Peter L. Berger's Blog, page 478

Why Are Greens Celebrating China’s Emissions Decline?

China’s carbon emissions are down for the second year in a row, and the news is making greens giddy. Mother Jones:

China is continuing to drag itself off coal—the dirty energy source that has made it the world’s biggest greenhouse gas emitter. Figures published Sunday night by China’s National Bureau of Statistics showed coal consumption dropping 3.7 percent in 2015, marking the second year in a row that the country has slashed coal use and greenhouse gas emissions.

To put that in perspective, Greenpeace East Asia says China’s drop in coal use over the past two years is equal to Japan’s total annual coal consumption—a trend the environmental group says could “far surpass” China’s commitments enshrined in the Paris climate deal reached in December. Last year, China’s carbon emissions dropped 1-2 percent, Greenpeace says, a decline the group attributes to both falling economic output from China’s heavy industries and an upswing in renewable energy use. China is widely expected to meet or surpass its goal of “peaking” emissions (the point at which the country begins to permanently reduce its greenhouse gas emissions) by 2030.

The author admits that 1.8 million coal and steel workers are about to lose their jobs and points out that China’s statistics are often unreliable (something we’ve written about too). But then he, like Greenpeace, moves on to presume that renewable energy sources are likely responsible for the emissions decline.

There’s a much more obvious explanation, one that Greenpeace acknowledges but then quickly buries in its rush to praise renewable energy: China’s industrial sector has taken a huge hit over the past two years. The coal plant reductions have nothing to do with some deep love of nature or selfless concern for the planet. The likeliest explanation for the 1.8 million job layoffs is far simpler: China simply isn’t manufacturing as much as it had been.The greens see job cuts and a emissions decline and shout victory. The real story, however, is that China’s economy is slowing. If anything, these latest layoff predictions and emissions estimates suggest that China’s economy might be in even worse shape than many people suspected. Which, of course, has knock-on effects for the global economy and dangerous consequences for international stability. So, while greens think this news is something to celebrate, we’re not nearly so hopeful.

Argentina Reaches Deal with Holdout Creditors

Open the door, international masters of finance: Argentina is making progress on coming in from the cold. The NYT reports:

Argentina has agreed to pay $4.65 billion to four hedge funds on Monday in a deal that could put an end to more than a decade of mudslinging and legal attacks.

The hedge funds, which include the billionaire Paul E. Singer’s NML Capital, are the last among of group of investors that declared legal war on Argentina in the United States 12 years ago. These holdouts, so named for their refusal to partake in Argentina’s two restructurings after it defaulted on $100 billion of debt in 2001, sought billions in bond repayments and eventually succeeded in preventing Argentina from paying any of its creditors.

This, however, is not the end of the story. In order for this deal to go through, Argentina’s legislative body still must OK it and “repeal several laws put in place by the previous administration that barred it from making such settlements,” as the FT put it.

Still, this progress is welcome news, and for Argentina, it comes not a second too soon. Ms. Fernández de Kirchner left the country’s finances in sorry shape, and the nation has been hit by the commodities crash. Is neighbors, particularly Brazil, are also hurting, and South America as a whole appears poised for some rough times ahead. President Mauricio Macri is working to stabilize his country’s financial situation and to enable Argentina to reenter global markets. The U.S. should respond by offering whatever help it can to aid both Buenos Aires and the region in weathering the coming storm.

Beijing’s Crackdowns Scare Businesses

The Communist Party of China is preparing for another wave of graft investigations, according to Xinhua:

Pep rallies for the inspections were held on Sunday at the agencies including the Publicity Department of the CPC Central Committee, the National Development and Reform Commission, and the Ministry of Human Resources and Social Security, said the Central Commission for Discipline Inspection (CCDI) of the CPC.

Graft-busters will target altogether 32 agencies, which also include the Ministry of Industry and Information Technology, the State-owned Assets Supervision and Administration Commission of the State Council, the General Administration of Customs and the State Administration of Press, Publication, Radio, Film and Television.Inspections will last for two months, and inspectors will hear complaints and record tip-offs. This round of inspections is the first this year.

Despite what were surely very exciting “pep rallies,” not everyone is likely to think President Xi Jinping’s crackdowns are worth celebrating. Business leaders, already on edge about the economy, are also frightened that Xi’s tightening grip might end up choking them even further. News that Beijing’s internet watchdog had silenced a businessmen, Ren Zhiqiang, with 38 million followers on Weibo brought many corporate executives’ fears to the surface over the weekend. The FT:

At a recent private gathering of some of the country’s richest entrepreneurs, Mr Ren’s plight dominated the conversation. “People were saying this is Cultural Revolution time,” said one person who attended the gathering. “I was quite shocked about how afraid they were.”

As we’ve been saying, Beijing’s crackdowns and its increasingly shrill propaganda are a sign that Chinese officials have little faith in the stability and health of their country. And if even the insiders with the best information are paranoid, that sends a signal about how the rest of us should feel.

The Pragmatists Turn to Geopolitics

Editor’s Note: How do Russia and the West see one another? What are the experts’ views on the confrontation between Russia and the West? How do the pundits explain the Russo-Ukrainian war and Russia’s Syrian gambit? What are the roots of the mythology about Russia in the West, and why has the West failed to predict and understand Russia’s trajectory? This is the seventh essay in a series that seeks to answer these questions. Read part six here.

