Russia’s Cynical Business Model: Anti-Capitalism for Profit
Russia has embraced what they conceive to be the ultimate immoral “capitalist” strategy to do whatever it takes to make a profit. The old ruthlessness of the KGB has been reborn in the modern Russia as a business enterprise. The financial collapse of 1989 caused the Russians to capitalize on what they were best at: Weapons, Propaganda, Assassinations, and Anti-American Conspiracies.
Written by Dagny D'Anconia
Thursday 16 March 2007
What happens when you cross the ruthlessness and obsessive control of the old Soviet Union with the single minded pursuit of money? Ebineezer Scrooge with a big government office? A mafia don with spies instead of made men?
What you get is the modern Russian economy. Russia has embraced what they conceive to be the ultimate immoral “capitalist” strategy to do whatever it takes to make a profit. The old ruthlessness of the KGB has been reborn in the modern Russia as a business enterprise.
The Russian Security Council recently said "Armed forces are being used above all as a principal instrument for pursuing the economic and political interests of countries.” Putin said "We are encountering a dangerous disdain for international law, ambitions to use military force to achieve personal interests." This is a very ironic statement to hear them accusing America of this because that is precisely what the Russian state itself is doing: using military resources to serve financial ends for Russian businessmen and government officials.
When you are in financial trouble you take stock of your assets. You consider what are you best at and who you could sell your services to. The financial collapse of 1989 caused the Russians to do just that. Since then the Russians have been doing what they always did best: Weapons, Propaganda, Assassinations, and Anti-American Conspiracies.
Trading in these covert commodities is a discreet business. Publicity drives away business. Yesterday Putin signed a decree putting all the Russian press under one editorial censorship authority. The code of silence that marks a mafia organization is the same silence that is now spreading over Russia and beyond. Such discreet businesses demand such secrecy.
Thus it makes sense that Russian authorities would send a silencing message by boldly killing and maiming those who speak out about it such as Aleksander Litivinenko and Paul Joyal. One Russian journalist who recently fell to his death out of a window had told his newspaper that he had "received information" about the sale of Sukhoi-34 fighter jets to Syria and S-300 anti-aircraft missiles to Iran via Belarus “to avoid the west accusing Russia of arming rogue states".
Belarus is an interesting case in point. Belarus in essence offered to become reunited with Russia. Its president, Lukashenko ran and was elected in 1994 on a reuniting platform and agreements were signed to partially unite the countries in 1997. But did Russia take them up on the opportunity and become a larger nation? No. Russia, which once had an inexhaustible appetite for neighboring nations did not reabsorb Belarus. Instead it treated it as a customer to be milked for energy profits.
There is now a current dispute as Russia has charged it more for energy and in turn Belarus has instituted transit duties. So the old Russian bear has changed, and no longer eats his neighbors, he only squeezes them for money. Russia would rather have customers than more territory.
Who are the customers for these covert “products and services”? Old client states like Cuba had nothing to offer in terms of money. Being a relatively pure Communist state, they had already been run into the ground economically. North Korea was a client state and customer to the USSR when it was founded, but it too became destitute due to its purity of Marxism. Today neither is a good customer for Russia. Russia mostly ignores the decrepit Marxist paradises and instead focusses on places with money and a hatred of America.
Russia justifies the sales to these unsavory countries as “strengthening multi polarity”. Russia’s policy goal is to array a diversity of military powers to challenge America’s super power status. Thus it morally and politically justifies selling advanced weaponry to dangerous regimes around the world.
One of the new Russia’s first customers was China. China purchased technology, particularly technology that would be effective against American aircraft carriers. Russian sales to China went from 1 billion a year in 1991 to 2 billion a year in 1997. 20 billion in weapons sales were expected between 2000 and 2004 including submarines, bombers, missiles, armor, warships, and military aircraft. Russian sales accounted for 90% of China’s military imports in 2000.
In addition, there are indications that Russia also offered to be helpful in the event China engaged in a military attack on Taiwan. The Singapore Straits Times quoted Putin in July 12, 2000 as saying to Chinese President Jaing Zemin ... that in the event of a war with Taiwan, should the U.S. Seventh Fleet sail to Taiwan’s rescue, he had ordered Russia’s Pacific Fleet ... to block our forces from getting to Taiwan.
A company is only as financially successful as its customers are, and since the customers for Russia Inc. are Anti-Capitalist and Anti-American, they are all economic basket cases in various stages of economic collapse. (While China has been growing quickly, it is not stable as discussed by Dr. Wheeler in China’s Three No’s and Neal Asbury in China: Boom or Bust.) Furthermore, China is also playing the same game as Russia and is supplying rogue states like Iran with weapons in competition with Russia.
Russia is only too happy to engage in Anti-American conspiracy theories and supply military hardware and information services to any kooky regime so long as it has money. Meanwhile these regimes are running their countries into the ground with military adventures and expenses. It puts a new twist on the concept of “selling capitalists the rope to hang themselves with”. In this case Anti-Capitalists are selling the rope to other Anti-Capitalists.
Consider the case of Iraq. Russia provided Saddam’s Baath Socialist regime with intelligence on American military positions even during the Iraq war. They provided weaponry and advisors who were intimately involved in the weapons programs there. Iraq had the oil money to pay for it, and Russia was only too happy to oblige.
