Archive for February, 2009

A New Realism for American Foreign Policy?

February 24, 2009

Given the rise of new powers in the world and America’s relative decline, do the neo-cons in the Republican Party and the liberal institutionalists in the Democratic Party both have it wrong on foreign policy?  Do we need a new realism in American foreign policy?  John Hulsman, a scholar at the German Council on Foreign Relations, and Wess Mitchell, Director of Research at the Center for European Policy Analysis, think so.  I attended a lecture of theirs at a political salon, in which they expounded on their short book utilizing Mario Puzo’s and Francis Ford Coppola’s “The Godfather” to explain what America is doing wrong in foreign policy today.

 

Their main point was that the United States, a declining hegemon, is similar to the character of Vito Corleone (Marlon Brando), whose criminal empire loses power relative to other crime families.  Vito’s three “sons,” represent three currents in American foreign policy.  Sonny (James Caan) represents the neo-cons, always ready to use force.  Tom Hagen (Robert Duvall), not really Vito’s son but his “consigliere,” represents the liberal institutionalists, Hillary Clinton if you will, who wish to use diplomacy and America’s moral authority to build alliances and cajole nations into participating in U.S. hegemony.  Michael Corleone (Al Pacino), who triumphs in the end, represents realism in foreign policy.  This is Hulsman and Mitchell’s main point: America needs a new realism to manage its decline in a multi-polar world.  The neo-cons and liberal institutionalists both remain mistaken about America’s relative power, believing America is stronger than it in fact is.  They differ only over tactics.  On the other hand, Hulsman and Mitchell’s realism would represent a new strategy for America, as Michael Corleone developed a new strategy for the Corleone family.

           

Not a bad point, though it has been made before.  Others have noted Great Britain’s shrewd adjustment to its relative power decline from its 19th century zenith.  Britain relinquished its colonial empire and allied with the United States, thus forestalling a more dramatic power decline.  The Rising Powers blog will have more to say in the future about an appropriate U.S. foreign policy in an era of rising powers.  I wish to highlight in today’s blog Hulsman and Mitchell’s entertaining idea and accompanying book, and encourage you to watch Coppola’s fabulous film again!  I would add one point to the Hulsman and Mitchell thesis, however.  I allude to Kissinger’s fine work, Diplomacy.  He notes that during the 19th Century, European diplomacy shifted from a system based on the balance of power plus shared values (the Concert of Europe), during which there were few major wars, to one based on a pure balance of power, to Hulsman and Mitchell’s realism.  Kissinger argued that while realism worked well for a time, exemplified by the successes of Bismarck, realism ultimately turned on itself.  Actions of statesmen less adept than Bismarck in a world of pure balance of power, pure realism, may have led to World War I.   Kissinger argued, somewhat ironically, that realism must be married to shared values and ideals, Teddy Roosevelt “married” to Woodrow Wilson if you will, in order for a stable multi-polar balance of power to work. 

Is China the only one still shopping?

February 20, 2009

At the Foreign Policy Association’s Rising Powers blog, we have highlighted news stories about China’s buying and lending spree across the globe, including in Russia and Latin America.  Today’s New York Times published an article detailing strategic deals China has made with natural resource companies worldwide, exploiting today’s low equity prices and dearth of capital to secure access to crucial industrial inputs, such as metals and oil.  Some Western analysts may worry about growing Chinese influence at a time that Western multinationals are reeling.  However, the arguments made in the past that multinationals provide the needed capital and know-how for development and growth apply equally to China. Have a look: http://www.nytimes.com/2009/02/21/business/worldbusiness/21yuan.html?hp. 

Nobody is immune: Brazil’s Embraer hit by global recession

February 19, 2009

The recession this year may not in fact be global.  Planet Earth could possibly squeak by with slightly positive growth in 2009.  This is thanks to growth, albeit slower, in the major Emerging Market economies, notably the BRICs, and in spite of contraction in the advanced industrialized world.  Certainly, forecasting growth this year will be as accurate with a crystal ball as with a team of economists; yet what is likely is that Brazil, Russia, India and China will grow.

