Yves here. I trust readers will look past the tired and demonstrably inaccurate Russia-denegrating-tropes-as-asides1 about the kinetic war, where Medhora has no expertise, to what amount to admissions against interest on the sanctions war.
By Rohinton Medhora, Chair, Governing Board of the Institute for New Economic Thinking, Distinguished Fellow, The Centre for International Governance Innovation. Previously published by Barron’s and the Centre for International Governance Innovation. Cross posted from the Institute for New Economic Thinking website
The conflict in Ukraine, which passed its 500-day mark in early July, has been described as “the first TikTok war” and a “living lab for AI warfare.” Modern tactics such as the use of advanced drones and hypersonic missiles have commingled with more traditional forms of battle such as trench warfare and old-school atrocities on civilians.
A similar mix of new and old also characterizes the sanctions regime the United States and others have imposed on Russia. Some sanctions, such as travel and trade restrictions on individuals, firms and goods, are part of the historical arsenal. Others are products of the digital age, as befits the war itself. But even traditional sanctions are affected by digital technologies, changing their speed and their effectiveness. Trade flows and travel of individuals are more easily monitored today than in the analog era.
The bundle of sanctions was initially designed and imposed in haste, with little basis to assess historic performance and no normative or long-term strategic frame to guide decision makers. A set of sanctions at the intersection of finance and digital technology stands out in this respect. The US-led coalition froze Russian central bank assets and made the Swift bank-messaging system off limits to Russia-linked users. Sanctions also targeted crypto transactions and assets.
About half of Russia’s $600 billion of official reserves held in US and EU financial institutions were frozen in mid-2022. There is no precedent for an action of this scale. The United States and the European Union weren’t themselves at war with Russia.
Swift, for its part, is a private company but also essentially a global public good. It helps to ensure a well-functioning, clean and comprehensive payments system. But that system has been weaponized. Several consequences have followed, none of them desirable for the United States and its allies’ long-term strategic goals.
First, many countries that saw the global payments system as a joint endeavour now wonder about the circumstances in which it might be used against them. Consequently, buying into a US-EU-led global order has become less likely, as evidenced by the degree of international equivocation in what the United States and its allies still see as a black-and-white war. Second, the Swift sanctions have accelerated and made more likely the rise of competing systems, most likely led by China. Third, by disabling the ordinary day-to-day transactions of tens of millions of Russians (and Belarusians), the allies have alienated what remains of the Western-oriented middle class that would be the main constituency for liberalism in any future Russian state.
The inclusion of crypto-assets in financial sanctions is a necessary by-product of the current era, and it too raises broader issues. The case for greater control over private crypto-assets goes beyond sanctions between wartime adversaries. Authorities shouldn’t need the excuse of war to crack down on shady uses of crypto. But just as the Swift sanctions weakened the case for financial cooperation, the crypto sanction also complicates the efforts by central banks to introduce digital currencies. And adding to the Wild West atmosphere, the crypto tracing firm Chainalysis alleges an anonymous hacker has cornered Russian crypto-assets and diverted them to Ukrainian causes.
Several broader lessons may be drawn from the test drive of these next-generation sanctions.
First, despite their high-tech nature, they are still susceptible to low-tech problems — workarounds (that of course are more accessible to elites than to the average citizen) and the non-participation of key countries.
Second, high-tech sanctions evidently haven’t slowed the Russian war effort. It appears Russia’s own dysfunctional military operation, the murderous antics of the quasi-official Wagner Group and, not least, the bravery of the Ukrainian people have done plenty to turn an anticipated early victory into probable stalemate.
Third, and perhaps most troubling, there appears to be no move to create the intellectual and moral structure within which adversaries develop and apply sanctions. It is axiomatic that actions around war are developed because of experience with war. Conventions against the use of chemical weapons and bioweapons and to preserve cultural artifacts during war have arisen out of tragedy. Ad hoc action in these areas has been deemed not to be in the long-term global interest, often by combatants on all sides.
