Russia under Vladimir Putin

A tsar is born

As the world marks the centenary of the October Revolution, Russia is once again under the rule of the tsar
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Russia under Vladimir Putin

SEVENTEEN years after Vladimir Putin first became president, his grip on Russia is stronger than ever. The West, which still sees Russia in post-Soviet terms, sometimes ranks him as his country’s most powerful leader since Stalin. Russians are increasingly looking to an earlier period of history. Both liberal reformers and conservative traditionalists in Moscow are talking about Mr Putin as a 21st-century tsar.

Mr Putin has earned that title by lifting his country out of what many Russians see as the chaos in the 1990s and by making it count again in the world. Yet as the centenary of the October revolution draws near, the uncomfortable thought has surfaced that Mr Putin shares the tsars’ weaknesses, too.

Although Mr Putin worries about the “colour” revolutions that swept through the former Soviet Union, the greater threat is not of a mass uprising, still less of a Bolshevik revival. It is that, from spring 2018 when Mr Putin starts what is constitutionally his last six-year term in office after an election that he will surely win, speculation will begin about what comes next. And the fear will grow that, as with other Russian rulers, Tsar Vladimir will leave turbulence and upheaval in his wake.

Firm rule

Mr Putin is hardly the world’s only autocrat. Personalised authoritarian rule has spread across the world over the past 15 years—often, as with Mr Putin, built on the fragile base of a manipulated, winner-takes-all democracy. It is a rebuke to the liberal triumphalism which followed the collapse of the Soviet Union. Leaders such as Recep Tayyip Erdogan of Turkey (see article), the late Hugo Chávez of Venezuela and even Narendra Modi, India’s prime minister, have behaved as if they enjoy a special authority derived directly from the popular will. In China Xi Jinping this week formalised his absolute command of the Communist Party.

Mr Putin’s brand of authoritarianism blazed the trail. It evokes Russia’s imperial history, offering a vivid picture of how power works and how it might go wrong.

Like a tsar, Mr Putin surmounts a pyramid of patronage. Since he moved against the oligarchs in 2001, taking control first of the media and then of the oil and gas giants, all access to power and money has been through him. These days the boyars serve at his pleasure, just as those beneath them serve at their pleasure and so on all the way down. He wraps his power in legal procedure, but everyone knows that the prosecutors and courts answer to him. He enjoys an approval rating of over 80% partly because he has persuaded Russians that, as an aide says, “If there is no Putin, there is no Russia.”

Like a tsar, too, he has faced the question that has plagued Russia’s rulers since Peter the Great—and which acutely confronted Alexander III and Nicholas II in the run-up to the revolution. Should Russia modernise by following the Western path towards civil rights and representative government, or should it try to lock in stability by holding fast against them? Mr Putin’s answer has been to entrust the economy to liberal-minded technocrats and politics to former KGB officers. Inevitably, politics has dominated economics and Russia is paying the price. However well administered during sanctions and a rouble devaluation, the economy still depends too heavily on natural resources. It can manage annual GDP growth of only around 2%, a far cry from 2000-08, which achieved an oil-fired 5-10%. In the long run, this will cramp Russia’s ambitions.

And like a tsar, Mr Putin has buttressed his power through repression and military conflict. At home, in the name of stability, tradition and the Orthodox religion, he has suppressed political opposition and social liberals, including feminists, NGOs and gays. Abroad, his annexation of Crimea and the campaigns in Syria and Ukraine have been burnished for the evening news by a captive, triumphalist media. However justified, the West’s outrage at his actions underlined to Russians how Mr Putin was once again asserting their country’s strength after the humiliations of the 1990s.

What does this post-modern tsar mean for the world? One lesson is about the Russian threat.

Since the interference in Ukraine, the West has worried about Russian revanchism elsewhere, especially in the Baltic states. But Mr Putin cannot afford large numbers of casualties without also losing legitimacy, as happened to Nicholas II in the Russo-Japanese war of 1904-05 and in the first world war. Because today’s tsar knows history, he is likely to be opportunistic abroad, shadowboxing rather than risking a genuine confrontation. The situation at home is different.

In his time in power Mr Putin has shown little appetite for harsh repression. But Russia’s record of terrible suffering suggests that, whereas dithering undermines the ruler’s legitimacy, mass repression can strengthen it—at least for a time. The Russian people still have something to fear.

Mother Russia’s offspring

The other lesson is about succession. The October revolution is just the most extreme recent case of power in Russia passing from ruler to ruler through a time of troubles. Mr Putin cannot arrange his succession using his bloodline or the Communist Party apparatus. Perhaps he will anoint a successor.

But he would need someone weak enough for him to control and strong enough to see off rivals—an unlikely combination. Perhaps he will try to cling to power, as Deng Xiaoping did behind the scenes as head of the China Bridge Association, and Mr Xi may intend to overtly, having conspicuously avoided naming a successor after this week’s party congress. Yet, even if Mr Putin became the éminence grise of the Russian Judo Federation, it would only delay the fatal moment. Without the mechanism of a real democracy to legitimise someone new, the next ruler is likely to emerge from a power struggle that could start to tear Russia apart. In a state with nuclear weapons, that is alarming.

The stronger Mr Putin is today, the harder he will find it to manage his succession. As the world tries to live with that paradox, it should remember that nothing is set in stone. A century ago the Bolshevik revolution was seen as an endorsement of Marx’s determinism. In the event, it proved that nothing is certain and that history has its own tragic irony.


Endowments Boom as Colleges Bury Earnings Overseas

American universities are using offshore strategies to swell their coffers, skirt taxes and obscure investments that could spark campus protests.

