More than three years in the Central Asian states of Kazakhstan and Kyrgyzstan with attendant visits to Russia in 2004 and Georgia in 2006 as a localisation expert has provided me with a unique perspective on affairs in the former Soviet Union. During that time, I was a US State Department Fulbright scholar, worked for the Kazakhstan National Oil company and later a major US oil company for skills development. I became well acquainted with the real situation on the ground, up close and personal. The situation in Georgia is a reflection of what currently goes on in most of the Caucuses and Central Asia. It is unknown to most people outside these countries. Unlike living in Huntsville or Long Beach, USA, where access to foreign officials and international organisations is non-existent, being in the capital cities of Central Asia and the Caucuses had an active forum and open window to see and meet these representatives and organizations firsthand. Some ideas and people were impressive, most were status quo.
The issue of the Russian invasion and the ensuing response from the US, European Union, and NATO is hypocritical at best. Since most Americans are not genuinely interested in US foreign policy, the anti-Russia barage fed on FOX and CNN ignores some major issues. The West are fomenters of this problem and as such are bona fide reasons for the invasion. How did this happen? Blatantly and intentionally ignoring real, on the ground problems and unresolved geopolitical issues. Despite the rhetoric about “market economy” and “democracy”, the truth is the average citizen in Georgia and most of former Soviet Union are more so victims of the former and less participants in the latter than the US government and EU is deluded into having us believe or even understand. This pretext of the invasion is about oil, transport and facilitation of that oil, and the geo-politic of the “Prize”. The US miscalculated in its brazen support of Georgia, namely, its aggressive support and construction of the Baku-Tblisi-Ceyhan pipeline, or BTC as it is known in oil circles. This pipeline conduits practically all Central Asian oil through the tiny country of Georgia, while bypassing Russia. Another pipeline for Central Asia oil, Novorossisysk, actually goes through Russia and has been the subject of much political game playing over the years to the chagrin of the major (and national) oil companies. There are key points that should be further noted here: oil and its geo-politic, who most benefits from free markets, and the fallacy of establishing democracy in transition economies. First, the BTC pipeline and its significance.
This pipeline is the artery that puts Georgia on the US and EU radar. Without it, Georgia would be about as critical to the US and Europe as Benin or Togo. It is so important that Bush visited Georgia in 2006 to proclaim his support for its people and their democracy. It is the real cause of the Russian invasion and the West’s consternation with that invasion. Most foreign direct investment (FDI) into these regions is for oil and gas projects, not just upstream (wells) but also service providers and logistics (pipelines, railways, etc’). This means that investment is not disseminated into development of other industry that will benefit locals outside of the oil business. This is huge money, billions of dollars at stake, yet there is little or no “trickle down” effect in this. The oil business is technologically challenging and very labor specific. These skills are not easily conveyed to local people without serious and costly training. Oil companies effectively buy off local leaders through various methods in order to avoid or mitigate this training and local content. Enforcement of this development and usage of locals is weak. In short, most Georgians do not benefit from this pipeline.
Who does benefit? Well connected insiders, oligarchs, and skilled oil company expatriates. Most of the BTC was built using foreign oil service contractors, sometimes to do the most mundane jobs, such as Bangladeshi pipe fitters and Nepalese truck drivers. Local Georgians, despite some
protests, were largely left to drive taxis and push brooms. But what does that have to do with the Russian invasion? Simply, Russia was not getting any cut out of this lucrative pipeline on its doorstep. By being bypassed, it is being marginalized. Yet, there is a deeper issue here that is not known to much of the world: that being, many of these large oil and gas fields in Central Asia were developed and first produced by the Soviet Union (Moscow), using Soviet money, technology, and manpower. A similar parallel would be the outrage over the US built Panama Canal, a few years back when a Chinese government owned company sought to control it. Congress made certain that did not happen. From credible stories inside the oil business in Central Asia, in 1991, Moscow sought some types of compensation from these fields from the newly created states. They received nothing in their weakened situation, nor did it help that at that time the US government aggressively sought to exploit these weaknesses at the close of the Cold War in the ensuing political chaos of the new states. Nonetheless, these large oil reserves and attendant world oil price highs most certainly made this unresolved issue unbearable to the new Russian oil bear, spurring it to unsavory action.
