Sanctions limiting international business with Russia are an economic stick. But how about considering economic carrots, too?
The West – US, a couple of major Western European countries – could consider creating a economic incentive plan for very large Russian investments in the countries. Multi-billion plus. This could include tax incentives, match funding, or similar preferential special treatment. What exactly, I have no idea.
But why on earth should the West do this? To diversify Russian business interests. If the Russian big money had stronger interests in success in the US and Western Europe, both in trade to and fro, but also within the markets, would not this affect the political decisionmaking?
And of course, foreign investment is always welcome. It would also bring Russian money into operations governed by countries with stronger democracies and laws.
Look at US-China relationship. High political incompatibility and conflicts of interest, but also high economic interdepedency. Russia has much less economic interdependency with the US. Could this work?
In percentage terms, of Russian exports 5% went to the US. Of China’s exports, 20% went to the US.
Is the US on a better footing with China than with Russia? I would argue in the affirmative. There are numerous geopolitical and economic issues with China, of course, but a conflict that would lead to sanctions is much harder to imagine with China. Economic sanctions are the first extension of diplomacy, before military action is considered. With more interdependence, even economic sanctions would become unfeasible.
Indeed, not encouraging Russian investment could even lead to increasing economic interdependence of Russia and China. In the long term, global economic interdepence is good for global political balance. In the shorter term, it could cause a stronger alignment of Russian and Chinese interests against those of the West.
For an overview of sanctions, incentives and war as realpolitik extensions of diplomacy, read Global Policy Forum’s article Bombs, Carrots and Sticks, which includes an incentive success story from Ukraine, 20 years ago:
Ukraine: A Success Story
In one of the less-noticed success stories of U.S. policy, the Clinton administration was able to achieve the denuclearization of Ukraine with positive incentives. The newly independent, former Soviet republic inherited approximately 1,800 Soviet warheads on its territory in the early 1990s, leading the United States and other countries to launch an intensive effort to persuade Kiev to give them up. In July 1993, the United States offered the fledgling nation a substantial economic aid package in return for Kiev’s agreement to dismantle some of the former Soviet nuclear missiles and ship the warheads to Russia. When members of the Ukrainian Rada began to argue later that year for retaining the weapons, the United States joined with Russia to negotiate a comprehensive agreement providing economic assistance and security assurances to Ukraine in exchange for a complete removal of all remaining nuclear weapons.
I don’t yet know if we should engage in something like this. But I’m surprised that I haven’t even seen it discussed despite following the situation with keen interest.