By STEPHANIE SAUL


In 2006, the endowments of Indiana University and Texas Christian University invested millions of dollars in a partnership, hoping to mint riches from oil, gas and coal.

The partnership was formed by the Houston-based Quintana Capital Group, whose principals include Donald L. Evans, an influential Texan and longtime supporter of former President George W. Bush. Little more than a year earlier, Mr. Evans had left his cabinet position as commerce secretary.

Though the group had an impressive Texas pedigree, presidential cachet and ambitions for operations in the United States, the new partnership was established in the Cayman Islands. The founders promised their university and nonprofit investors that the partnership would try to avoid federal taxes by exploiting a loophole called “blocker corporations,” which are typically established in tax havens around the world.

A trove of millions of leaked documents from a Bermuda-based law firm, Appleby, reflects some of the tax wizardry used by American colleges and universities. Schools have increasingly turned to secretive offshore investments, the files show, which let them swell their endowments with blocker corporations, and avoid scrutiny of ventures involving fossil fuels or other issues that could set off campus controversy.

Buoyed by lucrative tax breaks, college endowments have amassed more than $500 billion nationwide. The wealth is concentrated in a small group of schools, tilting toward private institutions like those in the Ivy League and other highly selective colleges. About 11 percent of higher-education institutions in the United States hold 74 percent of the money, according to an analysis in 2015 by the Congressional Research Service.

“It’s overwhelmingly weighted towards the 1 percent,” said Dean Zerbe, former tax counsel to the Senate Finance Committee. “Most of the schools are the most elites in the country.”

The House Republican tax plan includes a 1.4 percent tax on the investment income of private colleges and universities with endowment assets of $250,000 or more per student. It would not apply to public schools. If passed, the new tax would affect about 70 elite private colleges, though it would not touch the type of offshore benefits the Texan partnership pursued.

On Monday, 45 education groups declared their opposition to the bill in a letter to Kevin Brady, the Texas Republican who chairs the House Ways and Means Committee.
 


Indiana University also put money into the Cayman Islands partnership, which was designed to exploit a loophole that would avoid federal taxes in the United States. Credit Luke Sharrett for The New York Times


Tax ‘Blockers’

College and university endowment earnings are usually tax-exempt. But as endowments have sought greater investment returns in recent years, they have shifted more of their money out of traditional holdings like United States equities to alternative, potentially more lucrative investments. These include private equity and hedge funds that frequently borrow money, opening them up to tax consequences.

When schools earn income from enterprises unrelated to their core educational missions, they can be required to pay a tax that was intended to prevent nonprofits from competing unfairly with for-profit businesses.

Establishing another corporate layer between private equity funds and endowments effectively blocks any taxable income from flowing to the endowments, the reason they are called blocker corporations. The tax is instead owed by the corporations, which are established in no-tax or low-tax jurisdictions like the Cayman Islands or the British Virgin Islands.

“Congress is essentially subsidizing nonprofits by allowing them to engage in these transactions,” said Norman I. Silber, a law professor at Hofstra University who co-authored a paper on blocker corporations in 2015. “They’re allowing them to borrow so that they can build up their endowments.”

The use of blocker corporations has raised concerns among policymakers in recent years.

That’s partly because they cost the United States Treasury millions of dollars, but also because they legitimize an opaque offshore network sometimes used for nefarious purposes.

“They’re not cheating. They’re not hiding money or disguising money,” said Samuel Brunson, a law professor at Loyola University Chicago who has studied endowment taxation. “But they’re adding money to a system that allows people, if they want to hide their money, to do it.”

Not only do the universities benefit — so does the wealthy and influential private equity industry.

Perhaps illustrating the sensitivity of the topic, officials at most of the college and university endowments that use blocker corporations, including Colgate, Dartmouth, Duke and Stanford, declined to comment specifically, citing longstanding policies against discussing their investments. Among them was Matt Kavgian, the director of strategic communications for Indiana University’s $2 billion endowment, which had invested $10 million with Quintana.

An exception was the Quintana shareholder Texas Christian University, whose chief investment officer, Jim Hille, acknowledged that the $1.5 billion endowment had used blocker corporations. Mr. Hille said the decision to use one often came down to whether the expected return would offset the cost of establishing a blocker corporation.

References to such corporations in the Appleby files, shared with The New York Times by the International Consortium of Investigative Journalists, which obtained them from the German newspaper Süddeutsche Zeitung, date back at least to 2003. At that time, five elite schools — Columbia University, Dartmouth College, the University of Southern California, Stanford University and Johns Hopkins University — became partners in a Bermuda-based group called H&F Investors Blocker.

H&F Investors Blocker was formed to invest with one of the largest private equity firms, Hellman & Friedman, in shares of Axel Springer, a German publisher of newspapers and magazines.

Minutes from meetings at Appleby’s office in Hamilton, Bermuda, never mention tax avoidance or even explain why the word “blocker” is used in the partnership’s title. But an audit by Ernst & Young, contained in the minutes, shows that H&F Investors Blocker would owe no federal income tax.

By 2008, the University of Texas system — whose endowment last year was $24.2 billion, behind Harvard’s ($34.5 billion) and Yale’s ($25.4 billion) — asked Appleby to set up a Cayman Islands company called TX Liquidity Capital so “certain tax advantages will accrue to the system,” documents show.

Colgate University, with an endowment worth $822 million last year, stood to benefit from blocker corporations in 2008 when it invested in Genstar Capital, a private equity fund specializing in leveraged buyouts, according to the records. One investor in that Cayman Islands partnership, called Genstar Capital Partners V HV, took pains to include a handwritten a note near his signature: “elect to invest through the blocker.” Other investors were Dartmouth, Stanford and a Duke fund called Gothic Corporation.


