The Pandemic Depression
The Global Economy Will Never Be the Same
As China asserts itself in its nearby seas and Russia wages war in Syria and Ukraine, it is easy to assume that Eurasia’s two great land powers are showing signs of newfound strength. But the opposite is true: increasingly, China and Russia flex their muscles not because they are powerful but because they are weak. Unlike Nazi Germany, whose power at home in the 1930s fueled its military aggression abroad, today’s revisionist powers are experiencing the reverse phenomenon. In China and Russia, it is domestic insecurity that is breeding belligerence. This marks a historical turning point: for the first time since the Berlin Wall fell, the United States finds itself in a competition among great powers.
Economic conditions in both China and Russia are steadily worsening. Ever since energy prices collapsed in 2014, Russia has been caught in a serious recession. China, meanwhile, has entered the early stages of what promises to be a tumultuous transition away from double-digit annual GDP growth; the stock market crashes it experienced in the summer of 2015 and January 2016 will likely prove a mere foretaste of the financial disruptions to come.
China and Russia may forge a tactical alliance based on their compatible authoritarian systems and aimed at managing their frontier areas and standing up to the West.
Given the likelihood of increasing economic turmoil in both countries, their internal political stability can no longer be taken for granted. In the age of social media and incessant polling, even autocrats such as Chinese President Xi Jinping and Russian President Vladimir Putin feel the need for public approval. Already, these leaders no doubt suffer from a profound sense of insecurity, as their homelands have long been virtually surrounded by enemies, with flatlands open to invaders. And already, they are finding it harder to exert control over their countries’ immense territories, with potential rebellions brewing in their far-flung regions.
The world has seen the kind of anarchy that ethnic, political, and sectarian conflict can cause in small and medium-size states. But the prospect of quasi anarchy in two economically struggling giants is far more worrisome. As conditions worsen at home, China and Russia are likely to increasingly export their troubles in the hope that nationalism will distract their disgruntled citizens and mobilize their populations. This type of belligerence presents an especially difficult problem for Western countries. Whereas aggression driven by domestic strength often follows a methodical, well-developed strategy—one that can be interpreted by other states, which can then react appropriately—that fueled by domestic crisis can result in daring, reactive, and impulsive behavior, which is much harder to forecast and counter.
As U.S. policymakers contemplate their response to the growing hostility of Beijing and Moscow, their first task should be to avoid needlessly provoking these extremely sensitive and domestically declining powers. That said, they cannot afford to stand idly by as China and Russia redraw international borders and maritime boundaries. The answer? Washington needs to set clear redlines, quietly communicated—and be ready to back them up with military power if necessary.
Partly because Russia’s economic problems are far more severe than China’s, Moscow’s aggression has been more naked. After President Boris Yeltsin’s chaotic rule came to an end in 1999, Putin consolidated central authority. As energy prices soared, he harnessed Russia’s hydrocarbon-rich economy to create a sphere of influence in the countries of the former Soviet Union and the Warsaw Pact. His goal was clear: to restore the old empire.
But since direct rule through communist parties had proved too costly, Putin preferred an oblique form of imperialism. In lieu of sending troops into the old domains, he built a Pharaonic network of energy pipelines, helped politicians in neighboring countries in various ways, ran intelligence operations, and used third parties to buy control of local media. Only recently has Putin acted more overtly on a number of fronts, encouraged no doubt by the lack of a Western response to his 2008 military campaign in Georgia. In early 2014, Russian forces seized Crimea and Russian proxy militias initiated a war in eastern Ukraine. And in late 2015, Putin inserted the Russian military into the Syrian civil war, specifically to save the regime of Syrian President Bashar al-Assad but also, more broadly, to restore Moscow’s position in the Levant—and to buy leverage with the EU by influencing the flow of refugees to Europe.
Not coincidentally, these military adventures have accompanied the sharp reversal of Russian economic power. In 2014, the price of oil collapsed, the countries of central and eastern Europe continued to wean themselves off Russian gas, slow global growth further reduced the appetite for Russian hydrocarbons and other natural resources, and the West levied damaging sanctions on Moscow. The result has been a full-blown economic crisis, with the ruble losing roughly half of its value against the U.S. dollar since 2014. That year, Russian GDP growth fell to nearly zero, and by the third quarter of 2015, the economy was shrinking by more than four percent. In the first eight months of 2015, capital investment declined by six percent and the volume of construction fell by eight percent.
