The Metronome (The Counterpoint Trilogy Book 1) Read online

  Saturday, June 24

  Once again, I get lucky on the Moscow–New York flight: The middle seat next to me is empty. The man in the aisle seat tries to strike up a conversation, but after receiving a few single-syllable answers, he thankfully gives up. I pull out the manila envelope with Voronezhsky’s document and start reading. I don’t read each and every word but try to focus on what’s relevant to the events I find myself embroiled in.

  From The Voronezhsky’s Thesis, 1998

  The Wolfowitz Doctrine and the Brzezinski’s Grant Chessboard

  The Wolfowitz Doctrine is the initial version of the US Defense Planning Guidance from 1992 authored by Under Secretary of Defense for Policy Paul Wolfowitz. It was published by the New York Times the same year. The policy stated:

  “Our first objective is to prevent the re-emergence of a new rival, either on the territory of the former Soviet Union or elsewhere, that poses a threat on the order of that posed formerly by the Soviet Union. This is a dominant consideration…We must discourage the advanced nations from ever aspiring to a larger global or regional role…We continue to recognize that collectively the conventional forces of the states formerly comprising the Soviet Union retain the most military potential in all of Eurasia; and we do not dismiss the risks to stability in Europe from a nationalist backlash in Russia or efforts to reincorporate into Russia the newly independent republics of Ukraine, Belarus, and possibly others....”

  The Wolfowitz memorandum cast Russia as the gravest enemy of the United States. It also defined the United States as the global hegemon that would rule the world according to its interests. While the final version of the policy has been softened, there is no doubt that Wolfowitz expressed a widely held view in Washington, shared by both Republican and Democratic lawmakers. Even the six short years that passed since the memorandum produced a number of examples that confirm it.

  A close-to-home illustration was the broken pledge about respecting Russian interests and not expanding the military organization of NATO to Russia’s borders. It has been well documented that after the fall of the Berlin Wall, President George H. W. Bush met with Mikhail Gorbachev in Malta for a two-day summit and promised not to “take advantage” of a Soviet withdrawal from Eastern Europe” by expanding NATO into these territories. This promise has been confirmed by Jack Matlock, then-U.S. ambassador to the U.S.S.R. who took part in the Malta summit and in subsequent negotiations between the U.S. Secretary of State James Baker with Gorbachev and the Soviet Foreign Minister Eduard Shevardnadze. Similar promises have been made by the German Foreign Minister Genscher and by the French President Mitterrand and confirmed by the Russian Prime Minister Yevgeny Primakov and by American scholars Susan Eisenhower and Stanley Kober. Another American ambassador George Kennan wrote in the New York Times on Feb. 5, 1997: “Expanding NATO would be the most fateful error of American policy in the entire post-cold-war era. Such a decision may be expected to inflame the nationalistic, anti-Western and militaristic tendencies in Russian opinion; to have an adverse effect on the development of Russian democracy; to restore the atmosphere of the cold war to East-West relations, and to impel Russian foreign policy in directions decidedly not to our liking.”

  When at a joint press conference with George H. W. Bush on Dec. 3, 1989, Mikhail Gorbachev said, “We are at the beginning of a long road to a lasting, peaceful era. The threat of force, mistrust, psychological and ideological struggle should all be things of the past,” most of us wanted to believe it. Instead, the United States abandoned its promises and extended NATO membership to Poland, Hungary, the Czech Republic, and the Baltic states. Some believe that this happened because Bill Clinton didn’t want to be perceived as a foreign policy “wimp” during his re-election campaign against Bob Dole and used the NATO enlargement to advertize his assertiveness. Whatever reasons and internal politics have been involved on the American side, this was a blatant betrayal of the pledges made to Russia. We can no longer pretend: The United States continues to view us as Enemy # 1. The Cold War has never really ended. The United States intends to be the sole global superpower, protecting its hegemony at any cost. This will be justified by portraying itself as a “benevolent” hegemon. What is lost in this consideration is that “benevolent tzar” is still a tzar and subjects don’t always like to be ruled by any kind of tzar.

  This American attitude towards Russia has been further confirmed in the recent book “The Grand Chessboard,” by Zbigniew Brzezinski, former National Security Advisor. Even he acknowledged that America had missed the opportunity to create an alliance with Russia in the mid-1990s and that many of the Russian concerns regarding NATO expansion were and still are legitimate. Having said that, Brzezinski proceeded to advocate an essentially adversarial relationship with Russia, in particular emphasizing actively undermining Russia’s relationship with the Ukraine in order to deprive Russia of European presence and of its position on the Black Sea via the Crimean ports.