 

Brazil, in contrast to its fellow BRICs, is a closed economy.  Current account transactions (a broad measure of trade) represent some 30% of GDP, versus over 40% for the US and over 70% for China.  Nevertheless, Brazil’s expanding export sector has enabled Latin America’s largest country to amass US$200 billion in foreign exchange reserves — for the first time in decades insulating Brazil from the worst effects of a global crisis.  Moreover, Brazilian exports are diversified, not as highly dependent on commodities as peer Russia or as neighbor Peru.  Major exports include cars, planes, chemicals and semi-manufactured metals, in addition to iron ore, oil and soy beans. Further, Brazil is not overly dependent on one market, with roughly a quarter of exports going to the rest of Latin America, a quarter to the EU, 19% to Asia, and only 15% to the US and Canada. The country’s strength in terms of manufacturing and natural resources, as well as access to global markets, underpins its status as a true Rising Power.    

 

So, is Brazil immune from the current crisis?  Not exactly. 

 

Brazil boasts some world-class companies, including CVRD in mining, AMBEV in beverages, Aracruz in pulp and paper, Petrobras in petroleum, and Embraer in jet airplanes. 

 

Embraer is the world’s fourth largest airplane manufacturer after Boeing, Airbus and Canada’s Bombardier.  It competes head-to-head with the latter in the growing regional jet market.  At US$5.5 billion last year, airplanes represented nearly 3% of Brazil’s exports, its fifth largest export category.  Yet the market for airplanes has been grounded.  Embraer today announced a 20% cut in its workforce (see http://www.forbes.com/feeds/ap/2009/02/19/ap6073139.html).  Likewise, Brazilian exports are affected by lower commodity prices and declining cyclical demand for such products as metals and pulp and paper.  Brazilian GDP and export growth will slow dramatically.   

 

Yet this setback should not stop the rise of Latin America’s strongest economy.  Since the late 1990s, Brazilian policymakers have been committed to sound macro policies — a flexible exchange rate, low inflation targets, and gradual public debt reduction.  The country’s position in the global economy should continue to improve, as long as Brazilian politicians, entangled in a cumbersome system, manage to maintain sound macro policies and to accelerate the slow pace of economic reform – for example, by streamlining the tax system and promoting infrastructure investment and a more friendly business environment. The adoption of green technologies would serve to protect the Amazon rainforest and put Brazil at the forefront of the new economy.  Most importantly, reform of the unwieldy political system – reducing obstacles to legislative action – though unlikely, could accelerate Brazil’s rise.      

China Promotes Trade in Latin America

February 18, 2009

China’s rise has been export-driven, like Japan’s and Korea’s before it.  China took note during the Asian Financial Crisis of the late 1990s that foreign exchange reserves are king.  By keeping its currency undervalued, China has encouraged exports (the latter helped as well by tax rebates) and amassed foreign exchange.  With the drivers of demand for Chinese goods – the US and European Union – in recession, Chinese leaders have launched a road show to open markets (and access to raw materials) among its Emerging Market brethren.  No better place to start than Latin America, in America’s backyard, where over 500 million consumers live.

 

Today, China’s State Administration of Foreign Exchange (SAFE) announced a “slowing” in the growth of the nation’s current account surplus (see press release at http://news.xinhuanet.com/english/2009-02/18/content_10840178.htm).  It is not surprising that the day before, China’s Vice President Xi Jinping hailed the importance of ties with Latin America in an appearance in Caracas, Venezuela, following a visit to Mexico and on his way to Brazil (read about it at http://news.xinhuanet.com/english/2009-02/18/content_10844156.htm).  The current account surplus (a broad measure of trade) expanded only 20% in 2008, down from 49% in 2007.  This enormous surplus has been responsible for China’s mind-numbing US$1.8 trillion in foreign exchange reserves, over 12% of US GDP.  This Great Wall of foreign exchange limits the country’s vulnerability to the global economic crisis.

 

Nevertheless, with GDP per head at under US$3,000 and a population of 1.3 trillion, China has enormous development needs.  With the engines of external demand sputtering, China needs to either jumpstart domestic demand (by loosening the fiscal purse and printing money, as well as by letting the currency rise) or find other external engines…or both.  Last November, China’s President Hu Jintao launched the country’s Latin road show with a swing through the region.  He signed a free trade agreement with Peru (China’s second in the region) and attended the Asia-Pacific Economic Cooperation forum in Lima.  This year, he sent three senior officials back to promote trade.

