In the years leading up to the war in Ukraine, there was much talk about Russia’s supposed resurgence. It was a compelling story: out of the ashes of the Yeltsin years, Russia was on the ascent, asserting itself militarily, cracking the list of the top ten largest economies in the world. The United States, in contrast, seemed to be in retreat, and, depending on who you talked to, maybe even on the brink of collapse.
Was there any truth to this? Nick Birman-Trickett has written some incisive and (occasionally very funny) posts pushing back against this idea. He wrote a particularly worthwhile post on this topic called “Empire of Austerity” which has received some well-deserved praise from Adam Tooze. We decided to interview Nick about some of the points he makes in that essay and elsewhere in his prolific writings, which you can find on his blog, OGs and OFZs. Critically, Nick says that it was actually Russia’s weakness and stagnation, rather than its resurgence or strength, that helped pave the way for the war in Ukraine. Nick is a political risk and commodities analyst now working in legal services. Adam Tooze has called him an “essential follow”. We agree.
LL: You push back against this popular notion of a “resurgent Russia” that took hold among commentators and policymakers years ago. What made them believe this?
NBT: Power is a hell of a drug. Back in 1990, Charles Krauthammer penned a fateful column for the Washington Post that captured the triumphalism of the end of the Cold War succinctly with what he termed “the unipolar moment.” Though the USSR had yet to collapse, Gorbachev and George Bush had negotiated what amounted to an end of the explicit geopolitical struggle between two warring spheres of ideology and influence led by two commanding ‘poles’ of power in the international system. Only the US was left standing as a power capable of exerting its will across the planet with comparatively few limitations.
Fast forward to 2008, Russia’s invasion of Georgia coincided with the Global Financial Crisis. One could see the beginnings of a reassessment of American power and that of its allies. It was exceedingly uncomfortable to acknowledge that there was relatively little the West could do to prevent a nuclear power from attacking a neighbor lacking any formal defense guarantees (despite the fact that the US did intentionally plant SOF units in Georgian positions after the war broke out to effectively call the bluff and limit further offensive operations from Russia).
Libya and Syria became political litmus tests afterwards as the foreign policy consensus in Washington, though more diverse than simply a “war party,” was still clearly in favor of interventions. Add to this the beginnings of China’s claims to the South China Sea, island building, and the self-imposed defense spending cuts foisted on US policy by republicans in Congress and Obama became an avatar for “leading from behind” or a US on the decline. The annexation of Crimea then amplified that discourse, as again many refused to accept that a much weaker competitor could still do ‘big’ things without an effective veto or means of preventing action. Behind this psychodrama was another inconvenient truth – Europe was in relative decline after 2008, a largely self-inflicted wound given the EU and Eurozone’s collective responses to the financial crisis and its aftermath.
Russia’s ‘return’ to geopolitics in 2014-2015 – meaning Crimea, Donbas, and Syria – became an outrageous indicator of a West in decline. Then the targeted interference in the 2016 elections in the US brought the temperature up even more. Action of any kind abroad was taken to mean resurgence because these were things Russia could not have managed from 1992-2007 (or 2014 depending on one’s preferred narrative). So in a sense, yes, Russia was clearly resurgent in that it had recovered in strength and willingness to act from its post-Soviet nadir, but that resurgence was measured against the benchmark of 1990-91. Unipolarity or, perhaps more accurately, the desire to preserve American primacy a la 1991 creates a permanent state of insecurity. Even the most marginal actions undertaken by competitors or allies alike that contradict US interests or goals are seen as evidence of American weakness because it cannot impose its will despite having lived through a nearly half-century of geopolitical competition in which there were repeated setbacks, allies were capricious, and more. Power made people dumb.
LL: When did you come to realize that this idea of “Russia’s resurgence” was not in fact an accurate reflection of reality? Was there any particular moment of realization, or was it more of a gradual understanding?
