Monday, July 27, 2009

Biden is Wrong About Russia

What Biden said:

The reality is the Russians are where they are. They have a shrinking population base, they have a withering economy, they have a banking sector and structure that is not likely to be able to withstand the next 15 years, they're in a situation where the world is changing before them and they're clinging to something in the past that is not sustainable.


There has been lots of talk about how Biden should just be quiet because what he said needlessly pisses off the Russians and embarrasses Obama, especially after Obama’s relatively successful charm-offensive while meeting with Medvedev and Putin. This is true enough; but no one ever questions Biden’s analysis of Russia’s current situation. They should, because Biden is mistakenly painting Russia as being in a overly crippled position. This faulty analysis, if it is shared by Obama, could serious hinder the prospects for American-Russian cooperation going forward.

Yes, Russia has a well-documented shrinking population. But interestingly, all the Russian statistics (as opposed to, say, the U.N. statistics) forecast stabilization in the Russian population because of a large increase in immigration. This may be wishful thinking on the part of Russia, but I don’t see why the Russian stats would be wrong on this score, since it is the Russian government that will be controlling the level of immigration through their immigration policies. And, believe it or not, a lot of people want to immigrate to Russia, especially from the former Soviet Republics that have real basket-case economies (yes, MUCH worse than Russia’s).

As for the “withering economy,” it’s not nearly as bad as Biden thinks. Commodity prices (and Russia has tons of commodities, not just oil, but virtually all the metals, as well as natural gas) are rising and are currently at levels that make the general economy stable, and also make the Russian government’s budget deficits very manageable. In fact, this year's deficit looks miniscule ($23 billion) compared with the U.S. budget deficit ($1 trillion, as far as the eye can see), and it is on par with the U.S. deficit as a percentage of GDP (both around 4%). The rainy-day fund that was built up in Russia when oil prices were well north of $100 a barrel is depleted, but not gone. And if the currency markets are to be trusted, investors seem to think that the Russian economy is now on much more stable ground—the Ruble has appreciated considerably against the dollar in recent months.

Russia’s banking sector is in trouble, for sure, but the Russian government is doing the same thing the U.S. government is doing to support our troubled banks—that is, providing an implicit back-stop. I expect Russian banks to have as good of a chance of survival as the big American banks.

Biden’s last clause (“they're in a situation where the world is changing before them and they're clinging to something in the past that is not sustainable”) expresses a common misperception in the west: that Russia is a very unstable place and is on an unsustainable path that will ultimately end in disaster. By this narrative, Russia has, supposedly, been on the verge of breakdown for a very long time now. In reality, things in Russia are far from chaotic, and are very much sustainable. Putin enjoys high approval ratings (although not from me); the Medvedev-Putin partnership, while confusing, seems to be working just fine; the economy has been growing rapidly up until this year, raising the standard of living for many Russians; and this year will be the first year in a decade that the government will run a deficit. Things are not about to fall apart.

Biden is, however, right about one thing: relative to the United States, Russia is indeed still very weak—and will remain very weak for the foreseeable future. So Biden is right when he says that the Russians want to work with America because of this relative weakness. But, in this sense, Russia is no different from every other country in the world that has a strong interest in trying to cooperate with the most powerful country in the world. The Russians would be foolish to slap away Obama’s extended hand.

But Biden will be badly disappointed if he expects the Russians to crumble at the slightest American pressure. I suspect Russia will, unfortunately, show itself to be quite stubborn when it comes to the Iranian nuclear issue. There is a better chance that Russia will be cooperative on the Afghanistan issue; but Obama and Biden should expect to make some concessions (probably on missile defense) before they see any large shifts in Russia’s level of cooperation. Bottom line: Russia is not in as weak a position as Biden thinks, and America should not expect Russia to roll over in the face of American pressure.

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