Why the Russian sanctions don’t work

By Anatole Kaletsky
May 1, 2014

putin!!

Why did the U.S. and European sanctions against Russia earlier this week trigger a rebound in the ruble and the Moscow stock market?

To understand this paradox it is worth recalling Yes Minister, the British TV comedy about a blundering politician who stumbles from crisis to crisis with the same justification for every panic response: “Something must be done. This is something –– therefore it must be done.”

The problem with this syllogism is that doing something may be worse than doing nothing — and the Western decision to rely on economic sanctions in the Ukraine crisis is a case in point.

russian foreign ministerThe obvious objection is that economic gestures from the United States and Europe have proved pathetically ineffectual in deterring Russia and only emphasizes the West’s lack of conviction and planning. Russian President Vladimir Putin, meanwhile, has achieved what were probably his main goals: gaining tacit international recognition for the annexation of Crimea, as an irreversible fait accompli; and extracting an admission from Ukrainian President Oleksandr Turchynov that Kiev is “helpless” to prevent the country’s disintegration as long as Russia remains hostile.

In addition to conceding these huge gains to Putin and undermining U.S. credibility as a global policeman in the Middle East and Asia, economic sanctions could prove disastrous for several more subtle reasons.

First, the transformation of what was a military-diplomatic dispute about Ukraine’s borders into an economic confrontation between the West and Russia is likely to tempt other powerful countries, such as China and Israel, into taking military action to settle their territorial disputes.

To see why, consider the famous ethical conundrum described by Michael Sandel, the Harvard philosopher, in his book What Money Can’t Buy. An Israeli nursery school introduced fines for parents who collect their children late, inflicting inconvenience on the teachers. But instead of enforcing punctuality, the new system resulted in more late pickups — because parents no longer felt a moral obligation to collect their children on time. Instead they treated the fines as a price worth paying for what they now saw as a babysitting service provided by the school.

By trying to resolve an ethical problem with economics, Sandel’s school inadvertently transformed a moral relationship into a commercial one. Similarly, the Western economic sanctions against Russia are turning military-diplomatic issues, such as boundary disputes, into commercial calculations.

kalestsky -- masked menPresident Barack Obama has been explicit about this. He repeatedly uses phrases such as “rising costs” and “calculus…to the Russian economy” in explaining his actions. The effects of trying to substitute economics for military diplomacy are likely to be highly destabilizing. For Russia, a weaker ruble and an economic recession are clearly a price worth paying for recapturing Crimea. China will probably draw a similar conclusion about the Diaoyu-Senkaku Islands.

If it was a mistake to turn Ukraine from a military-diplomatic confrontation into an economic one, does this mean that the West should have gone to war with Russia instead of imposing sanctions? The answer is obviously no — and the reasons point to the West’s second big strategic mistake.

Modern democracies only consider military action in exceptional circumstances: in response to genuine threats or moral principles, after deep public debate and diplomatic efforts have been exhausted. But here U.S. and European leaders saw economic sanctions as an easy option that would let them dodge the challenges of serious diplomacy and difficult public debate.

Instead, they laid down simplistic and non-negotiable principles — that international boundaries were completely sacrosanct and that only the national government in Kiev could have any democratic legitimacy. This left Ukraine and Russia nothing to negotiate.

Thus the decision to respond to Russia’s aggression with immediate economic sanctions had a paradoxical effect. A long and complex diplomatic negotiation about rewriting the Ukrainian constitution might well have produced a compromise reluctantly accepted by all parties. Instead, the Western strategy of substituting immediate economic sanctions for protracted diplomacy, created the conditions for a straightforward military confrontation — which Russia was bound to win outright.

But surely the West can still use its economic power to bankrupt Russia and thus undermine its military might, ultimately reversing its victories in Ukraine? This is certainly possible in the long run, since Russia is a weak economy reliant on imports that it can only finance by selling its oil and gas. This observation leads, however, to a final flaw in the Western strategy of trying to replace diplomacy with economics.

If economic sanctions start seriously threatening Russian wealth abroad, they will play into Putin’s hands in the short-term by forcing the oligarchs to repatriate their foreign assets. The long-term effects of isolating Russia economically could be even more perverse.

Russia today is a surprisingly open economy that makes less effort to protect its domestic industries from global competition than many other middle-income countries. Russia’s ratio of exports plus imports to gross domestic product, the standard definition of trade openness, is 52 percent. This is the same as China’s ratio, higher than Indonesia’s and is almost double the level in Brazil, an economy of roughly the same size and level of development.