In 2003, Dartmouth College became one of five schools to invest in a Bermuda-based group that would owe no federal income tax on its investments. Credit Ian Thomas Jansen-Lonnquist for The New York Times 

A Shift in Public Attitude

While legal, blocker corporations are part of a system of endowment tax breaks fueling an undercurrent of populist anger. Many students across the country struggle under massive college debt. At the same time, critics say, some wealthy schools use these tax advantages to stockpile endowments that exceed the gross national product of entire countries.

Last year, three influential Republican legislators, led by Senator Orrin G. Hatch of Utah, sent a letter to 56 private universities with endowments of $1 billion or more, requesting information on “the numerous tax preferences” they enjoy. “Despite these large and growing endowments,” the letter said, “many colleges and universities have raised tuition far in excess of inflation.”

So far, universities have mobilized lobbyists to emphasize the public benefits they deliver, beating back challenges to their tax breaks. But there is some evidence that the mood has shifted, according to Charlie Eaton, a professor at the University of California, Merced, who has studied endowment tax breaks.

“In some ways, the anti-elite and anti-university spirit of Trumpism could create a favorable environment on Capitol Hill for some kind of action on this,” Dr. Eaton said. “That’s part of the reason universities urgently need to grapple with this. Because people genuinely feel that our elite universities have become islands of wealth.”

In a study this year, Dr. Eaton estimated that a trio of tax breaks benefiting universities costs federal taxpayers $19.6 billion a year. Taxpayers, many of them wealthy, get breaks when they donate to colleges. Tax-free municipal bonds allow schools to borrow money at low rates. And for the most part, endowment investment returns are tax-free.


Columbia University’s investment fund held shares in a company, registered in the Isle of Man, that generated controversy over a pipeline project in Brazil. Credit Karsten Moran for The New York Times 


Controversial Ventures

Multiple Appleby documents offer a glimpse into the complex financial transactions and investments, some controversial, that university endowments engage in all over the world, aside from using blockers.

Universities have been under pressure from both students and activists to shift to “green” investments in response to climate change, as well as to take social policy and global governance issues into account in investments.

The Appleby records show that investment funds of Columbia and Duke, both ranked in the top 20 endowments, held shares as recently as 2015 in Ferrous Resources, registered in the Isle of Man. Its primary business is iron mining in Brazil.

The company drew criticism there with a planned 480 kilometer pipeline to transport iron slurry from a mine in Minas Gerais to a port.

“Major demonstrations took place against this project, which culminated in the creation of a campaign,’” researchers wrote in a 2015 paper published in the journal Society & Nature.

A 2010 environmental study of the pipeline revealed that more than 110,000 people might be affected by noise, dust, soil degradation and water quality issues. The project was postponed in 2012 after a downturn in iron prices.

The company, Ferrous Resouces, declined to comment, except to say that the project had been discontinued.

Columbia, which owned more than eight million shares in Ferrous Recources, or 1.1 percent of the company, declined to comment. Various investment funds connected to Duke, which also declined to comment, held more than two million shares in the company.

While some schools have announced shifts away from controversial investments, others have pointed out that divesting from fossil fuels would probably lead to a significant drop in operating funds.
 
Underscoring endowments’ reliance on hydrocarbon holdings, 10 schools invested in a Cayman Islands partnership in 2012 known as EnCap Energy Capital Fund IX-C, part of EnCap Investments, a private equity firm known for the acquisition and development of North American oil and gas properties.

Among the investors were the University of Alabama, DePauw, Northeastern, Pittsburgh, Purdue, Reed College, Rutgers, Syracuse, Texas Tech and Washington State.


The North Caucasus: Russia’s Soft Underbelly


Summary

In last week’s Deep Dive on the South Caucasus, we explained how the region’s unforgiving, mountainous terrain has served as both borderland and battleground for empires. This Deep Dive will focus on the North Caucasus, the relatively flat region above the Greater Caucasus mountain range whose terrain has made it vulnerable to Russian domination. Moving forward, however, the weakening of Russia and the re-emergence of political Islam means the region will likely pose a security threat to the Kremlin.
 
The Region
In sharp contrast with the South Caucasus, the North Caucasus is not composed of separate sovereign states. Instead the North Caucasus is an integral part of Russia, divided between two of the Russian Federation’s eight districts – the North Caucasian Federal District and the Southern Federal District. Most of the region belongs to the North Caucasian district, which split from the Southern district in 2010, a year after the end of the Second Chechen War. With the Southern district lying largely to the north, the North Caucasian district is the only Muslim-majority district in the federation.
 
 
The North Caucasus stretches from the Caspian Sea in the southeast to the Sea of Azov in the northwest. The westernmost part of the area, composed of Krasnodar region and the enclave of Adygea, lies within the Southern district. Krasnodar consists mainly of flat lands, which allowed Russia to more easily slavicize the territory after the forced exodus of its Circassian inhabitants in the late 19th century. The rest of the North Caucasus region – the North Caucasian district – has maintained its distinct Muslim identity and hence was configured into a single federal district. This district runs from Krasnodar to the Caspian Sea and consists of the republics of Karachay-Cherkessia, Kabardino-Balkaria, North Ossetia, Ingushetia, Chechnya and Dagestan. The region of Stavropol – sandwiched between Krasnodar in the west and Dagestan in the east, and sharing borders with each of the other republics in the south – and North Ossetia are the only majority ethnic Russian and Orthodox Christian units within the North Caucasian district.
 