 

With protectionism mounting in the US and EU, both of which have huge trade deficits with China, China must diversify.  Because many Latin countries have trade surpluses with China, driven by commodity exports, the region is listening.  Latin-Chinese trade has grown, totaling an estimated US$143 billion in 2008, still dwarfed by US-China trade of US$409 billion.  With its lower labor costs, China has elbowed Latin manufactures out of the US market.  Chinese goods have begun to compete in Latin markets as well.  Witness the protests last November of Peruvians against free trade with China.  Latin textile manufacturers particularly are living on borrowed time.  In any event, this latest example of China’s economic diplomacy demonstrates that the world’s Rising Powers are not sitting idly by as the greatest financial crisis in decades grips the developed world. 

You might do the same as Putin…

February 7, 2009

By  Roger M. Scher

January 25, 2008  

…if your empire had been dismantled and your great nation humiliated. 

It is common practice in the West to bemoan the autocratic, obstructionist bully that Putin’s Russia has become.  Yet there is another viewpoint policymakers would do well to acknowledge.  The FT article below is a piece I wish I had written, but alas Quentin Peel beat me to it.  It contains the Russian view on international relations in the post-Cold War period. 

According to this view, Western leaders have made a strategic blunder, missing an opportunity to work closely with post-Soviet Russia toward building an effective world order.  The West has been unable to resist the temptation to extract the maximum benefit from victory in the Cold War by signing everyone but Russia up to its clubs, NATO and the European Union. Russia’s long history as a great power, its grip on world energy resources, and its desire to be treated with respect have been dismissed by most Western leaders.  Instead of pursuing a foreign policy of goodwill, instead of playing the magnanimous victors, as the European powers did when they brought post-Napoleonic France into the Concert of Europe in 1818, the West could not resist extending its influence to Russia’s borders. 

The West’s assertive policy toward Russia has not only entailed bringing the Polands and Hungarys of central Europe into the fold, but also the Latvias and Estonias, former Soviet republics now NATO members.  NATO is attempting to station an anti-missile shield in Poland and the Czech Republic, despite opposition from Russia. Russia alone was not asked to join NATO.  Remember Kissinger’s remark a few years ago about NATO expansion: alliances are meant to be against somebody (i.e. Russia).   

Western meddling has likewise extended to the Ukraine and Georgia, where Russia has had claims for more than two hundred years.  The West has openly supported the Kremlin’s political opponents in and held out the prospect of NATO membership to these nations.  NATO has sought military bases and other defense arrangements in a number of central Asian republics on Russia’s eastern flank.  Anyone who has studied the Cold War and ‘the sources of Soviet conduct’ knows that, since the czars (and at least since the Crimean War in the mid-19th century when France and Britain brought Russia to its knees), Russia has been a little sensitive about being surrounded.  Add Napoleon’s and Hitler’s all-out invasions of Russia, Russian defeat by the Japanese in 1905, and Western intervention against the Bolsheviks in 1920, and you can perhaps understand Russian prickliness. 

No wonder Russia is selling sophisticated arms to Syria and Iran.  The failure of Western diplomacy to limit Iran’s acquisition of a nuclear weapon indicates just what a strategic blunder not cooperating with Russia has been.   

True, there is more to the story than a maltreated Russia, including the notion that Vladimir Putin has become a modern-day czar – inept and authoritarian.  Even so, policymakers in the West would be well-advised to study Peel’s article below, especially the quotes from Russian leaders, for insight into the current state of the Russian heart…

 

How Russia is reasserting itself

By Quentin Peel

Published: July 31 2007 19:18 | Last updated: July 31 2007 19:18

Vladimir Putin is not a man who pulls his punches in public. By all accounts the Russian president is a cautious bureaucrat in private, carefully weighing up all the options before reaching any decision. But in front of a domestic audience he often slips into harsh language, even street slang, to get across his message.Thus it was two weeks ago, when he received a delegation of leaders from Nashi, the pro-Kremlin nationalist youth movement, at his dacha at Zavidovo outside Moscow. Speaking of the diplomatic confrontation between Britain and Russia over Moscow’s refusal to extradite the suspected murderer of Alexander Litvinenko, the former Russian agent poisoned with radioactive polonium in London, Mr Putin suddenly switched from calm analysis to harsh words.

