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Showing posts with label Qatar. Show all posts
Showing posts with label Qatar. Show all posts

Wednesday, November 1, 2023

The New World (Dis)order (five part series)

(Image: businessday.ng dotcom)

NOTE: This is the final part in a five part series.
PART I: American Adventurism, Non-Interventionism, Trumpism and Afghan Chaos
PART II: The Misunderstanding of Vladimir Putin
PART III: China Awakens Under Xi Jinping
PART IV: Crony Capitalism and the West’s Achilles Heel

PART V:
The New World (Dis)order

Part V: The New World Dis(order)

“Experience has shown how deeply the seeds of war are planted by economic rivalry and social injustice.” -Harry Truman

In May, China released a film designed to showcase their military prowess, called Born to Fly. The film begins with American-accented, English-speaking fighter pilots causing havoc in the South China Sea while boldly declaring “We will go whenever we want,” after being asked by the Chinese pilots to leave their territory.


While the film was critically panned, the message it carried shows China being bullied by developed nations and made it clear that the only way for China to defend herself, from enemies on all sides, was through technological innovation and personal sacrifice.


A month later Chinese state media broadcast a documentary series called Chasing Dreams. The eight-part docuseries was released to commemorate the 96th anniversary of the People's Liberation Army (PLA). This one featured the PLA’s readiness to attack Taiwan, featuring drills that simulated precision strikes against the island, and testimonials from serving soldiers pledging to die in their effort to retake Taiwan.


These propaganda pieces are part of stepped up efforts by the Chinese Communist Party (CCP) to fan nationalism while showcasing China’s military prowess. Today, China's shows of force are not restricted to celluloid. This year we have witnessed a never before seen flurry of spying and aggressive tactics by China, against the United Sates.  


In February, we learned of a Chinese spy balloon flying over U.S. military bases and restricted airspace. In April, the FBI uncovered a secret police outpost in lower Manhattan, and an electronic eavesdropping facility in Cuba. PLA pilots and sailors have been increasingly engaging in dangerous skirmishes with U.S. military aircraft and naval vessels in the South China Sea and Taiwan Strait.


The Pentagon recently declassified a report that showed 180 such incidents of “coercive and risky” maneuvers against the US military by China - more in the past two years than in the entire decade before. In August, the U.S. had to dispatch four warships and a reconnaissance plane after China and Russia carried out a joint naval patrol near Alaska. Eleven Russian and Chinese ships sailed close to the Aleutian Islands, in what one expert described as a “historical first.”


Adm. John Aquilino, head of U.S. Indo-Pacific Command, said he has seen Chinese-Russian joint operations increase over the past year and expects their cooperation to grow. He added that in the context of China’s support for Russia’s invasion of Ukraine, it makes their joint action not only concerning but also creates a more “dangerous world.


A day after the Alaskan intrusion the U.S. Navy had to deploy more than 3,000 troops to the Red Sea in a bid to deter Iran from harassing and seizing commercial vessels around the Strait of Hormuz. Since 2021, Iran has “harassed, attacked or seized” 20 internationally flagged merchant vessels. A few weeks later Iranian Revolutionary Guard vessels dangerously shone lasers multiple times at the cockpit of a U.S. attack helicopter that was operating in international airspace.


These intrusions by Iran and China are not limited to military actions.


China has been stepping up its espionage game to levels never before seen by a nation state actor. The heads of the intelligence services for the U.S., UK, Canada, Australia and New Zealand, known as the Five Eyes, appeared together on a news program for the first time ever, to publicize the threat posed by China’s hacking activities. They admitted that all countries spy, but China is taking espionage to another level by stealing corporate intellectual property, academic research and much more. So grave is their concern that the FBI Director warned that China’s espionage was a “threat to our way of life”.

 

China is not alone in the sophistication of their espionage and influence operations. Semafor broke news of a massive Iranian influence operation that was launched in 2014 by the Iranian Foreign Ministry, called the Iran Experts Initiative (IEI). They learned that the IEI managed to infiltrate the highest levels of U.S. and EU policy circles. At least three of the people on the IEI’s list were, or became, top aides to Robert Malley, Mr. Biden’s special envoy to Iran. Mr. Malley, was recently placed on leave and had his security clearance revoked.


Meanwhile, Tehran has been strengthening ties with Moscow. The WSJ reviewed foreign intelligence documents, shared with the U.S., which stated that over the last six months Iran has ferried large quantities of artillery shells and other ammunition across the Caspian Sea to help resupply Russian troops in Ukraine. The Journal reported that based on documents they reviewed Iran had shipped more than 300,000 artillery shells and over a million rounds of ammunition to Russia so far. 


In October, a top Iranian general met with his Russian counterpart in Moscow. After the meeting both countries released statements pledging increased co-operation, amid reports that Iran is increasing its support to Russia in advanced drone and missile development technology. While there is no concrete evidence that Iran helped plan or execute Hamas’s cowardly murder of  innocent, unarmed Israeli civilians, we know that Iran is the main financial backer and supplier of weapons and training to both Hamas and Hezbollah.


Iran's foreign minister has publicly warned Israel that if their strikes on Gaza continue, then “the region will go out of control.” At the same time on Israel’s northern border Hezbollah has been stepping up attacks. In the midst of all this chaos, China dispatched six warships to the Gulf region, in what Beijing’s state media called a “goodwill visit”.


China too has deep ties with Iran. They recently caught the world by surprise when they announced that they had brokered a deal for Iran to restore diplomatic ties with Saudi Arabia. The Saudis cut ties in 2016, after Iranian protesters stormed its embassy in Tehran. While this was a major diplomatic victory for China, it was seen as another sign of the US’s waning influence in the Middle East. 


According to an Axios Middle East reporter, for China brokering the deal between Iran and Saudi was less about bringing peace and more about ensuring that two of its most important partners in the Middle East are able to get along so that Beijing can achieve its economic and political goals. Days after this rapprochement, China, Russia and Iran held joint military drills in the Gulf of Oman.


China’s ties with Saudi Arabia have been deepening at the same time that we have seen US-Saudi ties fray. Saudi and UAE leaders refused to take President Biden’s call to discuss the Ukraine crisis when the war began, and despite strong U.S. protestations the Saudis have continued to partner with Russia to coordinate cuts in oil production. 