All isn’t fair in love and war, even in the face of aggression. What seems cheer-worthy in one context inevitably comes back to bite. The norms and rules during war evolve through experience and even dialogue among combatants.
The purpose of sanctions isn’t just punishment in the short term but also achieving the long-term goals of victory on the battlefield and, crucially, winning hearts and minds. It is in these respects that current techno-finance sanctions merit further reflection.
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s1 It’s not just the “dysfunctional military operation” remark late on, but early remarks that either reflect ignorance or deliberate misinformation, such as implying that both sides have hypersonic missiles when only Russia’s program is advanced enough for them to be used regularly in combat.
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“Merit further reflection”, should surely be replaced with “should be publicly burned along with anyone involved in their creation or deployment”.
Not a word about the legality of sanctions (they are illegal). Nary a word about the “why” – sanctions started already in 2014, and the first sanctions related to this conflict where inflicted on Feb 23rd 2022, ie on the eve of the invasion.
And not much about the outcomes: Russia has regained growth in all sectors (at least in volume, not yet in productivity), while EU is suffering.
Everything else aside… The purpose of sanctions is winning hearts and minds? How? Here I was thinking it was all about long-term punishment, which in this case largely failed but has worked well enough in earlier cases.
Daniil Adamov: Of course sanctions are about punishment–and they punish the populace most. Look at Cuba and Iran and U.S. sanctions.
But what would one expect from an article with this paragraph? “Third, and perhaps most troubling, there appears to be no move to create the intellectual and moral structure within which adversaries develop and apply sanctions. It is axiomatic that actions around war are developed because of experience with war. Conventions against the use of chemical weapons and bioweapons and to preserve cultural artifacts during war have arisen out of tragedy. Ad hoc action in these areas has been deemed not to be in the long-term global interest, often by combatants on all sides.”
Yes, you read it: “intellectual and moral structure within which adversaries develop and apply sanctions.”
Like what Medhora did back when he was in business school and wanted to create a model for union busting.
The whole piece is word salad.
The population, indeed. I don’t think sanctions ever managed to overthrow a target government or significantly adjust its foreign policy, but until they got to us the Americans at least could impoverish and immiserate populations. How have the mighty fallen.
But the “winning hearts and minds” bit is something else, which is why it grabbed my attention more than the rest of this nonsense. At least the author realises that those sanctions antagonised (and, I would say, objectively weakened) their sympathisers. Even those deadset in opposition to Putin and the war here complain about the sanctions as a stupid nuisance. But how could anyone have expected sanctions to make the sanctioned like sanctioners more? No one is somehow won over by being inconvenienced.
It is slso missed that sanctions have been pushed well before the war started and against many countries other than Russia becoming a widespread political weapon with objectives that have nothing to do with winning hearts and minds but impose the “rules based order” so keenly seeked by the former hegemon. Most of them seem to have regime change as main objective towards US friendly regimes. At least the author manages to realise that these tools might not manage to reach the intended objectives and are most of the times counterproductive. Particularly in the long run. Somebody should help with the sweat that he has produced trying to bring the slightest critic in the current toxic Western atmosphere.
Ignacio: so keenly seeked by the former hegemon.
[1] ‘Former hegemon.’ Well put. Indeed so.
[2] Also, your English is excellent and I appreciate your comments here. However, not that it matters, but the past tense of ‘seek’ happens to be ‘sought’ not ‘seeked’ — like, I guess, the verb ‘think’ and its past tense ‘thought’.
It’s just one of those weird non-logical details about English derived — I assume — from the language being a mish-mash of Germanic and French-latinate origins, as well as other polyglot influences from the seafaring and colonization
Thank you Michaelmas. I have to watch irregular verbs! I appreciate your comment!
