Save and Protect

13 february 2017

How to Convert Russia’s Potential into a New Global Brand

Andrey Bezrukov is an associate professor at the MGIMO Institute of International Relations of the Russian Ministry of Foreign Affairs.

Resume: The focus on high-tech global infrastructure and security service markets will not only strengthen Russia’s sovereignty and defense but will also develop its human resources accumulated in information, defense, energy, and infrastructure companies.

The world is going to be an unstable and dangerous place in the next ten to twenty years. Demand for security and security-related products and services will keep growing. In this situation, Russia has a unique chance to use its ability to create a high-tech structure of global security and at the same time lay a new foundation for Eurasian cooperation. It is not just a technocratic model of development but a new philosophy of Russia’s presence on the international stage that would be based on its deep-rooted political mentality (a higher sensitivity to issues of security and sovereignty) and that could turn its traditional conservative protective attitude into its effective positioning in the world.

COMPETITION OF MODELS, DIVISION OF THE WORLD, AND INSTABILITY

The world is entering a period when the economic and political paradigm will be rapidly changing, causing volatility and uncertainty. As the balance of power is shifting and the redistribution of spheres of influence is accelerating, the weakening system of international institutions appears to be unable to respond effectively to growing tensions. 

The world order created after World War II is crumbling. Its main economic feature was the dominating role of mass production, which in the regulatory terms meant a continuous process of unification that ideally was intended to create one economic and political center and, therefore, one standard of thinking. This process began in the West in the 1950s and culminated in the era of neoliberal globalization that triumphed after the collapse of the Soviet Union. This approach was a rational response to the chaos of war, autarchy of resource-rich countries, and the nuclear stalemate of the bipolar period. 

Globalization that swept the world at the end of the 20th and the beginning of the 21st centuries has redirected investment flows from industrialized nations to countries that could generate the greatest value added, which inevitably created new competitors. China, India, and Brazil have become significant economic players, and they will soon be joined by a dozen of other significant powers. Meanwhile, a survey conducted by a group of researchers led by Michael Porter of the Harvard Business School (released in September 2016) shows that the United States, the leader of the industrialized Western world, has been losing competitiveness over the past twenty years due to a tangle of structural problems.   

We will soon see the first signs of a new global socio-technological order that will change the rules of the game in key markets and, consequently, the balance of economic, political and military power in the world. Studies indicate that the role of people in physical production will decrease as will the importance of cheap labor. A mass transition to production based on robotic automation and artificial intelligence, gene engineering and additive technologies will cause companies to wind down their global production chains and bring production back to wealthy consuming countries which will also become energy independent. They will build up high-level human capital, financial centers, and a scientific, technological and industrial basis for an entirely new type of economy. The primacy of effective demand will boost regionalization and “fencing off” in order to limit competitors’ access to “one’s own” customers in much the same way the United States has been creating exclusive zones for its own corporations, trying to rewrite the rules of global trade. Donald Trump’s election seems to have put an end to Barack Obama’s plans to create financial and economic mega blocs (TPP and TTIP), but the idea of rolling back universal globalization is still relevant. On the contrary, it may be implemented in a more radical way through enhanced classical protectionism and bilateral free trade areas instead of large trans-regional projects.

We can see a standoff between a group of U.S.-led countries controlling access to global financial resources, advanced technologies and talent, on the one hand, and industrial economies, including BRICS states, whose access to developed markets will be restricted in all possible ways, on the other hand.   

The economic model crisis, instability and confrontation increase the risk of an abrupt failure of key elements in the global financial and economic system or their misuse in competitive struggle. The West has monopolized products and services critical to the functioning of the world economy—from issuing reserve currencies to assessing national and corporate creditworthiness. The absence of competition increases the risk of total collapse. This generates demand for an alternative non-Western infrastructure that would make it possible to engage in dialogue and competition on equal terms.   

A global economic rearrangement will not only spur rivalry between the leaders in this race but will also trigger forcible opposition from outsiders. The absence of the rules of the game will provoke various conflicts, including armed ones, which may destabilize entire regions.  