When Mr. Biden visited Saudi Arabia this year, he was received by the governor of Jeddah without any ceremony. When Mr. Xi arrived he was welcomed with fighter jets, honorary cannon fire and the Saudi foreign minister was waiting on the tarmac. At the recent G20 climate minister’s meeting, the Saudis teamed up with China and refused to discuss a 2025 global emissions target, wrecking the entire summit, according to the FT


China also flexed its muscles at the BRICS. At their summit in South Africa, China pushed for the expansion of the bloc, despite strong opposition from India and Brazil, who voiced uneasiness at allowing openly anti-western countries to join. In the end China got its way and Argentina, Egypt, Iran, Ethiopia, Saudi Arabia and the United Arab Emirates were welcomed as the bloc's newest members. At the summit it was announced that the BRICS’ development bank would start lending in South African and Brazilian currencies in order to start to cut their reliance on the US dollar.

It is clear that China is actively working to build an alternate world order to counter U.S. dominance. One that is based on authoritarian ideals and runs counter to Western liberal ones. Nowhere is this more apparent than in Africa, where China has built and runs a training school on authoritarianism. 


The Mwalimu Julius Nyerere Leadership School in Tanzania was funded by a $40 million donation from the Chinese Communist Party (CCP) and built by a Chinese construction company. The Central Party School which runs the the institution is the same body responsible for training China’s top party officials.


According to a joint investigation by Axios and Danish paper Politiken, China is using the school to teach African leaders about authoritarianism as an alternate governing style to democracy. Teaching them how to fuse a political party with the state. China’s goal seems to be to cultivate a global authoritarian-friendly political bloc, with access to markets, as the West increases sanctions against certain technologies and industries. It is no coincidence that the African continent happens to be rich in raw materials and energy. 


While China claims the school is a way to promote Africa’s social and economic development, the investigation found that behind closed doors “economics takes a back seat to political training”. Through interviews with African officials who have attended the training, the media outlets learned that the real story contradicts the one asserted by CCP officials. Chinese teachers sent from Beijing are telling African leaders that the party should sit above the government and court systems.


The school is a partnership between the CCP and the ruling parties of Tanzania, Mozambique, Namibia, Angola, South Africa and Zimbabwe. While all six of the countries are multiparty democracies - one thing they share in common is that each has a ruling party that has been in power for decades. Perhaps the most telling sign is that while the school’s offerings are available to young members from these ruling parties, politicians from opposition parties are not permitted access to the school.


If there is any doubt about China’s desire to build an alternate world order, then the evidence was on display in October this year when Mr. Xi hosted 130 countries to celebrate the 10th anniversary of his Belt and Road Initiative (BRI). The forum was meant to demonstrate the convening power Mr. Xi has built in the decade since launching his signature foreign policy initiative, and to showcase the challenge China now poses as a global rival to the U.S.


Mr. Putin made the trip to China, only his second foreign trip since an international arrest warrant was issued for him. Trade between Russia and China has grown dramatically over the past year and is expected to reach $200 billion by the end of the year. Recent data shows that Beijing is propping up Moscow’s economy, accounting for around half of Russia’s imports. This includes exporting goods like microchips and trench-digging excavators that may have military applications.


While it can be argued that the BRI enables China to encroach on Russia’s sphere of influence with Central Asian countries, their goals overlap in wanting to keep the secular authoritarian rulers of Belarus, Kazakhstan, Kyrgyzstan and Armenia in power, to guarantee stability in the region and keep Western influence at bay.


Meanwhile, another longtime ally of China, North Korea, has been launching more missiles this year than any year prior, including 25 in a single day. The reclusive country is now preparing to sell weapons to Russia. A month after the Russian Defense Minister Sergei Shoigu visited Pyongyang, Mr. Kim Jong Un traveled to Russia’s main spaceport to meet with Mr. Putin. 


The two dictators agreed to greater economic and security cooperation and lashed out against the U.S.-led global order. After the meeting, according to the Russian news agency TASS, Mr. Kim Jong Un described Russia’s war in Ukraine as a “sacred struggle to punish the gathering of evil that claims hegemony and nourishes expansionist illusions.” This marks a major shift; prior to the meeting the North Korean dictator had been reticent to publicly support Russia’s invasion. 


Historically, Russia too kept North Korea at arms length, supporting sanctions against the country. Through the 2000’s and again in 2016-17 when the UN Security council limited oil supplies and cracked down on North Korea’s labour exports, Russia supported sanctions. With this newfound friendship, experts believe North Korea will supply artillery shells and in exchange will receive energy supplies and technology transfers to build nuclear submarines and spy satellites - two things Mr. Un has long wanted but lacked the technological know-how to build.


Then there is Africa’s Sahel region, which has been dubbed the ‘coup belt’ because since 2020 there have been coups in Mali, Guinea, Chad and Burkina Faso. In July, there was a military coup in Niger. Until this year Niger had been the only stable democracy in this volatile region. 


The instability being caused by these coups is being exploited by Al-Qaeda affiliated groups and the Islamic State, both of which have gained ground at an alarming pace across the region. To counter these terrorist groups, the U.S. and France had established military bases in Niger and the country was considered a key security partner and nerve center for disrupting terrorist activities across the North African region. 


The U.S. spent $500 million training and arming the Niger military and has 1,100 troops soldiers stationed there, whose future is now in doubt. The French had 1,500 troops that have been withdrawn as a result of the coup. The French troops had relocated to Niger after a coup in Mali, which forced them the leave that country. After pushing the French out, Mali’s military junta ejected UN peacekeepers and then invited Russia’s Wagner Group to deploy in their place.


China is not the only authoritarian regime asserting itself on the global stage. Russia too has been acting with increasing aggression, even before the Ukraine invasion and the revelations about its support for Iran's transfer of weapons to the conflict in Ukraine.


The latest concern is that Russia’s Wagner group, while not responsible for the coup in Niger, will take advantage of the vacuum. A fear that was heightened after supporters of the coup were seen on the streets waving Russian flags, and one of the coup leaders travelled to Mali to meet with the Wagner-allied military junta there.


