The Third Road to Serfdom and its Foreign Policy Implications

The corporatist kleptocracy being erected by Russian President Vladimir Putin is profoundly misunderstood. The defenders and apologists of the Putin regime, from Dmitry Trenin in Russia to US President George W. Bush (who recently looked deeply this time not into Putin's soul but into the soul of the Russian people and discovered there is "a kind of basic Russian DNA which is a centralized authority"), trot out a pet argument which migrates from one publication to another. It goes something like this: What is most important for Russia right now is not abstract "democracy" but the development of capitalism.  A growing middle class of property owners with a vested interest in security for their property will ultimately demand the establishment of liberal institutions. There is nothing fundamentally new or specific about this.  Any freedom, as the history of the world testifies, begins with freedom for the barons and gradually extends down, to finally include the ordinary Joe in the street.

So, a middle class of property owners in Russia will come with time, we are to believe, and they will recognize the importance of property rights and introduce liberal institutions in Russia.  This extremely popular theory totally ignores the actual nature of Russian capitalism.  The right to property in Russia is entirely conditional on the property owner's loyalty to the Russian government. The system is tending to evolve, not in the direction of freedom and a post-industrial society, but rather back toward feudalism, when the sovereign distributed privileges and lands to his vassals and could take them away at any moment.  The only difference is that, in today's Russia, what Putin is distributing and taking away is not lands but gas and oil companies.

Over the last ten to fifteen years, a mutant has evolved which is neither socialism nor capitalism but some hitherto unknown creature.  Its defining characteristics are a merging of money and power, the institutionalization of corruption, and domination of the economy by major corporations, chiefly trading in commodities, which flourish at the expense of the administrative resources they have privatized.

Eight years of Putin's presidency have finally dispelled the illusion that this mutant would somehow wither away of its own accord, yielding to a dynamic, transparent market economy.  It has not withered away, and continues to obstruct the country's modernization and its leap forward into the post-industrial age.

This is gendarme-bureaucratic capitalism with the Father of the Nation at its head. Putin did replace some of the Yeltsin generation oligarchs with new, "patriotically oriented" scions of the intelligence services and, in a major way, by that great collective oligarch, the bureaucracy and its armed units, the security agencies. Putinism and the politico-economic model that it has engendered amazed us with its sheer aesthetic and intellectual squalor, but we can live with that. The real problem is that it is totally inefficient and only exacerbates the innate vices of Russian capitalism, the criminal merging of wealth and government power and the institutionalization of corruption.

Such a petro-state model can deliver neither consistent economic growth, nor overcome the enormous gulf between the rich and poor, nor ensure a breakthrough to post-industrial society.  This model of provincial capitalism dooms Russia to economic degradation, marginalization and, in the final analysis, to implosion.  It will not survive for decades, as the Stalin and Brezhnev models did, and indeed it may be that in this Putin backwater Russia is destined finally to run out of historical time.

Our remarkable compatriot, Peter Chaadaev, expressed the thought almost two hundred years ago that Russia's historical role seemed only to be to serve as a warning to other peoples of what they should not, under any circumstances, do themselves.  We seem to have been providing this service, with masochistic zeal, for the past two hundred years. Another great thinker, the Austrian economist Friedrich von Hayek, could never have imagined when he wrote his famous The Road to Serfdom that, in addition to the two roads to serfdom which he described, fascism and communism, there could be a third, along which people would be led under the banner of von Hayek himself.

In one of Vladimir Putin's studies there is a small bust of von Hayek.  This is not solely for the recruitment of foreign investors, who sometimes visit the office.  Vladimir Vladimirovich sincerely believes he is quite some liberal reformer, as his advisers keep assuring him he is. 

But the end result of his 8 years in power is what the Soviet-KGB bureaucracy dreamed of when it invented perestroika in the mid-1980s.  Twenty years down the road, what has been achieved?  A total monopoly of political power, just as before; enormous personal fortunes, which were off limits to it before; and a completely different lifestyle (some of them bask in Courchevel, some in Sardinia). Lastly, and most agreeably of all, they are no longer burdened with any kind of social responsibility.  They no longer need to parrot that "the goal of our life is the happiness of ordinary people," a piece of hypocrisy they found nauseating even then.

The Putin Project is also the long-standing aspiration of "liberal" economists to find a Russian Pinochet who will introduce liberal reforms with an iron fist.  Their faith in the Pinochet approach was constantly strengthened by the example of a whole succession of countries where it was supposedly successfully implemented:  Chile, and certain of the states of East and South-East Asia. Unfortunately for them, however, what these countries were implementing by authoritarian methods was the transition from an agrarian to an industrial society. This is a task which was very effectively accomplished by Joseph Vissarionovich Stalin sixty or seventy years ago.