NBT: To be clear, I wouldn’t in any way, shape, or form deny that Russia became a more active ‘player’ (hate the term) in terms of international security, involvement in conflicts beyond its borders, and so on after 2011-2012 (with 2008 acting as a sort of preview). What I’ve always been frustrated by, however, is the lack of critical engagement as to the material drivers of Russia’s behavior domestically and its capacity to meaningfully sustain whatever ‘gains’ it’s made by being more omnipresent.
I had a general understanding that the resurgence narrative was wrong, or least incomplete, by 2016 when I was finishing up my coursework at EUSP. One thing most Washington-speak is guilty of when talking about or exploiting what I think we can comfortably call the ‘resurgence narrative’ is that whenever a challenger disrupts the fragile emotional equilibrium of hegemony or unipolarity, their actions are primarily viewed as cunning, substantial, and otherwise a blow to the US or collective west without any corresponding cost. In other words, political actions are like a bank ledger – there are gains and costs, assets one may procure and liabilities one owes or that otherwise create risks.
Syria has always been a point of frustration, particularly among American interventionists and their more annoying European cousins. Assad’s brutality bred an online discourse about the power of US military action that was largely divorced from reality. If a critic of the general D.C. consensus/Twitter clout chasing narrative pointed out the goal was clearly regime change, responses would generally amount to saying that regime change only counts if 100,000 troops are deployed to fight on the ground. But if you asked anyone what their goal was, they would invariably say to get rid of Assad, which definitionally meant changing the regime.
Russia’s involvement effectively did two things: helped to keep Assad in power (though Russia’s contribution was much smaller than that of Iran) and maintain military bases it already had for decades. By that metric, Russia was expending more money, munitions, and lives to keep what it already had in a conflict with no viable peaceful settlement. Whenever someone talks about moderate rebels, they generally can’t name you a group or leader willing to commit extreme violence composed of people primarily concerned with democracy. Let’s also leave aside the complexities around counter-terrorism, by and large Russia was doing more to maintain its position.
Now the war was also paired with efforts to negotiate production cuts with OPEC, namely Saudi Arabia, and a few other regional states that were actively funneling money, arms, and extremists into Syria to remove Assad. Some saw the cuts as a chiefly geopolitical instrument. This is inaccurate. Russia’s oil sector is not competitive with the Gulf in a price war where everyone produces as much as possible despite a lack of demand. We learned this quickly in March-April of 2020 when Russia called this bluff and lost in humiliating fashion.
The Obama years continue to be systematically misunderstood in terms of their significance for US strategy, and their legacy was smashed by the policies pursued since. Given the explosion of US oil production after 2010, boosted largely by incredibly low borrowing costs for drillers, the pursuit of a durable nuclear deal with Iran that would free-up more investment for oil projects and therefore exports to the market (that are competitive with Russia’s Urals blend in terms of their composition and compatibility with refineries), and the logical drawdown of US forces in the region given greater stability in relations with Iran, Russia’s actions weren’t a threat to US interests. They were savage, violated human rights, and more, but no, they weren’t undermining the US in a significant way by entering the conflict. There’s a reason that despite the hemming and hawing in D.C., Obama’s decision not to enforce the red line on chemical weapons in Syria was perceived as an intelligent choice in Moscow. We can spin that as their satisfaction, but given the extreme degree of skepticism about US policy in the Middle East among Russian policymakers and regional specialists, with good reason we can generally agree, it’s not as simple as them high-fiving. After all, they weren’t even fighting actively in the conflict yet at that point. Talk about Turkey actively helping ISIS enter Syria and, well, the conversation gets a lot more complicated.
This general understanding became a much more acute one during COVID when I got more in the weeds on Russian policymaking domestically, focused a lot more on macroeconomic thinking, and also incorporated what I learned from my time at LSE and reading a wider set of literature that wasn’t just Russianists navel-gazing about how singular or strange Russia is. Since the economy entered a structural slowdown and stagnation as early by late 2012 and military modernization was prioritized over other spending in 2011 and then compounded by explicit instead of implicit austerity policies after the annexation of Crimea, the dominant way to extract wealth out of the state over the last 12 years has been to exploit the pursuit of Great Power Prestige – think of Wagner and similar mercenary operations by political entrepreneurs seeking money and favor – or industries arguing for policies that ostensibly improve Russia’s economic sovereignty, largely a failure but a success story particularly for Russia’s agricultural producers who flipped the post-Crimea sanctions into generous subsidies and trade policy support banning EU imports.
