Guest: Lawrence H. Summers, former Secretary of the Treasury for President Clinton and Director of the National Economic Council for President Obama. He is also President Emeritus of Harvard University.
Summers chairs the boards of prestigious economics institutions, such as the Center for Global Development and the Peterson Institute for International Economics. He is a contributor to Bloomberg’s Wall Street Week and a contributing columnist to The Washington Post. He has been recognized as one of the world’s most influential thinkers by Time, Foreign Policy, Prospect, and The Economist magazines among many others.
Russia’s invasion of Ukraine will shape foreign policy for the foreseeable future. What will be the impact of the unprecedented Russian sanctions on the global economy, inflation, and geopolitics?
The economic sanctions placed on Russia are unparalleled in both size and scope. The strongest blow was dealt by freezing assets of Russia’s Central Bank and the largest Russian sovereign wealth fund. Without reserves, the ruble has fallen to historic lows. To further isolate Russia, many countries have expelled Russian banks from SWIFT services, and have targeted specific sanctions on top banks, key Russian oligarchs, as well as on President Putin and his inner circle. No sanctions regime – including the nearly half-century of sanctions on Cuba — has been so unrelenting. But is this new economic weapon a two-edged sword in a globalized world?
We explore these themes with Larry Summers as the world struggles to understand the impact of the invasion and economic war with a flurry of content and up-to-the-minute journalism. The war in Ukraine has had a huge impact on foreign policy and the daily lives of everyday citizens around the world. Noting that sanctions have rarely achieved foreign policy goals, we asked Secretary Summers about what made these sanctions against Russia unique. “Russia’s the 11th largest economy in the world. Russia has a foreign reserve level and a degree of financial integration unlike that of any other country [recently sanctioned]. So, the big difference is that we’re doing major leagues sanctions to a much more major league target than has been historically. Traditionally major economies have not done as much to become pariahs,” explains Summers.
Altamar’s Muni Jensen asked, “Is this combination equivalent to a declaration of an economic world war?” Secretary Summers answered, “I think world economic wars are different from shooting wars in their degree of destructive power. Even on the most pessimistic casualty figures here, as tragic and horrible as this is, it doesn’t approach the casualties associated with the Iran – Iraq war. It doesn’t approach the casualty levels associated with a number of conflicts that have taken place on the African continent.”He then added that “What is salient about this [conflict] is the potential degree of great power involvement and the possibility, albeit I think still remote, of extreme escalation.”
The horror and destruction in Ukraine have geopolitical implications far beyond Europe. We asked about what China is likely to take away from the actions of the West, as their interest in a ”reunification” of Taiwan is no secret. Summers explains “I think if you’re sitting in China, the difficulty the Russians have had in Ukraine has to be pause giving. It must be pause giving [because of] the basic dynamics of a large external force confronting a highly motivated internal force. And it must be pause giving in terms of the alacrity and the extent of the mobilization of an alliance.”
The sanctions are exacerbating existing economic woes such as rising gas prices and a wider problem with inflation. Summers previously warned that high gas prices are worth the price of freedom. So, we asked, “Does a global recession also count as the price of freedom?” Summers responded, “My view has always been that our basic security is our preeminent value. And if that meant that for a time, we had to not eat in restaurants in order to contain a pandemic, that’s what it meant. […] If it means to maintain some kind of world order, we are going to have to accept higher taxes for more defense spending, or we are going to have to accept higher energy prices during a time of transition, [that’s what it means…]. It’s much less than the price we can ultimately afford for what is most important in the world.”
Looking forward, what can we expect? What are some possible scenarios? Altamar’s Peter Schechter asked, “What does the world look like when we come out of this?” Summers prophesied, “[In a few years], I think Russia is much more of an outcast nation. I think the European Union is a stronger and more historically serious alliance. I hope the United States is moved beyond its flirtations with populism and with divisiveness, as it has seen the gravity of the complexity of the modern world. And I hope that China has absorbed the stakes that it has in there being an orderly world and has realized that (as I think we also need very much to realize that) international relations are not a zero-sum game and that [what is] bad for your adversary is not necessarily good for us. And that China will appreciate that it need needs to insist on respect, that it needs to insist on being involved in shaping the international rules of the road, but that it has a very strong stake in their being international rules of the road.”
What will the impact of these sanctions be on Russia and the wider world? Will Summers’ projections play out? Find out more by listening to the latest Altamar episode, available wherever you get your podcasts. You can download the episode here.
Image Source: Sergey Kovalev / Global Look Press