If economic sanctions were to force Russia onto a path of greater self-reliance and protectionism, its domestic manufacturing and service industries would almost certainly grow much bigger, even if their quality and productivity fell further behind Western standards.

What would be the political impact in Russia of turning back from a consumer society relying on Western imports into something more akin to Soviet-style self-reliance, Brazilian-style protectionism or South African isolation under apartheid?

Nobody can say for sure, but judging by the experience of other countries that spent years or decades isolated from global markets, it seems likely that the oligarchs would prosper economically in a more protectionist Russia. It is probable that Putin, or an even more aggressive nationalist, would to go from strength to strength in such an autarkic environment, and that Russia’s military power would grow, rather than erode.

Certainly not the outcome that economic sanctions are supposed to produce.

 

PHOTO (TOP): Russian President Vladimir Putin chairs a meeting during his visit to Petrozavodsk in Russia’s Republic of Karelia, April 28, 2014. REUTERS/Alexei Druzhinin/RIA Novosti/Kremlin

PHOTO (INSERT 1): Russian Foreign Minister Sergei Lavrov speaks to media after talks on the situation in Ukraine in Geneva, April 17, 2014. REUTERS/Denis Balibouse

PHOTO (INSERT 2): Masked pro-Russian protesters pose for a picture inside a regional government building in Donetsk, eastern Ukraine, April 25, 2014. REUTERS/Marko Djurica

 

29 comments

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Yes I agree the pathetic response from Washington for lukewarm sanctions is a disaster for Ukraine. Ukrainian partisans don’t own surface to air shoulder fired missiles, Russian troops in Ukraine do. Russia has invaded Crimea, and it has invaded eastern Ukraine. A military response is required, as soon as possible. ARM THE UKRAINIANS and help them STOP rasPutin’s INVASION.

Posted by UScitizentoo | Report as abusive

OPINION OF A RUSSIAN, PROPAGANDA OR TRUTH? I WISH I KNEW.

Posted by lysergic | Report as abusive

The opinion makes a lot of sense to me. The author didn’t, however, state what the U.S. should do now to resolve the problem. I tend to to agree with the the suggestion of UScitizentoo.

Posted by EthelGoodhill | Report as abusive

Pretty much every Western commentator (like the one above) is on board with the appraisal of Russia’s actions as “aggression.”

The US/EU/NATO started this. It looks like Russia is finishing it. A Russia-neutral government in Kiev before long? Could be.

Posted by Zeken | Report as abusive

Best comment I have read so far in North American Media.

Obama seems to dread this confrontational policy, on the other hand public opinion is pressuring him.

US policy is weakening Russia as well as Europe at the moment and I personally fear that some people in the US do this on purpose – if not, the people promoting this conflict would be all stupid and I can’t imagine that.

Poor people in Ukraine will have to suffer. So far the “West” did nothing to help to find a solution.

Cui bono? I hope in the end it will all backfire at those people.

Posted by DonnyBurger | Report as abusive

As Russia and the west could not fulfil their part of the bargain to maintain Ukrainian territorial sovereignty – perhaps it is time to give Ukraine back their nukes?

Posted by Solli | Report as abusive

Even if Russia’s poplulation is only146 million to the EU”s 500 million and the USA’s 313 Million, they are mobilized much more. The present crisis only shows the need to have competitive size army in a world with nations that believe in might makes right and do have armies.

The only way for the US to get telling sanctions on Russia is tell the E if they buy from Russia we are not buying from them. They not us are Russia’s customers. They not us face Russia accross common borders. They are bigger than us and should face Russia themselves while face the other potential bad actors like China and most of the middle east.

Posted by SamuelReich | Report as abusive

Somehow idea that the world does not have bad guys with armies supported by populations that think might makes right became popular with American,EU and Japaneses politicians. I do not see in place any of the three what is necessary for rapid mobilization confront larger size bad guys, who are known to exist or at lest are potential for being bad guys (like China).

I do not see them fixing the short sight now that there is a crisis. It will betoo late for now butit is needed for the nextcrisis.

Posted by SamuelReich | Report as abusive

SamuelReich’s completely racist comments that frames China as “potential for being bad guys” is totally ridiculous and totally sounds like the act of war that the US started with many countries in the past: “Your country is a potential threat so we have to attact you first for national safety.” that was what happened.I am sure the EU does not think the same as you, as if they are the only good guys on earth.

Posted by junkit | Report as abusive

>SamuelReich
Didn’t you noticed that most major aspect of this confrontation is nicely sumed up by V. Nuland?
“F^ck EU!”?

Basically USA offers their clients to commit economical suicide right now – or do it one step at a time in case of any real sanctions (not to mention that ukrainian gas pipeline is living it’s last days anyway as Ukraine now basically is stealing gas).