Once you win money or resources by advancing that foreign policy agenda while the amount of wealth available in total at home isn’t growing much, it’s a bit like Putin acting as the “ideas guy” for Russia Inc. The vision’s been painted, now everyone else is managing up and trying to get cash. That extends to Putin’s personal advisors chasing their own agendas. You get a Russia that’s increasingly active in military/security and intelligence terms in the pursuit of status. That’s not durable and speaks to relative decline, but it looks like a resurgence if our baseline is when Russia was completely enfeebled and beset by domestic political crises.
LL: You say that even though Russia is indeed a kleptocracy, that this alone does not explain why the economy has failed to grow, even under (initially) light sanctions nearly a decade ago. Can you explain why kleptocracy and corruption are not enough to explain what is happening with Russia’s economy?
NBT: Kleptocracy isn’t a useful prism to understand any socioeconomic and political system in isolation. Stealing or hoarding wealth looks different in different kinds of economies or societies. In Russia specifically, the period in which great sums of wealth were made privately and beyond the reach of the country’s political leadership saw the accumulation of vast fortunes largely at the expense of the state. People acquired Soviet-era assets through shady schemes, complex financial and corporate structures that obscured ownership and tax obligations, handed themselves prized assets (like Khodorkovsky exploiting Potanin’s loans-for-shares proposal with the help of Anatoly Chubais), or otherwise depended on highly personalistic systems of favors. Oil & gas wealth always existed, but became more salient in the 2000s.
Corruption imposes constraints on economic activity for the average business person – they can’t make an investment or decision of major importance knowing they have the true protection of the law – but it also acts as an enabler of activity when systems become too complex to regulate or manage effectively. I recall from own time at EUSP that a property developer in St. Petersburg gave a presentation in which he spoke about how his company had to file over 130 documents with city authorities in the proper order, at which point if any were done incorrectly the process would have to restart from the beginning. There were also basic health & safety requirements that were so onerous as to be virtually impossible to meet, especially when rehabbing or adapting a historic building. As a result, it was cheaper to pay 50 years’ worth of fines in advance than to build to code.
This is intuitive to me as a Chicagoan. The reason the city’s as clean as it is has a long, storied history of handshake deals between city hall, unions, and organized crime. Same goes for when city projects are actually built on time or even ahead of schedule. Corruption, more specifically asset raiding, absolutely disincentivizes business and growth. After all, why build something when you know it’ll be taken from you if it succeeds? But corruption is also often a logical response to the incentives of existing legal and regulatory structures and, as is often the case in Russia, the absence or weakness of local authority.
Kleptocracy therefore exists within economic structures, not as a structure itself. And that structure is subject to a variety of things, some of which can’t be changed by political fiat and others that can. Since roughly 2004-2005, Russia has had far more capacity to take on public debt issued domestically in rubles to finance productive investments, to improve services or welfare for the public, and just as importantly, to arm itself.
For centuries in Russia, there’s been an ongoing issue with what Alexander Gerschenkron termed “economic backwardness.” Put simply, Russia has historically been less developed than its European competitors, creating a recurring tension between its development goals and its political ambitions. Political power and the economic system have been highly centralized, in the past at least, to make it easier to mobilize resources when needed for war etc. Countries that are less developed, regardless of their political and economic structure, have a latent capacity to rapidly grow when ‘catching up’ to more industrialized and developed economies. Think of it like a base effect. If an economy is starting from a low base, early investments and gains are very large in relative terms when it comes to higher levels of wealth, technological complexity, or welfare. Countries that come late to the industrialization party generally have to rely on state intervention and policy to close the gap to varying degrees, smoothing out the boom and bust cycle, protecting industries from foreign competition, or providing subsidies or low tax rates to foster more investment and production.