During the transitional period, the global economy is unlikely to be able to maintain steady growth. This will result in budget deficits, social tensions, political crises, and continuous reshuffles in governments and alliances. Instability will not only exacerbate migration problems caused mainly by increased structural unemployment and growing population in poor countries, but will also challenge the dominant role of stakeholder capitalism and the position of the global financial elite. As the population no longer has sufficient purchasing power, companies are unable to generate further growth while their shareholders will still expect greater incomes. Inflating financial bubbles are putting the entire world economy in jeopardy.

Income inequality in the United States has reached the level of 1914 when 1 percent of people controlled up to 90 percent of national wealth. The social democrat Bernie Sanders phenomenon clearly shows that inequality problems are bearing down on politics. In order to preserve social stability, it will be necessary to distribute wealth in a more balanced manner and increase the controlling role of the government. Paradoxical as it may seem, this is precisely what may happen in the United States during and after Donald Trump’s presidency, even though he positions himself as a classical small-government conservative and does not look like an advocate of social guarantees. However, his plans for large investments in the renovation of American infrastructure and his generally protectionist approach may as well revive government influence for other reasons.   

In political terms, the next decade will be a time of internal reevaluation and political reforms both in Europe and the United States. The Cold War-era generation, brought up on the principles of Atlanticism and centrist consensus, will be replaced by a new breed of the right and left. But before Western elites make up their minds about their long-term strategy, the vacuum will be filled by time-servers and populist demagogues, for hardly anyone else could take over the reins of power at such a time. They will respond to the avalanche of problems in a pretty much standard way—with a mixture of great-power slogans, pragmatic isolationism and attempts to use the old “divide and rule” tactics. In foreign policy, they are likely to play on confrontation with growing geopolitical competitors. The West may also get engaged in all kinds of shenanigans in order to cope with the internal crisis by inciting conflicts in the rest of the world and launching high-tech military production facilities as it has done so often before. 

China will experience an economic slowdown and will have to adapt to a new global role. After a thirty-year sprint, its elites need a pause if for nothing else than to keep their touch with reality. And yet, no matter what happens over the next decade, China’s growing weight in the world will create problems for both near and distant neighbors regardless of its real intentions.

NEW PLAYERS AND NEW CONFLICTS

Other major non-Western powers, each of which is destined to go through its own crisis, are unlikely to offer the world a new model of international relations. They will try to make the most of the absence of rules and of their competitors’ weakness. Each will play for himself in building economic ties and political alliances depending on the situation. 

Radical Islamism will not prevail but it will leave the Middle East and North Africa turned upside down by interstate conflicts that will spread far beyond the region. It will also hit Central Asia as its aging leaders go, leaving their countries face to face with ethnic and social conflicts. In the Middle East, the fall of authoritarian secular regimes will be followed by a crisis of monarchies that will no longer be able to buy their people off. As a military force, radical Islamism will most likely run out of steam by the end of that period. But it will not lose its breeding ground. On the contrary, growing social inequality will exacerbate social conflicts and bring them over into the political sphere—with new ideas and new leaders.    

Unemployment in developing countries will trigger civil wars and mass migration. According to the U.S. National Intelligence Council, internal and external tensions, especially in the south of Asia and Africa, will be whipped up by environmental and climate problems caused by uncontrolled urbanization and loss of arable land due to climate change, soil erosion and excessive exploitation. As infrastructure becomes more complex, especially in the least developed countries, the number of industrial and transport accidents will grow. Terrorists will seek to attack polluting enterprises and modern infrastructure facilities in order to inflict maximum damage. Serious epidemics such as Ebola or SARS outbreaks will most likely be unavoidable too.  

No other part of the world will have as any problems as Eurasia where the interests of the United States, Japan, Iran, Saudi Arabia, and three leading BRICS countries—China, India, and Russia—clash. As Zbigniew Brzezinski wrote, Eurasia is the main continent in the world in terms of population and future scale of the economy (given the ongoing political and economic processes, Eurasia should be understood to include not only the classical “heartland” but also interconnected regions in the Middle East and Southeast Asia). This is also the biggest potential market with the best possible prospects for growth. In the next ten to fifteen years, countries in the region will accumulate sufficient financial resources to host at least four internationally significant financial centers—in China, India, Singapore, and the United Arab Emirates.    