Of course there’s PRC who already secures gained advantages like gas pipeline from Siberia or that recently announced joint Russo-Chinese naval excercise to be in area near infamous ‘disputed islands’, there’s approval of new military tech transfers etc. And – which can come to you as surprise – Federation is THE only neighbouring state that PRC already regulated all land disputes with, while both Federation and People’s Republic have disputes with US favourite minions – Japanese.

PS BTW Merkel presenting to PRC map of times when China was at it worst was wondeful ‘act of diplomacy’. Looks like ‘imper_v_ious leaders’ of west are living in their own drug-induced daydream.

Posted by chyron | Report as abusive

Kaletsky’s argument and analogy using the Israeli parents falls flat once the sanctions become PAINFUL.

Just as the parents would no longer see it as a “fee” if the fine was …say… the cost of an entire day of service for being an hour late.

Posted by Cyberdactyl-1 | Report as abusive

RUSSIAN PROPAGANDA

Posted by ADOLFPUTIN | Report as abusive

The reason why the sanctions have been ineffective is because they were designed to be ineffective.

Posted by zubrin | Report as abusive

The author is entirely correct. The west’s response to Russia’s blatant aggression against Ukraine has been laughably pathetic.

What the west should have done was impose sector-wide sanctions against Russia on Day One of the Crimea invasion. Inflict maximum pain and then offer to stop it if Russia withdraws. But we blew that opportunity.

What the west should do now is IMMEDIATELY start sending sophisticated anti-tank and anti-aircraft weaponry to the Ukrainian military.

Then NATO should IMMEDIATELY begin deployment of significant air power to both Ukrainian air bases as well as to the Black Sea. These should include at least two US aircraft carrier battle groups as well as multiple squadrons of US F-22s, F-16s, A-10s and AH-64 attack helicopters.

Then tell Putin in no uncertain terms that if he sends his tanks and APCs across the border into Ukraine, they WILL be used!

Putin might be an egotistical jackass with delusions of imperial grandeur, but he’s no fool. He knows full well that his military couldn’t stand up to both NATO air power and Ukrainian ground forces. The Russians don’t have anything that even begins to compare to the F-22 in terms of an air superiority fighter, US F-22s would quickly sweep the battle space of Russian air cover, leaving their armored vehicles as easy prey on the flat open steppes of eastern Ukraine. It would be a turkey shoot. Putin would never risk it.

Then, freed from having to constantly look over their shoulders to the east in fear of a Russian invasion, the Ukrainian security forces would have a free hand to reclaim the handful of buildings in the east that have fallen under separatist control and reassert its authority in advance of the May 25th election.

For their part, the separatists in Ukraine, knowing that a Russian invasion is not coming and that they’re truly on their own, would probably scurry back to their ratholes in short order.

The solution is simple. The question is whether the current leadership has both the foresight and the intestinal fortitude to implement it. So far, they have not.

Posted by Danram | Report as abusive

The US knows it needs to tread lightly regarding Russian sanctions since reprisals could have severe consequences. Russia insisting on payment for oil/gas in Rubles or Yuan would force European countries to sell huge amounts of US currency they have in reserve to pay for it. The result; dollar devaluation, interest rate hikes, etc. Furthermore if the sanctions are too severe China will come to Russia’s defense. Selling the trillions of US dollars they possess would bankrupt the US in a few days. Short of launching a first strike with hundreds of nukes the US could never win a war with Russia. At the end of the day the West doesn’t really have a lot of leverage here, as a result are using token economic sanctions and military maneuvers to show they are doing something but not enough to trigger the potentially devastating retaliation. Somehow this needs to be dealt with diplomatically, likely including some concessions to Russia, any other road is in no one’s best interest.

Posted by Zach1690 | Report as abusive

Ok, smart guy. If sanctions aren’t the answer, what do you recommend? As you correctly point out, there is no appetite for military action in the west, and the Ukraine itself can’t seem to muster much of a response militarily for that matter.

So if you rule out sanctions and military action, what do you have left? Terse diplomatic language when not backed up by either military or economic force counts for practically nothing. That seems to be what Kaletsky is recommending: That the west do nothing and just accept the Russian occupation of the Crimea as a fait accompli, and that we look the other way as Russia destabilizes eastern Ukraine. Business as usual. I don’t think most people in the west are content with those options, so sanctions become the next line of defence.

In fact, there have been far more useful suggestions in the comments than in the article. Some combination of western air, strategic and organizational assistance to the Ukraine with the Ukrainian military actually acting on the ground. Unfortunately, there is no sign of any of those things taking place.