But that effect fades in time as an economy converges towards greater parity with more developed states, eventually requiring a change in the political system. The winners from the previous growth regime are typically entrenched politically at this point and resist those changes. Russia experienced a novel version of that problem between 2006-2011 with the Global Financial Crisis. The technocrats that engineered stability – managing to maintain budget surpluses, maintaining large trade surpluses generated by exports of oil, gas, and coal, improving tax collection, reducing the complexity of regulations and reforming land ownership within the agricultural sector – didn’t get the response to the Financial Crisis quite right. Whereas exports of resources drove growth from 1999-2008, they needed to increase domestic consumption to drive the next phase of growth, drawing in more investment into factories, expanding services’ share of the economy, and more generally drawing in activity through the relative strength of consumer demand. But doing so would have empowered middle class Russians politically, people who were deeply upset by Putin’s return to power and were more difficult to control. Economic growth creates space for hope. Hope creates expectations of political change. Managing the public became more difficult as they’d achieved a certain level of wealth once more by 2008.
Of course kleptocrats had seized key industries, as had the state in this time of strong growth. Investment in fixed assets – productive things like factories, equipment, or anything that helps a business produce – also failed to rise significantly until a brief blip in 2006-2007. Was that due to corruption? Somewhat. But just as important through the time was a functional retrenchment of state spending despite the fact that it rose in absolute terms significantly. If you look at Russia’s sovereign debt to GDP data, by 2005 it could have been sinking much larger sums of money into new infrastructure and modernizing the economy. It didn’t. That not only reduced impetus for businesses to invest, it also has a long-run negative effect on growth.
Countries with relatively weak property rights still see investment surge when they attract new supply chains or industries. This was the case in most Asian exporters, the primary distinction being they were comparatively poorer than Russia was. And the ongoing bias towards austerity, which worsened in 2014 and since despite the surges in spending around COVID and the war, sapped the country of its capacity to overcome some of those constraints by strengthening demand enough. Instead, Russia has a persistent model that depends on exports of natural resources or low value-added goods intended to create a surplus of financial resources to subsidize or maintain domestic industries and strategically important sectors. That works until you get too rich, which Russia basically did by 2008, at which point additional growth for exports generally corresponds to repressing wages or stagnation/declines in household incomes.
LL: You suggest that Russia’s stagnation created the conditions for the war in Ukraine. How so? How might different economic conditions have helped resolve Russia’s conflicts in a less destructive way?
NBT: There are two things to think through. First, why was force the necessary way to ensure dominance across Eurasia in Ukraine? Second, how did economic conditions affect the interest groups around the war?
Had Russia continued to grow at 4-5+% from 2011-2014 with a focus on consumption, Ukraine would have had far more much to gain joining the Eurasian Economic Union, where its industrial production would, at least in the medium-term, probably been more competitive without the stresses of meeting EU regulatory standards. Just as importantly, had Russia transitioned to that growth model domestically over the course of the 2000s, there would have a more logical economic logic to the (re)integration of economies across post-Soviet Eurasia. The other two major consumer ‘poles’ – China and Europe – have persistent issues with their growth models, and significantly underconsume economically speaking relative to their potential. Add Russia to that and suddenly you have a broad growth trap.
This then recreates the problem we see in the Russian case elsewhere. Though growth continues, it’s largely export led (and that includes labor migrants going to Russia and remitting earnings back). Fights over assets or the political pressure to centralize control intensifies in many cases. And the interest groups that benefit from stagnation, specifically in Russia, are also most wedded to the use of force in Ukraine or otherwise willing to bear it. Prior to Crimea, the state had consolidated its control or influence over most of the largest enterprises, particularly exporters that generate lots of tax receipts, foreign currency earnings, or are embedded across the industrial base, much of which was developed for the defense sector in the Soviet period. If you peek at the data, foreign direct investment has always been a very, very small part of the financing for investment into production. Foreign capital showed up, but was constrained by sector, usually reliant on tight relationships with a local partner, and largest when it came to natural resources. Sanctions couldn’t shatter the investment relationship in 2014 cause it was already weak and driven by the price of oil.