Not coincidentally, Russia's military adventures have accompanied the sharp reversal of Russian economic power.
Russia’s economic problems run deep, leaving its leaders with few easy options for fixing them. For decades, Russia has relied on natural resource production and a manufacturing sector that makes consumer goods for the domestic market (since few foreigners want to buy Russia’s nonmilitary products). Despite some pockets of ostentatious wealth, the service sector has remained underdeveloped. Because Putin and his camarilla never built civil institutions or a truly free market, the corrupt, gangster-led economy of Russia today exhibits eerie similarities to the old Soviet one.
Back in the 1980s, when that economy was hit by a crisis, Mikhail Gorbachev responded by opening up the political system—only to be rewarded with anarchy and the collapse of Russia’s empire. Putin learned this lesson well and is determined to do the opposite: keep the political system closed while distracting the masses with displays of Russian power in the near abroad. Putin is a former intelligence agent, not a former apparatchik. Thus, although he nurses historical grudges concerning Russia’s place in the world, he is not deceiving himself about Russia’s internal problems. As the Russian economy decays further, Putin surely knows that for the sake of domestic approval, his foreign policy must become more creative and calculating, even deceptively conciliatory at moments. Over time, expect him to find new ways to undermine NATO and the EU, even as he claims to be helping the West fight the Islamic State, or ISIS. For the more chaos he can generate abroad, the more valuable the autocratic stability he provides at home will appear. Russians may know in the abstract that a freer society is preferable, but they fear the risks of such a transition.
Try as he might, however, Putin will not be able to shelter his regime from the fallout of economic collapse. Desperation will spawn infighting among a ruling elite that has grown used to sharing generous spoils. Given the absence of strong institutions, as well as the brittle and highly centralized nature of the regime, a coup like the one that toppled Nikita Khrushchev in 1964 cannot be ruled out; Russia remains Soviet in its style of governance. The country has experienced the crumbling of autocracy followed by chaos before (as during and after the 1917 revolutions), and it’s possible that enough turmoil could cause Russia to fragment yet again. The heavily Muslim North Caucasus, along with areas of Russia’s Siberian and Far Eastern districts, distant from the center and burdened by bloody politics, may begin loosening their ties to Moscow in the event of instability inside the Kremlin itself. The result could be Yugoslavia lite: violence and separatism that begin in one place and spread elsewhere. As Moscow loses control, the global jihadist movement could take advantage of the vacuum and come to Russia’s outlying regions and to Central Asia.
Bad as this sounds, things could still get worse. Back in 1991, the Polish intellectual Adam Michnik predicted that future leaders in Russia and eastern Europe would fill the gap left by the collapse of communism with “a coarse and primitive nationalism.” Putin has adopted just such a nationalism in recent years. He has slyly backed separatist movements in Abkhazia, the Donbas, Nagorno-Karabakh, South Ossetia, and Transnistria, creating deniable conflicts that result in warlord-run statelets. In the years ahead, he may well choose to provoke more of these so-called frozen conflicts, but this time in NATO Baltic member states (which have sizable Russian populations and which Moscow still considers lost provinces). Meanwhile, Putin will try to play on Europe’s need for Russian support in Syria to force Europe to acknowledge his annexation of Crimea and his de facto rule over eastern Ukraine.
But just when a firm response is most needed, Europe is looking less and less likely to be able to provide one. In some ways, Russia’s current crisis parallels that of Europe, which is also dividing into core and peripheral areas. Despite adjustments by the European Central Bank and other measures, a time of slow global growth, coupled with Europe’s inability to make fundamental reforms, means that the European political and economic crisis will persist. By frightening states into resolidifying their borders, the migrant and terrorism crises will also exacerbate the EU’s divisions—and, inevitably, NATO’s as well.
