Wednesday, 27 August 2014

Russia (Unofficially) Invaded Ukraine

As of this morning, reports have been filtering in from Ukraine that Russian forces have begun slowly entering Ukraine.  And unlike what unfolded on the Crimean Peninsula, these aren't just Russian troops with no insignias.  Vox reports that some of the assets Russia has moved into the region include "Russian artillery, Russian tanks, Russian-trained irregular forces, and even uniformed Russian soldiers".

At around the same time this was reported, Fox was able to report that pro-separatist forces had opened a new front in the conflict by attacking the strategically important city of Novoazovsk, a resort town of approximately 12,000 which borders Crimea.  Leaving aside questions of how a group who just a few weeks ago was on the brink of defeat in Donetsk now have the logistics and manpower to attack elsewhere, what makes this move suspect is that Novoazovsk, should it be taken would leave a clear path to Mariupol, a city through which runs a road that serves as the only land connection Crimea has (via Ukraine) with the rest of Russia. Photographs of the besieged town showed plumes of smoke rising from the eastern Ukrainian city (pictured), due to what residents described as a heavy artillery barrage.  Interestingly enough, a quick Youtube search reveals that back in March when Russia began the process of annexing Crimea, it brought along with it heavy artillery not unlike those which the pro separatist "rebels" are currently pounding Novoazovsk with.

Shelling in Novoazovsk (Associated Press)
Taken in tandem with a videos that surfaced which purported to show the ten Russian paratroopers Ukraine had claimed to have captured admitting to being Russian military personnel under orders to invade Ukraine, it should leave no doubt in the minds of NATO that there is much more to Russia's role in this conflict than the bystander it claims to be.  And thankfully, that seems to be the case.  The Canadian government has taken quite a hawkish position on seeming Russian interference in the affairs of Ukraine, culminating in sending military aid earlier this month.  It made its position on this latest incursion known immediately, issuing a tersely worded tweet earlier today:

Meanwhile the United States, which has has been letting Germany take the lead on Ukraine as of late, has not been totally neglecting the crisis unfolding there.  As the New York Times reported:

"Analysis by Western officials indicates that Russia is orchestrating a multipronged offensive against Ukrainian forces. Russian forces have been trying to help separatists in eastern Ukraine break the siege of Luhansk, one of the main rebel-held cities, and open a corridor to another, Donetsk, from the Russian border"

The United States role can be best described as the good cop to Canada's bad cop, with its more nuanced criticism of Russia and focus on gathering intelligence to discredit Russian claims of non-interference in the country.  In fact, earlier today the US finally broke their relative silence on Ukraine, in a statement accusing Russia of reinforcing faltering rebel efforts. "These incursions indicate a Russian-directed counteroffensive is likely underway in Donetsk and Luhansk," State Department spokesperson Jen Psaki told reporters. And so given the recent escalation in the conflict, expect an announcement soon from the President on potential military aid in the form of advisors and equipment for the Ukrainian military, as well as a possible beefing up of NATO presence within the borders of regional members.  But make no mistake, Russia and Ukraine have all but formally gone to war, with Russia seeking to strengthen its grip on the vital defence industries present in Eastern Ukraine, as well as carve out a land strip connecting it to the currently largely isolated Crimea.  Should they succeed, it would destabilize an already precarious situation in Ukraine, and would prevent a democratic government from exerting control over all of its territories.  

But interestingly enough, Russia's continued "whodunit" approach to engaging with its neighbours may be having negative ramifications for its foreign policy ambitions.  Putin's Eurasian Economic Union pet project is starting to look like an abject failure.  Despite all the transformations this conflict has undergone, its important to remember it was first ignited by then-President Yanukovych moving towards joining Putin's attempt at a counterbalance to the EU.  Since then, Azerbaijan, Uzbekistan and Turkmenistan have all been reluctant to draw themselves into Russia's sphere of influence again after seeing it's messy divorce with once-close ally Ukraine, and even those who have agreed to ascend are causing Russia significant headaches.  Kazakh fears over potential Russian aggression have lead to the severing of several mutual defence treaties, and it forging its own foreign policy route.  It blocked Armenia, a major recipient of Russian aid, from ascending, and along with Belarus refused to join Russia in banning food imports from the West.  It'll be interesting to see if in the long term the antagonism Russia is breeding ends up manifesting into something more than just a healthy skepticism of Russian intentions, but right now it is imperative that Western countries come to the aid of Ukraine before Russia is able to tear it in two.

