The Ukraine conflict has lasted a week and there is still hope that a deal less than a wider conflict between NATO and Russia will be reached soon. The most likely scenario is the separation of West and East Ukraine (with some autonomy in the East) and possibly an unwritten guarantee of Ukraine’s non-entry into NATO in the near future. However, the story is unlikely to end there, as history has shown after Russia’s annexation of Crimea in 2014. In a sense, the Cold War is back, but with new dimensions. To understand this, we need a brief history of the interplay of economics and politics and the development of the Cold War.
It dates to the end of World War II and the establishment of the Bretton Woods twins (the International Monetary Fund and the World Bank) and some global regulation of world trade through the General Agreement on Tariffs and Trade (GATT). The main objective of these institutions was to integrate all the countries into the global economic network. Simultaneously, the US led the formation of NATO in 1949 as a multi-state organization to coordinate international political actions and prevent armed conflicts. Since NATO was aimed at the then USSR, the political response was kamcon, a political and economic system created by communist bloc countries.
The end of the war also implied that the economies of Europe and Japan were devastated and needed to be rebuilt. However, at the time, the only country in a position to implement this reconstruction was the U.S. Was. Ergo, the Marshall Plan, which was a loan/grant from the US to the non-communist world to finance reconstruction. For the communist world, the counterpart was commune with the Soviet Union and Eastern European countries such as Bulgaria, Poland, Czechoslovakia and Hungary. The interaction between these two factions became known as the Cold War and lasted until the early 1990s.
The focus was on economics by the US from the way trade talks were conducted under GATT. For one, the US gave the rest of the democratic world greater tariff access to its markets, prompting other countries to break the preferential trading system of the British-led Commonwealth and bring Germany and Japan into the fold. This last part was not easy, as these were the same countries that started World War II. But America rightly believed that this was the right time to bring both of them to the democratic side. Thus we had two opposing economic and political structures. A less important emerging part of the world was the mass of developing economies, or the so-called least developed economies (LDCs) of the colonial era that emerged as mixed political systems in continental Africa, Latin America and Asia, including ‘guided democracies’. . ‘ of the ‘socialist’ economies of East and Southeast Asia and South Asia.
GATT was highly successful; Between 1950 and 1980 world trade saw a compound growth of about 7%, largely attributable to the current prosperity of East and Southeast Asia, as well as parts of Latin America. This was largely the reason why most of these countries went into the fastest growing democratic transition with the formation of the OECD grouping. The economic development of the Kamcon Group was largely led by the USSR, based on large resources of gas, oil and wheat, but with only limited production of consumer goods, with the Soviet Union focusing on high-tech defense products. .
The Cold War was actually beneficial to the LDC. For example, in the 1960s India had poor political relations with the US and was very close to the Soviet bloc. Yet, during the war with China (1962) and the great drought of 1965–66, it was the US that came to the rescue: India was the world’s largest democracy and was to be helped. Some have called this the ‘democratic dividend’. To make a long story short, the Cold War led to a globally stable political system. This was troubled by Mikhail Gorbachev of the USSR with his ‘perestroika’ (reorganization) in the late 1980s. This disturbance caused the European Union to announce an expansion from 15 to 27 members to bring the politically weaker countries of Eastern Europe in. This process began with the fall of the Berlin Wall in 1989, in which consumer prosperity of the democratic bloc was an obvious highlight. Most other countries followed suit, although China remained communist, adopting a free-market mechanism that would help profit from world trade. This bilateralism is China’s current internal contradiction.
It is to the credit of Vladimir Putin that he ordered political chaos in Russia as regional communist satraps broke into neighboring Kazakhstan, Uzbekistan, etc. and a mafia gained force in Russia. Yet, as he made peace, younger generations in Russia, Ukraine, Belarus are attracted to Western consumerism and have no great memories of Soviet times. This ‘creeping capitalism’ and the failure of modern economic development left Ukraine, Russia, the only stronghold against western expansion.
So, this is an existential crisis for Russia. An ‘et to brute’ moment for Putin The refusal of China (which itself relies on the capitalist system) should openly come to its aid. Putin may subdue Ukraine, but he is fighting a losing battle as the world remains economically unipolar. As the era of ‘democratic dividends’ fades away, so will Putin’s power. He needs a respectable exit. Who will play that role next remains unanswered.
These are personal views of the author.
Manoj Pant is Professor of Economics and Vice Chancellor of the Indian Institute of Foreign Trade.
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