Peter L. Berger's Blog, page 506

How the West Misjudged Russia, Part 2: The Pragmatists

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 second essay in a series that seeks to answer these questions. Read part one here.

The Pragmatists’ MantraThe pragmatists prevail among the expert communities both in Russia and in Western capitals.1 They continue to monopolize research in the field of international relations, and they still dominate political discourse.2Pragmatists certainly gravitate toward rationalism: They want to have a clear understanding of reality and aim at furnishing politicians with practical recommendations. Such an approach requires a focus on clearly defined criteria, which are expressed in terms of interest, force, or both. Attempts to analyze a given situation in all its complexity and diversity, and especially to factor in moral guidelines, not only paint a seemingly conflicting picture of reality; they also complicate the formulation of recommendations for decision-makers. Thus the very factors that put the normativists on the sidelines of foreign policy analysis created a demand for the pragmatists’ set of ideas. Among these are a belief in the end of ideology and commitment to the idea that politicians should stick to traditional political mechanisms. Moreover, pragmatism is oriented toward maintaining stability and the status quo, which became a priority in the West.However, there is one characteristic of this school of analysis that might make its adherents uncomfortable. Western pragmatists frequently find themselves echoing statements made by their Russian counterparts (or even by the Kremlin itself).Let’s look at the pragmatists’ views and the extent to which they help us understand the processes occurring inside Russia. All of them dismiss or deemphasize the cause-and-effect relationship between the Kremlin’s foreign policy and the country’s internal political processes, as well as the character of the political regime. This is understandable, since acknowledging the link between Russian foreign policy and the logic of the Russian System raises a host of questions. For example, how can one expect the West to come to sustainable compromise with the Kremlin if the Kremlin continues to profess anti-Western principles? Delinking internal and external politics allows for the possibility that external politics follows its own separate logic, thus permitting the West to find common ground with the Kremlin.Actually, pragmatists today probably understand that it is impossible to completely separate international relations from internal developments, so they talk about how geopolitics influences internal Russian dynamics. They claim that international developments, particularly NATO expansion and the West’s neglect of Russia and its interests, have led to the strengthening of Russian authoritarianism and the Kremlin’s aggressiveness on the global stage.Indeed, the international factor has played a role in provoking the conflict between Russia and the West, and it has even had some effect on the evolution of the political situation in Russia itself. However, its nature differs from the one described by the pragmatists. The West’s weakness, the dysfunctionality of the current model of liberal democracy, the crisis of the European Union, the retrenchment of the United States, the Western elite’s readiness to embrace double standards all contribute to the perception of a vacuum that the Russian System has tried to fill. The Kremlin now openly proclaims that the era of the West is over and that Russia has returned to the scene.3By rejecting the linkage between the Kremlin’s foreign policy and the Russian System’s domestic agenda, and by opposing Western efforts to exert a normative influence on Russia’s internal development, the pragmatists are supporting the “de-ideologization” of foreign policy. “Ideology stopped being the criterion behind the world order,” the pragmatists claim, echoing the thoughts of Russian Foreign Minister Sergey Lavrov, who likes to talk about “the liberation from the ideological blinders of the past.” At the same time, they reject taking an ideological approach to analyzing internal processes,4 which allows them to maintain an optimistic outlook on Russian authoritarianism and even to find some constructive elements in it.The pragmatists dismiss the normative dimension as a Cold War relic. Naturally, its supporters are branded “Cold Warriors.” This is how Fyodor Lukyanov, editor in chief of the Russian journal Russia in Global Affairs, chairman of the Russian council on Foreign and Domestic policy, expressed this position: “Modern discussions of values and interests reflect the fact that many still find themselves under the spell of the Cold War.” In short, the pragmatists say that discourse on values throws us back to the old confrontation. But it behooves us to remember that relations between Russia and the West actually started to go sour when the West eliminated the values-oriented approach from its Russia policy. Meanwhile, equating values discourse with a return to the Cold War implies recognition of the fact that the norms of the Russian System and those of liberal democracy are incompatible. And if they are incompatible, why do the pragmatists hope that these two systems can engage in constructive dialogue?If the era of de-ideologization is indeed upon us, as the pragmatists believe, what forms the basis for their predictions and strategic vision? And what replaced norms for the pragmatists? “Common interests” was one of the substitutes. This approach prevailed in the 1990s, when not only the West but part of the Russian elite still believed that Russia could be integrated into the community of liberal democracies. When it became clear that Russia was moving in the opposite direction, the pragmatists insisted that this didn’t run counter to Western interests. Here is what Thomas Graham, managing director at Kissinger Associates, wrote in 2009, admitting that Russia defines its interests in terms of maintaining its great power status and areas of influence: “Nothing in Russia’s understanding of its interests precludes close cooperation with the United States on a wide range of issues critical to American security and prosperity.”5When the proponents of the “common interest” theory gradually realized that the parties actually understood their interests differently in spheres where there was supposed to be significant overlap (primarily nuclear nonproliferation and counterterrorism), they were forced to look elsewhere to justify their pragmatism. For instance, Graham, who in 2009 thought that U.S.-Russian cooperation “will have to be built on shared interests and shared threats,” subscribed to a different opinion in 2013. He wrote that “the strategist . . . treats talk of shared interests as the basis for cooperation with skepticism. A close examination of any alleged shared interest reveals significant differences in assessments of the problem and saliencies for national interests that create obstacles for effective cooperation.”6 Nevertheless, there are still quite a few pragmatists who continue to believe that Moscow and the West have shared interests, arguing that both sides just misinterpret them.Let’s Accommodate!So what became of the pragmatists’ main premise when they realized that the “common interests” dialogue wasn’t working? Robert Kagan, senior fellow at the Brookings Institution, wrote that President Obama chose to embrace the principle of accommodation “rather than attempting to contain the ambitions” of Russia and China.7 The “accommodation” of illiberal powers became the pragmatists’ refrain both in the United States and Europe. In fact, this approach had long been the foundation of German Ostpolitik, first in regards to the USSR, and later for Russia.8 The Russian elite began to demand that the West, as the community of liberal democracies, accommodate Russia as well.But how do the pragmatists understand accommodation, if Russia and the West share no mutually recognized common interests? And how has the crisis of 2014 affected the pragmatists’ view of the world? Some pragmatists choose not to elaborate on what they mean, leaving us to guess for ourselves what this “accommodation” might entail. Others specify issues on which the West might accommodate Russia, without specifying any accommodations that Russia might make.Since the pragmatists are not interested in domestic politics and keep repeating the mantra that democracy is an internal Russian affair, one may conclude that they continue to believe accommodation includes the Kremlin’s right to do whatever it pleases with the Russian people.What else does accommodation mean? It is certainly a recognition of Russia’s right to spheres of influence. The pragmatists openly call for the creation of a mechanism that would formalize the new partition of territories around Russia. This idea was, for instance, proposed by the Commission on U.S. Policy Toward Russia (2009), chaired by former Senators Gary Hart and Chuck Hagel. It recommended to President Obama that the United States should “establish a government-to-government dialogue on Russia’s neighborhood, with a view to developing confidence-building measures.” So Russia and the United States should decide the fate of Russia’s neighbors, hearkening back to the times of Potsdam and Yalta.9Another example of the recognition of spheres of influence, albeit in a softer form, is a call to preserve the post-Soviet space around Russia as a sphere of influence for both Russia and the West—that is, as a condominium of sorts. “Ukraine, Moldova, Transnistria, Georgia and others in Russia’s ‘near abroad,’ with which it shares deep historic ties, will flourish over the long term only if they have strong relationships with both Russia and the EU, just as countries in Southeast Asia have strong relationships with both China and the US,” argued some observers. However, this setup had existed for the past twenty years and has proven impossible in a situation in which one state is seeking to restrict the sovereignty of its neighbors.American pragmatists have been offering the following logic: “If the U.S. wants to cooperate with Russia on its priorities, it must be willing to cooperate on Russia’s.” Here is how the mechanism of this deal is supposed to work: “If the U.S. wants Russia’s cooperation in Iran and Afghanistan, it can work to accommodate Russia’s interests in the former Soviet space and Europe.”10Indeed, had we been living in the 19th or even the first half of the 20th century, this deal would have looked reasonable for its recognition of a certain balance of forces in the region. Even from the standpoint of 21st-century realities, Russia should be interested in securing its southern borders. Incidentally, this idea used to have, and perhaps still has, quite a few followers in Moscow and in Western capitals.Of course, the pragmatists are forced to ponder the sustainability of any deals made with the Kremlin. What if the Russians come for more? Here is how the former UK Ambassador to Russia Toni Brenton answers this question: “The rules-based world . . . was always an illusion. . . . Great power politics is back.”11 What does this mean? Apparently, Ambassador Brenton believes that all states, including the West, are breaking the rules of the game. “What about Iraq, Kosovo, and bombing Yugoslavia?” asks Brenton, repeating questions that Russians frequently ask of Western leaders. In short, according to Brenton’s logic, since liberal democracies are not ideal, and no one is perfect, then Moscow may continue to act as it has been. If this is what the proponents of great-power politics are suggesting, they should understand that they are legitimating a Hobbesian world, and the Russian System is much more adept at operating in this kind of world.The irony is that the pragmatists, who no doubt sincerely seek compromise to avoid a return to the Cold War, are in fact bringing us back to an era of confrontation by dividing the international space into spheres of influence. In the end this would mean recognizing the existence of opposing camps and thus the need to police the borders between them. Moreover, some states would reject the sphere into which they had been cast, and so would have to be pacified. That is what the Soviet Union did in Hungary and Czechoslovakia, and what Russia did in Georgia and is trying to do in Ukraine.Perhaps the pragmatists expect that the Kremlin will finally settle down after gaining control over neighboring territories. What are the grounds for such expectations—especially in the context of the events of 2014-2015? After all, the West has made far-reaching concessions to Moscow, acquiescing to Russia’s being the center of its own galaxy; nor did it hinder Russia in its commercial and other dealings in the West, or meddle in its internal affairs. The Obama Administration has been trying to prevent the Kremlin’s irritation and bellicosity. German expert at the Carnegie Europe Center Ulrich Speck, acknowledged that Europe accepted “Moscow’s definition of the region as a Russia sphere of influence.”12 Didn’t this double accommodation on the part of the United States and the EU satisfy the Kremlin’s appetites? It did not, and it never could! After all, continuing expansion and continued testing of the ability of the West to respond is merely a means of prolonging the Russian System’s life; one concession always leads to another. This is the habit, the dogma, the logic that has become the genetic code of the Russian political class.I cannot comprehend why Western experts who have spent so much time studying Russia fail to detect this genetic trait of Russian political mentality: the more the West calls for compromise, the more it provokes the assertiveness of the Russian System. After the blood-soaked 20th century, liberal democracies, at least in Europe, managed to create a tradition of consensus politics based on compromise and compliance with agreements. The Russian System and the Russian political class operate under a different model of existence: to them, concessions and compromise indicate weakness. Hence the different behavior: if the West is offering us compromise, then it must be weak, and we should press it harder!Some time ago Stephen Sestanovich, senior fellow at the Council of Foreign relations—analyzing the reasoning of the American experts Nikolas Gvozdev, Robert Blackwill, and Dimitri Simes that Washington “should back off on policies that provoke Moscow unnecessarily” to secure help on issues that really matter—noted that “this ‘let’s make a deal’ approach to diplomacy has a tempting simplicity to it.” Meanwhile, the “grand bargains” favored by amateur diplomats are almost never consummated.”13 Indeed, this approach presupposes that Moscow will in fact agree to do deals, but so far the Kremlin has only agreed to deals (as Putin did with Washington in 2001–02) when such deals have contributed to the strengthening of the Kremlin’s position. It has far more frequently opted for another tactic: demanding that the West remove “irritants” and reduce “humiliations,” whereupon it will set about looking for yet more humiliations to fuel its resentments sentiments.“There is in this policy approach a remarkable idealism about the way the world works,” Robert Kagan wrote about the Western proponents of accommodation.14 But the pragmatists, never despairing, insist that more of the same is what will eventually extract us from this cycle, somehow.

