Plenty of Western leaders, and no doubt some members of the incoming Obama administration, are desperately wishing this flash point away. French President Nicolas Sarkozy, broker of the cease-fire that ended the Russian-Georgian war, has publicly declared that the Russians digging those trenches do not, in fact, exist. All Russian forces are gone from the territory they occupied in August, he recently assured his fellow European Union leaders.

But there the trench-diggers are -- tangible proof that Russia's campaign against Georgia is far from over. And much as Barack Obama might wish to focus relations with Moscow on arms control or containing Iran, he will first have to decide what to do about this standoff -- and about the energetic, impulsive and ardently pro-Western leader on the other side of it.

That voluble man, Mikheil Saakashvili, remains firmly in place in Tbilisi despite Putin's vow (in a conversation with Sarkozy) to "hang him by his balls." But the model Saakashvili pioneered for wedding Georgia to the West looks shaky. His team of 30-something, English-speaking whiz kids liberated the country's economy, touching off an investment-driven boom and defeating a Russian economic boycott. But since the war and the global financial panic, investor cash has disappeared and the government now survives on handouts from the Bush administration and European Union.

A Medical Report for SPS

By Oleg Kozlovsky

On 15 November, Union of Right Forces (SPS), one of the two remaining democratic parties in Russia, was liquidated by its own members at an extraordinary convention in Moscow suburbs. This was, as openly admitted, a deal between the party's leadership and the Kremlin. Some of the former SPS members will now join a new puppet party Right Deed (Pravoe Delo) while dissenters will participate in creation of Solidarity opposition movement.

SPS was a very contradictive organization from the day one. It appeared not long before the 1999 parliamentary elections as a coalition of liberal (in European sense) and conservative movements and parties. The liberals included the oldest democratic party in Russia, Democratic Choice of Russia (DVR), led by ex-PM Yegor Gaidar, and Boris Nemtsov's Young Russia (Rossiya Molodaya) movement. Ironically, the name of Nemtsov's organization was later taken by a Kremlin-sponsored group of provocateurs. The conservatives were represented by another ex-PM Sergey Kirienko (now a member of Government) with his New Force (Novaya Sila) movement and by the father of Russian privatization Anatoly Chubais among others.

The strange structure of the party caused ambivalence in its position and activities. The liberals criticized Putin for establishing authoritarian regime and wanted to join the opposition while the conservatives supported Putin's economical policy and tried to cooperate with the Kremlin. The parliamentary campaign in 1999 was mainly influenced by the conservative wing with its slogan "Putin for president, Kirienko for the Duma!" Soon after this program was fully implemented, Sergey Kirienko left the Parliament and became Vladimir Putin's representative in Volga Federal District. Some of his former colleagues like Boris Nemtsov were at the same time trying to oppose Putin's crackdown on NTV, the most popular independent TV channel. But even this one of the earliest anti-democratic moves of the new president was done by the hands of Alfred Kokh, Chubais' colleague and close friend! As Boris Nemtsov participated in protest rallies against the takeover of NTV, his fellow party members celebrated the success of this "special operation" (I have witnessed it myself).

The party's schizophrenia was arguably the main reason for its loss of popular support. Putin's followers who voted for SPS in 1999 switched their support to United Russia while the opposition voters didn't believe SPS and simply stayed at home. As a result, SPS lost the 2003 elections and stayed out of the parliament. Many people hoped that this defeat would force the party to choose its side. However, it never happened. Since Kirienko left SPS, all of its public leaders were liberals, they maintained the critical to the Kremlin stance of the party and attracted new activists from the opposition. But the party's funding was mostly provided (especially after the arrest of Mikhail Khodorkovsky and the loss of elections) by Anatoly Chubais, many regional branches only existed de jure and consisted of UES (the state energy company headed by Chubais) employees. In addition, most of the party's officers were paid by and therefore loyal to Chubais and his conservative wing but had to follow orders from party's political leadership, mostly liberal. This made both wings of the party dependent on each other and predetermined its end.

