Foreign Policy Locked in Economic Nutshell

14 december 2015

The Roads We May Take

Yakov Mirkin, PhD, Head of the Department of International Capital Markets at the Institute of World Economy and International Relations of the Russian Academy of Sciences (IMEMO).

Resume: Extremes in foreign policy and personal ambitions of those who make decisions at the “macro” level may push a feeble or even growing economy to the limit, thus causing its rapid destruction or plunging it into a period of degradation that may last for decades.

Cunning, the art of diplomatic game, the ability to make others respect your own opinion – all have certain limits in foreign policy. Everything that can dismay or delight “partners” lies within the range of resources that a country’s economy can provide.

The foreign policy of China, with the GDP per capita standing at $307 in 1980, cannot but be different from the way China behaves in the global arena today, when its GDP per capita is $8,300. China that contributed a tiny 2.7% to the world gross product in 1980, and China generating 15.5% of the WGP (according to 2015 forecasts) are two very different players in geopolitics.

These fundamental things are often forgotten, though. An inflated opinion of one’s economic strength, great size and bygone glory may infatuate and tempt those who should be very careful and save strength, especially when running long distances, to recklessly dart forward, as if their stamina and influence are infinite. Extremes in foreign policy and personal ambitions of those who make decisions at the “macro” level may push a feeble or even growing economy to the limit, thus causing its rapid destruction or plunging it into a period of degradation that may last for decades. Examples of this in world history are too numerous to count.

What is the economic reality in Russia today and what foreign policy should these realities generate?

WHAT ARE WE?

We are an economy of one streetcar and four electric busses and slightly more than 200 machine tools and 200 plows per month. In one year the Russian economy produces one overcoat per 140 people, one pair of knitted socks/tights per person, one dress per woman, one pair of trousers per 12 men, and one wooden bed per 100 potential customers. In terms of life expectancy, Russia ranks 122nd in the world (WHO, 2013). In the Palestinian Autonomy people live longer than in Russia.

We are a weakening economy. Russia’s share of the global GDP, starting from 0.8% in 2000, amid rocketing raw materials prices reached 2.8% in 2013 only to fall to 2.4% in 2014 and then to 1.7% in 2015 (IMF forecast).

We are an economy in crisis. In 2015, industrial production fell by 4%-5%; retail trade, by 7.9%; export/import of goods, by 35-40%; and real wages, by 10%. In 2014-2015, with inflation hovering around 15%-16%, the ruble’s exchange rate dropped by half and lending shrank by 10%-15% (Rosstat, CBR).

We are a government-dominated economy. The share of the state in the real sector exceeds 50%, and in banks, 60%. We are an economy of behemoths – the largest companies and corporations, oligopolies, with super-concentrated property and a very low proportion of small and medium-size businesses.

We are a large petro-state. Russia is No. 1-2 world producer of oil; No. 2 producer of diamonds; No. 2 producer of natural gas; No. 1 producer of barley; No. 2 producer of aluminum; No. 2 producer of titanium; No. 3 producer of gold; No. 4 producer of silver; No. 5 producer of steel; No. 5 producer of wheat; No. 2 producer of rye; No. 6 producer of timber; and No. 7 producer of copper. Russia is the second largest weapons exporter and one of the largest producers of mineral fertilizers.

We are a hydrocarbons-driven economy, highly dependent on external factors – on the prices of oil and gas (which, according to 2014 statistics, accounted for 65% of the country’s export), on the dollar-euro exchange rate (the stronger the U.S. currency, the lower the world prices of hydrocarbons), and on the key customer – the EU (up to 2015 the EU accounted for of 49-50% of export and import; today’s share is somewhat lower at 44-46%, according to the Federal Customs Service). But this client would like to break away from us. It is an officially proclaimed policy of both the EU and the U.S. to reduce the share of Russia as a supplier of raw materials.

ECONOMIC RISKS OF AGING

The sanctions – not financial ones, but the bans on equipment supplies – are the strongest risk. Over one month Russia produces 200-250 metal-cutting machine tools – an amount that is 90% or more below the actual demand. Tens of thousands of machine tools are systematically withdrawn from operation; 75%-80% of metalworking equipment has been in use for more than 20 years.