1Using the traditional term “realists” to refer to the individuals I call “pragmatists,” Alexander Motyl writes, “Realists can be found on the right (Henry Kissinger and Nikolas K. Gvosdev), on the left (Stephen F. Cohen and Michel Chossudovsky), and in the center (John J. Mearsheimer and Stephen M. Walt). At first glance, it may be most surprising that leftists should have embraced a Realpolitik view of the world. But only at first glance. Recall that Lenin, Stalin, Mao, and a host of other Marxist leaders were no less realist in their conduct of foreign policy than Winston Churchill and Richard Nixon.” Motyl, “The Surrealism of Realism: Misreading the War in Ukraine,” World Affairs Journal (January/February 2015).

2Pragmatists have outlets for self-expression. David Johnson’s Russia List is the leading example. Pragmatists also hold sway in a number of American and European think tanks.3See Foreign Policy Concept of the Russian Federation.4“Ideology is not a good guide in a valueless yet vibrant Russian environment.” Dmitri Trenin, “A Less Ideological America,” Washington Quarterly, March 1. 2007.5Graham, Resurgent Russia and U.S. Purposes: A Century Foundation Report , May 11, 2009.6Graham, “In Defense of a Strategic Approach to Russia,” The American Interest, March 12, 2013.7Robert Kagan. Obama’s Post-American World, IWM post, N103 (January-March 2010).8German Ostpolitik was formulated by Willy Brandt and Egon Bahr on the basis of Bahr’s doctrine of “Change through Rapprochement” in the late 1960s-early 1970. Its main goal was normalization of the relations with GDR. The same strategy soon was applied by West Germany to the Soviet Union, and it was based on hope that the Soviet Union will transform under the influence of positive international dialogue.9The report also called for respect of “Russian sovereignty, history and traditions and [recognition] that Russian society will evolve at its own pace.” In effect, the U.S. senators called for the respect of autocratic rule, since it is Russia’s principal tradition. See the response of the Russian experts to the report: Lev Gudkov, Igor Klyamkin, Georgii Satarov, and Lilia Shevtsova, “False Choices for Russia,” Washington Post, June 9, 200910Thomas Graham, “The Future of US-Russian Relations,” U.S. Global Engagement Conference, Pocantico Center, June 3, 2011.11Toni Brenton, “The unfolding Ukraine crisis signals a new world order,” Guardian, May 16, 2014.12Ulrich Speck, “The EU Must Prepare for a Cold Peace with Russia,” Carnegie Europe, December 9, 2014.13Sestanovich, “What Has Moscow Done? Rebuilding U.S.-Russian Relations,” Foreign Affairs (November/December 2008).14Kagan, Obama’s Post-American World.

