Russia vs. Georgia: exposing US foreign policy

Marshall Auerback here. The first post is about The Russian-Georgian conflict and how it reveals that U.S. domestic dysfunction has led directly to impotence in foreign policy.

Enjoy.

Russia vs. Georgia: U.S. domestic dysfunction exposes foreign policy impotence

By Marshall Auerback

“We were recently entertained by a naïve fable of the happy arrival at the “end of history,” of the overflowing triumph of an all-democratic bliss; the ultimate global arrangement had supposedly been attained. But we all see and sense that something very different is coming, something new, and perhaps quite stern. No, tranquility does not promise to descend on our planet, and will not be granted us so easily.”
– Alexander Solzhenitsyn, September 1993

At first glance, a flair-up in the Caucasus region seems to have little meaning for Americans. But just as the collapse of the subprime mortgage market ultimately came to symbolize the beginning of the end of an American credit system run amok, so too does the Russo-Georgian conflict illustrate the limits of American military power and its capacity to exert itself anywhere in the world unilaterally. Neither economic, nor military “unipolarity” seems to work any longer. We have, in the words of Boston University professor Andrew J. Bacevich, a “crisis of profligacy”, in which U.S. foreign policy parallels its domestic dysfunction, because of the refusal of Americans to recognize that they have to pay a significant price for economic abundance at home and geopolitical dominance abroad. In this world the Bush administration unveiled “a breathtakingly ambitious project of near global domination,” writes Bacevich. Preserving American abundance was the watchword, “yet that way of life, based for at least two generations on an ethic of self-gratification and excess, drastically reduced the resources available for such an all-encompassing imperial enterprise,” he writes. No wonder things have not gone well.

In much the same way as the original Bretton Woods monetary system externally constrained U.S. economic policy, so too did the Cold War limit American military aspirations. Between 1945 and 1973, the U.S. operated under a quasi-gold standard system, which mandated the prompt adjustment of international payments imbalances. Under this system, were the U.S. to persist in running deficits, it would eventually run out of gold. Economically, when Richard Nixon closed the gold window in 1973, Bretton Woods was replaced with a U.S. dollar reserve currency system, ushering in a period of “economic unipolarity” during which the U.S. could continue to print money, and accumulate increasingly large deficits. In the absence of any kind of external constraint, there were no longer any obligations otherwise imposed on America by a neutral system such as the gold standard. As France’s Charles de Gaulle memorably complained, the U.S. now had an unlimited overdraft facility, the hallmark of which were increasingly large current account deficits and relatively unconstrained economic policy-making, given the dollar’s pre-eminence as the sole reserve currency.

By the same token, a parallel phenomenon has been evident in the military/political sphere. From 1945 to 1989, a geopolitical chess game was played out between the United States and the Soviet Union, under the basic rules that were metaphorically called “Yalta”. The most important rule concerned a line that divided Europe into two zones of influence. It was memorably christened the “Iron Curtain” by Winston Churchill and ran from Stettin to Trieste. Under this game, the principal constraint was that, no matter how much turmoil was instigated in Europe by the pawns, there was to be no actual warfare between the United States and the Soviet Union. And at the end of each proxy conflict, the pieces were to be returned to where they were at the outset. The status quo between NATO and the Warsaw Pact prevailed. This rule was observed meticulously right up to the collapse of Communism in the Eastern bloc in 1989, which was most notably marked by the destruction of the Berlin wall.

Similarly, when the Cold War ended and Mikhail Gorbachev withdrew Russian forces from Eastern Europe, it opened up a period of unparalleled U.S. military adventurism, in spite of pledges made by Washington to Moscow, whereby the latter was promised that the U.S. would not take advantage of the implosion of the Soviet empire by expanding NATO into the vacuum. But this promise was broken almost immediately, first by the Clinton Administration, and then again by the Bush Administration, which in effect rewrote the Yalta rulebook.

The U.S. now saw itself as free to move about the global chessboard as it saw fit, and in particular to transfer former Soviet pawns to its sphere of influence. America viewed itself as the world’s last remaining superpower, or in Secretary of State Madeline Albright’s narcissistic phrase — “the world’s indispensable power.” Much like the triumphalist commentary about America’s economic model in the wake of the Asian financial crisis of 1997/98, pundits, such as Charles Krauthammer, also gushed over abstractions like “America’s unipolar moment,” while think tankers concocted geopolitical visions of American empires, New American Centuries, all made possible by a new era of unilateral coercive diplomacy, where move and countermove would be choreographed by quick and nearly bloodless precision military strikes, made possible by the U.S. monopoly of the “Revolution in Military Affairs.” The success of the first Gulf War gave further impetus to this illusion, just as the financial crisis of 1997/98 appeared to discredit any credible alternative to America’s economic model.