Russia’s Wagner Group, now without its leader, started to spread its tentacles in Africa around 2017. Wagner established operations in several African countries with much of their activity happening in countries plagued by civil war like the Central African Region (CAR), Libya, Mali and Sudan. Wagner’s services include combat operations, security, training and disinformation campaigns. They are compensated through direct cash payments or given rights to precious mineral and resources.


In CAR, Wagner defended the regime of the current President against rebel groups after he changed the constitution to remove term limits. In return, they got unrestricted logging rights and control of the lucrative gold and diamond mines in this impoverished African nation. Now, after the death of Yevgeniy Prigozhin, the Russian government is taking control over Wagner’s contracts as it realises that it is a way for Mr. Putin to procure minerals and resources while evading sanctions.


Africa is not the only part of the world where Wagner has spread it tentacles. In 2015, Mr. Putin came to the aid of his friend Bashar al-Assad, in Syria and it was confirmed that Wagner mercenaries fought alongside the Russian military, and were responsible for turning the tide back in favour of the Syrian dictator.


In 2019, when Nicholas Maduro’s regime was under threat from popular protests supported by the U.S., Wagner mercenaries flew into Venezuela to beef up President Maduro’s security. That same year they helped quash a revolt led by senior military officers against Maduro’s regime. It is fair to say that the only reason President Maduro’s regime has survived, despite being an international pariah and one of the most sanctioned countries in the world is because it receives financial and military support from Russia, China, Iran, Cuba and Turkey.


The fact is that long before the Israel-Hamas war broke out the world was on the road on to disorder with growing instability in Africa’s Sahel region, coups in Myanmar and Kazakhstan, and US and China’s growing rivalry and deepening animosity.


President Xi Jinping has set 2027 as the deadline for China's military to be ready to "fight and win" and 2049 for the country to lead the world in "composite national strength and international influence.” While the US-China clashes echo the US-Soviet rivalry of the Cold War, the differences may be more instructive than the similarities according to scholars


China presents a far greater military, economic and technological threat to America than the Soviet Union ever did. China is far more integrated in the world economy than the Soviet Union ever was, and the American and Chinese economies, which together account for 40% of global output, are interconnected and reliant on each other; which was not true with the Soviet Union.


Many experts had opined after the fall of the Berlin Wall in 1989 and the collapse of the former Soviet Union soon after, that the world would enter a virtuous cycle of growth, prosperity, tolerance and freedom. They believed America would remain a unipolar power with no rivals on the world stage, and that America’s brand of liberal democracy and free-market capitalism would win. Far from becoming a unipolar power, America is no longer the only game in town.


One yardstick for gauging the success of U.S. soft power is through the spread of liberal democratic values in the thirty years since the Cold War the Cold War ended. If we look at the number of countries where citizens enjoy similar rights to free speech, free press, free and fair elections, and other liberties, a 2022 study found that of the 195 nations on earth, just 34 are liberal democracies with these freedoms.


Over the last seventeen years we have seen a steady rise of authoritarianism and an erosion of democracy, along with curtailed press freedoms and growing human rights abuses all over the world. Perhaps the most important lesson of the failure of U.S. policy, especially with respect to China, is that embracing capitalism is not a magical ingredient to ushering in democratic freedoms. China has never been and will never be interested in joining a US-led global club, relating to economics, politics or security.


Another reality is that while most Western nations remain staunch U.S. allies, they are heavily reliant on China for their supply chains and economic well-being. French President Emmanuel Macron said this year, on a plane ride back from his meeting with Mr. Xi, that Europe must not become “America’s followers” and should not blindly follow the U.S.’s lead in supporting Taiwan against China's aggression. He is not alone. 


European citizens in 11 countries, who are steadfast in their support for Ukraine and stand against Russia, when surveyed recently by the European Council on Foreign Relations said unanimously that they would want their country to remain neutral in a conflict over Taiwan between the U.S. and China. 


Then there are a number of powerful countries with whom the U.S. has a complicated relationship, like India, Saudi Arabia and even smaller ones like Qatar, on whom the U.S. is reliant. All of them wield far greater influence than they did during the Cold War. It would be fair to say that during the Cold War it was easier to determine friend from foe, but in the new world disorder there will mainly be shades of gray. 


Take the kingdom of Qatar. This tiny oil-rich Gulf nation on the face of it could be considered a staunch U.S. ally. It is home to the Al Udeid Air Base, the largest U.S. base in the Middle East. The base has served as a critical center of operations for the war in Afghanistan and continues to be for strikes on Syria. In fact, the relationship with Qatar is so important that last year the White House designated it a “Major Non-NATO Ally”.


Qatar too has made major investments in America. According to a 2022 study by the National Association of Scholars, it is the largest foreign donor to American universities. It has donated a whopping $4.7 billion, between 2001 and 2020, to top tier colleges. The Qataris’ own stakes in major NHL, NFL and NBA teams and iconic properties, like the Empire State Building. They controversially hosted the 2022 Football World Cup, after spending years buying their way into European football, acquiring a controlling stake in one of France’s best league teams, Paris St. Germain, in 2011.


However, Qatar owns the Al-Jazeera network, the most powerful media voice in the Arab world. Though the network claims it has editorial independence, it has given airtime to a Muslim Brotherhood related cleric Yusuf al-Qaradawi, who was denounced by the Anti-Defamation League as a ‘Theologian of Terror’. In 2017 Saudi Arabia, UAE, Egypt and Bahrain severed diplomatic ties with Qatar and cut off air, sea and land routes, after accusing it of supporting extremist groups, like the Muslim Brotherhood.


Then there is the uncomfortable truth that a few minutes drive from the Al Udeid air base you can find the home of Hamas’s de facto leader. The Qatari government not only openly hosts a group designated a foreign terrorist organisation by the U.S., UK, European Union and Canada but is one of its biggest benefactors. The country is also home to the Taliban leadership, who established an official office here in the early 2010s.


Similarly, even as Saudi Arabia has grown closer to China, and we have seen bumps in their U.S. relationship, they are not about to turn their back on the U.S. and align with China anytime soon. While China was brokering the deal with Iran, the Saudis were negotiating with the Biden administration to normalize relations with Israel, in return for a NATO-like defense pact with the U.S. and help to develop a civilian nuclear program. Then there is the fact that even though ties with Iran were restored, the Saudis and Iranians continue to have an uneasy relationship and are still engaged in a proxy war in Yemen.


India, the fourth largest economy in the world, also sits in this gray zone. Much to Mr. Biden’s chagrin Mr. Modi has refused to condemn Mr. Putin’s invasion of Ukraine, and in direct violations of sanctions, dramatically increased India's purchase of Russian crude.


The reason India can operate in this gray area is that the U.S. sees it as the biggest bulwark against China. Though India and China share a common ally in Russia, they remain sworn enemies, which explains why India got a free pass on buying Russian oil and why Mr. Biden has been careful not criticize Mr. Modi on India's backsliding of democratic norms.


There is no love lost between Mr. Xi and Mr. Modi. The former chose to skip the recent G20 summit in India. It was the first time Mr. Xi missed a G20 meeting since he came to power in 2012, and Mr. Modi was conspicuously absent during China’s display of global influence at the BRI anniversary.


The Indian Prime Minister not only has remained steadfast in his refusal to join Mr. Xi’s infrastructure building program but has instead promoted alternatives. At the G20 summit Mr. Modi announced, with Mr. Biden, plans to build a rail and shipping corridor connecting India with the Middle East and Europe.


Compared to the Cold War, today’s geopolitical landscape is far more complex, more fragmented and has far fewer alliances that can be taken for granted.


Further, many Western countries are themselves rife with domestic political turmoil. China, Russia, Iran, North Korea and others sense the weakness in the West’s power, as witnessed by the UK’s disastrous exit from the European Union, the U.S.’s refusal to ratify a major trade pact with Asia, the failed wars in Afghanistan and Iraq, and the chaos of the Trump years.


Even within democracies, leaders like Brazil’s former President Jair Bolsonaro and President Trump in America have been sowing distrust among the electorate around election results, in a bid to stay in power. India, under Mr. Modi, has seen its rating fall for the fourth consecutive year and is now ranked as “partly free” by Freedom House.


As a result many authoritarian leaders no longer feel the need to maintain a “veneer” of democracy. In the last few years, we have witnessed farcical elections in RussiaNicaraguaCuba and Guatemala and seen a surge in coups as far afield as SudanMyanmar and Kazakhstan.


The report states that China, Russia and other dictatorships have succeeded in shifting global incentives “jeopardizing the consensus that democracy is the only viable path to prosperity and security” while actively encouraging and supporting authoritarian approaches to governance.


In the new world disorder, authoritarian regimes are no longer isolated but instead able to thrive and actively collaborate with one another and can count on China and Russia to help prop them up, like in Belarus, Myanmar, Venezuela and  Syria.


Additionally, while misinformation and disinformation have always been weapons used by governments, the difference today is that they can be supercharged with artificial intelligence and disseminated via social media platforms that enable it to spread across the globe at light speed. Intelligence officials say that fake videos are being used aggressively by all anti-American actors, and some experts estimate that more than 90% of the content on the internet will be fake or doctored in the near future.


Much like with the Ukraine war, China and the U.S. once again stand on opposite sides of the Israel-Hamas conflict. On the world stage China has been offering itself up as a neutral peace broker in the Middle East. The Chinese foreign minister traveled to Egypt to meet with the leaders of the Arab League and held a flurry of calls with Saudi Arabia, Iran and Russia to coordinate their Middle East strategy. 


Yet the truth is that China's professed neutrality hides deeper ambitions according to experts, who say that China sees this crisis as a way to diminish U.S. influence, rather than to seek regional stability. As a result, they have refused to condemn Hamas, in a bid to curry favour with Arab countries, whom they see as natural allies to promote their agenda to “legitimize authoritarian practices and erode human rights protections”. Yet there is a danger that by overplaying their hand and alienating Israel to appeal to Arab nations, China's efforts could backfire and spark wider turmoil.


This danger is evidenced by the fact that even as China claims to be playing a neutral role, their state media has been blaming America for the conflict and has been perpetuating tropes of Jewish control of American politics. There has been a surge in antisemitism on Chinese internet and state media has often been selective with the information it shares. Chinese media reported on the hospital explosion in Gaza, stating Palestinian claims that Israel was behind the attack, but did not share subsequent intelligence analysis and video footage that suggests it was likely a failed Palestinian rocket destined for Israel.


However, despite all this, while the danger of a regional conflagration is high, it is not inevitable. Even as China takes advantage of the situation and seems to be stoking the fires, like the U.S. it wants a stable Middle East because it has a lot to lose if the conflict widens into a regional one.


As the world's largest oil importer, China needs a stable Middle East to fuel its economy. Around half of China’s oil imports come from the Persian Gulf. The Saudis are China’s no. 2 source of crude oil, Qatar is one of their top suppliers of liquefied natural gas, and they have been increasing oil imports from Iran which they get cheaper due to sanctions. 


The good news is that while it might be for different reasons, neither America nor China want the Israel-Hamas conflict to spill into a regional war. Working together each can use its respective influence to bring down the temperature. The U.S. has leverage with Israel and China has influence with Iran, who are Hamas and Hezbollah’s principal backers.


Another reason for pause is that the American and Chinese economies are deeply intertwined and while there has been political rhetoric about decoupling, the truth is that it would be near impossible to do, at least not without severe economic pain for both nations. This is why we have started to see a softening in tone from both sides. The U.S. is now talking about de-risking from China and Mr. Xi announced a few days ago that China is willing to cooperate with the U.S. and wants a more stable relationship, based on “mutual respect”.


Instead of trying to decouple and divide the world between them, the U.S. and China need to learn how to live and work alongside each other in a way that allows for intense competitiveness but also fosters collaboration to deal with global issues like climate change, energy, space and cybersecurity. 


The reality is that the world has become more fluid and transactional. Just as China offers dictators infrastructure, technology and arms with few strings attached, the U.S. will need to compete on transactional terms with its own basket of incentives that include free market access, technology transfers and security agreements, but it will have to do so without trying to force Western liberal values down the throats of these countries.


This does not mean the U.S. should acquiesce to China’s aims of authoritarian expansion or turn a blind eye to human rights abuses, oppression and unfair trade practices; it does mean that the US will need to recalibrate how it engages with a growing majority of nations who are taking neutral positions and seek a more pragmatic approach that will allow them to cut the best deals with both China and America.