Still, there were a few attempts to cure the party's split personality. One of SPS' leaders and ex-senator Ivan Starikov headed a riot against Anatoly Chubais and his conservative wing by going for the party chairmanship in 2005. He claimed that SPS must become a part of the opposition and shouldn't compromise ideals of democracy for Kremlin's favor. The conservative wing had no political figures to stand against Starikov and many expected that he would win. However, just before the national convention a compromise figure, Nikita Belykh, was introduced by Boris Nemtsov. Chubais' closest deputy, Leonid Gozman, was to become the vice chairman of the party to counterweigh liberal Belykh. So, schizophrenia in SPS was saved (and even institutionalized by introducing the new vice chairman position) by both of its parts. They truly felt that they couldn't do without each other!

Nikita Belykh tried to balance both wings of the party for several years but it was impossible. The more SPS hesitated to join the opposition, the more supporters it lost. Starikov and some of his followers were the first to leave the party in 2005. Eventually, Starikov joined Mikhail Kasyanov's People's Democratic Union and is now one of its leaders. I myself left SPS in April 2007 when Belykh supported an attempt of party's apparatchiks to destroy the Moscow branch, which has always been liberal and opposition. The party's support and influence was disappearing day by day.

The last attempt to bring SPS in opposition was made in late 2007 before the parliamentary elections. When Putin became #1 in United Russia's list of candidates, it made impossible even for SPS conservatives to support him. The second reason was that Chubais ceased to sponsor the party and its dependence on him diminished. Nikita Belykh and other party leaders criticized the president in the media, campaign printed materials were openly anti-Kremlin, it even officially participated in a Dissenters' March--something that had been severely punished just a year earlier. But the split hasn't gone anywhere: some regional leaders refused to oppose the administration, some even changed sides, others simply didn't know how to work under government's pressure. After losing the elections SPS largely returned to its older state with two wings struggling against each other. It appeared, however, that the liberals were to win.

There was one other actor that didn't like an idea of having a schizophrenic party in the country--the Kremlin. What they wanted to see is a controlled, predictable and loyal quasi democratic party, which might be used to convince the West that we've got pluralism. At first, they attempted to use spoiler parties like Democratic Party of Russia (DPR) but they couldn't fool many people: SPS was still there. And the worst of all, SPS had an official registration that allowed the party to go for the elections. Since more and more people in SPS realized that there was no other option rather than to join the opposition, the Kremlin's well-entrenched electoral system became endangered: it was based on not allowing any uncontrolled elements even to appear in the ballots. What would happen if Russian citizens had an opportunity vote for Kasparov or Kasyanov or even both? Nobody knows. And Kremlin surely doesn't want to know. So it decided to liquidate SPS.

Of course, this special operation could be done by simply "re-checking" the party and taking away its registration, as it was done to the Vladimir Ryzhkov's Republican Party of Russia before. But this would cause some political troubles for Putin, both domestic and international: SPS was a well-known and rather large organization. Therefore it was decided to destroy the party with its own hands. What still strikes me is how easily it was done! Gozman agreed to shut SPS down in exchange for a "pardon" from the Kremlin. Belykh left the party but didn't try to prevent its liquidation. Only a small number of devoted liberals kept struggling against Gozman till the last day. Some of them even organized a picket near the place of the party's convention and said, "If you have conscience, don't vote for [the liquidation]". According to the results of the voting, only 11 delegates had conscience out of 108.

For the past few weeks I’ve been devoting my Bolshevik will and strength to finishing a dissertation chapter.  “Bolsheviks can storm any fortress” read the Stalinist slogan, and I did. I do have to finish this damn dissertation at some point. And well if I have to pick between you my dear reader and my career, well my petite-bourgeois sensibilities win out every time.  Just don’t hate the player, hate the game.  So over the next few months expect more periods where I go underground . . .

