Dan Drezner nails it – Putin is backed into a corner, and that should frighten us. Putin is actually paying massive costs for his strategy in Ukraine, for no discernible gain. Sanctions are increasingly biting, and with the MH17 incident mobilizing Europe this will only get worse in the near-term future. And so far, his gains from this strategy amount to: Crimea. At tremendous economic and financial cost, and for the loss of his client state in Kiev. Even worse, the sanctions are beginning to splinter his domestic base.
One classic IR idea is the “gamble for resurrection“. This is the idea that leaders, especially in authoritarian states, cannot afford to lose in major crises or conflicts – the regime’s support is shallow, and they might lose control if they show weakness. So rather than back down, often leaders will escalate conflicts because it serves their best interests rather than those of the state. The more sanctions undermine Putin’s elite coalition, and the less he has to show for it, the greater the risk that he will decide he cannot afford to lose and will start being riskier and more aggressive.
I’d add one more point to Drezner’s – that sanctions aimed at splitting Putin’s domestic base might well be read by Putin as an attempt to force regime change. Putin surely understands the above logic, but might well put a different spin on things – that the point of these sanctions are to undermine his base of power and hope for a new government. If so, the incentive for him is clear – each new round of sanctions must be met with more escalation, because if he backs down the personal costs could be immense.
Yglesias has a new post up on the package of sanctions the EU is preparing for Russia, and one in particular seems interesting, an EU embargo on Russian arms:
While the EU exports €300 million a year in weapons to Russia, EU countries import about €3.2 billion in Russian-made equipment. Those imports mostly go to former Warsaw Pact countries such as Poland, whose militaries have a legacy of using Russian arms. This is an appealing target because Eastern and Central European countries are also, in general, the countries most eager to see the EU take a more anti-Russian tilt.
Yglesias mentions one reason this is practical, that the brunt of this would be borne by the most militantly anti-Russian countries. France and Italy don’t operate MiGs – Poland and Latvia do, and this embargo would cut them off from replacement parts. If they’re interested in taking this step, there’s no visible main impediment. And it might actually make an impression. While 3.2 billion Euro comprises a whopping 0.2% of the Russian economy (by my back of the envelope estimate), it’s a fairly significant sector of the economy dominated by interests close to the state.
One thing Yglesias doesn’t mention: on this issue, the political economy lines up beautifully. The 3.2 billion Euros won’t be lost, especially since the bulk of those imports are to Eastern European countries that are currently getting quaky and plowing money into their military. Poland will keep buying fighter jets, but it won’t be buying MiGs – they’ll be buying Eurofighters, Saabs, and F-16s. This embargo could function as a de facto subsidy to the big European military contractors that are mostly located in Western Europe. I imagine that Airbus and BAE are leaning hard on their friends in the EU as we speak.
I can’t speak for the rest of the package, but this seems likely to happen.
Quartz suggests that companies can make more money by raising their wages, focusing on the well-paid line workers at QuikTrip and the research of Zaynep Ton at MIT Sloan.. I think we should probably file this under “Wonderful if true, but pretty darn unlikely”. I think there’s a simple way to evaluate this type of claim – if true, where are the private equity firms running LBOs of fast-food chains and raising everyone’s wages? This argument doesn’t even have to be of the “nobody leaves $20 on the sidewalk” strength, merely that if this were a reasonable strategy someone would have tried it. However, that’s not the only argument against it.
Let’s assume that QuickTrip does get positive ROI on the high wages – how much of the “QuickTrip effect” is compositional? There are two possible stories of the QuikTrip effect – the first is that higher wages drive higher productivity, and the second that higher wages attract more productive employees. The Quartz story and Zaynep Ton focus on the first story, but to me that seems less plausible than the second. A QuikTrip job is obviously much more appealing than one at McDonald’s, and presumably the selection process is more competitive. Even if you believe in the QuikTrip effect, and there’s no reason not to, it is almost certainly because they attract better employees than their competition.
This has important policy consequences. First, this isn’t a generalizable strategy – by definition only a few companies can be “well-paid” relative to their competition and poach the better employees. For many companies, choosing not to play this game is the smarter choice. Secondly, we should be very dubious about common liberal claims that raising the minimum wage will be inexpensive or positive-sum. If there’s no direct productivity effect of high wages, then raising the minimum wage is costly; it doesn’t mean that it’s a bad idea, but deluding oneself about its effect does nobody any favors. The belief in the positive-sum minimum wage raise is probably the closest liberal equivalent to the voodoo economics of deficit-reducing tax cuts – wonderful if true, but pretty darn unlikely.
In the latest escalation in Ukraine, today a civilian airliner was shot down with a surface-to-air missile over Donetsk, killing all 295 people aboard. It’s not clear yet what happened, but the explanation seems obvious – Russia gave jumpy, poorly-trained separatists heavy anti-aircraft systems (along with, probably, some trained operators, because you can’t exactly pick those things up and figure it out). These separatists see a blip on the radar and fire enthusiastically without realizing it’s a civilian plane. As the narrative is pieced together, I would be very surprised if we discover otherwise.
The crisis in Ukraine has officially spiraled completely out of control. Over the past few weeks or so, Russian involvement has become more and more overt – yesterday evidence emerged of a Russian jet shooting down a Ukrainian plane, and Russian artillery shelling the Ukrainian army. The two countries are very close to a de facto state of war, and a de jure state of war might not be far off. I agree with Julia Ioffe – this incident is clearly a game changer, but it’s not immediately clear how. However, the crisis has obviously entered a more volatile and less predictable phase that should worry everyone.
Americans should reevaluate the reputation of Vladimir Putin as an evil genius; for the last six months his behavior has been reactive and panicky. First, he lost his client state in Ukraine by pushing too hard against EU association. He successfully claimed Crimea, but seems to have cemented the dominance of the pro-Western faction in Ukraine for the foreseeable future. Vladimir Putin might have thought his backing of separatist rebels was a clever low-cost way to encourage the new Ukrainian government to fall into line, but as fighting escalated he has lost any control he might have had over the situation. This incident was a shocking blow to his position; meaningful EU sanctions are much more likely than yesterday. This is all a bad thing – the combination of reactive, panicky, and backed into a corner is terrifyingly unpredictable.
In my view, this incident substantially increases the chance of an overt Russian invasion of Eastern Ukraine. Putin has completely lost control of the irregulars he has armed, and crucially has now done so very publicly. He must be considering whether it is possible to disarm the rebels before they do something else that will so drastically compromise Russia’s international position, the economy, and potentially even his grip on power. Unfortunately for him, a “peacekeeping operation” will now be even more vilified internationally than if he had launched one yesterday. He’s in a very tight spot, which should frighten everyone involved.
Also, incidentally, try and extrapolate from this incident to policy for the US. Putin was transferring arms to well-known actors immediately on the other side of his border, with defined objectives, trained fighters, and Russian intelligence handlers heavily involved. Do you think we will have substantially more control or influence over Syrian rebels?