Tuesday, 26 August 2014

Campaign Finance Reform May Hold the Key to Slowing Corporate Inversion

While corporate inversion is by no means a new phenomena (McDermott International reincorporated in Bermuda in 1982), recent comments by prominent figures in government characterizing such actions as "unpatriotic" have thrust the issue back into the spotlight.  With pressure increasingly on Congress to close the tax loopholes that allow such moves, the GOP stance on only doing so in tandem with cutting the effective corporate tax rate means that a solution may not be forthcoming anytime soon.  And as such, that leaves us with plenty of time to think of equally improbable but decidedly more creative solutions to this latest issue.

 Although technically donations to political campaigns made by foreigners are illegal, ever since 2010's Citizens United decision greatly reduced limits on political contributions, companies based outside the US have been able to effectively circumvent such laws  (I talk about just how murky US laws governing corporations have become here).  In the last full election cycle, the first since the landmark ruling,  foreign controlled subsidiaries contributed over $12 million to Super PACs on both sides, and that's just what was able to be traced.  Due to Citizens United and other subsequent rulings, political action committees (PACs) that do not coordinate with campaigns and their donors are afforded great latitude when it comes to contributions, with no limits to how much can be given to such PACs, and little in the way of disclosure laws on the part of these committees.  Major corporations didn't miss a beat, creating PACs through their American subsidiaries, and then drawing contributions from employees.  This allowed them to influence U.S elections while at the same time shielding themselves from any chance of prosecution,  But what if we could curtail foreign influence in the American electoral process while at the same time slowing or even stopping the exodus of American businesses and their tax revenues abroad?

Currently the American subsidiaries of foreign companies may make political contributions so long as the subsidiary in question is able to prove that it has funds drawn from domestic operations that equal or exceed the donated amount, as per this FEC advisory opinion (AO 1992-16):

FEC, AO 1992-16: The [U.S.] subsidiary must be able to demonstrate through a reasonable accounting method that it has sufficient funds in its account, other than funds given or loaned by its foreign national parent, from which the contribution is made.

As such when we examine recently "inverted" corporations, we see that the value of their American operations generally represent a disproportionate percentage of their total global revenue.  For example Burger King, who recently announced a merger with Canadian coffee chain Tim Hortons in order to relocate to Canada, earned less than half (48%) of revenue in 2013 from territories outside of the United States.  Burger King conducts the majority of its business in the United States through its Miami based subsidiary, and yet since its newly founded "parent company" will be based in Canada, it will only have to pay 26% income tax on revenue earned in Canada, and a rate consistent with the tax code in the country where any income that is repatriated was generated.  While robbing the federal government of tax revenues, due to a very profitable US operation Burger King, should it be so inclined could spend millions on donations to PACs supporting candidates it likes.

While Burger King remains at its core essentially an American fast food company, it's unlikely it would feel the need to drastically influence policy, aside from more favourable tax laws (nothing seems to satisfy them nowadays) and looser labour regulations.  But such loopholes present an opportunity to companies whose fortunes are largely tied to government spending and/or policy.  The defence, (which currently has strict export regulations in place) education, health, food, pharmaceuticals industries have in the past tried to influence policies that would adversely affect them (See Pfizer's own proposed inversion via merger, or the HMOs' opposition to the ACA) and if they were to merge with foreign companies, what checks would be in place to limit their influence in American politics?  By preventing subsidiaries wholesale from making political contributions, it effectively ices these "tax emigres" out of the legislative process, and helping determine where tax dollars they did not proportionally contribute go.  American corporations and the people who benefit from them the most may not have the same interests as the vast majority of Americans, but they still live and work in the country, and as such do have a stake in a healthy and robust consumer base and economy.