Russia’s war against Ukraine has disproven quite a few predictions, testing the expert community’s ability to analyze the situation and foresee developments. For instance, respected Russia experts have long claimed that Russia had already become a “post-imperial” state and stressed that they saw no grounds for adversarial relations between the West and Russia, or for Russia’s neoimperialism. “The imperial longing is over…. Russia…is moving toward modernity…. The West again has become Russia’s ally”, they argued in 2012. When the 2014 crisis emerged, the pundits who had been proclaiming the end of anti-Western sentiments and Moscow’s abandonment of imperial policies found themselves in a predicament. Trying to make sense of the Ukraine conflict, they decided to turn to geopolitics. Here is their new mantra: “The key to anticipating Russia’s next moves in Ukraine is to understand that its policy has been driven by geopolitical considerations that have nothing to do with Russian expansionism or imperial nostalgia and only little with the need to win domestic political support for President Putin.” What an interesting analytical invention!Let us ruminate over what “geopolitical considerations” could mean; and do they really have nothing to do with expansionism or imperialist nostalgia? Why have the experts suddenly returned to the ideas of Halford John Mackinder, Alfred Thayer Mahan, Carl Haushofer, and Friedrich Ratzel? Andrei Kortunov, director of the Russian International Affairs Council, offers the following explanation of the new infatuation with geopolitics:

The geopolitical paradigm, which treats the world as a stage for the inevitable confrontation between a number of ‘great areas’ or global regions, quite easily justifies the desirability, or even necessity, of the hegemony of a ‘central’ or ‘axial’ power in each region. What is more, it justifies the inalienable right of these powers to an exclusive sphere of influence. Finally, the geographical determinism of geopolitics (‘geography is destiny’) is a basis for the notion that states, nations and politicians follow some kind of unalterable, linear and preordained historical mission—a mission that cannot be chosen, but that has to be recognized, accepted and carried out, no matter the cost or what might get in the way.

So we don’t need to torture ourselves by looking for the origins or motivations in Russia’s domestic developments or roots of its great-power traditions: “This is geopolitics, stupid!”

The refrain that Ukraine has been turned into a “battlefield for geopolitical struggle” between Russia and the West has gradually become axiomatic. The Russian-Ukrainian conflict is at the heart of a great geopolitical confrontation (Russia vs. the West), Sergei Karaganov and most pragmatists claim.But why didn’t the pragmatists warn us that the U.S.-Russian “reset” and European “Partnership for Modernization” (that many of them supported) would inevitably end according to the geopolitical logic of confrontation? Why had the pragmatists talked of “strategic dialogue” between Russia and the United States until recently (see part 5), trying to convince us that both sides can cooperate and even be partners, when, as it turns out, they subscribe to geopolitical theories that posit the inevitability of a geopolitical clash? When are the pragmatists being serious, and when are they pretending?Let’s ask another question: Does geopolitics really exclude expansionism and imperialism, as pragmatists argue? No, these are the key ingredients of the geopolitical approach, and one should have a look at what the leading ideologues of geopolitics wrote to see the connection. I must also to say an unpleasant truth: Fascism and Nazi ideology used geopolitics as their basis. It could happen that contemporary fans of geopolitics have not read, for instance, one of the leading geopolitical minds, Karl Haushofer, and have not heard about his theory of Lebensraum, which became one of the premises of Nazi doctrine; otherwise, one would hope they would think twice before turning to geopolitics to justify their conclusions.The German expert Egbert Jan explains the newfound popularity of geopolitics in Russia as being driven by the “sense of uncertainty” of the Russian political elite and their attempts to overcome it using dangerous mechanisms. He notes that in postwar Germany, “geopolitics as an effort to create spheres of influence or even achieve global domination is taboo, since many interpret it as the legitimation of an ideology that serves National Socialist, aggressive and destructive policies.”1 However, what has been prohibited in Germany has become a popular theory in Russia and, subsequently, in some Western states, where the Russian interpretation frequently finds its echo.One of the most popular geopolitical arguments is, of course, about the threat of NATO expansion, which would inevitably swallow up Ukraine, thus threatening Russia’s security. Since many experts apparently realize the inadequacy of this explanation, they have begun to blame “the EU expansion” as well. Former UK Ambassador to Russia Tony Brenton says, “It is generally accepted…that the EU precipitated matters by blundering into the most sensitive part of Russia’s backyard.” His assertion is echoed by John Mearsheimer, who claims that the Ukrainian Association Agreement with the EU “sounds like a backdoor to NATO membership.”Rajan Menon and Eugene Rumer in their book, Conflict in Ukraine: The Unwinding of the Post-Cold War Order , present a stimulating account of the factors that have triggered the dramatic developments in Ukraine and raise important questions about the crisis. However, one gets the impression that, among the factors that brought this crisis, according to the authors, one stands out as crucial: Brussels’s gamble in trying to wrench Ukraine from Russia without taking note of Russia’s sensitivity. Sweden, Poland, and the Baltics appear in this view to be playing a rather cynical role; instead of being concerned about values or democracy, they are supposedly trying to turn Ukraine into a buffer against Russia. Their narrative, despite containing many valuable observations, fits the pragmatic approach, which emphasizes geopolitical causes and Russia’s humiliation.Andrew Weiss has also argued that Europe repeatedly refused to hear Russia’s concerns, effectively forcing a conflict by insisting on a trade deal with Europe that was incompatible with Russia’s customs union. “In some ways the EU has taken maximalist positions with the Russians and acted as if they were surprised that Russia took offense or got angry,” Weiss told the New York Times.A question for those who believe that the EU agreement was a “backdoor to NATO membership”: Didn’t the Brussels bureaucracy prepare Association Agreements for a number of countries, including Azerbaijan and Armenia, which are neither democratic nor potential NATO members? The Association Agreement carries not even a hint that it might guarantee a path to immediate EU membership, let alone NATO membership; indeed the very idea would have been a nightmare for Brussels. The Agreement is deliberately vague to free the EU of any obligations with respect to these countries. Let us also remember that, until the fall of 2013, Moscow wasn’t particularly concerned about the Association Agreement, which was also confirmed on numerous occasions by EU leaders, specifically by José Manuel Barroso, who communicated with Putin at that time and never heard any objections. Hens, no maximalist position on the part of Brussels; Moscow had never expressed any concerns! The pragmatists may also ask themselves why Moscow began demanding that Kiev and not Azerbaijan abandon the Agreement. Perhaps the answer to the question has something to do with the Kremlin’s new survival doctrine and the special role Ukraine plays in it?Anyway, in order to avoid further accusations the EU during 2015 did everything in its power to convince Moscow that the Ukrainian trade deal with the EU would not harm Russia’s interests. The EU’s Trade Commissioner Cecilla Malmstrom held 15 talks with Ukrainian and Russian ministers but failed to persuade the Russian side. “Russia’s continued insistence on a legally binding agreement, which would amount to a reopening of the bilateral agreement between the EU and Ukraine, couldn’t be accommodated, as has been clear throughout these talks”, the European Commission said in a statement.Finally, what about Ukrainians’ drive for dignity and their readiness to sacrifice for being a European nation? Why dismiss them, when they played the key role in influencing the developments?One of the most thought provoking and provocative books is Frontline Ukraine: Crisis in the Borderlands (2015) by Richard Sakwa. His analysis of oligarchic power in Ukraine is tough and fair, and his accounts of other Ukrainian developments are informative. I find Sakwa’s narrative especially useful because it gives the most intelligent articulation of the position that I oppose and helps me to find counter-arguments. James Sherr, an associate fellow and former head of the Russia and Eurasia Program at Chatham House, writes,