“They are making proposals to change our constitution, which is insulting for our nation and our people,” the president declared at the televised meeting. “It is their brains, not our constitution, that need to be changed.”

Mr Putin’s coarseness contrasted with his earlier dismissal of the affair as a “mini-crisis”. But it was in keeping with a much more assertive Russian stance on foreign policy. It also reflected the bitterness of the Russian elite at perceived western indifference, or even condescension, towards their efforts to reform the system and abide by a written constitution.

“We deserve to be treated as normal,” says a former top Kremlin official. “The US and the west have been making a fantastic mistake with Russia for the past 15 years. For a long time we were ready for normal co-operation. When we chose democracy and the market economy, we changed the world. We made it a safer place. But what did we get in return? The west pushed Russia aside. They did not understand it. It was a huge stupidity and a missed opportunity.”

Is it the west that has mishandled a Russia bent on becoming normal, or is it Russia that is falling into old Soviet habits – of mistrusting the outside world and seeing anti-Russian conspiracies on all sides? Russian liberals and western critics see the all-pervasive influence of the siloviki – present and former members of the security services, such as Mr Putin himself – as central to the new mindset. They see enemies all around. At the same time, Russian self-confidence has soared with rising revenues from oil and gas. So does the new nationalism represent a fundamental change, or is it just tactical – with an eye on parliamentary and presidential elections in the coming months?

The Russian perception of an ungrateful and unfriendly west was the focus of a private trip to meet senior US officials in Washington last year by Alexander Voloshin, former chief of staff to both Mr Putin and his predecessor, Boris Yeltsin. “Voloshin spelt out all the concessions made by Moscow,” says Dmitri Trenin, deputy director of the Carnegie Moscow Centre. They included closing its intelligence-gathering post in Cuba, another base in Vietnam, and – after September 11 2001 – giving a green light for the US to use air bases in central Asia to support the invasion of Afghanistan.

“He told them Putin was miles ahead of the pack in the Kremlin,” Mr Trenin says. “But in return, what did we get? Nato in Kosovo, the Orange Revolution in Ukraine and the Rose Revolution in Georgia. The US response to Voloshin was: ‘So what?’ They simply batted him away. That was the last straw for Putin. He decided that to get the attention of the US by continuing to play Mr Nice was a losing proposition. He stopped being Mr Nice and started playing Mr Nasty.”

That heralded Mr Putin’s speech to the Munich Security Conference in February, when he fiercely criticised US foreign policy, including the siting of missile defence units in Poland and the Czech Republic, and attacked Nato enlargement as a hostile gesture. Fyodor Lukyanov, editor-in-chief of Russia in Global Affairs, Moscow’s leading foreign policy periodical, sees the switch as a “completely new stage in Russian development, underestimated in the west. Since the Munich speech, or a little bit later, there is a new approach: that we do not compromise.”

He says that will be true of Russia’s rejection of the US- and European Union-backed plan for the independence of Kosovo and of Russia’s decision – announced by Mr Putin last month – to abrogate the Conventional Forces in Europe treaty. “The rejection is absolute,” he says. “There will be no movement.”

Mr Lukyanov thinks the new foreign policy stance goes beyond mere truculence. He sees an attempt by Mr Putin’s team in the Kremlin, and at the foreign ministry, to spell out a new ideology of international relations just as they are seeking to forge a new political platform for the forthcoming elections at home.

The turning point was the confrontation in April between Russia and Estonia, its tiny Baltic neighbour, when the Estonian government decided to move a Soviet-era war memorial and the bodies of the soldiers buried beneath it. At the time, members of Nashi attacked the Estonian embassy in Moscow and blockaded border posts. Russian oil stopped flowing through Estonian ports and an electronic blitzkrieg was launched against Estonian websites.

“Russia tried to demonstrate in this unfortunate way that there are values that we will defend. It was the first time when not just interests but values mattered,” says Mr Lukyanov.

The most substantial statement of the new thinking was given by Sergei Lavrov, foreign minister, in an article supposed to be published last month in Foreign Affairs, the US magazine, but then suddenly withdrawn by the minister amid accusations of US censorship (firmly denied by the editor). Mr Lavrov wrote that US unilateralism had failed and that Russia was competing with it in an international market of ideas. “As globalisation has extended beyond the west, competition has become truly global,” he wrote. “Competing states must now take into account differing values and development patterns. The challenge is to establish fairness in this complex competitive environment.”