Australia Looks to Strengthen Ties With US on Cybersecurity

Australia’s new Prime Minister, Malcolm Turnbull, is making the rounds in Washington this week. He’s been trying to demonstrate that he hopes to work more closely with the United States on critical issues like counterterrorism. To that end, his office has announced an annual Aussie–U.S. cybersecurity dialogue conference. ZDNet:

The annual dialogue will be jointly convened by the Australian Strategic Policy Institute and the US Centre for Strategic and International Studies, and according to Turnbull, it will engage senior representatives from both countries’ business, academic, and government sectors to discuss common cyber threats, promote cybersecurity innovation, and shape new business opportunities.

“We will continue to work closely together to ensure the internet remains open, free, and secure by promoting peacetime ‘norms’ for cyberspace,” Turnbull said.“Like the US, Australia supports a cyberspace in which nations abide by international law and their behaviour is supported by agreed norms — or standards for appropriate conduct.

Turnbull’s official statement doesn’t mention China, but that’s very likely the reason Canberra feels the need to build support for this dialogue. Chinese hackers have been fingered in several major cyberattacks on Australian government and corporate servers over the past few years.

The Prime Minister’s failure to mention China may fit a pattern; Turnbull is part of the “China school” of Australian foreign policy, which holds that the country needs to balance more between the U.S. and China. Visiting CSIS headquarters on Monday, Turnbull said he takes Xi Jinping at his word and believes that China does not plan on starting wars or creating military conflicts.Meanwhile, regional powers like the Philippines and Japan hope Australia will end its policy of neutrality in the South China Sea and side with them. In December, Turnbull released a statement with Japanese PM Shinzo Abe that encouraged everyone to refrain from building on disputed land, and on Monday, he expressed hopes that international law can solve the problem. Given that one country (China) is building a lot more than any other, many other Pacific powers may think Canberra is kowtowing to Beijing. Although we’re sympathetic to Australia’s strategic challenges, it’s hard to disagree with that analysis.

Gazprom’s Spinning Wheels

Russia’s state-owned natural gas company Gazprom has seen its market value drop by nearly 90 percent over the past six years, and it has itself to blame. As the FT reports, Gazprom’s decision (twice) to turn off gas to Ukraine in recent winters has pushed Europe into seeking ways to blunt Putin’s energy weapon:

The cut-offs sparked efforts by EU authorities and member states to complete the creation of a European single market in energy, diversify sources of gas, and reduce reliance on Russia. Brussels became cautious towards new Russian pipelines. The shift intensified friction with Gazprom. It blamed Kiev for damaging its reputation in Europe and stepped up its efforts to build pipelines such as Nord Stream and South Stream to bypass Ukraine.

In response to Gazprom’s inconstant delivery to Ukraine, Europe has made progress on two important fronts in diversifying away from Russian supplies. First, countries are moving to beef up the infrastructure necessary to import liquified natural gas (LNG)—Lithuania is already importing the chilled hydrocarbon by way of a floating import terminal, while Croatia is moving ahead with plans to construct its own import facility off its Adriatic coast. With the U.S. now adding shale gas into the mix, the global LNG market is well-supplied these days, which has depressed prices to levels that make LNG imports increasingly attractive for Europe.

Secondly, Europe is investing in its gas pipeline infrastructure by constructing more so-called interconnectors that allow members to trade natural gas between one another. In this way, countries can effectively counter Gazprom’s divide and conquer strategy by reselling gas purchased from Russia. Europe has already made plenty of progress in building out this reverse flow capability over the past few years, but as Reuters reports, it intends to invest even more towards that goal:

EU member states on Tuesday endorsed a plan to invest more than 200 million euros ($217 million) in cross-border energy infrastructure projects designed to help curb dependence on Russian gas.

The European Commission is seeking to improve power and gas connections across the European Union’s 28 member states to allow better distribution of available supplies as part of a single energy market.

Ukraine went from importing more than 40 billion cubic meters (bcm) of natural gas from Gazprom in 2011 to just over 6bcm last year, and though a certain portion of that decline can be attributed to the general economic malaise gripping the war-torn country (Ukrainian GDP has shrunk nearly 20 percent since 2013), Leonid Bershidsky notes that the “semi-official state of war” between Ukraine and Russia is the key driver there. But if that’s the “why,” the “how” of that change comes courtesy of reverse flows, as Kiev started importing natural gas that Slovakia purchased from Gazprom.

Europe’s gain is Russia’s loss, and it couldn’t come at a worse time for Moscow. Low oil prices are already pushing the ruble to record lows as the petrostate struggles to cope with lost revenues, but the bearish crude market is also hurting Gazprom. Most of Gazprom’s contracts with its European customers are tied to oil prices, which was a frequent point of contention when crude was trading above $100 per barrel. Now, with Europe’s Brent crude benchmark hitting 12 year lows (today trading below $28), that linkage is working decidedly in Gazprom’s customers’ favor, and wreaking havoc on the state-owned company’s bottom line. According to Bloomberg, Gazprom’s European prices “will probably slump 37 percent this quarter to levels not seen since 2005 because of the rout in oil.”Every oil producer—from U.S. shale firms to OPEC’s petrostates—is reeling from today’s plunging prices, but Russia looks to be the biggest loser of them all.

Bernie Sanders’ Freudian Slip

Bernie Sanders is taking heat from racial justice activists (as well as from opportunistic Clinton partisans) after the celebrated Atlantic writer Ta-Nehisi Coates published a scalding critique of the Senator’s opposition to reparations for African Americans. Sanders is unabashedly radical on economic issues, but said he opposed reparations on the grounds that they were “divisive” and unlikely to pass, and argues for a massive expansion of the welfare state instead. This leads Coates to argue that “Sanders should be directly confronted and asked why his political imagination is so active against plutocracy, but so limited against white supremacy.” More:

Unfortunately, Sanders’s radicalism has failed in the ancient fight against white supremacy. What he proposes in lieu of reparations—job creation, investment in cities, and free higher education—is well within the Overton window, and his platform on race echoes Democratic orthodoxy. The calls for community policing, body cameras, and a voting-rights bill with pre-clearance restored— all are thingsthat Hillary Clinton agrees with. And those positions with which she might not agree address black people not so much as a class specifically injured by white supremacy, but rather, as a group which magically suffers from disproportionate poverty.

This is the “class first” approach, originating in the myth that racism and socialism are necessarily incompatible. But raising the minimum wage doesn’t really address the fact that black men without criminal records have about the same shot at low-wage work as white men with them; nor can making college free address the wage gap between black and white graduates. Housing discrimination, historical and present, may well be the fulcrum of white supremacy. Affirmative action is one of the most disputed issues of the day. Neither are addressed in the “racial justice” section of Sanders platform.

