The Last Man Standing

After Merkel finishes destroying Germany, Cameron Europe, and after Obama loses his war against the Kremlin, all that will remain is Vladimir Putin -- but without Russia's oligarchs

Thu, Nov 5, 2015
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The one and only

Originally appeared at Dances with Bears


Since the US started the regime dominoes falling in Kiev in February 2014, the Polish regime has already toppled, and the French one is doomed – President Francois Hollande will be defeated by every one of the candidates now running to succeed him, including Marine Le Pen of the National Front. The British Prime Minister David Cameron can postpone his day of reckoning, but on the margins of Europe, not inside. The German Chancellor Angela Merkel has less time, fewer supporters. When Merkel topples, she will take the European Union (EU) into the shambles with her.

Russia, under constant attack by the US, Germany, France and Britain in the war to overthrow President Vladimir Putin, is now the only European country to show more, not less voter support for the incumbent leadership. It is also the only one with the capability to repel unwanted migration; convert its economy to domestically sustainable growth; and defeat its foreign enemies by force. The war to defend Europe from Russia is destroying Europe, fast.

When there is international war, international capital is obliged to become national. Historically, this transformation has been enforced by Elizabethan-type naval privateering, Napoleonic-type blockades, Trading with the Enemy statutes, or US-type sanctions. During these episodes international capitalism ceases to exist except as black marketeering or smuggling. The regulation (reform) of international markets becomes subordinated to national capital interests, so national cronies are bound to win over international reformers.

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US and EU sanctions of the type introduced since March 2014 (individual, sectoral, scalpel, stealth) represent one front in the US-EU war against Russia. This form of warfare puts a stop to the internationalization of capital, such as US dollar pricing in commodity trade; the clearing role of US banks; and money transfer systems like SWIFT, Visa, and Mastercard. It requires Russia (China, India too) to nationalize their capital institutions, instruments, and apparatchiki.

The introductory justification for US sanctions as an attack on the “crony circle” around Putin was camouflage for a strategy of regime change, not a campaign for the clean-up of international capital abuses, tax avoidance, corruption. Extra-territorial prosecution by the US of corruption and crony capitalists is a warfighting tactic, not a business policy nor a jurisprudential doctrine. It is applied against “enemies”, such as Dmitry Firtash, but not against “friends”, such as Yulia Tymoshenko.

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The disclosure last week of memoranda by US Government lawyers to President Barack Obama, justifying the planned assassination of Osama bin Laden in May 2011, confirms what is obvious in the war against Russia. “There was also a trump card,” the New York Times reports. “While the lawyers believed that Mr. Obama was bound to obey domestic law, they also believed he could decide to violate international law when authorizing a covert action, officials said.”

Force isn’t the only violation of domestic US law that can be employed abroad. Bribery is an ancient tool of state strategy; it is certainly not a monopoly of the Kremlin, nor of the White House. The ancient Roman empire, and the Byzantine empire which followed it for three times as long, illustrate the obvious. Paying money to neutralize your enemies, or to persuade them to be friends, is far more cost-effective, predictable, and less risky than deploying large standing armies capable of putting down local rebellions, cross-border raids, or invasions. For an accounting of the cost to the US of the unending wars in Afghanistan and Iraq, read this.

It is just as obvious that standing armies and their weaponry cannot defend borders or territories in depth without internal tax collection systems to pay the forces’ bill. In the last years of the Soviet Union, the Politburo in Moscow unsuccessfully tried armed intervention in Lithuania, then Azerbaijan. But they swiftly gave up the force option, and abandoned the effort to enforce direct rule. They took longer to be persuaded to abandon the means to keep the rouble zone of the former Soviet states intact through a single central bank and a common system of rouble financing.

After the Soviet Union collapsed, instead of the military, administrative and financial controls of the old system, the Kremlin used (created) the Russian oligarchs to restore a significant measure of its previous influence. Not as directly nor as obviously potent as the Communist Party, KGB security, the Gosbank apparatus, and the Red Army commands had been before 1991; notwithstanding, the oligarchs were effective in restoring personal influence with the Central Asian governing elites, obtaining thereby unique means to anticipate and neutralize such threats to Russian state interests as may have been in contemplation. The Russians were able to do this by paying cash — at a minuscule fraction of the old Soviet price.