We are an economy that has lost a hundred science and engineering schools over a quarter of a century to become critically dependent on import. According to various estimates, the share of import in the machine tool industry exceeds 90%; in heavy machine-building, 60%-80%; in the light industry, 70%-90%; in the electronics industry, 80%-90%; in the pharmaceutical and medical industry, 70%-80%; and in food industry equipment manufacturing, 60-80%. According to the Industry and Trade Ministry, in 2011-2012 the share of imports in domestic consumption was 62%-66% for hot-rolled steel sheet; 84.4%-91.6% for cold-rolled steel sheet; and 36.2-48% for long products.

As a result of the sanctions, the procurement of engineering products from non-CIS countries – especially the EU – fell by 46-48% in 2015 (Federal Customs Service); and the import of mechanical equipment dropped by 40-45%. This means that the economy, which had reached a technological peak by the beginning of 2014, is faced with the risk of collapse, or at least gradual aging very similar to that in Greater Iran. Just giving money, even a lot of money, is not enough for a fundamental upgrade. Over a quarter of a century, while purchasing technologies and equipment, we have largely lost the ability to produce our own means of production for the production of the means of production.

According to 2011 data, 1.3-1.5 million pieces of industrial machinery, i.e. 50% of the equipment in service was over 20 years of age, and 60,000 machine tools became obsolete and were decommissioned. The share of imports was as high as 90%, while the number of machine tools produced domestically (according to 2014 statistics) ranged from 6,000 to 7,000 a year – one-tenth of the minimum demand.

Some say know-hows are available from China. However, this raises many questions. What is the level of these technologies? Aren’t they second-rate ones? Will they come from the primary source? Won’t this result in still greater lagging behind? And is this possible at all? After all, China is in strategic dialogue with the United States as one of the three major U.S. trading partners. Military ties between the two countries have been deepening step by step.

China’s share in Russia’s foreign trade in January-August reached 11.7%. A couple of years ago it was about 10%. But in absolute terms the volume of trade with China has slumped by 30% in just one year!

There is yet one other factor to consider. China remains a very unprofitable client. Russia had a negative balance of trade with China in January-August 2015, showing a $3-billion deficit. It is not Russia that makes money on China, but the other way round.

Is it possible to obtain technologies from Japan and South Korea? But these two countries are the United States’ strategic partners under its “military umbrella.” Therefore, the import of technologies from these countries will face restrictions.

FINANCIAL REALITIES

We have a shallow financial depth. Monetization (broad money/GDP) stands at 52%-55% of the GDP (2013), while in China it is almost 200% and in the developed economies, 80%-120% on the average. Russia’s share in the global financial assets (1%-1.5%) is half of its share in the global GDP. The share of the ruble in international financial turnover is still smaller.

The distinctive features of the Russian financial system are: double-digit interest rates (utterly unbearable for businesses), high inflation, dependence on the money of non-residents and the tendency towards “financial contagion” from abroad, its effects being felt twice harder. The Russian financial market is based on a speculative model. It lives according to the roller-coaster law. Its key features are the economy’s low saturation with credits and high built-in non-monetary inflation.

The share of investments is 18-20% of the GDP, instead of 25%-30%. This rate of investment means that our economy is a fading economy.

For twenty years (except for 2006 and 2007) Russia saw a net outflow of capital. The degree of the economy’s offshorization was extraordinary.

The financial sector in fact turned into a non-market environment. It is over-concentrated: five banks account for 50% of all banking assets, and 20 banks hold 75% of all assets (that is, 60%-70% of the money resources are in Moscow). The network of banks and other financial institutions has been shrinking at a rate of 8%-10% a year.

Since 2008 the system of public finance has experienced an avalanche of problems – the budget deficit, regions’ debts, and public spending cuts. A tax burden of 37%-40% of the GDP is similar to that in the developed EU economies growing at a rate of 0.5%-1% a year. With the current tax pressure continuing, there is not the slightest chance Russia may see ultra-rapid growth and modernization.

