To some degree, my comments here could be taken as an extension from previous comments that I made supporting a boycott of the Sochi Winter Olympic Games. While nominally unrelated, the current degradation of relations between non-Russian ethnic groups and the United Russia government in Moscow (with particular emphasis on the North Caucasus and the rise of Sunni Islamist extremism), accompanied by a surge of cultural intolerance within the broader Russian polity toward ethnic non-Russians and culturally subversive or otherwise marginalized groups (e.g. homosexuals and transgendered), reflects not only on the internal politics of the Russian Federation but also on Russia's relations with its independent, former Soviet republican neighbors. This is most readily apparent at the moment in regard to Ukraine, where sitting President Viktor Yanukovych, whose recent actions in negotiating Ukraine's economic relations with the European Union and Russia have signaled an effort to steer closer the Moscow, is under siege by oppositional protesters seeking, on the one hand, to reinforce economic ties with the EU and, on the other, to reverse the imposition of draconian legal enactments intended to secure Yanukovych's hold on power by attaching criminal penalties to public demonstrations and criticism of government officials (see Richard Balmforth, "Ukraine opposition calls for talks, bruised Kiev picks up pieces,"on Reuters (20 Jan 2014), at: http://www.reuters.com/article/2014/01/20/us-ukraine-idUSBREA0J11420140120). The overall importance of this moment in the history of Ukraine is underscored by the level of violence resulting from confrontations between police and protesters in Kiev and by the consequential effects of political uncertainty on the government's ability to finance itself through issuance of sovereign debt (see Ksenia Galouchko, "Ukraine Bonds Drop Most in Week After Kiev Protests Turn Violent," in BloombergBusinessweek (20 Jan 2014), at: http://www.businessweek.com/news/2014-01-20/ukraine-bonds-drop-most-in-week-after-kiev-protests-turn-violent). If concerns regarding the effects of political instability in Kiev do not quickly dissipate, it seems likely that Kiev will be drawn ever closer to Moscow, provided that Putin's government remains Yanukovych's most reliable lender of last resort, and provided the opposition is incapable of forcing Yanukovych from power, especially if Russia actively intervenes in more emphatic ways in Ukrainian politics. Last month, a pledge by Russia to invest $15 billion into Ukrainian sovereign debt issues and reduce prices on natural gas imports to Ukraine, with the implied understanding that Yanukovych would steer away from a trade deal with the EU, generated the initial rounds of anti-government/anti-Russian protests in Kiev.
Ultimately, the current conflict between the Yanukovych government and the political opposition appears to concern Ukraine's place within potentially competing regional economic blocs and, consequently, the particular mode of economic development that the country will undergo as it integrates with other economies within its region to engage the larger global economy. It, thus, implicates practical and theoretic questions on the nature of trade liberalization and the political and cultural consequences emanating therefrom. The thinkers (e.g. J.M. Keynes) and policy makers who, in the late 1940s, set up the Bretton Woods system of international monetary regulation and trade liberalization (via the GATT), envisioned a system that would evolve to progressively integrate the advanced industrial economies in a globally expansive multi-lateral trading system based on reciprocity and non-discrimination in the negotiation by agreements between countries. Constituted under such principles, the multi-lateral trading system would encourage the forging of trade linkages between the advanced industrial economies, promote economic development and rising standards of living, and promote political cooperation among member states to the GATT by virtue of a mutuality of interests in maintaining the economic strength of member states through mutually beneficial commercial ties rather than zero-sum militaristic engagements.
