Peter L. Berger's Blog, page 166

Minimum Wage Campaign Highlights Blue Model Contradictions

San Francisco Bay Area cities seem to be in a race to see which one can jack up its minimum wage the fastest. The Wall Street Journal reports:

California is on track for a $15 minimum wage by 2022, but some Silicon Valley cities are opting to hit that target faster, prodded by a campaign aimed at organizing low-wage workers in the region.

The city of Santa Clara is the latest to propose an accelerated $15 minimum wage, following the lead of San Jose and six other Santa Clara County cities. The City Council plans to vote on a measure that would raise base pay to $15 by 2019 next month.

 Mountain View, where Alphabet Inc.’s Google is based, will have a $15 minimum wage next year, as will Sunnyvale. The $15 target will be reached in 2019 by San Jose, the region’s largest city, and home to companies such as PayPal and eBay. Cupertino, hometown to Apple Inc., also will hit the $15 target in 2019, as will Palo Alto, Milpitas and Los Altos.

The push to hike the minimum wage on the San Francisco peninsula, where housing costs are seriously inflated, is not nearly as radical as the push to raise it to $15 per hour nationwide or statewide. Since $85,000 per year is considered low-income for a family of four in San Jose ($106,000 in San Francisco!), it’s reasonable to argue that $15 per hour in Silicon Valley is equal to about $7 per hour in Alabama. The number is not inherently excessive. (Wages are always higher in the middle of a gold rush.)

But there will be fallout nevertheless. For one thing, the higher wage floors will accelerate the destruction of the retail store economy and its replacement by Amazon and internet shopping. That’s going to be bad news for workers in those sectors.

The real damage, though, will come from the automation of low-skilled tasks. High labor costs (especially in Silicon Valley, where people know quite a bit about robots and automation) will accelerate the development of labor-saving technologies that reduce the need for $15 per hour human workers (and that figure doesn’t include the cost of benefits and taxes for those workers, of course).

Just as blue model unionization accelerated the automation of manufacturing, union efforts to impose relatively high minimum wages on low-skill work will accelerate the destruction of these jobs.

The true beneficiaries of Silicon Valley’s new minimum wage laws are going to be found in the corporate offices of the tech giants who create robots and the venture capitalists who invest in them rather than among the growing number of Californians trapped in the low-paid labor market.

Indeed, for the Silicon Valley tech moguls who hunger after liberal plaudits alongside generous returns on their portfolios, supporting dramatic minimum wage increases is a perfect strategy. The same low-wage workers whose jobs are about to be torched will applaud the tech moguls’ philanthropic virtue even as they are pushed out of the labor market.

Hollywood, Wall Street, and Silicon Valley today are the principal supports of the remnant of American liberalism, and they are all, as industries, enormous drivers of economic inequality. They exemplify all the trends that progressives fear, but also produce the wealth that allows their moguls to shape the agenda for the progressive world.

There are places where the old-style progressives rooted in the labor market still contest the domination of the new liberal elite. In education policy, for example, the teachers unions are in a bitter and unrelenting battle with the tech do-gooders. But by and large, as labor unions lose power and the new plutocracy gains it, the nature of left politics continues to shift from blue collar advocacy to gentry liberalism and from populism to elite reform.

The tech moguls aren’t just winning because they have more money than the union bosses. The techies are also better attuned to the nature of economic change. The labor movement is investing an enormous amount of its steadily diminishing political and economic resources in the battle to raise minimum wages around the country. The theory seems to be that, while manufacturing jobs can be outsourced to factories in cheaper countries like Guatemala, jobs that produce non-traded goods—like waiting tables, health care, or UPS delivery—cannot be. So the unions are attempting to build a new labor movement on the basis of these industries.

It’s not a completely futile strategy yet, but it will be soon. Outsourcing is only one of the forces reducing wages. Information technology is also a large and growing factor. And while you can’t outsource retail store clerks to Guatemala, you can replace them with e-commerce.

After years of dissing Walmart and fighting its expansion because it was seen as a threat to retail jobs and wages, the labor movement is now looking on wistfully as it and other big box retailers face a new wave of competition from even less labor intensive competitors like Amazon. And now grocery stores, and all the jobs associated with them, could be next.

The American labor movement seems bent on digging its own grave, but there are things that smarter advocates for working people could focus on. Lowering the costs of the products and especially of the services that ordinary people depend on—housing, health, education—has the effect of increasing the purchasing power of the average American. Reducing the cost of vital government services—from providing infrastructure through streamlining our torturous and expensively dysfunctional legal and regulatory systems—would reduce the cost of goods that Americans need to buy.

The failure of the legacy labor movement to understand the situation of American workers today creates a major opportunity for new era politicians to offer policies that raise living standards by reducing costs and so raising real wages. That will offend the vested interests of the existing blue model coalition, but it will help the American people enjoy better living in the decades ahead.

The post Minimum Wage Campaign Highlights Blue Model Contradictions appeared first on The American Interest.

Russia, the Last Colonial Empire

When the Soviet banner was lowered over the Kremlin on December 25, 1991, and replaced by the old Russian flag, it was widely celebrated as the fall of communism. Many assumed that this would lead to the “end of history” and to the dawn of a new world order based on the principles of political democracy and economic freedom. But the end of a political system should not necessarily lead to the demise of the country that employed it. And in truth, the Soviet Union was brought down not so much by economic crisis or ideological disillusionment following the end of communism as by its constitutive republics’ attempt to reclaim sovereignty all at once.

While both Russian and Western academics have noted the role of this secession in Russia’s decline, they rarely observe that the European colonial empires underwent much the same process as they fell. Russian intellectuals are even reluctant to admit that Russia’s history was indeed one of colonization. Vassily Klyuchevsky, one of the most influential Russian historians of the late 19th century, contended that Russian colonization was distinct from that of other European powers because “the history of Russia is the history of a country that colonizes itself; the area of colonization inside it has grown alongside its [formal] state realm—sometimes shrinking, sometimes expanding, this eternal cycle has continued to the present.” Others admit that Russians mainly colonized not “their own lands” but rather those belonging to other people, yet still distinguish them from other Europeans. As the Russian philosopher Georgy Fedotov put it, “Unlike all the Western powers, [Russia] was built not through violence, but through peaceful expansion; not by conquest, but by colonization.” But Russia resembles the European empires much more that commonly thought—and it is a comparison that bears on the country’s future.

Russia’s Colonial History

Russia’s history of colonialism does differ greatly from all other colonial adventures, but not because it was “peaceful” and “consensual.” This becomes apparent as we survey its three eras of colonization.