The World Economic Forum’s study of global risks in 2016 highlights the danger of interstate conflicts and uncontrolled migration. Eurasia is witnessing a rapid emancipation of major players which until recently kept a low profile but are now moving to the forefront. A complex configuration of new alliances, which can be called “Two Crosses dynamics,” is emerging in the south of the continent. The Minor Cross symbolizes the mounting confrontation between Iran and India, on the one hand, and Saudi Arabia and Pakistan, on the other, for control over the resources of the Persian Gulf amid the U.S. dwindling activity in the region. 

The Major Cross signifies a strategic link between China and Ethiopia in their competition with India and Persian Gulf countries where China’s interests clash with the interests and plans of India and Arab countries as all are competing for East Africa and the Indian Ocean basin. The majority of countries in the region are either already involved in fighting or are actively preparing for it. Armed clashes can cause a major energy crisis and huge migration flows. For example, a crisis in Saudi Arabia will ignite a large territory from Egypt to Pakistan and from Iran to Ethiopia.

In the absence of effective mechanisms for coordinating interests, competition between India and China, the biggest Asian countries and nuclear powers, will most likely lead to their struggle for influence in adjacent regions—Indochina, East Africa, and Central Asia.   

GROWING INEQUALITY AND MOUNTING INTERNAL TENSION

An expected global economic slowdown will inevitably cause a relative, and in many places absolute, decrease in income for the middle class which has always been the backbone of democratic institutions. Emmanuel Todd, Francis Fukuyama and others are already predicting a decline of democracy. At any rate, while the Western model of social relations is in crisis and democratic institutions are eroding in the rest of the world from Turkey to China, authoritarian regimes are growing stronger as they are better prepared to deal with crises and uncertainties. The ideological undertone of global changes is once again connoted by the search for social justice, begetting forces the explosive rise of which was generally unexpected. 

The social and material conflict is compounded by the growing contradiction between the state, which seeks to exercise more control, especially during financial deficits, and individuals who seek to protect their rights. Increased repression, total electronic supervision, full control over movement, income and spending, and attempts to ban cash under the pretext of combatting corruption will spur sporadic at first (like Manning or Snowden) and then organized political resistance. People are not prepared to live under Big Brother’s total control even in the face of terrorist threat.    

There are burgeoning ethnic and religious conflicts, and a breeding ground for nationalism and separatism in most Asian and African countries. The Persian Gulf, Afghanistan, and Indochina, where religious, economic and geopolitical interests are closely intertwined, are already experiencing strain between Islamic, Indian and Chinese civilizations.     

The middle class that emerged in Asia during the globalization era will demand a real role in decision-making, clean cities and “clean” governments. New actors will come into play to represent a much wider range of right-wing and left-wing movements, including radical ones, with pronounced nationalistic and religious components. Under their pressure relations between countries in the region, many of which are old rivals, will become much more complicated and conflict-ridden.  

As Manuel Castells and Jay Ogilvy say, the interconnected world becomes increasingly dependent on the “flows” of information, people, money, and natural resources—the blood and nerves of the economy. Control over these flows is more important than control over territory. Global infrastructure that carries crucial flows has been owned since colonial times by Western countries and over the past seventy years solely by the United States which has essentially usurped the right to “export order-keeping services” in global trade and communication. Most maritime shipping routes, optical fiber cables, satellite communication lines, Internet traffic, and financial transactions and assets are controlled by Washington, depend on its will, and are guaranteed by its military power. The value of any asset and reliability of transactions are in question unless their accessibility and security are guaranteed. But can the United States fairly guarantee the security and accessibility of global assets for its competitors if it is not prepared for fair play even in such a relatively minor sphere as Olympic sports? 

One can assume that the Western, primarily Anglo-Saxon, world will “keep aloof” and consolidate, engaging in more and more open competition with new centers of power. There is a controversial situation: as a center of power, the United States can no longer service rising competitors at least because the cost of keeping order in areas where the Americans have lost their dominance cannot be “monetized”—the loss of political and financial independence has always been the price paid for security. Both Beijing and Washington understand this and are taking steps to “fence off” their spheres of influence. The lull before the storm is coming to an end.  

