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russian social science review, vol. 50, no. 4, JulyAugust 2009, pp. 2435. 2009 M.E. Sharpe, Inc. All rights reserved. ISSN 1061-1428/2009 $9.50 + 0.00.

Dmitrii Sokolov

Russia in the World Economy

Geopolitical Prospects
list and savitskii provide insights for a russian strategy.

In recent years, Russia has become steadily more involved in the world economic system. Too often, however, this involvement has proven difficult, even painful. The trouble is that Russias economic situation is influenced not only by energy prices but also by its geographic location. That is the first problem. The second problem is that we are trying to join the world market even though we have limited experience in dealing with market relations and are trying to catch up with the economic leaders. In this context, it may be useful to explore the theoretic heritage of Petr Savitskii, a Russian expert on geopolitics and the economy, and of Friedrich List, a German economist, taking into account the practical implementation of their ideas. As it turns out, their ideas intersect at key points. Economic Consequences of Russias Continental Location All experts on geopolitics accept a methodological formula that affirms a fundamental historical dualism between the land,
English translation 2009 M.E. Sharpe, Inc., from the Russian text 2007 Svobodnaia mysl. Rossiia v mirovoi ekonomike: geopoliticheskie perspektivy, svobodnaia mysl, 2007, no. 12, pp. 13948. Translated by Larisa Galperin. Translation reprinted from russian Politics and law, vol. 46, no. 6. Dmitrii Evgenevich Sokolov is a graduate student at the Northwestern Academy of State Service.
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tellurocracy, the nomos of the earth, Eurasia, the heartland or middle land, an ideocratic civilization, and a geographic axis of history, on the one hand; and the sea, talassocracy, maritime power, the nomos of the sea, the Atlantic Ocean, the Anglo-Saxon world, a trading civilization, and the external or island crescent, on the other hand. We can consider this formula the fundamental law of geopolitics. However much the founders of geopolitical studies disagree over specifics, none has ever questioned that juxtaposition. In its importance, it compares with the universal law of gravity in physics. In stating this juxtaposition, the Western geopolitical school emphasizes geographic factors. Maritime civilizations are traditionally connected with a coastal or island type of existence, with navigation and trade, and with republican democratic regimes (Athens, Carthage, Portugal, the United States, Great Britain). Continental civilizations, in contrast, are located far from warm, ice-free seas, convenient for navigation, giving them an existence based on the land and authoritarian systems of governance (Sparta, Rome, Byzantium, and Russia). Between Continent and Sea lie coastal zonesthe rim land, the control of which is usually a source of conflict. Petr Nikolaevich Savitskii, a Russian geographer and economist who played a leading role in the development of Eurasianist theory in the 1920s30s, revealed in his works profound differences between the continental and the maritime types of existence, including their strategies for the future. He paid special attention to the integrated world market, which became a factor in organizing and uniting maritime civilizations during the contemporary age. The inexpensiveness and convenience of maritime communications allow countries of the sea quickly to benefit from the world market with minimal shipping expenditures. Countries of the continent, however, can participate in the world market exchange only with great transportation costs: betting primarily on an intensive entry in the global exchange, they immediately become the boondocks of the world economy.1 In discussing the importance of the economic factor in geopolitics, we can mention here a classic author of Western geopolitics, Admiral Alfred Mahan, who based his view

