Metronome, The (26 page)

Saturday, June 24

Once again, I get lucky on the Moscow–New York flight: The middle seat next to me is empty. The man in the aisle seat tries to strike up a conversation, but after receiving a few single-syllable answers, he thankfully gives up. I pull out the manila envelope with Voronezhsky’s document and start reading. I don’t read each and every word but try to focus on what’s relevant to the events I find myself embroiled in.

From The Voronezhsky’s Thesis, 1998

1.          
   The Wolfowitz Doctrine and the Brzezinski’s Grant Chessboard
   

The Wolfowitz Doctrine
 
is the initial version of the US Defense Planning Guidance from 1992 authored by
 
Under Secretary of Defense for Policy
 
Paul Wolfowitz. It was published by the New York Times the same year. The policy stated:

“Our first objective is to prevent the re-emergence of a new rival, either on the territory of the former Soviet Union or elsewhere, that poses a threat on the order of that posed formerly by the Soviet Union. This is a dominant consideration…We must discourage the advanced nations from ever aspiring to a larger global or regional role…We continue to recognize that collectively the conventional forces of the states formerly comprising the Soviet Union retain the most military potential in all of Eurasia; and we do not dismiss the risks to stability in Europe from a nationalist backlash in Russia or efforts to reincorporate into Russia the newly independent republics of Ukraine, Belarus, and possibly others....”

The Wolfowitz memorandum cast Russia as the gravest enemy of the United States. It also defined the United States as the global hegemon that would rule the world according to its interests. While the final version of the policy has been softened, there is no doubt that Wolfowitz expressed a widely held view in Washington, shared by both Republican and Democratic lawmakers. Even the six short years that passed since the memorandum produced a number of examples that confirm it.

A close-to-home illustration was the broken pledge about respecting Russian interests and not expanding the military organization of NATO to Russia’s borders. It has been well documented that after the fall of the Berlin Wall, President George H. W. Bush met with Mikhail Gorbachev in Malta for a two-day summit and promised not to “take advantage” of a Soviet withdrawal from Eastern Europe” by expanding NATO into these territories. This promise has been confirmed by Jack Matlock, then-U.S. ambassador to the U.S.S.R. who took part in the Malta summit and in subsequent negotiations between the U.S. Secretary of State James Baker with Gorbachev and the Soviet Foreign Minister Eduard Shevardnadze. Similar promises have been made by the German Foreign Minister Genscher and by the French President Mitterrand and confirmed by the Russian Prime Minister Yevgeny Primakov and by American scholars Susan Eisenhower and Stanley Kober. Another American ambassador George Kennan wrote in the New York Times on Feb. 5, 1997: “Expanding NATO would be the most fateful error of American policy in the entire post-cold-war era. Such a decision may be expected to inflame the nationalistic, anti-Western and militaristic tendencies in Russian opinion; to have an adverse effect on the development of Russian democracy; to restore the atmosphere of the cold war to East-West relations, and to impel Russian foreign policy in directions decidedly not to our liking.”

When at a joint press conference with George H. W. Bush on Dec. 3, 1989, Mikhail Gorbachev said, “We are at the beginning of a long road to a lasting, peaceful era. The threat of force, mistrust, psychological and ideological struggle should all be things of the past,” most of us wanted to believe it. Instead, the United States abandoned its promises and extended NATO membership to Poland, Hungary, the Czech Republic, and the Baltic states. Some believe that this happened because Bill Clinton didn’t want to be perceived as a foreign policy “wimp” during his re-election campaign against Bob Dole and used the NATO enlargement to advertise his assertiveness. Whatever reasons and internal politics have been involved on the American side, this was a blatant betrayal of the pledges made to Russia. We can no longer pretend: The United States continues to view us as Enemy # 1. The Cold War has never really ended. The United States intends to be the sole global superpower, protecting its hegemony at any cost. This will be justified by portraying itself as a “benevolent” hegemon. What is lost in this consideration is that “benevolent tzar” is still a tzar and subjects don’t always like to be ruled by any kind of tzar.

This American attitude towards Russia has been further confirmed in the recent book “The Grand Chessboard,” by Zbigniew Brzezinski, former National Security Advisor. Even he acknowledged that America had missed the opportunity to create an alliance with Russia in the mid-1990s and that many of the Russian concerns regarding NATO expansion were and still are legitimate. Having said that, Brzezinski proceeded to advocate an essentially adversarial relationship with Russia, in particular emphasizing actively undermining Russia’s relationship with the Ukraine in order to deprive Russia of European presence and of its position on the Black Sea via the Crimean ports.

