What may keep Putin up at night

Russia's economic future looks bleaker after the invasion. Just ask its oligarchs.

Oh, to be a fly on the wall next month at the annual "summit" of Russia's richest capitalists and Vladimir Putin. Will the oligarchs tell the modern-day czar, "Bravo on invading Georgia!" Or might they whisper, "Watch out what you do to our economy." The latter would be smarter.

Soviet leaders during the cold war never had to deal with pesky capitalists when they rolled tanks into other countries. In today's Russia, Mr. Putin may sit on gushers of oil money and he has co-opted the business class to his authoritarian rule, but he must still live with Adam Smith's invisible hand.

Markets do react to unpleasant facts, such as other peoples' fear and resentment of Russian bullying. And since the invasion, markets have sent a clear signal of Nyet. Many investors – both foreign and domestic – are fleeing Russia. Its currency reserves and stock market have plunged in recent weeks. And that's on top of the West's warning that relations with Russia will not be "business as usual."

The West's victory in the cold war was as much about saving free markets as it was defending democracy. While Putin, a former KGB agent, has rolled back Boris Yeltsin's post-Soviet democracy, he'll have a harder time in a globalized world using his political judo to control Russia's markets and its rising dependency on the West.

For some years to come, of course, Europe will be dependent on oil and gas pipelines from Russia – an unwise choice made years ago by countries such as Germany. But as Russia's oil output declines – it has fallen since 2007 – Putin's reliance on petrowealth and a practice of cutting off petroleum exports in disputes will not be as effective.

As the West now debates how or even whether to isolate Russia, Putin is isolating his own country, even punishing it.

The economy has become overly dependent on oil exports and other resources. Much of that wealth has not trickled down, staying with the elite, especially many aligned with Putin. Russia's gross domestic product per capita has risen by only 2 percent in the past 20 years, reflecting a hollow economy beneath the oil riches and one now stuck in double-digit inflation.

Russia also faces a declining population from a low fertility rate and a lower male life expectancy. It badly needs foreign investment to drill more oil and to bring in technology to develop its nonoil economy.

By invading Georgia, however, Putin seems to have decided that keeping Russia's military influence over neighbors is more important than building a better economic future for his people. He should have learned from China, which prefers a "peaceful rise" as a power in order to keep its economy humming. China also has joined the World Trade Organization while Putin has now jeopardized Russia's chances of entering the WTO soon.

Persuading Putin to change course will not be easy. His communist training was all about keeping state power and strategic security. The more that Russia is isolated by its own actions, the more it will resort to a Soviet-style economy.

Will the oligarchs who rely on Western markets and access to the West still go along with Putin and his militant nationalism? If the West has a fifth column inside Russia, the oligarchs are it. They are the market forces best able to stand up to Russia's military force.

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