Diatribes of Jay

This is a blog of essays on public policy. It shuns ideology and applies facts, logic and math to economic, social and political problems. It has a subject-matter index, a list of recent posts, and permalinks at the ends of posts. Comments are moderated and may take time to appear. Note: Profile updated 4/7/12

29 June 2014

Will Putin Trample Ukraine’s Garden?

    In England, if John grows a beautiful garden, his neighbor Clive will work until midnight to grow an even more beautiful garden. In Russia, if Boris grows a beautiful garden, his neighbor Ivan will come out at midnight and trample Boris’ garden, just to even things up. — Old Russian Joke
There are many such self-deprecating Russian jokes. They didn’t begin with Communism, and they didn’t end with its demise. As always, dark jokes like this one have more than a germ of truth.

And so it is with Ukraine. Petro Poroshenko, the Ukranian chocolate magnate whom Ukraine’s voters have entrusted with their future, is the gardener. He has what may be the second-hardest task on Earth these days, after Obama’s. He has to turn the weed field of corruption that Ukraine has become, and the battlefield in the East, into a lush garden fit for living well.

Last week Poroshenko made his first move. He signed the long-awaited and controversial preliminary agreement with the EU. Thus he signaled his intention to grow a European-style garden (and perhaps an English-style one, too, if the UK sticks with the EU).

The corrupt tyrant Yanukovych started all the trouble by refusing to take that simple step. But Poroshenko hardly crossed the Rubicon by taking it himself. His was a bare statement of intent, the merest of beginnings. Ahead lies the hard work of taming rampant corruption at all levels of government and business, learning real economics (as distinguished from the non-science of Marx, Engels, Lenin and corrupt siloviki), and enduring austerity and hardship accordingly.

In Soviet times, workers pretended to work, and their bosses pretended to pay them. Now Ukrainians are going to have to work as hard as the Japanese and South Koreans and let the global market take care of paying them.

So growing Ukraine’s garden will be no picnic. It will take at least a decade of hard work, rebuilding, retraining, rethinking and cooperating, on the part of all Ukrainians, whatever their primary tongue. Just ask the Greeks. Or, closer to home, ask the Germans about their reunification.

But Poroshenko has made his symbolic choice. He’s decided to follow the model of Western Enlightenment, including Magna Carta, which will turn 800 years old next year. He picked that model over the model of Russia, which is still extricating itself from the grip of authoritarian politics and a fictional economic system that it rejected less than 23 years ago.

No surprise there. Any rational leader, conscious of history and genuinely interested in his people’s welfare, would do the same. The hard part is not the choice, but explaining to Ukraine’s much-abused people how hard and steep the road ahead will be.

The next big question is what Putin will do. Will he become an Ivan, stalking out in the dark of midnight to trample Ukraine’s garden? Or will he become Enlightened and take the English approach? Will he help Ukraine become the garden crossroads of Europe that it once was and some day again may be?

Unfortunately, Putin started out toward trampling and extortion. He cut off natural gas to Ukraine—mercifully in summer, when industry, not ordinary people, will suffer. Then he cut back on the customs privileges that Russia, often begrudgingly, offers the peoples of its “near abroad.” Who does he think he is, John Boehner or Ted Cruz?

The purpose of these moves appeared more deterrent than punitive. Kiev hasn’t actually done much yet, other than decisively reject Yanukovych, run a difficult election, and try to keep Ukraine whole. Putin, apparently, wants to deter Kiev from oppressing the substantial Russian minority in the East—a proper and understandable motive. But apparently he also wants to deter Ukraine from becoming independent of Russia, whether or not that independence causes Ukraine’s garden to grow beautiful, and even to benefit Russia itself.

How would a businessman like Poroshenko handle this situation in Putin’s shoes?

Likely Poroshenko would do exactly the opposite. He would continue delivering gas to Ukraine. Perhaps he would raise the price a bit closer to global market levels. Doing so would encourage greater efficiency in Ukraine’s use of gas. It would also provide a clear warning of inevitable future market-accommodating price increases. The sooner both Ukraine and Russia start using markets to set prices, rather than secret political meetings and telephone calls, the better off both will be.