The Russian economy today is a fragile financial boat, a tiny crippled financial system, unable to raise investment for fast growth and regeneration.

MILITARIZATION OF THE ECONOMY?

Russia’s level of military spending (4.5% of the GDP) is very high. It can be possible and even necessary when a country eliminates backlogs and accelerates the modernization of its armed forces, but in the long term it may result in the loss of a hefty chunk of the GDP, harsh restrictions on economic growth and civil consumption, regardless of what some may say about the benefits of spin-off effects on civilian production.

In terms of military spending Russia holds 10th place in the world among nearly 200 countries, immediately after Oman (11.6% of the GDP), Saudi Arabia (10.4%), South Sudan (9.3%), Libya (6.2%), Congo (5.6%), Algeria (5.4%), Angola (5.2%), Israel (5.2%), and Azerbaijan (4.6%) (2014,SIPRI). Almost all of these countries are either on the brink of military conflicts or already going through them.

As long as military expenditures remain that big, the declared goal of accelerated economic development and modernization in Russia is unachievable. After 1945, super-fast growth and modernization occurred only in countries with low military expenditures and a very high share of investment in the GDP.

The management of the United Aircraft Corporation says: “Military programs generate about 80% of revenue... and are the corporation’s core business...” But is aircraft-building a military industry?

In its annual report for 2014 the United Shipbuilding Corporation states that 90% of its income comes from military contracts. Meanwhile, Russia builds one or two passenger ships (river- and sea-going vessels and hydrofoils) a year.

The bulk of Russia’s river fleet was built back in the 1970s and the 1980s. The average age of these ships is 30-40 years, and 80% of them are to be decommissioned by 2020.

Risks are high that by the 2020s Russia may end up having a human-unfriendly economy with a level of militarization way above that observed in the notorious 1980s known as a period of economic stagnation. It will be manufacturing fewer “civilian goods” than in those days, because it can no longer make what can be bought in exchange for raw materials.

Russia’s economy based on the “raw materials + agriculture + weapons manufacturing” pattern is a wrong economy.

Naturally, Russia has a special role and responsibility. May there be everything its army needs. But this should be dome economically and efficiently. The country must have all the modern types of hardware capable of flying, reaching as far as necessary and hitting the targets. But the Russian economy cannot afford to become overly militarized. There should not be too many guns and tanks instead of public busses or corvettes and frigates instead of passenger ships plying the rivers. Otherwise it will drown.

UNDER PRESSURE OF GLOBAL FINANCE

The Russian economy is tightly correlated with world prices for oil, gas, metals, and food.

Starting from the 2000s raw materials have become a financial commodity. World prices are formed on the commodity derivatives exchanges in New York, Chicago, London, Kansas City, and Minneapolis. They are directly dependent on the U.S. dollar as a world reserve currency. Prices are fixed in U.S. dollars and the bulk of payments are made in dollars. When the dollar falls against the euro, the prices of oil and other commodities rise (other things being equal). When the dollar gets stronger, it is the other way round and prices start to fall.

Since the 1970s the dollar has experienced long 15-17-year up-and-down cycles. The period from 2001 to mid-2008 was a golden time for Russia: the dollar was falling against the euro for years on end and commodity prices grew manifold.

After the crisis of 2008 the dollar began to strengthen cyclically. In 2011 metal prices took a dive. Since 2011, aluminum, copper, gold, and ferrous metals have become much cheaper. The price of copper fell by half, of aluminum, by 45%, of gold, by 42%, and of silver, by 70%. In 2012 grain prices showed a downtrend (losing about 45%). Since the summer of 2014 oil and gas prices have fallen sharply, too. The price of oil is half of what it was a year ago. All these are Russia’s export items.

The dollar is projected to continue strengthening against the euro in 2015-2019. An era of the strong dollar is ahead. This implies low prices of raw materials (other things being equal). In 2016-2018/2019 they are very likely to decline further to 70-80% of the level observed at the end of 2015, or at least stabilize at today’s lows, despite the growth in demand the global economic recovery will bring about.

