Can Russia turn east for a better world order?
by Krishnarjun on 26 Dec 2014 0 Comment

The sanctions on Russia could lead to realignment of geo-politics and global economy. The momentum of this change away from their dominant position is not unnoticed in west. The events around Ukraine suggest they are manifestation of western fear of loss of dominance. It appears that the sanctions are a final desperate measure to threaten and bully Russia into submission, but developments since suggest the western powers have miscalculated and the sanctions could accelerate the realignment for a better and diverse world order.


The dissolution of the Soviet Union has raised hopes for a new world of peace and prosperity, away from destructive arms race towards economic development and freedom. The world saw the possibility of a comprehensive nuclear disarmament given the tensions of Cold War no longer existed. The events after the end of cold war proved the hopes were false.


Nuclear superpowers are still reluctant to dismantle their arsenal and many more nations are now desperate to have them for minimum nuclear deterrence, there is also now the serious possibility of terrorists getting their hands on nuclear weapons. The attempts for nuclear non-proliferation would have looked more sincere and credible if residual powers of the Cold War led the world by action on nuclear disarmament.


On the economic front, financial colonialism replaced the colonisation of the past centuries as neo-globalisation. A genuine kind of globalisation has existed all through human history, people were migrating between countries, and surplus goods were traded. The neo-globalisation restricts movement of people but takes advantage of their resources and services through financial colonisation.


Post-colonial west lost free supply of raw materials and other resources from former colonies, but needed to import them to maintain the standard of living; importing resources at a price is an extra burden for western businesses as purchasing power in the economy wouldn’t be able to sustain production costs without matching exports.


The former colonies with raw materials lacked a manufacturing base, so they opened the gates for foreign direct investment, an arrangement where industrial nations would get resources, finished goods and services at cheaper rates in exchange for employment and other spillover effects leading to a modern industrial economy in developing countries.


The post-Cold War saw the emergence of economies in Asia based on the FDI export model powered by demand for goods and services from the west. Over the last two and half decades countries like China and other East Asian countries perfected this model and accumulated huge trade surpluses in foreign exchange while the western economies developed corresponding trade deficits. The financial bubble created by the western financial system provided the seed investment for this export-led growth in developing countries.


The 2008 financial crisis exposed this financial bubble that helped western economies to maintain huge trade deficits. While the west would like this arrangement to continue forever, the emerging economies could see the financial colonialism where they exchange real goods and services for printed paper money. Countries like China ruined their environment to provide goods and services in exchange for printed money.


The massive foreign exchange surpluses these emerging economies built are enough to shield them from any prospective balance of payment or sovereign debt crisis. No longer worried about sovereign defaults they are now looking for mutually beneficial engagements in international trade that would help their economies to diversify with sustainable internal growth. The formation of BRICS by Brazil, Russia, India, China and South Africa is a step in that direction.


The combined GDP of BRICS on purchase power parity basis is already higher that G7 countries at $37 trillion. An arrangement between these countries to trade in their own currencies or a common currency could significantly impact the international financial architecture with heavy stakes for western banking system. The formation of BRICS bank is a big challenge for western domination in international banking and finance.


The renewed tension on Ukraine between Russia and the West has to be seen in this context. Historically, Europe always wanted Russian raw materials but refused to accept it as an organic part of it. Russia, the world’s largest country in area, is rich in raw materials and the bulk of its trade is in crude oil and raw materials. Russians follow the Orthodox Church with roots in the Byzantine Empire; they have little connection with the western church in Rome. They don’t send armies of evangelism to proselytise non-believers to their faith.


Russia was culturally, religiously and economically linked more to Central Asia since its emergence as an empire until Peter the Great, fascinated by European scientific and military advancements, turned towards Europe in the 17th century. He established the city of St Petersburg and moved the capital of the Russian empire form Moscow to St Petersburg on the Baltic coast. Russia was the first Asian country to participate in the Industrial Revolution. It was part of the changes in Europe but at the same time its vastness into Asia also ensured aloofness from Europe. It was a failed dream of every dictator from Europe to capture Russia.


As part of Soviet Union, Russians achieved a good technological base, particularly in defense and space exploration. In the last decade Russia emerged as a major exporter of energy and raw materials. The western sanctions followed by dip in crude prices would have an impact on the economy, but is not something unmanageable. The fundamentals of Russian economy are good with big trade surpluses, low debt and low unemployment. It has accumulated over $400 billion exchange reserves over the years.  The fall in rouble exchange rate is positive in the sense it would help the economy to diversify and reduce imports.


The hasty sanctions on Russia could push it more towards Asia and BRICS countries. China is poised to take advantage of the situation; it has already signed a massive multi billion long term energy deal with Russia. India is also keen to improve bilateral trade with Russia; during President Putin’s recent visit to New Delhi both countries committed multi billion dollar deals in defense and energy. Russia could help BRICS countries in technology and raw materials in return for manufactured goods and agriculture products. The loss of Russian trade with Europe and the west could be a gain for BRICS countries; this could give more impetus to the BRICS arrangement.


The advantage with BRICS arrangement is that though China’s financial contribution is more to start with, all participant countries would have the same voting rights. The size and share of participant countries would ensure no country would be a pushover. However, the extent and scale of BRICS success would depend much more on China’s attitude towards its neighbours, particularly India. The relations between Russia, India and China would be critical for BRICS success.


The BRICS challenge is much more serious to the west than it officially acknowledges. The attempt to destabilize economies through speculation in financial markets wouldn’t yield any significant advantage to western powers; the financial terror would be a loss to all sides without any change in fundamentals to the advantage of western powers. The more they use the same trick; more the developing world would find ways to circumvent the financial system controlled by them.


Fundamentally, western powers have to realize they cannot forever live beyond their means and resources. The massive technological advantage they enjoyed gave robustness to their financial architecture in the last century. The 2008 financial crisis was not a crisis limited to banking system, but a failure of capitalistic architecture that needs continuous growth to sustain. There is an inherent assumption that human material needs are infinite to support such a continuous growth economic system.


Beyond basic needs and some attractive products for sense indulgence, innovation doesn’t automatically guarantee huge markets for profit.  Modern innovation itself is limited by fundamentals of current scientific knowledge and it has achieved very limited progress in more than half a century. The developing world is fast achieving technological parity with western powers. So it’s better for both if the western powers learn to deal with developing world as equals in partnership.


The global economy can be stabilized to the advantage of every stakeholder if nations cooperate, share their surpluses through trade on equal terms leading to real prosperity for both east and west. The main obstacle to this is a global banking-corporate clique that took over the government apparatus in the west. The common man in the west, like his counterpart in the developing world, also suffers the machinations of this clique, with wage slavery and a life of continuous debt from birth to death.


The BRICS group must evolve systems and institutions that enable mutually beneficial cooperation between nations compared to economic dictatorships that existed so far. If the economic institutions in these countries follow the footsteps of their mentors in the west, they would show the same hegemonic tendencies and their population would suffer the same consequences with no scope for alternatives anywhere. Any sniping between member countries would be counterproductive to the goal and the partnership would turn useless. This shouldn’t be seen as a fight between west and east, it should be an attempt to make the world better.


The people of west, east and everywhere deserve better than these continuous threats of financial terrorism, religious terrorism and ever hanging sword of nuclear holocaust. There are enough resources in mother earth for the prosperity of humans and other life forms if humans behave responsibly.    

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