Post-Crimea and the initial sanctions, businesses became increasingly dependent on the state because of austerity and difficulty finding foreign partners. Add to this the isolation Putin experienced during COVID, and you can see a pattern whereby hawkish advisors took advantage in 2020 and 2021. More generally, once businesses were hit by the 2014 sanctions regime and its amendments, they had nowhere else to turn. They lack political power in the way they do in the US or elsewhere to lobby and shape the policy agenda. Stagnation, therefore, created domestic conditions in which everyone needed the state’s help and could not say no. Regionally, it helped push Ukrainians to look towards Europe for their future. Russia’s political model and economic model were simply not delivering. It also contributed to the manner in which Nagorno-Karabakh erupted in 2020. A more economically vibrant, development-focused Russia makes alternative kinds of diplomacy possible. By no means does this preclude war from breaking out, but it would alter the terrain, particularly for Armenia given its relative economic isolation. Of course, the politics of ethnic enclaves and breakaway regions go beyond pocketbook issues. I just prefer to think in material terms since stagnation reinforces the incentive for Russia to use force or a security-centric approach as it lacks compelling carrots.
LL: You cite the foreign policy context of ostensible rapprochement with the West over the War on Terror as producing “a profound sense of existential anxiety about Russia’s status.” That’s very interesting, and I was wondering if you could elaborate a bit on that. Why was that anxiety about status important?
NBT: There was a window of time where cooperation with the West made perfect sense given shared concerns about terrorism. While the nature of the wars in Chechnya is debatable – Russia’s brutality is not, but rather whether we think of them as wars of decolonization – there’s no question that terrorism was a very real, very pressing concern for the Russian state. Afghanistan therefore was a conflict where cooperation made initial sense. Iraq changed all that. It didn’t destroy the relationship immediately, and the Color Revolutions that followed the invasion chronologically were convenient excuses to blame the West, but there’s a more fundamental problem the invasion of Iraq poses.
The United States was able to launch the war without any effective check on its power despite the preponderance of diplomatic concern and belief that doing so was profoundly stupid and misguided. Once it happened, a war that went beyond the scale of the interventions in former Yugoslavia, it destabilized the entire region, a region that also has direct ties to extremist groups and terrorists in the North Caucasus. Even more importantly, it made clear that there was no effective check on US power, which completely contradicted the worldview enshrined in the so-called Primakov doctrine established in 1996-97 that explicitly committed Russia to pursue a ‘multipolar’ world. In practice, Russian elites have no idea what multipolar actually means, nor do they critically engage with the concept in economic terms. But in this instance, it effectively meant that the US should not be able to unilaterally veto Russian interests, and Iraq exemplified the degree to which other countries were impotent to stop it.
LL: A few years before the War on Terror, the NATO intervention in Yugoslavia and (eventually) Kosovo’s independence were said to have had a profound impact on Russia. Michael McFaul wrote an article at the time called “NATO’s Collateral Damage in Russia”. How true do you think it is that these events in the Balkans really impacted Russia’s perception of its own security in Europe? Obviously Russia has invoked the “precedents” of Kosovo and Yugoslavia in waging a war in Ukraine, but I can’t tell if this is all entirely cynical or if the NATO intervention and Kosovo’s independence really did radically alter how Russians viewed the West.
NBT: It’s safe to say both are true. On the one hand, I’m quite receptive to what I’d say is now more the mainstream argument that it’s a selective reading of history on their part to find injury. This fits in with the “Moscow rules” approach whereby we ascribe a particular cynicism and set of cultural tropes to how Russian elites approach policymaking that have basis in truth and history, but can verge on caricature. But beyond the question of cynicism in Russia, it’s reality that a “rules-based order” is only as good as the degree to which states follow the rules and the rules can be enforced. The intervention in Yugoslavia and Kosovo set a clear precedent that American military power underwrote the order, and shortly after, Iraq existed as an exception to that order. In that sense, it clearly did set a precedent for the relationship. In my own mental map, I think of the events in the Balkans as a sort of ambient background that influenced biases and preconceptions of within Russian elites’ relations with the West, but wasn’t the ‘final nail in the coffin’ so to speak that established their trajectory for good.