In order to keep its dominance, the West has always tried, and always will try, to prevent the emergence of alternative technological and financial clusters uncontrolled by its elites. The non-Western world understands that it may fall into even greater dependence on foreign money and technologies and will have to make a choice between accepting such dependence and making significant investment in its own sovereignty and ability to produce and distribute information, manage energy, intellectual property, transport and financial flows, issue reserve currencies, regulate disputes, and assess creditworthiness. There will arise the need for an alternative, parallel, independent global infrastructure that would allow the non-Western world to compete financially, informationally and logistically on equal terms. Systems critical to the smooth operation of the world economy must not be allowed to be used as a weapon for pressure or unfair competition.

RUSSIA: A NEW PARADIGM AND A NEW ROLE

What is in store for Russia? Europe was a key dimension for this country throughout its history. Over the last three hundred years Russia has been a leading player in European conflicts, with no serious competitors in the south and the east. But Europe has stopped being a dominant region. Globalization has stimulated the development of Russia’s southern and eastern neighbors—China, India, Turkey, Iran, Saudi Arabia, South Korea, and others—with their own interests and spheres of influence which will inevitably overlap and conflict with Russia’s ones. Russia is locked between the two centers of power in the west and east, it is independent and unique enough to reject a subordinate role, but at the same time, it is too scarcely populated to compete alone. Lacking its own “critical mass,” Russia needs to look for a new role in the world.

The Russian economy needs a much bigger market than the present one for successful development. Just like Canada’s economy has no future without American markets, there is no point in expecting Russian enterprises to become competitive without the markets in the south and east of the continent. Just as Russia needs the market of four billion consumers from Turkey to Japan, and Greater Eurasia needs Russian resources, land and competences. This requires that Russia establish infrastructure ties with its neighbors not only in the west and east, but also in the north and south—roads, pipelines, data cables, and electrical grids that would connect it with Turkey, Iran, Pakistan, India, China, and ASEAN countries. Russia is no longer the east of Europe; it is the north of Greater Eurasia.   

But as the area of major geopolitical conflicts shifts from our western borders to the south and east, Russia’s prosperity becomes impossible without security and stability in Eurasia and primarily in its central part, a junction of numerous routes from east to west and north to south. China with its Silk Road Economic Belt initiative is facing the same challenge. Although both countries pursue their own interests, they have the same long-term plans to create an area of harmony and calm in Eurasia.

Who will guarantee order in this dynamic and explosive region and supply technologies and services for its new “smart” infrastructure? China can hardly do this because of the strong mistrust among its neighbors. The function of maintaining order could be performed by a collective body such as the Shanghai Cooperation Organization (SCO) where Russia will become a key player due to its diplomatic and military experience and equidistance from its principal partners. 

There are factors that at some point in time can give countries competitive advantages. In the 21st century it is Russia that will have the potential for attracting talent and investment, because it is able to create a safe space in a world full of danger. In order to ensure its own development and tap the potential of a “safe haven” in a sea of global problems, Russia should set itself the task of becoming the safest country in the world. But the ability to destroy any potential aggressor, have the world’s most secure servers or run the best food safety monitoring system would not be enough for that. Russia should garner faith and credibility in its logistic, information and financial systems, primarily among its own people.     

Russia emerged out of the Cold War with the geostrategic potential that by far exceeds that of countries with similar economies. Its information, diplomatic, military, communication, and (in many spheres) technological capabilities are much higher than it could expect for its level of development. Most importantly, it has something that will be in short supply in the future world—natural resources, protected transit routes between Europe and Asia, arable land, clear water and air. Russia is fully sovereign and effectively defended, which allows it to play an equal role in solving global issues. Its right of veto in the UN Security Council is supported by its nuclear status. Russia has independent navigation and cybersecurity systems, global surveillance and intelligence services, well-functioning emergency response mechanisms, its own production of weapons and critical infrastructure elements. 

The Syria experience showed that Russia can justify its allies’ trust. Moreover, the country has well established traditions and competences for defending its own and other nations’ security, costs and losses notwithstanding. 