It is the author’s analysis of Russian policy that is most likely to divide his readers. Putin emerges in these pages as a reluctant and rightfully aggrieved antagonist, alienated ‘not so much from the structures of hegemonic power but from its practices,’ and determined to ‘ensure the universal application of existing norms.’ Yet these norms emphasize the sovereignty, equality and territorial integrity of states. Russia’s insistence that it be accorded a ‘privileged’ role in the former USSR was not accepted elsewhere, let alone universally, and this is the nub of the problem. Once we accept Sakwa’s imperious claim that Ukraine is ‘an issue of survival’ for Russia, we put Ukraine’s survival at Russia’s discretion.2

No further comment.

To those who are interested in reality but not in mythology I would advise you to read Ukraine: What Went Wrong and How to Fix It , by Anders Åslund, senior fellow at the Atlantic Council. “My preferred interpretation is that Putin wants Ukraine to fail economically and thus politically to prove that democracy is not suitable for Eastern Slavs. This version is consistent with his interest in keeping Ukraine out of Western alliances, and it does not contradict gradual Russian territorial expansion,” writes Aslund.I would also agree with the British expert Andrew Wilson, who, in his latest book, Ukraine Crisis: What It Means for the West , emphasizes the role of the Russian factor in the crisis. Wilson also looks at the EU but sees its role differently, describing its inability to respond to Russia’s pressure.A few more explanations of the confrontation over Ukraine have already become part of the new mythology. For instance, both Western and Russian pragmatists continue to insist that there was a coup in Ukraine. Left and right are united on this basis. Stephen Cohen talks of an “unlawful change of government in Kiev.” Patrick J. Buchanan repeats a similar line, referring to “the Maidan coup that overthrew the elected pro-Russian government.”That’s understandable: the pragmatists must insist on the illegitimacy of the new Ukrainian government, which points to the inadequacy of Ukraine as a state. Otherwise, it would have been hard to demand that Ukraine limit its sovereignty and allow other states to determine what it can or cannot do on its own territory. Declaring the developments in Ukraine to be an “unconstitutional coup” also allows the pragmatists to treat the country’s democratic changes, which many pragmatists are wary of, as illegitimate.Let’s see how a group of international experts has analyzed the events in Ukraine in their report to the Valdai Forum and at subsequent discussions in Berlin and Paris in 2014–15. The outcome highlights the Kremlin’s abilities to manipulate even analysts with reputations for independence. Here are the report’s key conclusions: The Maidan was “a sort of a de facto alliance that was formed between neo-Nazis and national democrats;” the fall of the Yanukovych regime was “violence with ‘sacred victims’”; the opposition “was deliberately breaking conventions and turning the protest into a civil war”; and “as soon as Yanukovych fled Kiev, power was grabbed by extreme right radicals, who gave armed nationalists free reign.” One could only wonder at this astounding convergence between the international expert community and the Kremlin’s propaganda corps.We should listen to the Ukrainian-American historian and writer Alexander J. Motyl, who describes a phenomenon that he calls the “surrealism of realism.” One of the biggest flaws of adherents of this approach, according to Motyl, is the “ignorance about Ukraine” which is “wide and deep, affecting virtually every aspect of American—and more generally Western—intellectual life….” The Russo-Ukrainian war “confronted realists with an explanatory and policy task for which they were wholly unprepared. Few could read Russian; my guess is that none know Ukrainian,” says Motyl. As a demonstration of the experts’ failures, he quotes Henry Kissinger and Stephen Cohen, but the list of embarrassing comments on Ukraine would certainly be a long one. I agree with Motyl that ignorance and lack of knowledge (and lack of readiness to learn and understand!) offers at least a partial explanation for the fact that the pragmatists as a rule swallow the official Russian line. The key problem is that their analytical exercises still influence both Western and Kremlin policies. In the first case, it provokes desire the follow the familiar path of acquiescence; in the second, it disorients Moscow as to the nature of the West.

1Jan, “What Is Geopolitics?” Schlangenbad Discussions Speech (April 2013).

2Sherr, International Affairs (May 2015).

Americans Still Stand with Israel

Despite President Obama’s fractious relationship with Israeli Prime Minister Bibi Netanyahu and despite the rise of anti-Israel boycott movements on college campuses, the American people remain supportive of Israel. Gallup reports:

Americans’ views about the Israeli-Palestinian conflict remained steady over the past year, with 62% of Americans saying their sympathies lie more with the Israelis and 15% favoring the Palestinians. About one in four continue to be neutral, including 9% who sympathize with neither side, 3% who sympathize with both, and 11% expressing no opinion.