James Giffen

The US employed exactly the same means, both inside the Russian Federation, and inside the former Soviet Union. The case of the US Government’s prosecutionof James Giffen (right) for bribing high officials in Kazakhstan is exemplary. Giffen’s defence in a New York federal court against charges of foreign bribery and corruption was that he was acting on behalf of the CIA. The federal judge upheld the defence and dismissed the prosecution, saying: “Suffice it to say, Mr. Giffen was a significant source of information to the U.S. government and a conduit of secret information from the Soviet Union during the
Cold War. He undertook that effort as a volunteer and was one of the only Americans with sustained
and reliable access to the highest levels of Soviet officialdom…These relationships, built up over a lifetime, were lost the day of his arrest. This ordeal must end. How does Mr. Giffen reclaim his reputation? This court begins by acknowledging his service.”

In the Russian sphere of influence, the oligarch system (including the state energy corporations) has been successful in assuring the Kremlin’s strategic interests in Armenia, Uzbekistan, Turkmenistan, Kazakhstan, Tajikistan, and Kyrgyzstan. It has been less successful, though still positively supportive, in Belarus. It has been unsuccessful in Georgia and Ukraine.

In these countries, once the US opted to use force – never mind whether this took hybrid or proxy forms – the Kremlin was obliged to react with counter-force. The defeat of US force in Georgia in August 2008 led to the much greater use of US force in Ukraine in 2014. In Ukraine the substantial asset holdings, energy supply controls, and political clientelism which Russia, its state banks and the Russian oligarchs had established in Ukraine proved unguarded and impotent when the US used force to overthrow the regime of President Victor Yanukovich. Once that occurred, inside the Kremlin Putin lost the balancing effect of his “internationalist” and “business” factions, and was obliged to follow the course predicted and mapped out, not by the siloviki (as they were customarily understood), but by the General Staff and the intelligence services. The consequence has been a quiet revolution noone outside Russia has noticed.

The Russian oligarch system (aka Russian crony capitalism) was first designed to keep a weak, corrupt, American client, President Boris Yeltsin, in power. It then turned out to be well suited to the projection of Russian economic power abroad and to the expansion of Putin’s domestic support after he had eliminated threats from the front rank of the oligarchs – Vladimir Gusinsky, Boris Berezovsky and Mikhail Khodorkovsky. The system was volatile and competitive, but stable until the point when the US used force for regime change in Russia.

From then on it has become obvious the system lacks political clout in the countries and markets where the Russian oligarchs had tried convincing the Kremlin they were powerful. Mikhail Fridman had, continues to keep, valuable assets in Ukraine, but no political power when it came to the crunch last year. Roman Abramovich and Alisher Usmanov are among the richest men living in the UK; they have proved impotent as British capital joined forces with the US to attack Putin. Alexander Lebedev owns two London newspapers and a television station, but his son Evgeny uses these media to bite the hand that has fed him. Mikhail Prokhorov, Alexander Abramov and Vagit Alekperov, the oligarchs with the largest capital commitments in the US, have failed to put up the resistance which their peers from other countries show, when the US Government or Congress turns hostile.

These oligarchs have proved they are maladapted for war-fighting. That’s because they have been internationalizing their capital, and in so doing making themselves hostage to the instruments of US and European war-making. Three Russian political figures have understood this, and said so publicly – the deputy prime minister for defence, Dmitry Rogozin (below, left); sometime presidential advisor Sergei Glazyev; and Colonel Igor Girkin (Strelkov, right)), proponent of the Novorussian war.

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All three are on the US-EU sanctions lists.

Through the collapse of the international commodity trade and the cutoff of their international financing, the indebtedness of the oligarchs has resulted in their virtual nationalization by the Russian state banks. Individually, oligarchs remain for as long as Putin and the security services judge them to be patriotic and loyal; and on condition they accept their new role as state trustees rather than entrepreneurial capitalists.

