The Democratic Market

Putin has shot himself in the foot. His recent expropriations of Western companies will actually help the West by damaging the Russian economy.

Expropriating the Russian assets of French company Danone and Danish company Carlsberg is reprehensible but Putin is unwittingly actually harming Russia. He has bitten the hand that feeds him.

The more links that are cut between Russia and the West, the more the Russian economy will suffer. Russia will find it more difficult to finance its aggression and Russian people will become more disillusioned with the Russian regime as they become poorer.

It doesn’t matter whether the Russian economy is disconnected by Western government sanctions, Western companies’ ethical voluntary exits, or by Putin expropriating the assets of unethical companies. They all lead to Russia becoming disconnected from the global economy.

Desert island economy

Russia should have been unplugged economically when it invaded Ukraine on 24 February 2022. Western governments failed to implement widespread sanctions and not enough Western companies have since voluntarily left Russia.

Anything Putin does to disconnect Russia from Western investment and markets actually helps us finish the job we have failed to do fully ourselves.

In addition to actual expropriations, Western companies will assess the risk of being expropriated on top of the embarrassment of being seen to profit from Russia. Russia is steadily moving in the direction of becoming a ‘desert island economy’.

If we can make Russia a ‘desert island economy’ it will be destroyed because Russia is more dependent on exports than any other major nation as a percentage of its GNP, producing vastly more oil, gas and minerals than its own needs. This dependence on the West is Russia’s ‘Achilles’ heel’. If Russia is unplugged, it will not be able to survive as a stand-alone economy.

Why economic separation is good

The West should not pull its punches but do everything to weaken the Russian economy. We are already fighting a proxy war with Russia militarily and are fighting a direct war for values. By any measure, Putin is an enemy of every democratic nation and person, and its economy must be viewed as an ‘enemy economy’.

The West should encourage the nascent trend towards two economic blocs in the world.

Russia will become more and more dependent on China which is a much less rich market than OECD nations. If China supports Russia with excess trade to fill the gap, it will be doing something that hasn’t been economically viable today, just as Eastern bloc nations were forced to trade with each other before the break-up of the USSR. This inferior economic opportunity will be resolved either by Russia taking the hit on pricing or China having to subsidise Russia, which will only serve to weaken one or both of these undemocratic nations.

The end game

Unplugging Russia is the first step to separate the world into two economic blocs, a ‘Democratic Market’ and an ‘Undemocratic Market’. Autocratic and totalitarian countries like Russia and China will cooperate with each other due to lack of alternatives and become poorer and less powerful together. The ‘Democratic Market’ or ‘democratic economy’ will be many times larger and will make democratic nations much richer than countries run by dictators. There would eventually be free trade between the US, EU, UK, India and every democratic country, and barriers to the totalitarian and autocratic world.

We need to shift the wealth gap that divides people and divides developed and developing economies, and intentionally apply this gap to democratic and undemocratic nations. If an undemocratic nation wants to escape economic decline, it will need to become democratic. Its people will be motivated to remove their dictator so they can be welcomed into the ‘Democratic Market’. We need to create a free market in which economic survival is the reward for democratic behaviour and economic failure is the consequence of undemocratic or totalitarian behaviour.

The way we play our economic cards will determine whether we give democracy a long-term chance on the planet or we continue to finance totalitarianism to the point where it overpowers democracy in the end.