The most significant change in Israel polling over the last generation is in the source of Israel’s support. While Republicans and Democrats favored Israel in roughly equal numbers in 1990, Israel’s support is now more polarized: 79 percent of Republicans sympathize more with the Israelis, compared to 53 percent of Democrats. Moreover, while support for establishing a Palestinian state in the West Bank ticked up this year (Americans now favor this by a 7-point margin), “there were larger margins in favor of a Palestinian state in most prior years.”That said, the results are consistent with some the steadiest trends in American polling since the 1970s: (a) Americans sympathize more with the Israelis than with their enemies (b) the pro-Israel numbers have been increasing decade after decade (c) Americans want to see justice done for both parties in the dispute so far as that is possible.

Shale Prepares to Pounce on Price Rebound

American oil output is tapering off, down 500,000 barrels per day (bpd) from a recent high water mark of 9.6 million bpd last June. This isn’t unexpected—U.S. oil production has experienced a resurgence in recent years on the backs of relatively high-cost shale operations which are struggling to stay profitable in the wake of the collapse in oil prices over the past 20 months. In fact, the biggest surprise is that American output hasn’t dropped more than it already has, as shale firms have defied industry expectations with their resilience. Now, as Reuters reports, the U.S. shale industry seems confident it can start growing once again if prices rise into the $40 range:

Continental Resources Inc, led by billionaire wildcatter Harold Hamm, is prepared to increase capital spending if U.S. crude reaches the low- to mid-$40s range, allowing it to boost 2017 production by more than 10 percent, chief financial official John Hart said last week.

Rival Whiting Petroleum Corp, the biggest producer in North Dakota’s Bakken formation, will stop fracking new wells by the end of March, but would “consider completing some of these wells” if oil reached $40 to $45 a barrel, Chairman and CEO Jim Volker told analysts. Less than a year ago, when the company was still in spending mode, Volker said it might deploy more rigs if U.S. crude hit $70. […]The threat of a shale rebound is “putting a cap on oil prices,” said John Kilduff, partner at Again Capital LLC. “If there’s some bullish outlook for demand or the economy, they will try to get ahead of the curve and increase production even sooner.”

Back when oil prices were in the middle of their freefall, analysts believed most shale operations needed a high oil price in order to stay in the black. A research director from Wood Mackenzie told the Economist back in January of 2015 that “[w]e used to think everything worked at $80-85 per barrel. Now it’s $70-75.” Back then, oil prices were in the $50s, while today they’re another $20 cheaper, and still U.S. output hasn’t fallen off a cliff, thanks to innovative new techniques and significant belt tightening.

The fact, then, that major shale players are saying they’re ready to start boosting spending if prices rise just $10 says a lot about how remarkably adroit these unconventional producers really are. This ought to be downright terrifying for the world’s petrostates, whose national budgets have been ravaged by the bearish market. The Saudis and the Russians tentatively agreed earlier this month on a plan to freeze production at current levels with the hopes of inducing a price rebound, and while a lack of Iranian cooperation seems sure to scupper that idea, it should be noted that even if this strategy somehow worked in inflating oil prices, U.S. shale producers would be quick to take advantage by upping their own supply. In fact, they’ve been preparing for that eventuality for the past year, drilling but not yet tapping shale wells in preparation for higher prices. That “fracklog,” as it’s come to be called, is large and growing, and it looks like that oil could start coming online once prices edge into the $40 range. Sorry, OPEC.

Spying for Me, But Not for Thee

While Germany was publicly fuming about the revelation in 2013 that the NSA was listening in on Angela Merkel’s cell phone conversations, it was secretly tapping those of top-level U.S. and U.K. diplomats. The Sunday Times (of London) reports:

The Bundesnachrichten- dienst, or BND, Germany’s equivalent of MI6, placed Baroness Ashton of Upholland under electronic surveillance when she was the EU’s high representative on foreign affairs and security.

It also tried to tap the mobile and office phones of John Kerry, the secretary of state, according to Der Spiegel magazine.However, the attempt to listen in to Kerry’s mobile conversations failed because a bungling spy used an African country code by mistake. His other phones, including one at the American State Department, were successfully tapped.

At the time of the 2013 NSA scandal, Merkel was adamant that “spying on friends is not acceptable” and was said to be “livid.” Her spokesman pulled no punches:

Merkel’s spokesman, Steffen Seibert, made plain that Merkel upbraided Obama unusually sharply and also voiced exasperation at the slowness of the Americans to respond to detailed questions on the NSA scandal since the Snowden revelations first appeared in the Guardian in June.

Merkel told Obama that “she unmistakably disapproves of and views as completely unacceptable such practices, if the indications are authenticated,” Seifert said. “This would be a serious breach of confidence. Such practices have to be halted immediately.”

And the rest of the German commentariat erupted in a furor that lasted for months and seriously affected transatlantic relations. Meanwhile, in the same year (though the timing is unclear from initial reports), the BND was quietly asked to wind down the surveillance of Ashton—but won’t comment on the rest of the program.

There’s definitely a chuckle to be had here—perhaps with a side of schadenfreude aimed at whoever has to address these revelations on behalf of the Chancellor. But its a dark world out there—for which reason, spying, even on allies, is the order of things. Angela Merkel seems to understand that, it turns out. Perhaps she would be good enough to explain it to her public.

Washington and Beijing Battle for Influence in Myanmar

China is looking to regain some influence in Myanmar according to the WSJ:

China is trying to rekindle its influence in Myanmar by building a deep-water port here, presenting an early test for the incoming government led by Aung San Suu Kyi in balancing local objections against ties with the country’s top economic partner.

The project, which includes a special economic zone, would help Beijing’s effort to extend its presence in the Indian Ocean and in South Asia and restore the privileged position it once enjoyed under Myanmar’s former military junta.But the initiative is in doubt because Ms. Suu Kyi’s party, which picks a president in March and takes power in April, says it will review big previously awarded projects, including this one made in December to a Chinese-led consortium. The new administration must weigh significant anti-Chinese sentiment in Myanmar and local opposition to the project against the risk of alienating its powerful northern neighbor.

