Now and next: seven things to think about following the Russian invasion of Ukraine
We have passed an inflection point. The events of the last few weeks will ripple out for years to come in many ways. We cannot yet identify all the turbulence in the wake of the bow wave. Here, however, are seven things to think about.
Central banks have become an instrument of foreign policy
The United States, the EU, Japan and the UK sanctioned Russia’s central bank, freezing its assets in their jurisdictions. They did so not just in commercial banks but also in their own central banks.
Good, you might think — starving the Russian government of precisely the resources it planned on using to protect Russia against the sanctions it anticipated. I think “good” too.
There is, however, a cost. It is a form of cultural imperialism, if you think about it, using the West’s view of what is morally permissible to determine when other governments can use their own resources (because like it or not these are the Russian government’s resources). Personally, I’m all in favour of a little bit of cultural imperialism if it impairs the ability of rogue governments to start wars of aggression and conquest.
It has to be recognised, however, that there will be a host of countries now wondering just how safe western democracies are as repositories for their assets. Once a precedent is set, it will be tempting to apply it again in future. Now the public know this is possible, they are likely to press for it to be used whenever they are outraged by the actions of a foreign country. To take a few examples not completely at random, how will Turkey, Nigeria, Israel, Myanmar, China or Pakistan feel about this development? How might they counter it?
We are likely to see significant changes in the way that many countries hold their central bank reserves. This may provide an indirect boost to the financial sectors of countries with less refined consciences.
Social sanctions bite hard
The exodus of companies from the Russian market has taken place with only moderate pushing from governments. Even companies like Coca-Cola and Uniqlo that had been inclined to stick it out had abrupt changes of heart when it became apparent that they faced boycotts as a consequence in other countries. The public expect the brands that they use to show moral judgement in their trading decisions, and companies are feeling the heat. This is extending even to business service providers: the big four accountants have all left, and most of the largest law firms have belatedly concluded that they must leave also.
Vladimir Putin may rage about sanctions but it’s very hard to see how such firms could be persuaded back without a radical change of policy direction on his behalf. The public won’t stand for backsliding and the Russian market just isn’t big enough for companies to take them on.
This is a problem for Russia. Some matters can be dealt with by product substitution, but the quality will often be inferior (there’s a reason why the brands got their success in the first place, and it’s not always just marketing budget). In some areas there simply will be no products that can be used as a substitute. We might all hate Microsoft. It’s pretty universal. Piracy looks like the only practical option for Russia in that case. Though even that might not be straightforward, if the exodus of tech workers from Russia continues.
The effects of this are likely to play out publicly over the coming months. We’ve already seen women fighting in Moscow’s IKEA and epic queues at McDonalds as it closes down there. Reports of Russian life in an autarky are likely to be a regular news feature. They are unlikely to look appealing.
I expect that the public will see that as consumers they have real power to effect social change. This has been a coming thing for some years, with the BDS movement for Palestine as only the most prominent of many such efforts. The idea is likely to become still more popular.
Companies, particularly those that deal directly with consumers, have been developing their values and statements of purpose, and sometimes practising what they preach. They will need to be still more responsive to different strands of public opinion. This is going to be a struggle for traditional red-in-tooth-and-claw capitalists, but a struggle they’re going to need to engage with.
This gives even more power to social media. The Russians don’t seem to have realised the importance of the social media front in a hot war (odd, given how vigorously they have used social media in peacetime). The severity of the sanctions that Russia has faced, both formal and informal, has been increased owing to the public outrage at what they are seeing.
Ukrainians have by contrast handled social media consummately well. Not every Ukrainian combatant drives a tractor, not every Ukrainian military action will have been the stopping of a tank without weapons. You wouldn’t guess that from its social media coverage, which is curiously light on details of how the Azov battalion is performing.
That places a responsibility on us to interrogate what we see on social media carefully (here, and elsewhere). We should always be alert to the idea that our emotions are being manipulated to benefit someone else’s agenda.
The social media companies themselves are in a real mess. Twitter and Facebook both banned Donald Trump, but are now struggling to draw up any coherent policy to deal with state-led disinformation. While these are privately-owned platforms, their public impact is such that state regulation may now be the only way forward.
We don’t seem to have any idea what we want from oligarchs
The West has been hunting out oligarchs to sanction. The main complaint has been that some countries, the UK among them, have been too lethargic in this pursuit. A minority complaint has been that the oligarchs’ human rights are not being respected (Nigel Farage, the public figure in Britain voicing this concern, has previously complained that the RNLI was saving immigrants’ lives, which suggests a remarkable internal prioritisation of human rights — or another motivation completely).
No one very much seems to be asking themselves what the West is trying to achieve by sanctioning these people. Are these unpleasant people? Very possibly. Have they made their fortunes siphoning off the wealth of the Russian state? Again, very possibly. My question is: so what?
If we are punishing the oligarchs for being unpleasant or siphoning off wealth illegally/immorally, that has no real connection with the Russian invasion of Ukraine. So given the timing and impetus, presumably the West thinks it can achieve something else by imposing individual sanctions.
I can think of two possibilities. The first is that the assets being seized might in some way be used to further the Russian government’s aims. I have, however, seen no suggestion of that. The Russians don’t seem to be about to commandeer superyachts.
The second is that the oligarchs might be prevailed upon to use their influence to help change Russian policy in Ukraine (either by influencing Vladimir Putin or by replacing him, I assume). Leaving aside the problem that the oligarchs don’t seem to have much influence over Vladimir Putin or ability to replace him, let’s assume that this is the motivation. How is sanctioning them supposed to help with this?
To exercise influence, the oligarchs need a form of power. They derive all their power from their assets. Remove their assets and you remove their power relative to Vladimir Putin.
A better use of sanctions would be to leave them suspended over the heads of the oligarchs, leaving them with the choice of a firesale of their assets in the West or using their influence as described above. Far from the West being too lethargic, it seems to me that the West should have publicly given them a grace period. That might have concentrated minds while they still had some capacity to act independently.
As it is, the West seems determined simply to atomise their power. That’s not the worst thing — as I said, these are very possibly unpleasant people who have derived their wealth often dubiously. It’s not very strategic though. If we want to curb the ability of such people investing in the UK, it would be best to make a conscious decision and to articulate that as an explicit policy. So far, we haven’t.
Again, this will have implications for rich nationals of other countries who might end up on the West’s naughty list. They may well decide to diversify their assets with this in mind.
More Europe is coming
One of the big winners from Russia’s invasion of Ukraine is the EU, which has suddenly rediscovered a sense of purpose. EU expansion is back on the agenda, with Ukraine, Georgia and Moldova all submitting applications to join.
Poland, previously one of Brussels’ worst thorns in its side, has remembered that there is someone that it loathes even more. Even Hungary is behaving itself at the moment.
The EU has risen to the occasion, belatedly, reasonably well. It is seizing the moment to move its energy policy away from dependency on Russia. It is looking to develop its military, with various member states inside and outside NATO committing to increase their military budgets (most notably Germany).
Another of the big winners in all this is the USA. For years it has wanted European countries to up their defence spending. And now they are, allowing the USA to continue its much-telegraphed pivot to the Pacific.
This mood of European unity may not last, but at the moment it seems likely that it will. If so, we can look forward to seeing a more cohesive EU looking ever more like a federal union.
This would on one level vindicate the fears of Leavers, who would see this as everything they had always warned about. I am doubtful, however, that they will feel any happier about being on the outside of a large European superstate with an integrated military (presumably led by French expertise but with a newly-assertive Germany).
Whatever, Britain is going to need to think about how it would deal with a much more united, much bigger neighbour at a time when the idea of the death of geography has been discredited. That doesn’t look like a conversation that Britain is remotely ready to have just yet.
