Financial Mirror (Cyprus)
The fight of our lives
Since the last Davos meeting, the course of history has changed dramatically. Russia invaded Ukraine. This has shaken Europe to its core. The European Union was established to prevent such a thing from happening. Even when the fighting stops, as it eventually must, the situation will never revert to the status quo ante. Indeed, the Russian invasion may turn out to be the beginning of World War III, and our civilization may not survive it.
The invasion of Ukraine did not come out of the blue. The world has been increasingly engaged over the past halfdecade, or longer, in a struggle between two diametrically opposed systems of governance: open society and closed society. Let me define the differences as simply as I can.
In an open society, the role of the state is to protect the freedom of the individual; in a closed society, the role of the individual is to serve the rulers of the state. Other issues that concern all humanity – fighting pandemics and climate change, avoiding nuclear war, maintaining global institutions – have had to take a back seat to this systemic struggle. That’s why I say our civilization may not survive.
I became engaged in what I call political philanthropy in the 1980s, a time when a large part of the world languished under Communist rule. I wanted to help people who were outraged and fought against oppression. I established one foundation after another in rapid succession in what was then the Soviet empire. The effort turned out to be more successful than I expected.
Those were exciting days. They also coincided with a period of personal financial success that allowed me to increase my annual giving from $3 million in 1984 to more than $300 million three years later.
After the 9/11 terrorist attacks in 2001, the tide began to turn against open societies. Repressive regimes are now ascendant, and open societies are under siege. Today, China and Russia represent the greatest threats to open societies.
I have pondered long and hard why this shift took place. Part of the answer is to be found in the rapid development of digital technology, especially artificial intelligence.
Technology with Fangs
In theory, AI ought to be politically neutral: it can be used for good or bad. In practice, the effect is asymmetric. AI is particularly good at producing instruments of control that help repressive regimes and endanger open societies. COVID19 also helped legitimize such instruments of control, because they really are useful in dealing with the pandemic.
The rapid development of AI has gone hand in hand with the rise of Big Tech and social-media platforms. In short order, these conglomerates have come to dominate the global economy, their reach extending around the world.
These developments have had far-reaching consequences. They have sharpened the conflict between China and the United States. China has turned its tech platforms into national champions. The US has been more hesitant, because it has worried about the effect of these technologies on individual freedom.
These different attitudes shed new light on the conflict between the two different systems of governance. President Xi Jinping’s China, which collects personal data to surveil and control its citizens more aggressively than any other country in history, ought to benefit from these developments. But, as I shall explain, that is not the case.
Putin and Xi Pair Up
Let me first turn to recent developments, in particular the meeting between Xi and Russian President Vladimir Putin on February 4 at the opening ceremony of the Beijing Winter Olympics. They issued a long statement announcing that the cooperation between them has “no limits.” Putin informed Xi of a “special military operation” in Ukraine, but it is unclear whether he told Xi that he had a full-scale invasion in mind. US and British military experts certainly told their Chinese counterparts what was in store. Xi approved, but asked Putin to wait until the conclusion of the Winter Games.
For his part, Xi resolved to hold the Olympics despite the appearance of the highly contagious Omicron variant, that was just beginning to spread in China. The organizers went to great lengths to create an airtight bubble for the competitors, and the Olympics concluded without a hitch.
But Omicron established itself in the community, first in Shanghai, China’s largest city and commercial hub. Now it is spreading to the rest of the country. Yet Xi persists to this day with his zero-COVID policy, which has inflicted great hardships on Shanghai’s population by forcing residents into makeshift quarantine centers instead of allowing them to self-quarantine at home. Shanghai’s inhabitants have been driven to the verge of open rebellion.
Many people are puzzled by this seemingly irrational approach to the pandemic, but I can give you the explanation: Xi harbors a guilty secret. He never told the Chinese people that they had been inoculated with a vaccine that was designed for the original Wuhan variant of the disease, but which offers little protection against new variants.