The problem Russia faces today, of breaking through to a post-industrial society, simply cannot be resolved by these methods.  This became evident from the experience of the very Asian tigers and dragons that our authoritarian liberals refer us to.  In South Korea, the model ran out of steam by the late 1990s.  (Incidentally, many leaders of the local industrial conglomerates, the Chaebols, and indeed two former presidents of the country, spent protracted periods in prison.)  The model is wholly unsuited to the post-industrial development of a society

.Russia faces an additional very serious drawback: we are rich in raw materials and energy resources.  This combination of authoritarian bureaucratic power with an abundance of resources is totally disastrous for Russia's development, because it deprives the bureaucracy of any feedback from reality.  This results in its complete corruption and decay—which we see happening day by day.

   The 15 to 20 people who run Russia today do not only run it, they also own it - its oil and gas resources in particular.  The disgraceful Putin-Abramovich $13 billion deal ,Rosneft IPO  or "Gunvor" company activity make further debate on the corrupt nature of the regime futile.  The reality is now blatantly obvious.

   Russia's golden million live as no Russian elite has ever lived before.  More than that, in terms of conspicuous consumption they far excel the golden million of any developed state.  The Russian golden million are true supporters of the Putin regime that requires, in return for making a fairy tale come true, only the purely nominal membership fee of total political loyalty.  In this milieu, no new perestroika is ever going to happen; or if it does, then, as in the case of the U.S.S.R, only when it is far too late.

   The Kremlin  "assertiveness" is not assertiveness in furtherance of the national interests of Russia.  It is an assertive exhibiting of his anti-Western neuroses and an aggressive prosecution of selfish business interest

Meanwhile the image of the West as an enemy has become the sole ideological justification of Putinism, that threadbare philosophy of the former lower ranks of the FSB and the St Petersburg city government who have gone crazy with the advent of sky-high oil prices

   .The "minister-capitalists" who remember the oil price collapses of the 1980s and 1990s cannot afford to be passive observers of the vicissitudes of the oil markets.   This is a new important factor, added to its traditional anti-Western neuroses and phobias, influencing the Kremlin's behavior in the international arena.

It is quite clear (in private conversation, Kremlin advisers make no attempt to conceal the fact) that Russia's entire policy towards Iran is aimed at prolonging the crisis surrounding Iran's nuclear program for as long as possible, and thereby keeping oil prices high.   The best case scenario for an end to the Iranian nuclear crisis from Moscow perspective would be an Israeli preventive strike against Iran's nuclear sites.

This is  firstly  because an Iranian nuclear bomb is something Russian leaders do not need. Iran is, after all, the only state in the world with official territorial claims against Russia. (Part of the Caspian seabed is disputed).

Moreover, all the indignation of the Islamic world in this case would be directed against Israel and the United States, which would also suit Moscow quite well.

Finally, Iran would doubtless retaliate by destroying the Saudi oil platforms and blocking the Straits of Ormuz, interrupting the export of oil from the Middle East for a while.

The chekist oil barons who form the core of Vladimir Putin's entourage are already rubbing their hands in anticipation of this course of events.  How high might the price of a barrel of oil go? Two hundred dollars, three hundred dollars? Too much in their life—the regime's stability, their role on the world stage, and, finally, their personal wealth—depends on the number of dollars for a barrel of oil. They will not be repeating the Soviet leaders' mistake of passively watching the price of oil fall. They have, after all, plenty of scope for influencing the situation in the  Middle East.

Every step of Moscow's Iranian policy in recent years has been aimed at moving events in this direction. By blocking or completely watering down U.N. Security Council resolutions on Iran, Moscow has facilitated Iran's nuclear program. By supplying Iran with TOP M-2 missile installations and negotiating over possible delivery of the more cutting-edge S-300 complex, Russia is effectively pushing Israel towards having to undertake a military solution of the problem. After the Russian anti-aircraft installations to protect Iran's nuclear sites are fully commissioned, a military strike by Israel will no longer be feasible; but the alternative to a preventive strike is to see nuclear weapons and their means of delivery placed in the hands of someone who believes in the need for a Final Solution of the Jewish Problem as profoundly and passionately as the late chancellor of Germany, Adolf Hitler. This is totally unacceptable to the Jewish state and, if Iran does not halt its nuclear program, a preventive strike is highly probable.

There are moderates in the Iranian leadership prepared to negotiate about discontinuing the industrial enrichment of uranium in return for a guarantee of

international deliveries of nuclear fuel, but  Moscow in any case made no demand that enrichment of uranium should be halted before deliveries of fuel for Busher nuclear plant were resumed. That would have been constructive and would have strengthened the hand of the moderates.

 The nuances of how the Russian capitalist-ministers behave may change, but their strategic aim remains unchanged: Moscow has consistently been the political, and now also the military, umbrella for the mullahs who are rushing to get their hands on nuclear weapons. The Kremlin fully understands that this will inevitably lead to military conflict. The war in Iraq has brought the Putin regime handsome political and economic dividends. Kremlin  is hoping that the feast will continue.