The opening of Myanmar has been a geopolitical success for the United States—albeit a tenuous one. By bringing Myanmar into the international world order, Washington has been slowly peeling it away from Beijing’s side. But this story is a reminder that this American endeavor won’t be easy: Chinese officials and businesses have lots of relationships in Myanmar that Aung San Suu Kyi may find it’s simply not worth disrupting.

Washington has to be careful here. If Myanmar falls into disarray, that’s likely to compel the military to reverse course (as it’s been known to do in the past). But Suu Kyi has no experience actually running a country, and nor do most of her allies, so they will likely need the military’s expertise in the early stages if they are to rule effectively. That dependence (and the military’s constitutionally-mandated 25% of the legislature) gives the more pro-China military several pressure points on the incoming government.Many analysts look at Aung San Suu Kyi’s rise as a human rights story, but they shouldn’t forget the geopolitical importance of what’s happening here: Myanmar is a major battleground for influence between Washington and Beijing. The outcome will ripple through Southeast Asia and beyond.

Who Would Dethrone the Tsar?

Five years ago, when then-Prime Minister Vladimir Putin announced that he would be taking back the Presidency from Dmitry Medvedev, Russian intellectuals fell into despair. They saw no end to the Putin regime, and prophesied that Vladimir Vladimirovich would once again “castle” with his junior partner in 2024 to become Prime Minister after his fourth term expired—yet another rokirovka, as the chess move is known in Russian.

Then, two years ago, when Putin annexed Crimea and invaded Ukraine, many of Russia’s intellectuals realized it was the beginning of the end for Putin. What the majority of Russians saw as Russia’s dance of triumph on the world stage, the liberal minority saw as the regime’s death agonies.Very few dared to voice such thoughts aloud at the time, however. Russia’s liberals have been bitterly disappointed over and over again since the fall of the Soviet Union, so caution prevailed in their public analyses. But many did whisper. “Putin won’t last past the end of 2015,” a prominent Russian writer and journalist would insist to me off the air, often just moments after we had finished recording an interview segment during which he had been more circumspect about the likelihood of regime change.Alas, 2015 came and went and Putin is still in the Kremlin. But what previously were only whispers is now a lively public debate about what will need to happen after the Tsar has been deposed. What laws will need to be repealed? What should be done with Crimea? Does Russia need a thorough lustration campaign to clean its Augean stables once and for all? And if so, just how unforgiving should such a campaign be? The excited discussion is based on the assumption that change is coming, and sooner rather than later. People disagree, however, on just how the change might come.Foreign observers tend to want to focus on signs of civil unrest as hopeful signs. George Soros’ latest diagnosis is emblematic of the approach: Given currently low oil prices, Soros foresees the Putin regime facing bankruptcy in 2017 when a large percentage of its foreign debt comes due. Economic collapse, the thinking goes, will usher in political change. Soros says that Putin’s “popularity, which remains high, rests on a social compact requiring the government to deliver financial stability and a slowly but steadily rising standard of living.” With money in short supply, the Russian people will get testy—a dangerous proposition for a government with parliamentary elections scheduled to take place in September.Western news outlets are always on the lookout for evidence of grassroots discontent. Trucker protests across Russia (in response to a tax benefitting one of the sons of Putin’s close friend and judo sparring partner Arkady Rotenberg) were a favorite subject for a while. Protests by holders of mortgages denominated in foreign currencies—people who have seen their payments skyrocket as the ruble has tumbled—are currently a favorite subject of attention, despite the fact that the absolute number of those affected is relatively small.Russian observers, on the other hand, tend to look for signs of how Russia’s elites might fracture and split. Maria Snegovaya, a columnist for Vedomosti and a TAI contributor, recently penned an excellent, provocative column outlining one such scenario. Comparing the Putin regime to the mafia-like Assad regime in Syria, Snegovaya claims that Putin may in fact be more vulnerable than Assad. Russia’s populist authoritarianism is grounded not in a sense of belonging to an ethnic and confessional minority (as is the case in Syria), she argues, but rather in the regime’s ability to redistribute monopoly rents to its various stakeholders: Putin’s inner circle of elites, the security forces, bureaucrats, and state employees. Unlike in Syria, there is no particular group in Russia whose members’ physical survival would depend on Putin. Thus, she concludes, since the Russian regime fully depends on access to rents, an abrupt reduction of these would inevitably destabilize it: economic collapse would cause different groups to scramble for access to the shrinking pool of resources. Political instability at the top would open the door for protests, with business owners and the middle class joining in over time. Putin would have to go in short order.The Putin regime’s days certainly are numbered, and smart observers like Snegovaya are right to look at the elites for signs of a shake-up. What is less certain is that the revolt will be broad. Russia’s history shows that palace coups almost always happen first. The people’s revolution comes later.