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of maritime power on free trade by sea and believed that the navys mission was to guarantee that trade. It follows that an integrated world market unites the maritime bloc by providing it with a powerful economic foundation, while restricting the continental world to the periphery of the world economic and geopolitical system, dooming it to eternal catch-up development. In geography, there exists a notion of an equidistant map, where points a certain distance from the World Ocean [actually, from the center of any two-dimensional mapEd.]400, 800, 1,200, and so on kilometersare connected with lines. Such a map clearly shows that, for instance, west of the Pulkovo Meridian Western Europe has no areas that are more than 600 km from warm seas. The areas that are farthest from the ocean (800 km and up) are central Canada, the northern United States, and, even more, the continental regions of Eastern Europe and Asia: central and western China; Kashmir, the Punjab, and adjacent regions of India; Persia; and all of Turkestan, Siberia, and a significant part of the Russian Far East, as well as the central Volga region. Moreover, whereas in China and the United States, the significant distance from the sea of certain northern and central areas is offset by the closeness of other, primarily southern regions to the sea (even Canada borders on the Pacific and Atlantic [Halifax] coasts), which provides access either to the ocean itself or to warm, ice-free seas that are connected to the World Ocean, Russia has the least favorable location in this respect. Even where it has access to seas, they are either internal or continentaldisconnected from the World Ocean or its portsor northern seas that are unfit for navigation for at least six months a year.2 In his Continent-Ocean[: Russia in the World Market] (1921), Savitskii provides specific numbers: to cover the same distance, German railroads before World War I charged approximately fifty times the rate of ocean freight companies. Even Russian railroad fares (traditionally kept below cost) were seven to ten times as high as ocean freight charges.3 We would add here that today, too, the difference between the sea and railroad rates remains significant. Moreover, electricity, coal, oil, and gasoline prices continue to rise. In addition, the gauge of European railroad tracks differs from

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Russian ones, which forces a change of cars when state borders are crossed. Naturally, this, too, raises the cost of shipping goods overland. The contemporary energy crisis highlights the relevance of the problem Savitskii described. Savitskii emphasized that Russia (despite a potential great-power imperial expansion) had no chance to gain access to the coast of the open sea, in the precise geographical sense of the word, except on the coast of faraway Kamchatka. Even the Arctic Ocean, due to a span of shallow water (less than 600 meters) stretching from Greenland past Iceland to Scotland (the so-called [Wyville-] Thomson Ridge), is excluded from the common ocean circulation. All the seas washing the coasts of Russia and Eurasia are closed, continental, mediterranean seas, which are in most cases frozen for at least six months a year. In the south, as the extreme limits of conceivable Russian expansion, we can name the Mediterranean Sea and the Persian Gulf, both continental basins. How can the unfavorable consequences of the continental geographic location be alleviated? In Savitskiis opinion, one solution is to counteract (within the continental world) the dominance of the principle of an oceanic world economy; create economic interaction among individual, spatially adjacent areas of the continental world; and promote their development based on mutual ties.4 Savitskii offers quite reasonable arguments: if a continental country can obtain minimal profits from selling certain goods on the world market after shipping costs are deducted, it might benefit more from selling the same goods nearby than from shipping them to the world market. Important patterns of intracontinental gravitational forces are being developed and formulated, and these have not so far received sufficient attention from either Russian or foreign geopolitics specialists. Moreover, intracontinental gravitational forces necessarily become efficient in cases where it makes sense for intracontinental manufacturers and consumers to exchange (not only economically!) with one another without involving the world market. The formula expressing this law is Z < X+a+B+Y, where Z is the cost of shipping one unit of goods from a continental manufacturer to an intracontinental consumer, X+a is the cost of shipping the