Full-spectrum dominance stood in relation to military affairs as the political scientist Francis Fukuyama’s well-known proclamation of “the end of history” stood in relation to ideology: Each claimed to have unlocked ultimate truths. According to Fukuyama, democratic capitalism represented the final stage in political economic evolution. According to the proponents of full-spectrum dominance, that concept represented the final stage in the evolution of modern warfare. During that period, the very purpose of the Department of Defense changed. Sustaining American global preeminence, rather than mere national security, became its explicit function. In the most comprehensive articulation of this new American way of war, the Joint Chiefs of Staff committed the armed services to achieving what they called “full-spectrum dominance” — unambiguous supremacy in all forms of warfare, to be achieved by tapping the potential of two “enablers” — “technological innovation and information superiority.”

The coming to power of George W. Bush and Vladimir Putin was more or less simultaneous. Bush decided to push the lone superpower tactics (the United States can move its pieces as it alone decides) much further than had Clinton.

First, Bush in 2001 withdrew from the 1972 U.S.-Soviet Anti-Ballistic Missile Treaty. Then he announced that the United States would not move to ratify two new treaties signed in the Clinton years: the 1996 Comprehensive Test Ban Treaty and the agreed changes in the SALT II nuclear disarmament treaty. Then Bush announced that the United States would move forward with its National Missile Defense system. And of course, Bush invaded Iraq in 2003.

At that time, the troops appeared unbeatable. And for a time, Russia’s weakness lulled America into thinking that the U.S. no longer operated under any kind of constraint, much as the ongoing and reflexive recycling of American debt by the Asian savings bloc (and later the GCC) back into Treasuries throughout most of this decade, seduced Washington’s monetary and fiscal policy makers into believing that deficits no longer mattered, as Vice President Cheney memorably remarked a few years ago. Writing in 2002, for example, Max Boot, a well-known commentator on military matters, attributed to the United States a level of martial excellence “that far surpasses the capabilities of such previous would-be hegemons as Rome, Britain, and Napoleonic France.” With U.S. forces enjoying “unparalleled strength in every facet of warfare,” allies, he wrote, had become an encumbrance: “We just don’t need anyone else’s help very much.”

Boot dubbed this the “doctrine of the big enchilada.” Within a year, after U.S. troops had occupied Baghdad, he went further: America’s Army even outclassed Germany’s Wehrmacht. The mastery displayed in knocking off Saddam Hussein, Boot gushed, made “fabled generals such as Erwin Rommel and Heinz Guderian seem positively incompetent by comparison.” As part of this engagement, the United States sought and obtained rights to military bases and overflight rights in the Central Asian republics that formerly were part of the Soviet Union.

In addition, the United States promoted the construction of pipelines for Central Asian and Caucasian oil and natural gas that would bypass Russia. And finally, the United States entered into an agreement with Poland and the Czech Republic to establish missile defense sites, ostensibly to guard against Iranian missiles. Russia, however, regarded them as aimed at her.

But much as the seeds of America’s current economic decline were planted during a period of apparent unbridled prosperity, so too did the country’s unconstrained militarism bring forth the seeds of imperial overstretch. Putin was not the first to observe this, but he began (subtly at first) to push back much more effectually than Yeltsin. As a prudent player, however, he moved first to strengthen his home base – restoring effective central authority and reinvigorating the Russian military. At this point, the tides in the world-economy changed, and Russia suddenly became a wealthy and powerful controller not only of oil production but of the natural gas so needed by western European countries.

Putin thereupon began to act externally. He entered into treaty relationships with China. He maintained close relations with Iran. He began to push the United States out of its Central Asian bases. And he took a very firm stand on the further extension of NATO to two key zones – Ukraine and Georgia.

The breakup of the Soviet Union had led to ethnic secessionist movements in many former republics, including Georgia. When Georgia in 1990 sought to end the autonomous status of its non-Georgian ethnic zones, they promptly proclaimed themselves independent states. They were recognized by no one but Russia guaranteed their de facto autonomy.

The immediate spurs to the current mini-war were twofold. In February, Kosovo formally transformed its de facto autonomy to de jure independence. Its move was supported by and recognized by the United States and many western European countries.

Russia warned at the time that the logic of this move applied equally to the de facto secessions in the former Soviet republics. In Georgia, Russia moved immediately, for the first time, to recognize South Ossetia de jure independence in direct response to that of Kosovo. And in April this year, the United States proposed at the NATO meeting that Georgia and Ukraine be welcomed into a so-called Membership Action Plan.

