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Lossing Russia is easier than making it lose a war

The current anti-Russia sanctions, instead of solely draining the country’s authoritarian institutions, hurt these institutions’ democratic alternatives even more. As a result, after inevitably losing the war with Ukraine, Russia will become a poorer, more authoritarian, and hostile society united by an even stronger desire for retribution. To avert this outcome, there should be an acknowledgment that Russia’s autocracy is upheld solely by unreformed Soviet institutions. I argue that the theories of economic transitions that guided the creation of the Russian modern private sector provide clear theoretical guidance on optimal sanctioning today. Russia’s state higher education and science is an excellent frontier where these optimal sanctions can be tested.

Edited published version here

Countries are not humans

Oddly, international sanctions that cost trillions to the global economy are not guided by a coherent theory or solid empirical regularities. Existing policies implicitly borrow from the criminological theories of incapacitation and deterrence. The idea of incapacitation is as simple as it is old – isolate the offender from society to prevent future offending. Thus, the focus is on halting foreign currency inflow to Russia, including banning Russian export. This erodes Russian governmental global purchasing power and prevents future malicious activity.

Incapacitation is the most expensive and the least effective approach in criminology. The isolation prevents offenders from being productive workers and adversely affects those who depend on them. But most importantly, a country, unlike a human, can never be completely incapacitated. The West may stop buying gas from Russia in the future, but then the East will happily accept the same amount at a discount.

Alternatively, deterrence aims to discourage offences by instilling fear of consequences. A recession might scare a democratic politician who worries about winning a fair election. Russia never had fair elections. The economic sanctions are not scary to Putin and do not exert deterrence. Beyond that, the success of sanctioning is predicated on rationality – an ability to understand tradeoffs. Contrary to that, Putin’s capacity for rational thinking is an activity area of debate.

For Russians, the recession of the 1990s, when the economy underwent an unprecedented structural transformation, is an important benchmark. At the beginning of the transformation, the economy lost 52% of its output. By comparison, during the Great Depression, a textbook example of economic collapse, the American economy declined only by 34%

Many Russia’s rulers of today have been governing since that period. Thus, their tolerance for economic calamities is unimaginably high. The inconsequential sanctions of 2014 only reinforced their confidence that the recovery will inevitably follow once the economy adjusts. In particular, soon after the first 2022 sanctions were implemented, Putin’s government expressed confidence that the economy would recover after a temporary increase in inflation and unemployment.

Sanctions not only do not deter Putin, they feed him. Putin legitimizes his rule by heroically withstanding the economic hardships caused by the West “to put Russia to its knee.” This is not a rhetorical device but literally the message propagandized by Kremlin’s information monopolists. This message conveniently resonates with the Kremlin’s obsession with WWII.

Most Russians have been brainwashed into seeing the Nazi atrocities on the Eastern front, the painful economic transformation of the 1990s (which is also blamed on Americans), and the current economic sanction as a single narrative where Putin is the hero fighting the hoards of enemies inside and outside the country.

All in all, applying criminological thinking of deterrence or incapacitation to countries is incorrect. Even thoroughly personified dictatorships like Putin’s Russia are not humans. The largest drawback of equating a country and a human is the collective blame lazily assigned to all Russians. This is particularly unusual in the age of Black Lives Matter.

A randomly chosen African American is much more likely to be convicted of a criminal offense than anyone else. However, the world is finally waking up to the fact that this outcome results from slavery and system racism. Similarly, Russia’s problem is not its culture or preferences for violence. Russians are firstly the victims of unjust institutions and then the perpetrators.

Sanctions to finish the reforms

The best theoretical guide for optimal sanctioning is provided by the forgotten theory of economic transitions. In the 1990s, setting the economic agents free of deleterious state control was at the core of understanding the transition. The economic resources captured by the inefficient state companies generate well-being if resources are encouraged to relocate into newly created private enterprises.

This thinking motivated the Russian reformers of the 1990s to set prices, capital, and trade free. As a result, after 70 years of nonmarket resource allocation that ruined the Soviet economy, the newly established private sector became a domain of freedom and prosperity never seen in Russia. This, in turn, created a demand for political freedoms. The anti-Putin protest uniquely consisted of educated private-sector workers.

The reforms stopped soon after Putin came to power. His authoritarian rule today hinges solely on unreformed Soviet institutions. These institutions are the world’s enemies. Putinism can only be defeated if sanctions assist in transforming them. Similar to the private sector reform of the 1990s, this can be achieved by releasing resources used in these institutions towards better ones. The sanctions must be targeted to this effect.

Unfortunately, the current sanctions are not designed with this objective in mind. Consider these four examples.

Closing Russian YouTube state channels is an excellent idea, but it is counterproductive to ban all Russians from making money with their channels. After Putin shut down all non-state media, Russians poured into YouTube seeking the information.

The alternative media is the only way to fight the propaganda, and a sensible policy should encourage independent voices. Banning the state propaganda channels is proof that YouTube can identify malicious propaganda and selectively disable it; thus, there was no reason to ban all Russian residents from monetization. The channel’s attitude toward the ongoing war makes this distinction today easier than ever before.

Sanctioning state banks is good because it transfers resources toward entities where the state’s capacity is reduced. Russian state banks are the main sources of corrupt income for Putin’s loyalists. On the contrary, banning all Russians from using their bank cards abroad gives Putin a favor. After Putin attacked Ukraine, 200,000 mostly IT specialists left Russia, causing a panic in the government. Most of them had to return and work to sustain Putin’s regime further because they could not use their funds outside Russia.

