Returning to a Place That No Longer Exists

25 march 2012

Can the Soviet Union be Revived or a Viable Alliance Created in Its Place?

Murat Laumulin is a chief researcher at the Kazakhstan Institute for Strategic Studies in Almaty. He holds a Doctorate in Political Science.

Resume: Entire generations of people born in the former Soviet Union would wholeheartedly support unification, but a logical question arises: With whom are we going to unite? A country that has assimilated the worst from Western capitalism, rampant with xenophobia and domestic racism, and which is suffering from a demographic and technological decline? A country whose economy is controlled by the mafia and oligarchs?

During a recent performance of his 1968 hit song “Back in the USSR,” Paul McCartney referred to the Soviet Union as “a place which no longer exists.” While true, this phrase still grates on our ears, as if we, the residents of that very country, no longer exist either.

The twentieth anniversary of the breakup of the Soviet Union has again fueled discussions about “the place which is no more.” The wound has healed, the pain is gone, and the shock has long subsided, yet who has not wondered in the past two decades how the collapse happened? In any event, the idea of a “return of the USSR” in one form or another has preoccupied politicians, political scientists, and the public. Russian Prime Minister Vladimir Putin once said that “those who do not feel sorry about the breakup of the USSR have no heart, and those who dream of rebuilding it have no wits.” That statement was meant to reconcile everyone; to appease the supporters of the Soviet idea, while making it clear that there is no going back.

However, in preparing for his return to the Kremlin, Putin seems to be listening to what his heart is saying. His idea of establishing a Eurasian Union, unveiled in early October 2011, caused a storm of emotions, conjectures, and debate, above all among close allies and aspirants to the role of partners in a future union. “What is it?” Astana and Minsk began to wonder. Is it the final implementation of Putin’s doctrine (an economic alliance followed by a political union)? Or is it an election stunt? Or maybe it is a long-term strategy for reviving (and some hearts would miss a beat at the idea) the beloved Soviet Union?

EURASIANISM AS SALVATION

The idea of creating a Eurasian Union in the territory of the former Soviet Union is not new. Kazakh President Nursultan Nazarbayev first approached this idea in a lecture at Moscow State University in early April 2004, when he suggested establishing an association of this kind to replace the Commonwealth of Independent States (CIS). In other words, he proposed creating a sort of confederation with a clear political and economic framework to replace the amorphous Commonwealth, which did not commit its members to anything. This was a bold proposal and the Kazakh Foreign Ministry, in the wake of Nazarbayev’s visit to Russia, drafted an official document and forwarded it to all CIS governments.

In fact, Nazarbayev had simply suggested reviving the Soviet Union under a new name – or at least the text of the document suggested this if one reads it carefully. He called for creating one parliament, one government, one army, one currency, etc. The proposal evoked a feeling of dОjИ vu: a Eurasian union project was painfully familiar and reminiscent of Mikhail Gorbachev’s Novo Ogaryovo plan, which was foiled by the August 1991 coup. Under the then accords, Nazarbayev was to have taken the post of prime minister in an overhauled Union.

It is difficult to tell what motivated Nazarbayev at the time. He might have been nostalgic or pragmatic because Nazarbayev, as no other CIS leader, was aware of the need for post-Soviet cooperation. But Kiev and Tashkent angrily rejected the bid. They immediately saw through the project, branding it straightforwardly as “the return of the USSR.”

The reason behind that proposal was perhaps hidden in Kazakhstan’s domestic policy, where the Eurasian idea was extremely popular in the 1990s. After the fall of the Iron Curtain, which made extensive contacts with foreign states possible, the Kazakhs saw they were different from their neighbors in the Islamic world, despite a Muslim renaissance in Kazakhstan. In the Soviet Union, Central Asia residents were regarded as “Asians,” yet upon a closer look at the Chinese and other Far Eastern nations, it becomes clear that they were not very similar to true Asians. They had much more in common with citizens of other countries of the Commonwealth of Independent States. This is where the notion “Eurasians” came in handy.

Nazarbayev’s speech launched a Soviet-style campaign to promote the Eurasian concept, with endless symposiums, conferences, and round table discussions. However, the idea, though promising and popular with the public, soon set everyone’s nerves on edge. The new university in Kazakhstan’s newly built capital Akmola (formerly Tselinograd and currently Astana) was named after Soviet scientist Lev Gumilev, popular with Kazakh intellectuals, and the word “Eurasia” became part of the university’s name. Alexander Dugin, an ardent supporter of Eurasian geopolitical unity, made frequent visits to Astana.