 
This current administrative arrangement of the North Caucasus is the outcome of the Russians’ centuries-long struggle to subdue this region. Until the North Caucasus was brought to heel during the time of the czarist regime in the late 19th century, the region was what noted Caucasus and Central Asia scholar Marie Bennigsen Broxup referred to as a “barrier” that separated Russia from the heart of the Muslim world. At the same time, the mountainous terrain kept major Muslim powers to the south, such as the Ottoman Turks and the Safavid (and later Qajar) Persians, from truly accessing this region. Though both the Turks and the Persians had sought to expand into the Caucasus region, neither side was able to move past the South Caucasus.

By the 18th century, both the Ottomans and the Persians lacked the modern political, economic and military capabilities Russia and the other Europeans had acquired. Furthermore, they were embroiled in a bitter rivalry in the Middle East, and the Turks were heavily committed in Europe where they were starting to lose territory. Ultimately, the Ottomans and Persians were unable to seize the massive Greater Caucasus mountain range. The Russians, however, had no such trouble. Though a lengthy undertaking, Orthodox Christian Russia was much better positioned to eventually occupy the North Caucasus.
 
Russian Conquest
From a strategic point of view, Russia must control at least the North Caucasus, and ideally the South Caucasus, because these areas are buffer regions; should they fall into hostile hands, the entire Russian core would become vulnerable. These areas, however, have historically proven difficult to control because of both the terrain and the locals. 
 
 
Ivan the Terrible’s 1556 conquest of Astrakhan (an area of the North Caucasus that lies along the northwestern tip of the Caspian Sea) sparked Russian interest in the region. During this initial thrust into the North Caucasus, which lasted until 1604, the Russians reached as far as Dagestan, thanks to the flat terrain in the region’s northern half. This invasion did not last, however. The Ottomans, who were still a powerful force at the time,  supported the Dagestanis against the Russian incursion. The Russians were forced to pull back to Astrakhan.

From 1604 to 1783, the region was more or less left to its own devices. Russia had turned its focus to Europe, and the Turks were tied down in their wars with the Persians. This relative isolation allowed Islam, which had been present in the area since the 8th century, to spread rapidly through the central and western parts of the North Caucasus – in large part because of the halt of the Russian efforts to penetrate the area and the support of the Ottoman Turks and the Crimean Tatars.

Under Catherine II, Russia was able to project power into the North Caucasus. From 1783 to 1824, Russia engaged in a systematic campaign to conquer the region. Between 1785 and 1791, the Russians faced massive resistance from the forces of the Ottoman-backed Chechen Sufi leader Sheikh Mansour, who managed to unite much of the North Caucasus. After a major defeat at the hands of these Muslim warriors, on the banks of the Sunzha River in 1785, the Russian army, buoyed by its victory in the Napoleonic Wars, was able to come back and subdue the resistance. Though ultimately defeated, the uprising established among the locals that Islam could serve as both a unifying force and the basis of armed resistance.

This experience led to a series of jihad-inspired campaigns that continued until the establishment of the Soviet Union in 1922. During this time, the North Caucasus saw the decline of the traditional feudal elite and the rise of Sufi orders, further entrenching Islam within the political fabric of the North Caucasus. The U.S. Army’s Command and General Staff College scholar Robert F. Baumann explains how Russian efforts to complete their conquest of the region were complicated, as religious fervor proved to be an effective mobilizer of anti-Russian resistance. But though Islamic resistance made the conquest of the region more costly to the Russians, it failed to block the conquest completely.

The ramifications of the Russian conquest of the North Caucasus is not dissimilar to that of British and French colonialism in India and Africa, respectively. As former CIA and national security official Paul Henze notes in a 1996 article, Russian colonialism brought order and development to the North Caucasus – an otherwise chaotic region of tribal highlanders cut off from the rest of the world. Indeed, Moscow provided the region with modern infrastructure in the form of roads, railroads, ports and urban centers, but only after a long campaign to suppress local dissent.

Unlike most other European powers that sought colonies in distant lands, the Russians sought to control a land much closer to home. Indeed, the Caucasus was on Russia’s doorstep, and thus, it was imperative that the Russians fully assimilate the area. They spent a great deal of time trying to convert the people of the region to Orthodox Christianity, operating on the assumption that conversion would aid in assimilation. Ultimately, that policy backfired. Despite the fact that there were many ethno-linguistic groups that inhabited this region, a majority of them had been Muslim for centuries.
 
 
Affinity to religion varies considerably across the region. Islam plays an important role in the identity and ideology of the Chechens and the Dagestanis in the east. Yet, as one moves west, religious fervor tends to taper off. Beyond Islam, there is little commonality among the various peoples of the North Caucasus. They are divided along clan, ethnic, linguistic and territorial lines, and the Russians sought to exploit these differences.

At the social level, traditional feudal Muslim elites and religious scholars sought to preserve their power through two sets of laws. The former emphasized customary laws, while the religious leaders sought to increase their influence by promoting Shariah, or Islamic law. Until the arrival of the Russians, these two competing forces were largely able to coexist.

According to Loyola University historian Michael Khodarkovsky, Russia pursued a complex strategy in its effort to take over the North Caucasus region. In some instances, the Russians found allies. But in others, they resorted to force, especially in terms of the takeover of lands and expulsion of the locals. In need of local partners, Russia would often co-opt the feudal Muslim elite, transforming them into loyalists of Moscow through assimilation. Elites from the North Caucasus were sent to study in Moscow, where many embraced Orthodox Christianity and Russian culture. Yet these individuals did not help promote assimilation in the North Caucasus, as few returned home. By the latter half of the 19th century, the Russians realized they needed people to represent Russian interests in the North Caucasus, and Moscow began to support locals who held grievances toward the landed gentry.