It is imperative for Russia to dispense with the illusions regarding its position vis-à-vis the United States. While many hold on to the belief of the trustful, friendly relationship, the reality of the situation is that the United States and Russia are not friends and more likely are enemies. It is clear that the United States sees it this way, and Russia must adjust its policies accordingly. Currently, Russia is obviously the weaker party in this struggle. But as the lessons of history teach us, empires and hegemonies are inevitably transient. The United States has its weaknesses that are already showing and will only grow more pronounced over time. The inevitable logic is the same as in the Roman Empire: The need for peripheral security will create a nearly endless series of threats and obligations. The United States will be forced to continue, at a tremendous cost, supporting an open-ended imperial project, sapping its finite resources. This document discusses how Russia can prepare and take advantage of these opportunities, while focusing on the financial side of the emerging warfare.

Flight attendants arrive with a cart of drinks. I get black coffee and ask for a scotch. I’ll need a few of those to make it through Voronezhsky’s document.

1.         
   Financialization of the U.S. and its Societal Implications
   

We will define “financialization” as the increasing dominance of the finance industry in a national economy. While we don’t deny the importance of financial matters, when financial motives, financial markets, and
 
financial institutions rise to the primary role in a society and extract inordinate rewards compared to the productive industries, we will consider such a society “financialized.” It is worth observing that financialization took place a number of times in history. Some examples include Spain
 
in the 16th century, the
 Netherlands
 
in the 18th century, and the
 
British Empire
 
in the 19th century. If we include the cases of less developed economies where the government was “financialized” in terms of taking on excessive financial obligations, then the Roman Empire in the 5
th
century and France in the 18
th
century would make the list. Each of these countries was either the leading or one of the most advanced economic powers of the time. In all cases, financialization preceded their decline, sometimes collapse. These societies have followed an evolutionary progression, from agriculture to industry, commerce, and finally finance.

It is our premise that the U.S. economy follows the same pattern of financialization that would lead to a similar decline. The primary indicator is the gradual reversal of the anti-trust regulations that were put in place in the first third of the 20
th
century with regards to financial institutions. In 1994, restrictions on interstate banking were eliminated. In 1996, U.S. banks were allowed to sell insurance. In 1997, they were allowed to buy securities firms. As this paper is being finished,
Citicorp
, a major U.S. bank, merged with a major insurance company,
Travelers Group
, in violation of anti-trust regulations. We can expect that the U.S. Congress will thus remove the last remaining obstacles to creating massive financial conglomerates. At this writing, the U.S. financial sector already represents close to 20% of the country’s economy, exceeding U.S. manufacturing.

What are the likely consequences of this development for U.S. society? We can expect a number of mutually reinforcing trends:

-
             
The financial industry will use its leverage to capture an inordinate amount of the country’s wealth while benefiting only a small portion of the society

-
             
The wealth will be used to further advance a crony capitalism, where the industry will use lobbying and donations to establish strong relationships with the government and regulatory sectors to further advantage the industry

-
             
Select financial institutions will grow and become “too big to fail,” creating systemic economic problems where public finances will be used to compensate for the errors, while successes will be privatized.

-
             
Increasing market speculation will create boom-and-bust instability. The capital markets will stop playing its intended role of allocating capital to most productive uses and instead become instruments of policy. The same large financial institutions will be able to manipulate the markets to their advantage.

The eventual impact on the society will be profound. Some of the likely developments include:

-
             
Rising inequality, as the upper classes extract ever increasing share of the country’s wealth

-
             
Rise of credit and debt needed to feed the financial machine which requires constantly rising supply of funds in order to operate

-
             
Effective devaluation of the currency. This will be required in order to both support creation of cheap debt and allow extraction of the wealth by the unproductive financial class

-
             
Emergence of the political/financial elite that will effectively rule the country and will attempt to centrally manage the increasing share of the economy. This process will become self-reinforcing as the government will become dependent on the continued source of debt that financial institutions will provide.

As we know from the history of other countries that followed a similar path, including the history of the failed U.S.S.R, the model described above is unstable and not sustainable. When the rich get richer and the poor get poorer, cooperation between social classes is undermined, and the nation gradually loses its ability to cooperate. It can continue growing for some time, especially for a rich country like the United States, but ultimately, to quote Herbert Stein, “If something cannot go on forever, it will stop.”

The crucial variable in the rise and fall of empires has always been the collective capacity for action. The Roman Empire went from being a cohesive nation of citizen-soldiers to an atomized society of extreme inequality and lack of solidarity between individuals. Great countries die by suicide, and “financialization” is the core element of that process. That much is predictable. What is impossible to predict is the exact process and timing. The situation is unique compared to previous “financialized” societies because for the first time in history, the world is truly global and financial warfare will represent an important part of any large conflict.

The section is full of tables and graphs trying to prove the points, I skip over them. Back in 1998, this was a theory, an attempt to predict an outcome of future experiment. Eight years later, we can judge some of the results: the financial industry was indeed completely deregulated in 1999, the banking business was consolidated amongst a few giant institutions, finance profits and compensation went through the roof. In 2000, we deregulated the derivatives, enabling a shadow financial system of unknown risk. The U.S. dollar declined about 20 percent, while debt went up sharply. Too early to draw conclusions, but I have to give Voronezhsky at least some credit for these predictions coming true.

I drink the last of my scotch, ice cubes rattling, and continue: