ANALYSIS: Nixon’s dance partners return to the global stage

ANALYSIS/OPINION:

President Nixon realized that a key to Cold War stability was a U.S.-led dance among the United States, China and Russia. Now, 18 years after the end of the Cold War, the global economic crisis has revived the need for this delicate pirouette.

Since Mr. Nixon’s visit to China, not withstanding the Soviet Union’s having morphed into a more traditional Russia, there have been three major shifts and decisions that are forcing Mr. Nixon’s old dance partners into a more complicated and deft ballet.

First was Deng Xiaoping experiment to invest China’s largest asset, its massive population, into a newly global marketplace. Peter Drucker, the founder of modern management, spoke of capital-intensive countries and labor-intensive countries. But Mr. Drucker could not foresee the metastasizing effect that globalization would have on China’s labor investment.

China, the so-called labor-intensive country, is now awash in capital. Its voracious economy has created an enormous relatively debt-free marketplace.

And while China’s growth has slowed dramatically during the current downturn, (potentially a major political problem) and while it will take some time to stimulate and readjust China’s economy from exports to internal consumption, China, with its tremendous capital pool is in an enviable position. Its banks appear to be free of the toxic assets of the Western banks, their households have a savings rate of 40 percent of their income and China has more than $2 trillion in foreign-exchange reserves.

In contrast to Mr. Deng’s astonishingly successful experiment was the failure of Russia’s Vladimir Putin to understand the modern globalized economy.

Where China invited the world in, albeit with Chinese partners, to modernize Chinese industry, Mr. Putin, with his insistence on a nationalistic and crony approach to Russian industry and his perpetual fear of losing control, did the opposite. Whether it was the state seizure of Yukos oil or badgering investors such as Shell and BP, the goal was not to modernize, not to create wealth, but to exploit wealth.

Economic cronyism is not new for Russia. Indeed, Mr. Putin’s crony capitalism has worked better for the country than did the crony communism of President Leonid Brezhnev.

During the past 10 years, a substantial entrepreneurial middle class has developed. But, as in Mr. Brezhnev’s time, oil money was the patina covering all faults.

And when the price of oil collapsed, as it has during the past four months, Russia remains not only a commodity country but also a politicized commodity economy under tremendous stress.

Zeljko Bogetic, the World Bank’s lead economist for Russia, said in Moscow on Dec. 19, “If oil prices in 2009 and 2010 average $30 a barrel, that would be a nightmare The pressures on the current account and public finances in Russia would quickly rise to a point where the financing constraint would become so sharp that it’s possible even to envisage Russia’s return from a creditor to international organizations to [that of] a borrower.”

Russia’s reserves are the third largest in the world, but it is spending billions of dollars a day in an attempt to falsely shore up the rubble and prevent any internal political discord.

The Russian government, whose legitimacy is based on economic growth and sustaining this new middle class, is threatened by a storm that it has no experience handling.

There was a time when Russia and China were trying to demonstrate together the efficiency of authoritarian capitalism as a counter to America’s unilateral power. This was true especially when they were both growing rapidly and the United States was mired in a slowing economy and pinned downed in Iraq.

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