  It is imperative for Russia to dispense with the illusions regarding its position vis-à-vis the United States. While many hold on to the belief of the trustful, friendly relationship, the reality of the situation is that the United States and Russia are not friends and more likely are enemies. It is clear that the United States sees it this way, and Russia must adjust its policies accordingly. Currently, Russia is obviously the weaker party in this struggle. But as the lessons of history teach us, empires and hegemonies are inevitably transient. The United States has its weaknesses that are already showing and will only grow more pronounced over time. The inevitable logic is the same as in the Roman Empire: The need for peripheral security will create a nearly endless series of threats and obligations. The United States will be forced to continue, at a tremendous cost, supporting an open-ended imperial project, sapping its finite resources. This document discusses how Russia can prepare and take advantage of these opportunities, while focusing on the financial side of the emerging warfare.

  Flight attendants arrive with a cart of drinks. I get black coffee and ask for a scotch. I’ll need a few of those to make it through Voronezhsky’s document.

  Financialization of the U.S. and its Societal Implications

  We will define “financialization” as the increasing dominance of the finance industry in a national economy. While we don’t deny the importance of financial matters, when financial motives, financial markets, and financial institutions rise to the primary role in a society and extract inordinate rewards compared to the productive industries, we will consider such a society “financialised.” It is worth observing that financialization took place a number of times in history. Some examples include Spain in the 16th century, the Netherlands in the 18th century, and the British Empire in the 19th century. If we include the cases of less developed economies where the government was “financialised” in terms of taking on excessive financial obligations, then the Roman Empire in the 5th century and France in the 18th century would make the list. Each of these countries was either the leading or one of the most advanced economic powers of the time. In all cases, financialization preceded their decline, sometimes collapse. These societies have followed an evolutionary progression, from agriculture to industry, commerce, and finally finance.

  It is our premise that the U.S. economy follows the same pattern of financialization that would lead to a similar decline. The primary indicator is the gradual reversal of the anti-trust regulations that were put in place in the first third of the 20th century with regards to financial institutions. In 1994, restrictions on interstate banking were eliminated. In 1996, U.S. banks were allowed to sell insurance. In 1997, they were allowed to buy securities firms. As this paper is being finished, Citicorp, a major U.S. bank, merged with a major insurance company, Travelers Group, in violation of anti-trust regulations. We can expect that the U.S. Congress will thus remove the last remaining obstacles to creating massive financial conglomerates. At this writing, the U.S. financial sector already represents close to 20% of the country’s
economy, exceeding U.S. manufacturing.

  What are the likely consequences of this development for U.S. society? We can expect a number of mutually reinforcing trends:

  - The financial industry will use its leverage to capture an inordinate amount of the country’s wealth while benefiting only a small portion of the society

  - The wealth will be used to further advance a crony capitalism, where the industry will use lobbying and donations to establish strong relationships with the government and regulatory sectors to further advantage the industry

  - Select financial institutions will grow and become “too big to fail,” creating systemic economic problems where public finances will be used to compensate for the errors, while successes will be privatized.

  - Increasing market speculation will create boom-and-bust instability. The capital markets will stop playing its intended role of allocating capital to most productive uses and instead become instruments of policy. The same large financial institutions will be able to manipulate the markets to their advantage.

  The eventual impact on the society will be profound. Some of the likely developments include:

  - Rising inequality, as the upper classes extract ever increasing share of the country’s wealth

  - Rise of credit and debt needed to feed the financial machine which requires constantly rising supply of funds in order to operate

  - Effective devaluation of the currency. This will be required in order to both support creation of cheap debt and allow extraction of the wealth by the unproductive financial class

  - Emergence of the political/financial elite that will effectively rule the country and will attempt to centrally manage the increasing share of the economy. This process will become self-reinforcing as the government will become dependent on the continued source of debt that financial institutions will provide.

  As we know from the history of other countries that followed a similar path, including the history of the failed U.S.S.R, the model described above is unstable and not sustainable. When the rich get richer and the poor get poorer, cooperation between social classes is undermined, and the nation gradually loses its ability to cooperate. It can continue growing for some time, especially for a rich country like the United States, but ultimately, to quote Herbert Stein, “If something cannot go on forever, it will stop.”

  The crucial variable in the rise and fall of empires has always been the collective capacity for action. The Roman Empire went from being a cohesive nation of citizen-soldiers to an atomized society of extreme inequality and lack of solidarity between individuals. Great countries die by suicide, and “financialization” is the core element of that process. That much is predictable. What is impossible to predict is the exact process and timing. The situation is unique compared to previous “financialised” societies because for the first time in history, the world is truly global and financial warfare will represent an important part of any large conflict.

