By Michael Hudson and Jeffrey Sommers, a distinguished professor at the University of Missouri-Kansas City and an associate professor at the University of Wisconsin-Milwaukee, respectively, who have both advised members of Latvia’s government on alternatives to austerity. Originally published at Truthout.
“Let them loot.” That is the demand of the West when its NGO subsidiaries firebomb government buildings, murder policemen and loot the arms depots of military forts. Kiev is the equivalent of Kosovo as a Slavic city-of-origin. Are we seeing a replay?
What would Dick Cheney (or President Obama for that matter) have done if Russian NGOs sponsored separatist movements in Texas, California or New England? How would US police have reacted against armed revolutionaries seizing the armory and throwing Molotov cocktails and bombs at public buildings, killing police, painting swastikas on Jewish houses and claiming vigilante justice? While this does not characterize all of the Ukrainian protesters, it does reflect a fair number of them. If this is Obama’s “reset” with Russia, he is resetting the Cold War by setting the neocons loose in the former Soviet republics. If there is one thing that the CIA has shown its competence in, it is in setting one ethnic group against the others – Sunni vs Shiite, Kurd against Arab, Persian against them all. When other countries seek to defend a multi-ethnic secular state, the US foreign office has backed the fundamentalists for nearly the past half-century in all cases. This should be the sub-text for reporting on the Ukrainian uprising that seems to have been carefully timed to coincide with Sochi.
Events in Ukraine are provided enough heat to overshadow the conclusion of the Sochi Olympics. Since the USSR’s collapse, the “reset” has been changed many times during our long-running Ukrainian “play,” but the underlying theme remains the same as it has been in the Near East: Play the ethnic card to break the country into pieces if you want to disable government regulatory power and investment. Co-opt a client oligarchy whose opportunities for the West lie in privatizing public resources and selling shares in the rent-extracting companies on Western stock exchanges. Keep your proceeds in the West and fritter it away on trophy real estate, ownership of sports clubs and London or Swiss bank accounts.
The alternative would be for a strong government to tax away their natural resource rents and use it to subsidize industrial revival. So the path to “peace” is to promote civil warfare, break up countries and concentrate wealth in as few hands as possible so as to channel it to London, New York and other financial centers rather than leaving it to be invested at home. This is how Russia is being turned into a “hewer of wood and drawer of oil and gas for the house of my bond,” to paraphrase the Bible (Joshua: 9:23). “None of you will be freed from being bondservants.”
This is how American protectionists in the mid-19th century described British strategy for industrial and financial supremacy. And now the tables have been turned – not only against Britain (buckling under its own real estate bubble) but against the post-Communist economies that were utterly free of debt and privatized rent-yielding resources 20 years ago.
Rotating oligarchs shift in and out of this scenario, replacing one another in the rolling sequence of “color revolutions.” While Russian and Ukrainian nationalists spar in “Spy vs. Spy” fashion, Ukraine’s economy unravels and its people continue their exodus on an Old Testament scale to the Promised Land of the EU. Following Horace Greeley’s advice of “Go West, young man,” Ukrainians have joined the multitudes of “Polish plumbers” in the UK.
It didn’t have to be this way (and it still doesn’t). The stage was set in the closing stages of the Cold War. George H.W. Bush (the Elder) promised Mikhail Gorbachev that if the Soviets let the Warsaw Pact go and agreed to German reunification, Russia would not have to worry about further expansion of NATO. The United States then reneged by taking the former Warsaw Pact into NATO then moved into the former Soviet territory by absorbing the Baltic states – which, in geopolitical terms, were practically suburbs of St. Petersburg.
It is hard to blame the new entrants for wishing NATO entry, given their past Soviet occupation. This is the cross that Russia has had to bear for a generation, and it will continue to be a basis for the National Endowment for Democracy, the CIA and other “security” agencies to spur ethnic rivalry against Russians. To US neo-Cold Warriors, Stalinist oppression in the Soviet Union is what memories of the Holocaust are to Israel: In good Judeo-Christian tradition, it fans the flame of retaliation, resentment and revenge.
One can hardly blame Russians for feeling betrayed by the United States and NATO for breaking their word. More importantly, they see neocon Eurasionists in the State Department wanting even more. For neo-Cold Warriors the goal is the further breakup of Russia and its Near Abroad to create a neo-liberalized periphery, Baltic-style. Breaking up countries into small units controlled by kleptocrats who see their path to wealth being to privatize public assets and sell ownership shares to the West is the most effective way of preventing government subsidy of industry – and without industry there can be little military threat.
For Russia, this geopolitical game has an existential character. Ukraine looks like a dress rehearsal for separatist movements (much as the United States is sponsoring in China and already had achieved throughout the Near East). For Russia, NATO’s moves into Georgia cut too close to the bone and were repelled. The threat of NATO taking Ukraine represented a thrust into Russia’s geographic heart, the ancestral home where Russia was founded. (This should be read while turning up the volume on Prokofiev’s “Alexander Nevsky.”)