The first era spanned the 11th to 14th centuries, during which Muscovy, Russia’s ancient predecessor, arose. Between 1000 and 1150 C.E., young princes of the Kievan Rus’ founded the towns that later became Muscovy’s anchor points—Vladimir, Suzdal, Ryazan, and Moscow itself.1 These settler colonies became more powerful not only as they grew, but as the Kievan metropolis declined due to dynastic quarrels. Up until the 1230s, this part of what would become “Russia,” called the Suzdalia, expanded quite remarkably, stretching between Tver and Nizhny Novgorod and between Moscow and Ustyug. At the time, it was bigger than any European state except the Holy Roman Empire.

In 1238 the Mongols devastated the whole princedom, later destroying the remnants of the Kievan Rus’ as well. Though they controlled the former Kievan colony by force, obliging the inhabitants to pay tribute and supply conscripts to the Mongol army, they did allow some elements of self-rule. Indeed, this area occupied a unique position inside the Mongol empire (or “ulus”): Since their lands were not considered integral parts of the empire, the Moscow princes were relatively free to reconfigure the local balance of power and concentrate secular and religious authority in their own hands. Eventually, Muscovy became conscious of a “national” self and threw off the Mongol yoke. So even at the very beginning of Russia’s history we see two features that distinguish the country from others: 1) It was developed as a settler colony by another principality; and 2) It was treated as a possession by a hostile force. No other European colonial empire had such a history.

In the second era, Russia emulated the Europeans’ colonial adventures. As the Europeans began their overseas expeditions in the early 16th century, the Muscovites started their expansion to the north and east. They captured the Yugorian lands by 1502 and reclaimed Ryazan by 1520. They conquered the Kazan Khanate in 1552 and Astrakhan Khanate in 1556, abolished the Great Nogai Horde in 1557, and took the Siberian Khanate in 1582. These conquests coincided roughly with the Spanish appropriations in Central and South America: Haiti in 1496, Cuba and Puerto Rico in 1508, New Spain in 1519-1521, Peru and Rio de la Plata in 1535-1536, and Florida in 1565. But the Russians amassed even more territory, continuing their Drang hach Osten well into the next century: By 1610 they had absorbed the Pegaya Horde, reaching the Yenisey River, and by the mid-17th century they were approaching the border with China. By 1689 they had conquered all of northeastern Eurasia to the Bering Strait.

Other European powers soon joined the Spaniards and the Portuguese in dividing up the Americas, and the British took the lead in exploring its northeastern shores. Once again, the Russians kept up. The first Siberian towns emerged practically simultaneously with American ones: Tobolsk (1587), Surgut (1594), Tomsk (1604), and Krasnoyarsk (1628) are a bit older than Jamestown (1607), New York (1624), and Boston (1630). Russian Siberia was the same kind of a settler colony as New England, Québec, Australia, and New Zealand, all territories we might describe, to borrow from Angus Maddison, as “Western offshoots” of their mother countries, since the colonists greatly outnumbered the indigenous populations. (Much of those populations were exterminated, of course; when a local tribe rebelled, Russian pioneers commonly killed up to half of it.)

The Russians succeeded so extraordinarily in colonizing the Eurasian landmass because they had already been colonists for centuries. After years of Mongol rule, they had also adapted the techniques of their conquerors. According to one estimate, in terms of total square kilometers controlled each year the Russian Empire was the largest in area and the most durable in time of all historical empires, covering 65 million square kilometer per year versus 45 million for the British Empire and 30 million for the Roman.2

If we leap forward two hundred years, we see another striking similarity between Russia and the other European powers. When both exhausted their supply of colonists, they opted for a different kind of adventure relying only on military superiority. They secured control over vast new lands without massive population transfers, this time not to the west or the east, but to the south. By the second half of the 19th century the British had conquered much of Africa, India, and Malaya; the French controlled Indochina, West Africa, and parts of the Middle East; and the Dutch, Portuguese, Belgians, and even the Germans followed suit. By 1885 the deal was done, and the Treaty of Berlin made it official: The Europeans had divided up Africa between them. At the same time, the Russians also turned southward, beginning their third period of colonialism: Between 1804 and 1810 the Empire absorbed all of Georgia, Abkhazia, and Armenia, and by 1859 it had concluded a series of wars with the North Caucasian tribes. From 1864 to 1876, imperial troops occupied the Emirate of Bukhara and both the Kokand and Khiva Khanates, putting them at the foot of the Hindu Kush mountain range, the only barrier between them and Britain’s territory.

These new possessions—both the European ones in Africa and South Asia and the Russian ones in Central Asia and the Caucasus—should not be counted as colonies, since few colonists lived there. In 1898, only 120,000 servicemen safeguarded the whole British Empire, and the number of British civilian personnel was even smaller. The same applied to the Russian territories in the south: By 1897, the share of Russians in the Syr-Daryinsk oblast (region) stood at 2.1 percent of the population, in the Samarkand oblast 1.4 percent, and in the Fergana oblast a mere 0.5 percent. We ought therefore to distinguish between colonies—territories conquered by the European powers and consequently populated mostly by Europeans—and dependencies—states forcibly subjected to European rule and controlled without a huge resettlement of European populations. This will help us to structure our analysis.

European powers opted to create dependencies only after they were deprived of their colonies. At the end of the 18th and the beginning of the 19th centuries, European powers faced unrest and later revolution, leading to the detachment of their overseas colonies from their empires. Indeed, the nature of this secession underlines the difference between colonies and dependencies: The American Revolution and the Latin American uprisings did not stem from a rejection of European values or principles; on the contrary, the colonists embraced the political traditions of their motherlands. They simply wanted to build their own “cities on a hill” in accordance with European ideals. Thomas Jefferson and Francisco de Miranda, Benjamin Franklin and Simón Bolívar, Alexander Hamilton and José de San Martín were arguably more “European” than those supporting the preservation of absolutist order inside Europe. In contrast with the earlier period of secession, what was later called “decolonization” in the 1940–70s (misleadingly, since these territories were not true colonies, but rather dependencies) was the natural consequence of indigenous people opposing both military domination and the dissemination of hostile cultural traditions.

Here the pattern breaks down: Russia’s settler colony, Siberia, never mutinied. Its relationship with Russia, though similar in many ways to the Europeans’ relationships with their own colonies, had certain key differences. Because it was heavily exploited for centuries (supplying Russia’s most valuable export goods, from furs and gold to oil and natural gas), Siberia was labeled a colony, but in fact it was firmly attached to historical Muscovy. Indeed, the Ambassadors’ Office [Посольский приказ] stopped overseeing it in 1596, after which it was treated as a remote but indispensable part of Russia. Also, in contrast to the Europeans, Russia’s rulers were never interested in creating a powerful regional elite. (The first Siberian university, founded in Tomsk in 1878, opened its doors 242 years after Harvard University in the Massachusetts Bay colony.) For these and similar reasons, Siberia never tried to secede from Muscovy, and the Russians embarked on their southern expansion while still in possession of their settler colony. The majority of the European powers, as a result, owned either colonies or dependencies, while Russia became the unique country that had both at the same time.