  The section is full of tables and graphs trying to prove the points, I skip over them. Back in 1998, this was a theory, an attempt to predict an outcome of future experiment. Eight years later, we can judge some of the results: the financial industry was indeed completely deregulated in 1999, the banking business was consolidated amongst a few giant institutions, finance profits and compensation went through the roof. In 2000, we deregulated the derivatives, enabling a shadow financial system of unknown risk. The U.S. dollar declined about 20 percent, while debt went up sharply. Too early to draw conclusions, but I have to give Voronezhsky at least some credit for these predictions coming true.

  I drink the last of my scotch, ice cubes rattling, and continue:

  Emerging Instruments of Financial Conflict in International Policy

  Financial power had always been an integral part of national security. But the global nature of the modern financial and monetary systems combined with development of computer and communications technologies and reluctance to unleash the destruction of traditional military options, will raise the importance of financial warfare to a whole new level. Financialization of the U.S. will accelerate this process, as the financial sector will become both more sophisticated and in a greater need of protection and expansion in order to ensure its self-preservation.

  We have already seen examples of such operations, but so far they have been isolated incidents. One instance was application of sanctions against Serbia in 1993: the U.S. had identified and seized the assets of the Serbian leadership, impeding the regime’s ability to resist the NATO attacks. Another instance was the use of financial sanctions against individuals and companies that the United States believed to be involved in the Colombian narcotics trade. The United States evolved a special office of the U.S. Treasury Department called the Office of Foreign Assets Control designed to conduct such financial operations. While this organization existed in different forms and under different names since World War II, the true potential of this type of warfare is only now being realized.

  We should expect that development of the tools of financial conflict will continue and that these tools will leverage the strengths and advantages of the U.S. financial complex:

  - The U.S. dollar’s status as the world’s reserve currency. The majority of world trade is conducted in dollars. The dollar makes up almost two-thirds of foreign reserves in other countries. The American ability to print, at will, the most accepted currency of the world gives it tremendous advantage in financial affairs

  - Global importance of the U.S. banking system and capital markets. It is difficult for a country, or even for a large company, to function in financial isolation. The United States can – and will – exploit this to punish those that are not complying with American policies. After all, it’s not necessary to target the offenders directly. It is much more effective to threaten to punish anyone who may work with the offender in any capacity. The mere threat of such action will likely be sufficient to isolate anyone the United States wishes to.

  - Access to and control of banking data. It’s a fallacy to assume that because most of the banking institutions and telecommunication networks are not controlled by the United States, the private deposits and transaction information will remain private. As described above, the U.S. financial complex has developed a tremendous leverage not only over the U.S. policies, but also over non-U.S. entities. We should expect that information about any transaction, any bank-to-bank transfer via standard banking mechanisms, such as the Society for Worldwide Interbank Financial Telecommunication (SWIFT), will become available to the United States.

  In short, the financialization of the United States, while weakening many aspects of the economy and societal cohesion, is also providing the United States with powerful tools for using the financial system in its national interests. In the process, we can expect that the United States will develop the surveillance capabilities over both foreign and domestic entities and individuals that the security services of the past could only dream of.

  I shrug this off. There were some publicized financial actions against North Korea and money laundering in Eastern Europe, but otherwise I see no evidence that Voronezhsky’s thought experiment ended up being correct.

  Flight attendants are back with a so-called dinner, I take a break with some form of lasagna and a refill on my scotch.

  Implications for the Russian National Security

  As we explained in previous sections, we expect the United States to develop increasingly sophisticated surveillance and financial warfare tools and employ them in its international policy. In the ongoing debate within the Russian government, some argue that this is not to be concerned with since the United States in the 20th century has been largely a benevolent power. The U.S. post-World War II behavior towards vanquished Germany and Japan is given as an examples of this benevolence. In our view, such an argument is missing the point. U.S. behavior will be driven by U.S. interests, and any benevolence will be shown only to the extent of such interests. But even more important
is the simple maxim that’s been shown true throughout history and that Russia is well familiar with: “Power corrupts.” When presented with the opportunities that such financial power makes possible, it is inevitable that at some point – and probably sooner rather than later – policy decisions will be made to the advantage of the American ruling elite rather than worldwide well-being. It is not in the Russian national interests to be dependent on the American goodwill. Moreover, the very unsustainability of the financialised model that the United States is embarking on makes such dependency especially dangerous.

  Another argument being made is that with the United States being strong and Russia, at least at this time, weak, there are no real policy alternatives. While acknowledging the pragmatic point of Russia’s relative weakness, we must disagree with the conclusion. There is no possibility – or even desirability – of directly confronting the United States in the near future, but many wars have been won by patience and guerilla tactics. The very course that the United States is undertaking ensures that its weaknesses, and our opportunities, will increase over time.

  What are the present and likely-to-emerge U.S. weaknesses that we should seek to exploit? This list provides a suggested roadmap for how Russia can protect its national security and resist U.S. dominance in this ‘financialised’ environment: