EXTRACT: Foreign investors have also felt the backlash. Having successfully reduced Shell’s stake in the Sakhalin-2 oil and gas field, Moscow now seems intent on doing the same to BP, which has a substantial interest in the Kovykta gas field. As before, the tactic is to accuse the foreign company of violating the terms of its licence. All that remains to be decided is how much of its stake in Kovykta BP will have to yield up to Gazprom.
By Niall Ferguson
Last Updated: 12:01am BST 27/05/2007
There is no such thing as the future. There are only futures, plural.
Historians are supposed to confine themselves to the study of the past, but by drawing analogies between yesterday and today, they can sometimes suggest plausible tomorrows.
Seven years ago, the economist Brigitte Granville and I published an article in the Journal of Economic History entitled “Weimar on the Volga”, in which we argued that the experience of Nineties Russia bore many resemblances to the experience of Twenties Germany. In particular, we focused on the impact of very high inflation, suggesting that it had similar causes and consequences in each case.
A post-war, post-imperial, post-revolutionary state sought to avoid high unemployment by spending generously. At the same time, powerful industrial lobbies exploited the government’s weakness by evading taxation. To make matters worse, money had to be found to service a large external debt (post-war reparations in the German case, Soviet-era debts in the Russian). Soaring government deficits could be financed only by printing money. As people lost faith in the currency, prices soared. The resulting inflationary crisis had the effect of undermining the credibility not just of the currency but of the fledgling democracy that was to blame.
No historical analogy is exact, needless to say. Russia’s currency did not collapse as completely as Germany’s did in 1923, though the annual inflation rate did come close to 300 per cent in January 1992. Our hunch, nevertheless, was that the traumatic economic events of the Nineties would prove as harmful to Russian democracy as hyperinflation had been for German democracy 70 years before.
“By discrediting free markets, the rule of law, parliamentary institutions, and international economic openness,” we concluded, “the Weimar inflation proved the perfect seedbed for national[ist] socialism. In Russia, too, the immediate social costs of high inflation may have grave political consequences in the medium term. As in Weimar Germany, the losers may yet become the natural constituency for a political backlash against both foreign creditors and domestic profiteers.”
Seven years later, the man who succeeded Boris Yeltsin as our article was going to press is doing much to vindicate our analysis.
The rule of law is the keystone of both liberal democracy and international order. Yet last week the Russian government showed its contempt for the rule of law by flatly refusing to extradite the man who is the prime suspect in the case of Alexander Litvinenko, poisoned in London last November. The Crown Prosecution Service says it has sufficient evidence to warrant a prosecution of Andrei Lugovoi. But the Russians maintain that it would be unconstitutional to hand him over.
It might also be embarrassing. The world might finally hear how up to 10 micrograms of the lethal radioactive isotope polonium-210 found their way from a Russian nuclear installation to a teacup in the Pines Bar of the Millennium Hotel in London, where Litvinenko most likely ingested them. There are only two possibilities. Either the Russian government ordered Litvinenko’s assassination. Or – not much better – the Russian government has no control over the lethal substances produced in its nuclear reactors.
It is tempting to regard the spat over Lugovoi’s extradition as yet another short chapter in the long and seldom happy story of Anglo-Russian relations. As so often, it seems like just another case of tit for tat. If we won’t extradite the exiled Russian tycoon Boris Berezovsky, who publicly boasts that he is plotting Mr Putin’s overthrow, why should the Russians extradite Mr Lugovoi?
Alternatively, the dispute can be put in a rather wider context, as part of the new Cold War that seems to have broken out between Russia and the West. The list of recent strategic bones of contention is a long one: America’s invasion of Iraq; Russia’s assistance to Iran; American missile defences in eastern Europe; Russian pipelines in Kazakhstan. And the rhetoric is getting colder, too. Only three months ago, I heard Mr Putin give a speech in Munich in which he bluntly warned that America’s “hyper use of force” was “plunging the world into an abyss of permanent conflicts”.
Yet this is not the Second Cold War. Unlike in the Fifties and Sixties, Russia is not self-confident but insecure. It is reliant on exports of natural resources, not its own ability to match American technological accomplishments. It is a waning power, its population falling so fast that by 2050 there will be more Egyptians than Russians. The value of the parallel with Weimar Germany is precisely that it captures the dangers of a backlash against such weakness.
To be sure, Vladimir Putin is no Hitler. A former KGB officer rather than a lowly Bavarian corporal, Putin is as coldly calculating as Hitler was febrile and impulsive. Hitler regarded the German economy as merely the servant of his megalomaniac will. Putin, by contrast, is effectively the chief executive of Russia Inc – the principal shareholder in a system that increasingly resembles what Marxist-Leninist theorists once condemned in the West as “state monopoly capitalism”. Moreover, Putin has advantages the German dictator had to fight for: vast “living space” and, more importantly, abundant oil and gas.
Nevertheless, Putin’s regime still looks alarmingly like that backlash against “Weimar on the Volga” that we predicted seven years ago: a backlash against both foreign creditors and domestic profiteers, exploiting a loss of public faith not only in the rule of law but also in free markets, parliamentary institutions and international economic openness.
As we anticipated, one of Mr Putin’s earliest moves was to launch a campaign against the “oligarchs” who had been the principal beneficiaries of Boris Yeltsin’s (admittedly crooked) privatisation, securing the imprisonment of Mikhail Khodorkovsky and the destruction of his Yukos oil company. Having frightened the other oligarchs into exile or submission, Mr Putin set about renationalising Russia’s energy resources through the state-controlled giants Gazprom and Rosneft.
Foreign investors have also felt the backlash. Having successfully reduced Shell’s stake in the Sakhalin-2 oil and gas field, Moscow now seems intent on doing the same to BP, which has a substantial interest in the Kovykta gas field. As before, the tactic is to accuse the foreign company of violating the terms of its licence. All that remains to be decided is how much of its stake in Kovykta BP will have to yield up to Gazprom.
Russia under Putin has remained outwardly a democracy. Yet there is no mistaking the erosion of democracy’s foundations under his presidency. In the name of “sovereign democracy”, the direct election of regional governors and presidents was replaced with a system of presidential nomination. Opposition groups can no longer operate freely. Earlier this month, the chess maestro and Putin critic Garry Kasparov and other anti-government activists were prevented from boarding a plane to Samara, where Russian and EU leaders were meeting.
On Putin’s watch there has also been a discernible reduction in the freedom of the press. The three major television networks (Channel One, Rossiya and NTV) are under direct or indirect government control, while reporters who antagonise the authorities can no longer feel safe. Only eight months ago, the investigative journalist Anna Politkovskaya was shot dead outside her home, one of 14 Russian journalists who have been murdered since Mr Putin came to power.
To repeat, there is no such thing as the future; only futures. One conceivable future is that after (if?) Mr Putin steps down next year, Russia will become more liberal in its politics. But that is not the future on which I would put my money. A more plausible future is that, having more or less stifled internal dissent, Russia is now ready to play a more aggressive role on the international stage. Remember: it was Mr Putin who restored the old Soviet national anthem within a year of becoming president of the Russian Federation. And it was he who described the collapse of the Soviet Union as a “national tragedy on an enormous scale”.
It would be a bigger tragedy if he or his successor tried somehow to restore that evil empire. Unfortunately, that is precisely what the Weimar analogy predicts will happen next.
Niall Ferguson is Laurence A Tisch Professor of History at Harvard University