The attempts to convert people of the region to Orthodox Christianity undercut the more crucial interests of securing loyalty to the empire. Attempts at conversion were obviously anathema to the Muslim clergy, but they also triggered opposition from within the traditional elite quarters. For the Russians, who saw conversion as part and parcel of their efforts to advance their imperial interests within the region, it was difficult to alter course. In addition to the need to secularize the process of assimilation, there was ambiguity on how the North Caucasus would be controlled by Moscow. Should it be fully absorbed into the empire as a full-fledged province or should it be treated as a colony?

As the Russians searched for the best way to administer the North Caucasus, the region experienced another outbreak of major resistance. The leader of this campaign was Imam Shamil, who in the mid-19th century established the Caucasian Imamate, an Islamic polity that sought to liberate the area from the Russians. The Russians were forced to recognize that the region’s legal traditions had to be incorporated into their new system of governance. But here the Russians found themselves caught in the existing duality between customary and Islamic laws. Siding with the clergy would have helped undermine the tendency toward armed religious resistance, but the Russians needed local interlocutors who would be willing to adopt Russian customs and thus preferred the local economic and political elites.

As a result, throughout the czarist era, Russia struggled with how best to manage the North Caucasus. The empire eventually succeeded in creating a pro-Russian elite class in the region because, for many local elites, the only path toward European modernization was through Russification. Yet the masses remained loyal to Islamic teachings, and the gulf between the elites and the masses widened. By the late 19th and early 20th centuries, however, the elites and the masses would find common cause through the fusion of religious identity with ethnic nationalism.
 
The Soviet and Post-Soviet Eras
Already isolated from the rest of the world by geography and Russian subjugation, the North Caucasus became more or less completely cloaked behind the iron curtain of communism and the Soviet Union. Well aware of the struggles their czarist predecessors had to face in the North Caucasus, the Soviets divided the region, lumping its various pieces into different Soviet Socialist Republics. The main Soviet Socialist Republic in the North Caucasus combined Chechnya and Ingushetia to form the Chechen-Ingush Autonomous Soviet Socialist Republic. Furthermore, the Soviets maintained a sophisticated and efficient coercive security establishment led by the KGB, allowing them to subdue this historically restive region.

Yet the Chechens openly expressed their discontent and, under the leadership of the nationalist guerilla leader Hasan Israilov, mounted an insurgency against the Soviet regime between 1940 and 1944. To suppress opposition, Soviet leader Josef Stalin ordered the mass displacement of people from the region after accusing the Chechens of having collaborated with the Nazis during World War II. In 1944, some 650,000 people from the region – most of whom were ethnic Chechens – were forced to relocate to Central Asia. The Chechen-Ingush Autonomous Soviet Socialist Republic was dissolved and its areas gerrymandered. It was not until the era of Soviet leader Nikita Khrushchev that efforts to make amends with the Chechens began. In 1956,  the Chechens were returned to their homes. Two years later, the Chechen-Ingush Autonomous Soviet Socialist Republic was restored.  

The region generally remained calm for the next three decades, only to erupt yet again in the early 1990s when 15 republics declared independence and the Soviet Union dissolved. The South Caucasus divided into three independent republics — Georgia, Azerbaijan and Armenia — along with a few disputed territories. But the Russians were not willing to allow the North Caucasus, especially Chechnya, which declared independence in 1991, to become sovereign entities. Two back-to-back wars ensued, the first lasting from 1993 to 1996 and the second from 1999 to 2009.

Initially, the Chechen wars were dominated by nationalists, who subscribed to the Sufi religious creed, seeking an independent Chechnya. Gradually, however, Salafists assumed greater control of the fighting against Russian forces. These jihadists eventually moved beyond the goal of establishing an independent Islamic Chechnya to pursue broader, transnational agendas including creating a regional Islamic state that would encompass the broader North Caucasus region. Inspired by al-Qaida and aided by the influx of many Arab foreign fighters, Chechen jihadists modeled themselves after the historic religious warriors who resisted Russians in the North Caucasus since the Russian incursions began in the 16th century. In 2007,  a regional movement called the Caucasus Emirate was founded.

With the rise of the Islamic State in Syria and Iraq, the Caucasus Emirate group has essentially become irrelevant. Many Chechen militants and those from other parts of the North Caucasus moved to Syria and Iraq to join the jihadist regime. This weakening of the Chechen insurgency in the late 2000s allowed the republic to establish a stable regime led by the Kadyrov clan, which has kept peace for at least a decade. The key to this stability is Russian President Vladimir Putin’s dedicated support of the Kadyrov regime.

If history is any guide, the peace in Chechnya and the wider North Caucasus right now is likely the calm before the next storm. The Islamic religion and the Islamist ideology remain social and political drivers and have forced Chechen leader Ramzan Kadyrov to increase the role of religion in public life in the republic. This trend, coupled with the declining Russian political economy, suggests that the region will likely see the revival of a Muslim insurgency seeking to exploit Russia’s weakening. If Russia can’t control this area then the other historic players — Turkey and Iran — are in even less of a position to do so.  


What Macron Means for Europe

'How Much Will the Germans Have to Pay?'

An Essay by Jürgen Habermas

French President Emmanuel Macron

AP French President Emmanuel Macron


Emmanuel Macron represents an opportunity for Europe, one the Germans would be wise to take advantage of. It is doubtful, though, whether Angela Merkel will be able to act on the French president's bold vision.

For Walter Benjamin, Paris was the capital of Europe. For Robert Menasse, the Austrian author with a penchant for both irony and defiance, it's Brussels' task to prove itself worthy of replacing it. That, though, is a fragile hope and Menasse - recently awarded the Deutscher Buchpreis, Germany's most prestigious literary award - tempered expectations in an interview with Berlin-based daily Die Tageszeitung by relating a telling anecdote about an evening with a German correspondent in a smoky café in Brussels frequented by journalists. He was sitting there when the journalist received his latest Brussels dispatch back from his Frankfurt-based editor with the injunction: "Your writing is too convoluted. Just write how much the Germans will again have to pay."