In sum, the Soviet Union inherited a complex history—in which Russia was conqueror and colonizer as well as conquered and colonized. Given the course of European history and general societal trends, this reincarnation of the greatest empire in the world was always unlikely to survive into the 21st century. But even now the lessons of the Soviet collapse are not well understood either inside or outside of the Russian Federation.

The Soviet Collapse

When Russia became the Soviet Union in the 1920s, the old imperial legacy blended with the new Communist ideology, with each dominating in different periods. Imperial flashbacks pushed Soviet leaders to fight for the restoration of “Old Russia,” reconquering Central Asia and reestablishing the central government’s control over most of the Empire’s territory by 1922. These also led to the reconciliation with Germany in 1939, followed by the immediate “liberation” of western Belarus, western Ukraine, and Bessarabia and later by the annexation of the three Baltic states in 1940. The admission of the quasi-independent Tyva Republic in southern Siberia into the USSR in 1944 and of East Prussia in 1945 were the last Soviet territorial appropriations, whereupon it began installing puppet states across Central Europe.

Communist aspirations, however, necessitated enthusiastic praise for the “national-liberation movements” that aimed to dismantle the Western empires. The Soviets thought of them as facilitating the creation of new states that would inevitably choose the “socialist path” as the only viable strategy for their independent development. But while the U.S. foreign policy establishment had good reason to promote self-determination (especially where it might hurt the Brits), the Soviet Union found it rather more difficult. The constitution of every Soviet republic declared its right to secede from the Union for any reason, citing the inalienable rights of sovereign states. In 1944 the Soviet government strengthened this commitment to their sovereignty by permitting two republics, Ukraine and Belarus, to become founding members of the United Nations. Indeed, the very different regions of the former Russian Empire gained equal rights as quasi-sovereign states only inside the Soviet Union. Given the likelihood of secession movements within these republics, it was quite an audacious move to proclaim the Soviet Union only a “federation,” not to mention to encourage the Western empires’ possessions to fight for full independence.

Despite this, the Soviet Union still managed to outlive all of the other European colonial empires, which began shedding their dependencies after World War II. Yet as the Soviet economy continued to decline and political reforms became inescapable, the old conflicts surfaced with tremendous force. Democratization became closely connected with the republics’ aspirations to build new national identities. Even the eventual breakup of the Union has its roots in Russia’s complicated colonial past—in ways that continue to influence Russia’s post-Soviet structure and policy.

As previously mentioned, the Soviet Union was built of both colonies and dependencies. This caused a phenomenon that is sometimes called “self-colonization,” in which the colonies gain prominence at the expense of the core. At the time of Soviet collapse, Russia was no classic metropolis trying to save the whole enterprise but failing; rather, it pushed the dismantlement forward. It was a unique case of the periphery teaming up with the center to crash some phantom, overarching empire that neither considered to be acting in its interests.

This unusual partnership occurred because Russia feared what the European powers never did: that the Russian nation was dissolving into some broader “people.” The European empires of the 20th century were geographically and politically separated from their overseas dependencies and did not experience a huge influx of people from them. Indeed, by 1950 there were less than 20,000 “non-white” foreign-born residents in the whole British Isles, while in the Netherlands and Belgium the numbers were even smaller. The one exception, France, formally encompassed three Algerian territories—Oran, Alger and Constantine—as full départements, but their population of about 2.2 million increased the share of non-French residents of the French Republic to only about 5 percent. By contrast, the Soviet Union was a politically unified and geographically contiguous country. According to the last census in 1989, Russians accounted for just 50.8 percent of the overall population. Furthermore, the structure of the Soviet Union de-emphasized Russian nationhood—the Communist Party of Russia was created only in June 1990, before which every Soviet republic possessed its own communist party except the Russian Soviet Federative Socialist Republic. Russians believed that by dismantling the empire they were preserving their national identity, a motive they ironically shared with their “subjects.” So the Soviet Union became the only empire to be dissolved by its former masters, instead of falling due to peripheral uprisings and quarrels.

While Russians saw the value in ridding themselves of dependencies, the breakdown of the Soviet Union involved a separation far more wrenching—the secession of Ukraine. That country cannot properly be called Russia’s colony or dependency, because it had been Moscow’s metropolis for many centuries. Indeed, the very term “Russia” in its modern sense dates from the mid-16th century, around the time when Muscovy succeeded in incorporating “Ukraine” into a unified state. With Ukraine’s departure, “historical Russia” suffered an unparalleled blow—as if it had been reduced from Russia back to Muscovy. Zbigniew Brzezinski once famously observed that “without Ukraine, Russia ceases to be a Eurasian empire.” Russia was willing to release its dependencies, but while the outside world regarded Ukraine as one of these possessions, their historical ties made Ukraine integral to Russia and devastating to lose. This explains why the Russian leadership intervened at the moment when the division seemed to become irreversible, starting a war between the two “brotherly peoples” in 2014. When Russians look at Ukraine, they are not thinking only of the 1980s, but rather of the 1080s—or earlier. It is the colonial past, not the Communist past, which haunts them.

Losing its former metropolis made the Soviet Union unique among European colonial empires in its collapse, but so did another factor: It maintained its giant, resource-rich settler colony even as the possessions departed (or simply were abandoned). Indeed, Russia sustained only a minor economic setback from the loss of its possessions. The combined GDP of Russia’s new neighbors in the post-Soviet space comes to only $540 billion (based on the IMF’s 2016 estimates); in contrast, Russia’s GDP is evaluated at about $1.27 trillion. Per capita GDP is also higher in Russia than in all the post-Soviet nations except the Baltics, which are now part of the European Union and the Eurozone.

After their departure Siberia became not only much more important to Russia, but simply its main economic asset. The entire territory to the east of the Ural Mountains accounted for 52 percent of the imperial landmass, 7.5 percent of the overall population, and 19 percent of the Empire’s exports in 1897; these figures grew to 57 percent, 10.5 percent, and 46 percent respectively in the USSR in 1985. In 2014, Moscovy’s colony covered 75 percent of the nation’s territory, was inhabited by 20.5 percent of its population, and provided between 76 and 78 percent of exports. If Siberia stopped supplying commodities today, Russia’s exports would be smaller than Hungary’s. With more than 55 percent of its federal revenues in some way derived from the use and export of natural resources, Russia is in the unusual situation of feeding off a settler colony that itself remains poor and underdeveloped. Imagine if the 13 American colonies hadn’t seceded from Britain or 19th-century Brazil decided to remain a part of the Portuguese empire: The core of Russia is as dependent on its settler colony as the current UK would be on the United States, or the current Portugal on Brazil.