On customs and trade, Poroshenko would recognize Ukraine’s coming closer to the EU as an opportunity, not a threat. He would reduce, not increase, red tape, duties, tariffs and delays inside Russia. He would compete fiercely with the EU and its likely austerity package, trumpeting the ease and user-friendliness with which Russia’s government and businesses accommodate their Slavic colleagues. And he would take quick and decisive advantage of Ukraine’s increased trade with the EU, some of which will inevitably spill over into Russia.

In other words, like most business people Poroshenko, as Russia’s leader, would seize the chance to help its neighbor Ukraine grow a beautiful garden. Like every modern economist, he would recognize that trade, investment and development are not zero-sum games. They are win-win opportunities.

Unfortunately, despite all his brains and considerable education, including decades in the KGB, Putin appears to lack understanding in two key fields. First, he doesn’t understand the most rudimentary principles of real economics.

If you stop selling to an important customer, the unsold gas creates a surplus, which weighs on prices to other customers and prices globally. In addition, if you play politics with business, you sow uncertainty and get a reputation for being unreliable, encouraging customers to shop elsewhere.

Or you goad them to seek substitutes for your products. That’s what Germany is doing with its Energiewende: building an energy future on the sun and wind, not gas or coal.

Putin’s second failure of comprehension is hardly new. It runs through Russia’s history. From the Tsars through the commissars to Putin today, Russia (like China) has always preferred weak, helpless vassal states as neighbors to strong, healthy, independent states.

That’s precisely why Hitler was able to drive all the way to Stalingrad, and nearly take Moscow, despite the extremity of Russia’s people’s sacrifice, the bitterness of Russia’s winters, and Nazi overconfidence. Having poor, weak, downtrodden neighbors who hate and fear you is highly overrated as a predictor of national success.

Vladimir Vladimirovich Putin is a smart man. He’s undoubtedly one of the smartest leaders that Russia ever had. But staying ahead of others in what has been for centuries a backward country struggling to catch up is not as easy as speed-learning the lessons of half a millennium of Western Enlightenment and eight centuries of democratic struggle. Putin still has a lot to learn from the world outside Russia.

Can he do it? Maybe, with some help. He’s smart and he’s flexible. His massive troop movements now appear to have been nothing more than a warning, feint and deterrent. But now he has to cast his lot—and Russia’s—foursquare with the modern, global world, forsaking the awful lessons of the last century, which treated Russia and its people so horribly.

This is not the time for the West to threaten or bluster. Nor is it the time to impose crippling economic sanctions on Russia—as long as Putin’s words and acts stay peaceful and moderate. (Economic sanctions on individual troglodytes, including oligarchs, are always useful, especially when they crimp their corrupt and anachronistic styles.) Now is the time to goad, push, reason with, tempt, and (subtly) teach Putin and his colleagues.

Putin said he could trust and work with Poroshenko. That’s probably true, as both are realists and practical men.

So now’s the time for Poroshenko and his fellow Ukrainian oligarchs—as well as their Western business allies—to visit the Kremlin. Their briefcases should be full of business plans, not threats.

Now’s the time to show Putin, in dollars, cents and rubles, just how beautiful a garden Ukraine could grow with Russia’s help—and with the EU’s, too. Now’s the time to show Putin just how much Russia and its people would gain from restoring Ukraine to its ancient status as Eastern Europe’s crossroads and trading post.

Both carrots and sticks can be useful. The West, and Ukraine itself, must encourage and goad Russia and Putin to do the right thing. But so far, the goading has exceeded the encouragement. That must change. Putin should take the message once he sees a practical demonstration of how beautiful Ukraine’s garden could be.

After all, this is the same guy who, during his first term as Russia’ president, spoke before the Bundestag, in fluent German, about his dream of a peaceful trading zone from the Atlantic to the Urals. That Vladimir Putin is still in there somewhere, hiding behind the shadow of the cynical silovik that his public persona has become. Entice that Putin out, and much is possible. Doing profitable business (and increasing the tax base) is the thing with which to capture the conscience of the king.

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