Germany, France, and the United Kingdom all opposed this action, saying it would provoke Russia. Georgia’s neoliberal and strongly pro-American president, Mikhail Saakashvili, was now desperate. He saw the reassertion of Georgian authority in South Ossetia (and Abkhazia) receding forever. So, he chose a moment of Russian inattention (Putin at the Olympics, Medvedev on vacation) to invade South Ossetia. Of course, the puny South Ossetia military collapsed completely. Saakashvili expected that he would be forcing the hand of the United States (and indeed of Germany and France as well). Instead, he got an immediate Russian military response, overwhelming the small Georgian army. What he got from George W. Bush was rhetoric. What, after all, could Bush do? In the words of Stratfor’s George Friedman:

The United States has been absorbed in its wars in Iraq and Afghanistan, as well as potential conflict with Iran and a destabilizing situation in Pakistan. It has no strategic ground forces in reserve and is in no position to intervene on the Russian periphery. This has opened a window of opportunity for the Russians to reassert their influence in the former Soviet sphere. Moscow did not have to concern itself with the potential response of the United States or Europe; hence, the invasion did not shift the balance of power. The balance of power had already shifted, and it was up to the Russians when to make this public. They did that Aug. 8, albeit with customary brutality.
–Stratfor, The Russo-Georgian War and the Balance of Power

Russia has demonstrated that it is willing to use force; that it is unwilling to let Georgia and Ukraine enter NATO without exacting a severe price; and that it views the United States as hypocritical, overextended, distracted, and cannot make good on its protective assurances to the likes of Georgia. This is a perfectly rational expectation. Neither the US, nor the EU will risk Armageddon for Georgia. After encouraging Saakashvili, with promises of NATO membership, the U.S. has been forced to leave him at the mercy of Putin, who appears bent on exacting revenge.

Two events, the crash of the subprime mortgage market and the Russo-Georgian conflict, then, display an interesting symmetry.

America’s political adventurism in Afghanistan and then Iraq was mirrored economically with the advent of the so called “Bretton Woods II system”. The latter proved mutually reinforcing to the former insofar as it enabled the U.S. to pursue a policy of guns AND butter (contrast this with the limitations faced by the Johnson Administration during the Vietnam War, when Bretton Woods I was operative). Even though it was said that no economy could live beyond its means in perpetuity, yet the U.S. appeared to be different. America’s current account deficit surged from 1.5% of GDP in 1995 to 6% in 2006. Yet hundreds of billions of dollars were spent in Iraq, seemingly without limit. This, despite the fact that at its peak, the U.S. was running an annualized deficit of $844 billion in the third quarter of 2006, and required $3.4 billion of capital inflows from abroad each business day in order to fund a massive shortfall of domestic saving. In the words of Morgan Stanley economist Stephen Roach:

At the root of the problem was America’s audacious shift from income- to asset-based saving. The U.S. consumer led the charge, with trend growth in real consumer demand hitting 3.5% per annum in real terms over the 14-year interval, 1994 to 2007 – the greatest buying binge over such a protracted period for any economy in modern history. Never mind a seemingly chronic shortfall of income generation, with real disposable personal income growth averaging just 3.2% over the same period. American consumers no longer felt they had to save the old-fashioned way – they drew down income based saving rates to zero for the first time since the Great Depression. And why not? After all, they had uncovered the alchemy of a new asset-based saving strategy – first out of equities in the latter half of the 1990s and then out of housing in the first half of the current decade…..

That enabled income-short American consumers not only to squander income-based saving but also to push consumption up to a record 72% of real GDP in 2007….And, of course, they went on a record debt binge to pull it off. Household sector indebtedness surged to 133% of disposable personal income by year-end 2007 – up over 40 percentage points from debt loads of 90% prevailing just a decade earlier. It was the height of folly. Yet the longer it lasted, the more it became deeply ingrained in the American psyche. And now it is finally over.
–Stephen Roach, Pitfalls in a Post-Bubble World (PDF)

The crash of the subprime mortgage market did not conclusively end this practice of debt bingeing; rather, it represented the final nail in the coffin that had been constructed for years.
Russia’s recent invasion of Georgia has much the same representative effect in terms of what it implies about America’s military limitations. Although this has become obvious to many since the onset of the Afghanistan and then Iraq wars, Georgia is the first time that the Bush administration has offered nothing except (in the words of Georgian President Saakashvili), “words, statements, moral support, humanitarian aid.”