Access to resources in Russia belongs exclusively to a minority: Putin’s inner circle—which consists of the aforementioned siloviki (mostly his former KGB colleagues) and a number of businessmen whom Putin calls his personal friends.Let’s name some names. The siloviki feature such officials as Putin’s Chief of Staff Sergei Ivanov, Security Council Secretary Nikolai Patrushev, Foreign Intelligence Service head Mikhail Fradkov, and FSB head Alexander Bortnikov. These are the people at the very top who, along with Putin, exclusively determine Russia’s foreign policy and military strategy. The members of the cabinet responsible for economics and finance are never consulted in these matters. Their access to the decision-making process is limited to making speeches at economic forums in the hope of being heard and heeded by Putin himself—which seems to rarely happen.The other part of Putin’s inner circle are businessmen, whom Putin publicly identifies as friends: the aforementioned Rotenberg family, Yuri and Mikhail Kovalchuk, Gennady Timchenko, and the Shamalov clan (the son, Kirill Shamalov, 33, whose wealth is estimated to be around $3 billion, is Putin’s younger daughter Katerina’s husband).Both the siloviki and the business friends feel strong bonds to their benefactor Putin: they fully owe him both their standing in Russian society and their staggering wealth. Gennady Timchenko was not even in the Forbes richest Russians list nine years ago. In 2008 Timchenko premiered at the 43rd position, after his energy shipping conglomerate Gunvor started to rake in billions by shipping oil and petroleum products out of Russia. Arkady Rotenberg, who founded a major federal contracting company, first appeared on Forbes’ Russian list in 2010 at number 99. In 2014, Rotenberg was sitting at number 27, his net worth estimated at $4 billion; Timchenko, who managed to sell Gunvor for an undisclosed sum a day before landing on the U.S. sanctions list, was the sixth richest man in Russia with a net worth estimated to be $15 billion.The siloviki, on the other hand, are less open with their wealth—fortunes that are largely built in the shadows. It is said that the distinguishing feature of Boris Yeltsin’s rule was that businesses were shaken down by bandits, whereas under Putin, they were shaken down by the siloviki. It is, unofficially, their official work.A second tier of the hyper-rich sits under this elite group. These people, who amassed their fortunes during the Yeltsin era, today don’t enjoy the same guarantees as Putin’s inner circle. In the 1990s and early 2000s, people like Oleg Deripaska, Roman Abramovich, Boris Berezovsky, and Mikhail Fridman were at the top of the oligarch pile, awash in both wealth and political influence. Under Putin, many of these oligarchs—the so-called “Yeltsin family”—have multiplied their wealth many times over, but at the cost of forfeiting their political influence.The first prominent casualty from this group at Putin’s hands was media tycoon Vladimir Gusinsky, who claims he was forced to sell his assets (including the formerly independent NTV television channel) under duress before being made to leave the country. For those who did not quite get the message, Mikhail Khodorkovsky’s ten years’ imprisonment was meant to underline the point: keeping your wealth is completely contingent on your renouncing political ambitions. Most of them fell in line.Then, in the fall of 2014, Putin rattled the old guard’s cages once again: Vladimir Yevtushenkov, who was at that time number 15 on the Forbes Russia list with an estimated net worth of $8.3 billion, was arrested for fraud and stealing the shares of one of the biggest oil companies in Russia, Bashneft. After Yevtushenkov transferred his shares of Bashneft over to the government, he was released. He is still said to be worth some $2.8 billion.Putin’s rationale for doing this was likely twofold. First, Medvedev’s comparatively liberal stint at the Russian presidency during the rokirovka had culminated in massive political protests in 2011-2012 in Moscow. The opposition leader Alexei Navalny in particular was enjoying a surge in popularity, and by 2013 he had done better than almost anyone expected in challenging Putin favorite Sergei Sobyanin for the Mayorship of Moscow. I personally know of several Russian multi-millionaires who financed Navalny’s campaigns discreetly—by spreading moderate sums of money among their friends and having them donate to the cause. Putin needed to send a strong signal that this kind of behavior was not welcome or condoned. The Yevtushenkov case served that purpose.And second, Yevtushenkov was used to demonstrate beyond a reasonable doubt that property rights in Russia are neither valued nor protected—including those of the “Yeltsin family”. This part of the message was received loud and clear by many. For example, the owner of Alfa Bank, Mikhail Fridman (worth $14.6 billion, number 2 on Forbes’ list), along with almost all of Alfa’s top management, have fled Russia for London. The only person who remains in Moscow is Alfa Bank’s CEO Petr Aven. As his friends and allies have privately whisper, “Aven stays as a hostage.”(The last time Mikhail Fridman publicly showed up in Moscow was Boris Nemtsov’s funeral last year. Fridman and Nemtsov were close friends, and Nemtsov’s assassination was a personal blow to Fridman. His appearance at the funeral of a former Russian Vice Premier and sitting member of a regional parliament, which neither Putin nor Medvedev attended, was noted and appreciated by Nemtsov’s family, his friends, and by the liberal opposition. Since then, if Fridman has left the UK, he has mostly gone to visit his hometown of Lviv, in Ukraine’s pro-Western heartland, where he sponsors the annual Jazz Festival.)Two main things distinguish Putin’s inner circle from the Yeltsin-era oligarchs. Putin’s people are the only ones who are guaranteed property rights by Putin himself: they actually own things and not just temporarily possess them. Furthermore, Putin’s people make their fortunes in a unique way: they are directly milking the federal budget. They are usually the sole beneficiaries of grossly inflated federal contracts for everything from infrastructure development to energy exporting. The first generation of oligarchs also looted the state using murky deals during the era of privatizations, but they no longer have that privilege.When Russian analysts hopefully talk about elites beginning to squabble over the spoils of the state as the economy turns sour, they sometimes bring up the example of Ukraine. Several of the Ukrainian oligarchs sided with the idealistic young protesters on the Maidan back in 2014, and they betrayed their crooked president, Viktor Yanukovych. If it happened next door, these analysts’ argument implies, surely the same could happen in Russia.The comparison is, unfortunately, misguided in several ways.Since its independence from the Soviet Union, Ukraine has been carved up into a de facto federation by a set of rapacious oligarchs. These oligarchs not only managed to extract rents from their domains, but also in large part controlled and ruled over them politically. Whoever was President would have to cater to the various oligarchs’ interests, both on domestic and international matters. Squabbles between the oligarchs and the central government have always been the norm in Ukraine. So when President Yanukovych failed in his job to cater various oligarch interests, many of them were happy to use the Maidan protesters to get rid of Yanukovych.In Russia, Putin has ensured that this dynamic can’t be replicated. In 2004, he abolished the direct election of governors, and although he restored indirect election of governors in 2012, over the course of his fifteen years in power he has replaced all of them. Regional elites in Russia do exist, of course: a regional governor will end up cultivating a set of people under him who will end up controlling whatever resources are within their purview. But once a governor is dismissed by Putin (which can happen often and quite unexpectedly), all the governor’s people are dismissed as well. Regional Russian elites do not own anything. They are only allowed to enrich themselves for a set period of time, until Moscow says otherwise.The aforementioned Yevtushenkov case also happens to cast light on how Moscow has reined in the regions. The oil company Bashneft, which is at the heart of the Yevtushenkov episode, was created in the 1990s under Yeltsin, when ownership of the state-run oil interest in Bashkortostan was transferred to the regional government. Yeltsin’s pal Murtaza Rakhimov, who ran Bashkortostan as his personal fiefdom, privatized Bashneft in 2003 and transferred a controlling stake in it to a holding company run by his son, Ural. In 2009, Yevtushenkov’s company bought a controlling stake in Bashneft. When Yevtushenkov was arrested in 2014 and forced to hand over his shares, Ural fled Russia and was convicted in absentia for also stealing Bashneft shares, as well as for money laundering. Murtaza Rakhimov, Ural’s father, had ruled the oil rich Bashkortostan from 1993 until he was replaced by Putin in 2010. Owning the region’s major oil resources had made Rakhimov’s family a regional power. Rakhimov had won his clout long before Putin came to power and owed no special allegiance to him. This could not stand. Ultimately, Putin took care of it.One Russian governor does break the mold to a certain degree: the Chechen leader Ramzan Kadyrov. Kadyrov appears untouchable. He has his own private army of some 25,000 well-trained troops (there are videos floating around of Kadyrov’s combatants, wearing uniform without any insignia, being trained by a special forces “Alfa” commander). In December of last year, Putin handed control over an oil company located in the region, originally run by Rosneft, to the