Preventing the American subsidiaries of foreign companies from making political contributions will not definitively solve the problem of money in politics, nor will it stop the most determined of companies from relocating abroad.  But it will make the decision a tougher one, unlike the no-brainer that it is.  Admittedly, with Republicans currently likening these companies to "economic refugees" (but judging from their response to the influx of children from Central America, they really couldn't care less about actual human refugees), the chances of anything that makes life harder for the Burger Kings and Pfizers of American commerce being passed by this Congress is infinitesimal at best.  Perhaps a more comprehensive solution including both cutting the corporate tax rate and closing these ridiculous tax loopholes would do better in coaxing businesses to return home.  Maybe recognizing the sheer size of a corporation allows it to exercise its freedoms as a person much more effectively than a single American, and putting limits on that freedom would  better check undue commercial influence in the legislative process.   But in the meantime, piecemeal legislation such as this will have to do.

Wednesday, 9 July 2014

Just What is a Corporation: How Hobby Lobby may have Pierced the Corporate Veil

Corporations are people, my friend.
A few weeks back the Supreme Court dealt a largely symbolic blow to President Obama's signature healthcare reform bill by ruling that Hobby Lobby, as a legal person under the law, would have rights granted by the Religious Freedoms Restorations Act (RFRA) infringed by the Affordable Care Act's contraceptive mandate, which stipulated that employers must also cover the cost of contraception for their employees.  While it was definitely a setback for those who are pushing for healthcare reform, the bigger story that came out of the landmark ruling was the many questions it raised.  Between this and Citizens United, corporations increasingly seem like vehicles for those who control them to disregard laws that restrict their ability to unduly influence others.  

Firstly let us examine the "Corporate Veil", which was designed to shield shareholders of a company from personal liability (Hence the "Limited." suffix attached to the name of every corporation).  The foundation of this legal protection is the emphasis of a corporation as a seperate legal entity, independent of its shareholders.  Justice Samuel Alito, in writing the majority opinion, claimed that "allowing Hobby Lobby, Conestoga, and Mardel to assert RFRA claims protects the religious liberty of the Greens and the Hahns."  And yet just how is it that laws applicable solely to their corporate holdings also seemingly affect the Greens and Hahns?  When Hobby Lobby and other so called "religious corporations" were incorporated, their owners did so voluntarily, acknowledging that in exchange for shielding both themselves and their wealth from the company's liabilities, they were relinquishing absolute control over the company (Think Apple firing Steve Jobs), which would then become a legal entity of its own, independent of them.  Since then, David Green, CEO and founder of Hobby Lobby, has amassed a fortune (estimated at $4.5 billion by Forbes) in no small part thanks to the protections that the corporate veil has afforded him, including various tax benefits. David Green willfully and knowingly incorporated his picture frame business, and as a result has reaped the benefits of doing so.  With Hobby Lobby's Supreme Court case he now sought to ignore the legal seperateness of him and Hobby Lobby, for it was now personally convenient for him to do so.

"We're Christians, and we run our business on Christian principles."  That is how David Green describes Hobby Lobby's business model.  Setting aside the veracity of those claims, it's important to note that following "Christian principles" would be impossible in situations where it clashes with law because companies do not have religious freedoms.  The Supreme Court implied this by choosing not to rule on religious protections afforded companies under the First Amendment.  The court however also argued the RFRA stipulated that a person had to comply with a government law that violated their religious beliefs only if it was restrictive in the least possible way (held up under Strict Scrutiny) and that Hobby Lobby, as a person under the law, was protected under this law.  This becomes problematic when one attempts to determine where a corporation's religious beliefs come from.  The Supreme Court seems to believe that companies whose controlling shareholders possess devout religious views determine the religious views, if any, of their company.  

There are many worrying questions that arise from this, not only what constitutes "sincerely held beliefs", for Hobby Lobby engages in a few decidedly "un-Christian" practices, but also is the Corporate Veil maintained even while the religious views of a company and its shareholders are now synonymous?  Can companies now just claim a religious exception to any laws they do not like?  This will no doubt be clarified in the coming year as pending cases in the lower courts are ruled upon, but New York Times editor Dorothy J. Samuels captured the issue perfectly when she wrote "If owners indicate that they are not entirely separate from their corporation-by denying corporation employees' birth control coverage based on their personal religious beliefs-the case could be made in future state-court litigation that they have waived their right to be shielded from responsibility for corporate financial liabilities."  