Unfortunately, Russia now spends its energies on tussling with Ukraine and coveting its former dependencies, not safeguarding its most precious asset. Instead, it should abandon all post-imperial designs, stop nursing old wounds, and refocus on creating a more balanced and better-managed internal structure that allows its colony the influence it deserves. If this task is regarded as secondary and unimportant for much longer, Russia’s future might well become extremely uncertain.

Current Risks

New Russia, born in 1992, inherited from both the Russian Empire and the Soviet Union conflicts with both its constituent parts and its neighbors. These represent the greatest challenges to the country—greater than its reliance on natural resources or its troubles with adopting democratic forms of governance.

First, Russia’s remaining dependencies are a drag on its economy. These dependencies, including the majority of the North Caucasian “republics,” are alienated from the metropolis and have few ethnic Russian inhabitants to keep them anchored to the core. In the late Soviet era, Russian, Ukrainian, and Belarusian people made up 24.3, 9.3, and 8.5 percent of the populations of Kyrgyz SSR, Uzbek SSR and Tadjik SSR respectively. Today the figures for Daghestan, Chechnya, and Ingushetia, all formal parts of an “indivisible and united” Russian Federation, are as low as 3.6, 1.9 and 0.7 percent and declining further. In addition, the current dependencies rely almost exclusively on subsidies from the central government (the Daghestani region receives only 26.7 percent of its funds from locally collected taxes, the Chechen 26.1 percent, and the Ingush 22.2 percent). The Kremlin’s efforts have only raised the average incomes to 74.3, 61.2, and 41.6 percent of Russia’s average respectively.

To pump more money into the central budget, the Russian leadership continues the economic exploitation of Siberia. The overall share of regional tax revenue accruing to the Siberian government dropped from 51 percent in 1997 to less than 34 percent in 2014—the central government not only introduced new taxes and duties, but created state corporations that operate in Siberia but have their headquarters in Moscow or St. Petersburg, where they pay regional taxes. Therefore, the regional gross product generated in the cities of Moscow and St. Petersburg exceeds the regional gross product of the whole area from the Urals to Sakhalin and Kamchatka. Formally, Russian statistics counted only 9.2 percent of the nation’s exports as originating in the Siberian Federal District in 2016, since the official “exporters” are Moscow-based companies. Russian natural gas thus appears to be pumped exclusively inside the Moscow ring road. All this exploitation causes massive underinvestment and the persistence of low living standards in Siberia. With this obsession with “national unity” and “territorial integrity,” which prompts it to hang onto its remaining dependencies at any cost, Russia risks losing, or perhaps ruining, its colony.

The new Russia also suffers from a state structure based on the Soviet model, albeit in a more controversial form. The Soviet Union consisted of 16 formally equal republics, the majority of which were additionally divided into oblasts. It was a multinational federation with each member possessing the right to opt out. These days Russia is a formal federation to which a new territorial entity may be admitted (such as Crimea in 2014, and perhaps South Ossetia or the Donbas in the future) but which no one is allowed to leave (as was proven by Chechnya in 1994-2002). Regional governors are handpicked by the Kremlin and installed via shoddy elections. But the biggest challenge is the fact that today there are around two dozen national “republics” and close to sixty predominantly Russian oblasts combined in the same state. No other nation in the world has such a strange—and potentially explosive—territorial arrangement, composed of a single region that bears the federation’s name along with many smaller territories. The “national” names of the republics also obscure their vastly different ethnic compositions, since the share of “title” nationals varies from 95.1 percent in Chechnya to 22.4 percent in the Komi Republic to a mere 1.96 percent in the Khanty-Mansi autonomous district. Since ethnic Russians account for healthy 82 percent of the overall population, the “federation” looks like a mono-ethnic state cut up into artificial “national” entities, a pure product of the Soviet legacy. The Russian Empire, by contrast, was built up exclusively of gubernias, or governorships, completely free from any ethnic or national features. Without a reconfiguration of the country’s current landscape, no one can be sure of Russia’s future and many attempt to forecast when and how the country will break up.

Along with the political restructuring, the new Russian state underwent a massive change in population. The collapse of the Soviet Union was the most extreme case of the people of a colonizing nation being openly expelled or gradually squeezed out of dependencies (both of those that regained their full sovereignty, like Kazakhstan, and those that formally remained inside the Russian Federation, like Chechnya). Between 1989 and 2009, when the outflow of the Slavic population was almost exhausted, at least 4.3 million Russians, Ukrainians, and Belarusians left the former Soviet Transcaucasia and Central Asia. The number of ethnic Slavs in Kazakhstan decreased during these years from 44.4 to 26.2 percent, in Kyrgyzstan from 24.3 to 6.9 percent, and in Tajikistan from 8.5 to 1.1 percent of the total population. In contrast, the largest migrant flow caused by the struggle against European domination, the exodus of the French pieds-noirs from Algeria, affected 860,000 people.

This caused deep trauma to the Russian psyche. In response, Russians developed the concept of a “Russian world,” thinking of their nation as spread around the whole post-Soviet space as well as around the world—and in need of reunification. Russia’s policymakers became preoccupied with trying to reengage the territories that had seceded from the Soviet Union. Since that was, and is, politically infeasible, the Kremlin now dreams of a predominantly economic integration, which costs Russia tens of billions of dollars in subsidies and loans to the former Soviet republics. It fails to provide any benefit for the Russian economy; not only are the economies of these nations small and underdeveloped, but they are just as dependent of commodity exports as Russia.

Long before the current rift between Russia and its most heavily subsidized partner, Belarus, opened up, I called the emerging Eurasian Union “Putin’s useless toy.” Today, that toy is not only useless, but hazardous. The inability of contemporary Russia to concentrate on its own affairs, coupled with its attempts to transcend its national borders to help “compatriots” abroad, risks political confrontations both along its borders and further afield. We may witness many unpleasant surprises before Russia’s nostalgia for its colonial past—its greatest weakness—finally evaporates.

Siberia’s Future

With its historical dependencies either gone or reduced in value, Russia must refocus on its single most precious asset: its settler colony, Siberia. Converting the “Siberian curse” into a “Siberian blessing” should become the major goal for Russia’s government in the coming decades. The region, however, should not be so much “developed” as allowed to develop itself as a resource-rich colony should.

What Russia needs today is the development of the private sector to balance the state-controlled sector. The best way to achieve this would be to provide Siberian residents with unique entrepreneurial freedoms. This does not mean privatizing the huge state-owned corporations that now operate in the region, but rather deregulating many kinds of economic activity to allow people to acquire land for personal use; invest in infrastructure; build roads, railroads, and airfields; and develop new oil and gas fields or other natural resources. All of Europe’s prosperous colonial territories—from the American West, Canada, and Alaska to Argentina, Australia, and South Africa—were developed not through the state’s efforts, but by making full use of colonists’ enthusiasm, ingenuity, and courage. Russia should convert all of Siberia and the Far East into an economic zone free of the many taxes and regulations that the state imposes on businesses. And not just in name only—the Russian government has tried to launch new “open economic zones” before, but they all fail because they are not really open. The Siberian zone should have access to international markets, as it is situated close to seaports, and should be encouraged to develop modern industrial facilities. What Moscow loses in taxes it will more than make up in long-term economic benefits.

