Putin’s war forced a return of the “political” to the “international political economy”. With respect to Russia, a coalition of states re-engineered the economic incentives of the international economy away from an economic “market logic” of profit that was blind to international atrocities, towards a values-laden economic strategy for defense of human rights.
In 1982 Charles Lindblom published “The market as a prison”, in which he argued that the political space of democratic, market-based state governments was limited by the economic constraints of the market. If they chose to pursue policies contrary to the “market logic” of light regulation, low taxes and the removal of trade barriers, they would face a market backlash in the form of reduced investments, a fall in GDP and an increase in unemployment. The pressure would be particularly acute in international currency and sovereign debt markets, where a powerful backlash would lead to a loss of support in public opinion and ultimately at the ballot box.
Despite its faith in this market logic, the West is fighting back in ways that one would have thought impossible at the height of globalization in the 1990s and early 2000s. Unprecedented economic sanctions against Russian individuals, exports, industry, business, finance and the state are the manifestation of a backlash very different from the market.
Lindblom argued that any attempt by the government to change market conditions would lead companies to re-evaluate their investment decisions and expansion plans, and consider moving their operations to another country. We can see examples of this in exodus of western companies of the Russian economy as they struggle to adapt to the market conditions imposed on the Russian economy by the West.
As companies retreat from Russia, Lindblom’s the concept of market punishment crystallizes in the form fall in the value of the Russian rublea frozen purse, unemployment warnings and forecasts up to 15% drop in GDP.
The West hopes to inflict a sovereign debt crisisa stock market crasha monetary crisis and a recession on the Russian economy. He also violated a post-war international convention and paralyzed the central bank of a major economic power as the lender of last resort so that economic decline is deep, inevitable and inescapable.
What is significant here is that this response is not the result of a Russian challenge to the rules or logic of the international order in a purely “economic” sense, by changing the parameters of the state and its relationship to the economy in a way that goes against dominant market orthodoxies. Russia is, as we have seen, just as connected to the international economic order as many of these now imposing sanctions.
On the contrary, the West has declared an unprecedented economic war on Putin’s Russia, and the power of the market has been exploited to defend democratic values. The logic of the market has been replaced by a foreign and economic policy based on values in this case.
Before Russia’s assault on Ukraine, the rules of the game were clear: economics over politics. Moscow could invade parts of Ukraine in 2014, and China could ignore Hong Kong sovereignty without significant market backlash. Russia’s invasion of Ukraine completely changed the rules: politics over economics.
Despite this change, economics has not been completely supplanted by politics. Western liberal powers should note that similar sanctions will not be possible in a future confrontation with the Chinese government, due to the size and international integration of the Chinese economy. Beijing will plan how to resist and circumvent similar sanctions in the future.
Moreover, the West has refrained from sanction the Russian energy sector due to its heavy reliance on Russian oil and gas. Even like “Ostpolitik” fadesGermany in particular has been reluctant to impose sanctions on the energy sector. The European Union is counting on Russia to 40% of its gas.
While some Western countries have pledged to gradually reduce their dependence on Russian gas, the pledges still remain modest. This suggests that the economy still plays a limited role in the international response to Russia’s war in Ukraine – revealing that Western governments still fear a market backlash of their own.
Lindblom never thought it would be possible, but free markets, capital flows, transnational corporations and financialization have all been exploited to defend a free democratic people under attack from a dictatorship. The “politics” in the “international political economy” is back, but the real fight to defend the gains of the liberal democratic order has only just begun.
By Matthew LloydGraduate Teaching Associate and PhD Researcher, Queen Mary University of London.