Realpolitik Meets Real-Time Markets

Having grown up during the cold war, when superpower confrontations were a fact of daily life, I am struck by how unprepared virtually everyone in the West was forRussia’s swift move on Crimea. Vladimir Putin had dropped no few hints in recent years that he regarded Ukraine as a key part of Russia’s sphere of influence, yet when Putin sent troops into Crimea after a popular uprising toppled his man in Kiev, U.S. Secretary of State John Kerry expressed shock that Russia had used 19th-century means to resolve a 21st-century dispute.

Welcome to realpolitik in the era of real-time markets. The U.S. and its European allies have slapped symbolic sanctions on a handful of officials in Putin’s inner circle but stopped well short of declaring economic war, much less a shooting one, while U.S. Treasury data suggests that Russia may have moved tens of billions of dollars’ worth of Treasury securities out of custody at the Federal Reserve to avoid potential sanctions. With Russia and the West much more interconnected economically and financially than a generation ago, both sides stand to suffer if the Crimea dispute escalates.

Unlike during the cold war, there is no ideology at play here, yet there are real stakes that will have a huge influence on the way order is maintained in today’s globalized world. Might may prevail in Crimea, but the true interest of the West — and the wider world — is to ensure that attraction rather than compulsion remains the dominant factor. The U.S. has plenty of military power, but its real strength lies in providing open and fertile ground for people, ideas and capital. The eagerness of many Russians to invest in the West rather than at home — witness last month’s $7 billion purchase of a German oil and gas business by oligarchs Mikhail Fridman and German Khan — suggests they share the same belief.

In other news this month, Alibaba decided to float its shares in New York, not at home in China or in Hong Kong. The giant online retailer apparently reckoned it can achieve a higher valuation and retain greater management leeway on the U.S. market than closer to home. Winning a $15 billion-plus IPO without firing a shot? Now there’s a superpower contest for the 21st century.