To achieve growth in Siberia, Russia must encourage local and, more importantly, foreign investment in its colony to achieve the highest possible standards of living there. The history of remote and resource-dependent territories shows that local residents typically have much higher incomes than the country’s average. If they didn’t, one could not expect either natural population growth in these regions or any internal migration to them. For example, there is a remarkable difference between Alaska’s median income of $73,400 and the U.S. median income of $55,700. The same applies to Canada’s Northwest Territories, where the median income of $112,400 (in Canadian dollars) compares very favorably to the country’s median income of $78,870 (in 2014) or Western Australia’s median household income of $72,800 (in Australian dollars) compared to Australia’s median of $66,820 (in 2008). Russia is the exception from this rule: The median monthly income in the Siberian Federal District stood at 23,584 rubles in 2015 versus the national median of 30,474.

The means of attracting investors should be quite simple: The Russian government could issue free licenses to explore and extract natural resources in the region on the condition that they are not exported, but instead processed into finished industrial products inside the region. Domestic prices for many natural resources are low in Russia, so such an arrangement, combined with tax-free operations, might attract big international corporations. Their arrival in the region will accelerate growth and improve living conditions. The island of Sakhalin provides an example: Firms like Exxon, RoyalDutchShell, Mitsubishi, and Mitsui have engaged in production-sharing schemes in oil and gas exploration there since the mid-1990s, and the island has jumped from 19th to 3rd place in the ranking of Russia’s regions by per capita gross regional product.

Meanwhile, Russia should rethink the role of its eastern region in its great geopolitical “game.” The Kremlin is still obsessed with Russia’s relations with China, counting Beijing as the principal ally in its opposition to the West. But the alliance with China is less beneficial for Russia than it once was: It requires the construction of massive, immovable infrastructure that can only be used for trade with the People’s Republic; it will fix Russia’s position as an exporter of resources, since China, the world’s largest industrial power, has no interest in helping its neighbor industrialize; and, because China never tried to go north, it lacks experience in successfully developing projects in extreme Siberian conditions. Unsurprisingly, Sino-Russian cooperation programs have thus far ended in the construction of new resource-extracting facilities close to the Russian side of the border and new, sophisticated industrial plants on the Chinese side.

It might be much more productive to establish ties with Japanese and Korean companies, which could act as the biggest investors, and with Canadian, American, and even Australian ones, which can provide the necessary expertise in the sustainable development of vast, resource-rich regions. Stronger ties with these nations would also reduce the geopolitical risk: Russia must beware of a Chinese attempt to “re-colonize” its colony, as Beijing has already resettled large numbers of citizens in the region and would settle more if investments increased. One may agree that the Russian Far East needs migrants, but it would be much better if they came from different, and even competing, countries, and if the country that supplied most of the migrants did not also supply most of the businesses operating in the region. Thus, if Russia wants to develop its Siberian colony with a minimum of risk, it has no alternative but to cooperate with the Pacific nations.

In acquiring Siberia, Russia became a continental power well before the United States did. But while the Americans succeeded in rapidly developing their Pacific coast so that California became the largest U.S. state both in terms of population and gross regional product, the Russians considered their Far East a mere military outpost in an inconsequential part of the world. Today, Russia must develop the same kind of structure for a continental power that the United States achieved more than a hundred years ago. It must develop, if not two “cores,” then two “edges”: one facing west toward Europe and the Atlantic, and the other looking east toward the Americas and the Pacific.

As Samuel Huntington argued, colonies “refer to the settlements created by people who leave a mother country and travel elsewhere to establish a new society on distant turf,” a definition that is “entirely different from a ‘colony’ in the later meaning given the term, that is, a territory and its indigenous people ruled by the government of another people.” The very term “colony” goes back to antiquity, when colonization was the most common means of exploring new territories without directly conquering them. Colonies served not so much as outposts for military expansion as “trade missions” established by the most advanced nations. According to various estimates, from the 10th to the 6th century B.C.E. the Phoenicians founded more than 200 settlements with a total population of 450,000 people all over the Mediterranean and even on the Atlantic coasts of today’s Spain and Morocco. From the 9th to the 5th century B.C.E. the Greeks founded about 1,500 colonies from the coast of the Black Sea to Gibraltar, which at their peak were inhabited by more than a 1.5 million people—in remote areas a new polis might even be created in partnership with local tribes. All these cities nurtured the cultural, social, and political traditions of the regions from which their founders came, maintaining close relationships with them.

Though it embarked on an expansionist path of development together with its fellow European nations in the 15th century, Russia stands alone after half a millennium as a great power that has preserved its giant settler colony. Many of those who witnessed the scope and the wealth of Siberia believe that this land could become Russia’s greatest treasure, if only Moscow is ready to recognize its real value. Today it is in both Russia’s and the West’s interests to develop Russia’s eastern regions, creating another edge of the Western presence along the Pacific. If we understand the colonial nature of Russia’s east properly, we see that Russia and the United States, as two products of European culture and the European politics, can indeed develop a sustainable partnership and consolidate their presence on the Pacific Rim. If it does not realize this agenda and secure its periphery, Russia will fail to become a successful 21st-century nation. Worse, it may follow the path of the old European empires, causing a crisis incommensurate even with that of the early 1990s.

For centuries Russia was a nation that tried to expand into neighboring lands. There is nothing shameful in that—Americans are proud of their ancestors who turned a vast land into a modern and prosperous nation. Russians must rethink their past and present in order to meet today’s challenges: They must forget about their dependencies and concentrate on their enormous colony that, if properly managed, may once again elevate Russia to a position among the world’s most powerful nations.

1The mighty state of the Kievan Rus’ covered huge territories from Pskov and Novgorod in the north to Pereyaslavl in the south and from the current Ukraine-Hungary border in the west to Smolensk in the east. At this time, it was expanding further to the northeast.

2Rein Taagepera, “An Overview of the Growth of the Russian Empire” in Michael Rywkin, ed., Russian Colonial Expansion to 1917 (Mansell, 1988), pp. 1–8.

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Not a Good Look for Connecticut Higher Ed

Connecticut has passed a law protecting colleges against lawsuits alleging that they failed to provide students with a valuable education in exchange for their hefty tuition charges. The Wall Street Journal reports:

Connecticut lawmakers are pushing back against lawsuits that threaten the state’s colleges and universities with the loss hundreds of thousands of dollars in tuition paid by financially struggling parents.