Such disunity will make Europe’s attempts to confront Russia even more hesitant and disorganized than they are today. As NATO weakens, the former Warsaw Pact states will increasingly look to the United States for their security. They will also divide into subgroups: already, Poland, the Baltic countries, and Scandinavia are forming an alliance of sorts to withstand Russian aggression, and the Visegrad Group—which includes the Czech Republic, Hungary, Poland, and Slovakia—is becoming more concrete in terms of its political and military consultation. Further sowing division is Nord Stream 2, a proposed second pipeline through the Baltic Sea that would allow Russia to bypass central and eastern Europe when sending gas to western Europe. In all these countries, slow economic growth will intensify right-wing and left-wing nationalist movements, which prey on unmet economic expectations.
Slow growth is also leading China to externalize its internal weaknesses. Since the mid-1990s, Beijing has been building a high-tech military, featuring advanced submarines, fighter jets, ballistic missiles, and cyberwarfare units. Just as the United States worked to exclude European powers from the Caribbean Sea beginning in the nineteenth century, China is now seeking to exclude the U.S. Navy from the East China and South China Seas. Its neighbors have grown worried: Japan, which views Chinese naval expansion as an existential threat, is shedding its pacifism and upgrading its forces, and Malaysia, the Philippines, Singapore, and Vietnam have modernized their militaries, too. What were once relatively placid, U.S.-dominated waters throughout the Cold War have become rougher. A stable, unipolar naval environment has given way to a more unstable, multipolar one.
But as with Russia, China’s aggression increasingly reflects its cresting power, as its economy slows after decades of acceleration. Annual GDP growth has dropped from the double-digit rates that prevailed for most of the first decade of this century to an official 6.9 percent in the third quarter of 2015, with the true figure no doubt lower. Bubbles in the housing and stock markets have burst, and other imbalances in China’s overleveraged economy, especially in its shadow banking sector, are legion.
Then there are the growing ethnic tensions in this vast country. To some degree, the Han-dominated state of China is a prison of various nations, including the Mongols, the Tibetans, and the Uighurs, all of whom have in varying degrees resisted central control. Today, Uighur militants represent the most immediate separatist threat. Some have received training in Iraq and Syria, and as they link up with the global jihadist movement, the danger will grow. In recent years, there has been a dramatic upsurge of bombings linked to Uighur separatism in the region of Guangxi, a transit point on the smuggling route Uighurs take to Vietnam—proof that terrorism will not be confined to minority areas in China’s west. Beijing has tried to pacify these movements with economic development—for example, proposing the Silk Road Economic Belt in Central Asia in order to undermine Uighur nationalism there. But if such immense projects falter because of China’s own slowing economy, separatism could explode into greater violence.
As conditions worsen at home, China and Russia are likely to increasingly export their troubles in the hope that nationalism will distract their disgruntled citizens.
Even more so than Putin, Xi, with years of experience serving the Communist Party in interior China, must harbor few illusions about the depth of China’s economic problems. But that does not mean he knows how to fix them. Xi has responded to China’s economic disarray by embarking on an anticorruption drive, yet this campaign has primarily functioned as a great political purge, enabling him to consolidate China’s national security state around his own person. Since decisions are no longer made as collectively as before, Xi now has greater autonomy to channel domestic anxiety into foreign aggression. In the last three decades, China’s leadership was relatively predictable, risk averse, and collegial. But China’s internal political situation has become far less benign.
China’s ambitions reach further than Russia’s, but they have generated less concern in the West because they have been more elegantly applied. Whereas Putin has sent thugs with ski masks and assault rifles into eastern Ukraine, Xi’s aggression has involved much smaller, incremental steps, making it maddeningly difficulty for the United States to respond without appearing to overreact. He has sent his coast guard and merchant ships (rather than exclusively his navy) to harass Philippine warships, dispatched an oil rig into waters claimed by both China and Vietnam (but for only a few weeks), and engaged in land-reclamation projects on contested islands and reefs (but ones that are devoid of people). And since these acts of brinkmanship have taken place at sea, they have caused no hardship for civilians and practically no military casualties.
