Russia-U.S. Relations: Go Economy!

Once again, the meeting of Russian and American presidents at the G8 sidelines is bringing the bilateral dialog to the forefront. Meanwhile, both countries are going through a generation change. Government, businesses, armed forces, media and noncommercial organizations are taking in new people who remember the Cold War but were brought up in an utterly different environment. They see the Russia-US reset as a trivial historical episode.

Once again, the meeting of Russian and American presidents at the G8 sidelines is bringing the bilateral dialog to the forefront. Meanwhile, both countries are going through a generation change. Government, businesses, armed forces, media and noncommercial organizations are taking in new people who remember the Cold War but were brought up in an utterly different environment. In comparison with the early 1990s, they differ in the worldview, needs, interests and even values. They see the Russia-US reset as a trivial historical episode. The world is changing fast, along with psychology and the way of thinking, to define the game-changing demand for the bilateral relationship. Hence, the reset, even repeated, is not likely to meet the need.

Then, what should come instead? Sticking to computer analogies, the reset is to be succeeded by an overhaul at both ends, from hardware to software.

Sooner or later, the change will come, preferably in a gradual and consistent manner to avoid jolts and turmoil, to the good of the both sides, as their partnership will be acquiring the economic, political and social pillars in contrast to a zero-sum outcome that might make them enemies again.

During the past 20 years, the relationship has been unbalanced – neither white nor black, neither fish nor flesh, neither friends nor foes. But the global environment has actually been similarly irregular. In the coming 20 years, the unevenness may as well come to end, with the new world order bringing a new balance of forces and new rules of the game.

Will Russia and the US become equal friends or equal enemies, equal and meaningful participants in global governance (of course, if the globalization trend remains)? Will their role grow or shrink as a whole?

To a large extent, the answer depends on the generation entering the foreign service of the two countries.

Regarding the generational shift as a major factor, the Russian International Affairs Council (RIAC) has formed a working group on Russian-American relations made of still young (30-40 years of age) foreign policy professionals.

The Working Group aims to assess the interests of the two countries in the changing world, review the partnership opportunities, and develop recommendations for political leaders pertaining to the dialog with the US and Russian public.

This paper offers results of the Working Group's first brainstorm timed to the meeting of Russian President Vladimir Putin and US President Barack Obama at the G8 Summit in Northern Ireland.

Working Group members:

Ivan Timofeev (RIAC) – Executive Secretary of the Working Group; Fyodor Voiltolovsky (Institute of World Economy and International Relations); Natalie Yevtikhevich (RIAC); Elena Zinovyeva (MGIMO-University); Victoria Zhuravlyova (Institute of World Economy and International Relations); Igor Istomin (MGIMO-University); Pavel Kanevsky (Moscow State University); Gevorg Mirzayan (Expert magazine); Dmitry Suslov (Higher School of Economics); Andrey Sushentosv (MGIMO-University); Mikhail Troitsky (MGIMO-University); Alexei Fenenko (Moscow State University); Sergey Utkin (Institute of World Economy and International Relations); Pavel Sharikov (RAS Institute for U.S. and Canadian Studies); Oleg Shakirov (Diplomatic Academy of the Foreign Affairs Ministry)

The opening session was chaired by RIAC Director General Andrey Kortunov.

Changing Emphases

RIAC Workshop " Russian-American Relations
in the Context of Scheduled Putin-Obama
Meetings"

There is a tradition to discuss relations between Russia and the US in a preset succession. Naturally, missiles come first. Strategic stability focused on nuclear containment has been the dialog's driver since the Cold War. And for some obscure reason we wonder why the Cold War burden keeps looming over the relationship. Things can hardly be different with the agenda unchanged for as long as 20 years. Details and tactical outcomes do get modified but the very logic remains untouched. Nuclear containment comes first and only then all other issues.

Such conservatism is quite explicable as the two states possess enormous nuclear arsenals. America can by no means discard even the theoretical challenge of being obliterated by a preventive or a reciprocal Russian nuclear strike. Alongside security, Russia is anxious about prestige, since mutually assured destruction is one of its few global policy tools.

Against the backdrop of the focus on nuclear and missile issues, we do fail to adequately address the new security challenges, alternative factors of strategic stability, and regional security.

Finally, the economic dialog and humanitarian cooperation seem to be on the verge of oblivion. Most gatherings of politicians, diplomats and experts boil down to mutual lamentations over low trade turnover, minuscule two-way investments and relatively inert humanitarian cooperation. Although better than in the bipolar confrontation times, the situation still fails to match the potentials of the two countries.