Gov. Dannel Malloy signed a law earlier this month that discourages trustees who handle consumer-bankruptcy cases from suing both public and private institutions to get back tuition money parents paid before filing for bankruptcy protection. […]

The lawsuits arise from federal law that gives trustees the power to recover money that a bankrupt person spent years before filing if the person didn’t get value for the expense.

But surely the services that colleges offer are so obviously worthwhile that such lawsuits should fall flat on their face…right? On the contrary, the courts are in many cases ruling for the plaintiffs in such cases, suggesting that those who argue college is often a ripoff are not so far off the mark.

But instead of doing something to make sure that colleges do provide value for money, the State of Connecticut has apparently concluded that the only way to protect college revenues from pesky lawsuits is to make it illegal for consumers to sue them on those grounds. Another sign that things are not well in American higher ed.

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Trump Courts the Thais

The Trump Administration has approved the sale of four Black Hawk helicopters to Thailand that the Obama Administration had withheld after the 2014 coup, Reuters :

The U.S. embassy in Bangkok confirmed the plan to sell the four helicopters, adding that Thailand and the United States had a “long-standing security relationship.” […]

Relations between the United States and Thailand appear to have improved under U.S. President Donald Trump.

Trump last month spoke with the junta chief, Prime Minister Prayuth Chan-ocha, by telephone and invited him to visit the White House.

Following the call, Prayuth said ties with the United States were “closer than ever”.

The sale of four helicopters may not transform U.S.-Thai relations overnight, but it is an important down payment on a relationship that could use some repair. One of the Obama Administration’s strategic mistakes in Asia was to act as a Wilsonian scold after Thailand’s 2014 military coup, abruptly downgrading ties and halting arms sales to publicly express displeasure with Bangkok’s backsliding. As we have noted before (and predicted way back in 2014), that episode of virtue signaling produced no strategic or humanitarian gains but did have a cost, driving Thailand straight into China’s arms in pursuit of a more reliable security partner.

The Trump Administration seems to be taking a different approach, warming up a frosty relationship with arms deals and overtures to affirm that Thailand remains a valuable ally. That doesn’t mean the Administration will entirely ignore humanitarian issues—Defense Secretary Mattis gently encouraged the Thais to “return to democratic governance” during his Shangri-La speech, for instance—but it does mean that it will work to avoid letting them jeopardize a partnership that can help the U.S. establish a favorable balance of power in Asia.

At a time when Beijing is making a concerted effort to pull U.S. allies into its orbit, moves like this one to repair wobbly alliances should be encouraged. Let’s hope the Trump Administration is similarly building bridges with the Philippines and Malaysia.

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The Best Bet for “Clean” Coal Is Failing

“Clean coal” is as close to an oxymoron as you’re likely to get in the energy industry. As an energy source, coal has a lot going for it: it’s relatively cheap, relatively abundant, and it can provide baseload power (it’s consistent). But one thing it’s not is environmentally friendly, as burning it emits a lot of both local air pollutants and greenhouse gases with global consequences. Most of the “clean” coal readers might be aware of involves installing scrubbers on existing coal plants to capture more of those pollutants and emissions, but a more accurate description ought to be “less dirty” coal.

That said, a Mississippi plant aimed to actually shake things up in the coal world by converting coal into a gas before burning it. The only problem: it’s three years past schedule and 250 percent over budget, and now state regulators are advising the plant to give up on this elaborate gassified coal plan and just burn natural gas instead. Ars Technica reports:

Kemper already burns natural gas at its facility, but Southern Company, which owns Kemper, has poured billions into building “transport integrated gasification” (TRIG) technology. TRIG converts lignite coal into synthesis gas using a two-round process to convert a higher percentage of lignite into gas at a low temperature. Syngas made from lignite coal burns cleaner than burning the pulverized coal itself, and, with the addition of a carbon capture unit, Kemper expects to reduce greenhouse gas and particulate pollution by 65 percent. The syngas production process for lignite coal was developed by Southern with the help of the Department of Energy at the National Carbon Capture Center in Wilsonville, Alabama.

Regulators suggested that the Kemper plant switch to natural gas in order to prevent having to pass on electricity rate increases to customers as a result of its difficulties bringing this new form of coal plant online.

Stories like this underline a bigger reality: coal as an energy source makes less and less sense. Cheap, abundant shale gas has been outcompeting coal not only on environmental impact, but increasingly on price, and those market forces are the intractable foe President Trump will have to fight in his attempt to somehow save the industry.

That said, let’s not lose sight of the bigger picture here: America’s energy security is looking brighter every day, and our emissions are steadily coming down thanks to this newfound abundance of shale resources.

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AI Spots Slave Sites from the Sky

An intriguing article in New Scientist offers a look at how artificial intelligence is being deployed to help the modern anti-slavery movement:

Online volunteers are helping to track slavery from space. A new crowdsourcing project aims to identify South Asian brick kilns – frequently the site of forced labour – in satellite images.

This data will then be used to train machine learning algorithms to automatically recognise brick kilns in satellite imagery. If computers can pinpoint the location of possible slavery sites, then the coordinates could be passed to local non-governmental organisations to investigate, says Kevin Bales, who is leading the project at the University of Nottingham in the UK. […]

No one is quite sure how many kilns there are in the so called “Brick Belt” that stretches across parts of Pakistan, India and Nepal. Some estimates put the figure at 20,000, but it may be as high as 50,000.

Bales is hoping that his machine learning approach will produce a more accurate number and help organisations on the ground know where to direct their anti-slavery efforts.

The application is not just limited to brick kilns in South Asia. Bales and his researchers also plan to use AI to locate open pit mines in countries like the Democratic Republic of the Congo. And a similar project is using image recognition technology to geo-locate hotel rooms used for sex trafficking. If refined and expanded, those efforts could lead to a more thorough and accurate mapping of forced labor sites around the world.

On shouldn’t necessarily jump on the techno-utopian bandwagon just yet; modern slave-holders and traffickers may well develop similar technology to obscure their trail. But given how much of the AI discourse is dominated by dystopian scenarios and predictions of economic catastrophe for the world’s poor, here is a refreshing reminder of the opposite effect—and a promising example of how AI could advance the cause of human liberty for the world’s most vulnerable populations.

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Education Department to Roll Back Title IX Overreach

When Donald Trump appointed Candace E. Jackson to run the Office for Civil Rights in Education, the federal agency that spent much of its time during the Obama years pressuring colleges to reduce due process protections for students accused of sexual assault, we called it “one of his presidency’s most pointed acts of trolling.” A woman who had made her career highlighting Bill Clinton’s alleged sexual predation and Hillary Clinton’s alleged complicity would now be in charge of setting campus sexual assault policies—on behalf of the president whose campaign was nearly undone by the infamous Access Hollywood tape. Talk about twisting the knife.