Maintaining such potential could be economically unbearable and unjustified for Russia as a standalone country. But if this potential ensures the sovereignty and independence of a large part of the non-Western world, including Eurasia, this will create a completely different picture. SCO countries—Russia, China, India, and others—will optimize their competences on the continental level. Russia will complement its partners’ economic and geostrategic security capabilities by making them independent from maritime routes and overseas energy and other resources. In cooperation with China, Russia will become less attached to the Western financial system. China can carry out effective and inexpensive construction projects and organize mass production, something we have yet to learn to do.  

No other major non-Western country, many of which have their own crises to deal with, can offer the world independent systems or find resources for investment in all key technologies at the same time. The SCO can provide the basis for consolidating its members’ possibilities to create logistic and communication infrastructure, new technological alliances, financial institutions, strategic information collection and assessment systems, new global media, standards and arbitration procedures independent from the West’s political pressure. 

There is already a market for independent global systems and institutions—SCO countries and their potential partners alone account for more than a half of the world economy. Moreover, alternative structures are already appearing—the Asian Infrastructure Investment Bank, the BRICS’ New Development Bank, China’s UnionPay payment system, the open source Tizen operating system for the Internet of Things, GLONASS, and the Dagong rating agency. The lack of developed institutions and technologies in non-Western countries, primarily so-called “core” ones, opens up a huge market for Russia’s export of such services, to Greater Eurasia in the first place.

Russia can supply high-tech systems ensuring information and infrastructure independence. This includes protection of Eurasian countries’ territories, peacekeeping and rescue functions, guarantees for transcontinental transit across our sovereign territory, and creation of communication and monitoring systems. Remoteness, the climate and cheap energy resources make Siberia an ideal place for data storage on secure servers. Russia’s information and security competences no longer need advertising. Our country is one of the few places in the world where organic farming is still possible. Russia is a leader in space communications, transport aviation and many other fields. Such specialization matches strategic economic development imperatives, including the need to take a scientific and technological leap forward, overhaul industry using, among other things, the capabilities of the military-industrial complex, and increase its presence on global markets of high-tech non-resource technologies and services. These markets will grow to trillions of dollars in the near future. 

These are not only sovereign markets of government contracts. The biggest growth will be registered on the markets of personal services and solutions connected with the emerging Internet of Things, smart home technologies, the security of personal finance and communication as well as data and their transmission channels for the future health industry—there is effective demand on these markets already now. The same is true of markets offering urban and corporate security and management services such as public order, monitoring, cybersecurity, asset and data storage, water, air and food quality control, and energy and transport system management. Infrastructure protection, emergency response to catastrophes, wars and terrorist acts, global logistics, and the preservation of the planet’s biodiversity will require skills Russia has been successfully using for quite a while. Its Emergencies Ministry’s experience can be useful in dealing with conflicts and environmental crises, including the training of specialists for other countries or the supply of rescue equipment, vehicles or aircraft.

Even if Western markets become completely off-limits to Russian companies and China offers its own technologies, access to just one-fourth of the world market will open up good prospects for the growth of Russian leading corporations. The absence of global standards allows Russia to get the upper hand and create cooperative alliances with BRICS partners.

* * *

The focus on high-tech global infrastructure and security service markets will not only strengthen Russia’s sovereignty and defense but will also develop its human resources accumulated in information, defense, energy, and infrastructure companies, and lay the foundation for high-technology exports for many years ahead. This strategy is necessitated by the growing global demand for security. Conversion will open up enormous export opportunities for our military-industrial complex and for its broad cooperation with BRICS countries. Russia’s military-industrial complex can not only keep its long-standing partners but also substantially build up its contract portfolio. Defense and security industries and agencies, far from being a “burden,” will become the development drivers for the Russian economy, turning into sort of profit centers. The fact that the military-industrial complex and the Armed Forces are controlled directly by the President will make it much easier to coordinate their export operations with the country’s foreign policy.

What also makes this approach quite valuable is that it allows Russia to change its global outlook. Since the end of the 1980s our country has been going through a series of internal crises or had to respond to external circumstances often created by other players, or in most cases both. This formed a certain type of mentality, readiness and ability to counteract and constantly fight back. The world is rapidly changing, however, and in order to succeed, the country needs self-confidence and ability to offer a positive action plan to others. The image of Russia as a country that can successfully solve problems, both its own and those of others, will enable it to move on to a qualitatively new level of development.

} Page 1 of 5