Thus, we have a hierarchy of priorities where nuclear containment dominates, new challenges and threats make a subject for discussion, while economy and humanitarian issues are in the backburner.

We suggest altering the existing logic, radically and at the same time gradually. The priorities should be arranged proceeding from the viable and preferred future but not from the past experiences. In contrast to the short-lived reset, this is the only path to a breakthrough and a step-by-step modification of the entire system of relations.

Starting out from the past is quite normal for human mentality, since the past is palpable along the lines of the good and the evil. The future is something more indefinite, hence building anything on its basis seems somewhat risky. Dealing with a desired future is even more difficult. Debating the desirability of the past is the realm of historians, while the desired future is the subject for politicians or even statesmen whom one may come across less frequently. We are going to dwell on various interests that may diverge not so much on the state level but rather between different groups inside the two countries. Moving against the existing order is a major domestic policy risk. However, if we fail to do so now, history and events will make the choice instead, a choice not necessarily to our liking.

Future Challenges

What is going to define the future of international relations and how could it affect the hierarchy of priorities in the Russia-U.S.A. interaction?

International relations grow increasingly dependent on factors beyond traditional competencies of the foreign services, with the "war and peace" paradigm turning increasingly multidimensional. Today and in the foreseeable future, wars will be won and lost long before their start, while coalitions will be formed with the account of broader interests.

Technologies, human resources, governance and attraction of ideas are gaining ground as factors of international relations. Although they had been important in the past too, the specifics of today and tomorrow are in the growing rate of change, with the fate of the USSR providing an illustrative example. The mammoth military power collapsed instantaneously under the pressure of mounting technology backwardness peaked at a certain point, demonstrating the paralysis of governance and moral degradation. Twenty years after the rate of change became so high, that the same destiny could become a reality even for most advanced states, including the US, future international relations will also feature rising nonlinearity of political processes expressed in the disproportion of efforts and outcomes. The phenomenon is not exactly new but the accelerating change makes it significantly graver.

In practice, it means that the US and Russia are still unable to ensure their sovereignty and security at the level of military threat common for the 20th century when the two states regarded each other as potential enemies. Both countries are simultaneously facing a multitude of other challenges, which cannot obliterate them instantly like a nuclear strike but will eat away their bodies like viruses, both from inside and outside. Once, the viruses will multiply to the numbers when the body gets critically ill or dies for some minor cause.

Just a few examples:

One is deindustrialization, loss of industrial competences, virtualization of economy and snowballing dependence on global finances. In Russia and the U.S.A. these processes featured basically different causes and social costs. At the same time, Russia has lost many technologies and a lot of its scientific potential, drifting into a developing country. The US safety margin is greater, although in future both will suffer from the loss of the real economy.

Two is the growing vulnerability to cyber threats in a broad sense, i.e. from cyber-terrorism to propaganda of extremism. In future, sovereignty, security and viability of states will be directly related with the ability to rebuff information threats and at the same time employ information technologies for development.

Three is disproportionally high and still growing influence of regional crises and problems on the security of both the US and Russia. Just one such headache as Afghanistan has made America overstretch its resources, while for Russia the situation is fraught with soaring risks in Central Asia. Annual human losses from Central Asian narcotics match the World War II fatalities. What will the Arab Spring bring to the two countries? What may happen through aggravation in the South China Sea? What kind of consequences may be expected from a nuclear Iran and the regional nuclear arms race?

The list is far from complete, both for the present day and the times to come. The two countries see these problems differently and will face different effects, while the commonality is in the need to concentrate the resources, which means that the bilateral and multilateral relations should be streamlined to forgo the past and amass the resources for the needs of the future.

Working paper "On the Qualitative
Transformation of Russian-American Relations
on Strategic Issues"

One more common effect is in the growing diversity of challenges and threats that should inevitably require provision of traditionally domestic agencies – from the FBI and the FSB to education and health authorities – with foreign policy functions. As a result, Russian-American relations would need major departmental and institutional diversification, allocating much more substance to the relations beyond both presidential offices, the Ministry of Foreign Affairs and Department of State.

Advancing the bilateral relations for the sake of the relationship seems hardly sensible, since friendship for the sake of friendship has never worked in the anarchic world of foreign policy. Hence, we should outline the core interests of the two countries. At the same time, interests are never objective as they are formulated by concrete figures engaged in political decision making, which implies that the vision and hierarchy of interests could be transformed through the prism of the current and future problems.

We suggest the following succession of interests and appropriate items of the bilateral agenda: one – economic and humanitarian interests, two – regional and functional security challenges, and three – strategic stability. This paper is devoted to Priority One.

Go Economy!