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same goods via the world market (X covers the cost of overland transit to the port, and a overseas shipping costs), and B+Y is the cost of bringing products of the world market to the continent (B covers overseas shipping costs, and Y overland transit from the port to the consumer).5 Based on this formula, one can easily grasp that the Urals mining industry will be hurt if it must import meat for a long period from New Zealand and Argentina, rather than Bashkortostan and Perm oblast. In this context, we cannot fail to mention the air shipment of Bush legs from the United States to all corners of vast Russia while the production of chicken was being reduced within the country! The forces of intracontinental gravitation have most significance in places where, first, the adjacent continental borders are longest and, second, economic and cultural diversity is greatest. The first type of factor expands the effective space, whereas the second type increases the economic and cultural benefits. For these reasons, Russias strategic partners are China, Mongolia, and Iran. Moreover, an intracontinental exchange can include not only areas far from the sea but also coastal regions between those areas and the sea. Such coastal regions lie along the path by which intracontinental products are shipped to the world market and are closer to the landlocked countries than to the world market. The coastal regions proximity to continental manufacturers makes it possible, if they take advantage of the price differential between the world market and the continental boondocks (a figure determined by shipping costs), to obtain goods at a cost below import rates from the world market. Coastal countries also manufacture goods, and it makes sense for them to sell their goods primarily to continental customers, who will pay far less than it would cost them to import similar goods from the world market. Since the coastal areas are simultaneously consumers of inexpensive continental goods and suppliers of inexpensive coastal goods to the continent, they can be permanently affected by continental gravitational forces.6 These conclusions are singularly important for geopolitics. We have already noted that maritime and land-locked countries fight nonstop to control the rim land. If we consider Siberias rich mineral resources, we can see there is much worth

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fighting for. In Continent-Ocean Savitskii revealed important economic patterns that would include the rim land in the continental geopolitics zone of influence. At the same time, he shows how intensively Russia and Eurasia can exploit the principle of continental proximity in their economic and geopolitical strategy by creating an image of a certain economic and geopolitical self-pressure. In Savitskiis view, state policy aimed at creating self-pressure can complement and intensify the effect of objective factors. The economic advantages that result from the ocean that connects Canada, a country of wheat, with Australia, a country of wool, and India, a country of cotton and rice, are provided within the Russian world by the continental proximity of Russias industrial areas (Moscow, Donets, Urals, and potentially Altai-Semireche oblasts) with its black-soil regions (wheat!), cattle-breeding steppes (wool!), and with subtropical areasTranscaucasia and Turkestan (cotton and rice!).7 In this sense, Savitskiis Continent-Ocean is a continent that, like the ocean, can connect vast expanses. Although he did not deny Russias need for new opportunities to obtain access to seas and expand its contacts with the world market, he noted that the maritime principle would always play a secondary role in designing Russian politics and geopolitics: No matter how great Russias access to the Mediterranean Sea or the Indian Ocean becomes, the surf will not touch the cliffs of Simbirsk. Simbirsk, together with many other areas of Russia and Eurasia, will, as ever, have no choice but to continue to orient itself to its inherent continental properties rather than access to the warm sea thus acquired.8 Continentalism is Russias destiny: it makes no sense to fight it. We need to understand it and learn to love it; only then can we take advantage of all its benefits. This is the main conclusion that Savitskii, a great Eurasianist and a great Russian geopolitical scholar, has left us as a precept. A Third Way in Economics The distinctive features of Soviet economists education have accustomed them to dealing with only two economic modelsdogmatic

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Soviet socialism and liberal capitalism. The reforms of the late 1980s were necessary, but the dualistic logiceither Soviet socialism or capitalist liberalismfrom the beginning posed the wrong question. The resulting argument became purely theoretical, putting considerations of Russias geopolitical autarky on the back burner. In fact, the nation should have had the chance to choose between the directions already mentioned as well as a special economic doctrine that would combine elements of the market and the planned economy in line with the main imperativenational prosperity and security. Such a third way in economics would not have been a compromise or a synthesis of two other economic models but a complete and independent doctrine, one with a long history and numerous examples of practical implementation. We would note here that the real third way in economics found its classic realization in the works of Friedrich List, who formulated the principles governing the economic autarky of vast territories, as early as the mid-nineteenth century.9 This theory assumes the uneven economic development of capitalist societies and, as a logical consequence, the economic colonization of poorer countries by wealthier ones. Under such conditions, free trade benefits wealthy countries more than poor ones.10 On this basis, List concluded that at certain stages of a societys economic development, it must resort to protectionism, oversight, and tariffs limiting free trade at the international level if it is to achieve national and state independence and strategic power. To List, it seemed obvious that the economy must serve national interests, and any appeals to the autonomous logic of the market merely concealed the economic (and subsequently political) expansion of wealthy states to the detriment of poorer ones. Such an approach immediately sets clear lines within which the market and socialist principles must be chosen. It is interesting that Rathenau, the author of the German economic miracleand [Russian Prime Minister Sergei] Witte, Lenin, and even [John Maynard] Keynesbased their economic principles on Lists doctrine, although their language employed either a purely capitalist or a communist vocabulary. Lists economic hierarchy can be reduced to a simple formula:

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aspects of economic life that exist at a level consistent with the interests of a private citizen, an individual, must be guided by market principles and based on private property. Examples include housing, small manufacturing, and small-scale landed property. As other types of economic activity become more significant, the means of production must acquire features of collective ownership, since private property and the individual factor may contradict collective interests; here, a cooperative or corporate criterion must be followed. Finally, economic spheres that are directly connected with the state and its strategic status must be monitored, subsidized, and run by state agencies, since the interests here operate at a higher level than private property or collective benefit. In an economic system of this kind, neither the elite nor the market nor the collective determines the economic, industrial, and financial shape of a society. Rather, society is based on the specific interests of a specific state under specific historical conditions. In this model, accordingly, no dogmatism can exist in principle: as a countrys geopolitical status and historical and national conditions change, the relationships among the three levels of the economic hierarchy can alter significantly. For instance, in peacetime and periods of prosperity, the private and collective sectors may grow, while the state sector shrinks. In difficult periods of a nations history, when the independence of an entire people is threatened, the state sector may bear increased responsibilities to the detriment of certain collective economic organizations, which then put pressure on private entrepreneurship. It is interesting that the historically developed capitalist countries have relied precisely on the model proposed by Friedrich List in moments of crisis. Thus, even in the United States radical supporters of free trade have occasionally employed protectionist measures and state subsidies for the industrial sector in periods of economic depression. In such a period the New Deal was implemented, in which the Americans almost literally reproduced Lists principles, if in a version ameliorated by Keynes, the author of the theory of economic insulationwhich, when all is said and done, is just the theory of the economic autarky of vast territories under a new name. By the way, List himself lived in the United States for a long

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time and observed capitalist development in its early stages. His observations became the basis of the main principles of his theory as applied to Germany. But, of course, Lists doctrine had the most extreme results in Nazi Germany, where his ideas were implemented in real life without any liberal or Marxist adjustments. The doctrine of an economic third way has another important aspectthe link between financial and industrial factors. Apparently, early capitalism and Soviet socialism highlighted industrial development, seeing the financial system as secondary. Developed capitalism, on the contrary, emphasizes financial capital over production. The dominance of labor eventually leads to political violence, whereas the dominance of capital results in economic violence. In the first case labor becomes autonomous and is divorced from specific values, whereas in the second money becomes autonomous, loses its value, and turns into fictional credit/interest. Meanwhile, the third way envisages a rigid connection between labor and value (gold supplies and, in a broader sense, resources), while consumption and the circulation of goods play subordinate, often instrumental roles. Such a combination of labor and value is dictated by the same considerationsensuring national might and state sovereigntyon which the entire structure of this economic doctrine is based. This model enables a nation to avoid dependence on other countries and economic systems in strategic areas while making labor noncompulsive and giving it a material equivalent. It seems to us that this version of the economic third way economy is the best alternative for contemporary Russia. Such an economic project could include the positive aspects of liberal reforms and structures retained from the socialist period. Admittedly, for these elements to have a positive impact, they must exist in a context of conscious and theoretically developed doctrine rather than a set of pragmatic, occasional steps. The economic third way rests on principles as exact and unequivocal as those of liberal capitalism and socialism and give rise to any necessary secondary consequences in a natural and organic fashion.11 The economic tendency of the third way and the principle of the autarky of vast territories envisage the maximization of the nation-state in places where the model is implemented. List