But in one of Jackson’s first major appearances in her role as Acting Assistant Secretary for the Office of Civil Rights, she struck the right tone, promising that the agency would continue to vigorously enforce civil rights laws but also that it would back off some of the more zealous and ideological crusades that had set the agenda for the department during the last administration. Inside Higher Education reports on her comments this week to the National Association of College and University Attorneys:

“OCR has fallen into a pattern and practice of overreaching, of setting out to punish and embarrass institutions rather than appreciate their good faith and genuine desire to correct legitimate civil rights problems,” Jackson said.

She pointedly accused the Obama administration’s civil rights office of taking a “gotcha” approach to enforcing civil rights laws, of approaching “every complaint as a fishing expedition through which our field investigators have been told to keep searching until you find a violation rather than go where the evidence takes them.”

That expansive approach, combined with OCR leaders’ disinclination to let investigators in the agency’s regional offices exercise their judgment, Jackson and Wheeler argued, created a huge backlog of cases, keeping colleges — and the students who brought the complaints as well as those accused — in limbo for “months if not years.”

During the last half-decade of the Obama Administration, the agency’s leadership seemed determined to carry out the agenda of the most militant campus activists, who believed that colleges were in the midst of a full-blown rape crisis on par with what we usually associate with third world war zones. The result was the rise of an expensive Title IX-feminist bureaucracy throughout academia and a flurry of regulations that undermined civil liberties. While many colleges will likely retain their draconian policies, the new administration’s more modest approach is a step in the right direction.

But it is no way a lasting resolution to the campus sex wars. The next time a Democrat takes office, he or she is likely to appoint people from the pool of legal activists who ran the agency the last time around. That’s why we desperately need legislation clarifying the powers of the OCR, the scope of Title IX, and the nature of campus’ (and law enforcement’s) responsibilities in combating sexual assault. Until then, federal policy will remain in flux. And that’s not in the interest of colleges or sexual assault victims or the accused.

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China and India Face Off At Sikkim Border

Tensions are heating up along the Sino-Indian border in Sikkim this week, with Chinese troops bulldozing an Indian Army bunker and sparring with Indian troops. As Financial Express wrote on Monday:

China has once again needled India. In yet another transgression, Chinese troops entered India in the Sikkim sector and jostled with Indian Army personnel guarding the Sino-India frontier. During the incursion, they destroyed two bunkers, news agency PTI reported. The face-off has been going on in Doka La general area in Sikkim for the past 10 days. Meanwhile, Chinese troops have also stopped a batch of Indian pilgrims proceeding on the Kailash Mansovar yatra, PTI reported quoting official sources.

Early reports about trouble in Sikkim—a northeastern Indian state sandwiched between Bhutan to the east, Nepal to the west, and China to the north—have been inflamed by a widely-circulating video that shows the troops aggressively jostling along the Line of Actual Control (LAC) separating Chinese and Indian-held territory:

The source of the dispute is the Chinese construction of a road near the narrow trijunction where Sikkim, Bhutan, and China meet. Indian Army troops moved to block China’s construction there, claiming the Chinese were operating within India’s territory; China, meanwhile, disputes that characterization. On Monday, the Chinese Foreign Ministry blamed India for instigating the standoff, claiming that “Indian border guards … crossed the border into the territory of China [and] obstructed the Chinese border troops in the Donglong area from conducting normal activities. China has taken corresponding measures.” Among those measures was the closing of the cross-border Nathu La mountain pass, which China and India re-opened in 2006. China is now insisting that the passage will remain closed until India withdraws its troops.

As of today, China is doubling down on its sovereignty claims, citing the 1890 Sino-British Treaty to argue that its road construction project is “undoubtedly”  located on the Chinese side of the border. Meanwhile, Bhutan has joined the fray, issuing a demarche to China to immediately halt its road construction and restore the status quo.

Why is China stirring up so much trouble with India at this particular moment? In part, this seems to be a carefully timed political power play, since the dispute escalated just ahead of Prime Minister Modi’s meeting with President Trump in Washington. These border flare-ups often occur during crucial bilateral visits, functioning as a kind of muscle-flexing show of intimidation on China’s part. And turning up the heat along the border is a particularly fitting way for Beijing to express displeasure with Modi after he loudly opposed China’s One Belt, One Road infrastructure agenda on the grounds that China’s construction efforts were impeding on India’s sovereignty.

But this may not just be about sending a message to India. China’s sudden, defiant insistence on its right to build the road near Sikkim suggests the high strategic value it places on that effort—and with good reason. The road is being built just 30km from India’s most vulnerable geographic choke point, as Swarajya Magazine explains:

The road will give China unhindered access to India’s strategically important Siliguri Corridor, the chicken neck that links the northeastern region to the rest of the country. Since the 1962 war with China, Indian strategists have envisioned a scenario where the Chinese may bring in forces to choke the vulnerable Siliguri Corridor and cut off the northeast region.

In other words, China’s road-building here could be part of a long-term strategic contingency plan that would help Beijing cut off India’s northeast regions in a combat scenario. Understandably, India is sensitive about that prospect, and reacting assertively to prevent it. We’ll be watching to see who back down first in this dispute, but for now this is another example of rising tensions as China tries to make inroads into India’s neighborhood.

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Migrant Surge: 12,000 to Italy in 48 Hours

The Mediterranean migrant-refugee situation seems to be reaching another crisis point. The Italian wire service ANSA reports:

Italy is taking a formal step with the European Commission in relation to the large numbers of asylum seekers landing on its shores, ANSA sources said. Over 10,000 asylum seekers arrived in Italy from Saturday to Tuesday and some 12,000 have arrived in the last 48 hours. The government gave its ambassador to the EU, Maurizio Massari, a mandate to formally raise the issue with European Migration and Home Affairs Commissioner Dimitris Avramopoulos, the sources said.

Massari went on to tell Avramopoulos that the situation regarding asylum seekers landing in Italy was at the limit, diplomatic sources said. Massari said the situation was having an impact on the country’s social and political life and, as a result, it would be difficult to allow new arrivals, the sources said. Rome’s message to the Commission is that Italy is facing a serious situation and Europe cannot look the other way. It is unsustainable, Italian diplomatic sources said, that all rescue ships should land in Italy. If the situation does not change, they said, Italy may be forced to deny permission to dock to non-Italian-flagged ships or ones that are not part of European missions.

The Italian government is in fact mulling whether to deny docking privileges in Italian ports to ships rescuing migrants off Libya that are flying non-Italian flags, government sources said. They reiterated it was now “unsustainable” that all the vessels operating in the Mediterranean should bring rescued asylum seekers to Italy.