Rearguard resistance, like that of Igor Zyuzin of Mechel towards the takeover of his bankrupt coal-mining and steel group by Sberbank, is the exception proving the rule. More exemplary is Oleg Deripaska’s recent conversion of Rusal, the aluminium monopoly, from global exporter of commodity metal to vertically integrated manufacturer for the domestic market of bauxite ore to aluminium window-frames; for the details, read this.

Then there is the case of Alexei Mordashov. The last time Putin called in the oligarchs for marching orders was over dinner at the Kremlin on December 19, 2014. Here’s the guest list; Mordashov was seated alphabetically on Putin’s right. A month later, on January 19, he met Putin (below) at the Kremlin for a more intimate discussion.

Mordashov_meeting

The partial Kremlin transcript records Mordashov as telling Putin he is content to be focusing on Russia nowadays – indeed, he said, he is making more profit because of it. “Last year, we increased our production volume slightly: steel production went up by about 2 percent. Overall, we achieved good indicators, you could say, the world’s leading indicators in terms of such important factors as production profitability and net debt volume. At the same time, we did a great deal of work abroad, but came to the conclusion that our future lies primarily in Russia, in the Russian market, and our production here is most efficient. We sold the North American division and are focusing almost entirely on our Russian assets. This has led to a fairly high profit level.” For an accounting of the several billion dollars Mordashov invested in the US, instead of Russia, and then lost, read this.

“We believe our future lies primarily in the Russian market,” he went to say what he has no alternative but to acknowledge. “Right now, there is a lot of talk about the difficult times and so on. But I think that what is happening now, in spite of some serious difficulties, also represents good potential for growth. In other words, what is happening is a serious correction to the macroeconomic indicators, but on the other hand, these events are making national production more competitive.”

Mordashov doesn’t make these trips to Putin’s office just to kowtow. He usually asks for permission to spend money abroad; for what happened after Putin granted his request in May 2006, click to read. On January 19 last, this appears to have been no exception. The Kremlin transcript breaks off with Putin saying: “Good. Thank you.” Did Mordashov go on to say that he wants to spend more than a billion dollars buying shares in Tui, the London-listed, German-headquartered tourism group? Mordashov’s spokesman in Moscow won’t answer, but the evidence appearing in Germany suggests that Mordashov asked for permission, and Putin gave it.

According to the German reports, which have been repeated in the Moscow business media, in August Mordashov lodged an application with the German anti-trust regulator to buy 12% of the shares of Tui, to add to his existing stake of 13%. The German report appeared on August 21; the Russian report on September 4. Mordashov told the German government he is acting through a Cyprus company called Unifirm. The proposed purchase of 71 million Tui shares would cost Mordashov £859 million ($1.3 billion) at the current market price. Without revealing the cost, he also told a Moscow newspaper: “I can and I want to [increase my shareholding], I think. I think that I will not pass the threshold of 30%, after which I would be required to make an offer to shareholders. My desired package – 20% to 25%, depending on the situation.” This is the largest single investment by a Russian oligarch offshore, which Putin has personally authorized since he publicly announced he is forbidding it. What next?

The American war – including the Ukraine front, the Syrian front, the North African front – cannot be supportable for long in Europe because the costs are too great for country budgets to pay, and for domestic constituencies to tolerate. The refugee crisis demonstrates that the spillover of these American wars is breaking up every form of European accord and consensus decision-making, threatening thereby all the governing parties, and most of the opposition parties across Europe. The Putin system of governance is better adapted now than the European system of governance for protracted war, although the domestic costs are heavy.

Cronyism in US governance is also maladaptive in the present situation. This is because no American ruler can implement any undertaking he makes, either to friend or foe, so US war gambits cannot be agreed on with allies (as the Afghanistan, Iraq and Libyan wars once were). Nor can negotiated peace settlements with rivals or adversaries be stable.

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