from the egalitarian nanny state of Denmark to the individualist's paradise that is Ron Paul's Texas.
The real contest of our time is not between a state-capitalist China and a market-capitalist America, with Europe somewhere in the middle. It is a contest that goes on within all three regions as we all struggle to strike the right balance between the economic institutions that generate wealth and the political institutions that regulate and redistribute it.
The character of this century -- whether it is "post-American," Chinese, or something none of us yet expects -- will be determined by which political system gets that balance right.

Read the article online here:

We're All State Capitalists Now -- By Niall Ferguson | Foreign Policy