The Crimean Referendum: Illegal, but not unexpected

So it seems that the Russian annexation of the Crimea is now a done deal – the blatantly fixed referendum has passed (and with a mere 96% of the vote, a very poor show compared to the 100% that Kim Jong-un received in the North Korean election a few days before), Russian troops completely control the region, and Crimea will soon become part of the Russian Federation, with the EU and the US issuing little more than cursory denunciations. The next step may well be for Russia to foment similar unrest in Donetsk and other eastern Ukrainian cities too, in the hope of pulling off the same stunt twice.

This is almost the exact opposite of what we hoped would happen in previous blogs on this topic. Instead of unity, Ukraine now has only a worsening division. Instead of peace, the government is calling up a national guard to prepare for an undeclared war. And instead of security, ethnic Ukrainians and Tatars are having to decide between fleeing Crimea or suddenly finding themselves in a country they do not wish to be in.

But as much as the west complains, it really only has itself to blame for the situation. After the invasions of Afghanistan (somewhat justified by the 9/11 attacks at least) and Iraq (completely unjustified by any measure), the attacks on Libya, the proposed attacks on Syria, and the constant pressure to conform being put on other sovereign states like North Korea and Iran, it would be foolish to expect other superpowers not to look at the way the US (and to a lesser extent the EU) behaves and to decide to copy them. After all, if one large, powerful, and well-armed country can get away with invading others for their own personal gain, then why can't the rest of them?

This kind of muscular geopolitics was common on both sides throughout the Cold War of course. Just as Russia annexed Ukraine and much of the rest of Eastern Europe at that point, so the US considered the Caribbean and Latin America to be its own 'sphere of influence', and American presidents had no qualms about sending troops to crush even minor deviations from the free-market capitalist script on tiny, defenceless islands like Grenada, or funding death squads and propping up dictators in Nicaragua or Chile.

With the collapse of the Soviet Union, Ukraine, the Baltics, Hungary, and more all became relatively free of Russian influence and able to follow their own path. However, the USA continued to go along with the now outdated idea that they had a right to interfere in the affairs of other countries – they were still playing the geopolitics of the Cold War, only without any real opposition anymore. But as the years have gone by, Russia has begun to flex its long-dormant muscles again, hoping to gain back some of the power it has lost over the past twenty years. The war with Georgia in 2008 was the first, relatively small, step. The Ukraine situation is a much larger one. And Russia's role model throughout all of this – the US and its continuing imperialist actions.

So the western politicians and newspapers are correct from a purely neutral standpoint. The Crimean referendum is a sham with no basis in international law. And Russia is pursuing a blatant policy of expansionism. But before we complain too much, we perhaps need to take a long look in the mirror and ask ourselves – where did they get the idea for that from? What influenced them to start expanding again? And we might just find that the answer is closer to home than we like to admit.

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Time to Pop Political Bubbles

We've all heard a lot in the past few years about 'financial bubbles'. These are situations in which investors become extremely confident in a particular resource and invest more and more money into it. Prices inflate, and people become even more confident, which leads to more investment, and so on – the bubble inflates. There was a housing bubble before the 2008 financial crisis, and the famous 'dot com' tech bubble of the late 90s. In truth, the confidence was based on assumptions that proved not to be true – for example, the housing bubble was founded on the assumption that cheap credit would be available forever. When that stopped being true in 2008, people could no longer pay their mortgages, and the bubble popped. When bubbles pop, it's usually because investors start to panic, worried that the fundamentals of their investment are not as strong as they initially appeared to be. They withdraw their money, and the market comes crashing down. This happened to the dot coms, and also to the Southeast Asian bubble economy in 1997.

So financial bubbles are well known, but what about political bubbles? This is a term suggested in a recent book by the political scientists Nolan McCarty, Keith Poole, and Howard Rosenthal, Political Bubbles: Financial Crises and the Failure of American Democracy. They suggest that behind every financial bubble, there is a political bubble – a collection of policies and ideologies that encourage certain market behaviours. Financial bubbles and the crises they lead to are enabled by the political bubbles that grow up before them. The comparison between the two seems obvious – political bubbles are ideologies that people put too much faith into, without examining the underlying truth. In this analogy, eventually people should realize the hollowness of their beliefs, and the political bubble should pop. However, it seems to me that this last element – the popping – does not actually happen to political bubbles with as much regularity as it does to financial ones. The political kind seems to be considerably more robust and able to withstand even the popping of its financial sibling. Let me give you some examples.

It is clear today that the belief that we have a free market in which everyone has equality of opportunity is blatantly false – every day governments intervene in the market through subsidies and tax breaks for corporations, and tariffs on the import of goods from other countries, and the barriers to entry in the economy get higher every day. But according to the political bubble of the free market, if Bill Gates and I were to each start a new business today, we would have an equal chance of success, and the winner would depend entirely on our personal qualities and the strength of our product. Anyone with an ounce of common sense knows that this is not true, because Bill Gates is starting the game with hundreds of billions of dollars, which gives him an inevitable advantage in our supposedly 'free' market. The idea that the free market will lead to a 'trickle down' of wealth and make us all rich is equally discredited by the increasing income gap we see in the world today. And yet, the political bubble around the 'free market' is so huge that even after the unregulated, free market system of the financial sector completely and utterly failed, we believe the solution is to keep doing more of the same.

This leads to another bubble – the public sector bubble. Instead of accepting the end of the free market and putting extra regulations on the banks to ensure the same problems don't arise again, we have become caught in a bubble which tells us that the problem is the public sector. In this bubble, the crash wasn't caused by the banks, it was caused by a bloated public sector that accumulated too much government debt. Government debt is, for sure, not the greatest thing in the world – but to suggest that it caused the 2008 crisis is idiocy of the first order. And yet, as a society, we believe it to such an extent that governments around the world have been given a mandate to cut health services, education services, benefits to the disabled, and other hallmarks of a civilized society – all while leaving the banks alone. This bubble is nothing new – it's been building for some time. You can see it in the structural adjustment programmes of the IMF and World Bank in the 1990s and 2000s, where developing countries were told their problem was government spending on education rather than the crippling debts the rich countries had forced on them.

One more bubble before we finish, something a little more contemporary – the attacks on Russia that we have seen during the Winter Olympics. Certainly Russia has its problems of autocratic leadership and a lack of civil rights for minority groups, but much of the western coverage has been hysterical. Everything has been criticized, from the stray dogs to the hotel rooms being too small. The political bubble at work here also goes back a long way – to the Cold War, and even to the attacks on Bolsheviks that were common in western newspapers in 1917. It's a bubble that tells us that Russia is different, undeveloped, somewhat barbaric – and it's a narrative that we lap up, as it conveniently allows us to ignore the problems in our own societies by reverting to a simplified, fairytale version of the world.

These political bubbles hang around for a lot longer than the financial bubbles that often accompany them, and are more pernicious because they are often much harder to identify. It is easy to see when housing is overpriced, but not so easy for any of us to sit down and think deeply about the ideologies that lie behind our understanding of the economy or society. In many cases, these are ideologies that we are indoctrinated with every day – through newspapers, advertisements, universities, and so on. But it's something we need to start doing if we are ever going to pop these bubbles and allow ourselves to think freely.

[ political bubbles, financial bubbles, financial crisis, Noaln Mccarty, Bill Gates, Winter Olympics, Cold war, Bolsheviks, NRGLab ]