Other Chinese moves are less subtle. Besides expanding its maritime claims, China is building roads, railways, and pipelines deep into Central Asia and is promising to invest tens of billions of dollars in a transportation corridor that will stretch from western China across Pakistan to the Indian Ocean, where China has been involved in port projects from Tanzania to Myanmar (also called Burma). As China’s economic troubles worsen, the elegance of its aggression may wear off and be replaced by cruder, more impulsive actions. Xi will find it harder to resist the urge to use Asian maritime disputes to stoke nationalism, a force that brings a measure of cohesion to societies threatening to fragment.
Potentially adding to the danger are looming crises in the countries of Central Asia: Kazakhstan, Kyrgyzstan, Tajikistan, Turkmenistan, and Uzbekistan. The continued stability of these authoritarian countries has made it easier for China to control its own Central Asian minorities, but time may be running out. Some of these regimes are still led by the same Brezhnev-era Central Committee types who have ruled since the end of the Cold War. These leaders are now aging, their regimes enjoy questionable legitimacy, their economies remain tied to China’s and Russia’s own slowing engines, and their populations are growing more Islamic. Central Asia, in other words, may be ripe for an Arab Spring–like eruption.
Facing parallel economic slowdowns and geopolitical threats, China and Russia may forge a tactical alliance based on their compatible authoritarian systems and aimed at managing their frontier areas and standing up to the West. To this end, the two of them finally resolved a long-running border dispute last November, with Russia giving up a small tract of land in its Far East claimed by China. But the handover caused popular protests in both countries: ordinary Russians opposed the Kremlin’s acquiescence, and many Chinese complained that they got too little. Here again, public opinion can constrain dictatorships, in this case inhibiting their ability to forge useful alliances.
Central control—who has it, who doesn’t—is the geopolitical issue of our time. Centralized authoritarian rule over large areas is inherently problematic, and all the more so in an era of intensified ethnic, religious, and individual consciousness, when electronic communications can incite identity-based grievances. No wonder the map of Eurasia is about to become more complex.
Policymakers in Washington had better start planning now for the potential chaos to come: a Kremlin coup, a partial breakup of Russia, an Islamic terrorist campaign in western China, factional fighting in Beijing, and political turbulence in Central Asia, although not probable, are all increasingly possible. Whatever form the coming turbulence takes, it seems certain the United States will be forced to grapple with new questions of one sort or another. Who will control Russia’s nuclear arsenal if the country’s leadership splinters? How can the United States stand up for human rights inside China while standing by as the regime puts down an internal rebellion?
Planning for such contingencies does not mean planning a war of liberation, à la Iraq. (If China and Russia are ever to develop more liberal governments, their people will have to bring about change themselves.) But it does mean minimizing the possibility of disorder. To avoid the nightmarish security crises that could result, Washington will need to issue clear redlines. Whenever possible, however, it should communicate these redlines privately, without grandstanding. Although congressional firebrands seem not to realize it, the United States gains nothing from baiting nervous regimes worried about losing face at home.
In the case of Russia, the United States should demand that it stop initiating frozen conflicts. As Putin attempts to distract Russians from economic hardship, he will find it more tempting to stir up trouble in his neighborhood. Lithuania and Moldova probably top his list of potential targets. Moldova, with its corrupt and easily undermined democratic government, is already nearing the point of political anarchy. Both countries are also strategically valuable: Moldova could provide Russia with the beginning of a gateway to the Balkans, and Lithuania offers a partial land bridge to the Russian exclave of Kaliningrad. For Putin, frozen conflicts carry the advantage of being undeclared, reducing the odds of a meaningful Western response. That’s why the response must be in kind: if Putin makes behind-the-scenes moves in Lithuania or Moldova, the West should intensify sanctions against Russia and increase the tempo of military exercises in central and eastern Europe.
At the very least, NATO must dramatically ramp up intelligence sharing among eastern European countries and be ready to quickly deploy more aircraft, ground forces, and special operations forces to the region. The hundreds of U.S. soldiers, marines, and sailors stationed on a rotating basis in frontline NATO states of the former Warsaw Pact constitute such a small presence that they are unlikely to deter Russian aggression; several battalions or even a brigade is needed. More broadly, the United States will need to create a military tripwire—one that deters Russia from launching a limited strike across its borders but does so without provoking a crisis. Thus, the U.S. counter to Russia’s growing “anti-access/area-denial” capabilities in the highly populated Baltic region will have to be more fine-tuned than its response to China’s in the emptier South China Sea.