Timing is everything. If there were any time for an opponent of Russia to try to provoke an intemperate move, this was it. The Olympics were supposed to show a positive Russian face to the world, helping heal the old Cold War tensions. So from Mr. Putin’s vantage point, the worst thing that could happen would be a distraction to remind the world of old Soviet-era repression – such as arresting Pussy Riot singers. So of course, this was precisely what the Western press played up. To read The New York Times or The Washington Post, the real sporting event was whether the police would descend on Pussy Riot’s sideshow and could provoke Cossack goons into beating them up on camera.
While there certainly was legitimate protest against former President Viktor Yanukovych’s corrupt government, there was what seems provocation to get policemen (under violent attack from protesters) to defend themselves when they were fired upon by demonstrators brought into Kiev specifically to create a public relations disturbance.
Meanwhile, the EU seems bent on reprising its earlier eastward expansion of recent decades into the former Warsaw Pact to reap a windfall in exports of consumer goods. This helped alleviate the unemployment resulting from the Maastricht Treaty’s neoliberal fiscal and monetary austerity for the eurozone’s currency union. Yet, Ukraine’s purchasing potential is much lower than that of the countries that bordered Germany and were integrated into EU markets with heavy European subsidy. No Euro-export boom is likely to occur with any likely proposed association agreement. About the only thing the EU can achieve is to ensure a strong enough austerity program gets implemented in order to ensure the holders of Ukrainian bonds gets paid. Instead, the possible damage to Ukrainian markets from poorly executed trade liberalization and non-visa regimes may flood the EU with cheap labor by “Ukrainian plumbers.” But now that Europe’s real estate bubble has burst, where will they plumb?
So far, the neo-Cold War crossfire has left Ukraine indebted to Russia and the EU. Who will be liable for the 60 billion euros in Ukrainian bonds that Russians hold? Yields on ten-year bonds have just jumped above the 10 percent level (and shorter-term bonds much higher), indicating a general expectation of default. What will Russia charge for the gas it ships through Ukraine? Would a separatist NATO-Western Ukraine be able to buy gas at an equally low price as the Eastern Ukraine? Will Germans freeze in the dark?
When ethnic Ukrainians look to the EU as their savior, they have lost their sense of timing. They are seeing the last vestiges of a “Social Europe” that has been sacrificed on the altar of neoliberalism. Yanukovych had been urged to raise the VAT and tax labor all the more, but he resisted in order to prevent earlier popular unrest. Now that the Ukraine promises to move under Western neoliberal tutelage, the first policies that one can expect are higher taxes on labor and consumers – and an accelerated capital flight out of the country to the Eurozone and Switzerland.
Having suffered a generation under Stalin and his successors, Ukrainians will now be able to compare that to the hand of IMF central planners. Who needs a military thrust when a new round of shock therapy and austerity will do the trick more deftly?
Yanukovych is the kind of kleptocrat that neoliberals promised would enrich the post-Soviet states, except he committed the unforgivable sin of refusing to implement an EU/US-counseled austerity program. The aim is to transfer public wealth into the hands of private individuals who will be steered by the “Invisible Hand” (that of the sponsors of today’s color revolutions) to seek their gains by selling what they have taken to Western investors. Finance is the new mode of warfare, and we are seeing a grab for what military invasions in times past aimed at: land, natural resources and infrastructure monopolies.
Prior to Yanukovych’s overthrow, there was talk of a “reset” as the United States and Russia seemed to be moving toward a mutual accommodation. His departure from the scene places the United States and the EU back in a position of influence and will embolden hardline Eurasionists in the State Department, such as Victoria Nuland.
Meanwhile, the reappearance of Yulia Tymeshenko (who gained stature in jail) represents the return of ethnic Ukrainian oligarchs. They have been promised that they can get even richer by paying foreign bondholders – no doubt with an IMF or ECB destabilization program that will impose deep enough austerity to create an Irish-style Lost Generation.
There is little likelihood of national economic development. The aim is to empty out the nation’s capital, not create it. There will be no more consideration of Modern Monetary Theory or Land Value Tax alternatives. The US/EU plan is the same neoliberal strategy designed to demilitarize the post-Soviet states by de-industrializing them and driving their population to emigrate.
“Structural adjustment” (today’s euphemism for austerity) will continue loading down Ukraine with debt, using it as a lever to control its economic policy. Meanwhile, Russia offers debt relief (or at least more loans) without development, because it itself still partially remains under the thrall of neoliberalism.
Russia and Ukraine would benefit from an alternative economic policy based on regional capital investment in economic development. Russia and Ukraine need to halt the capital flight of their oligarchs to offshore banking sites in places such as London and Riga, and instead mobilize their natural resources, real estate and monopoly rents for domestic investment. Such moves would be denounced by the epicenters of “tax dumping” (London and New York). Currently, the IMF/European Central Bank wants supersede post-Soviet governments as their new central planners whose results can only accelerate kleptocratic looting!