Things were not limited to rhetoric. Astana made repeated attempts to achieve a closer integration at the regional level and in the post-Soviet space. The idea of a Central Asia Union emerged in the mid-1990s, which Astana kept reiterating until 2008 in one form or another (as an economic community, an economic space, etc.), and which Tashkent constantly rejected. The efforts began to bear fruit by the end of the decade, largely due to Moscow’s support, and the Eurasian Economic Community (EurAsEc) was set up in 1998. In addition to Russia and Kazakhstan, the organization included Belarus, Kyrgyzstan, and Tajikistan.

Simultaneously, Moscow and Astana reached a compromise to settle the Caspian problem (the delimitation of water and the offshore area), and Azerbaijan later shared their approach. A sort of a “Caspian pool” emerged, although unofficially, as Iran and Turkmenistan blocked any progress on a pan-Caspian scale. Nazarbayev quickly realized that a political association was not possible. They needed an association based on economic principles, and an easing of restrictions for ordinary citizens, such as transparent and customs-free borders, and information exchanges. This is how the plan “Ten Simple Steps Towards the Public” was born.

Attempts to promote the idea of a Customs Union (on the basis of the EurAsEc) in the late 1990s clearly showed that the first step is the hardest. Despite years of negotiation, the parties failed to agree on a single tariff system, VAT, or customs control. The trend was reversed when Putin took the helm, especially as he launched a vigorous integration policy in 2002-2005. Putin breathed new life into many Yeltsin-era integration projects, such as the Collective Security Treaty (reconfigured to the CSTO), EurAsEc (which included the Central Asian Economic Community), and gave a new impetus to the Russia-Belarus Union State. The Shanghai Cooperation Organization was founded on the back of the “Shanghai Five,” and, lastly, the groundwork was laid for the second version of the Customs Union. Simultaneously, Moscow, supported by Astana, pursued a policy of cutting off nonviable members from the Commonwealth of Independent States.

An integration center made up of five to six countries, mostly CSTO or EurAsEc member-states, was formed. However, despite the numerous collective documents signed, bilateral relations between Russia and other countries continued to prevail. In the second half of the 2000s, Russia, Belarus, and Kazakhstan reached a certain mutual understanding regarding the pace of rapprochement and spearheaded full-fledged integration by setting up the Customs Union. They were followed by a second group of post-Soviet republics, which Moscow, Minsk and Astana considered not yet ready for full-scale unification because of problems with economic and political stability, foreign trade security, etc. This downgrading wounded Tashkent’s pride, and Uzbekistan – the enfant terrible of Central Asia – quit the CSTO and EurAsEc. Kyrgyzstan and Tajikistan opted to wait for membership, but the big partners made it clear that their prospects for joining the Customs Union were not good. However, there was an unofficial accord that Bishkek and Dushanbe could hope for membership in a distant future.

 

FORWARD AND BACK TO THE EURASIAN UNION?

On October 3, 2011, Putin, who had already announced his presidential campaign, published a proposal in the Izvestia newspaper to create a Eurasian Union, thereby reviving – and quite unexpectedly – Nazarbayev’s idea. Putin raised the crucial issues of creating a single currency and establishing supranational bodies in the future. Immediately after Putin’s statement, Belarusian President Alexander Lukashenko and Nazarbayev published their own opinions in the same newspaper. That very fact is curious: if they had fully agreed with Putin, they would not have published their articles in Izvestia. Yet each wanted to make a point.

For example, Lukashenko “forgot” that the Eurasian Union initiative of 1994 was the brainchild of his Kazakh colleague, and fully credited Putin with it. Yet he insisted on the equality of all union members.

For his part, Nazarbayev, in an article published by Izvestia on October 25, 2011, outlined the problems concerning the foundation of a Eurasian Union. The proposals (based on the 1994 project) boil down to the following:

First, integration should be based primarily on economic pragmatism. The groundwork for the future Eurasian Union is the Common Economic Space, as a vast area for joint development among CIS nations. Second, integration must be voluntary. Each state and society must independently realize its importance. Third, the Eurasian Union is an association of states recognizing the principles of equality, non-interference in each other’s affairs, respect for sovereignty, and the inviolability of state borders. Fourth, it should envision establishing supranational agencies that would act on a consensus basis with due regard for the interests of each member-state, while at the same time have clearly-defined and real authority. However, this does not imply the handover of political sovereignty. Fifth (a provision added in 2011), each country should be responsible for domestic development, and effective national economic, credit and financial, and social policy.