Chechen regional government. Several of the people arrested in connection with the Nemtsov murder were Kadyrov’s soldiers, and several of Kadyrov’s close associates who have been accused of planning and ordering Nemtsov’s murder have successfully been kept from investigators. Several times in the last few weeks, Kadyrov took it upon himself to publicly threaten the lives of Russian opposition members without official sanction, or official condemnation, from the Kremlin.But despite all that, even Kadyrov is in reality contained. For one, it is an open secret that Putin’s siloviki are deeply opposed to Kadyrov’s rule. While Kadyrov has relatively free reign within Chechnya itself, he has no chance of leaving his republic or expanding his reach beyond its borders. He can have an opposition leader murdered in Moscow, and his people can intimidate an official in Krasnoyarsk, but those kinds of moves are probably close to his limits.Furthermore, Kadyrov is not popular among Chechens. A wealthy Chechen diaspora exists all around the world, and in December and January a number of anti-Kadyrov rallies were held in Vienna, Berlin, Stockholm, Oslo, Istanbul and even in Kyiv. The 1.4 million Chechens living in Chechnya are even less fond of Kadyrov due to his harsh and oppressive rule. The Chechen leader demands an extraordinary “mandatory donation” from every working inhabitant of the republic to the Akhmad Kadyrov Foundation, an NGO (named after Ramzan’s father) that is understood to serve as Ramzan’s own personal slush fund. Public employees are said to be tithed at least 10 percent of their monthly salaries, private sector employees are forced to give up as much as a third of their paychecks, and business owners are told to cough up as much as half of their profits.Finally, Kadyrov has earned the enmity of hundreds of Chechens fighting under the banner of the Islamic State in the Middle East. Several newspapers ran unconfirmed reports that one prominent IS commander in Syria, Abu Omar al-Shishani (Omar the Chechen) put a $5 million bounty on Kadyrov’s head after Kadyrov threatened to kill the “bandits” who “threaten Russia and pronounce the name of our President Vladimir Putin” on his Instagram account. Kadyrov’s often-professed solidarity and love for Putin doesn’t just earn him the hatred of Islamist militants, however. Few Chechens, outside of Kadyrov’s inner circle who directly profit from the federal funds that the Kremlin sends to Grozny, can forgive Russians for the two bloody wars they waged on their territory. Most are infuriated by Ramzan’s constant pledges of loyalty to the Russian President, who is blamed for having starting the second, incredibly cruel and bloody war.Many analysts, and most Russians, assume that Kadyrov and his army are meant to be Putin’s personal bodyguards in case of political turmoil and popular protests. In exchange, Putin keeps the siloviki off Kadyrov and keeps sending Ramzan billions of rubles in subsidies from the federal budget. But should Putin for some reason go, the very next day Kadyrov is likely dead. His mercenary army will not have time to get to Moscow. Its members will be all too busy trying to fend for themselves.There is a Russian saying that goes something like this: “Why is it impossible to share everything with everyone? Because there are too many of everyone and there is too little of everything.” When oil prices were well above $100 per barrel, as they had been for most of Putin’s reign, that saying was not strictly true for the elites: there was plenty for everyone to steal. But as oil prices continued to plummet—blowing through $100 in August 2014 and hitting the mid-forties in January 2015—the energy export-dependent Russian economy began to contract. The pie is shrinking, and there are fewer and fewer opportunities for elites to get their unfair share around.Case in point: as this piece was being written, news broke that Putin had proposed creating a regular “dialogue” between business and law enforcement organs, mediated by the Kremlin. Two days later, Dmitry Kameshnik, the owner of the second largest airport in Russia (Domodedovo), was arrested in connection with the investigation into the 2011 terrorist attack on the airport, charged with not providing adequate security. In the the weeks and months after the attack in 2011, the siloviki had tried to take Domodedovo from Kamenshik. But Medvedev was President at the time, and Kamenshik, who had invested over $1 billion in the airport, was able to make a deal with the government. Russian observers are unanimous in their analysis: this is another Yevtushenkov-like shakedown—Putin’s friends taking from those not in the inner circle.Putin has been ruthlessly successful in consolidating power around a small set of people, both personally close and loyal to him. In fact, he has been so successful that even as the pie gets ever smaller, the chances of a broad-based revolt arising are tiny. Regional elites are at Putin’s mercy, while bureaucrats and civil servants have never had any political power—they merely collect their above-average paychecks cut by the Kremlin while preserving the corrupt machinery of the kleptocratic regime.A palace coup, however, is still possible—and indeed may be increasingly likely. Putin’s inner circle comprises two distinct groups with ultimately differing interests and instincts. No matter how much the Rotenbergs and Timchenko may say they support Putin’s foreign policy, they are still primarily interested in making money. Meanwhile, the siloviki, who certainly enjoy the windfalls from their shadowy, lucrative businesses, have a fundamentally different way of thinking: a twisted, militaristic, zero-sum view of the world.For example, the President’s Chief of Staff Sergei Ivanov, a KGB agent since at least the 1970s, has seen the West as a personal enemy for many decades, and continues to see foreign affairs in stark, Cold War terms. Working as a field officer, Ivanov appears to have been expelled from the UK for spying in the 1980s, perhaps when his cover was blown by a British double agent, Oleg Gordievsky. (Ivanov himself has tried to deny that it was he who was expelled, claiming implausibly that it was another agent with the exact same name as him but born a year earlier that got the boot; at least two sources close to the Kremlin, however, have insisted it was indeed him.) In the public interviews he has given, Ivanov merely channels a more intense and focused wariness of the West than Putin himself betrays. But at least on one occasion, he has let his guard slip: speaking to a conference of regional governors last year, Ivanov said that “Britain is our eternal enemy. She has always shat on us, and will continue to do so.”A different kind of monomania afflicts the head of Russia’s Security Council, Nikolai Patrushev. Like some bizarre version of Dr. Strangelove’s Brigadier General Jack T. Ripper, Patrushev appears obsessed with the idea that the United States is out to steal Russia’s natural resources. The theory has some currency in the halls of the Kremlin: Putin himself has alluded to it at times in interviews, and Deputy Prime Minister Dmitry Rogozin wrote an editorial in 2012 that featured the argument as well. But no one has returned to it as often as Patrushev. For him, this theory explains everything from the real purpose of NATO to the eruption of protests on the Maidan, and even the Western sanctions regime that followed the annexation of Crimea.In an interview with a major paper last year, Patrushev explicitly claimed that Secretary Madeleine Albright had complained that Russia unfairly owns Siberia and the Far East, and that she had proposed taking them over. Albright’s thinking on the matter, it turns out, was originally “unearthed” by a former KGB general who had worked for the organization’s special paranormal studies bureau. In 2006, the elderly general claimed on TV that his unit had telepathically connected with Albright’s thoughts in 1999—by carefully studying photographs of her—and found that she pathologically hates all Slavs, and had designs on Russia’s mineral wealth. Patrushev was clearly deeply influenced by this brilliant military research.There is a story that has been circulating around Moscow for some time now: After the West imposed sanctions on various firms and individuals surrounding Putin in 2014, the Rotenbergs let the President know that they were feeling real economic pain. Putin reassured them: “Don’t worry,” he said. “I will make up all your losses.”This conversation, if it really happened at all, would have coincided with crude oil prices starting their descent from highs of $110 per barrel. Today, oil is trading at around $30 per barrel, and the consequences of Russia’s various wars are contributing to the country’s economic pain. There is less and less of everything, but the number of people stealing is staying the same.The siloviki like their wealth, but their particular paranoid mindset and militaristic worldview prevent them from taking steps which might at least stabilize the economic situation. They think their wars are necessary for the country’s long-term success in a hostile U.S.-led world set on Russia’s destruction.For now, Putin appears fully on board with the militarism. But if his resolve wavers, perhaps in favor of the alleged promises he has made to his business friends, the siloviki will not hesitate to displace him. With broad control of the armed forces, they have the means to do it. And if the siloviki are already uneasy with Putin’s leadership, grassroots rallies fed by popular discontent with the failure of domestic policies could provide the ideal pretext for launching a coup.How ironic it will be to see a military junta seize power in Moscow, made up of the same people who had falsely accused the Ukrainian Maidan uprising from bringing a “fascist junta” to Kyiv…