There’s going to be a lot of public spending coming down the track in Europe fairly soon
Times are tough in Europe just now, with rising fuel prices, the prospect of rising grain prices and short term stagflation. Growth prospects are thought to be dim.
All this new focus in Europe on defence and energy security, however, is going to require a lot of spending on a lot of infrastructure. Plans have yet to be drawn up but this looks likely to produce quite a stimulus to the European economies. It’s an ill wind that blows no one any good.
Russia isn’t going to be a happy place any time soon
Right now it is pretty much impossible to envisage a way in which the invasion of Ukraine ends well for the Russian people. If the conquest is completed quickly, sanctions will remain in place and Russia will then need to maintain a huge military presence indefinitely to subdue a people who seem to have no intention of being subdued. Russia would remain isolated and poor for decades. This is probably one of the best case scenarios for Russia (the very best case scenario for Russia, that it is quickly defeated, still looks unlikely).
There seems to be an unspoken assumption among many that if Vladimir Putin were replaced, all would be well. That seems unlikely. In the circumstances in which Vladimir Putin were replaced, Russia would be humiliated if not outright defeated. It has already seen its reputation for military prowess crumble in the light of a faltering invasion that has been widely viewed as inept. Its economy is likewise crumbling, vaporising its citizens’ wealth. It is said that the French Revolution did not start because peasants were starving but because lawyers were starving. Life looks as though it is going to be pretty terrible for Russia’s middle classes for a long time to come.
In those circumstances, it seems much more likely that Russians would be driven towards extremism. (Note, “Russians” as defined as people who live in Russia include a lot of people who are not ethnically Russian and who might well be wanting to look again in those circumstances at just why they are participating in a multi-ethnic state that works so badly.) What replaces Vladimir Putin may well not be an improvement and may be highly chaotic, criminal, violent or worse. As Morgan Freeman noted in Se7en, this isn’t going to have a happy ending.
There are no likely promising outcomes in Ukraine
What do we actually want as an ending? Ukrainians want a return to an independent free peaceful Ukraine. That looks unlikely. Russia would need to be definitively defeated. Nothing that has happened in the opening weeks of this campaign makes that look a prospect in the short or medium term. Tsarist Russia was an autocracy tempered by assassination and perhaps Vladimir Putin may experience that, but that doesn’t seem particularly likely.
The single most likely outcome remains the one that was most likely at the outset: Russia overthrowing Ukraine’s government and installing one of its own. That would still require Russia to commit huge numbers of troops to keep Ukraine quiescent (the Ukrainians have shown few signs of cooperating with an occupation), and sanctions would remain in place on Russia indefinitely. This looks like almost as bad an outcome for Russia as for Ukraine.
It’s hard to see what formal compromise could be brokered. Russia will not accept the current Ukrainian government operating within its pre-war borders and Ukraine could not accept the surrender of territory.
A less likely but at least possible outcome is that the war peters out to a standstill. This will not happen quickly because both sides will feel obliged to test their opponents thoroughly. During this period, it will be Ukraine itself that will be tested to destruction. It’s possible to imagine, however, in due course a Ukraine where the Ukrainians control one part and the Russians (or Russian proxies) control another part, with no formal cessation of hostilities — another Korea, in fact.
Such a Ukraine would be devastated, but this would be unlikely to be a frozen conflict: all indications so far are that enough Ukrainians are not going to accept Russian occupation passively. At best, it would be a semifreddo conflict, with constant low-level skirmishing for years or decades.
This would be awful for Russia and of course it would be awful for Ukraine. “Ukraine” supposedly means “borderland” and it now seems likely to be its fate for a long time.
I’m sorry I don’t have a more uplifting vision. The best I can offer you is another quotation from Morgan Freeman in Se7en: “Ernest Hemingway once wrote, ‘The world is a fine place and worth fighting for.’ I agree with the second part.”