Xi cannot afford to come clean about this, because he is at a very delicate moment in his career. His second term in office expires this fall, and he wants to be appointed to an unprecedented third term and eventually become ruler for life. He has carefully choreographed a process that would allow him to fulfill his life’s ambition, and everything must be subordinated to this goal.
In the meantime, Putin’s “special military operation” has not unfolded according to plan. He expected his army to be welcomed as liberators by the Russian-speaking population of Ukraine. His soldiers carried dress uniforms for a victory parade.
Instead, Ukraine put up unexpectedly strong resistance and inflicted severe damage on the invading Russian army, which was badly equipped, badly led, and soon became demoralized. The US and the EU rallied to Ukraine’s support and supplied it with armaments. With their help, Ukraine was able to defeat the much larger Russian army in the battle for Kyiv.
Putin could not afford to accept defeat and changed his plans accordingly. He put General Vladimir Shamanov, well known for his cruelty in the siege of Grozny, and later for the savagery of the campaign he conducted in Syria, in charge and ordered him to produce some success by May 9, when Victory Day was to be celebrated.
But Putin had very little to celebrate. Shamanov concentrated his efforts on the port city of Mariupol, which used to have 400,000 inhabitants. He reduced it to rubble, as he had done to Grozny, but the Ukrainian defenders held out for a long time.
The hasty withdrawal from Kyiv revealed the atrocities that Putin’s army had committed on the civilian population in the city’s northern suburbs. The war crimes are well documented, and images of civilians murdered by Russian troops in towns like Bucha have stirred widespread international outrage, though not in Russia, where the population has been kept in the dark about Putin’s war.
The invasion of Ukraine has now entered a new, more challenging phase for the country’s defenders. The Ukrainian army must fight on open terrain where the numerical superiority of Russian forces is more difficult to overcome.
The Ukrainians are doing their best, counterattacking, even at times boldly penetrating Russian territory. Such tactics have had the added benefit of bringing home to the
Russian population what is really going on.
The US has also done its best to reduce the financial gap between Russia and Ukraine, most recently by allocating an unprecedented $40 billion in military and financial aid to Ukraine’s government. I can’t predict the outcome, but Ukraine certainly has a fighting chance.
A More United Europe
Recently, Italian Prime Minister Mario Draghi and other European leaders went even further. They want to use the Russian invasion of Ukraine to promote greater European integration, so that what Putin is doing can never happen again.
Former Italian Prime Minister Enrico Letta, leader of the Partito Democratico, proposed a plan for a partly federated Europe. The federal portion would cover foreign affairs, asylum, energy, defense, and social and health policies. Many people, including me, insist that both food and climate security should be added to the list.
At Europe’s federal core, no member state would have veto power. In other policy domains, member states could join “coalitions of the willing” or simply retain their veto power.
French President Emmanuel Macron, in a significant broadening of his pro-European approach, has advocated the importance of geographic expansion, and the need for the EU to prepare for it. Not only Ukraine but also Moldova, Georgia, and the Western Balkans should qualify for EU membership.
It will take time to work out the details, but Europe seems to be moving in the right direction. It has responded to the invasion of Ukraine with greater speed, unity, and vigor than ever before in its history. After a hesitant start, European Commission President Ursula von der Leyen also has found a strong pro-European voice.
But Europe’s dependence on Russian fossil fuels remains excessive, owing largely to the mercantilist policies pursued by former German Chancellor Angela Merkel. She had made special deals with Russia for the supply of gas and made China Germany’s largest trading partner. Germany became the best performing economy in Europe, but now there is a heavy price to pay. Germany’s economy needs to be reoriented. And that will take a long time.
German Chancellor Olaf Scholz was elected because he promised continuity with Merkel’s policies and style of government. But events forced him to abandon continuity, which did not come easy, because he had to break with some hallowed traditions of his own Social Democratic Party.
