Why Did The West Get Russia So Wrong?

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Why did the West got Russia so wrong – and could the same mistake be made on China?

It is still striking in my mind how so much of the Western political, business, and broader society got Russia so wrong, for so long. I think it is a question which is important to ask, and better understand. Important I think because the same biases in coverage and understanding of Russia might still be there, and causing us still to misread and miscalculate when it comes to Russia. But also we might also be making similar mistakes when we come to understanding and assessing similar strategic challenges, for example, on China.

As someone who long argued as to the threat posed by Russia – along with my colleagues on the Russia and Eurasia programme at Chatham House – the alarm bells should already have been ringing as early as Putin’s Munich Security Council speech in 2007, then his invasion of Georgia in 2008. Surely the smell of the coffee brewing should have been pungent by the time of his annexation of Crimea in April 2014, then the clear cut Russian military intervention in Donbas later in 2014. WMD were even used on the soil of a NATO member – twice with Litvinenko and then again with Skyrpal. This was even not enough of a warning for some. Putin helped us even further by writing an essay in mid 2021 giving Russian troops the justification for the invasion of Ukraine, which should have literally spelled it out to all what was coming. Biden, the US government and UK government then gave us all a “read my lips moment” later in 2021 that the invasion was coming, with a high probability. They even provided the Intel with photos and sat imagery. But people chose still to ignore the writing on the wall – in the essay at least, from Putin

Why?

I put it down to a number of reasons:

First, too many people were just too invested in Russia. In trading financial markets its a must do discipline to set oneself stop losses: to accept when you might be wrong, and to set and keep to stop losses. It’s an opportunity to re-assess, take a wrong call on the chin, to exit, with a loss and a tail between one’s legs, but to assure against much bigger losses in the future. Too few Western businesses in Russia set or abided by stop losses. They had no exit strategy if things went wrong. I think too many businesses were just blinded by the scale of their exposure, that they talked themselves into a wishful thinking/rosy scenario, imaging that Putin was just like them, and would not risk the financial and economic costs of war. They were just wrong, very wrong. Many now whinge about their assets and exposure in Russia – assuming there should be some sympathy from Western governments to kind of help them negotiate an exit – trade off against frozen Russian assets – to compensate them for their own bad calls. They failed to set or abide by the stop in Russia – now they must take the loss.

Second, much of the info narrative around Russia was just plain wrong. But why? I would argue that that same business community invested in Russia, then lobbied and pushed the same narrative in the public domain that Putin would not do the unthinkable. They sought to play down the risks – perhaps to justify to others higher up their own business food chains that they should remain invested in Russia. They could not stomach cutting, early, and running, and taking losses when they could.

 

Some of this was also a group think echo chamber. But often it was the same Western business lobby which lobbied hard in favour of Russian interests and against Russia sanctions. It’s almost as though some were in cahoots. The worry is perhaps some were.

Third, now you could argue, diplomatically, that the above business lobby had been captured. Others might say that this was all an intelligence operation by the Russian state to buy Western interests, in business, the media, politics, academia, even culture and sports, and then to present a certain rose tinted view of the Putin regime. Corruption? Perhaps, some were happy to take Putin’s forty pieces of silver? Espionage, yes very likely. Indeed, a hugely successful Russian influence and corruption operation waged over many years. To set the stage for the invasion which was likely planned long in advance.

We should though still ask ourselves how far our institutions were captured by the Russian state, and whether many remain captured? If Russian influence remains we should be acting to clean up captured institutions. Are we? I don’t think so. We are not even asking the question.

Fourth, business relied significantly on bank research advising on Russia investments. But Russian state owned banks dominated the info space there having invested heavily in their research capability. With hindsight was that all part of a Russian intel operation? Possible, even likely some might argue. Even the international banks which covered Russia typically had Russian analysts covering the country – often Moscow based. Again it’s hard not to see the bulk of this narrative on Russia, and Ukraine (most banks gave their Ukraine view from Moscow), having a very Russian, or worse even Kremlin, narrative.

Fifth, perhaps it was all just an honest wrong call – it happens in life to all of us. Many of the above business interests thought that Putin thought like them, and many thought they had great lines into Russian political circles, many even in the Kremlin. Many told me before the full scale invasion, that “ their contacts in the Kremlin had told them there would be no invasion”.

Well, yes, those Kremlin contacts would have said that would n’t they even if they had known. But many likely were as much in the dark in reality as the Western business interests invested in Russia. The question though is in very centralised political regimes like Russia, how can Western business really know what is going on? Therein the same could now be said of China. So it’s a question of how Western business gets its information, and how accurate that can be in typically secretive authoritarian regimes.

The reality is that Putin did not think like Western business leaders. Business and the economy was a means to an end – the end was the invasion and subjugation of Ukraine, and the recreation of Russian great power status and empire. It’s an imperialist ambition – unfortunately shared by many Russians. Putin had made the calculation that the time to invade Ukraine was February 2022, as economic buffers (put in place long in advance) had been built against potential Western economic sanctions. And he was willing to take the economic consequences, and Western business operations in Russia were expendable, actually to be stolen and seized as the war has progressed.

Notable here again, back in 2015 I argued that Putin had created “Fortress Russia” economic policy settings because he was planning for future conflict with the West. Russia had deleveraged, cut debt, built $600bn+ in FX reserves, and set fiscal and monetary policy much tighter than macro indicators should have suggested for a country with peaceful intent.

Again the writing was there for those that chose to look. The problem is too many did not.

So have we thoroughly investigated why the West got this all wrong – no. Is all this being swept under the carpet? Yes, perhaps some in power or business don’t want the embarrassment and exposure.

Worryingly though if Russia has captured key Western interests, they likely remain captive, and active. Are we doing anything to expose and root these out to stop their continuing influence on at least the public narrative? Not really.

 

And are the same mistakes possible when it comes to China – absolutely. Western business interests are similarly invested up to the hilt, and appear active in lobbying to remain engaged and invested. Are they asking the right questions, are they able to table the right questions to the right people? Unlikely. Can they “be in the know”? Also unlikely. I hope for their own sakes that they have set stop losses and could still exit if need be.

Interestingly, I now see those very same “Fortress China” economic policy settings as we saw in Russia from 2015 onwards – deleveraging, building FX buffers, running much tighter fiscal and monetary policies, sacrificing growth for a stronger balance sheet to defend against future tensions with the West. The warning signs are there.

This article was first published in www.kyivpost.com

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