The US-led world order still has a profound interest in seeing the spread of liberal democracy and that goal should not be abandoned. The US must be transactional but principled and assert its leadership more responsibly, using carrot and stick, rather than trying to do it forcibly.


The last time I checked the majority of the people in the world still were still clamoring to emigrate to America, and not to China. Most people in the world prefer freedom to oppression, but that does not mean they necessarily want America’s style of democracy. 


America must remember this and never use military force or attempt to install democracy like they tried and failed in Iraq and Afghanistan. 


Instead, America needs to inspire and lead by example, not instruction.

Tuesday, August 1, 2023

The New World (Dis)order: Part IV: Crony Capitalism and the West’s Achilles Heel

Empty shopping cart in an empty parking garage
(Image: Xavi Cabrera on Unsplash)


NOTE: This is the fourth in a five part series.
PART I: American Adventurism, Non-Interventionism, Trumpism and Afghan Chaos
PART II: The Misunderstanding of Vladimir Putin
PART III: China Awakens Under Xi Jinping
PART IV: Crony Capitalism and the West’s Achilles Heel

PART V (
November): The New World (Dis)order

Part IV: Crony Capitalism and the West’s Achilles Heel


“Private individuals can corrupt free markets by using the government to procure for themselves ‘systems either of preference or of restraint’.”

 

-Adam Smith on Crony Capitalism (via Heritage Foundation Report)


Have you ever visited Londongrad and strolled along Moscow-on-the-Thames? No, seriously these nicknames were conferred upon the British capital city, with good reason.


Since the fall of the Soviet Union, successive British governments of every political stripe had an open door policy to welcome in Russian money. In 1994, PM John Major, a Conservative, launched a ‘golden visa’ scheme offering residency visas to anyone who invested £1m pounds. Tony Blair and the Labour Party continued the visa scheme. Even Ken Livingstone, London's Mayor from 2000 to 2008, a socialist, declared he wanted “Russian companies to regard London as their natural base in Europe.


The scheme was rebranded the Tier 1 investor visa by Gordon Brown, in 2008. The BBC reports that since the rebrand, 2,581 visas have been issued to Russian citizens. In 2020, Boris Johnson made his friend Evgeny Lebedev, owner of the Evening Standard newspaper and son of a former KGB officer, a peer in the House of Lords.


Even after Russia’s annexation of Crimea in 2014 and release of the Panama Papers in 2016, which detailed how 214,488 offshore entities shell companies invested in places like London, nothing was done. Russian oligarchs continued to launder money by buying luxury mansions and even English Premier League football teams.


In 2020, UK’s parliamentary intelligence and security committee issued a damning report about the growing influence of Russian money in the country. The report stated that the UK had become the ‘most favourable’ destination for oligarchs and that the visa scheme offered the ‘ideal mechanisms’ to launder money. 


It warned that dirty money was being used to “extend patronage and build influence across a wide sphere of the British establishment – PR firms, charities, political interests, academia and cultural institutions…” Another report issued that same year by the Home Office cautioned that “Russian-linked illicit finance” was being used by individuals to successfully "launder their reputations”.


A 2022 analysis by independent anti-corruption group, Transparency International, found £1.5 billion worth of property owned by Russians accused of financial crime, or with links to the Kremlin. The actual figure is likely much higher because they found another 90,000 properties owned by shell corporations, which prevents the British Government, law enforcement and the public from uncovering who owns them.


Despite the obvious red flags the visa scheme remained open and was only shut down one week before Mr. Putin invaded Ukraine. However, a new book by Oliver Bullough argues that even though the UK sanctioned Russian companies, banks, tycoons and pushed through a hastily crafted anti-crime bill, there remains a big “gulf between rhetoric and reality”.


According to Mr. Bullough, the UK became the preferred destination for oligarchs, gangsters and kleptocrats not by accident, but by design. He says the government’s new law lacks teeth, and more importantly does nothing to dismantle the underlying systems that have led to Britain having an estimated £100 billion-a-year money-laundering problem.


According to him, the lawyers and public-relations firms that scare away anyone prying into their clients’ business, along with plaintiff-friendly libel and privacy laws, remain in place. As does access to a network of secretive offshore territories like Jersey and the Cayman Islands. Extradition to Russia is still a no-no in the eyes of British judges and oligarchs rest easy knowing they spent years investing large sums of money building deep ties to every part of the British establishment.


While the UK has a big dirty money problem, it is not alone in Europe. 


In 2005, less than three weeks after Gerhard Schröder stepped down as chancellor of Germany, he got a call from Mr. Putin asking him to lead the shareholding committee of Nord Stream, the Russian pipeline which delivered 55% of Germany’s natural gas, prior to the Ukraine invasion. Despite the obvious ethical conflict of Mr. Schroder being the one who pushed through approval of the pipeline, during his final weeks in office, he accepted the job.


It is true that successive German chancellors, captains of industry and journalists believed that binding Russia in trade would deter Mr. Putin from risking a conflict with Europe, while securing Germany’s economic interests. After the Ukraine invasion this calculus changed for every German, but not Mr. Schröder. 


He has made millions pushing Russian energy interests and far from expressing regret, he accepted a new position to be on Gazprom's board last year. He refuses to condemn the invasion and is still pushing Germany to reopen Nord Stream.


The European Parliament too has been rocked by a recent corruption scandal. A series of raids carried out by Belgian investigators, last winter, uncovered that politicians had pocketed cash in exchange for praising Qatar and downplaying its human rights abuses, leading up to the 2022 World Cup.


A New York Times investigation found that Qatar used bribes to turn the International Labor Organization, the United Nations workers’ rights watchdog, from critic to ally. Qatar’s campaign included “free travel; a parliamentary hearing with planted questions and a $25 million Qatari contribution to the labor organization”. 


On the eve of the World Cup, Qatari officials succeeded in getting the U.N. watchdog to refrain from making comments that might overshadow the tournament and to withdraw an earlier complaint “accusing Qatar of forced labor and exploitation”


The reality is that dirty money’s tentacles have spread to every part of the West and infiltrated sectors ranging from startups and real estate, to colleges and cultural institutions. 


The Atlantic Council estimates $1 trillion in Russian "dark money" is hidden around the globe. The National Bureau of Economic Research (NBER) estimates that 60% of the wealth of Russia’s richest households reside outside the country’s borders. 