Over the years the culpability of shareholders for the misdeeds of the corporations they helm has slowly increased, and may this be the final blow?  On the flipside, the current slate of Supreme Court Justices seem determined to hand corporations rights and protections normally only granted to humans without giving much consideration to how the sheer scale of the average corporation gives it a natural advantage in exercising those rights compared to the average American, and the subsequent impact that has.  A single person excercising their religious objection to contraception by refusing to shop at stores who sell it does not have the same outsized impact that a corporation denying its employees access to contraception has.  The recent SCOTUS decisions granting corporations various rights has eroded the seperation between a company and its owners, turning them into little more than vehicles which they can then utilize to influence national discourse.  This is a dangerous precedent and must be addressed quickly, lest the United States continue its trajectory towards what is increasingly looking like a corrupt kleptocracy where those who dictate policy are those who benefit from it the most.  

Saturday, 5 April 2014

Russia Is In a Perceptible Decline: Why Crimea Changes Nothing

In my last post I talked about Russian foreign policy (an admittedly mysterious subject) in light of Crimea, and the threat that Russia now posed to other eastern and central European states.  Russia without question is a powerful player in global politics, but do not make the mistake of equating that with a bright outlook for the country at home. 

Putin's approval ratings have hovered north of 80% in the wake of Russia's annexation of Crimea, and has galvanized support for a more strong and assertive foreign policy.  Many analysts have remarked on how Putin has managed to grab the West by the balls, embarrassing the Obama administration by blatantly disregarding them on every issue from Syria to Iran.  Further, Europe's dependence on Russia for gas has crippled any possible sanctions regime for the short term at the very least.  In fact, "Russification"of the Crimean peninsula went ahead with much fanfare earlier this week, drawing a rather tepid response from the international community.

It's easy to imagine that there's a pretty euphoric atmosphere in the Kremlin right about now, and that probably is the case considering that they managed to pull of the annexation of a sovereign territory in the 21st Century without triggering a military response.  But it should not be, for the whole drama over the Crimea has only served to distract Kremlin functionaries from the grim realities that Russia faces from the near to long term.

The median age is buoyed by the 20-35 demographic
Ever since the collapse of the Soviet Union, demographics have not been Russia's friend.  Its population peaked in 1991, and for the next decade saw rapid population decline as emigration, poor healthcare and violence in periphery regions took their toll.  Since then Russia's population has stabilized, and recently even experienced a net increase.  Even so, in coming years Russia will grapple with the same issues that Western countries will face in coming years, exacerbated by large scale emigration as well as poor healthcare and elevated poverty levels compared to the West.  While birth rates have recovered somewhat over the past decade, the median age in the country is 39.4, compared to 29.9 in Kazakhstan.  Already possessing an aging population this is set to worsen due to emigration, especially amongst young people in the country.  Economic collapse in the 1990s saw emigration surge, especially to western European countries  such as Germany and the UK, as well as other countries such as Israel.  A rapid increase in the average Russian income slowed the pace of emigration, and immigration from former Soviet states for the most part offset it.  The numbers are deceiving however.  In a poll conducted last year, nearly half of Russian students indicated a desire to leave the country, citing lack of economic opportunity and disillusionment with the political establishment.  Comparatively, the overwhelming majority of migrants that come from the former Soviet bloc are labourers who lack the academic background of the highly coveted migrants who are currently leaving Russia in droves.
Increasingly iced out, young Russians are looking abroad
 The emigration of the intellectual elite is nothing new to the country, with many prominent Russian liberals such as Sergei Guriyev and Garry Kasparov living in self imposed exile abroad.  What's different this time around are the numbers, having dramatically increased in recent years.  In fact, 2013 saw a 76% increase in political asylum requests compared to 2012, a meteoric rise that should it prove to be more than a statistical anomaly, could have dire consequences for the Russian economy.  The effects of the impending demographic "crash" that many countries have been well documented by academia.  Countries such as Canada, the U.S and large swathes of Europe as well as Japan all grapple with the issue of caring for an increasingly old population while drawing from a constantly shrinking tax base.  Russia, along with Japan is one of the few countries in the world that will most likely face a simultaneously shrinking and aging population, something that countries such as Canada have successfully countered by encouraging students, businessmen and young professionals from around the world (but predominantly Asia) to immigrate.