LL: Has Russia’s performance in Ukraine put the idea of a resurgent Russia to rest at last?
NBT: To a large extent, yes, though wars are long and perceptions can change. Most relevant is that action is not always resurgence, and can come from a position of weakness. I think the way that the invasion was carried out and constraints on the country’s proper mobilization for war suggest that it was not the adversary the hawks most worried about its resurgence for much of the last decade have long thought. But even this has to be caveated – they carried out the war in a manner completely out of sync with their own military doctrine and the design of their military and China’s lockdowns all of last year saved us from far more punishing energy-related inflation that would have ended in damaging recession, primarily for Europe but also affecting Japan, South Korea, and to a lesser extent the US.
LL: Ukrainian sociologist Volodymyr Ishchenko says that there is a class conflict behind the invasion, “namely between [the Russian] political capitalists interested in territorial expansion to sustain the rate of rent, on the one hand, and transnational capital allied with the professional middle classes on the other.” I was wondering what you think of this interpretation.
NBT: I don’t really know what to make of it. To be honest, I haven’t read Ischenko’s work closely and don’t want to offer any interpretations based on a misreading, but the idea seems quite misplaced to me. Territorial expansion has very little bearing on rents now. Never mind the natural resource rent aspect for Russia, the ‘rate of rent’ in Russia is dictated by its growth prospects. Territorial expansion achieves the opposite outcome, the rate of rent falls as profits fall, incomes fall, and the economy steadily adjusts to a lower level of consumption and greater levels of inefficiency. The “political capitalists” aren’t really capitalists in a coherent sense. There is no class interest they share. Most people who manage large, strategically significant businesses are aware they can be replaced. Heads of state-owned enterprises are more like middle managers allowed to maintain their position as long as they do the job of delivering when asked well enough. If you’re Alexei Miller and you want to sustain the rate of rent, why the hell would you destroy your commercial relationships in Europe knowing you can’t substitute them with China for basically a decade, if at all?
If we take political capitalist to mean the entrepreneurs leeching money out of the system pursuing their own agendas, I take the point. But it’s unclear to me how territorial expansion was even necessary to do so. They could have simply borrowed more money domestically over the last 9 years to increase the rate of investment domestically using state resources. Tech and emerging markets where Russia has had some, if mixed, success with national champions and firms offer opportunities. If more recent sanctions have created a situation in which GDP will steadily decline year after year until finding a much less productive bottom in a country with a shrinking laborforce and underwhelming investment in productivity, the rents will be fewer and farther between, clustering even more heavily in exporting industries that are now facing slow, downwards structural adjustments themselves. If we instead take it to mean political entrepreneurs seeking to improve their position, then I’d agree to some extent, but find it perplexing given how few elites knew about the decision and how few are enthusiastic supporters, rather acting as though they’re now trapped.
There’s also no coherent class of “transnational capital” in Russia. For one, the ‘national’ capitalists working for the regime squirrel their money away abroad too. For another, not all capital is created equal when it comes to enduring social and political relationships. Capital from abroad flowing into the Moscow Exchange to gamble on Russian stocks is speculative, has little bearing on investment or activity in the real economy in Russia given the relative underdevelopment and depth of its financial markets, and is managed by a comparatively small group of people sitting in nice offices in Moscow and St. Petersburg. By contrast, there has never been a huge amount of foreign capital invested into actual production and factories, the places employing hundreds of thousands of less well-off voters across Russia’s regions that formed a key constituency within the regime’s voting coalition. Middle class Russians want to be able to travel and live lives of relative comfort, yes. That does not necessarily ally them with transnational capital so much as leave them apathetic given their lack of political power.
If there’s a class conflict between ‘political capitalists’ and allies of transnational capital, the middle classes lost that fight in 2011-2012. We don’t live in the world of WWI. Territory does not bring you wealth or rents, especially when you’re sanctioned to death for land that requires tens of billions in redevelopment investment and aid to get back on its feet.
Cover photo: View from the Kremlin/Pedro Szekely/flickr/some rights reserved