When it comes to maintaining European unity, however, Scholz always seems to do the right thing in the end. He suspended the Nord Stream 2 gas pipeline, committed EUR 100 billion ($104.8 billion) to defense, and provided arms to Ukraine, breaking with a long-standing taboo. And Western democracies more generally responded with similar resolve to the Russian invasion of Ukraine.
What do the two dictators, Putin and Xi, now tied together in an alliance, have to show for themselves? They have a lot in common. They rule by intimidation, and as a consequence they make mind-boggling mistakes. Putin expected to be welcomed in Ukraine as a liberator; likewise, Xi is sticking to a zero-COVID policy that can’t possibly be sustained.
Putin seems to have recognized that he made a terrible mistake when he invaded Ukraine and is now preparing the ground for negotiating a cease fire. But a cease fire is unattainable, because he cannot be trusted. Putin would have to start peace negotiations, which he will never do because it would be equivalent to resigning.
The situation is confusing. A military expert who had been opposed to the invasion was allowed to go on Russian television to inform the public how bad the situation is. Later, he swore allegiance to Putin. Interestingly, Xi continues to support Putin, but no longer without limits.
This begins to explain why Xi is bound to fail. Giving Putin permission to launch an unsuccessful attack against Ukraine didn’t serve China’s best interests. Although China ought to be the senior partner in the alliance with Russia, Xi’s lack of assertiveness allowed Putin to usurp that position. But Xi’s worst mistake was to double down on his zeroCOVID policy.
The continuing lockdowns have had disastrous consequences, pushing the Chinese economy into a free fall since March. In April, the nationwide highway logistics index, which measures road haulage across China, dropped to 70% of its level one year ago. For Shanghai alone, the highway logistics index has dropped to 17% of its year-earlier level. With over 80% of total freight volume carried by trucks in China, these numbers point to a near-collapse of domestic commercial shipping.
Moreover, the Caixin Composite PMI index, which uses data collected from some 400 companies to track privatesector business trends in China – including sales, new orders, employment, inventories, and prices – fell to 37.2, from 43.9 in March. When the PMI’s value is below 50, the economy is shrinking. China’s steeply declining economic activity is bound to have global consequences but, at least thus far, preparations for this have been scant.
These negative results will continue to gather momentum until Xi reverses course – which he will never do, because he can’t admit a mistake. Coming on top of the real-estate crisis, the damage will be so great that it will affect the global economy. With the disruption of supply chains, global inflation is liable to turn into global depression.
For the West, the dilemma in dealing with Russia is that the weaker Putin gets, the more unpredictable he becomes. The member states of the EU feel the pressure. They realize that Putin may not wait until they develop alternative sources of energy before turning off the gas taps himself, while it really hurts, as he has done to Bulgaria, Poland, and Finland.
The REPowerEU program presented last week reflects these fears. Scholz is particularly anxious because of the special deals Merkel made with Russia. Draghi is more courageous, although Italy’s gas dependency is almost as high as Germany’s. Europe’s cohesion will face a severe test, but if it continues to act together, it could strengthen both Europe’s energy security and leadership on climate change.
What about China? Xi has many enemies. Nobody dares to attack him directly because he controls all the instruments of surveillance and repression. But it is well known that within the Communist Party, dissension has become so sharp that it has found expression in articles that ordinary people can read.
Contrary to expectations, Xi may not get his coveted third term because of the mistakes he has made. But even if he does, the Politburo may not give him a free hand to select the members of the next Politburo. That would greatly reduce his power and influence and make it less likely that he will become ruler for life.
Meanwhile, as the war in Ukraine rages on, the fight against climate change has had to take second place. Yet the experts tell us that we have already fallen far behind, and climate change is on the verge of becoming irreversible. That could be the end of our civilization.
I find this prospect particularly frightening. Most of us accept the idea that we must eventually die, but we take it for granted that our civilization will survive.
Therefore, we must mobilize all our resources to bring the war to an early end. The best and perhaps only way to preserve our civilization is to defeat Putin. That’s the bottom line.