Another place swimming in dirty money is Silicon Valley. Russian oligarchs have sometimes invested openly, like when Mikhail Fridman made a $200 million investment in Uber, in 2016. However, most use shell companies and middlemen that are hard to trace, and through them invest in blue chip companies like Meta, Twitter and Airbnb.


Saudi Arabia is one of the largest investors in US startups. A 2018 estimate by Quid put their direct investments at $6.2 billion in companies like Tesla, Uber, Lyft and Twitter. In 2020 they bought a $500 million stake in LiveNation, the parent company of Ticketmaster and Taylor Swift fans’ worst nightmare. Prior to that they wrote a $45 billion cheque to SoftBank’s Vision Fund. Through it they have made around 26 investments in startups like WeWork, Magic Leap, GM CruiseWAG, Slack, Sofi and DoorDash. 


After the World Cup in Qatar, the Saudis managed to pull off their first professional sports coup by signing one of the greatest footballers of our time, Cristiano Ronaldo. They are paying him over $200 million a season to play for a local club. They also offered football legend, Lionel Messi, a $400-$600 million a year deal to sign with another Saudi club, but he decided to sign with FC Miami in the end. According to press reports Miami managed to make him a sweeter deal.


In 2022, five European football clubs were owned by Russian oligarchs and five by Arab billionaires, including one by Saudi crown prince Mohammad Bin Salman. Russian oligarch Roman Abramovich only agreed to sell Chelsea to a US consortium, after he was sanctioned for the Ukraine invasion.


As they continue to sportswash their human rights record, last year the Saudis upended the genteel world of US professional golf. First, they divided the PGA tour by luring away some of their biggest stars to join a rival Saudi-backed LIV Golf circuit. Last month, Saudi Arabia effectively bought off the PGA Tour when it was announced that LIV and the PGA were going to merge


While financial details of the merger have not been disclosed, the head of the Saudi Public Investment Fund (PIF), who happens to be the right-hand man of Crown Prince Mohammed bin Salman, will be the new Chairman, and the current PGA commissioner its CEO. The deal also gives the Saudis the first right to refusal on any outside investment in the future, effectively giving them total control over a major U.S. sport.


The real estate markets of Los AngelesMiami and New York are another magnet for dirty money. Current US law makes it easy to make large purchases through untraceable shell companies with few questions asked. 


According to PropertyShark, $8 billion is spent each year on New York City homes that cost more than $5 million each. That is triple the amount spent a decade ago and over half these purchases are made by shell companies.


In 2010, a entity named 25CC ST74B L.L.C. paid $15.65 million to buy a condo on the 74th floor of the Time Warner Center. A NY Times investigation traced it to the family of Vitaly Malkin, a former Russian banker who is barred from entering Canada because of his suspected ties to organised crime. 


The condo down the hall was bought by a shell company for a Greek TV magnate, who was later arrested on fraud and corruption charges. A few floors down, three condos were purchased by another shell company that belongs to a Chinese businessman, Wang Wenliang. His construction company was fined for housing workers in hazardous and unsanitary conditions in New Jersey.


The same NY Times investigation found that two-thirds of Time Warner Center residences were owned by shell companies. They managed to uncover the names of 16 owners. All sixteen were the subject of government investigations into housing and environmental violations or financial fraud in their home countries. They hailed from places like Russia, Colombia, Malaysia, China, Kazakhstan and Mexico.


Remember the Chinese businessman who owns the three Time Warner condos and was cited for labour violations? Turns out that Mr. Wenliang managed to secure a seat on the NYU board of trustees after making a donation to New York University. 


In 2020, the US Department of Education (DoE) sent letters to Harvard and Yale for failing to "disclose donations and contracts" from foreign governments that included China, Iran, Russia, Qatar and Saudi Arabia. While the majority of money these institutions received was from legitimate sources, the department said the lack of “institutional controls” was making it easy for dirty money to go unnoticed. The DoE's letter cited Yale for failing to disclose “a single foreign source gift or contract in 2014, 2015, 2016 and 2017.”


These colleges are not alone. A 2021 report by the National Endowment for Democracy found that US educational institutions and think tanks have become vulnerable to “transnational kleptocratic activity”. 


Kleptocrats are using major gift giving as a way to launder their reputations by influencing academic remits, serving as guest lecturers and gaining admission for family members. Russian oligarchs have donated $1 million to MIT, $4 million to NYU and more than $10 million to Brandeis.


US Cultural institutions too, have been busy opening their doors to dirty money. The John F. Kennedy Center for the Performing Arts got more than $5 million from Russian billionaires. Viktor Vekselberg donated to Lincoln Center, Carnegie Hall and the Museum of Modern Art. Vladimir Potanin is a major donor to the Guggenheim Museum and recently gave over $6 million to the Kennedy Center in Washington.


The Brooklyn Museum received $1 million from Mikhail Prokhorov, former owner of the Brooklyn Nets basketball team. Even the Mayo Clinic has accepted at least $1 million. According to the co-founder of the Anti-Corruption Data Collective, these gifts do not even start to scratch the surface of oligarch donations, as most are impossible to trace.


Many reputed US firms have been caught engaging in corruption while doing business abroad. Goldman Sachs paid a $3 billion fine to end a probe into its role in the 1MDB corruption scandal. The scheme involved paying $1 billion in bribes to Malaysian government officials, including a former prime minister. US officials concluded that Goldman played a "central" role in the "massive corruption scheme”. 


Even McKinsey, the world’s most prestigious consulting firm, has gotten their hands dirty. They were barred from doing business in Mongolia after allowing a government official to double as a profit-seeking business partner. More recently, they were criticized for nepotism when they hired the children of high-ranking Saudi officials while being paid millions to advise the Saudi government on its economic transformation.


In 2018, McKinsey found itself embroiled in a corruption scandal involving South Africa’s largest power company, Eskom, in a deal that had ties to shady businessmen brothers who bankrolled the former president, Jacob Zuma. In 2021, McKinsey agreed to repay $63 million in fees to Transnet, a South African logistics company, after being linked once again to bribery-tainted contracts. Last year McKinsey was officially charged in the Transnet case by the country’s National Prosecuting Authority. 


