British-American scholar Fiona Hill is a leading authority on contemporary Russia. She served on Donald Trump’s National Security Council as deputy assistant to the president and senior director for European and Russian affairs. She recently published an article in Foreign Affairs titled “The Kremlin’s Strange Victory.”
It deserves to be quoted at length:
“In the very early years of the post–Cold War era, many analysts and observers had hoped that Russia would slowly but surely converge in some ways with the United States. They predicted that once the Soviet Union and communism had fallen away, Russia would move toward a form of liberal democracy. By the late 1990s, it was clear that such an outcome was not on the horizon. And in more recent years, quite the opposite has happened: the United States has begun to move closer to Russia, as populism, cronyism, and corruption have sapped the strength of American democracy. This is a development that few would have foreseen 20 years ago…
“Indeed, over time, the United States and Russia have become subject to the same economic and social forces. Their populations have proved equally susceptible to political manipulation. Prior to the 2016 U.S. election, Putin recognized that the United States was on a path similar to the one that Russia took in the 1990s, when economic dislocation and political upheaval after the collapse of the Soviet Union had left the Russian state weak and insolvent. In the United States, decades of fast-paced social and demographic changes and the Great Recession of 2008–9 had weakened the country and increased its vulnerability to subversion. Putin realized that despite the lofty rhetoric that flowed from Washington about democratic values and liberal norms, beneath the surface, the United States was beginning to resemble his own country: a place where self-dealing elites had hollowed out vital institutions and where alienated, frustrated people were increasingly open to populist and authoritarian appeal.”
I began raising concern about potential convergence between the two former superpower rivals in 2004, first in my column in the Moscow Times, and then, after the Kremin’s 2014 annexation of Crimea, in the Kyiv Post — as well as in my writings on financial markets.
That Russia should go over to the side of evil was no great surprise, given its long history of servitude. Still, there had been so much hope throughout the 1990s.
In my view, what killed democracy in Russia was oil and gas. Their prices began to climb just as Vladimir Putin got settled in the Kremlin. High commodity prices raised incomes for many Russians but also led to the destruction of the (shoddy) Soviet-era industrial base and, more importantly, discouraged investment.
From a purely economic perspective, producing and exporting commodities is, on balance, a losing proposition. The Netherlands experienced what was subsequently called the Dutch disease in the 1960s and 1970s, when its industry suffered as a direct result of the discovery of vast natural gas reserves in its portion of the North Sea.
Oil, however, is the worst. This is why politically most oil exporters, starting with an A for Algeria and Azerbaijan and going down to an S for Saudi Arabia and a V for Venezuela, are such a mess. Living off the rent from the production and sale of this commodity, politicians, and business form an oligarchy that clings to power and divvies up the national wealth. Not needing too many skills for the oil economy or a healthy workforce, the education system, health care and social services for the masses are hollowed out. Instead, the people get crumbs from the oligarchs’ table. Democracy is dispensed with and populism and nationalism are used to control the populace and isolate critics.
This is obviously what happened in Putin’s Russia. But what does it have to do with the United States?
Commodities are not only something that gushes out of the ground. China, for instance, has been selling its own commodity for the past three decades: its plentiful and cheap labor which could be delivered to the global marketplace thanks to advances in communication technology and logistics.
China’s Xi Jinping has been acting like a true commodity-exporting state autocrat, rolling back whatever economic freedoms his people used to have and bringing the country under even more complete control of the party-business oligarchy. And now that its labor got too expensive and automation reduced the need for human inputs, China is starting to run into economic problems.
The United States too became a commodity exporter. Except America’s main export is not oil and gas — which it now produces in great quantities — but rather US dollars. During the recent debate about raising the federal debt ceiling this point — the fact that because the dollar is the currency to the world America is still a rich country — was frequently brought up.
To be sure Washington has been running current account deficits since the end of World War II, providing dollars to its allies and trading partners which they used to rebuild their economies and to develop. However, at some point in the mid-1980s the US began to abuse its power to issue fiat money. The Federal Reserve engaged in progressively easier monetary policy and early in the 21st century it simply and shamelessly began to print money. Interest rates have been effectively at zero since 2008 and the Fed’s balance sheet had ballooned to $8.5 trillion by September 2021.
It is not the kind of game that can be played forever. While inflation, as measured by the conventional consumer price index, remains subdued there has been a clear debasement of money around the world. And now we’re seeing the start of runaway inflation, as well.
But an even worse impact of living off a commodity is not economic; it is political. The US is the world’s most complex economy and a highly advanced, multilayered society. It has some 250 years of the rule of law and democratic traditions. Even after obvious failures during the Trump presidency, it retains a system of checks and balances and separation of powers.
And yet it too is becoming an oligarchy — which is what Hill describes and decries. Its richest oligarchs — all those Sages of Omaha, legendary investors, hedge fund managers and private equity kings — are essentially people who have positioned themselves close to the trough. They work in the financial services industry next to the Fed’s spigots, which is the equivalent of Gazprom and Rosneft in the Russian context.
America has plenty of successful entrepreneurs who are not financial oligarchs. However, finance being the lifeblood of business the ideology of oligarchy now permeates — or infects — America’s business culture.
America’s oligarchs still think that the world is their oyster and they are its kingmakers. Some American oligarchs think they could hold power themselves. Mitt Romney was a major party candidate for president, and there have been plenty of others dabbling in politics in both parties.
Billionaire Ken Griffin of the Citadel hedge fund, a major contributor to the Republican Party, recently dared to criticize Trump and threatened to pull his money from the Republicans if they run him again in 2024. To my mind, this simply shows that Griffin has no idea that he lives in a commodity-exporting oligarchy in which populism is king. He will surely pay a steep price for this mistake in the very near future.
It reminds me of the delusionary self-confidence Russia’s Seven Bankers and their leader Boris Berezovsky had when they placed Putin on the Russian throne. They were promptly disabused. Berezovsky is dead, other oligarchs of that era are dispossessed. They have been replaced by the vassals of the populist leader. Only those survive who are willing to put their wealth at the disposal of the political class and toe the line.
It is ironic that America’s populist leader and Putin’s equivalent is also an oligarch — or at least he used to play one on television. Hill writes: “Putin recognized Trump as a type and grasped his political predilections immediately: Trump, after all, fit a mold that Putin himself had helped forge as the first populist leader to take power in a major country in the 21st century. Putin had blazed the trail that Trump would follow during his four years in office.
“At times, the similarities between Trump and Putin were glaringly obvious: their shared manipulation and exploitation of the domestic media, their appeals to their own versions of their countries’ ‘golden age,’ their compilation of personal lists of ‘national heroes’ to appeal to their voters’ nostalgia and conservatism—and their attendant compilation of personal lists of enemies to do the same for their voters’ darker sides. Putin put statues of Soviet-era figures back on their pedestals and restored Soviet memorials that had been toppled under Gorbachev and Yeltsin. Trump tried to prevent the removal of statues of Confederate leaders and the renaming of American military bases honoring Confederate generals. The two men also shared many of the same enemies: cosmopolitan, liberal elites; the American financier, philanthropist, and open society promoter George Soros; and anyone trying to expand voting rights, improve electoral systems, or cast a harsh light on corruption in their countries’ respective executive branches,” Hill concludes.
