The occasion of Prosperity’s XX anniversary provides a reason for us to offer a longer perspective on international relations and Russia’s place within the international system.
The international system has undergone rapid change over the last quarter century. Up until 1991, it was a duopoly of two superpowers facing one another, with most other countries occuping positions in relation to the United States of America and the Soviet Union. This conflict was largely cold, though marked by a number of bloody proxy wars, and left a very deep impression on peoples’ consciousness. This was natural, as this period of the international system was characterised by strong tension and very high stakes. Never before had the very survival of the human race been a real issue. In historical terms, the conflict was also unusual in that it was deeply ideological. Few other conflicts in history have had this dimension – perhaps the Thirty Years’ War and the initial part of the conflicts following the French Revolution could be mentioned.
Michael Mauboussin: Challenges and Opportunities in Active Management And Using BAIT #MICUS
Michael Mauboussin's notes from his presentation at the 2020 Morningstar Investment Conference, held on September 16th and 17th. Q2 2020 hedge fund letters, conferences and more Michael Mauboussin: Challenges and Opportunities in Active Management Michael Mauboussin is Head of Consilient Research at Counterpoint Global in New York. Previously, he was Director of Research BlueMountain Capital, Read More
As such, the ‘Cold War thinking’ is very deeply ingrained with many people, including in certain parts of the military, political and intelligence communities. After the fall of the Soviet Union, the international system found itself in an almost hegemonic situation, probably for the the first time in history. The world has seen regional, even continental hegemons before, but never a global one. Naturally, this is not a comfortable situation for other powers, so it is unsurprising that as they grow in economic and military might, they seek to resurrect some form of balance of power. This century, we have seen a substantial increase in relative power, primarily from China, but also from Russia and to some extent India. At the same time, we have seen the US blunder part of their position through badly conceived conflicts in the Middle East. These conflicts served to demonstrate that the US was in fact not a hegemon, as they even had difficulty subduing minor powers. The US has also alienated some of their allies by their heavy-handed actions and attitudes. All of this led to the emergence of a form of ‘balancing coalition’, where the primary partners are China and Russia. There is an element of buck-passing between the partners, in that China has been happy to see Russia playing the role of ‘bad cop’ whilst they sit back. Lately, China has become more active, primarily in their region where they have asserted power in the South China Sea without much consideration for their neighbours or the US. One striking illustration of the Sino-Russian coalition was that last year Russia and China held joint naval exercises in the Black Sea and this year in the South China Sea. It really could not be any clearer.
In the Middle East, we have seen Russia play a far more active role, fairly skilfully building up a position of strength amongst several regional powers. Iraq, Iran and Syria are now, to some extent, in the Russian camp, so to speak. Israel has friendly relations with Russia, partly because of her large ex-Soviet population. Saudi Arabia is becoming isolated and some even speak of them being in a ‘Shia sandwich’. Saudi Arabia’s attempts to change the regime in Syria look to have failed and they have real problems in even subduing a Shia uprising in impoverished Yemen. Turkey is a complex problem, but the country is far from the reliable US ally she used to be, as is also partly true for Egypt. In just a few years, Russia has gone from being almost out of the Middle East altogether to being at least equal to the US in this important region. This has been done without expending many resources and mainly through opportunistically taking advantage of US mistakes. It should also be noted that the biggest client for Middle Eastern oil no longer is the US, but China. This inevitably has consequences over time.
Europe is also going through some serious changes. Most nations are still friendly to the US, but cohesion is slipping considerably and the decision of the UK to leave the EU – surprising as it was – has the potential to seriously decrease US influence in Europe. Who will be the main conduit of US policy in the EU now? Perhaps it will be Poland, but likely not with the same influence that the UK held Russia has been growing as a trading partner to Europe and this inevitablely leads to closer relations over time. The same is true for China.
What does all of this mean? It is easy to slip into the comfortable and recognisable ‘Cold War thinking’, particularly for the military industrial complex and its think tank appendages. Those really were the days when almost unlimited resources were poured into this existential conflict. The military clearly prefers setting itself up for a superpower conflict with fighter aircraft and aircraft carriers, rather than for close air support in anti-terror operations. This would, however, be entirely wrong. The current situation has almost no relation to the Cold War and one should be very wary of those who try to convince us otherwise. The most important difference is that there is no real ideological difference between the actors. The US, China, the EU, Russia, Japan and India are more-or-less all capitalist societies and do not have any aspirations on one anothers’ territory. The situation is far more similar to 17th to 19‘h century Europe, albeit on a global scale. This does not in itself preclude war, as we all know. Then, we saw long periods of calm, but also very serious conflicts. During the Cold War, there was some sort of higher order that precluded at least some other conflicts. Now, the world has a more anarchical system and we need to adjust to that. The quasi-duopoly on nuclear weapons was also important in creating order and now this is also ebbing away, with at least nine countries having such powerful arms – again making the situation more complex. It can not be excluded that this number will rise further.