I have the feeling that the author of this post may regret the blowback of these sanctions, but nonetheless thinks that they are a great idea. So maybe next time it will work better! The EU is already starting to assemble their 12th sanctions package though there can be hardly anything else left to sanction. Unless they propose to sanction all 144,401,567 citizens of the Russian Federation itself. If the previous sanctions were not fully thought out, then likely it was because it was thought that the Russian’s economy would collapse within the first 50 days. The fact that we are 500 days in and the Russian Federation is growing while all the sanctioning countries are collapsing must have come to a shock to people. Mostly those people that ignored the advice of people who actually knew their jobs and were not ideologues. But shall we visit some of the take away lessons that the countries of the Global South have learned over the course of this war?
– SWIFT is not trustworthy and can be turned against your economy overnight.
– Gold held in the bank vaults of western countries can be seized so should be repatriated.
– The official reserves held in US and EU financial institutions by other countries can be frozen and then actually stolen.
– The west will sabotage and destroy your economic infrastructure if it suits their aims.
– International laws, agreements and treaties mean nothing in a “rules-based order.”
If you thought that the blowback of all these sanctions is pretty bad, long term it will be nothing less than epic.
Rev Kev: Of course, Medhora thinks (if he is capable of thought) that there is a good way to impose sanctions:
His third conundrum, near the end: “intellectual and moral structure within which adversaries develop and apply sanctions.”
Hannah Arendt is spinning in her grave: He’s an M.B.A. Eichmann, making the death trains run on time.
Sanctions for Russia & rape for Ukraine.
The following report details the takeover of Ukrainian agriculture by its oligarchs, and increasingly the West.
WAR AND THEFT
THE TAKEOVER OF UKRAINE’S AGRICULTURAL LAND
https://www.oaklandinstitute.org/sites/oaklandinstitute.org/files/takeover-ukraine-agricultural-land.pdf
bwilli123: Thanks. Paragraphs 3, 4, and 5 of the executive summary are eye-popping.
Page 23 is enlightening.
Well, one can always become a surrogate mother: Business is booming as Ukrainians undergo another wave of freedom.
According to the UK Ministry of Defence the proliferation of weeds on untended agricultural fields is hampering Ukrainian advances in battlefield territories.
https://www.theguardian.com/world/live/2023/aug/03/russia-ukraine-war-live-russia-deliberately-using-food-as-a-weapon-says-eu-massive-drone-attack-on-kyiv
Surely this paves the way for Monsanto with all its weed killing expertise to step in and save the day.
Because Agent Orange worked so well the first time around. :)
In close combat, including with tanks and ifv’s defenders need clear fields of fire and prepare for enfilade and defilade ……
while in attack cover is useful.
maybe they meant to say “cover is a threat to western operation plans,” because the taliban used it to strategic value
There’s not much about this horrific war that makes me laugh, but using weeds as an excuse seems like such a thoroughly British thing to do, reminiscent of the “leaves on the line” you (used to?) get when the trains were running late.
I had assumed the Challenger 2 tanks we sent to Ukraine would have been able to cope with weeds, but maybe that’s the reason we haven’t seen any on the front line?
There’s already a really funny meme photo: Putin in the middle of a field of tall grasses, his finger lifted as if explaining something, with the caption “Putin personally instructing shruberies on how to hamper Ukrainian forces”! LOL
The indiscriminate imposition of sanctions as part of the we-make-the-rules-you-follow-them-order suggests a new rule#1- There are no rules.
The increased, culminating with Russia unless the US goes even bigger with China, use of sanctions as an offensive tool of US foreign policy is a tacit admission of weakness. It’s also a tacit admission that the US foreign policy establishment lacks the capability to achieve its aims through anything except coercion. There are no carrots, only sticks.
Note that the world is apparently going to suffer from mass hunger because of reduced supplies of Ukrainian grain and the answer is to keep Russian grain off the market to the extent the US can. But more importantly, I haven’t heard any announcements that the US will step in and donate (or even supply) grain to poor countries to make up for the reduced supply. The way to turn the world against Russia would have been to fill the need while pointing out that Russia’s “illegal war of aggression” caused the grain disruption.