The great thing about sanctions is that they are the gift that keeps on giving. While the results are seldom immediate and have the side-effect of imposing a cost on certain sectors of our own economy, the cost of sanctions on Russia will accumulate. Far from spurring Russia to self-reliance, it is far more likely to extract a painful economic toll on the country’s economy eventually. Add that to the impact of Europe diversifying its energy sources and a rejuvenated NATO camped out on Putin’s western border, and Putin is courting real trouble for his country.

Posted by PortageandMain | Report as abusive

Russia and China are the most powerful nations today. The West couldn’t handle a backward nation like North Korea. The power straggle in the early 21st Century will be between China and Russia. We all know the financial advancement of Russia mainly came from the illegal procession of land that contains oil – see Sino-Soviet border conflict.

China has cleverly used Russia to balance the power between the The West and The East. Unlike the relationship between EU and the US, Russo-Sino relationship has cultural barriers – and perhaps more importantly, both nations heavily rely on powerful central governments. It would be interesting to see how the game plays out before new comers rise (South America, Middle East, and Africa). With the leading power in cyber-technology and bio-technology, I do think China will over shadow Russia by 2050 and become the single most powerful nation on earth.

Posted by aerowindwalker | Report as abusive

This is a really peculiar argument. Sanctions can weaken the Russian economy, especially in the area of finance. There has already been a large flow of capital out of Russia and foreign investment is also wobbling.The result is higher interest rates in Russia already and less capital for Russian economic development. If Russia wants autarky, so be it, they will only fall further behind the West, just as the Soviet Union did. Putin has big plans for modernizing the military but it just isnt going to happen if the Russian economy is crippled. In addition, the outflow of educated Russians will continue as the economy sags. A weaker Russia is in everybody’s interest, especially its Eastern European neighbors.

Posted by Cassiopian | Report as abusive

All of the comments supporting hostile response to Russian position are lunacy. This was started in Washington and talking up a WW3 on the basis of Russian wrongdoing is moving the blame away from the instigators who knew full well Moscows response to a US puppet in Ukraine would not be meek acceptance. Do these writers forget so easily the dread situation in 1962 vis a vie Cuba missiles. Russia/China were taken in over the Libyan Puch and now they are having no more of US/EU expansionist binge. If the “west” really wants world war then they are going about it the right way – Putin will not be backing down. The dollar is not he only thing on the ropes – so is the west.

Posted by baglanboy | Report as abusive

Then NATO should IMMEDIATELY begin deployment of significant air power to both Ukrainian air bases as well as to the Black Sea. These should include at least two US aircraft carrier battle groups as well as multiple squadrons of US F-22s, F-16s, A-10s and AH-64 attack helicopters.

Now here’s a nitwit. Moving battle fleets around like toy soldiers. The mind boggles and if yours isn’t boggling it’s because you are just as big a nitwit as he is. Russia took Crimea – America has stolen Ukraine from a democratically elected government. However, they have kindly shoe horned in a pack of Nazi’s and some woman with a blonde doughnut on her head who dearly wants to hang every single Russian. And Russia is the demon! Just reading these, mostly indoctrinated, posts merely vouches for the fine job of brain washing currently achieved by our wonderful media.

Posted by baglanboy | Report as abusive

A question for Anatole Koletsy. America invests $5bn to usurp government of Ukraine (we know because they admitted it, publicly)- they draw a tactfully undeclared line in the sand, they definately do not want to be encircled by Amercan bases and also want to retain their Crimean fleet so, do they stand by like rusted lamposts, or do they clamp their grip on what they really want?

Posted by baglanboy | Report as abusive

Sanctions not working? Putin’s aggressiveness today is fueled mainly by Russia’s economic growth during the past few years, which allowed it to partly reorganize and rearm its armed forces. So anything that hurts Russian economy is bound to also hurt his ability to project power – first abroad, and then even at home, considering he stays in power due to a very expensive repression and propaganda machine.

Don’t forget – USSR did not fall apart because its army and security agencies were weak, but because it could no longer support them, and it could not satisfy the ever-growing appetite of the elite for luxury and possessions. What changed during the last 25 years which makes you think, that USSRussia won’t go the same way once the economic sanctions are felt by Russian society from top to bottom, and they start influencing the salaries of government officials and of the military?

Posted by PavlikMorozov | Report as abusive

“Instead, they laid down simplistic and non-negotiable principles — that international boundaries were completely sacrosanct and that only the national government in Kiev could have any democratic legitimacy. This left Ukraine and Russia nothing to negotiate.”