Sanders actually has a more progressive record than Clinton on racial issues, and higher ratings from the NAACP, so Coates’ decision to single Sanders out without even mentioning Clinton’s support for the 1990s crime bill, for example, is somewhat puzzling. But his criticism highlights an important truth in American political history: that class politics and racial politics have had a complicated relationship, and that smash-the-plutocracy populists have not always been at the vanguard of racial justice movements. Andrew Jackson’s Democrats pushed an economically egalitarian agenda, but organized their appeals around (white) Scots-Irish solidarity and were staunchly pro-slavery. The early 20th century Progressive agenda of economic redistribution coexisted with deep-seated racism, as we have recently been reminded by the controversy over Woodrow Wilson’s place at Princeton. And Roosevelt’s New Deal Democrats had to make peace with Southern white supremacists in order to push through programs like Social Security.

None of this is to say that Sanders is anything less than a full-throated advocate for African American interests. Indeed, he seems like the most genuinely racially progressive candidate on either side. But he may sense in his bones that in America, economic populism is an uneasy fit with an aggressive racial justice agenda—in part because many people who might otherwise support soaking the rich aren’t as enthusiastic about giving the proceeds to a competing identity group. As Brian Beutler suggested on Twitter, “Sanders’ coalition might win on a redistributive, anti-plutocracy program—but reparations would shatter it.”If Sanders’ real priority is implementing massive economic redistribution, it is probably politically wise for him to steer clear of a subject as racially explosive as reparations and emphasize race-neutral class solidarity instead. This position may well hurt him among die-hard liberals in the primary—especially if Hillary Clinton takes the opportunity to evolve and triangulate, as she did the last time Sanders offended left-wing activists on a race-related issue. But they also reveal a long-run historical truth about American populism that Sanders will have to adapt to if he makes it to the general election.

The Kremlin’s Western Lawyers

In Syria, as in Ukraine and Georgia before, Russia is using warfare to achieve its goals, operating through brute force and fear. In the West, it uses lawfare, exploiting the rule of law to launch politically motivated cases that are factually or legally meritless in order to terrorize individuals in the Kremlin’s sights.

Over the past 16 years, Vladimir Putin has built a system in Russia in which power is centralized in the Kremlin and the rule of law is suppressed. The Putinist narrative is built on projecting Russia as a bulwark against a decadent and morally bankrupt West, a civilization entirely at odds with the Motherland. But here’s the odd thing. As the Kremlin has pumped anti-Western propaganda across the country’s airwaves and television channels, Russia has increasingly turned to the West to secure its interests—and perhaps nowhere more so than the West’s courts.It is a situation that reflects Putin’s approach to the international system. Russia is attempting to survive in a globalized world—but on its own terms. It wants to be simultaneously a part of the West and apart from the West. This has been the Kremlin line since at least 2012, when Putin returned to the presidency. Putin wants Russia to be recognized as a global power by having a seat at the table alongside the world’s key actors, but he wants these same actors to accept Russia’s right to interfere in the affairs of sovereign states, to undermine global security, to interpret international law and norms as he sees fit, and to submit to its other interests.Russia uses a number of tactics to advance these interests, and, in doing so, subvert the West from within. The Kremlin funds foreign television, newspapers, and websites, bankrolls fake research institutions, think tanks, and political movements, and backs useful idiots, agents of influence, and other dubious characters. The Kremlin has also, through its lawfare, weaponized Western legal professionals as agents of Russia’s foreign policy.The experience of Sergey Pugachev, a Russian financier who was once known as “Putin’s banker,” is a case in point. A formerly well-connected Russian Senator, Pugachev saw his standing fall dramatically in 2010, when Mezhprombank, which he co-owned, defaulted on its debts and lost its banking license after receiving a 40 billion ruble bailout from Russia’s Central Bank. In 2013, two years after he left Russia for the UK, a Moscow court alleged that Pugachev was to blame for Mezhprombank’s collapse. The case was brought by the state-run Russian Deposit Insurance Agency (DIA), Mezhprombank’s liquidator.Pugachev argues that Mezhprombank’s bankruptcy was caused because the Russian state stole billions of dollars of assets from him, including shipyards, and construction and energy projects. A number of those assets ended up under the control of Igor Sechin, one of Putin’s closest associates. The DIA—represented by Stephen Smith QC and Ben Griffiths of London-based Erskine Chambers, and by Hogan Lovells, a global law firm co-headquartered in London—argues that Mezhprombank collapsed because Pugachev stole hundreds of millions of dollars of the Russian Central Bank’s bailout for his personal benefit. In the summer of 2014, London’s High Court, after receiving an application from the DIA, issued a worldwide freezing injunction against Pugachev, freezing his assets up to $2 billion.Pugachev claims that the case against him is politically motivated. Whatever the truth, there are other examples where this is more clear-cut.Since Putin came to power in Russia, few political acts have been quite as brazen as his government’s imprisonment of Mikhail Khodorkovsky, in 2003, and subsequent dismemberment of Yukos, Russia’s largest oil company at the time, in 2007. In the years since, Bruce Misamore, Yukos’s former chief financial officer, has led a small band of other former executives in trying to recover assets for the company’s shareholders and its employee pension fund. In 2004, Misamore took his case to the European Court of Human Rights (ECHR). Russia, he argued, had unlawfully seized Yukos after imposing bogus taxes and selling it via a sham auction. In a final ruling, announced in 2014, the ECHR found in Misamore’s favour and awarded the Yukos shareholders 1.9 billion euros ($2.5 billion) in damages.Throughout the ECHR proceedings, Russia was represented by London-based barrister Michael Swainston QC, of Brick Court Chambers, while Devereux Chambers’ Timothy Brennan QC, similarly based in London, provided tax advice. Russia also instructed its counsel team directly. “Russia doesn’t show up in court rooms in the West as Russia,” Misamore explains. “I mean, there might be a few people from the Russian government there, but it shows up in the form of Western law firms. … Now, that’s the face of Russia in the court rooms.”The Pugachev and Yukos cases hint at the extent to which the Kremlin uses Western lawyers to defend its interests, but in other cases Russia’s fingerprints are far less evident.Take the case of Bill Browder, founder of Hermitage Capital Management. In 2012, Pavel Karpov, a former Russian policeman, filed a libel case against Browder in London’s Royal Courts of Justice. In a series of videos posted online, Browder had accused Karpov of playing a part in the death in 2009 of his Russian lawyer, Sergei Magnitsky. Karpov claimed that, because Browder had linked his name to Magnitsky’s murder, his “substantial reputation in the jurisdiction of England and Wales” had been damaged. To represent him in court, Karpov retained the services of Andrew Coldicott QC, one of the UK’s most expensive libel barristers, and Geraldine Proudler, of the London-headquartered international law firm Olswang.Such an outlay achieved little. Ruling in 2013, Mr. Justice Simon threw out Karpov’s claim, noting that “there is a degree of artificiality about his seeking to protect his reputation in this country.” But exactly how Karpov, whose official monthly salary was US$500, afforded his legal representation (Karpov’s court costs alone were estimated at £2 million), is an important question. And it is one that was partly answered in court papers submitted by Anthony White QC, Browder’s barrister. Noting that Karpov “does not [sic] have the means to pay for this litigation himself,” White alleged, “The court cannot be satisfied that the Russian state is not behind the claims in some way”.The West should take a careful look at what is happening here.Having destroyed anything resembling the rule of law in Russia, the Kremlin now ensures that the West helps in its efforts to both prosecute its enemies and evade justice for its crimes. The Magnitsky and Yukos affairs are two of the most egregious and well-documented case studies of the darker side of Putinism. In both cases the Kremlin abused Western laws and judicial systems in its attempts to achieve political ends.Russia, of course, is not alone in using lawfare against the West. China’s “Three Warfares” doctrine, adopted in 2003, identifies the rule of law as an offensive weapon to achieve political and commercial gains. It is currently manipulating the 1982 United Nations Convention on the Law of the Sea in order to establish a greater footing in the South and East China Seas. Terrorists and their sympathizers have long viewed the law as an instrument to limit and undermine those seeking to stop them: an al-Qaeda training manual instructed captured militants to file false claims of torture in order to occupy their captors and position themselves as victims.But Russia stands out because it uses lawfare to greater effect than others, and the lack of attention paid to Russia’s lawfare is reflective of a broader failure, by the West, to understand the threat posed by the Kremlin.In most Western capitals, there has been—and there remains, despite the events of the past three years—a profound reluctance to see Russia, under the leadership of Putin, for what it is; a grotesquely corrupt and cynical kleptocracy that is dangerously fixated on the West. Russia is a country that is focused on undermining the West and its institutions—among them, the European Union, NATO, and the various bodies and laws that regulate the post-World War II and post-Cold War order—when and wherever the opportunity presents itself. Its use of Western courts to abuse the rule of law should be seen in this context.Faced with this situation, there are a number of practical steps the West could take to counter Russia’s lawfare. Public information campaigns and professional legal education is required to explain that law claims are increasingly tools of war. Those who use lawfare must be challenged, under existing domestic and international law, through the West’s courts; the West should be as committed to winning the lawfare battle as it would be a military battle. The West should utilize aggressive litigation tactics against those who enable lawfare, such as seeking sanctions against lawyers who frequently make frivolous arguments or violate security regulations.Reforming Western legal systems in such a way as to prevent them from aiding and abetting Putin’s kleptocracy is not an impossible task.Both Russia and Western lawyers have grown accustomed to the profitable pragmatism of the past 16 years. They would argue that they are doing nothing wrong. For the former, the West has a fair playing field and an established structure of free and fair judges and lawyers. For the latter, Russia is entitled to legal representation and a fair hearing by an independent and impartial tribunal. But this comes at a price: These lawyers are working steadily, in their own ways, to undermine Western security and support the spread of Russia’s aggressive authoritarianism.