This could be a big moment in the migrant crisis—or it could be yet another incident during which Italy or an EU member state suddenly protests furiously at the mess the Mediterranean crossings are creating, after which nothing really is done. This has been the pattern for the last few years: momentary outcries, whether of moral outrage after a high-profile capsize, or groans from the southern countries that they can’t shoulder the burden any longer, are followed by big promises of change.

It has been been the better part of two years since the EU’s deal with Turkey bought it (at considerable cost) some breathing room; the crisis itself has gone on even longer. Where is the EU coast guard, or EU border patrol that’s well-enough equipped to handle this sort of thing? Where is the EU strategy for the Mediterranean, for Libya, or at least for handling intermittent spikes like this one?

Unfortunately, we know the answer to these questions: This is precisely the kind of transnational problem that the EU’s various institutions were supposedly designed to address. That they haven’t been able to do so is a testament to how much work remains to be done if the European project is to succeed.

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Who Are These Russian Bankers?

In the middle of December, President Donald Trump’s son-in-law Jared Kushner met the CEO of Russian Vnesheconombank (VEB), Sergei Gorkov, in New York. He had kept this meeting secret, but in March the New York Times revealed that it had in fact happened. Some of the speculation in the media focuses on the possibility that Kushner met with Gorkov in order to procure investments or loans for the redevelopment of an over-leveraged property on Manhattan’s Fifth Avenue. In that context, VEB is usually presented as a state bank. But in truth, VEB it is neither state-owned, nor is it really a bank. In truth, it operates as Russian President Vladimir Putin’s personal slush fund.

VEB is a strange creation. Its website states: “Vnesheconombank is not a commercial bank…. VEB does not compete with commercial credit institutions and participates only in those projects that cannot receive funding from private investors.” It used to be the Soviet foreign trade bank, but that changed in 2007, when it was re-established as a “state corporation” through a federal law.

It is regulated through one specific law, which underscores its official status: “Vnesheconombank is one of the key instruments of government investment policy.” Its international credit rating equals that of the Russian government, since it is fully covered by state guarantees. It is exempt from profit tax. Yet legally it is a non-governmental organization, and Putin controls it himself.

VEB has been closely linked to Russia’s foreign intelligence, and has a senior foreign intelligence officer as CEO— Sergey Gorkov, whom Putin appointed in February 2016. His official CV acknowledges that “in 1994, [he] graduated from the Academy of the Federal Security Service of Russia.” His predecessor, Vladimir Dmitriev, served as a diplomat in Stockholm, but the Swedish authorities expelled him for espionage in 1993. A recent example of VEB engagement in intelligence is the case of VEB employee Evgeny Buryakov, who was arrested for spying in the United States in 2015 and sentenced to 30 months in prison. He was accused of having tried to recruit the Carter Page, who would later become foreign affairs adviser to the Trump campaign.

VEB is completely non-transparent. It has no outside shareholders, no shareholders’ meeting, no public annual reports, and no external auditing. It has a supervisory board with nine members, including the CEO, all appointed by Putin. By law the Prime Minister serves as its chairman; Putin did so when he was Prime Minister, from 2008 to 2012. Six other board members are Ministers, and the last member is Putin’s economic aide. In practice, VEB appears to take direct orders from Putin. Gorkov is not considered to be “close” to Putin—he is his obedient servant.

VEB has issued financial statements to raise international bond issues. Its assets are sizable, amounting to $60.1 billion in January 2017. Its loan portfolio at the time was $33.2 billion. Its dominant activity is giving loans to large investment projects, acting as an agent of the state. It also provides export credits and offers government support to large enterprises. A minor side activity is giving credits to small and medium-sized enterprises. Its export credits tend to be linked to major projects of big Russian state corporations, such as Rosatom’s nuclear power station in Hungary, for which it received a VEB credit of $11 billion.

In the past decade, VEB has carried out three major government operations, the bailout program of Russia’s big companies in 2008-09, enterprise investments in Ukraine in 2010, and the financing of construction for the Sochi Winter Olympics. They all bear Putin’s fingerprints.

The 2008-09 bailout program of $50 billion was directly financed by the Russian government but managed by VEB. The government also funneled $12.5 billion in financial support to VEB for capital replenishment from one of its two sovereign wealth funds, the National Welfare Fund. The Central Bank allocated $50 billion of gold reserves to VEB for refinancing the foreign loans of Russian companies and banks. It bailed out state corporations as well as large private strategic companies.

In the first half of 2010, after Viktor Yanukovych was elected President of Ukraine, VEB spearheaded a mysterious Russian investment campaign in the country. It bought one big private commercial bank, Prominvestbank, and financed the purchase of half of each of the two big metallurgical companies, the Industrial Union of Donbas and Zaporizhstal. No known owner of the bulk of the Russian shares ever emerged, arousing speculation that the ultimate Russian owner was Putin. However, Rinat Akhmetov, Ukraine’s dominant businessman, blocked the Russian expansion in Ukraine by winning Ukrainian court cases, reportedly enraging Putin. Whatever VEB’s design was, it failed: VEB lost up to $10 billion dollars in Ukraine.

Strangely, Putin used VEB rather than the state budget to finance the Sochi Olympics, spending another $50 billion. Once again VEB received money from the National Welfare Fund for its capitalization, but this time only $9 billion, which was far from enough for the job at hand. Putin effectively financed the Sochi Olympics with the balance sheet of VEB, bringing it to the brink of bankruptcy. VEB reported a net loss of $4.5 billion in 2014, and in late 2015, a capital infusion of $20 billion was discussed, though that number shrank with time. In the end, the government bailed out the non-governmental organization VEB for $2.2 billion.

On July 16, 2014, the U.S. government sanctioned VEB, depriving it of access to international debt markets, and thus tightening its financial constraints. It was an obvious target, since it did little for the Russian people while providing Putin with a vast source of discretionary state funding.

 In the March report, New York Times noted that Gorkov “said in a statement…that he met with Mr. Kushner in his capacity as the then-chief executive of Kushner Companies.” Kushner has played it down, and the White House has said that Kushner attended in his capacity as a transition official. It’s important to remember that the Trump International Hotel in Toronto was saved due to $850 million of VEB funding to a Canadian-Ukrainian partner of the Trump Organization. The only bank that has given the notoriously bankruptcy-prone Trump Organization credits is Deutsche Bank—to the tune of some $400 million. The German publications Die Welt and Die Zeit now demand to know whether this funding comes from Russia in some way. And according to its statutes VEB “participates only in those projects that cannot receive funding from private investors.”

As Jared Kushner hires high-powered defense attorneys in what is likely to be a protracted investigation by Special Counsel Robert Mueller, keep the details of just what VEB is in the back of your mind. If there was talk of any kind of loan, it wasn’t really with a “Russian bank,” but with “Putin’s banker.”

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