This is bad news for the Russian economy. Some kind of relief (cyclical weakening of the dollar and a rise in the prices of raw materials as a financial commodity) can be expected no earlier than 2020-2021.

MACROECONOMIC SCENARIOS FOR THE FUTURE

The more you go through the pieces of the puzzle called the Russian economy, the clearer it comes that it is at a crossroads. It is confronted with strong, maybe discouraging challenges – some external, and others internal, resulting from its evolution over the past quarter of a century as a not very successful economic project. But these challenges need a strong response.

The scenario to be eventually implemented will strongly determine Russia’s foreign policy in 2016-2025. It will be tightly locked up within this nutshell.

Four scenarios of macroeconomic future can be forecast at this point.

Tsunami scenario. Probability: 10-15%. External shocks (an exchange rate of $1.0-$0.95 dollar to the euro; oil prices slump to $25-$30 per barrel. Financial contagion from the shock on the U.S. stock market, a debt crisis in the European Union or any other systemic risk). Aggravation of the crisis in Russia, a political thunderstorm, self-isolation, anti-Western sentiment, marginalization of ideas, retreat into the “ivory tower.” Boycott, a country wrapped up in sanctions. The situation will look pretty much like what Marxists called the Asiatic mode of production. “Greater Iran.”

A country of vintage technologies. A militarized economy, raw materials production, farming and weapons manufacturing being its core branches. A morally obsolete country. Negative personnel selection. Extremely high political risks.

An attempt to make rapid headway (annual GDP growth of 5%-7%, the rate of accumulation up to 30%-35%, in contrast to the current 19-20% of GDP, booming military spending and mega-projects). Technological dead end/ boycott. Lagging behind in engineering by 30-40 years. An increase in the government final consumption expenditure to 20-22% of the GDP (from today’s 18% of the GDP). A fall in household consumption. Supermarket shelves turn empty.

In a 5-10-year perspective – a sharp slowdown of the economy to 0-2% (or deceleration).

Money printing. The budget deficit has to be compensated for with non-market Bank of Russia loans. A fixed exchange rate. Frozen prices. Food shortages. Further nationalization. As much as 80-90% of the economy is in the hands of the state. The financial market’s compression by a factor of ten and more. Inconvertible currency. Closed capital account. Decline in labor productivity and people’s real incomes.

Frozen economy. Probability: 45-50%. A semi-closed stagnant economy with aging technologies, with big ambitions and ever-greater concentration of efforts and resources in the defense industry. Stabilization at a lower level. All processes are frozen. A typical Latin American-style economy, with ultra-high concentration of property, nationalization and excessive regulatory costs. Semi-market environment and oligopolies.

Technological aging from year to year. Sophisticated boycott by industrialized countries, preserving, however, the flow of raw materials out of Russia. The economy’s structure gets more primitive. De-industrialization. Low growth rates: 0-2%. The rate of accumulation: 18%-24% of the GDP. Great volatility in the economy from nose-dives to steep climbs, following world commodity prices and mega-spending dynamics in Russia (military-industrial complex, mega-projects).

Continued fluctuations of the ruble’s exchange rate. Annual financial contagions and shocks. Financial markets and capitalization oscillate from plus 20%-30% to minus 20%-30%. Sluggish, speculative markets. Growing risks of the ruble becoming inconvertible and capital account being closed (fully or partially). Low monetization (M2/GDP): 40%-55% of the GDP; loans: 35%-45% of the GDP. Interest rates above 10%-20%.

Inflation invariably goes above 10%. Built-in non-monetary price hikes. A heavy tax burden. Government revenue at 36%-40% of the GDP and higher. Final government consumption at 17%-19%. Rare foreign investment into natural resource projects. “Desertification,” brain drain, capital flight, low labor productivity growth, and real incomes freeze.

Bombastic rhetoric proclaiming labor achievements and economic successes. A slide towards destabilization in the future.