Nazarbayev pointed out that in the first half of 2011 the aggregate foreign trade of the three countries increased by one-third to $100 billion by year-end, up 13 percent from the previous year. Cross-border trade between Kazakhstan and Russia posted the fastest rate, at more than 40 percent. However, the three countries experienced difficulties in adapting to unified customs tariffs and import duties. In addition, national customs administrations often disagree. The Customs Union expanded the borders of the sales market for Kazakh goods from Brest to Vladivostok. In 2011, Kazakhstan boosted its exports to Russia by 60 percent and to Belarus by 130 percent. The three countries lifted restrictions on the movement of foreign currency within the single customs territory.

Kazakhstan views the Eurasian Union as an open project. It cannot be conceived without broad interaction with the European Union. Nor can the proposed association be viewed as a shield against so-called Chinese economic expansion.

The practical stage of establishing the Common Economic Space (CES) as a forerunner of the Eurasian economic union came on January 1, 2012. Mechanisms to coordinate economic policy and free cross-border movement of services, capitals and labor resources, as well as unified legislation, will begin to function successively. National business enterprises will enjoy equal access to the infrastructure in each CES member-state. In the future, the participants might opt to pool their transport, energy, and information systems.

Aggregate GDP of the three countries is almost $2 trillion, while their industrial potential is estimated at $600 billion. The production volume of the agricultural sectors is worth $112 billion and the unified consumer market has more than 165 million people. The CES could become a powerful association and an integral part of the new global architecture. This requires a clear strategy of action based on the following principles:

  • Firstly, the Eurasian Union should be a competitive global economic association.
  • Secondly, the Eurasian Union should be a fast link connecting the Euro-Atlantic and Asian development areas. The Common Economic Space is expected to step up cooperation with the European Union, China, Japan, India, and ASEAN.
  • Thirdly, the Eurasian Union should be a self-sufficient regional financial association, a part of the new global currency and financial system. Establishing a currency union within the CES framework should bring the member-states close to a new level of integration, similar to that of the European Union.
  • Fourthly, a geo-economic, and subsequent geopolitical, reinforcement of the Eurasian integration should run its natural course and be absolutely voluntary for its members.
  • Fifthly, the establishment of the Eurasian Union is possible only on the basis of broad public support. To this end, it is necessary to expand the number of public associations, such as the Eurasian Congress of Industrialists and Entrepreneurs, established on the basis of the EurAsEc Business Council. A Eurasian Chamber of Commerce and Industry should be set up within the Customs Union format, which could be headquartered in Astana. Also, the three countries should start work on launching a twenty-four hour Eurasian news channel.

The platform for Eurasian integration is broad. It already includes various interstate organizations – the CIS, EurAsEc, the CSTO, the Customs Union, and the Common Economic Space of Kazakhstan, Belarus, and Russia, which differ in their forms, objectives, and tasks. Yet Kazakhstan has not ruled out establishing other alliances, such as a Central Asian Union. It would contribute to improving the welfare of all the citizens of Central Asia and help resolve the region’s difficult problems.

Simultaneously, Kazakhstan has proposed making Astana the capital of a new Eurasian Union, similar to Brussels as the capital of the European Union. A central office located outside of Russia would rid the new integration association of suspicions within the member-states and elsewhere.

The proposal to make Astana the capital of the future Eurasian Union forces Russia to finally decide on its vision for post-Soviet integration: Should the proposed project be a union of equal partners or a project to amass territories with Russia as the core? If it is an equitable partnership, placing the central office in Minsk or Astana is no problem. However, it is obviously unacceptable to Moscow, at least for now.

 

PROS AND CONS: THE DEBATE IN KAZAKHSTAN

In Kazakhstan there are opponents, mostly nationalists, to the Customs Union, the Common Economic Space, and a Eurasian Union. They argue that Moscow is working systematically towards rebuilding the Soviet Union and that Kazakh sovereignty may come under threat. Astana has to coordinate many laws with Moscow within the framework of the Customs Union, and if Kazakhstan opts for a still tighter union, it will lose its independence. Deep integration with Russia inevitably leads to a merger in the spirit of neocolonialism, where Kazakhstan will never be an equal.

