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Brookings Institute Talk on Russia and America

I attended a talk today at the Brookings Institution about the future of Russian-American relations.

Naturally there was considerable focus on current issues such as Syria and Snowden being given asylum, and how it might affect the upcoming G20 summit.

I didn’t wonder about it much, really.  There’s nothing in Syria that’s central to Russian interests and Snowden, while a nasty diplomatic slap in the face, does nothing to change the larger situation.

I was more interested in bigger political and economic developments and where they might be headed.

Interestingly, the experts pretty much all agreed that the present political order in Russia is dependent on Putin’s cult of personality – that without his influence there would be nothing to hold Russia’s oligarchs together.
And – there is no plan for succession should something happen to Putin tomorrow…

They addressed how Putin’s main objective with his anti-American gestures is to boost his popularity at home.   His anti-American posturing has a huge appeal to his base – Russia’s working classes.
The urban middle and upper middle class has little loyalty to Putin, often protesting him in Moscow and St. Petersburg, so it’s only natural Russia’s ruler tailors his image to the vast majority he relies on.

While Syria is, relatively speaking, a sideshow, the fate of former Soviet republics is not.  Since the collapse of the Soviet Union, among Russia’s first concerns is to bring countries like Ukraine closer to Moscow and prevent them from aligning with Western Europe.

If we look at the numbers, though, it seems to me Russia’s agenda is doomed to fail.

Russia’s entire economy is worth 1.8 trillion.  This is enough to make it one of the world’s bigger economies, but to put Russia’s imperial goals in perspective, Italy’s economy is considerably bigger at 2.2 trillion with 1/3rd the population.

Let’s pretend we are Ukraine for a moment:

Which would we align with:  A 1.8 trillion Russia or a 17 trillion European Union?!

Not to mention, Russia’s economy to this day is based heavily on commodities like natural gas rather than skills or tech.
Indeed, one subject to arise during the question and answer session with the experts was brain drain from Russia…

With no Soviet Union any more that can keep their best talent captive, skilled Russians are increasingly ditching their home country for places like Silicon Valley.  And Russia itself with its feudal oligarchs and powerful crime lords tends to be very unfriendly to commerce.
So long as Russian small businessmen are parasitized by protection rackets and foreign investors are confronted with corruption, their economy is not likely to become truly “modern” any time soon.

A main theme of the talk was to ask what Putin really wants and how to get Russia to work more closely with US objectives.  Even the experts seemed to regard Putin as a mystic, inscrutable, Eastern Czar.
If we look at the numbers, though, it seems clear why the US can’t seem to get Russia to budge.

Relatively speaking, the US really is not that important to Russian interests so it simply doesn’t have that much leverage.
The vast majority of Russia’s foreign trade is with the European Union and with China in a distant second place.   Commerce with the US takes a comparatively puny 4th or 5th place with just a few percent of the total.  Also, the US is just about on the other side of the planet from Russia’s major cities while China and Europe are much more immediate neighbors.
It really shouldn’t come as a surprise that US requests take a back seat compared to more immediate concerns.  What decisive advantage does America offer in exchange for Putin’s cooperation?  Putin is a pragmatist, so clearly what he’s being offered isn’t worth as much as he gets from slighting the US to boost his domestic approval ratings.

The economic reality on the ground is that Russia is already just a big commodity provider for the EU, and thus in every meaningful sense, already part of Europe.
If we look at the facts, Russia as a modern great power, is pure fantasy.

During the talk, there was mention of a new, more Western generation of Russians just waiting for the older oligarchs to die off.  Such a generation is bound to reconcile Russia’s political reality with the economic reality.
Instead of trying to keep states like Ukraine from being sucked into Europe, Russia will itself be sucked into the Euro zone.

Even if Russia somehow remains an aloof oligarchic kleptocracy, it will still be useful for its resources as a lesser partner of Europe.

Graph Russia Trade Partners

What The Hanseatic League Tells Us About The Present

When governments grow weak, commercial organizations tend to fill the void.

Across a vast region along the Baltic Sea with few strong central authorities in the middle ages, merchant guilds banded together for strength and security until they were effectively their own state with their own military.

Indeed, they clashed with actual kings and princes and because they monopolized trade through the entire region, they usually won.

It was only when centralized government became strong again and the modern concept of a nation-state began to form that the Hanseatic league went into decline.

In our own time:

If I were to ask “Who is the most powerful man in this room?” The answer is not necessarily obvious.

Jobs obama zuckerberg silicon valley dinnger

Presently, we see a weakening of both the physical powers and legitimacy of the state. And predictably, we see a corresponding rise of commercial entities as they increasingly exert control over the state itself or take over functions (i.e. space exploration, education) that were previously the preserves of central state power.

“Don’t worry about people stealing an idea. If it’s original, you will have to ram it down their throats.”

One can not simply steal the kind of knowledge and expertise so developed. The momentum developed by one technical group cannot be simply transplanted into a competitor, it transcends documentation. No — it resides in our greatest assets: our people, the minds we’ve trained, the conventional wisdom we’ve transformed, the reputation that, through our trials, we have deeply entrenched.

The crucial factor? The common thief is lazy, and the lazy thief is thwarted. As you see, the thief is rarely a person of great motivation, excepting for personal vendettas. If other victims make better targets, one is safe. If all victims defend themselves more vigorously than the notion of honest work in the lazy thief’s mind, an honest society becomes an inevitability. Link

The contrary position is that if you have a strong track record, people will be keeping an eye on you anyway to see what they can copy. When you have competitors, people who live to fight others, that’s when you get imitators. The speed at which they can take in new information, which is affected by how much work they are doing and how much time they have to copy it, will drastically effect this. But for the most part, innovative ideas make people too uncomfortable to think about or try to understand.

A side note on invention and innovation: when you have an idea for a startup„ consult your network. Ask people what they think. Don’t look for flattery. If most people get it right away and call you a genius, you’re probably screwed; it likely means your idea is obvious and won’t work. What you’re looking for is a genuinely thoughtful response. Fully two thirds of people in my network thought LinkedIn was stupid idea. These are very smart people. They understood that there is zero value in a social network until you have a million users on it. But they didn’t know the secret plans that led us to believe we could pull it off. And getting to the first million users took us about 460 days. Now we grow at over 2 users per second.  Link

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