Sanctioning the Russian state’s foreign currency reserves is a great idea. It drains the mobster’s ability to reward his abettors with foreign goods that Russians (due to their inability to produce them) value so much. However, buying natural resources from the Russian state companies is counterproductive.

Indeed the purchasing of gas by the European countries has been the single most significant contributor to the maturity of the institutions that support Putin’s illegitimate rule. In addition, these same countries were selling Putin military hardware, against their own post-Crimea 2014 embargo, based on his promise that it won’t be used for military purposes.

One of the anticipated effects of the sanctions was that Putin’s adversely affected social circles would talk him out of war. Only a democratic politician that projects his own life experience could have thought of that. Putin never felt pressure from his constituents (this notion has no place in Russian politics) and spent most of his years in power trying to reduce the influence of oligarchs on politics.

The elites’ support for Putin has only increased after sanctions were imposed. This happens because the collective tribal blame implied by the current sanction regime causes an indiscriminate reduction in Russians’ economic well-being.

Leveraging institutions that Putin can not ban

There is no doubt that Russia will lose the war, but it won’t change the Russian regime unless Soviet totalitarian institutions are still in place. So far, we have seen no evidence that their relative power in society is changing in favor of alternatives. Quite the opposite, many keen observers point out that Russia’s totalitarian feature will worsen and persist long-term. Russia will likely become more aggressive and dangerous too.

Unfortunately, not much can be done at this point. Elections, media, the justice system, everything that conventionally balances autocrats either never existed in Russia or has been emasculated by Putin’s gang. There is, however, one potential avenue for change. Russia’s higher education and science have untapped potential, but only if sanctions, as discussed above, are designed as a clever coordination device to transfer resources away from state-captured institutions toward better ones.

Of all determinants of Russia’s illegitimate power hierarchy, education has a unique property. On the one hand, Russian education is relatively globally integrated; therefore, in the short run, responsive to external impacts. On the other, it may revert the existing power ranking in society. For example, the Russian Academy of Science has historically been a prominent critic of the Russian authoritarian government. It took six long years for Putin to dismantle the Academy. Today the Academy undoubtedly would have been a powerful anti-war voice.

The Russian government harshly regulates state-owned education and uses it as a tool of propaganda and coercion. The deans of nearly all Russian state universities signed the letter supporting the war. Students who protest the war are expelled, while academics who do not support the war are discriminated against. It is also common to see pseudo-historians and conspirologists as faculty members who propagate a warped version of Russian history that justifies violence toward various minorities, ex-Soviet republics, and political opponents.

The opposite is happening in Russian private establishments. Importantly these establishments still have authority within a society, and the public does not eschew them for being “unpatriotic.” Unlike their politicians, Russians do respect and trust their scientists. After all, private establishments like European University at St Petersburg, New Economic School, and the Moscow School for the Social and Economic Sciences are at the top of their fields.

Harsh coordinated sanctions against the Russian state establishments with simultaneous support for private institutions will encourage resource transfer toward the private entities, opposing Putin. Importantly, supporting the private sector is as crucial as sanctioning the state one.

In line with theories of economic transition, the goal is not pain for its own sake but the encouragement of resource transfer. This suggestion is not without an empirical basis. The causal empirical link between better (read free of the authoritarian state capture) education and democracy is well established.

My conclusions may upset some Russian researchers working for the state universities – no need for this. Soon after Russia started the attack on Ukraine, the Russian government banned every media it did not own. Soon after, the same reporters opened their communication channel and now have, as before the ban, an audience of dozens of millions.

The demand for education will never disappear. Even if the government takes a license away from the private universities – the worst outcome – the private universities can still issue certificates. The certificate will still be in demand from the students if the business votes for them by offering better jobs and higher pay.

Unfortunately, on this front, as of now, the world is favoring Putin. The keynote lectures of prominent scientists are being canceled because of their affiliation with a private institute whose leadership publicly condemns the war, risking theirs and their familiar lives and economic well-being. Measures like this are optimal only if the object is to have Putin and his future copycat in power forever.

Consistency

There is another reason why Russian state educational establishments should be a part of sanctions. The education sector is a critical factor during the economy’s transformational adjustments. A rapid change in the availability of technologies requires the education sector to retrain the labor for optimal capital-labor complementarity. For example, computers (or steam or electric engines) are useless if workers don’t know how to use them. This logic extends to organizational technologies too.

My recent paper shows that the Russian transition of the 1990s is a special case of adjustment to new organizational technologies. At the beginning of the transformation, the recession was so strong because the economy lacked personnel (law and business graduates) able to navigate the market environment. The recovery began only after the economy was saturated with properly trained human capital.

The sanctions also change the technologies available to the economy; thus, a change in the labor market will follow. After the education sector optimizes the skill available in the labor market, the economy’s recovery follows. Understanding this, the Russian government declared the Decade of Science and Technology straight after the sanctions were imposed.

Therefore, excluding education from sanctioning is an inconsistent approach because Putin is certain that the recovery, however distant, will follow. Including education, on the other hand, may enable some deterrent effect of the current sanctions. Although, as argued above, to be a credible threat, the economic sanctions should induce a recession larger than the transformation recession of the 1990s without a prospect for recovery. I don’t think sanctions can achieve this, but they can encourage resource transfer toward those willing to resist Putin inside the country. The combined forces might work.

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