Even a non-Marxist understands that economic bonds are stronger than political declarations, even more so that Russia's key foreign policy interest may be found in the economy and development.

The point is in overcoming backwardness, executing all-out modernization, and launching development of Russian economy and social infrastructure [1]. In strategic terms, Russia's national security hinges on the ability to build an efficient and diversified economy fit to fill the domestic needs and niches in the global economy. If Russia fails to create an advanced economy, its weapons will become irrelevant. The defense sector itself is breaking up fast in the absence of the state-of-the-art technological environment, skilled personnel and proper management, which means that Russia needs peaceful or at least neutral relations with others. And especially critical are economic ties with the industrialized world led by the US.

As far as Russian-American economic relations are concerned, technologies and investments have become a mantra both for diplomats and experts. The approach is far from fresh, but there is still a lot to be done. Russia's WTO membership has had feeble impact on the bilateral dialog, while abrogation of the Jackson-Vanik amendment has been virtually unnoticed in Russia, as Russians prefer to focus on the Magnitsky Act, not without reason but still with economy sacrificed to politics. Russian companies still have poor access to many U.S. technologies, which is also understandable since Russia is still mistrusted and seen as a potential enemy.

Skeptics would readily draw a lot of other problems. The Russian market is not as large and promising as Chinese, Indian or even Brazilian, while the political risks are perceived by American investors as fairly high and tending to get higher. Russian economy is becoming more and more primitive, whereas many other emerging markets get more sophisticated and multi-tiered. Of no minor importance is clumsiness of some government bodies and poor labor productivity against the backdrop of high labor costs.

All these factors inevitably diminish the scope for the would-be U.S. investments, making Russia a priori a junior economic partner. The junior-partner phobia seems to dominate in establishment of Russia's priorities, as the focus is on the areas where Russia is still equal rather than on those where Americans dominate. Tactically correct, the approach is wrong in strategic terms because sooner or later the economic lag will make Russia junior in other areas as well, or even place the country outside any partnership.

Russia should admit the need to take over the US organizational and governance practices. Definitely, America is not a charity and Russia is neither a child nor an old-age pensioner but an independent actor. Just like any other country, the US will not assist Russian development for nothing. And this is exactly where American interests lie, i.e. to obtain a diversified and growing market for their goods, technologies and solutions. Russia's task in the game appears avoiding the slide of economic interaction to the center-periphery relationship.

In order to achieve the goal, Russia should develop a balanced and long-term policy, go beyond the limits of the existing templates, take nonstandard decisions and consistently implement them, with open-eyed understanding that changing the economy would require prolonged and painstaking efforts.

What kind of decisions and actions should follow?

One: long-term systemic work to develop Russia's human potential and a broad range of competencies on the basis or in partnership with American universities and corporations.

Economy is built and managed by concrete figures separated by the language barrier, as well as by the level of knowledge and skills. Sufficiently flexible and open, the U.S. education and business organization system provides the Russians with immense opportunities to expand their competencies. Certainly, the system cannot and should not replace Russian institutions, but their rapprochement will considerably increase the competitiveness of Russian educational and commercial organizations. The process will also benefit the Americans who will better understand Russia and capacity of its economy.

The systemic work should replace the haphazard and chaotic brain drain. With lot of Russian specialists settled in the US, Russia has been suffering massive losses. Russia cannot put up another Iron Curtain to curb intellectual migration. At the same time, losing them should entail extended degradation. Instead, they should be given an opportunity to obtain knowledge in the US and other countries and then return to Russian companies, agencies, universities and NGOs for propagation of the acquired skills.

To this end, we propose to:

A) review the exact needs of Russian companies, agencies and NGOs in various specialists; systematize deficient competencies; and identify American universities, training centers and corporations where these competencies are obtainable. The task would require engagement of the Ministry for Economic Development, Ministry for Education and Science and Agency of Strategic Initiatives with assistance of the Russian Union of Industrialists and Entrepreneurs, on the Russian side, and the Association of American Universities, American Chamber of Commerce and other institutions, on the American side;

B) review the existing partnership programs of Russian and American universities (double degrees, etc.); identify the best practices; prepare recommendations for Russian and American universities and research centers that are still outside the bilateral or multilateral cooperation; and establish monitoring of the current double-degree programs. Involvement of the Ministry for Education and Science will be required from the Russian side;

C) set up a foundation to sponsor education and advanced training of Russian specialists in the U.S.A. with their compulsory return to Russia to fill specified positions in state and private companies, agencies and NGOs. The foundation should be financed by Russian business on equal basis with government participation, and coordinated with existing projects, for example with Skolkovo, which should receive signals about the commitment for its preservation, since its collapse would make a bad sign for the entire bilateral relationship.