The economy is controlled by Oligarchs 
Now while the population might marginally decline, but is that the only trend with long term implications for Russia and this supposed decline?  On the surface, Russia's economy actually looks pretty solid.  Unemployment hovers around 5%, foreign debt is relatively low and the recession for the most part left Russia unscathed.  In fact, some might be surprised to know that the United States has a greater percentage of their population living under the poverty line (14.8%) compared to Russia (11.2%).  But this is somewhat of a Potemkin Village, for the Russian economy's structure is fundamentally different from the capitalistic liberal democracies of the west.  When the Soviet Union collapsed, the cash-strapped Russian state  instituted a controversial "Loan for Shares" program that ended up transferring control of SOEs (State Operated Enterprises) from the Russian government to shady nouveau-riche types, often with links to organized crime, who came out of seemingly nowhere to purchase heavily undervalued government assets at bargain basement prices.  Having paid marginal prices to acquire large swathes of Russian industry, this exclusive club of billionaires forged close ties with the Kremlin and through graft and corruption wrested control of the economy from the fledgling free market forces that were just gaining traction in the country.  As a result, Russia is now home to the greatest number of billionaires in the world.   While much noise has been made in the media about the close links between these robber barons and many top politicians, they're not exactly the patriotic type.

Capital flight has plagued the Russian state almost from its inception, with most wealthy Russians stashing their wealth abroad.  One only has to drive through London's most exclusive boroughs need to see the "Iceberg Homes" that many of Russia's ultra-wealthy have erected.  The Crimean invasion caused a spike in capital flight abroad, from $8 billion a month to roughly $70 billion during the first three months of the year.  As a result, the Russian economy is especially sensitive to shifts in the global economy geopolitical shocks, and why the continued decline of the ruble has many economists worried, despite the obvious boon it would be for Russia's large export based economy.  The large scale investments that Putin has unveiled to modernize the military, improve infrastructure and revitalize the economy are already taxing the Kremlin treasury, and a chronic decline in the value of the ruble does not bode well for a Russian economy that remains under the threat of sanctions.

What's important to consider is that Russia can be cursorily described as a hybrid petro-state and nuclear power, relying on revenues from oil exports to pay for the large (and often corruption riddled) "megaprojects" that have become a hallmark of Russian economic policy in recent years.  It is the largest exporter of oil in the world, and possesses its largest proven natural gas deposits.  While the financial and industrial sectors have sputtered, resource extraction has taken off, providing enough hard currency that allows Russia to maintain an exceptionally low debt as a percentage of the GDP, especially when compared to the U.K (88.7%).  Exporting upwards of 10 million barrels a day, mostly to the rest of Europe, also means that Putin could bring his rivals to the west to their knees with a turn of the spigot, and as a result has been granted an unusual degree of latitude in his geopolitical maneuverings.  But the leverage over his enemies that Putin enjoys may not last.  Many experts predict that an increase in overall production coupled with slowing growth in demand and lower extraction costs will lead to a long term decrease in the cost of oil.  Iraq has added 1 million barrels of production since 2007 and that number is expected to increase.  In response to the Crimean crisis, the United Kingdom had organized meetings seeking to wean Europe off of Russian oil and natural gas. Compounding this, between 1995 and 2005, spending on renewable energy sources (excluding large scale hydro) grew from $10 billion to $30 billion, and that number is only expected to increase as countries increasingly seek clean and sustainable alternatives to pricey fossil fuels.  Some economists disagree that this will put a damper on oil prices however, arguing that in response to lower prices some producers will cut back on production and shelve expansion plans, repeating the cycle of increased prices due to high demand versus low supply.  What they fail to consider is that over the last decade or so the energy landscape has changed dramatically, with some of the biggest energy companies in the world now SOEs such as Sinopec and Indian Oil, whose primary goals are not profit but rather securing long term energy sources for their countries' burgeoning and energy hungry populations.  Such companies would hardly cut production in the face of reduced prices, and in fact might be inclined to ramp it up.  Russia's ability to balance its budget is contingent upon the price of oil remaining at $117.  Should oil prices drop, the Russian economy would be negatively affected, as production is cut and drilling shelved.  Further Ukraine and various other countries which are currently essentially hostage to Russia due to their energy dependence on it will have alternatives not too far away as pipelines from Middle Eastern oil fields through Turkey can deliver oil and gas via Odessa.  Hence, oil may not prove to be as reliable a tool in the future as it has been in the past, both economically and politically.