Not to be outdone, their rival Bain & Company got themselves banned from bidding on public contracts in South Africa for ten years, after they helped corrupt government officials degrade the country’s revenue services’ ability to probe tax evasion.


Meanwhile across the pond, Europe’s biggest bank HSBC decided to become the local bank of drug cartels in Mexico. The ‘world’s local bank’ had created a Ponzi scheme to help cartels funnel money. They did this while on probation for past ties to drug kingpins.


A UK government investigation found that HSBC’s subsidiaries helped traffickers transport billions of dollars in armored vehicles, cleared suspicious travelers cheques for them and helped one drug lord purchase an airplane to transport drugs. 


The same UK investigation found that HSBC employees helped terrorists move money outside Iran and Syria, and a Saudi bank with links to Al-Qaida transfer money to America. British lawmakers concluded that the bank had a "pervasively polluted" culture that had persisted for years.


Much before the HSBC scandal, Siemens, a German company and the world’s largest electrical engineering firm shocked the world in 2012 when they agreed to pay a $1.6 billion fine. The penalty related to a bribery scheme that began in the 1990’s and ran through the 2000’s, spanning the globe from Azerbaijan and China, to Iraq and Russia. 


German investigators found that the corruption started in Siemens executive suite and flowed from there to every corner of the firm. It was so pervasive that Siemens actually had an internal accounting euphemism for bribes. One German prosecutor summed up the case saying, "bribery was Siemens' business model”


Even Scandinavian companies, long considered the gold standard for corporate responsibility, have been caught in dirty money scandals. Danske Bank, the largest Danish bank, was the first to get caught conducting suspicious activities, after which the scandal spread to the highly respected Swedbank. Both are accused of helping Russian oligarchs, corrupt politicians and organized crime lords transfer hundreds of billions to offshore tax havens.


Earlier this year, the Swedish telecom giant Ericsson pled guilty to and agreed to pay $206 million in criminal penalties. They were fined for covering up bribes they paid between 2000 and 2016 to government officials in Kuwait, Saudi Arabia and China. Credit Suisse, the 167 years old Swiss bank that was recently sold to UBS, was criminally charged in 2022 for laundering money for a Bulgarian cocaine smuggler. 


While corruption seems endemic, there is a more fallible weakness the West has when it comes to their ties to autocratic regimes, and it has to do with their reliance on these countries for critical raw materials, minerals and energy. 


Take for example the fanfare with which US, UK and EU imposed sanctions on Russian billionaires. An analysis by Bloomberg found that the EU sanctioned nine and U.S. just four of twenty billionaires with ties to Putin. Sanctions experts say the decision not to sanction some was based on their "critical stakes in energy, metals and fertilizer companies”. It is the same reason that Russian agricultural products, like fertilizers, have not been a target of Western sanctions.


Russia is the world’s largest supplier of fertilizers, followed by China, which means the two countries effectively have a stranglehold on the world’s food supply. Russia and its closest ally Belarus, account for nearly a quarter of all crop nutrients, followed by China. 


According to the US Department of Agriculture, fertilizer accounts for almost one-fifth of a U.S. farmer’s cash costs. For corn and wheat it is even higher, accounting for 36 percent and 35 percent, respectively.


After the Ukraine invasion, global fertilizer prices skyrocketed but US consumers did not feel these effects because for 2022 plantings, purchases had been made in 2021. This year, wheat prices have increased 21 percent, barley 33 percent and fertilizers 40 percent. The longer the war continues, the more likely it is that Americans will start to feel some pain at their dinner table. However, for poorer counties the impact of these price rises will result in starvation. 


In early 2023 the IMF raised the alarm saying that 48 countries in Africa, Asia and Latin America were at serious risk from “acute food insecurity,” because of the war in Ukraine. 


Many low-income countries in Middle East, Africa and Central Asia get 75% of their wheat from Russia and Ukraine. Prior to the invasion Ukraine accounted for 46% of global exports for sunflower oil, 37% of millet, 15% for corn, 13% of barley, 10% of wheat, 8% of honey, and 7% of walnut.


With the Russian navy blockade of the Black Sea the situation has grown more precarious. Russia now controls the main shipping corridor for these critical food exports. Last year, the UN had to step in to broker the Black Sea Grain Initiative for exports to resume, after Mr. Putin halted them.


Late last year Russia again refused to renew the initiative unless the West softened sanctions, and last month they withdrew from the deal altogether. A few days later Russia said it would treat any ship heading to Ukrainian grain ports as a military target and they started bombing grain facilities in Odesa and other cities. 


While there is no question Mr. Putin will continue to use this as a bargaining chip, I do not believe he will completely halt exports because much of it goes to countries like Turkey, Iran, Egypt and African and Latin American nations that have refused to publicly condemn Russia’s invasion.


Instead, Mr. Putin might try to cut it off for European nations like Germany, France, Spain who rely on Ukraine to a lesser extent but would see a rise in prices if he managed to stop their supply. The bottom line is that the longer this war goes on, the greater the threat to global food security.


The West’s energy needs are another weakness that Mr. Putin and Mr. Xi are aware of. The EU surprised the world by how quickly they managed to cut their reliance on Russian gas but they pulled it off with a mix of expensive and short-term fixes like buying from higher priced suppliers, getting citizens to cut back on their energy use and doling out costly subsidies.


It is worth noting that the EU has not sanctioned Russian gas sales and member nations continue to import large volumes of Russian liquefied natural gas. It is also true that Europe got lucky with a mild winter last year. There is a long road ahead and no guarantees that these temporary solutions will be sufficient to withstand a harsher winter next year.


Unlike the EU, the US was only dependent on Russia for 8% of its oil imports, so Americans did not feel the same bite from sanctions. However, America's insatiable thirst for big cars and cheap gas still has dangerous consequences. 


A Berkeley study found that the average American consumes more than 300 gallons of gas a year, which puts the U.S. at the top of 128 countries studied. A typical American consumes more than what three Germans consume and the equivalent to the consumption by six Frenchwomen.


Last year, as global energy prices rose, fuel-guzzling Americans feeling the pinch at the pump were immediately up in arms. Being an midterm election year, gas prices turned into a hot button political issue, which led the US President to tuck his tail and run to Saudi Arabia. 