It would be hard to find a more succinct enunciation of the limited interest shown by German politicians, business leaders and journalists when it comes to shaping a politically effective Europe. A timid and compliant press has spent years abetting our political class in doing everything possible to avoid discomfiting the public at large with the issue of Europe. This disenfranchisement of the public could hardly have been better demonstrated than with the carefully abridged list of issues up for discussion in the single so-called debate between Chancellor Angela Merkel and her challenger, Martin Schulz, ahead of recent parliamentary elections. During the decade of the still smoldering financial crisis, the chancellor and her finance minister were likewise allowed to pose as true "Europeans" - in direct contradiction to the facts.

But now, Emmanuel Macron has appeared onstage and could - despite his flattering and considerate efforts at cooperating with a weakened chancellor currently under duress from her own party - lift the veil that has been draped over this smug self-deception. The "realistic" voices at Germany's most influential newspapers seem to be concerned that the words of the French president might open the German public's eyes to the emperor's new clothes: that people may begin realizing that the government in Berlin, with its vigorous economic nationalism, is actually wearing nothing at all.

In the first chapter of his recently published book, subtitled "How Germany Risks Losing a Friend," Georg Blume collects doleful examples from both politicians and journalists of the patronizing approach Germany has adopted in the meantime with regard to France and the French. From the very beginning, some commentaries on Macron have fluctuated between indifference, arrogance and anticipatory defensiveness. And aside from one cover story in DER SPIEGEL, the reaction in the German media to the French president's carefully crafted Europe speech ranged from weak to nonexistent.

It is the kind of material that would be perfect for a comedy, but the incoming coalition government in Berlin, which will likely include Merkel's conservatives, the business-friendly Free Democrats and the Greens, could transform it into a tragedy - if, for example, Christian Lindner of the FDP takes over the Finance Ministry and seeks to carry on in the vein of Wolfgang Schäuble. In a "non-paper" for the Eurogroup of finance ministers from the common currency zone, the erstwhile finance minister drafted a plan designed to block every compromise with the forward-looking initiatives put forth by the French president. In the paper, Schäuble links the establishment of a European Monetary Fund, as proposed by Macron, to the favorite ordoliberal dream of precluding democratic participation for those affected by withdrawing financial and economic policy from the realm of politics and placing it under the control of a technocratic administration.

Historically Unrivaled Opportunity

This is roughly the frustrated tone I am tempted to continue with. But the situation is far too serious for that, because the next German government (insofar as anyone still wants to play) must now take possession of the ball kicked into their half of the field by the French president. Even just pursuing a policy of delay or forbearance would be enough to gamble away a historically unrivaled opportunity.

Seldom have the contingencies of history emerged so prominently than with the unexpected rise of this fascinating - perhaps blindingly so, in any case extraordinary - person. Nobody could have predicted that an independent minister from the government of the previous French president, François Hollande, would be able to, in a kind of self-centered solo run, create a new political movement out of nowhere and upend an entire party system.

It was contrary to everything the pollsters thought they knew that a single person with no party attachment could succeed within the brief period of a political campaign in winning over a majority of voters with a confrontational platform of deeper European cooperation in opposition to a growing right-wing populism that every third French voter supported. The fact that someone like Macron would get elected in a country whose population has always been more skeptical of the European Union than Luxembourg and Belgium, more skeptical than Germany, Italy, Spain and Portugal, was simply not likely.

When looked at dispassionately, though, it is just as unlikely that the next German government will have sufficient far-sightedness to find a productive, a forward-looking answer when addressing the question Macron has posed. I would find some measure of relief were they even able to identify the significance of the question.

It's unlikely enough that a coalition government wracked by internal tension will be able to pull itself together to the degree necessary to modify the two parameters Angela Merkel established in the early days of the financial crisis: both the intergovernmentalism that granted Germany a leadership role in the European Council and the austerity policies that she, thanks to this role, imposed on the EU's southern countries to the self-serving, outsized advantage of Germany. And it is even more unlikely that this chancellor, domestically weakened as she is, will refrain from step forward to make clear to her charming French partner that she will unfortunately be unable to apply herself to the reform vision he has put forth. Vision, after all, has never been her strong suit.

On the other hand, and this is the question that I find most intriguing: Can Merkel, a strikingly intelligent, conscientious and contemplative politician, a product of a Protestant pastor's household who has thus far been spoiled by success, can this chancellor really have an interest in ending what will be a 16-year tenure in the Chancellery by playing such an inglorious role? Will she simply step down after four more years of muddling through and crumbling power? Or will she defy all those who are already whispering about her downfall, show true stature and jump over her own shadow?

Blinded to a Destructive Tendency

She too is fully aware that the European currency union, which is in Germany's most fundamental interest, cannot be stabilized in the long term if the current situation - characterized by years of deepening divergence between the economies of Europe's north and south when it comes to national income, unemployment and sovereign debt - is allowed to persist. The specter of the "transfer union" blinds us to this destructive tendency. It can only be stopped if truly fair competition across national borders is established and political policies are implemented to slow down the ongoing erosion of solidarity between national populations and within individual countries. A mention of youth unemployment should serve as example enough.

Macron hasn't just drafted a vision, he specifically demands that the eurozone make progress on corporate tax rate convergence, he demands an effective financial transaction tax, the step-by-step convergence of the different social policy regimes, the establishment of a European trade prosecutor to ensure that the rules of international trade are adhered to, and much, much more.