But the delusions of grandeur aren’t about me and my rumored doom. They have more to do with what’s been going on in Russia over the last few weeks.  Well, not in Russia exactly, but more how it’s being interpreted by the gatekeepers of English language reporting.  As we know, Obama was elected President of the United States, and Dima Medvedev instead of showing the proper deference to the new Emperor decided to address the Duma where he blamed the US for the global economic crisis (he’s right) and threatened to put missiles in Kaliningrad to match American intentions of putting missiles in Poland.  Was this the challenge to Obama’s “lack of experience” that everyone predicted?  The New York Times thought so.  It called Medvedev’s move “a cold-war-tinged challenge for President-elect Barack Obama.”  After all, the Times reasoned, “Russia’s leaders know full well that the American missile defenses pose no real threat to their huge nuclear arsenal. But playing the victim is an easy way to divert attention from Russia’s shrinking democracy, and now from declining oil prices.” A new President but the Times plays the same old record. So much for hope and change. Russia’s just the same old big bully, they say. Sigh.

But digging at the US wasn’t all, or even the real focus of Mr. Medevev’s speech. Sorry to disappoint my fellow Americans, but sometimes you aren’t at the center of everyone’s existence. To quote the NY Times again, “The dark flashbacks didn’t end there.”  Surprise! Medvedev isn’t the liberal everyone hoped, prayed, and sacrificed small animals and virgins for.  He’s a Putinist of perhaps a lighter shade, but still a Putinist.  Dima’s most recent affront to Western democratic sensibilities was his proposal that the Russian presidential term be extended from four to six years.  Immediately, pundits cried “authoritarianism” and revived the corpse of Putin’s impending return to Russia’s top job.  The logic goes that since Putin didn’t want to risk international condemnation for changing the Constitution when he was President (as if there wasn’t enough condemnation already), he sent is little bear to do the dirty work.

The changes were submitted to the Duma on Friday and they passed without a hitch. No surprises there or in the Guardian’s Luke Harding usually predictable analysis: The changes entrench “the Kremlin’s grip on power and paving the way for an early comeback by Vladimir Putin.”  In fact, rumor has it that Putin will be back as early as 2009! For the life of me, I can’t figure out why this signals Putin’s “early comeback” especially since people like Harding believe that he never went anywhere in the first place.  After all, isn’t Putin the de facto President anyway? Is Medvedev Putin’s puppet or not?  Make up your damn mind.

In addition to extending the presidential term, Medvedev also proposed extending the terms of Duma reps from four to five years. This will certainly make representatives of United Russia happy.  Since the majority of Duma seats are based on lists and not direct candidate elections, this will solidify their place for one more year.  Rest easy, comrades.  But not too easy . . .

Medvedev also made some other interesting proposals in his speech that went virtually unnoticed in the Western press.  One is to change appointments for governors.  Instead of being appointed by the Kremlin, candidates for governor would chosen by their parties and be elected by a majority vote in their respective provincial Dumas.  Ekspert called this move “the most radical of all presidential initiatives.”  If this is implemented, governors would be more accountable to the regions they represent rather than to the Kremlin.  True, the Kremlin will certainly have a hand in the process via the back door–United Russia, after all, dominates every regional parliament–but it is a move toward some semblance of political decentralization.

The question, however, is why?  Why extend terms of President, Duma reps, and propose altering regional politics?  Many have pointed out that it’s all about the boys in the Kremlin tightening their grip.  Perhaps, but I have a different take.

Taken together, Medvedev’s proposals are a gift and a check to bureaucratic power.  Extending Duma terms gives reps a bit more time to rest on their laurels. Score one for the national political elite. Making governors accountable to locals is feather in the cap of local elites. Score one for them.  Extending the presidential terms to six years, however, is a potential check against this transfer of power.  The President will be in power longer than any one Duma member and given more time to put pressure on regional governors and their parliaments.