Nationalists argue that economic and political independence are inseparably linked. Joining a Eurasian Union must be a natural process, and other countries will find it truly attractive if Russia abandons nostalgia and embraces equitable cooperation. Nationalists also claim that Russians will buy up crucial Kazakh businesses, while projects proposed by Moscow suggest a return of the Soviet Union and its command economy. As an example, they point to higher consumer prices after Kazakhstan joined the Customs Union.

Furthermore, joining the Eurasian Union will cramp Kazakhstan’s international position and relations with the West and China. Astana will lose control over its borders, which will become the borders of both the Customs Union and the Eurasian Union. The Customs Union has already complicated the activity of Kazakh producers, transport companies, and businesses in many economic sectors. The establishment of the Eurasian Union may actually take Kazakhstan’s future WTO membership off the agenda. In general, there is a widespread view that the new Eurasian project is only advantageous to Russia, which, by taking the leading role in regional integration, is a way for Moscow to strengthen its international position.

Kazakh experts, who are not as alarmist as nationalists or populists, also point to problems concerning the functioning of the Customs Union and the creation of the Eurasian Union. For example, there is the challenge of Russia dominating the supranational agencies of the Customs Union, which rules out equitable coordination by the union member-states of their economic interests. In the long run, an aggressive protectionist policy in the Customs Union may lead member-countries to a dead end, as these countries will technologically lag behind developed nations, and access to foreign investment, which is essential for economic modernization, will be blocked.

In addition, each of the three countries will retain substantial national specifics in the monetary and financial sphere, which are natural obstacles to integration. For example, the monetary policy of Belarus differs considerably from the policies of Russia and Kazakhstan (Minsk bets on domestic sources of finance and domestic production). The reverse side of the Belarusian economic model that ensured high economic growth rates is an underdeveloped financial market and a non-transparent financial system. Rivalry between national jurisdictions in the fiscal sector will persist. Thus, pooling monetary systems as the final stage of integration is beyond the current plans.

The European experience suggests that if Customs Union members wish to have a single currency, they need to agree on limiting the issuance of debt securities. Moreover, the countries need to have a single security to fund state debts, based on the three countries’ overall balance and common borders within the Customs Union. Nobody is ready for this yet. If the Customs Union and the CES expand to include Kyrgyzstan and Tajikistan, or a larger country such as Ukraine, the dominance of the Russian ruble in mutual trade will diminish. This may help create conditions for introducing a single currency.

There are also risks linked with “stretching” the CIS between external centers of power. Moldova and Ukraine are beginning to be engulfed, or rather colonized, by the European Union. In Central Asia, the main obstacle to Kyrgyzstan’s joining the Customs Union is the tremendous volume of Chinese imports in the country, which is largely used as a logistic center for shipping goods from China to CIS states.

Speculative capital generated to fund the U.S. budget deficit and the balance of payments flows through U.S. banks all over the world. The cheap loans these banks receive thanks to Federal Reserve injections are used in exchanges for physical assets. Therefore, the risks are obvious of speculative attacks to take over national property and derive super profits by destabilizing national financial markets. These risks require a tougher currency regulation policy and mechanisms to cut off speculative capital from direct investment within the framework of the Customs Union and the future Eurasian Union.

Kazakh experts posit that the concept Putin proposed as a crucial element of his presidential program is too narrow and does not match the scope of the task. Even in the event of Ukrainian involvement, which is very unlikely, it embraces poor nations with modest financial and labor resources. Furthermore, these countries do not have suitable markets.

 

THE CUSTOMS UNION: MYTHS AND REALITY

Despite Nazarbayev’s optimistic opinion of the Customs Union in the article mentioned above, discussions about this association, the CES, and the Eurasian Union involve not only Kazakh experts, but also the mass media – at the level of widespread public opinion. A recent poll shows that Kazakh society is almost equally split over the Customs Union: 52 percent of the respondents supported it, while the remaining 48 percent rejected it or were undecided. Further integration with Russia could cause a rift in Kazakh society with all the ensuing consequences.

Experts believe there are two macroeconomic approaches – one long term and the other short term – for the Customs Union and other integration projects in the territory of the former Soviet Union. Some experts discuss the current pros and cons of the integration and come to the conclusion that Kazakhstan is still at an obvious disadvantage both economically and politically. Others analyze global trends, arguing that economic integration with neighbors is crucial for Kazakhstan. Both sides do not deny the fact that the situation is constantly changing, so it is current interests that affect the viability of a majority of economic associations in the world.