A billion dollars in US government grain purchases disbursed to poor countries would have more soft power impact than ten billion in weapons for Ukraine.
I heard the same on the news tonight and could scarcely believe it. They are literally telling poorer nations to starve rather than receive free grain from the Russians for the sake of the Ukraine – who ships the bulk of their grain to wealthy countries. Do they even hear themselves?
Upton Sinclair strikes again.
Sociopaths who care only for skimming enough to not get noticed. We’ve let the wolves into the henhouse and are shocked at the results.
Sanctions only work as long as the sanctioned need western goods and services more than the west need what the sanctioned has to offer.
US-imposed international sanctions have been criticized from two points of view: effectiveness and legality/legitimacy. First, there are those who have no objection to America’s legal and moral right to impose its will over the rest of the world, but they just don’t feel that ‘sanctions work’, or at least they don’t always work, or they don’t work well enough! I call them the sadistic pragmatists. Therefore, when you start discussing effectiveness of sanctions, keep in mind that you might be accepting the righteousness of US imperialism as an implicit premise of that discussion.
Then there are the people who view international sanctions from the perspective of their legitimacy. And over time I’ve seen them criticized because:
1. they represent an act of war – the modern equivalent of a siege
2. they represent an act of collective punishment – which is prohibited at least in times of war under the Geneva Convention
3. they are illegal unless approved by the UN Security Council – according to Chapter VII of the UN Charter, only the UN Security Council has a mandate by the international community to apply sanctions
Yet I have not encountered a cogently argued legal case against sanctions made from the perspective of denied development. A covenant on the Right to Development had been systematically opposed by the West for three decades, but after much wrangling, a UN resolution was adopted in 1986, when the US voted against, and then finally, unanimously adopted as both an individual and collective human right at the 1993 World Conference of Human Rights. It is considered a soft right, which has no enforcement mechanisms, but since then it has been referenced in all major UN documents, which also emphasize its fundamental nature: ‘the right to development is not only a human right in itself, but also necessary for the full realization of all other human rights.’
I’m sure that this angle must exist in the academic literature, but it hasn’t trickled down to alternative media, and this is a pity. The crux of the matter for me is that sanctions, particularly decades-long sanctions like those practiced by the US, shatter economies and societies, denying the collective rights of nations to development, and thus constitute a gross violation of the human rights of 1/3 of humanity.
UN General Assembly resolution 41/128, Article 1: ‘The right to development is an inalienable human right by virtue of which every human person and all peoples are entitled to participate in, contribute to, and enjoy economic, social, cultural and political development, in which all human rights and fundamental freedoms can be fully realized.’
napoleon: “don’t interfere with your enemy while they are making a mistake”
The Wile E Coyote foreign policy. / ;)
https://images.squarespace-cdn.com/content/v1/534ac38de4b0cbe1acc1d019/35469b1b-26e5-464b-9736-9132d6df8d6e/Backfire+Coyote.jpg
Here is a real world example of the effect of sanctions provided by the WSJ.
Automobile manufacturing has been a major industry in Russia directly employing 300,000 people. And Japanese, Korean, and European cars were popular in Russia. In 2019, BMW began production in a manufacturing plant in Western Russia. The factory produced tens of thousands of Ford trucks, Korean Hyundais, and BMWs but by 2023 that same plant is now producing Chinese cars.
The sanctions cut off Russia’s access to essential parts like computer chips which prompted car companies to leave Russia; China filled the void making $billions and, in the process, helping Russia. Moreover, Chinese companies that struggled in their own domestic market found opportunities in Russia.
Of the top ten car companies selling cars in Russia, six of them are now Chinese companies. Russia soon became the largest buyer of Chinese cars helping China become the world’s largest exporter of automobiles.
The only downside for China is its success. Ukraine wants to label Chinese car company Geely as a sponsor of war. Thus, China needs to balance its success in Russia without jeopardizing its brand and reputation in Europe.
https://www.youtube.com/watch?v=2cHYQLCe1VE