Macri Goes to Davos

Argentina’s new President, Mauricio Macri, is in Davos for the World Economic Forum, where he hopes to persuade investors and world leaders that Argentina’s economy has bottomed out and is poised for renewal. The Financial Times reports that he plans to meet face-to-face with UK Prime Minister David Cameron, with whom he hopes to start work on resolving the long-running clash over the contested Falkand Islands. Such an agreement could, depending on its terms, play very well back home.

Macri is also rumored to be preparing an offer to a group of holdout vulture funds, headed by prominent U.S. investor Paul Singer, which could be announced as early as next week. Given that an important Argentinian opposition leader, Sergio Massa, has agreed to join Macri on the Davos trip, some observers believe Macri and the hedge funds may be closing in on a deal.Macri’s hopes for Argentina are admirable, and Barclay’s economists said his devaluation of the Argentine peso was “perfectly orchestrated.” But even the most able sailors need favorable winds. World economic conditions aren’t very good for anyone right now, least of all commodities exporters like Argentina. In a world flush with raw materials and short on demand because of China’s slowdown, it’s going to be difficult for Argentina to regain its footing. And as we’ve noted before, Macri is only one part of a corrupt and inefficient government. It will take years for him to reform Argentina’s bureaucracy, particularly in the face of an opposition-controlled Congress.On the other hand, things have been very bad in Argentina lately, and Macri may find enough low-hanging fruit (restructuring and reducing the debt, attracting foreign investment) to stabilize the economy and keep his constituents sated until the global storm has subsided. Reports from the end of last year suggested that while Macri’s reforms are creating some discontent, many Argentines understand the depths of their country’s problems and are willing to give the new president some time. We hope so, because he’ll need it.

Iran’s Hardliners Stack Deck for Upcoming Elections

Iranian hard-liners appear to have used Iran’s election vetting procedures to stack the deck against the reformers in the upcoming parliamentary vote, dealing a blow to hopes that the nuclear deal would lead to the ascendancy of moderating factions in Tehran. The Wall Street Journal reports:

Almost two-thirds of the 12,000 candidates who applied to run in next month’s parliamentary elections were either disqualified by Iran’s Guardian Council or withdrew [. . .]

The political leanings of the disqualified candidates weren’t fully disclosed; political alignments are less rigidly defined than in many Western systems, and candidates can be endorsed by more than one party.But so-called reformists—those favoring more political and economic freedom and improved relations with the outside world—say their camp was overwhelmingly targeted, with one saying barely 1% had been approved.

Nor is this not the only political arena in which the hard-liners seem poised to stack the deck. The Telegraph:

The late Ayatollah Khomeini’s grandson has left the race for a seat on Iran’s Assembly of Experts, apparently because his candidacy would have been disqualified, according to a hardline official.

Hassan Khomeini, 43, is a supporter of the reformist movement. As a prominent figure on this wing of Iranian politics, he would probably have been prevented from standing for the Assembly of Experts by the Guardian Council, a powerful body dominated by hardliners which vets all candidates [. . .]

“Kayhan”, a hardline daily serving as a mouthpiece of the Revolutionary Guard, suggested that Mr Khomeini lacked any revolutionary credentials to qualify him for a seat on the Assembly of Experts, which chooses Iran’s Supreme Leader.

If the hard-liners have effectively rigged the elections so they will control both the Parliament and the group who picks the new Supreme Leader, Iran has clearly responded to the nuclear deal by toughening its stance. Apologists for the deal will talk about the longer arc of history, and one can hope they are right. But it will be hard to avoid the conclusion that, while the Middle East was a huge mess when President Obama took office, he’s leaving it substantially worse off. 

The Majestic Inequality of the Law

One day Clifford Cain, Jr., a retired electrician in Baltimore, discovered that a debt collector had garnished his bank account after suing him for about $4,500 that the company said he owed on an old debt. According to the New York Times, Cain said he never knew the lawsuit had been brought against him until the money was gone from his account. Nor did hundreds of others who were similarly sued by the collector, Midland Funding, a unit of the Encore Capital Group, in Maryland State Court. When Cain brought a class action in 2013 against Midland Funding, the company had the lawsuit dismissed on grounds that the only way the plaintiffs could recover their money would be in private arbitration, because the debts they allegedly owed contained mandatory arbitration clauses, and class actions are banned in arbitration. So Cain and the others would have to fight the unit of Encore, one of America’s largest debt buyers, one by one. Few could afford to do so.