Dark clouds are gathering over Russia
Russia's dramatic shift in foreign policy has led many political pundits in the West to laud Putin for rebuilding Russia, his grand vision central in revitalizing a country that was viewed by many as a crumbling state, in the throes of chronic decay.  And they may be partially right, for he has energized the electorate and set about reversing the damage that general neglect has rendered upon various parts of the country.  But Putin has hardly addressed some of the biggest issues facing his country, such as the de facto oligarchy, dependence on resource extraction and capital flight.  In fact in some areas Putin has exacerbated problems, presiding over widespread corruption, increasing international isolation and the emigration of Russia's youngest, bright and best in near-unprecedented numbers.  The long term prognosis for Russia looks grim, and annexing Crimea has done little to change that.      

Sunday, 23 March 2014

Zero Sum Game: Putin's Imperial Crusade

Russian troops in Crimea
Things have moved very fast in Crimea.  Following the results of a widely condemned referendum in the Crimea where results showed that over 97% of voters chose to secede from Ukraine and instead join the Russian Federation.  While the results were almost immediately disavowed by a large majority of the international community, claiming that the referendum was conducted under intimidation and suppression by both Russian troops and the Crimean (as well as those from other nations) militias loyal to them, that did little to stop Russia from recognizing it.  Since then, Russia has solidified its de facto control of the region, with Ukraine withdrawing its 25,000 troops from the peninsula in an implicit sign that Kyiv recognizes its rather limited ability to assert control over the breakaway region.  The very next day, Russia’s lower house voted in favour of formally annexing it.  With Crimea in the Russian camp for the long term at the very least, what implications does it have for the rest of the former Soviet sphere?

Putin’s obsession with empire building is well documented.  Reasserting control over the former Soviet sphere has been an increasingly prominent policy goal of the Kremlin over the past decade.  But any doubts that remained should have been dispelled by Putin’s March 18th address to Parliament.  Denouncing what he deemed a centuries-long conspiracy by Western powers to suppress Russia, Putin heralded the dawn of a new era of Russian dominance, which was later christened by the Duma the very next day, who voted in favour of annexing the Crimean peninsula.  With its new doctrine of intervention on behalf of ethnic Russians that worked so successfully in the Ukrainian crisis, where will Putin go next?  Many point to Transnistria, a heavily industrialized breakaway region of the ethnic hodgepodge that is Moldova.  In response to the Duma vote to annex Crimea, the Transnistrian Parliament in turn passed a motion  to join the Russian Federation.  Some speculate that Russia may turn to Estonia and Latvia, both countries with substantial Russian populations in hopes of bringing them into its orbit or at the very least carving out Russian exclaves within them.  Regardless of whatever move the Kremlin does make, it’s fairly certain they will not stop with the Crimea.  Despite drawing strong condemnation from the international community and potentially alienating UN ally China, the biggest provocation in recent memory drew little in the way of firm consequences for Russia, and damaging sanctions do not seem likely any time soon.  Europe is heavily reliant upon Russia for energy, and that will not change anytime soon especially as many European countries move away from nuclear energy.  Russian-American trade is so diminutive that sanctions would have a rather limited impact.

So how do the events of recent weeks affect Moscow’s geopolitical ambitions?  The Russian dominated antithesis to the EU, the Eurasian Union, is set to become reality on New Year’s Day next year, with membership currently consisting of Belarus, Russia and Kazakhstan, with Armenia, Kyrgyzstan and Tajikistan all potentially joining as well.  While Russia’s annexation of Crimea provides it with the framework to take over other so-called “frozen” conflict zones, it also runs the risk of alienating other former Soviet states who may have been eyeing the union with wary interest.  While some states such as Poland and Lithuania voiced their desire to remain outside of any sphere of Russian influence by forging closer ties to NATO and the EU, countries such as Moldova and Armenia that could be compelled to join may look elsewhere, as evidenced by the rather lukewarm statements they issued in response to the annexation vote.  Russia’s newfound aggression is not the spontaneous combustion of a cocktail of nationalistic fervour at home and instability abroad but rather the culmination of a decade’s worth of meticulous planning.  Putin orchestrated various factors to create “the perfect storm” that would enable him to push his foreign policy agenda of restoring Russian domination in the region.   Harnessing the influence that the Russian Orthodox Church wielded over the population  in order to stoke nationalistic sentiments, rebuilding the Russian military as an effective fighting machine with a global reach, and influencing the affairs of other states in the post-Soviet sphere were all elements which enabled what unfolded on the peninsula to happen.  Putin took a calculated risk by invading Crimea, as its capture was an easy sell to the international community due to its traditional history as part of Russia as well as a litmus test of western appetites for Russian provocations.  It could not have hoped for a better result, and now count on the consolidation of Russian interests in the region to accelerate.