What is there to negotiate? If you negotiate you are conceding that international boundaries are not sacrosanct. Obama was right to call grabbing Crimea unacceptable. It has been obvious for some time that Putin operates like a dictator, and sinister events occur in Russia. Such is the nature of the global economy that I think using sanctions, gradually being stepped up, is the least bad way to react. They seem to have been effective in Iran, and the Soviet Union (no 1) was defeated by economic factors.

Posted by anotherview5 | Report as abusive

Putin’s real goal was to make himself a multi-term president. He looks strong internally. The russian people are used to false rhetoric from both internal and external sources and so like US right wingers they react to action whether right or wrong as being decisiveness or leadership. He has stolen a page from our facist right wing and did it very well.

Sanctions will punish the russian people and strengthen Putin as he will have the US to blame for what were his actions, but our punishments. The people of russia having lived in a constricted and limited world where conformity is the only thing that prospers, are even more breed for complacency and ignorance than the US people. But hey, we’re starting to catch up.

Putin is just like most of our politicians in that he works to extend his stay in power and the wealth and trappings that come with that. His actions are calculated to be those that most benefit him individually, very much like our last 5 presidents and the majority of congress and the supreme court of the past 50-70 years. They work to enrich themselves and know that the american people are too brainwashed and stupid to wake up.

Posted by brotherkenny4 | Report as abusive

Covert military action done well would have solved this one but evidently the President of the U.S. is as concerned about his “legacy” as his predecessor. The only way to play a winning hand would have been to call Putin’s hand. We would and could have won this chess game. Russia would have backed down even to an overt calling of cards. [Indecision, translate ” economic sanctions” just does not work under these circumstances. So, now we have fed, figuratively, a snake. Next time political hunger strikes he will have learned how to deal with the world order his way. Hopefully we will have unlearned how to deal with it.

Posted by ThomasShaf | Report as abusive

Covert military action done well would have solved this one but evidently the President of the U.S. is as concerned about his “legacy” as his predecessor. The only way to play a winning hand would have been to call Putin’s hand. We would and could have won this chess game. Russia would have backed down even to an overt calling of cards. [Indecision, translate ” economic sanctions” just does not work under these circumstances. So, now we have fed, figuratively, a snake. Next time political hunger strikes he will have learned how to deal with the world order his way. Hopefully we will have unlearned how to deal with it.

Posted by ThomasShaf | Report as abusive

Covert military action done well would have solved this one but evidently the President of the U.S. is as concerned about his “legacy” as his predecessor. The only way to play a winning hand would have been to call Putin’s hand. We would and could have won this chess game. Russia would have backed down even to an overt calling of cards. [Indecision, translate " economic sanctions" just does not work under these circumstances.] So, now we have fed, figuratively, a snake. Next time political hunger strikes he will have learned how to deal with the world order his way. Hopefully we will have unlearned how to deal with it.

Posted by ThomasShaf | Report as abusive

Dear Mr. Kaletsky:

You are absolutely right that “A long and complex diplomatic negotiation about rewriting the Ukrainian constitution might well have produced a compromise reluctantly accepted by all parties.” However, nobody in Washington or Brussels is interested in Ukrainians a wee bit. For the mega-bureaucracies of NATO, tensions and bad relations with Russia are a goal in itself justifying their existence and multi-billion dollar budgets,

Sincerely, Peter Lerner

Posted by pblerner | Report as abusive

I can’t stop of being surprised about stupidity of some people. Are you really talking about war between west and Russia. C’mon, how long it took to the US to control a very small and poor country like Iraq? Don’t you remember the defeat in Vietnam? Again, a very little and poor country.

Nobody, understand! nobody wins a war like that!

No, let’s be honest. It was not Russia the one that started all these. It was the US and EU trying to bring Russian on their knees by dominating their neighborhood. Are you serious? Did you really expected Russia not to do anything?

It’s better that the US understands that this world doesn’t accept their unipolar and narrow minded NWO. No empire last forever. The US can’t behave like a bully against any other country that has a lot of energy reserves and economic growth by their own right.

The US is not the champion of democracy nor freedom. All the world knows that, but Americans. Do you remember all corrupt and dictatorial governments supported by the US in Latin America and other middle eastern countries?

The US should focus in trying to control its debt, social deterioration, and invest more in the people, not in corrupt corporations and bank.

Please, let’s vote for peace. Don’t do more stupid things!

Posted by Evader | Report as abusive

[…] swept aside once the genie of nationalist or religious militarism is released. As I pointed out in this column, Russia has in past conflicts withstood economic losses unimaginable to politicians and diplomats […]

[…] Why the Russian sanctions don’t work Reuters […]