D) launch systemic engagement of Russian technology and science diaspora in the US. Since many intellectual migrants are eager to participate in Russian projects, they could play a critical role in strengthening Russian-American economic relationship. While reviewing Russian personnel requirements, the diaspora should be adequately treated and brought into in the process. The task appears quite feasible on the basis of Internet technologies.

Two: advancement of Russian exporters coupled with American corporations to the third-country markets.

There still are quite many Russian industrial and technology companies wanted at potential foreign markets. Since unilateral efforts are not always fruitful, their advance to these markets in partnership with American corporations could result in acquisition and use of US standards and competencies, creation of competitive products, and obtaining a share of the market and the added value. Even with a junior role, Russia should benefit more from a scheme like that than from absence of such projects. The primary target group is not big business capable of both partnership-based and solitary action but the above-medium and medium firms whose potential is significantly underused.

As a minimum, we propose to:

A) identify the interested Russian companies proceeding from the exporters' database of the Ministry for Economic Development; define promising market niches in the third countries and areas where such companies could be assisted by American corporations;

B) make up a database of success stories within this model; define factors of success and requirements to such projects. The initiative could be implemented by a leading Russian business school in partnership with the Russian-American Business Council and American Chamber of Commerce.

C) arrange a number of presentations of these projects; attract American and other partners; and then launch a pilot series. Most desirable seems political support of the Russian Government and Russian foreign trade missions in the target countries.

Three: protection of investments and building the trust of investors and partners

The issue of trust has been voiced at practically every gathering on bilateral economic relations because the market is most particular about the matter. Unfortunately, American corporations are losing confidence to the Russian market, which means that the trend should be turned around in order to promote access to technologies, attraction of capitals and implementation of joint projects. Any kind of formal intergovernmental agreements is hardly needed, while deeds are essential to produce signals that the situation is changing to the better.

As a minimum, we propose to:

A) engage the Russian Union of Industrialists and Entrepreneurs or Association of Russian Managers jointly with a Russian and an American university for launching continuous monitoring of problems facing American businesses in Russia, Russian businesses in the US, and their joint operations in the third countries; set up a database for problem cases; and analyze each case individually in the form of a substantive brief, with all information posted in the Internet. Alternatively, also viable seems establishing and updating a mutual trust index for investors. Initially, the situation might appear unsavory but knowledge is better than guesswork or stereotypes.

B) organize dedicated updating of American business circles on litigations related to US investments. The US and other Western countries are predominantly of adverse opinion about the right of ownership and the judiciary in Russia, which implies the need to overcome the stereotype and ensure the elimination of malfunction in specific areas. The same is also feasible toward Russian investments in the US. The initiative could be set up as a separate project provided with a continuously updated database in the Internet.

C) accelerate conclusion of an agreement on mutual protection and promotion of investments.

To sum up, economic relations should top the relationship's list of priorities, its fabric to be woven with dynamic participation of the businesses of the two countries, while the government role is essential for creating a favorable political, legislative and expert environment.

***

Multipolarity of the modern world has long become an issue of broad consensus in the expert community. The existing centers of force differ in status, their weight and role defined by varying potentials and capabilities. On the one hand, multipolarity appears more fair and democratic than a unipolar or a bipolar system, provided international law and its application are effective. However, if such mechanisms are faulty, which today actually seems to be the case, multipolarity generates numerous risks related to greater anarchy in international relations, uncertainty, chaos and unpredictability in relationships between actors. In an environment like that, it is the economy and trade that should become the safety belt in relations between states, with Russia and the US by no means making exclusion. Although the bilateral economic relationship is not yet able to produce a safety mechanism like that, efforts to this end should continue, while the result will come with time.

Also significant is the fact that after the obvious overstrain in the 2000s and attempts to play on all chessboards at once, the US now must concentrate its resources on the key issues. America is sure to benefit from lowering the foreign policy uncertainty zones as far as possible. The Obama administration quite sensibly prefers coalitions to unilateral action, while America needs reliable and predictable partners, if not allies. Despite all our bilateral difficulties, the US demand for partnership with Russia in various part of the globe should grow and become persistent toward the new threats like cyber-security. Russia also has its regional and functional priorities, and in many cases the two sides may either get closer or at least do not hamper each other.

The Working Group will examine the problems of regional security, new challenges and strategic stability at its two following gatherings, with the brainstorm summary to be issued on the eve of the meeting between Russian and American presidents next September.

1. See Postulates on Russia's Foreign Policy (2012-2018) // RIAC Reports, №4, 2012. /inner/?id_4=618#top