Mr Lukyanov sees parallels with neo-conservative thinking in the US, including close ties to religion, in the shape of the Russian Orthodox church. He cites one passage edited out of the article as saying that unipolarity – having the US as sole superpower – is “contrary to God’s order”.

Says the Carnegie centre’s Mr Trenin: “There has been a rise in internal self-confidence. Putin is a real tsar. He does not have to look over his shoulder. The Kremlin is fully sovereign in the country and we are one of the few truly sovereign states around the world, along with the US and China.”

He says the confidence of Russia’s leaders now exceeds that even of the Soviet leadership in the 1970s, when the US finally accorded Moscow equal status in political and military affairs.

Russia wants respect for its differences – whether it is the system of “managed democracy” that has seen the creation of two artificial pro-Kremlin parties to dominate the State Duma, or the peculiar sort of market economy it has introduced, combining a free-for-all in wealth creation with rules favouring state-controlled companies. Both attract strong criticism in the west, where they are seen as falling far short of genuine democratic or market standards – quite apart from the underlying influence of the security services.

Is Moscow’s new self-confidence well-founded? The most important factor is Russia’s economic performance. Since he came to power in 1999, Mr Putin has presided over a remarkable period of recovery, which has seen per capita incomes return to the level they were in 1990, just before the collapse of the Soviet Union.

The international assertiveness is also a reflection of growing election fever, with a parliamentary poll for the State Duma in December followed by elections to choose a successor to Mr Putin next spring.

A third element in the equation, however, is an underlying uncertainty that stems from the lack of transparent rules in both politics and the economy. No one knows who Mr Putin’s successor will be. Whoever it is, any change in leadership is likely to mean not just a change in power but in the people with access to wealth in or close to the Kremlin.

There is uncertainty about the economic outlook, too. “This period [of Putin’s rule] has been one of easy growth,” says Yevgeny Gavrilenkov, chief economist at Troika Dialog, Russia’s largest investment bank. “We have had a very favourable external environment, with low global interest rates, high commodity prices, cheap domestic energy and excess labour.” As a result, Russia boasts a healthy twin surplus on both the current account and the state budget. Growth of gross domestic product was running at an annual rate of 7 per cent in the first half of this year.

Mr Gavrilenkov warns, however, that the medium-term scenario is much more precarious. “Growth is driven by external borrowing, which reached a total of nearly $400bn in the first half of 2007. State-controlled companies such as Gazprom, Rosneft and Russian Railways are the major drivers. It is largely a result of the central bank’s effective guarantee of rouble appreciation and it is not sustainable. It was intended to get domestic inflation down, but it did not succeed. Inflation was 9 per cent last year and we are expecting much the same in 2007.”

One weakness is the failure of the state energy companies – Gazprom and Rosneft – to invest enough to boost their production to keep up with rapid overall economic growth. Gazprom’s output is rising at 1-1.5 per cent, and Rosneft’s by 3 per cent at most, Mr Gavrilenkov says. “I’m very sceptical about their ability to restructure.”

The former senior Kremlin official says that Russian business may not look pretty but he insists there is no going back. “The transition period may look like the gangster capitalism of the US in the 1930s, but in Russia it is an accelerated process,” he says. “There were gangsters in every restaurant in Moscow in the 1990s. They did not even try to hide it. Ten years have passed and you can find none of them. Half have been killed and half have become normal businessmen. Our democracy and our economy are far from perfect, but they are for real.”

The worry is that Russia may have just exchanged one set of gangsters for another – the siloviki surrounding Mr Putin. “If some of them take money, tomorrow they will think how to protect the money they have stolen,” says the former Kremlin insider – now working in a state-controlled enterprise.

“It is really important who will be next president,” says Mr Gavrilenkov. “At the moment, the president is trusted. The elite is happy. The bureaucrats are happy.

“Leaders are chosen to preserve the status quo: Gorbachev was chosen to save the Communist party. Putin was chosen by the oligarchs to secure their future. But neither succeeded. The same may happen if the next president is chosen by the siloviki. They may run the country but they are not united.”