Occupational Licensing as “Opportunity Hoarding”

One defining characteristic of decaying blue model institutions is that they serve insiders well, while making it harder for striving outsiders trying to climb the ladder. Think of our heavily regulated and subsidized higher education system, which delivers fantastic rewards to top administrators, while creating an exploding class of low-paid, disposable adjuncts. Another example, as Richard Reeves and Edward Rodriguez point out in a Brookings Institution post, is overly restrictive occupational licensing, which can favor skilled professionals at the expense of less-credentialed workers with the same skills:

Licensing can act as a form of “opportunity hoarding,” allowing those with resources and connections to benefit from the higher incomes flowing from these occupations, in part by preventing others from competing with them. As Reihan Salam points out, questionable licensing extends well up the income distribution. Dentists in North Carolina prevent other professionals from providing teeth-whitening—even though the procedure is relatively straightforward. Insurance brokers in Utah play a similar game by attempting to make free equivalents of their service illegal. If nurses were allowed to perform more routine medical procedures, doctors would make slightly less, but nurses could earn more and overall health care costs would likely fall.

Middle and working class Americans in 2016 are expressing unambiguously that they feel that America’s current political and economic system is rigged in favor of elites, and that they aren’t going to take it much longer. Though Donald Trump and Sen. Bernie Sanders are answering this sentiment with their own varieties of statism, it is actually the decrepitude of the blue model—the expansion of government power at the behest and to the benefit of various interest groups—that is to blame for much unfairness. Occupational licensing might not get voters as impassioned as invectives against illegal immigration do, but it really does represent a way that elites have used their political connections to stick it to the less-connected, and reasonable reforms increase opportunities for those seeking upward mobility.

It won’t be easy to reform licensing. Just as traditional universities will resist any challenges to their dominant market position, and just as teachers’ unions will resist reforms that would hold them accountable to student performance, professional guilds will fight to keep their racket in place. But it may be that the upsurge in left and right populism alike will impel elites to change their tune and intensify current pressure for reform. The White House has recently moved against licensing, and a bipartisan California commission is making promising suggestions to the Golden State legislature. Here’s hoping that elected officials follow through.