It may seem odd that companies can use arbitration to avoid being sued in court and at the same time use lawsuits to collect from consumers, but that’s the law. In 2011, in AT&T Mobility vs. Concepcion, the Supreme Court ruled that companies could legally bar class actions within consumer contracts. The following year, the number of large companies that included class-action bans in their contracts more than doubled. Subsequently, in their 2013 decision, Comcast v. Behrend, the Court threw out $875 million in damages sought by Philadelphia-area subscribers from Comcast for allegedly eliminating competition and overcharging them. Justice Antonin Scalia, writing for the Court, said the Comcast subscribers had failed to show that Comcast’s wrongdoing was common to the entire group and that damages were therefore an appropriate remedy for all of them rather than to individuals. The effect of these rulings has been to reduce the ability of groups of consumers—or, for that matter, employees or small businesses—to band together to enforce the law.The Supreme Court is only one of many agencies of government busily tipping the scales in favor of large corporations and against ordinary individuals. In this age of widening inequality, the law has become a strategic instrument of large corporations to enlarge their wealth and power.Consider the issue of liability: who’s responsible when something goes wrong. Entire industries with notable political clout have gained legal immunity from prosecution. In 1988, for example, the pharmaceutical industry persuaded Congress to establish the Vaccine Injury Compensation Program, effectively shielding vaccine manufacturers and doctors from liability for vaccines that have harmful side effects.Corporations with deep pockets have also gained effective immunity. Long before Japan’s Fukushima Daiichi plant contaminated a large swath of the Pacific Ocean with radioactive material in 2011, General Electric marketed the Mark 1 boiling-water reactor used in the plant (as well as in 16 American nuclear plants) as a cheaper alternative to competing reactors because it used smaller and less expensive containment structures. Yet the dangers associated with the Mark 1 reactor were well known. In the mid-1980s, Harold Denton, an official with the Nuclear Regulatory Commission, warned that Mark 1 reactors had a 90 percent probability of bursting if their fuel rods overheated and melted in an accident. A follow-up report from a study group convened by the commission found that “Mark 1 failure within the first few hours following core melt would appear rather likely.” Why hasn’t the commission required General Electric to improve the safety of its Mark 1 reactors? One factor may be General Electric’s formidable political and legal clout. In the presidential election year of 2012, for example, its executives and PACs contributed almost $4 million to political campaigns (putting it 63rd out of 20,766 companies) and it spent almost $19 million on lobbying (the fifth highest lobbying tab of 4,372 companies). Moreover, 104 of its 144 lobbyists had previously held government posts.Similarly, the national commission appointed to investigate the giant oil spill in the Gulf of Mexico in 2010 found that BP failed to adequately supervise Halliburton Company’s installation of the deep-water oil well—even though BP knew that Halliburton lacked experience in testing cement to prevent blowouts and had not performed adequately before on a similar job. In short, neither company had bothered to spend enough to ensure adequate testing of the cement. Meanwhile, the Minerals Management Service of the Department of the Interior (now renamed the Bureau of Ocean Energy Management, Regulation, and Enforcement) had not adequately overseen the oil and oil-service companies under its watch because it had developed cozy relationships with them. The revolving door between the regulators and the companies it was responsible for overseeing was well oiled.Similarly, the National Highway Transportation Safety Administration has shown itself more eager to satisfy the needs of the automobile industry than to protect driver safety. For decades the industry’s powerful allies in Congress, led by Michigan Representative John Dingell, ensured that would be the case.Or consider the New York branch of the Federal Reserve Board, which has the responsibility of monitoring Wall Street banks. Even after the Street’s near meltdown, the banks’ legal prowess and political clout reduced the ardor of examiners from the New York Federal Reserve Bank. Senior Fed officials instructed lower-level regulators to go easy on the big banks and not pry too deeply. In one meeting that came to light in 2014, a banker at Goldman Sachs allegedly told Fed regulators that, “once clients are wealthy enough certain consumer laws don’t apply to them.” Afterwards, when one of the regulators who attended the meeting shared with a more senior colleague her concern about the comment, the senior colleague told her, “You didn’t hear that.”Another technique used by large corporations to squelch laws they dislike is to ensure Congress does not appropriate enough funds to enforce them. For example, the West Texas chemical and fertilizer plant that exploded in April 2013, killing fourteen and injuring more than 200, had not been fully inspected for almost three decades. The Occupational Health and Safety Administration and its state partners had only 2,200 inspectors charged with protecting the safety of 130 million workers in more than eight million workplaces nationwide. That came to about one inspector for every 59,000 workers. Over the years, congressional appropriations to OSHA had dropped. The agency had been systematically hollowed out. So, too, with the National Highway Transportation Safety Administration, charged with automobile safety. Its $132.8 million budget for 2013, supposedly enough to address the nation’s yearly toll of some 34,000 traffic fatalities, was less than what was spent protecting the U.S. Embassy in Iraq for three months of that year.The Internal Revenue Service has also been hollowed out. Despite an increasing number of wealthy individuals and big corporations using every tax dodge imaginable—laundering money through phantom corporations and tax havens, and shifting profits abroad to where they would be taxed least—by 2014 the IRS budget was 7 percent lower than it had been as recently as 2010. During the same period, the IRS lost more than 10,000 staff, an 11 percent reduction in personnel. This budget stinginess didn’t save the government money. To the contrary, less IRS enforcement meant less revenue. For every dollar that went into IRS enforcement, an estimated $200 was recovered of taxes that had gone unpaid. But it reduced the likelihood that wealthy individuals and big corporations would be audited.In a similar vein, after passage of the Dodd-Frank financial reform law, Wall Street made sure that government agencies charged with implementing it did not have the funds to do the job. As a result, fully six years after the near meltdown of Wall Street, some of Dodd-Frank—including much of the so-called “Volcker Rule” restrictions on the kind of derivatives trading that got the Street into trouble in the first place—was still on the drawing boards.Repealing laws by hollowing out the agencies charged with implementing them works because the public doesn’t know it’s happening. The enactment of a law attracts attention. There might even be a signing ceremony at the White House. News outlets duly record the event. But the defunding of agencies supposed to put the law into effect draws no attention, even though it’s the practical equivalent of repealing it.An even quieter means of repealing laws is to riddle them with so many loopholes and exceptions that the law becomes almost impossible to enforce. Typically, such holes are drilled when agencies attempt, through rulemaking, to define what the laws mean or prohibit. Consider, for example, the portion of the Dodd-Frank law designed to limit bets on the future values of commodities.For years Wall Street has profitably speculated in futures markets—food, oil, copper, other commodities. The speculation has caused prices to fluctuate wildly. The Street makes bundles from these gyrations by betting, usually correctly, which way prices will go, but they have raised costs for consumers—yet another hidden redistribution mechanism from the middle class and poor to the wealthy. Dodd-Frank instructed the Commodity Futures Trading Commission (CFTC) to come up with a detailed rule reducing such betting. The commission thereafter considered 15,000 comments, largely generated by and from the Street. The agency also undertook numerous economic and policy analyses, carefully weighing the benefits to the public of any such regulation against its costs to the Street.After several years, the commission issued its proposed rule, including some of the loopholes and exceptions the Street sought. But Wall Street still wasn’t satisfied. So the commission agreed to delay enforcement of the new rule for at least a year, allowing the Street more time to voice its objections. Even this wasn’t enough for the big banks. Their lawyers filed a lawsuit in the federal courts, seeking to overturn the rule, arguing that the commission’s cost-benefit analysis wasn’t adequate. It was a clever ploy, since costs and benefits are difficult to measure. And putting the question into the laps of Federal judges gave the Street a significant tactical advantage because the banks had almost infinite funds to hire “experts” (many of them academics who would say just about anything for the right price) using elaborate methodologies to show the CFTC had exaggerated the benefits and underestimated the costs.It was not the first time the big banks had used this ploy. In 2010, when the Securities and Exchange Commission tried to implement a Dodd-Frank requirement making it easier for shareholders to nominate company directors, Wall Street sued the SEC. It alleged the commission’s cost-benefit analysis for the new rule was inadequate. A Federal appeals court, inundated by the banks’ lawyers and hired “experts,” agreed. That put an end to Congress’s effort to give shareholders more power in nominating company directors, at least temporarily.Obviously, government should weigh the costs and benefits of every significant action it takes. But big corporations and large banks have an inherent advantage in the weighing: They can afford to pay for experts and consultants whose studies will invariably measure costs and benefits in the way big corporations and large banks want them to be measured. Few if any other parties to regulatory proceedings have pockets nearly as deep, to pay for studies nearly as comprehensive, to back up their own points of view.In addition, when it comes to regulating Wall Street, one overriding cost does not make it into any individual weighing: the public’s mounting distrust of the entire economic system, a distrust generated in part by the Street’s repeated abuses. Wall Street’s shenanigans have convinced a large portion of America that the economic game is rigged.Capitalism, alas, depends on trust. Without trust, people avoid even sensible economic risks. They also begin thinking that if the big guys can get away with cheating in big ways, small guys like them should be able to get away with cheating in small ways—causing even more people to distrust the economic system. Moreover, people who believe the game is rigged are easy prey for political demagogues with fast tongues and dumb ideas.Tally up these costs and it’s a whopper. Wall Street has blanketed America in a miasma of cynicism. Most Americans still believe, with some justification, that the Street got its taxpayer-funded bailout without strings in the first place because of its political clout, which was why the banks were not required