Return on Investment

(This piece originally appeared on Russia Beyond the Headlines)

If one is to trust common wisdom and the Republican presidential candidate Ron Paul, providing financial aid to foreign countries is a shameful waste of U.S. taxpayers dollars.  However, a recent story in the New York Times suggests that common wisdom and, believe it or not, American politicians could be wrong.

According to the story, in 1989, Congress approved legislation allowing the investment of U.S. federal funds in the former communist countries of Eastern Europe and Central Asia — to help them develop market economies.  Far from being wasted, these investments turned to be quite successful, having generated a lofty $2.3 billion in returns.  Part of the proceeds was returned to the Treasury, but some of the money has been stuck in Congress for years.  Now, the Obama administration wants to redirect a $50 million generated by the U.S.-Russia Investment Fund into a “civil society fund” that would underwrite promoting democracy in Russia.

The timing of the announcement is hardly coincidental.  The Obama administration has finally gotten serious about repealing the Jackson-Vanik amendment, the notorious relic of the Cold War that still deprives Russia of the permanent normal trade relations status as a punishment for restricting Jewish emigration in the 70s.  The effort has been met with a stiff resistance by the Republicans on the Hill.  While agreeing with the White House that the amendment should go – as keeping it on the books now, that Russia is joining the WTO, will hurt interests of American companies – Republicans argue that something else should be put in place to hold Moscow accountable for what they habitually call “human-right abuses.”

A natural successor to the amendment would be the so-called Magnitsky bill, a piece of legislation bearing the name of Sergey Magnitsky, a whistleblower who died in Russian police custody in 2009.  The bill introduced by Sen. Ben Cardin (D-Md.) last year would impose a U.S. visa ban on Russian officials implicated in the Magnitsky death and would also freeze their financial assets in the U.S.  The administration, however, considers the bill “redundant” on the ground that last summer, the State Department already composed a list of 60 individuals related to the Magnitsky case whose entry in the U.S. was to be prohibited.

Trying to prevent the adoption of the Magnitsky bill – which, as the White House believes, will have negative impact on the future of U.S.-Russia relations – the administration is now using every opportunity to demonstrate to its critics that it takes seriously the issue of human rights in Russia.  Assistant Secretary of State Phil Gordon recently boasted that since 2009, the United States has spent “more than $200 million seeking to promote democracy, human rights and civil society” in Russia.  Although Mr. Gordon didn’t explain what kind of return, if any, the U.S. had gained from this investment, the very creation of the “civil society fund” with an additional $50 million indicates that the Obama administration considers this investment strategy worthy of pursuing.

It remains to be seen whether the new “democracy promotion” investment fund will succeed in mollifying the critics of Obama’s Russia policy.  Yet, it’s already clear that by making this decision, the administration showed its inability to correctly evaluate the situation on the ground.  The anti-American sentiments in Russia that have risen sharply in recent months show no signs of abating.  In large part, these sentiments are fueled by constantly repeated insinuations that the protest actions organized by the Russian opposition are funded by the U.S. State Department.  The U.S. could hardly have done more to help the Kremlin propaganda machine as to announce an additional “democracy promotion” money flowing to Russia!

U.S. ambassador to Moscow Michael McFaul, whose multiple responsibilities apparently include informing President Obama on what’s going on in the country, made an attempt at damage control:  in a post to his Twitter account, McFaul wrote: “The U.S. govt does not & will not fund Russian political parties, movements, candidates, or politicians, only exchanges & non-partisan NGOs.”  McFaul’s calculation seems to have been that, when re-tweeted by his 20,000+ followers, his message will be well spread all across Russia making any official explanations redundant.

In 2009-2011, Presidents Obama and Medvedev have worked hard to establish trust between the two countries.  It’s sad to watch how this precious capital is now being wasted in both countries to achieve short-term political goals.  With this trend continuing, we may well see the policy of the “reset” going bankrupt.

About Eugene Ivanov

Eugene Ivanov is a PMI-certified Innovation Management Consultant who helps organizations increase the efficiency of their internal and external innovation programs.
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4 Responses to Return on Investment

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  2. Dear Eugene,

    I completely agree with you here. This kind of democracy promotion is bad from any number of points of view. It complicates US Russian relations and it undermines rather than helps the Russian opposition, who can always be represented (or misrepresented) as US stooges.

    I agree by the way with an earlier comment you made that it cannot in the end destabilise a country the size of Russia. I would add especially a country as proud and as sophisticated as Russia. However no government of any country would be happy with the sort of meddling in its domestic affairs that US democracy promotion involves. Almost by definition it is going to make such a government prickly and insecure and wary of the US however strong and stable it ultimately is.

    The point the US needs to grasp is that establishing normal commercial relations with Russia is in the US’s national interests as well as in Russia’s whilst democracy promotion does not assist the development of Russian democracy but by complicating the evolution of Russia’s domestic politics it slows it down. As it is also a factor in stimulating anti US feeling in Russia it is from every point of view a poor investment.

  3. Dear Eugene,

    One point I would add to the above is that one effect of foreign funding is that is that it can upset the balance of forces within opposition groups unfairly advantaging those with access to foreign funds over those without. Another effect is that opposition groups or politicians who have access to foreign funding become overly sensitive to the wishes of their foreign funders at the expense of what ought to be their domestic political base. Surely one reason for Prokhorov’s relative success is precisely that as a very rich man he is both uncontaminated and unswayed by western funding and is therefore much more effective at addressing a domestic Russian audience than other liberal politicians who are perceived as having foreign links.

    • Eugene says:

      Dear Alexander,

      Russian law explicitly prohibits foreign funding of political activities, and I don’t think that there is any US funding of Russian politicians, including, of course, opposition groups. I’m not an expert on the issue, but the US funds a number of activities that, quite unfortunately, can’t find stable domestic funding. For example, US money goes to different environmental groups or to a group fighting hazing in the military. Russian authorities don’t like to mention these cases, as it’s not easy to explain why such organization can’t get state funding.

      However, what is get all the attention is entities such as Golos that monitors elections and — by virtue of the way elections are held in Russia — is considered a “political” group.

      I think that it’s not enough for McFaul to just state that there is no funding of political activities. He should disclose all US funding with explanation who gets the money and how much. I suspect that publication of such a list may put the Kremlin on the offensive.

      Best Regards,

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