Controlled chill. Probability: 30%-35%. Replacement of most managers and decision-makers at all tiers of government. “Rescue teams” of young technocrats take over under the slogans of rationality, development and modernization. Personnel reshuffles while the system of values and vertical chain of command remains unchanged. Previous analogies: Spain under Franco in the mid-1950s and early 1960s.

Consequences: a less unambiguous and more “sophisticated” twin of the second scenario. The same model of the economy with certain traits of modernization. Efficiency is slightly higher, volatility is less pronounced, and a slide towards destabilization in the future a little bit slower.

Sudden turn. Probability: 5%-10%. An attempt at creating a domestic economic miracle, “afterburner” mode of financing, maximum measures to tap the energy of businesses and the middle class; painstaking efforts to make the quality of life and life expectancy the focal point of economic policies and the growth of family assets from generation to generation.

A different kind of rhetoric: “Being the greatest liberal of all liberals in the economy.” The message for all those outside: “Don’t you see we are a very liberal, pro-European country?” A policy of cheap loans, low interest rates, a moderately lowered exchange rate of the ruble, strong tax incentives for growth and modernization, easing of the tax burden, cuts of regulatory costs, suppression of non-monetary inflation, strong anti-monopoly regulation, and maximum benefits for small and medium-size businesses to facilitate the growth of the middle-class’ assets.

In political terms: a fresh look at the evolution of Europe (EU + Russia bridge = integrated economic system). A freeze on non-economic conflicts. The United States and Germany seek real integration with Russia. Accommodation of Russia as a counterbalance to radicalism gaining strength in the East.

Achievement of a stable, long-term growth of 5%-8%. The rate of accumulation stands at 30%-34% of the GDP. Growth is ever less dependent on raw materials. New industrialization. A major influx of technologies and brains into Russia.

The tax burden is set at 28%-32% of the GDP. Final government consumption is 14-15% of the GDP. Monetization (M2/GDP) is rising cautiously from 40%-45% to 80%-100%. Saturation with credits: up to 70%-80%. Inflation and interest go down to 2%-4%. Exchange rate: at first, stabilization near 65-67 roubles per dollar; as inflation eases over years, it will slide down to 70-90 rubles per dollar. The ruble is “moderately weak” against the dollar and the euro. Equity market capitalization: up to 100%-120% of the GDP. Nationalization drops from 50%-60% to 20%-30%. An explosive growth of foreign direct investment. The share of investment through offshore companies decreases from 70%-80% to 20-30%. The share of small and medium-size businesses in the GDP, labor productivity, and real incomes grow steadily. Russia, once a net exporter of capital, becomes a net importer of capital, foreign direct investments, for 10 to15 years.

Only the fourth scenario offers an opportunity to mitigate and eventually resolve geopolitical conflicts. It will give Russia the energy that will iron out all risks, persuade people and capital to stay at home, gather business and countries around Moscow, and make the very thought of resettling elsewhere impossible. Successful projects don’t repel. They inspire and attract.

Under the first, second, and third scenarios, economic and social stability will be getting more and more fragile over years. It will be doomed to give in if not in five years from now, then in ten. According to statistics, emerging economies experience one or two crises every 10-15 years, especially if a country is heavily dependent on foreign exchange rates, global commodity prices, and the import of technologies. And if at the same time it is also under increasing external ideological and military pressure.

FOUR FOREIGN POLICY SCENARIOS

Tsunami scenario. Another Cold War and arms race, but based on the considerably smaller resources and spheres of influence than the Soviet Union had in its day. Bellicose rhetoric, outspoken anti-Americanism. Attempts to create a worldwide network of military bases. Pinpricks, gunboat diplomacy, risks of unintentional direct clashes, contacts via hot lines, and disarmament, prohibition and prevention talks. Show of muscle, involvement in regional conflicts. Nuclear deterrence is the core policy; diplomacy is its shell.

Russia is wrapped up in sanctions and isolated inside its own home. A black-and-white world. A world of evil and good empires. Russia is losing influence in the post-Soviet space and expanding ties with countries that have the most strained relations with the West.

Relations with ultra-right and ultra-left parties. Simulation of what the Soviet Union was in the early 1980s, although on a smaller scale.