to renegotiate the mortgages of Americans who, because of the collapse brought on by the Street’s excesses, remained underwater for years. It’s why taxpayers did not get equity stakes in the banks they bailed out nearly as large, in proportion, as Warren Buffett got when he helped bail out Goldman Sachs. When the banks became profitable again, taxpayers did not reap many of the upside gains. We basically just padded their downside risks.The Street’s political clout is not unrelated to the fact that top bank executives who took great risks or overlooked excessive risk-taking retained their jobs, evaded prosecution, avoided jail, and continued to rake in vast fortunes. And why the Dodd-Frank Act, intended to avoid another financial crisis, was watered down, and the rules to implement it were filled with loopholes big enough for Wall Street executives to drive their Ferraris through, some never even reaching the light of day. The costs of such cynicism have leeched deep into America, contributing to the suspicion and anger that has subsequently consumed American politics.Just as litigation (including cost-benefit analyses) over agency rules waters them down, so too do fines that are so small, and settlements so mild, as to have the practical effect of repealing inconvenient laws. Consider JPMorgan Chase, the largest bank on the Street with the deepest pockets to dabble in politics and protect its interests with a squadron of high-priced legal talent. In 2012, the bank lost $6.2 billion by betting on credit default swaps tied to corporate debt, and then lied publicly about the losses. It later came out that the bank paid illegal bribes to get the business in the first place. That same year, the bank was accused of committing fraud in collecting credit card debt; using false and misleading means of foreclosing on mortgages; hiring the children of Chinese officials to help win business in violation of the Foreign Corrupt Practices Act; and much else. All this caused the Justice Department and the Securities and Exchange Commission to launch multiple investigations.JP Morgan’s financial report for the fourth quarter of 2012 listed its legal imbroglios in nine pages of small print, and estimated that resolving all of them might cost as much as $6.8 billion. Yet $6.8 billion is a pittance for a company with total assets of $2.4 trillion and shareholder equity of $209 billion. Which is precisely the point: The expected fines did not deter JPMorgan Chase from ignoring the laws to begin with. No big bank or corporation will avoid the opportunity to make a tidy profit unless the probability of getting caught and prosecuted, multiplied by the amount of any potential penalty, exceeds the potential gains. A fine that’s small compared to potential winnings becomes just another cost of doing business.Not even JPMorgan’s $13 billion settlement with the Justice Department in 2013, for fraudulent sales of troubled mortgages occurring before the financial meltdown, had any observable effect on its stock price. Nor, for that matter, did Citigroup’s $7 billion settlement in 2014, over the same sorts of fraud. Nor even Bank of America’s record-shattering $16.65 billion settlement in 2014. In fact, in the days leading up to the Bank of America settlement, when news of it was already well known on the Street, the price of Bank of America’s stock rose considerably. That was because many of these payments were tax-deductible. (The test for deductibility is whether payments go to parties who have been harmed. At least $7 billion of Bank of America’s $16.65 settlement, for example, was for relief to homeowners and blighted neighborhoods, which clearly would be deducted by the Bank from taxable income.)Moreover, the size of the settlements paled in comparison to the bank’s earnings. Bank of America’s pretax income was $17 billion in 2013 alone, up from $4 billion in 2012. In 2014, Attorney General Eric Holder announced the guilty plea of the giant bank Credit Suisse to criminal charges of aiding rich Americans avoid paying taxes. “This case shows that no financial institution, no matter its size or global reach, is above the law,” Holder crowed. But financial markets shrugged off the $2.8 billion fine. In fact, the bank’s shares rose the day the plea was announced. It was the only large financial institution to show gains that day. Its CEO even sounded upbeat in a news briefing immediately following the announcement: “Our discussions with clients have been very reassuring and we haven’t seen very many issues at all,” he said. That may have been, in part, because the Justice Department hadn’t even required the bank to turn over its list of tax-avoiding clients.When maximum penalties are included in a law, they are often quite low. This is another political tactic used by industries that do not want to look as if they’re opposing a law but want it defanged. In 2014, for example, General Motors was publicly berated for its failure to deal with defective ignition switches, which had led to at least thirteen fatalities. For decades, GM had received complaints about the ignition switch but had chosen to do nothing. Finally, the government took action. “What GM did was break the law. . . . They failed to meet their public safety obligations,” scolded Secretary of Transportation Anthony Foxx, after imposing on the automaker the largest possible penalty the National Highway Transportation Safety Act allows: $35 million. That was, of course, peanuts to a hundred-billion-dollar corporation. The law does not even include criminal penalties for willful violations of safety standards that result in death.In 2013, Halliburton pleaded guilty to a criminal charge in which it admitted destroying evidence in the Deepwater Horizon oil spill disaster. The criminal plea made headlines. But the fine it paid was a mere $200,000, the maximum allowed under the law for such a misdemeanor. (The firm also agreed to make a $55 million tax-deductible “voluntary contribution” to the National Fish and Wildlife Foundation.) Halliburton’s revenues in 2013 totaled $29.4 billion, so the $200,000 fine amounted to little more than a rounding error. And no Halliburton executive went to jail.Government officials like to appear before TV cameras sounding indignant and announcing what appear to be tough penalties against corporate lawbreakers. But the indignation is for the public, and the penalties are often tiny relative to corporate earnings. The penalties emerge from settlements, not trials. In those settlements, corporations do not concede they’ve done anything wrong; they agree, at most, to vague or paltry statements of fact. That way they avoid possible lawsuits from shareholders or other private litigants that have been harmed, and would otherwise use a conviction against them.The government, for its part, likes to settle cases because doing so avoids long, drawn out trials that government agencies charged with enforcing the law can’t possibly afford on their skimpy budgets. In addition, because the lawyers in such agencies are paid a fraction of what partners in law firms hired by Wall Street banks and big corporations are paid, they are generally much younger and without the same experience, and don’t have nearly the same number of paralegals and other staff to collect documents and depositions in preparation for a trial; a settlement avoids the risk of an embarrassing defeat in court. Such settlements therefore seem to be win-wins, both for the corporations and the government. But they undermine the enforcement mechanism.Six years after Wall Street’s near meltdown, not a single executive on the Street had been convicted or even indicted for crimes that wiped out the savings of countless Americans. It was well established, for example, that Lehman Brother’s “Repo 105” program—which temporarily moved billions of dollars of liability off the bank’s books at the end of each quarter and replaced them a few days later at the start of the next quarter—was intentionally designed to hide the firm’s financial weaknesses. This was a carefully crafted fraud, as detailed by a court-appointed Lehman examiner. But no former Lehman executive ever faced criminal prosecution for it. Contrast this with the fact that a teenager who sells an ounce of marijuana can be put away for years.Mention should also be made of the large number of state judges and attorneys general who are elected to their positions, providing another channel for big money to influence how market rules are interpreted and enforced.Some 32 states hold elections for judges of state supreme courts, appellate courts, and trial courts. Nationwide, 87 percent of all state court judges face elections. This is in sharp contrast to other nations, where judges are typically appointed with the advice and consent of legislative bodies. As former Supreme Court Justice Sandra Day O’Connor said, “No other nation in the world does that, because they realize you’re not going to get fair and impartial judges that way.”Until the 1980s, judicial elections were relatively low-profile affairs. But beginning in the early 1990s, campaigns became far more costly and contentious. After the Supreme Court’s Citizens United decision in 2010 opened the floodgates to corporate campaign spending, spending on judicial elections by outside groups skyrocketed. In the 2012 election cycle, independent spending was $24.1 million, compared to about $2.7 million spent in the 2001­­­–02 election cycle, a nine-fold increase. A 2013 study by Professor Joanna Shepherd of Emory Law School showed that the more donations justices receive from businesses, the more likely they are to rule in favor of business litigants. A Center for American Progress report also found corporate spending on judicial elections paying off for corporations. “In the span of a few short years, big business succeeded in transforming courts such as the Texas and Ohio supreme courts into forums where individuals face steep hurdles to holding corporations accountable,” wrote the authors, showing, for example, that the insurance industry in Ohio donated money to judges who then voted to overturn recent decisions the industry disliked, and energy companies in Texas funded the campaigns of judges who then interpreted laws to favor them.State attorneys general, in charge of enforcing the rules by bringing lawsuits, are also subject to election and reelection, and they, too, are receiving increasing amounts of corporate money for their campaigns. An investigation by the New York Times in late 2014 found that major law firms were funneling corporate campaign contributions to attorneys general in order to gain their cooperation in dropping investigations of their corporate clients, negotiating settlements favorable to their clients, and pressuring federal regulators not to sue. The attorney general of Utah, for example, dismissed a case pending against the Bank of America, over the objections of his staff, after secretly meeting with a Bank of America lobbyist who also happened to be a former attorney general. Pfizer, the pharmaceutical giant, donated hundreds of thousands of dollars to state attorneys general between 2009 and 2014 to encourage favorable settlements of a case brought against the company by at least twenty states for allegedly marketing its drugs for unapproved uses. AT&T was a major contributor to state attorneys general who opted to go easy on the corporation after a multi-state investigation into the firm’s billing practices.The public believes laws are enforced, and are enforced impartially. That is not the case. As America’s largest corporations have grown larger and more politically potent, they have tipped the legal scales in their favor—further entrenching and concentrating their wealth and power. This trend is not sustainable in our system of democratic capitalism, which depends for legitimacy on public trust in the rule of law.

