The revival of East-West tension over Ukraine looks thoroughly geopolitical. But the context is bad economics. In the last century, Russia was damaged by flawed ideologies which originated in the West. And today it is damaged by Western economic policy.
It is easy for Western Europeans and Americans to look down on the Russian economy. Since the breakup of the USSR, the nation’s real GDP per person has increased at a 3.9 percent annual rate. That is a modest accomplishment for a middle-income country with a great deal of resource income. While Ukraine’s 1.7 percent growth rate is even worse, Armenia, Poland and Romania have all grown faster than Russia.
Now look at it from the other side: what the West has given Russia. There are good things, from markets for energy exports to many types of sophisticated technology. However, these positives are dwarfed by two disastrous ideologies in the past and two selfish and hostile policies in the present.
When the Communists took over Russia in 1917, they imported a theory that had been thoroughly discarded in its European homeland. Under the influence of Eduard Bernstein, Karl Marx’s own political party, the German Social Democrats, refused to support an attempted Communist revolution in 1918. The Marxist USSR made some economic progress, but growth eventually dwindled as the system was frozen by inefficiency and corruption.
When the Soviet Union finally collapsed, Russia imported another Western idea which had basically been discredited at home: blind confidence in free markets. By 1989, the wise minds in development economics knew very well that markets are only healthy when they are set in a favourable institutional environment. And the Chinese had already shown a better way to organise post-Communist economies.