The picture does look particularly bleak, but what should the west do?  Sanctions may not be as effective as they have been in Iran (until recently), but the U.S and its allies do have a unique asset in NATO.  While it has seen a decade of general neglect, the 28-member military alliance is maybe the one tool in the U.S’s arsenal that Putin does fear.  When Poland, Latvia and the Czech Republic joined in 1999, Russia was wary of what it perceived to be creeping western influence beginning to encroach upon its own sphere of influence.  The U.S has dispatched naval forces to the Black Sea and a few days ago along with France announced it was sending sending air assets to Poland.  John McCain has stated that he wanted to see military equipment sent to Ukraine, and with leaders of former eastern bloc states becoming increasingly nervous about Russian activities, such a move would be easily defensible.  In fact, it might be prudent as ten day old Russian military exercises have led to a military buildup that NATO’s top commander described as “very, very sizable and very, very ready."  While it is desirable to avoid a “hot war”, it should not be avoided at all costs, lest the dovish policies of blind appeasement that failed spectacularly in the 1930s make a return.  While the situations are in no way parallels, there are some disturbing similarities that offer insight into how a potential conflict could be avoided.  

While on paper NATO countries (excluding the U.S and Canada) spent $269.736 billion on military expenditures and account for a significant chunk of global military spending, this is set to change with cuts to the militaries of most members.  The United States accounts for 70% NATO spending, and with some European members cutting spending up to 40%, it isn’t exactly unusual to hear some of the more fiscally conservative members of Congress complaining about how their European allies have been shoving the burden of defending them increasingly on the United States.  In the meantime, Putin has gone ahead with a vast and sweeping modernization program for the military that is estimated to cost somewhere in the neighbourhood of $770 billion dollars and will oversee the expansion of the air force, navy, special forces and intelligence capabilities.  While there has been some criticism about the realisticness of such an ambitious plan, such as the effect of corruption that is almost synonymous with massive projects in Russia, it nevertheless demonstrates the sincerity of Putin’s pledge to pursue a more aggressive foreign policy.  Hearkening back to 80 years ago, one of the biggest draws of the upstart Nazi Party was its goal of restoring Germany to its former stature as a world power.  While illegal rearmament had begun from almost the moment that the Treaty of Versailles was signed, it was ramped up in the 30s under the direction of Hjalmar Schacht (notably never a member of the Nazi Party and later jailed at Dachau), the Reich Minister of Economics at the time.  Schacht successfully managed to create dummy companies that shielded rearmament efforts from prying Allied eyes.  From a force that was limited to a 100,000 ground army with no tanks, no air force and a navy of just 6 ships with no submarines, it was transformed in short order into a well oiled military machine that 20 years later would roll across Europe in a deadly “lightning war”, or Blitzkrieg.  

Now there are some stark differences in these situations (namely the Treaty of Versailles), but remaining oblivious to the military buildup occurring to the east is not a plausible or realistic plan of action for European countries seeking to avoid conflict.  While placing boots on the ground would be an obvious provocation and carries the risk of spilling over into armed conflict, NATO allies should begin by pledging to immediately provide Ukrainian forces with both arms and training in how to use them, as well as signing contracts for modern naval and air assets that could be paid for at a later date.  Although a UN mandate seems unlikely thanks to Russia’s status as a veto-wielding power in the Security Council, NATO forces should be deployed under its banner nonetheless with the sole purpose of securing the borders and maintaining the territorial integrity of countries who specifically have requested its assistance.  It may be met with protest from countries such as India who seem content to be willfully blind to the realities in the region, but ensuring that current tensions do not spill over into wider conflict demands that a principled stand against a Putin regime that has set its sights on nothing less than restoring the clout its old Soviet empire wielded be taken.  If Ukraine is further divided, it does not bode well for Eastern Europe at large.