Oil Market Braces for New Iranian Supplies

The International Energy Agency (IEA) thinks the global oil market could “drown in oversupply.” The body issued that dire warning after Iran’s state-owned oil company was ordered to increase output by 500,000 barrels per day. The market has already had a dour 2016 as traders anticipated the lifting of Western sanctions on Iran, and now that that day has finally arrived, Brent crude is down below $29 per barrel with America’s WTI crude trading another $.50 lower. And in a new report, the IEA doesn’t see things improving very much from here. The FT reports:

In a stark assessment of the challenges facing the global oil industry, the International Energy Agency warned on Tuesday of an overhang of at least 1m barrels a day for a third consecutive year in 2016.

Production outside the Opec cartel would decline this year, the IEA said. But that would be offset by slower demand growth and higher production from Iran now that sanctions linked to its nuclear programme had been lifted.“Unless something changes, the oil market could drown in oversupply,” the wealthy nations’ energy watchdog said in its closely watched monthly oil market report.

The International Monetary Fund (IMF, to add to our alphabet soup of international bodies) recently had some potentially encouraging news for the global economy as it forecast faster growth rates this year than in 2015. That pick-up could help alleviate the current glut of crude from the demand side, but it’s not clear that it will be enough to counteract burgeoning supplies, especially as OPEC members continue to compete for market share by keeping production up (and Iran redoubles those efforts post-sanctions).

Tehran is going to hope to get output back up to pre-sanctions levels (and even beyond, if you believe the Iranian oil minister) as quickly as possible, and it hopes to nearly double production by the end of the decade. That won’t be easy, however, as a number of logistical hurdles stand in the way of a smooth ramp-up: The country’s biggest oil tanker operator has been blacklisted since 2012 and will need to regain certifications to deliver crude cargoes to foreign ports. Analysts expect Iran might be capable of boosting production by as much as 800,000 barrels per day this year, but they see the petrostate’s aspirations of quickly returning to pre-sanctions levels as something of a pipe dream.But while the exact amount of Iranian crude ready to come online remains unclear, we do know one thing: The world is about to get an oil supply boost at a time when no one (besides the Iranians, of course) particularly wants it. We haven’t seen oil’s price floor, yet.

How Greens Fuel Climate Skepticism

We’ve long argued that the tendency of environmentalists to conflate skepticism about the efficacy of their preferred policies with “climate denialism” is not only wrong, but self-defeating, because it effectively scuttles the possibility of compromise before the conversation even begins. A recent essay by Daniel Sarewitz in Nature magazine perfectly captures the reason why this strategy has been a failure and charts out a new course for environmentalists, guided instead by pluralism and coalition-building. One passage:

The original sin of climate-change policy in the United States was that from the beginning it ruled out … pluralism, because scientists and environmental activists alike tended to frame action in a way that could only alienate economic and social conservatives. Political rhetoric and policy proposals focused on demands for a global governance regime, government manipulation of markets and regulatory incentives for massive behaviour change. From the perspective of US conservatives, it would be hard to imagine a more toxic combination of policy ambitions. And because scientists and climate activists claimed that science dictated their policy agenda, conservatives had every reason to be suspicious about the motives of the scientists and the credibility of their science. The legacy of that strategy is evident in the uniform scepticism of the Republican presidential candidates about global warming.

The whole thing is a worth a read—especially for crusading environmentalists who can’t understand why their seemingly obvious conclusions are rejected by so many Americans. Many conservatives are open to policies that would reduce greenhouse gas emissions—including, but not limited to, fracking, nuclear power, GMOs, and more investment in green technology. They could perhaps even be persuaded of some new regulatory policies, like a revenue-neutral carbon tax—especially if they weren’t preemptively condemned as science-hating deniers.

Climate change is real, and there are things we can and should be doing to address it. But the increasingly authoritarian rhetoric of many greens will not do them, or the climate, any good.