Any integration with Russia will invariably involve the key question for Kazakhstan: Who will profit from it, given a ten-fold difference in the size of their economies. The idea of a deep economic integration was a good one in 1994, when the economic structures in Russia, Kazakhstan, and Belarus were almost identical, because the trio had just emerged from the Soviet past. The government controls most of Russia’s strategic assets, whereas in Kazakhstan they are in the hands of private investors, mostly foreigners.

Some Kazakh experts note four negative consequences of the Customs Union. The first is the “import” of Russian inflation and the second is the trade deficit with Russia and Belarus (Kazakhstan buys more from these two countries than it sells to them). The difference – in the hundreds of million of dollars – is offset by the surplus that Kazakhstan derives from the export of oil and other raw materials to non-CIS states. To pay for Russian and Belarusian goods, Kazakhstan has to mine as much as possible. Why should Kazakhstan lose these hard currency earnings and stimulate the economies of other countries? The third negative factor is the growing presence of Russian and Belarusian producers on the local market, who are more competitive than their Kazakh counterparts. As an example, experts point to the ‘Vesyoly Molochnik’ brand, owned by Wimm-Bill-Dann, a recent acquisition of PepsiCo.

Remarkably, part of the hardcore opposition acknowledges Kazakhstan’s need for integration. Politicians are confident that Kazakhstan, Russia and many other countries in the region are economically sovereign “to the extent to which they are limited by the dollar space and dollar globalization.” It will only be advantageous to the dollar zone to have loans in Kazakhstan that are three times more expensive than those in Europe, while Kazakh inflation is three times higher. Moreover, the Kazakh tenge is a kind of local “dollar.” If we assume that the ongoing economic crisis in the West is a forerunner to the end of the globalization era and the collapse of the global “dollar state,” an emerging Eurasian community is a counter trend to balance the Western financial and economic crisis.

Kazakh lawmakers point to the political reasons behind the establishment of supranational agencies, such as the Commission of the Customs Union, where the decision-making mechanism is proportionally arranged in favor of Russia (which has 57 percent of votes, compared with 21.5 percent each for Kazakhstan and Belarus). However, experts and even well known politicians often cite inaccurate data. Specialists refute claims of inequality in decisions made by Russia, Belarus, and Kazakhstan. For example, representatives of the Kazakh Industry and New Technologies Ministry argue that the distribution of votes in the Customs Union Commission was calculated on the basis of the votes Kazakhstan has in the EurAsEC. However, this does not affect general decisions. Since it was established 18 months ago, the Commission has not ignored a single Kazakh proposal. The votes in question (21.5 percent each for Belarus and Kazakhstan) influence the joint funding of the EurAsEc and Customs Union budget. Each country contributes according to its share and decisions are only made by consensus.

Starting in January 2012, the Commission of the Customs Union will be restructured to a two-level Eurasian Economic Commission. The first level comprises a commission of nine people, three from each country, and decisions are passed by two-thirds of the votes. In actual fact, Russia’s 57 percent is no longer relevant. The Commission’s Council is the second level, made up of three representatives of deputy prime ministers. Its decisions are consensual, and if the parties fail to reach an accord at this level, the Council of the Heads of State will consider the issue. Therefore, there is no imbalance and any country, if it disagrees with a decision, can block it. It is assumed that the same principles will be used to establish the Eurasian Union.

 

* * *

The idea of creating a Eurasian Union, put forth by Nazarbayev and revived by Putin, has received a new lease on life, as one can see by the reaction (often nervous) of foreign partners, especially in the West. Yet let us consider the situation in a historical context: Who will unite, how will they do so, and for what reasons? Putin was right – it is impossible to revive the Soviet Union, as there are no fundamental constituents for this project, which include a Socialist (state-run) economy, and one ideology and political class, unified through common interests.

While a nascent Soviet Russia offered the people of the former Russian Empire a great modernization and international project in the 1920s, there is no such project at present. Entire generations of people born in the former Soviet Union would wholeheartedly support unification, but once they think about the idea, a logical question arises: With whom are we going to unite? A country that has assimilated the worst from Western capitalism, including the worst possible bourgeois culture, rampant with xenophobia and domestic racism, and which is suffering from a demographic and technological decline? A country whose economy is controlled by the mafia and oligarchs? Some might argue that we have a similar situation in Kazakhstan, and rightfully so.

It is not the political or economic elites that must unite, but the people. Yet history teaches us that people are too trusting and often do not know what they really want. It is painful to think that we will go down in history as “a place which no longer exists.”

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