Extending the presidential term also suggests something else. In his speech, Medvedev spoke of “effective government.”  In one sense, his proposals are exactly about effective government.  They potentially, and I say potentially, increase the President’s effectiveness in influencing governance.  But this doesn’t mean that it’s about the Kremlin strengthening itself.  Quite the opposite, in my view.  Extending the top dog’s term says to me that the center still can’t trust its regions to implement its agenda. Therefore the President needs two more years to ram it down their throats.

Political power in Russia is indeed centralized because the history of regional politics from the Tsars to Putin have been one of autonomy, localization, stonewalling, foot dragging, or worse, exploiting the center’s directives.  Russian rulers’ solution has been to centralize its power.  But here is where the inner contradiction of centralization rears its ugly head.  The center must weaken the periphery to run the country as effective as it can, but in that weakening it makes itself the only real political force of reform, negating the power local need to prosecute the center’s policies.  The center is thus weakened by its very effort at becoming more effective.  The question then becomes how do you rule effectively and subordinate the machinations of regional boyars without giving them too much power to muck up your agenda?  It sounds as if Medvedev, with his proposed changes, is faced with the same conundrum.  Whether they will provide some semblance of an answer remains to be seen.

To think people believe that Putin wants this job back?!

In fact, the 2008 crisis bears several similarities to the economic breakdown that unfolded almost exactly one decade prior. The first and most obvious is the rapidly plummeting price of oil, the commodity on which Russia's economy floats. While oil prices currently remain well above the lows of a decade ago, current prices have lost significant ground since their July peak of over $147 a barrel, hitting a low in early September of just over $90 (CNN). This sharp volatility proved unnerving for Russia, which produces more oil than any country other than Saudi Arabia. Moscow also relies on exports of natural gas and other commodities, the prices of which have also plummeted from summer highs. Additionally, analysts say the short-term outlook for commodity prices is anything but certain. Major producers worry that failing financial institutions, which had speculated heavily in crude and pushed up prices, could now be forced to rapidly unwind those positions, potentially leading to further price declines. Anders Aslund, a fellow at the Peterson Institute for International Economics, wrote in the Moscow Times that this phenomenon could stretch beyond oil and lead to broader withdrawals of investments in Russian markets.

The fall in the oil price from a July high of $147 a barrel back to $100 has helped expose a fragility in heavily indebted Russian companies, banks and individuals leading to a sudden process of deleveraging and credit restrictions similar to that which has stalked US and European economies for the past year.

For the country, which steadily earned its tiger status on the back of a remarkable story of rising fortunes since its 1998 default and economic collapse, the past two months have come as quite a shock. It started when Vladimir Putin, the prime minister and former president, publicly threatened to “purge” one of Russia’s billionaire businessmen, owner of the New York-listed coal miner Mechel, for alleged price gouging. His comments wiped almost $60bn off the Russian stock market at the end of July and reminded investors around the world that power – as opposed to the rule of law – is a dominant force in the country. (...) The rise in inflation is more worrying as real wages have also risen 16 per cent in the past year – far faster than underlying productivity increases as demand has outstripped the capacity of the domestic economy to supply goods and services. Neil Shearing and Mark Williams of Capital Economics, a London-based consultancy, argue: “The problem facing the Russian authorities is that the spare capacity that made rapid growth possible in the early part of this decade has now largely been used up.” (...) The future for Russia is increasingly uncertain and getting ever bleaker. Before the summer, the outlook was bright, buoyed by ever-rising energy prices that gave little incentive for anyone to diversify the core of Russia’s economy from hydrocarbons, particularly as it was supplying the government with billions of dollars to exert its influence on its neighbours. It now appears risky to bet on a continuation of that. Falling energy prices and a loss of investor confidence require a decisive shift to a more sustainable, diversified and durable growth. The big test of the authorities is whether they are ready to flex muscles in a way that encourages foreign investors or again merely instills greater fear.

Mr. Obama and his campaign have seemed flummoxed in trying to figure out how to deal with [Sarah Palin]. His aides said they were looking to the news media to debunk the image of her as a blue-collar reformer.

Mark Halperin's three pieces of advice for Obama seem sound. (They are 1. Ignore Palin; 2. Get in McCain's head the way McCain's getting in Obama's; and 3. Refocus on the economy in an accessible way.) ... To which I'd add:
4. It's a good week for point 3!

5. The current lib blog-MSM-campaign tack--getting outraged by McCain's "lies"--is a total loser strategy. Why?
a) MSM outrage doesn't sway voters anymore. It didn't even back in 1988, when the press tried to make a stink about George H.W. Bush's use of "flag factories," etc. After this year's failed MSM Palin assault, it certainly won't work;
b) When Dems get outraged at unfairness they look weak. How can they stand up to Putin if they start whining when confronted with Steve Schmidt? McCain's camp can fake umbrage all it wants--the latest is that an Atlantic photographer took some nasty photos that the mag didn't run!--and nobody will accuse MCain of being weak. That's so unfair. A double standard. Dems can learn to live with it or complain about the unfairness for another 4 years. Their choice.
c) It's almost always impossible to prove that a Republican attack is a 100% lie. Either there's a germ of truth (Kerry did hype his wartime heroism at least a bit) or the truth is indeterminate (i.e., there's no way of knowing what Obama meant by "lipstick"--just because he and McCain used the word earlier doesn't mean he didn't think using it now, after Palin's speech, didn't add a witty resonance).
d) Lecturing the public on what's 'true" and what's a "lie" (when the truth isn't 100% clear) plays into some of the worst stereotypes about liberals--that they are preachy know-it-alls hiding their political motives behind a veneer of objectivity and respectability.
e) Inevitably the people being outraged on Obama's behalf will phrase their arguments in ways well-designed to appeal to their friends--and turn off the unconverted. ('This is just what they did to John Kerry and Michael Dukakis!' As if the public yearns for the lost Kerry and Dukakis Presidencies. 'Today's kindergarteners need some sex education. Just because Republicans are old fashioned ...' etc. Or 'These are Karl Rove tactics,' which signifies little to non-Dem voters except a partisan rancor they'd like to put behind them.)

Lots of people like bad Disney movies, and don't like the kind of people who sneer at bad Disney movies. [Hollyweird weasels, please note[/sarc]

6. There must be some way to disillusion the conservative base with McCain, at least a bit. I know the CW--Palin has locked in the base, freeing McCain to move left. But jeez, McCain isn't moving to the left just on immigration, and he isn't moving subtly. Listen to this new radio ad, which might as well be titled "Stem Cell Research, Stem Cell Research, Stem Cell Research, Stem Cell Research." That's how often the phrase is repeated. How much more Screw-You-I'm-Taking-You-for-Granted can McCain get? Are conservatives complete suckers?

7. McCain's made great progress with independents by going against his party. Obama can do the same thing. Obvious areas of potential anti-Dem apostasy: Charter schools, firing incompetent teachers, class-based affirmative action, welfare. At least express some doubts about liberal legalism or the headlong rush to immigrant semi-amnesty. Last Tuesday Obama may have tried to make waves by talking about "schools filled with poor teachers"--a Dem no-no if there ever was one. It got buried by the lipstick pig. So don't complain. Say it again! ...

They are preparing their excuses for defeat. No matter how foolhardy the Democratic primary voters in selecting a high risk candidate, no matter how bizarre the policy choices of that candidate, no matter how outlandishly wrong the conventional press wisdom and no matter how inept the campaign operation there is a cure-all excuse: McCain lied, our hopes died.

I am not saying Barack Obama is going to lose; I am saying the Obama Gang of Three (i.e. the mind-melded bloggers/MSM/campaign operation) now thinks that is a distinct possibility. So how to explain how they all messed up? When in doubt, revive the Lee Atwater/Karl Rove/Gore v. Bush/Swiftboat rationale which is “It is never our fault.”