This policy has firm economic boundaries. Face-lifting measures will not help either in terms of technology, human capital or material resources. A rapidly aging and militarized economy, after a quarter of a century of brain drain and the loss of science schools. Access to new technologies and equipment is blocked. Utter isolation.

As a result, a breakdown, conflicts, risks of collapse, and a threat of a head-on military clash.

Frozen economy. Many more shades in Russian politics. It is mixed. A combination of 40%-50% of the first scenario, and 50%-60% of the remains of the integration in the 1990s-2000s. Economic expansion motives (Eurasian Economic Union, a turn to the East), retained foothold in the G20 and in the system of global regulation (finance, trade, taxes, climate, the Arctic, etc.), a cold peace with the European Union (a key customer for the Russian economy), attempts to cut the ground from under the United States’ feet whenever possible and minimal, cold partnership with the U.S. where interests coincide. Desperate attempts to win China over to its side in defiance of the very nature of that country.

Manners and ambitions of a great power. A policy of triangles, quadrangles and mini-alliances concluded against third parties. Diplomacy of driving wedges between opponents. Search for “asymmetrical responses” – surgical strikes and unexpected moves as the leverage to achieve the desired objectives at the lowest costs possible. Revival of the ideas of the 1970s and 1980s: “détente” and “parity.”

A shortage of ideology and ideas that could be exported from Russia. Orthodoxy, a special civilizing role, primitive interpretation of Eurasianism as a way to isolate oneself from the West – all these export items will be of limited use. Special propaganda will be thriving.

Attempts to use old-time Soviet-era footholds to exercise influence (the Arab world and Latin America), to appeal to the 19th century (Pan-Slavism), and “traditional relations” (India, Africa, etc.). The eastward turn and varying degrees of closeness in the dialogue with China and other industrialized countries in Asia, disguised as a geopolitical strategy, will be increasingly tantamount to the plain exchange of raw materials for know-hows and equipment. The farther away from the economy, the more perfunctory the alliances and partnerships based on the remains of Russian influence will be.

Large-scale industrial espionage with the aim to compensate for the lack of ideas and innovation.

The shortage of resources and the Russian economy will strongly interfere with all this. If the economy grew up to 3%-5% of the global GDP and successfully passed through all the stages of openness and modernization, if only it looked lucrative enough for any global investor, all this song-and-dance would enjoy growing interest and respect around the world.

But a stagnating and aging economy armed with a nuclear stick ever more often looks like a fussy elderly lady, always trying to win something from somebody, to have a casual dance with somebody cheek-to-cheek, and even to look seductive: a bustling and provocative personality, but also someone who is treated in the world with respect only as long as there is something in her handbag that may leave an opponent stunned or what is worth taking – raw materials, weapons or money, preferably a loan that may eventually be written off.

All this is a foreign policy of excessive strain, which, as in the first scenario, will inevitably, even though at some remote future date, lead the Russian economy towards militarization and breakdown. The more so, since the U.S. and EU policy under this scenario is that of soft isolation, of shrugging off the dependence on raw materials from Russia, of fencing it off, of towing it to a dock and leaving it there until natural rusting and seclusion  destroy everything that guarantees assured destruction.

And, as in the first scenario, there are huge and gradually increasing risks of a direct collision.

Controlled chill. It looks like Franco’s policy of the 1950s, supported by the United States and Europe (borne out by documentary evidence). It was then that the foundations were laid for the Spanish economic miracle “after Franco.”

Russia’s foreign policy becomes mosaic-like and more colorful. It bears some traits of the first scenario (20%-30%), many more of the second one (50-60%), and some new pieces of the puzzle (10%-30%) that will come into view in the future. Voices in favor of cooperation sound somewhat louder than those of enmity. Slowly but surely global investors and large foreign financial institutions return to Russia. Industrial operations, too, begin to be relocated again.

All of this requires diplomacy to promote economic and human exchanges between countries, not polemics. Mutual public hysteria in the military field will cease. Ideological confrontation will get not so harsh. Regional conflicts will get frozen. There will be less Russia-West animosity within the institutions of global governance. Points of military cooperation will be reactivated again.