Washington also needs to set clear redlines with China. In the South China Sea, it cannot allow the country’s land-reclamation projects to graduate to the establishment of a so-called air defense identification zone—airspace where China reserves the right to exclude foreign aircraft—as the regime declared in the East China Sea in 2013. Such moves form part of a strategy of deliberate ambiguity: the more unclear and complex a military standoff becomes, the more threatened the United States’ maritime dominance will be. If China does announce such a zone in the South China Sea, Washington must respond by increasing U.S. naval activity in the vicinity and expanding military aid to regional allies. Already, the U.S. Navy has begun freedom-of-navigation operations, however halfhearted, within the 12-nautical-mile boundary of sovereign authority that China has claimed around its man-made islands. If these operations do not become regular and more explicit, China will not feel deterred.
Never before has U.S. President Theodore Roosevelt’s adage, now a cliché, “Speak softly and carry a big stick” been more applicable. A big stick can deter aggression, whether it originates from strength or from weakness. But speaking softly is particularly germane when aggression arises out of weakness, since harsh rhetoric can needlessly provoke leaders who already have their backs against the wall. Indeed, it is more important for the United States to increase its own military presence in the Baltic states and the South China Sea than it is to publicly condemn Moscow and Beijing for their actions in those areas.
A big stick means quickly restoring the U.S. defense budget after the devastation of sequestration. The U.S. Army counted nearly 570,000 soldiers in 2010 and is set to shrink to 450,000 in 2017. The United States now stations 33,000 land forces in Europe, down from 200,000 during the Cold War. Compared with ships and planes, ground troops constitute a more credible demonstration of U.S. power, because they advertise the country’s willingness to shed blood to honor its commitments. Since war has become increasingly unconventional, the United States no longer needs to station as many ground forces in Europe as it did during the Cold War, but a larger deployment is still called for. As for naval assets, the Baltic Sea is too small for the optimal use of an aircraft carrier strike group, so the United States should send more submarines to the region.
Washington should also reassure its allies by limiting its rhetoric about transnational issues such as climate change to settings where it is strictly appropriate. The president should never expect Israelis, Poles, and Taiwanese, for example, to trust him because he is leading on climate change (as he has intimated they should); they want him to highlight their own geopolitical dilemmas. Although pandemics, rising sea levels, and other global challenges are real, the United States can afford the luxury of focusing on them thanks largely to its own protected geography. Many U.S. allies, by comparison, live dangerously close to China and Russia and must contend with narrower, more traditional threats. Given their own tragic geography, Asian nations want to see more American warships in their waters. As for central and eastern Europeans, they want a muscular and unambiguous commitment to their defense. Now more than ever, because of the way globalization and the communications revolution have made geography more interconnected, an American president risks losing his reputation for power in one theater if he fails to respond adequately to aggression in another.
In 1959, the political scientist Robert Strausz-Hupé defined “protracted conflict” as a state of sustained rivalry that favors the side that is both patient and able to “thrive upon conflict as the normal condition of the twentieth century.” Whereas the Western mindset “sees only the tools of peace,” he wrote, the side with the advantage “turns plowshares into swords.” Strausz-Hupé had the Chinese and Soviet Communists in mind when he wrote those words. Yet the United States ultimately managed to fend off those adversaries through the policy of containment, which was protracted conflict in its own right.
Containment wasn’t only about restraint, as many now like to believe; it was also about engaging in calculated aggression and consistently reassuring allies. Throughout the Cold War, U.S. presidents prevailed while avoiding nuclear war by understanding that rivalry and conflict, rather than peace, are normal. Today, as China and Russia accelerate down the path of protracted conflict, future U.S. presidents must acknowledge that same truth. And they, too, must apply the right mix of strength and caution as they leave behind the comparatively calm decades of the Cold War and post–Cold War eras and prepare to navigate the anarchy of an unraveling Eurasia.
CORRECTION APPENDED (February 24, 2016)
An earlier version of this article incorrectly equated the levels of corruption in Lithuania and Moldova; in fact, Lithuania suffers from far less corruption than Moldova.