The mixture of arrogance and ignorance which set the stage for the triumphal foreign policy of the 1990s and early part of this decade, then, has reached its definitive limits. Ironically, unconstrained economic and military policy has neither made Americans wealthier, nor safer. America’s subprime mortgage crisis in and of itself did not signal the end of the country’s economic system, but metastasized in such a way as to demonstrate conclusively the dangers (and corresponding limits) of a policy which hitherto relied on uneconomic vendor finance and debt bingeing. By the same token, Russia’s quick dispensing of Georgia has much the same symbolic effect in terms of signaling the limits of American’ military unilateralism, the notion that the U.S. could do anything it wanted, whereby “you are either with us or against us in our long global war on terrorism” — a war that knows no identifiable bounds, no rules, and no discernible end, but also a war for which Mr. Bush steadfastly refused to mobilize the necessary resources or call for the necessary sacrifices to pay for its inevitably skyrocketing bill. In this regard, his enablers in China and Japan are equally culpable.

When tested, then, America’s “unipolar moment” as global hyper-power yielded more glitter than gold. Much like the bankers and policy makers who professed the cost-free virtues of securitization and market fundamentalism, the generals and admirals who touted the wonders of full-spectrum dominance were also guilty of flagrant professional malpractice, if not outright fraud. To judge by the record of the past 20 years, U.S. forces win decisively only when the enemy obligingly fights on American terms — and Saddam’s demise has drastically reduced the likelihood of finding such accommodating adversaries in the future. As for loose ends, from Somalia to the Balkans, from Central Asia to the Persian Gulf, they have been endemic and impervious

Which raises another point: At the same time unlimited ambition became the rule in America’s relations with the external environment, a parallel unlimited ideology of triumphant capitalism and political cynicism at home encouraged the systematically looting of the economic base that was needed to support those unlimited ambitions. The looting mechanism is well known: The economy accelerated its mad rush down its path of massive deindustrialization. A corporate kleptocracy grew even bolder by, inter alia, (1) reaping short-term rewards while it transferred jobs and production facilities overseas, (2) by accelerating the excessive economic distortions caused by the out-of-control crony corporatism in the military – industrial – congressional complex, (3) by manipulating stock prices, (4) by financialising assets, (5) by instituting a slew of predatory lending practices and (5) by lobbying successfully for deregulating financial institutions thus enabling the creation of incomprehensible debt-bundling instruments, which enabled speculators to hide these shenanigans, prop up stock prices, and create the conditions for a meltdown.

In a sense, the excesses manifested themselves both economically and politically/militarily. And the end result is the same. As long as the economic model sustained its reputation for unlimited prosperity for all, as long as U.S. forces sustained their reputation for invincibility, it remained possible to pretend that the constitutional order and the American way of life were in good health. Point out that the emperor has no clothes and everything else unravels. This is what occurred when the Iraq war went sour and as the American credit crisis intensified. The ills afflicting our political system, including a deeply irresponsible Congress, broken national security institutions, and an imperial commander in chief not up to the job, and an economic system which effectively embraced socialism for the rich and capitalism for the poor, became all but impossible to ignore and political unsustainable. So, too, did the self-destructive elements inherent in the American way of life — especially an increasingly costly addiction to foreign oil, universally deplored and almost as universally indulged. More noteworthy still, the prospect of waging war on a global scale for decades, if not generations, became preposterous. The notion of Imperial Overstretch, once deemed a fanciful construct of ivory tower academics, has become very real.

The excesses of bubble capitalism manifested themselves in a culture of consumption and profiteering without production, which produced an explosion in private debt, horrendous trade deficits, and rampant speculation, and adverse currency flows. The feeding frenzy in the private sector of the economy has been mirror imaged in the public sector through the reckless fiscal policies of a decadent avaricious political culture that refused to raise enough taxes to pay for its own ambitions — a culture that tolerates corrupt public accounting standards, low-balled cost estimates, etc. — all packaged in “bundled” legislation that rendered spending and taxing bills impossible for members of Congress to read let alone comprehend. By the same token, estimates of U.S. military capabilities have turned out to be wildly overstated. The Bush administration’s misplaced confidence in the efficacy of American arms represents a strategic misjudgment that has cost the country dearly.

In short, the blind ambitions of the political class in the United States have become disconnected from the external geopolitical realities those ambitions purport to cope with as well as from the internal economic environment that is supposed to sustain those ambitions. In the end, the real world always intrudes. The double mismatch means a series of comeuppances and painful adjustments (which all Americans will have to bear) are now inevitable. Mr. Putin’s move into Georgia should be seen as a wake up call in this regard, but judging by the hyperbolic reactions of politicians like Messrs. Bush and McCain and Ms. Rice, as well as most pundits in the main stream media, the alarm may well fall on deaf ears, much as persistent warnings about America’s debt binging and housing bubble were dismissed earlier as the ranting of inveterate pessimists and doom-mongers.

Other sources
The Limits of Power: The End of American Exceptionalism