The problem, of course, is that doesn’t work if the aim is to win elections. In fact the opposite occurs: the cures (e.g. violent partisan counterpunches, media whining) usually turn off key Independent voters. But if the aim is to save face with your peer groups (e.g. fellow journalists, campaign donors, political operatives) who want to know what the heck went wrong, it works as well as anything.

Can it really be true that the Democrats and the media are concentrating on assigning blame for a defeat that hasn't even happened yet?

Come to think of it, that was the approach they took to the Iraq war.

The Kremlin may or may not have been justified in its initial attack (or counter attack) in South Ossetia. But its decision to keep pressing ahead and not to leave even the Georgian territory (the so-call buffer zone) is costing the Russian economy a lot. This article may be an "opinion" piece, but the figures are daunting.

Maybe "it doesn't matter." But is there a point where it does matter? Is it really smart to put the screws to Poland and Germany on gas supplies?

Please visit the extended post to read the original article.

The Market Will Punish Putinism
By JUDY SHELTON
September 3, 2008; Page A23

The financial abyss is the deepest abyss of all; you can keep falling into it your whole life. -- Ilf and Petrov "The Golden Calf" (1931)

In the early years of the Soviet Union, Marxist policies for a "workers' paradise" wrought such devastation on the Russian economy that Vladimir Lenin was forced to restore certain aspects of market capitalism -- limited private ownership, trade with foreign countries -- to salvage the future of Bolshevism. The line above comes from a famous Russian satire about two scoundrels who took full advantage of the widespread corruption under the New Economic Policy (NEP) to accumulate illegal fortunes.

Fear of financial failure is a recurring nightmare for Russians, who recall with angst the collapse of the Soviet economy at the end of the 1980s. The following decade, in August 1998, a newly constituted Russian Federation defaulted on its government bonds as the ruble lost two-thirds of its value in less than a month, plunging the nation back into bankruptcy.

While humiliation still lingers in the national psyche, Russia has seemingly entered a new phase in its struggle to reconcile totalitarian tendencies with capitalist rewards. Today, oil revenues ostensibly provide a bulwark against economic losses caused by government misjudgments.

But even as Russian tanks assert a physical claim on Georgian territory, Moscow is already feeling the consequences in fiscal terms. Foreign investment capital -- the lifeblood of Russian equity and credit markets -- is draining out as the world recoils.

Group of Seven leaders should take particular note of this spontaneous market phenomenon -- and also take heart. Because no matter what sanctions the European Union might choose to impose, no matter how severely the world's leading industrialized nations jointly condemn their "fellow G-8 member" -- nothing will punish Russia more than to watch the dream dissolve yet again.

Vladimir Putin, who used to chase rats with a stick in the stairwell of his crumbling apartment block during his Leningrad boyhood, today seeks to thrash what he perceives as a hostile world order. He vows to "put an end to the unipolar world ruled by the U.S.," and has shown his willingness to raise the specter of financial ruin -- his nation's deepest fear -- to indulge this obsession.

The irony of the story, and the tragedy, is that Mr. Putin needs little assistance from the U.S. and its trans-Atlantic allies to destroy Russia's own standing in the international political and economic order.

The rout in Russian stock markets actually began before the invasion of Georgia, prompted by Mr. Putin's rumblings of despotic displeasure in late July. The shares of Mechel, one of Russia's leading mining and metals companies, plunged 38% on the New York Stock Exchange after Russia's prime minister publicly accused the company of selling raw materials to foreigners at lower prices than those charged domestically. Perhaps it was Mr. Putin's ominous advice (widely viewed as a sinister threat) to Mechel's owner and director, who was hospitalized at the time -- "I think Igor Vladimirovich should get better as quick as possible, otherwise we'll have to send him a doctor" -- that chilled investor sentiment, wiping out $6 billion in shareholder value in one day.

