The international system is always changing, given the dynamics of the world economy. On February 24, 2022, the world changed due to the whims of one man. Russian President Vladimir Putin decided to invade an independent sovereign nation that, in his personal opinion, had no right to exist. And now here we are over two and half years later, and Russia has still not overtaken Ukraine. I believe this will turn out to be one of the biggest disasters ever taken by one country against another since the end of WWII. Putin, despite his public demeanor, in which he says everything is going to plan, now realizes that his conventional army does not have the power to retake all of Ukraine. So, most likely, he is attempting to gain as much control of Eastern Ukraine as possible, which would allow him to settle for these minor concessions.
The conflict in Ukraine is a territorial war that seemed impossible between civilized nations and many Europeans. Basically, this amounted to the Europeans collecting a peace dividend at the expense of the United States since the creation of NATO. A NATO agreement says all countries should pay 2% of their GDP on defense; however, most European countries never spent that, including Germany and France. As a reference point, the United States regularly spends over 3 percent of its GDP on defense.
This is one of the reasons the Europeans are keenly interested in the upcoming 2024 elections in the US. Most of Europe does not look favorably toward Donald Trump’s candidacy. During his first term, President Trump publicly called out many countries that did not pay their fair share of NATO dues. However, it now appears that most of Europe, especially the French President, realizes it cannot continue relying on the United States to protect it. It is now being reported that most European countries are meeting the 2 percent requirement or will by the end of 2024.
This change in behavior by the Europeans (most likely) will not change the outcome of the war in Ukraine except to bring the Russians to the negotiating table a bit sooner. As long as Putin is still alive, Russia, with its imperialistic dreams, will still be a threat. Due to the fact the Russian military’s inadequacies have been exposed, it appears the world is starting to fracture or take sides. In other words, it is an Us versus Them.
Them include Russia, Iran, North Korea, and Belarus. The us is the NATO countries plus Japan, South Korea, Australia, and the Philippines. If you noticed, I excluded China and India as they try to play to both sides of the conflict. Their leaders’ primary interest appears to be consolidating their internal politics, improving their economic growth to keep their people content, and watching their competition destroy or weaken each other. The last thing either of these two countries needs is internal civil unrest.
Having lived, worked, and traveled extensively in Europe for over fifteen years, I feel I have a pretty good feeling for that part of the world. For the past seven decades, Europe and its people have lived in a never-never land where one country does not invade another. In one of his books, the author Thomas Friedman stated that there has never been an invasion of one country by another in which both countries have McDonald’s restaurants. With Russia’s invasion of Ukraine, this theory was completely shattered.
The current reality dictates this. A well-funded and trained military serves as a deterrent when a dictator like Putin starts bombing your infrastructure and killing innocent civilians. Had Ukraine been well-armed and maintained its nuclear arsenal, then Putin would never have invaded Ukraine. He thought this invasion was going to last three days, and his troops would be greeted as liberators from the Nazi government headquartered in Kyiv. So much for the quality of the Russian intelligence.
Therefore, let’s take a look at why this invasion happened and why there has not been more outrage within Russia to stop this war. The plain fact behind this misadventure deals with economics and the prosperity of the average citizen.
As I have noted in previous writings, I have been involved in helping emerging economies develop their financial systems. During my work, I observed a key issue prevalent in the 16 Central Banks I worked with. Trust is key in promoting private sector growth in most developed countries. In my view, trust is a key to fostering economic growth and prosperity. To encourage the general public to entrust their savings to financial institutions, there has to be a certain level of trust that their money is safe and will be available when needed.
During my work in the former Soviet Union and other developing countries, the fundamental theme was a lack of trust. The relevant government authorities and the market participants, including those controlling the financial institutions, undermined this lack of trust. Corporate governance lacked accountability, and regulatory oversight was insufficient or non-existent.
In my view, a sound, efficient, effective financial sector does not necessarily guarantee long-term growth in the private sector; however, long-term growth is difficult, if not impossible, without a sound, efficient financial sector. My experience reveals there has been very little development of private sector businesses in communist’ countries. For the most part, banks in these countries were unable or not interested in engaging in lending programs to the private sector, which was starved for working capital. The bank’s primary clients were the large state-owned enterprises.
For example, certain sectors of the Russian economy experienced growth, especially those related to raw material exports; however, this growth only benefited a narrow base and thus created what is known as the Russian Oligarchs. Broadening this base largely depends on improving the availability of financial options to a wider group of small to medium-sized businesses. These businesses are unrelated to the larger state-owned enterprises. The private sector of small business owners has been the forgotten segment, and they are left on the outside looking in.
In conclusion, this is what happens to the citizens of a country run by a dictatorship. Many do not feel they have anything at stake or to lose. They feel powerless and detached. This helplessness directly results from communism, in which the state controls everything.
In closing, I am going to leave you with this thought. Remember when you rented a car for a vacation or business trip? When something happens to the car, like spilling your drink on the seats or scratching the fender, you do not give it much thought since it is a rental; however, when these things happen to your car, the level of concern and care is much higher. So, next time you hear someone talking about the benefits of Marxism or socialism, send them to Russia to see how the average Russian lives. Or better yet, ask Brittany Griner.
Prepared by Terry L. Stroud – September 2024