Multi-polar systems can be stable if they are managed responsibly. Situations with a near hegemon or unbalanced multi-polarity have a history of almost continuous conflict and, indeed, we have seen the US being involved in military conflict for almost all of her time as dominant power. Perhaps it is also in the interest of the US to move to a more balanced multi-polar system.
What is required are not aggressive and absolutist positions. Instead, the world needs to come to a reasonable understanding. We need realists, not idealists or neo-conservatives. We need to understand that the interests of all parties must be taken into consideration. Listening to the defence industry and its think tanks is a very dangerous route as their interests are very different from virtually everyone elses’. How we accommodate the rise of China and the relative decline of the US without serious conflict is not a trivial matter. Alienating Russia is almost certainly not the answer. This will only cementa Sino-Russian alliance. Sometimes one gets the impression that some want to confront Russia partly because China is already too powerful to deal with. This makes no sense.
Europe, particularly Germany and France, is probably best placed to mediate this process. These countries have a deep cultural and institutional understanding of what failure could mean and what routes are possible. We have seen what centuries of conflict can bring, but also what solutions can look like and what the fruits of peace are. It is also necessary to address other serious issues, such as terrorism, poverty and the global environment under increasing population pressure, including with respect to climate change. These are real issues that require our full attention, rather than any artificial Cold War game.
Many Westerners were jubilant when the Soviet Union fell apart, but there were people who had lived in the same country for centuries and felt that they had woken up in the wrong country. For them, this was a catastrophe and tension followed. Russia felt humiliated. There were many immediate flare-ups where people tried to correct what they felt had gone wrong, such as in parts of Georgia and Azerbaijan. Other things festered, such as the status of Crimea. In many cases, people moved themselves in order to live in the country they felt they belonged in. Often, this was encouraged by not making the outsiders full citizens and discriminating against them. This was an unfortunate but, regrettably, natural process.
Ukraine is a special case. Russia and Ukraine are very similar in language, religion and history. Ukraine had been part of Russia for many centuries and more than half the population speaks Russian as their first language. Political power has shifted back and forth between more nationalist and more Russia-centric politicians at almost every election as, unfortunately, every President of Ukraine has been a disappointment, leading Kiev to subsequently swing this way and then that. The current conflict started when the nationalist side decided not to wait for elections but to take power by force. This provoked a strong reaction both amongst the Russia-centric population and in Russia itself. This unconstitutional change of power being immediately supported by Western governments, despite agreements otherwise, was seen as a hostile act by Russia. We will not provide a blow-by-blow description of events here, as we have covered it extensively in the past and would be happy to share those more detailed descriptions as required. Suffice to say, events took on an unfortunate dynamic of their own and what remains now is to try and find acceptable accommodation, rather than further inflame the situation. Many unfortunate things have happened in this series of events and it is easy to find fault with all actors. What is important to resolve the conflict is to try and understand what it looks like from both sides. This does not necessarily mean that one needs to agree, but without understanding it is very difficult to find a stable solution.
Readers will no doubt be well-informed on the Western point of view, so I will only explain what it looks like in Russian eyes here. Russia sees an unconstitutional regime change as having taken place. There were probably three main constituents of the forces behind this; there was an element of popular uprising when Yanukovych did not sign the Association Agreement with the EU, there were a number of Ukranian oligarchs who financed the action some of whom were very happy to tell us in person how influential they had been in the ‘revolution’ – and there was support for the process from a number of Western politicians – many of whom appeared amongst the demonstrators on the streets of Kiev. Naturally, Moscow focused on the third element and, when the President of Ukraine was overthrown and replaced by people who made very hostile statements against the Russian-speaking population and spoke of applying for NATO Membership, Moscow felt that things had gone too far and that something needed to be done. Ukrainian ascension to NATO would have precluded the country from hosting non-NATO military bases. This would have meant that Russia would have had to give up their centuries old main naval base at Sevastopol. This was deemed unacceptable and events unfolded from there.
These things are very important as some claim that the incorporation of Crimea should be seen as the first step in a plan to, in some way, resurrect the Soviet Union. One may have a different interpretation of events in Ukraine, but in order to correctly assess what may happen later, it matters most how the Russians saw the preceding events. They saw it as entirely defensive and not as some part of a general plan. One may disagree with what was done or with how it was done, but we should analyse the situation and draw the correct conclusions in an objective manner. There is no reason to see Russia as a threat to her neighbours.
The current complex realignment of the world order may play out in many possible permutations, but we should try to avoid a classical security dilemma where other parties’ defensive moves are seen as aggressive to us and prompt our own defensive moves that look aggressive to others ad infinitum until it all ultimately results in a violent conflict. Several of the current conflicts should probably be seen through the prism of the move from global unipolarity to multipolarity. This goes for the Ukranian situation, chaos in the Middle East and the tense situation in the East and South China seas. It is certainly possible that further similar situations may arise elsewhere, until we have found a new balance. All of this puts the focus on our leaders who are tasked with navigating a complex situation. We can only hope they are up to the task.