Mr. Biden, who had promised to turn Saudi Arabia into a ‘pariah’ over their human rights record, instead rushed to fist bump Mohamed Bin Salman. The man who, according to the CIA, had personally approved the murder of Jamal Khashoggi. 


Coincidentally, just when Americans were complaining about high gas prices, another dictator got a free pass. The Biden administration eased sanctions on Nicholas Maduro’s regime, giving Chevron permission to start producing and exporting oil from Venezuela. This is the cost of satisfying American’s insatiable thirst for oil. 


To be fair, while we can criticize American oil consumption, there was no shortage of countries looking to buy cheap Russian oil, including India and China. Another unintended consequence of Europe’s price cap on Russian oil is that it created a thriving black market. 


Russian crude managed to find back doors into Europe through middlemen, with one suspected route being through Azerbaijan. Data shows that Azerbaijan exported 242,000 barrels a day more than it produced last year. Another is through Turkey, which not only doubled its direct oil imports last year, but has refused to impose sanctions on Russia.


Russia has also been busy building a shadow fleet of oil tankers. They are estimated to have 600 vessels known as "dark" ships, which turn off their AIS transponder, technology used to identify and locate vessels. This playbook was written by Venezuela and Iran, who for years used these tactics to skirt sanctions. These dark vessels are operated by hard to trace shell companies located places like Dubai, Hong Kong and Cyprus.


Far from crippling Russia's economy, the sanctions have not even dissuaded many countries from trading with Russia. A NY Times analysis finds that over the last year, trade with Russia actually grew. 


This was not just with countries like China, Brazil and India but EU countries like Germany, Belgium, Spain and Netherlands, reaffirming how deeply the West is reliant on countries like Russia for their energy and other needs. 


Europe is weaning itself off Russian energy, with plans to replace it with clean energy solutions. However, in order to make their clean energy future a reality, they need Russia, because it is the leading producer of copper, nickel, platinum and other minerals. All critical raw materials Europe needs to build solutions for a low-carbon future.


In America, over the last few years there has been growing political rhetoric about “breaking-up” with China, but reality does not support this. President Trump first took a hard line with China by putting in place a number of trade tariffs. President Biden has not only kept these in place but he has also increased scrutiny of Chinese firms, adding new export controls on national security grounds. 


However, what no U.S. politician will admit is that behind all the rhetoric, the reality is that breaking up with China would cause untold economic pain for Americans. 


China is the U.S.’s largest trading partner with two-way trade totaling $559.2 billion in 2020. That same year the U.S. was China’s 3rd largest export market. By contrast, US-Russia trade accounted for $28.0 billion in 2019, making them the 26th largest trade partner.


Severing ties with Russia would feel like a paper cut, but cutting them with China would be akin to transplanting every organ in the body, without anesthesia.


Beginning in the 1990’s and a trend that accelerated in 2001, after China joined the World Trade Organization (WTO), American firms began offshoring manufacturing to China. This enabled them to bring down prices, while increasing profits. Today, the depth of America’s reliance on China, across every industry sector, cannot be underestimated. 

 

Apple relies on China for 85% of its manufacturing, according to market-research firm Counterpoint. Recently, Apple has been talking about moving production out of China, and started manufacturing iPhones in India and Vietnam, yet, the truth is starkly different. Bloomberg Intelligence estimated that it would take Apple eight years to move just 10% of their production capacity out of China, where 98% iPhones are still made. 


This is why Apple’s CEO, Tim Cook, on a recent visit to China said at a conference hosted by the Chinese government, “I am thrilled to be back in China, “It means the world to me and I feel really privileged to be here”.


For Tesla, China accounts for a quarter of its revenues and is their second largest market. Similar to Apple, they rely on China for around 85% of their manufacturing. Tesla just announced they are building a new battery megafactory in Shanghai, where they already have a Gigafactory that makes cars. This will deepen their investment in China, while helping to cement the China’s leadership role in the energy storage supply chain.


Other US companies may have less visible ties, but are equally reliant on China. Take Amazon, which entered the Chinese market through a local acquisition in 2004 but found itself unable to compete with local e-commerce behemoths. While they shuttered Amazon China in 2019, a 2021 Marketplace Pulse analysis found that 75% of new sellers of goods in their top four markets of U.S., U.K., Germany, and Japan, are based in China.


A few years ago, Nike’s CEO proclaimed that “Nike is a brand that is of China and for China”. He was referring to the fact that China had become Nike’s fastest growing market, accounting for 15.8% of total revenues in 2020; five years prior it was less than 1%. Nike is not alone. Numerous American brands are made in China like Barbie, Levis Gillette, Melissa and Doug and Chevy Silverado, to name a few from a much longer list. 


It is not just in manufacturing that America is beholden to China. In 2022, China overtook US as the world’s largest film market. Hollywood relies on China to stay afloat and this is why they kowtow to Chinese censors and stay away from storylines about Uyghurs and Taiwanese independence. 


Giants in the music industry have also been collecting big money for years, doing private performances for leaders of unsavory regimes. Beyonce, Mariah Carey, Seal, Nikki Minaj, Kanye, Jennifer Lopez and Sting are just a few of the names stars have entertained autocrats and their families.


Another important area where the West is reliant on China is critical rare-earth minerals. These are integral to nearly all high-end electronics from cell phones, computers, electric vehicles and flat-screen TVs, to defense equipment ranging from guidance systems, lasers, to radar and sonar systems. According to a U.S. Geological Survey report, China accounts for 80 percent of rare earth mineral imports to the U.S.


American reliance goes even deeper when we consider that approximately 80 percent of the active ingredients (APIs) used to make U.S. pharmaceutical drugs comes from China, and to a lesser extent from India. 


A US Department of Commerce study found that 97 percent of US antibiotics came from China. The FDA states that China ranks first among countries that export medical devices to the U.S., accounting for 40 percent of imports.


The same Bloomberg Intelligence report concluded that while it may be easier to move manufacturing of clothes and toys outside China, U.S. tech companies that have invested over two decades and spent billions of dollars setting-up sophisticated supply chains will not find it easy to unwind them. 


More worryingly nobody can predict the negative impact that a real decoupling of the world’s two largest economies will have on global markets.


Read final installment in November:

PART V: The New World (dis)Order