Second, a market economy. Despite the vast riches of many of these oil resource states and their proxy states as oil channels, money does not’cascade down’ into the eager hands of the locals. Nor do these oil resources alleviate unemployment or spur economic development. There is actually a term for this, the resource curse. When I first went to Georgia in 2006, I was greeted by several aggressive men at the border all willing to offer me a taxi ride. Most needed a shave and smelled of vodka. It was a nervous welcome. I stood as a lone Westerner amidst a sea of the uneducated and unemployed. It appeared time had stopped in 1991 in most of the country. The roads were potholed and cracked. Cows crossed back and forth between broken down cars and old busses. Most of the buildings in the outskirts of the city were crumbling and worn. People were shabbily dressed in the latest imported Chinese knock offs. The currency, the Lari, was so tattered that most notes were falling apart. Any exposed metal was rusty or broken. Rubbish was strewn about. People appeared and were actually poor. However, in the core centre of the cities, a very different picture emerged. New buildings, a new park, neon lit nightclubs, an upscale shopping mall that was being developed by Turkish investors. Contexted in all this, a profile emerged of the typical mover and shaker in Georgia (and most former Soviet satellites): shaved head, armed body guards, Rolex (or better) watch, black Armani suit, Mercedes Benz.
These are the people who are really running the show. Business does not get done or is even permitted without them. The true gangster identity emerged in the power vacuum between totalitarianism and transition state. In fact the market economy is especially good to the well connected gangster. With oligarchial and government connections, and vague laws, they can seize and renovate prime locations, buy expensive cars, pollute others property, and have opponents or legal impediments quickly removed and dealt with. While they were not running the oil business per se, they were the hands that controlled any of the first fruits trickling down from it. This type of crony market capitalism is not addressed in the textbooks, Wall St. or in Harvard MBA program. Yet, it is the reality that any entrepreneurial or money making activity is quickly usurped by them. If not, payoffs and bribes are in order. The Russian term for this is “krishka” meaning roof, or protection. That is the way the market economy or “quasi-business” really works in most former Soviet states. This issue cannot be stressed enough, bringing Michael Porter from Harvard Business School to lecture the dictators of these countries about economics brings a large fee for Dr. Porter, and good world PR for the dictator, but nothing for local citizens.
Economic competitiveness is a nice theory, democracy that empowers is an even more far flung ideal in these non-transparent, asymmetric countries. Lastly, lack of democracy and severely misguided programs. This is an issue that should not be taken lightly. There are many well funded US EU, Organization for Security and Cooperation in Europe and non-governmental organisation programs in Caucuses and Central Asia. Most are farcical and do not deliver any results since by design they assume a level, Western style playing field (See reasons 1 & 2). However, they do deliver high salaries and contracts to their foreign managers and expatriate consultants. If there is an organised crime network that controls domestic business in these countries, there is also a US AID (Agency for International Development) cartel and OCSE cartel that hinders creativity and ideas in these places due to entrenched nepotism and awarding of contracts based on connections in the Beltway or Brussels. How the system works is this: A State Department or OSCE directive that calls for “democracy” or “economic development” is put forward with a mandated (usually in the several millions of dollars) budget. These large government organisations rarely do the actual work themselves. A request for a proposal to address these initiatives is tendered. Bids are solicited from contractors to do these jobs. Despite advertisements, the process is never fair or transparent, as only someone or company with past experience and deep connections can offer an appropriate tender for the job, as many tenders are very subjectively written with ambiguous ‘goals’. Once the tender is accepted and contracted, the aid organization or NGO goes to that country and administers the program locally.
However, there is rarely any “Kellogg style” evaluation of these programs by standard Western metrics, (qualifications, GDP or GPI, localisation effectiveness, industrial placements, etc’) nor is there oversight as to how much can and should be spent on contractors or consultants. The objective of the contracting organization becomes keeping the contract extended; rewards are aligned with keeping handlers in Washington or Belgium satisfied, not in on the ground mechanisms that deal with local people being developed by way of education and retraining or economic progress. Business as usual calcifies processes. People in countries such as Georgia do not care about democracy and any US funded program to promote it, if their basic needs are not being met, or they have to deal with unsavory enforcers on a daily basis to merely survive. This is the reality on the ground.
The point of all the above is that US foreign policy needs a new paradigm to deal with problems and issues in these countries that is currently unaligned. This change will not happen by osmosis with an oil business and entrenched financial interests. Shakeup is in order. Simply put, Central Asia and the Caucuses are only relevant based on their oil and resource related economies. Local citizens need training and knowledge to work in those industries that is in control of foreigners, mainly from the US and Europe. Ignoring the magnitude of these energy intensive industries and historical legacy behind it is only inviting more trouble. Power and resources channeled through the hands of a few oligarchs and organised criminals does not “filter down” in an orderly Western style market economy cascade when dealing with people without ethics or any sense of fair business.
The democratization and economic competitiveness programs that promote pie in the sky pipedreams of the Beltway well wishers and International Monetary Fund economists do not reflect the social reality in these places. These programs need to be scrapped or overhauled to align real skills for real people in these countries so they can find work and be involved in the businesses their countries are needed for: hard resources. Then democracy can really grow through empowerment. The United States and its status quo foreign policy towards many of the former Soviet Republics needs a wake-up call. Perhaps this tragic invasion of Georgia will have a silver lining in promoting that shakeup.
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This post was written by Anonymous