Only hours earlier, Robert Dudley, president of the Anglo-Russian energy company TNK-BP, was forced to flee Moscow after systematic harassment by government authorities. Locked in a power struggle for managerial control, the joint venture is Russia's third-largest oil producer; its Russian principals want to wring maximum cash payments out of the business while the British side argues for capital investment to increase future production. Analysts suspect the Kremlin is fully complicit in the effort to oust the foreigners -- denying visas to the company's British employees, launching tax investigations, tapping residential phones.

Since the attack on Georgia began in early August, the decline in Russian financial markets has accelerated sharply. The benchmark RTS Index of leading Russian stocks has slumped to its lowest level in two years. The ruble has registered its biggest monthly decline against the U.S. dollar in more than nine years as foreign investors rush to retrieve their capital -- some $25 billion in the last three weeks, according to French investment bank BNP Paribas. The amount of debt raised by Russian companies in August has fallen 87% from July levels. The issuance of new equity has come to a virtual halt -- a mere $3 million was raised in August compared to $933 million in July.

To combat the alarming magnitude of capital desertion, officials at Russia's central bank have scrambled to raise interest rates, allowing the yield on domestic ruble bonds to increase by 150 basis points. But complaints about the tightened credit situation have already begun among Russia's powerful industrial oligarchs. One of them, Vladimir Potanin, paid a recent visit to Mr. Medvedev to let him know that Russian companies' restricted access to world financial markets was causing difficulties. The billionaire businessman suggested that the government tap state reserves to ease the liquidity crisis. Mr. Medvedev quickly acquiesced, promising to unveil a new program of easy credit before the end of September.

It is part of the continuing pattern for Russia -- forever trying to have it both ways with "private" companies in cahoots with the Kremlin, entrepreneurial ambition subject to Big Brother's approval, and capitalism without democracy. It's a pattern that has consistently led Russia to blame outsiders for woes incurred as the result of its inherent dissonance, and to petulantly abandon earlier aspirations for global integration.

And it has always led to the financial abyss. Even now, the outlines of the old command-style economic blueprint are emerging as Mr. Putin promotes his 12-year development plan for the country. The foreign capital required to fund it is disappearing by the minute, however, which means the plan must be altered. Expect the nastiness to ratchet upwards as Mr. Putin wields his stick against his purported enemies. On Friday, he threatened to cut supplies to Europe of "oil, gas, petroleum chemicals, timber, metals, fertilizers" should it align with the U.S. in confronting Russian aggression against bordering nations. In Moscow, reports are circulating that Lukoil executives have been notified by the Kremlin to be prepared to restrict oil deliveries to Poland and Germany through the Druzhba pipeline. (In Russian, druzhba means "friendship" -- a perfect tribute to Orwellian doublespeak.)

What Mr. Putin has yet to learn is that capital does not respond well to extortion. Global investors are not impressed by economic threats to cut off supplies to vital customers. Indeed, they abhor the elevated "country risk" associated with political adventurism.

But what can the West do to express its rejection of such tactics? Preventing Russia from joining the World Trade Organization means little to a country that disdains the rules of free trade -- on Friday, Moscow banned poultry imports from the U.S. -- and blatantly circumvents antimonopoly policies. Russia's refusal to acknowledge intellectual property rights is consistent, if unscrupulous; according to researchers at the Brookings Institution, Mr. Putin plagiarized much of his dissertation for a Ph.D in economics in 1997 from a management study written by two professors at the University of Pittsburgh in 1978.

The most farsighted move Western governments could make would be to set up a fast-track approach to European Union membership for the most vulnerable of Russia's neighbors: Ukraine. As a parallel step, an interim monetary facility should be arranged to help the country make an early transition to the euro; if the EU balks, the U.S. should offer Kiev the opportunity to dollarize. Investors will be drawn to the stability and freedom of conducting business in a major reserve currency.

Mr. Putin, who harbors dreams of a vast ruble zone across the former Soviet empire, won't like it. But he has to understand: Sometimes the invisible hand strikes back.

Ms. Shelton, an economist, is author of "The Coming Soviet Crash" (Free Press, 1989).