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insisted that states with insufficient demographic, resource, and industrial potential could not implement these theories because autarky in such cases would be a fiction. On this basis, he proposed an imperative for customs integrationuniting Germany, Prussia, and Austria in an industrial and financial bloc that could compete effectively with the developed colonial powers of the dayEngland and France. By the way, Germanys more continental location relative to the other states of Western Europe impeded its participation in the colonial division of the world. On the contemporary stage, standards of a sovereign state are based on the United States and the political and economic space covered by the Monroe Doctrine (the continental combination of North and South America controlled by the United States). Obviously, only a continental analogue in Eurasia can realistically compete with such a Trans-Atlantic vast territory today. Therefore, the economic theory of the third way already envisages geopolitical integration. Only at this level and at this scale can the economic third way maximize results. In addition, the proposed economic model will become the best theoretical denominator for potential participants in a continental bloc. If Russia takes this path, the Eurasian chain will be closed in a natural fashion. Then we can develop a new version of the project for Eurasian customs integration, one that matches current geopolitical conditions and benefits all the nations of Eurasia. Eurasia is a bridge between west and east and between north and south in planetary terms. The current criticism leveled against the Eurasian approach in Russian foreign policy is well known. Several actors in world politics who would like to increase their influence on the continent, however, express excessive zeal for the bridge role, contradicting current views that such a role is irrelevant. Potential curators of Eurasian space include Turkey, China, Iran, Kazakhstan, and others. In summary, we should note here that the ideas put forth by Petr Savitskii and Friedrich List have much in common. With reference to Russia, their principles envisage establishing economic and, hence,

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political links with their continental neighbors, creating Eurasian customs integration and becoming a center of gravitational force. At present, Russia needs to establish strong, mutually beneficial economic relationships with the Commonwealth of Independent States and other states of the near abroad. It is well known that those countries (especially Moldova, Uzbekistan, and Tajikistan) are experiencing significant problems in creating an effective economy. This in itself provides reasons to restore the links broken during the collapse of the USSR. We may also recall here what the two scholars of geopolitics had to say about the principles of self-sufficient territory, continental proximity, and the economic autarky of vast territories. For areas where a third way can be implemented, the theories analyzed above envisage the presence of vast territories and a diverse economic life, since that is where it proves most effective. Probably Russias foreign policy efforts should head in this direction, and this is where the state comes in. Taking globalization into account, we can recommend measures to turn Russia into not only a continental leader but also a full-fledged participant in the world market: building and maintaining highways and railroads to promote national development, maximizing the effective use of transit operations, and replenishing the budget. We should also not forget the development of coastal territories and the need to assign them a special economic status. A positive example in this regard is the long-term investment in St. Petersburg and Leningrad oblast made by the worlds largest car manufacturers (Ford, Toyota, and Nissan). Then again, attracting investment should be implemented only when the conditions benefit Russiaand under state control. Notes
1. I.A. Vasilenko, Politicheskaia globalistika (Moscow, 2003), p. 271. 2. See R. Vakhitov, Ekonomika i geopolitika: Internet protiv teleekrana, 7 December 2005 (www.contr-tv.ru [accessed October 2008Ed.]). 3. P. Savitskii, Kontinent-okean, in Kontinent evraziia (Moscow: Agraf, 1997), p. 399. 4. Ibid., pp. 4067.

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5. Ibid., pp. 40910. 6. Vasilenko, Politicheskaia globalistika, p. 273. 7. Savitskii, Kontinent-okean, p. 412. 8. Ibid., p. 418. 9. F. List, natsionalnaia sistema politicheskoi ekonomii (St. Petersburg, 1841). 10. For more detail, see the section on Russias continental geopolitical location. 11. A.G. Dugin, osnovy geopolitiki (Moscow, 1997), p. 286.

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