On the other hand, it is not these individual proposals, some of which have been around for years, that distinguish this politician's demeanor, initiative and speech from that which we have become used to. Three characteristics stand out:

the courage to shape policy;

the commitment to restructuring the European elite project to subject it to the democratic control of its citizens;

and the convincing manner of a person who believes in the power of words to articulate thoughts.

In his September 26 speech, Macron addressed not just the students of Sorbonne University but also the German political class when he repeatedly invoked the very French term "sovereignty," which only Europe - and not each single nation state alone - can safeguard for its citizens. Only under the protection and only with the strength of a united Europe, he said, can its citizens uphold their common interests and values in these tumultuous times. Macron played "genuine" sovereignty off against the chimeric sovereignty purported by the French "sovereigntists." He called out the undignified spectacle of national politicians who complain at home about laws they themselves pass in Brussels and he demanded nothing less than the founding of a new Europe, one capable of wielding political influence both at home and abroad.

Changing the Status Quo?

It is this self-empowerment of European citizens that he means when speaking of "sovereignty." When it comes to identifying steps toward institutionalizing this newfound clout, Macron points to closer cooperation in the eurozone on the basis of a joint budget. The central and controversial proposal reads as follows: "A budget must be placed under the strong political guidance of a common minister and be subject to strict parliamentary control at (the) European level. Only the eurozone with a strong and international currency can provide Europe with the framework of a major economic power."

By demonstrating the pretense of applying political solutions to the problems facing our globalized society, Macron distinguishes himself like few others from the standard fare of chronically overwhelmed, opportunistic and conformist politicians that govern day after day with little in the way of inspiration. It's enough to make you rub your eyes: Is there really somebody out there who wants to change the status quo? Is there really someone with sufficient irrational courage to rebel against the fatalism of vassals who unthinkingly kowtow to the putatively coercive systemic imperatives of a global economic order embodied by remote international organizations?

If I understand him correctly, Macron is articulating an interest that has not been spelled out, and is thus not represented, in our political party system between the day-to-day neo-liberalism of the "center," the self-satisfied anti-capitalism of the left-wing nationalists and the stale identitarian ideology of the right-wing populists. Among the failures of social democracy is the fact that a brand of politics that is fundamentally pro-globalization, one which pushes Europe forward yet nevertheless keeps an eye on the social destruction caused by untamed capitalism and thus pushes for the necessary transnational regulation of important markets - that such a political impetus, despite a modest push by Sigmar Gabriel, never managed to gain any kind of discernible traction. Gabriel would likely only have had the elbow room necessary for pushing such an approach forward if his party would have remained in a grand coalition with Merkel's conservatives, and if he, himself, would have become finance minister in such a scenario.

The second factor separating Macron from other political figures is his break with a silent consensus. There has long been an unspoken assumption in the political classes that the concept of a Europe for Citizens is much too complex - and the final goal of European unity is vastly too complicated - to allow the citizens themselves to become involved. And that the day-to-day business of Brussels politics is only for experts and for the rather well-informed lobbyists, while the heads of state and government resolve the more serious conflicts that arise out of conflicting national interests among themselves, usually through deferral or preclusion.

Breaking Taboos

More than anything, though, political parties agree that European issues are to be carefully avoided in national elections, unless, of course, domestic problems can be blamed on Brussels bureaucrats. But now, Macron wants to do away with this mauvaise foi. He already broke one taboo by placing the reform of the European Union at the heart of his election campaign and rode that message, only one year after Brexit - against "the sad passions of Europe," as he said - to victory.

That fact lends credibility to the oft-uttered trope about democracy being the essence of the European project, at least when Macron says it. I am not in a position to evaluate the implementation of the political reforms he has planned for France. We will have to wait and see if he is able to fulfill the "social-liberal" promise, that difficult balance between social justice and economic productivity. As a leftist, I'm no "Macronist," if there is such a thing. But the way he speaks about Europe makes a difference. He calls for understanding for the founding fathers, who established Europe without citizen input because, he says, they belonged to an enlightened avantgarde. But he now wants to transform the elite project into a citizens' project and is proposing reasonable steps toward democratic self-empowerment of European citizens against the national governments who stand in each other's way in the European Council.

As such, he isn't just demanding the introduction of a universal electoral law for the EU, but also the creation of trans-national party lists. That, after all, would fuel the growth of a European party system, without which the European Parliament will never become a place where societal interests, reaching across national borders, are collectively identified and addressed.

A Shift in the Public's Perception

Should one hope to accurately assess the significance of Emmanuel Macron, a third aspect must be examined, a personal characteristic: He can speak. His is not merely a case of a politician who, through his rhetorical ability and sensitivity for the written word, is able to secure attention, standing and influence. Rather, the precise choice of inspiring sentences and the power of his articulation lends analytical clarity and sweeping significance to the political thought itself. The quality of one's work as a politician, of course, isn't measured by rhetorical talent. But speech can change the public's perception of politics; it can raise the level of discourse and broaden the horizons of public debate. As such, it can improve the quality not just of political opinion and the formation of political will, but of political action itself.

In an era where the nebulousness of talk shows has become the benchmark for the complexity of publicly acceptable political thought, Macron is conspicuous for the style of his speech. We apparently lack the ability to appreciate such qualities, or even fathom the timing and location of his speeches. Indeed, the speech that Macron recently delivered in Paris city hall on the occasion of the anniversary of the Reformation wasn't just interesting for what he said. It wasn't just a clever attempt to use the confessional wars in France to urge the adaptation of a state doctrine - the strict French laicism - to the demands of a pluralistic society. The occasion and subject of the speech were also a gesture to the Protestant formation of the culture of France's neighbor to the east - and to his Protestant counterpart in Berlin.

The aspiration and style of the symbolic representation of state power is, of course, something we have lost sight of, at least since Carl Schmitt's nostalgic view during the French counter-enlightenment of the 19th century. We may not have a sense for the gravitas that comes with living in the Élysée Palace, as described by Macron in his recent interview with DER SPIEGEL.

Nevertheless, the rather intimate knowledge of Hegel's philosophy of history he displayed when answering a question about Napoleon being "the weltgeist on horseback" is again rather impressive.


Modernity with Chinese Characteristics

ANDREW SHENG , XIAO GENG



HONG KONG – At the start of the 19th National Congress of the Chinese Communist Party (CCP) this month, President Xi Jinping unveiled his “two-stage development plan” to turn China into a “modern socialist state” by 2035. Since then, commentators have furiously debated the theme of “China rising” and Xi’s concentration of power in his own hands. They are missing the point.

In fact, Xi’s plan is far more comprehensive and forward-looking than most observers seem to think.

Much like his predecessors Mao Zedong and Deng Xiaoping, Xi has established a strategy for transforming China into a “prosperous, strong, democratic, culturally advanced, harmonious, and beautiful” country over the next decades. The key to success will be the balance between modernity and CCP-led socialism.

When Xi took over as leader of the CCP in 2012, deep cracks had appeared in both the development model bequeathed to him by Deng and the dominant Western neoliberal model, based on free and open markets. China’s rapid industrial growth had brought rampant corruption, growing income inequality, and high levels of pollution. Western countries, too, were facing rising inequality, as they reeled from a global crisis of their own making – a crisis that, among other things, weakened their appetite for Chinese imports.

Recognizing that sustainable development would be possible only within a context of social stability and credible, transparent governance, Xi devoted the last five years to an unprecedented anti-corruption campaign that has brought down 440 senior officials. He also implemented more than 1,500 reform measures designed to rebalance the economy, thereby stabilizing annual GDP growth at a “new normal” rate of 6.7%, on average, during his first term.

Xi’s first term thus laid the groundwork for the ambitious plan that he unveiled at the 19th National Congress. That plan establishes a clear and realistic short-term objective of making China a “moderately prosperous society” by 2021, including by increasing per capita income to more than $12,000 per year, the World Bank threshold for a high-income economy.

Xi’s report also sets out a longer-term strategy for realizing Xi’s much-touted “China Dream” – that is, the country’s “rejuvenation” and establishment as a global leader, on par with the United States and other advanced countries – by 2049. According to Xi’s vision, a transparent, accountable, empowered, and socially responsible CCP will act as the guardian of this transition.

It is a perfectly logical, albeit complex plan. Yet it seems somewhat incomprehensible to people outside China. This may be because, unlike the standard Western model of competitive party politics that uses periodic elections to direct policy, the Chinese development model relies on a one-party leadership’s ability to learn and adapt its agenda accordingly.

For a country as large and diverse as China, this approach makes sense, as it balances stability with flexibility. The country’s development is guided not by outcomes in decentralized markets, but by the choices of a central government, which presides over the provision of public goods, sets rules, and manages institutions. In order to avoid the types of social disruption that political competition could entail, the central government also appoints key provincial and municipal officials and resolves disputes among regions.

Meanwhile, regional and municipal governments engage in policy experimentation at the local level, where markets and communities interact, with the results of those experiments informing national policy. Regional competition not only fuels overall economic growth; it also ensures that the particular needs of each area, from megacities like Beijing to the tiny villages that dot China’s countryside, are met. As the situation on the ground changes, with new solutions often creating new and unforeseeable problems, continual adaptation at every level is vital.

Of course, the predominance of the state does not mean that markets do not have an important role to play. But that role is often misunderstood. In recent decades, China used state-owned enterprises (SOEs) to build key infrastructure, in order to support the development of China’s markets.

Today, SOEs still play an important role in social engineering and research and development, but their business models are under pressure from globalization and disruptive technologies.

That is why Xi has included in his plan measures to support the continued opening of markets, including the use of competition law to enable markets to dictate prices, improve resource allocation, and boost productivity.

But market liberalization, in a context of globalization and rapid technological change, has also given rise to another potentially damaging trend: the emergence of a few ultra-dominant tech giants.

Moreover, market liberalization has often outpaced progress in regulation and enforcement, allowing for abuses like speculation and tax avoidance.

Given this, China’s government has, in recent years, strengthened regulation and enforcement in virtually all sectors. It is this apparent contradiction – between the stated objective of liberalizing markets and the reality of tightened regulations – that seems to confuse outsiders.

But the fact is that rising social imbalances can be addressed only by effective government intervention that avoids state capture or the kind of paralysis that can arise from excessive political competition.

Another seemingly contradictory element of Xi’s plan is its insistence on party leadership in all national affairs, alongside a pledge to strengthen the rule of law. But, again, a closer look reveals a straightforward logic: the transition to a future in which the rule of law is paramount will require China to overcome its legacy of bureaucratic silos that entrench resistance to reform from vested interests. Doing so will demand strong leadership.

In a world comprising a diverse array of countries, each with its own complex, dynamic, and evolving system, there can be no one-size-fits-all development path. Though countries may all aspire toward similar lifestyles, business environments, and social systems, they will get there in their own way, determined according to their particular needs, preferences, structures, and legacies. For China, that way has now been mapped, with the understanding that the map can and will be revised as needed.


Andrew Sheng, Distinguished Fellow of the Asia Global Institute at the University of Hong Kong and a member of the UNEP Advisory Council on Sustainable Finance, is a former chairman of the Hong Kong Securities and Futures Commission, and is currently an adjunct professor at Tsinghua University in Beijing. His latest book is From Asian to Global Financial Crisis.

Xiao Geng, President of the Hong Kong Institution for International Finance, is a professor at the University of Hong Kong.