Russia Context

Inadvertent Truths

I spent most of last week at the ValueX conference in Vail, hearing stock ideas from a range of thoughtful investment managers. I intended to talk about that and will do so soon, but a number of readers asked me about Russia, so below is the context I don’t think is getting shared in the MSM. The key question is what framework you apply to Russia. My answer: a medieval one. There is a King, palace intrigue, and violent feuds, a world that has receded into the past in Europe is alive and well in Moscow.

More specifically:

1. Both Putin and Prigozhin are, surprisingly, almost telling the truth. It is indeed true that, as Prigozhin said, Ukraine was never going to attack Russia, meaning the war has no logical justification, and, as Putin said, that splits within Russia may lead to Civil War.

2. Russia is ruled by violent, competing clans. The reason Russia has a Putin, as opposed to a Barack Obama or Justin Trudeau, is because the Russian President, any Russian President, needs to bring thugs to heel. Prigozhin is an ex-convict, and so too was Stalin. Many of the oligarchs are shockingly cold-blooded.

3. With a neighbor like Russia, a sort of global Rottweiler, the only solution is a tall fence and animal control. That’s what Ukraine, Poland, the Baltics, and Georgia are trying to build, each in their own way.

Regarding “#1” above, given that both Putin and Prigozhin got where they were by lying, their candor is remarkable. Here are the actual quotes.

Prigozhin:

On 24 February, there was nothing extraordinary. Now the Russian Ministry of Defense is trying to deceive the people and the President and say that on the Ukrainian side and there was insane aggression and that with the entire NATO bloc, they were ready to attack us. So the “special operation” launched on 24 February was launched for totally different reasons.

In other words, attacking Ukraine made no sense. That’s 100% true. Prigozhin goes on to blame the war not on Putin but on unnamed Russian oligarchs, which is a lie, and suggests he still defers to the mafia boss, Putin. That said, for the last 18 months, Kremlin propagandists have been saying Russia attacked Ukraine out of self-defense, because NATO was just about to attack. Saying otherwise was punishable by a harsh prison sentence or tumbling over a tall balcony. So the first part of what Prigozhin said is both heresy and accurate. That suggests that the thousands under his command, the people actually in Bakhmut trenches, know their fighting serves no purpose. What sort of resistance will they offer to Ukrainian troops?

After Prigozhin and his troops turned toward Moscow, Putin said:

It is a stab in the back of our country and our people and is exactly the kind of blow that struck Russia in 1917 when the country fought World War 1. But the victory was stolen. Intrigues, squabbles, and politicking behind the back of the army and the people resulted in the greatest upheaval, the destruction of the army and the collapse of the state and the loss of vast territories. In the end, it resulted in the tragedy of civil war.

This is also almost true. Prigozhin’s attack or maybe feint was similar to 1917 and also 1991 (when the Soviet Union collapsed) and 1993 (when the Communist block of the Duma, or Congress, rebelled against President Yeltsin). However, the victory wasn’t “stolen;” instead it was so badly managed that Russia collapsed. Russia has a history of authoritarian control leading the country into a dead-end (WW1, Afghanistan), ultimately resulting in revolt and mutiny.

The difference between an open society, like the US or Europe or many other countries, and a closed society like Russia is the existence of pressure release valves. It’s not that the US or Europe doesn’t do dumb things. It does, like invading the wrong country, not once but twice (Vietnam and Iraq 2). Rather, there are mechanisms to register disagreement, be it on the street or on paper. An open society has the ability to get into a corner but also go in reverse. Russia lacks that.

Regarding #2 above, judge a man by the company he keeps. Putin kept Prigozhin close. Prigozhin is a terrifying person. Beyond committing war crimes, a video, since removed from YouTube, by a Thief in Law, the highest echelon of Russian criminals, claimed Prigozhin survived his nine years in prison by providing sex (b— j—, there is not a kind word for it) to the senior criminals to survive. What does years of possible sexual trauma do to your brain? Nothing good.

Regarding #3, the Kremlin is medieval but Eastern European youth is increasingly plugged into the West. They watch Netflix and Ukraine is one of the leading software outsources on Upwork. These people want a “normal” life, “normal” defined by fast Internet, start-ups, money, and travel.

What now? Typically in Russia, the penalty for dissent is death. I imagine this is what Putin threatened Prigozhin with if he continued to drive toward Moscow. The simplest explanation of what happened is that Prigozhin wanted more resources, the military would not provide them, so he pulled this stunt to get them, St. Petersburg gangsterism 101. Yet, Putin clearly took the threat at face value, thus his speech. Maybe if Prigozhin is willing to sacrifice his life to fight again in Ukraine he avoids the assassin’s bullet? On the other hand, all the Russian secret police need to do is give Prigozhin’s coordinates to the Ukrainians and he will die “heroically.” I suspect at this point Putin knows he has made a massive strategic blunder but the question is how to get out of it without losing face. And Russia may slide into Civil War before Putin figures that out.