MR. PUTIN & THE PARADOX OF 'SOFT BALANCERS'

AM | @agumack

"Un despote ne doit pas obtenir du crédit" — Diderot

I first conceived the 'Paradox of Soft Balancers' during a seminar at Universiteit van Amsterdam about 15 years ago. In a nutshell, it says this: The soft balancer is so concerned with undermining the power of his/her ennemies that he/she is bound to neglect checks and balances at home, thereby hurting the chances of acting as an effective soft balancer. Or, as I once put it: "(Some self-styled) Realists like to play balance-of-power games — but only in the international arena. Domestically, most of them behave like despots; they are unwilling to see their power checked by independent judges, a free press, or a popular assembly" (see: "Liberalism and Realism in Histoire des deux Indes", October 2013).

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What I have in mind, in particular, is the economic impact of the lack of checks and balances in terms of the cost of capital. In today's Russia, the stock of ruble-denominated bonds, in terms of GDP, is a paltry 5%. Can Mr. Putin go very far in the international arena with that kind of economic malaise at home? It's an open question. Two hundred and fifty years ago, the great Denis Diderot warned Empress Catherine II along similar lines: « Un despote ne doit pas obtenir du crédit ».

I was reminded of the 'Paradox of the Soft Balancer' as I read a piece by John Sipher for the Washington Post that quotes Tymothy Fries' Weak Strongman: The Limits of Power in Putin's Russia (Princeton University Press, 2021).

Here's Mr. Sipher:

Russia has faced the rampant spread of the coronavirus, a structural economic downturn, inflation, a reduction in household disposable income and a drop in real gross domestic product. Recent warmongering has hurt the country’s financial markets and led to a decline in the value of the ruble. Easy economic fixes are difficult because of endemic corruption and cronyism. As Timothy Frye pointed out in his recent book, Weak Strongman, institutionalized corruption inhibits growth and reform. Economic rewards go not to the best and brightest, but to the best connected (*).

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In my research work on Charles de Gaulle as an archetypical 'Soft Balancer', I was led to think that, contrary to a widespread opinion, the général's fall from grace was not prompted by the May 1968 student revolts, but rather by the economic consequences of the financial 'flight-to-safety' episode —and the resulting weakness of the French franc— in Parisian capital markets following the August 1968 Soviet invasion of Czechoslovakia.

Contrary to Bundesbank, Banque de France was not independent from the executive. In fact, it was used by De Gaulle to withdraw French gold from Fort Knox in order to undermine the dollar as the world's international reserve currency—a fitting illustration of the Paradox of the Soft Balancer.

(*) John Sipher: "Invading Ukraine backfired on Putin once. Why is he threatening to do it again?", Washington Post, January 27, 2022.
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