The Soviet Union imploded for a variety of reasons, all of which boil down to one major overarching reason: at its core Soviet communism was a self-destructive concept destined to fail eventually. The Soviet Union failed when it did because Presidents Truman through Reagan contained the “evil empire” militarily long enough for American economic muscle to prevail. Reagan, who knew the Soviet Union’s socialist economy could never keep up with America’s quasi-free market, used SDI to precipitate a financial collapse when the USSR was forced to spend more than its economy could bear trying to keep up militarily.
Now the world is faced with Vladimir Putin, an old-style hard-liner in the mold of Stalin and Kruschev, who is determined to re-establish the Soviet Union. His first step was to reclaim the Crimea and its strategically located port of Sevastopol. His next acquisition is likely to be Ukraine or, at the very least, the eastern, pro-Russia region of Ukraine. Up to this point, President Obama has ignored America’s traditional policy of containment, preferring instead to use empty words in the manner of Neville Chamberlain. The president has applied a few meaningless sanctions aimed not at taking down the Russian economy but at inconveniencing a select few compatriots of President Putin. Throughout the Crimean affair Putin, who is the leader of a weak nation, has managed to look strong while Obama, who is the leader of a strong nation, has managed to look weak.
President Obama has no one but himself to blame for looking like a toothless tiger in the eyes of America’s allies and enemies. After all, he tied his own hands in this little skirmish because he has spent the past six years weakening both the American military and our economy. Consequently, Obama is in no position to pull a Reagan on Russia and its expansion minded president. He cannot contain Russian expansionism, nor is he willing to do what is necessary to push the Russian economy over the edge precipitating another financial collapse in that country. However, in spite of Obama’s ineptitude good fortune may be smiling on him and bad fortune may be lurking in the shadows behind Vladimir Putin.
Russia’s economy—already struggling before Putin’s Crimean adventure—is taking some major hits because of it. The issues undermining Russia’s already shaky economy have nothing to do with President Obama’s meaningless sanctions and everything to do with the principles of free-market economics. Putin’s Ukraine excursion and fears that he will nationalize or personally take over private sector companies has foreign investors leaving Russia in droves. In 2013, more than $60 billion in foreign investment left Russia. Now in 2014, Russia lost another $70 billion in just the first three months of the year.
Russia has a two-trillion dollar economy. It cannot afford to lose the foreign investment it has relied on so heavily in building a market economy. Foreign investors are essential to the Russian economy, but they are being scared off by Putin’s antics coupled with the corruption that is so much a part of the Russian economy. Of the major economies in the world, Russia’s is the most corrupt. Not only is money fleeing Russia, so are highly educated professionals. Putin’s imitation of former Soviet leaders such as Stalin and Kruschev has created a brain-drain in which the best and brightest in Russian society have begun to seek refuge in Eastern Europe.
The brain drain and financial drain are serious problems that are being felt right now, but they are not the worst of the challenges faced by Russia’s economy. The real challenges are more long term in nature. For example, when was the last time you went to an automobile dealership and bought a Russian-made car? When was the last time you bought a Russian-made television, computer, cell phone, refrigerator, washer, dryer, or anything else Russian made for that matter? The answer to both of these questions is “never” because Russia does not make anything for export other than military hardware. Unless you are looking to purchase a MIG, you will have to look somewhere else.
Russia’s entire economy is based on exporting raw materials, principally natural gas and oil. In fact, these two commodities represent more than 70 percent of all Russian exports. Russia’s economy is built on the export of natural gas and oil. For the time being this stands the Russian economy in good stead since both are high-value commodities. However, Russia is doing nothing to prepare itself for the inevitable day when demand for these two commodities will decline or when Russia’s supply of them will dwindle. Consequently, as long as the Russian economy is based on tapping into resources that are finite, it will be unable to sustain itself in the long run. The key to economic survival in a global economy is transforming raw materials into useful products for which there is strong worldwide demand. Think of Japan and Korea and the success they have had in the consumer electronics and automobile markets.
Finally, should Putin’s excursion into Ukraine backfire on him and create another Chechnya where Russian soldiers are ground up daily by a determined opposition that values freedom over safety and security, his days as Russian president and his vision for re-establishing the “evil empire” will both go up in flames. If this happens, and it well might, it will happen after President Obama is long out of office. However, if it happens I expect he will take credit for it anyway. If it doesn’t happen during his lifetime, he will blame George W. Bush.