However, the basic conflict will remain unresolved. A stagnant, weakening and aging economy with a growing military mechanism inside will be functioning at the limit of its capability as the basis of the country’s foreign policy. There is nothing in it that can contribute to the growth of Russia’s influence. Diplomacy is sandwiched between the natural barriers of a chaotic economy and the ideology of a Latin American type of state.

Sudden turn. This kind of internal policy will immediately throw the global players into utter confusion. In a country largely seen as an outcast and being cursed at every street-corner there suddenly emerges a “pro-European policy.”

Truly a miracle, or an economic miracle. Confrontation, anti-Americanism, Eurasianism and the special way begin to be phased out from the current agenda. The quality of life and life expectancy, family wealth, birthrates, health, property and success, economic growth, entrepreneurial freedom, and low risks, Russia as a home built to suit the best standards take center stage.

In Russia’s foreign policy this will mean rationality and life within the limits the economy allows for. Temporary renunciation of global ambitions and attempts to influence every important point on the globe. A firm NO to a policy of excessive strain, of wasting human life and ruining the national wealth – a policy that for the past 300 years preserved Russia as a militarized economy, its budget as a wartime budget and its population as a mobilization reserve.

Rationality does not mean non-participation. It means participation in key areas of fundamental importance to Russia’s own security.

Just twenty years of tranquility. Twenty years of frozen conflicts, economic growth and modernization, population growth and entrepreneurial freedom. Twenty years of “armed neutrality.”

“Neutrality?” Why should Russia’s declaration of its unwillingness to intervene in conflicts beyond its borders sound utopian or funny?

Isn’t it really funny to try to confront a challenge at almost every possible point?

Neutrality does not imply a weak army. On the contrary, it implies a strong, modern nuclear triad.

This policy means taking a different look at each of us. We are not “a population,” not a disposable resource, not “human capital” meant to be consumed by somebody else.

We are to be something different in this model. Each of us has a great value. Each of us is a “gnome of Zurich,” owning the riches of Russia. Each of us is someone who instead of wasting time on debates and demonstrations should be entitled to all the benefits of the resource rent and excel at work to build up family assets, and in this way the assets and business that are called Russian.

We can become “neutral” to create a combination of Switzerland and Sweden multiplied by ten.

In this model we are the world’s vault, the masters of resources, traders doing business with the whole world, the world’s goldsmiths. Being a citizen of Russia should be like being a member of a special order, like being one of the 20 million Saudi nationals. To become a citizen of Saudi Arabia one is to accomplish something inconceivable.

 Creating something like that for Russia will take a fantastically flexible and resourceful mind. Like that of the President of the Council of States of Switzerland, Claude Heche, who in Geneva on March 2015 stated this: “It can be said that Russia invented the neutrality of Switzerland [the Congress of Vienna, 1815 – Ya. M.]... Russia has always aroused the admiration of the Swiss people.” This kind of mentality has its own commandments to be followed: be more flexible and faster, act with greater innovation, be freer of all dogmas, and be more practical and more honest!

But what will this “economic miracle” yield in terms of ??foreign policy?

Conflicts in the post-Soviet space will be frozen. “A new Russia” will be a signal for resuming EU-Russia integration. The contract with the West will be concluded again – not immediately, though, but maybe within 5-10 years – and a “go-ahead” will be given to direct investment into Russia. The mutual penetration of economies and societies between Russia, on the one hand, and China and the newly industrialized countries in Asia will proceed in new ways, but not only by the “raw-materials-in-exchange-for-beads” pattern. Over time, the eastern vector will acquire a different quality – the sharing of knowledge, technologies and products with high added values as the basis for future “alliances” and “partnerships” in Asia. There will develop something new – a centripetal movement towards Russia instead of the centrifugal trends of the 1989-2010s. It will be a completely different foreign policy, a policy of comparing not only the strength of the armed forces, but the potential and quality of the economy. Germany, Japan, China, and South Korea are examples of such a policy.

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