Of course, playing military games of chicken with weapons of mass destruction is not a formula for a long life. It is also not the formula for long term profits. When Iraq fell it owed Russia 7 to 8 billion dollars. The modern Iraq is not a profitable customer for Russia’s military complex any more. Russia thus has a way of inadvertently destroying its customers.
But no matter; There are plenty of other Anti-American and Anti-Capitalist regimes to supply.
Venezuela, newly rich with oil money, has purchased more military hardware in the last few years than China. It spent about $4.3 billion since 2005. Venezuela has bought billions of dollars of weapons from Russia including 100,000 Kalashnikov assault rifles, 24 Sukhoi-30 fighters and about 35 helicopters. New purchases of submarines and air defense systems are in the works.
President Chavez has recently maneuvered himself into a position of dictatorship, and is destroying the Venezuelan economy by nationalizing and controlling most sectors of the economy. Price controls were even placed on food, with prison sentences threatened to anyone who defied them. Venezuela is in an economic nosedive, slowed only by the struggling oil industry. Thus even though Venezuela is a good paying customer of Russia now, it may not be in the near future.
Iran was a good customer up until January when it defaulted on its payments to Atomstroiexport for work on its Bushehr nuclear plant. Russian sales to Iran included technology for ballistic missiles, nuclear weapons, chemical weapons, and biological weapons; assistance to Iraq's ballistic missile program, its chemical weapons program, military aircraft, and assistance with its oil smuggling operations. Russia also provided support in the UN, blocking any substantial attempt to rein in Iran, just as it had for Iraq.
But now there is trouble in Russia and Iran’s paradise. "Russians are extortionists," an Iranian legislator said recently. Atomstroiexport's chief, Sergei Shmatko, said that Iran already had paid Russia $900 million to build the plant, but he added that his company had been forced to provide a $140 million loan to Tehran because the Iranians had dragged their feet on payment. Russian subcontractors were refusing to work without being paid. The 20 to 25 million to be paid each month by Iran has not been paid since January.
The Iranian 50,000 rial note has just been reissued with a nuclear symbol on it along with the words “Men from the land of Persia will attain scientific knowledge even if it is as far as the Pleiades.” It is particularly ironic given that the nuclear project is on hold due to a failure of Iran to pay for it.
Iran’s economy is in a sorry state. Taxes are 60-100% (see Jack’s article Smuggler’s Paradise, The Coming Palace Coup in Iran, and The Next War for Oil). Over half of the government revenue comes from oil, and lowering oil prices has a major effect on what Iran can pay for. Like Venezuela, Iran is partly a centrally planned economy. Just as Venezuela is supporting other Marxist regimes such as Bolivia, Iran has also been spending freely to support Hezbolla in Lebanon. Such largesse can only hasten their economic demise, slowed only by their possession of oil.
Now that Iran is a deadbeat, Putin has swiftly turned his attention to the other Persian Gulf offering to sell Saudi Arabia nuclear power, satellite navigation to target weapons, as well as tanks and other weapons. Thus Putin seeks to sell weapons and nuclear power to both sides of the Persian Gulf. This encouragement of an arms race in the Middle East plays into Russia’s bottom line in more ways than one.
In addition to the benefit of selling military hardware, there is also a profit for Russia to make in the energy markets - selling oil and gas. Russia is the largest oil and the largest gas producer in the world. Selling weapons to Iraq and Iran have helped to destabilize the Middle East, and have thus run up in oil prices. The high price of oil helped Russia dig itself out of the economic collapse of 1989, and keeping the oil prices high is a top priority. Fortunately, there is synergy between arm sales to Anti-Capitalist regimes by Rosoboronoexport (Putin’s consolidated military monopoly) and high oil prices for Yukos (consolidated oil monopoly) and Gazprom (Putin’s consolidated gas monopoly).
Perhaps it is no coincidence that after a 2 year hiatus, an al Qaeda website mysteriously reappeared which urged Jihadis to attack all oil bearing countries except Russia. The article was called "Bin Laden and the Oil Weapon” and it was posted in the e-zine “Voice of Jihad”. It called for attacks on oil facilities in Saudi Arabia, Kuwait, Qatar, United Arab Emirates, Venezuela, Canada and Mexico. Somehow the world’s largest oil producer was not mentioned. If Al Queda had never existed, Russia would have to have invented it out of economic necessity.
The bad news of all this is that Russia can be expected to stir up violent anti-American sentiment, particularly anywhere that oil is found under Anti-American land. The up side is that Russia is sewing the economic seeds of its own financial destruction.
The business model of Russia Inc. is deeply flawed: Its customers are of necessity Anti-American and Anti-Capitalist. They are military adventurers as well. Thus they are not going to be around as economic powerhouses for long. Russia’s loss of 7-8 billion dollars as Iraq fell is being repeated in the defaults of Iran. Venezuela and any other military and Marxist regime can expect the same fate.
In the short term Russia will have generated a lot of money for the well connected people in the Russian elite. Perhaps that short term is enough for a people without a demographic future from their low birth rate. Russia has no long term future, economically or demographically.
Furthermore, providing weapons to Islamic regimes, when Russia has its own Muslim problem in Chechnya, is yet more evidence of Russia’s flawed business plan and short sightedness. If Russia’s leaders’ venal greed and shortsightedness does not cause a global disaster, in due time they will cease to be a problem as their business plan and demographics run their course.