In the contemporary global economy, the vision advanced through the Bretton Woods Conference has seen certain drastic changes. While WTO has created a mechanism for the resolution of trade disputes in order to continue and expand the scope and geographic scale of multi-lateral trade liberalization, we have also seen, over the last twenty-five years, the rise of durable regional trading blocs for preferential broadening in the scope of trade liberalization beyond the underlying multi-lateral agreements embodied within GATT/WTO. To a significant degree, there was an air of inevitability in the creation of such blocs, reinforced by the long term success of the European Economic Community over the postwar period in maintaining a framework for regional economic integration in excess of the multi-lateral GATT regime. Approaching from my limited background in international trade theory (and, in any case, discounting the logic of theoretic frameworks like Heckscher-Ohlin that abstract from the institutional mechanisms necessary for inter-economy price equilibration and economic developmental convergence within a multi-lateral trade system), there appears to be some rather sound logic to the idea of developing a regional trade bloc that can insulate member economies from the broader effects of competition evident in full multi-lateral trade liberalization with non-members. As a matter of capital investment, the development of a regional trading bloc among economies at a similar level of GDP per capita, with complementary resource endowments and levels of technological integration, might help address certain issues of path dependence that would otherwise consign individual economies to specialized roles within the broader global economy less advantageous to GDP growth and expansion of living standards for their populations. As such, I am one of those economists who doesn't necessarily think that the formation of regional trading blocs is a bad thing.
Having made this point, Ukraine has been at a crossroads, economically, politically, and culturally, since the disintegration of the Soviet Union. Should it remain largely tied to Russia, with its significant natural resource endowments and the potential to create a regional trading bloc facilitating geographically dispersed investment in multiple upstream, higher value added industrial processes, perhaps, in other post-Soviet states, most notably Ukraine? Or, should it veer closer to the EU seeking to increase its westward volume of trade and risk integration into a regional bloc with much stronger economies like that of Germany in which it might discover itself transformed into a low-wage hinterland economy, especially if it were to seek to enter the monetary Euro-zone (assuming that the Euro will continue to exist for the foreseeable future)? Assuming that I am accurately advancing the economic stakes involved for Ukraine in its efforts forge linkages with Russia and the EU, integration in either direction will necessarily situate Ukraine as a junior partner to developmental processes orchestrated by state policy makers and private investors in larger national economies.
As such, the idea of joining a Eurasian customs union centered on Russia enjoys some positive economic virtues for Ukraine. The majority of Ukrainian exports already flow toward Russia, Belarus, and Kazakhstan, who would be Ukraine's economic principal partners in such a union. Moreover, the exaggerated strength of the Russian rouble, thanks to demand for Russian petroleum exports, might create in impetus for a flow of investments to relatively peripheral corners of such a customs union, benefiting, at least in part, industrial regions in Eastern Ukraine. In this manner, the possibilities for some inflow of Russian capital and outflow of an increased mass of Ukrainian industrial products, particular steel and aerospace equipment, might increase employment and help to bolster the value of the Ukrainian hryvnia in relation to the rouble, offsetting some of the substantial burden to Ukraine from the importation of Russian natural gas. In the longer run, however, Kiev would be tying all of its hopes on enhanced development in Russian industry without which demand for Ukrainian exports of capital goods will not sustain utilization of Ukraine's present industrial capacity, let alone investment in new capacity. Ultimately, the present strength of the Russian economy is anchored on the sale of petroleum products and, at least as far as I can understand from the little that I have actually investigated into the matter, petroleum revenues are not being adequately invested in diversification and qualitative improvements to existing Russian capital and consumer goods industries. Definitively, if Russia is intent on remaining a principally extractive economy on which Ukraine remains dependent as a consumer of Russian gas, then the avenues for future transformations of the Ukrainian economy to meet broader global markets will be very sparse within a Eurasian trade bloc. The Ukrainian political opposition might, thus, be quite right to look west for better opportunities to expand Ukraine's long run economic fortunes. At the very least, collaborations by the Ukrainian government with Western petroleum corporations, with the motive of exploiting shale gas deposits, might enable Ukraine to shake some of its energy dependence on Russia, allowing Ukraine a limited degree of freedom to explore alternative economic developmental scenarios without having to kowtow to the Kremlin or to Gazprom (i.e. the Russian national petroleum exporting corporation) (see Richard Balmforth and Dmitry Zhdannikov, "UPDATE 1 - Ukraine signs landmark $10 bln gas deal with Shell," on Reuters (24 Jan 2013), at: http://www.reuters.com/article/2013/01/24/shale-ukraine-idUSL6N0ATER320130124).
Beyond economic rationale, however, there are political and cultural reasons supporting increased integration of Ukraine with the EU and a distancing of Kiev from Moscow. Emphatically, since the disintegration of the Soviet Union, Russia and Ukraine have endured multiple political disputes concerning geographical jurisdictions (e.g. over the status of the Crimean Autonomous Republic and the port of Sevastopol) and the utilization by Russian military forces of facilities on Ukrainian soil. Avoiding the broader wounds inflicted by both sides in their recurring economic disputes over gas supplies and transit of gas across Ukrainian territory to Europe, the longer history of intermixing of ethnically Ukrainian and ethnically Russian populations in Ukraine, especially in the heavily industrialized eastern administrative regions (oblasts), at least facilitates a potential problematic dynamic in defining the orientations of governmental policies effected within Kiev. Politicians like Yanukovych, hailing from the eastern oblasts, come to power on the strength of constituencies heavily weighted with ethnic Russians for whom a strong concern for harmonization between Kiev and Moscow is an obvious concern. By contrast, ethnically Ukrainian politicians, like former President Viktor Yushchenko, from the western oblasts, especially those bordering EU members Poland, Hungary, Slovakia, and Romania, approach Moscow with a more pronounced sense of suspicion toward the intentions of the Russian Federation relative to Ukraine. Such considerations obviously reflect the tenor of internal politics within the Russian Federation, including its treatment of federation-level republics in the North Caucasus and its interventions in ethnic disputes in other former Soviet republics (e.g. the 2008 Russian military intervention into Georgian Abkhazia and South Ossetia on behalf of pro-Russian ethnic groups). In this respect, threats voiced by the Kremlin to intervene in and, perhaps, formally annex the eastern Ukrainian oblasts if Ukraine were to join the EU or NATO appear credible! Culturally, Ukraine contains an intractable ethnic divide traced by the Dnieper River basin, with oblasts to the east containing significant ethnic Russian minorities and oblasts to the west overwhelmingly Ukrainian, supporting a westward political and cultural orientation.
While the current political crisis in Kiev may be played out, in part, by new political actors and younger activist protesters, this round of political confrontation between pro-Russian and pro-EU forces in Ukraine bears a striking resemblance to the struggle of the 2004 Orange Revolution, displacing Yanukovych in favor of Yushchenko. To be totally fair to Yanukovych, it seems evident that he made a tangible effort to achieve the demands of ethnic Ukrainians for greater economic integration with the EU. His government was, after all, engaged in negotiating a free trade agreement with Europe. Ukraine's lingering vulnerabilities in its relationship with Russia have simply tied Yanukovych's hands in balancing the short term fiscal needs of the Ukrainian state with the longer term advantages emanating from progressive economic integration with the EU. On the other hand, as in 2004, the political opposition has a valid gripe in contesting legal restrictions on public demonstrations and the general heavy-handedness of the Yanukovych government. Of course, I cannot help but hope that the resolution to this confrontation comes with a full reinstatement of the rights of the Ukrainian people, ethnic Ukrainians, Russians, and others, to democratic self-determination both by means of formal elections and by means of active, intentional public demonstration in expression of the needs of the people to define the course of their collective economic future.
More broadly, the crisis in Ukraine evokes a larger problem centered not on Ukraine, but on Russia. Specifically, the lingering political, economic, and military dominance of Moscow within the geographic sphere of the post-Soviet republics effectively guarantees that contemporary Russia will reproduce the same political, economic, and cultural isolation that the Soviet bloc achieved in relation to Western Europe over the period of the Cold War or, even, for that matter, the isolation of Tsarist Russia from the Nineteenth Century Europe of liberal and socialist political revolution, industrializing capitalism, and cultural moderism. In the process, Russia will fight an ultimately futile struggle to hold on to many of its former satellites against integration with more economically, politically, and culturally progressive corners of the world. It begs the question: when will Russia ever find its way out of the self-imposed darkness of its own economic backwardness, reactionary politics, and cultural parochialism?
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