Economic and political reform in Russia has occurred in fits and starts. The origin of these reforms was the policy of glasnost and perestroika enacted in the former Soviet Union. After the collapse of the Soviet Union, Russia enacted shock therapy, transitioning from a planned economy to a market-based economy. Russia enacted reforms opening the economy to international trade and investment, and the economy became more integrated into the global economy. This era of reform culminated in Russian membership in the World Trade organization (WTO) in 2012. Growth in international trade and investment was accompanied by rapid economic growth and significant improvements in the standard of living of Russian citizens; and a new middle class emerged in Russia.
Vladimir Putin ended this period of modernization in the Russian economy in 2014 when he annexed Crimea. The U.S. and its allies imposed sanctions restricting Russian trade and investment. When Putin invaded Ukraine in 2022, the U.S. and its allies imposed more severe sanctions, and ended most of the programs promoting cooperation with Russia.
The war in Ukraine has been a disaster for Russian citizens. In the decade prior to the annexation of Crimea in 2014, Gross Domestic Product per capita increased more than eightfold. Russian citizens enjoyed significant improvements in incomes and standards of living. Since 2014, however, Gross Domestic Product per capita in Russia has stagnated. As Putin mobilized the Russian economy for war, the incomes and standards of living of Russian citizens deteriorated. Russian citizens have much to gain from ending the war in Ukraine and restoring a peacetime economy.
The sanctions imposed on Russian have done little to deter Putin’s aggression in Ukraine. But sanctions have had a significant negative impact on the Russian economy. Russia has shifted trade towards China and other nonwestern nations. However, Russian trade relative to Gross Domestic Product has declined significantly, resulting in retardation in economic growth.
The Trump Administration has proposed a new détente with Russia to end the war in Ukraine. Trump promises that without a peace agreement, the U.S. and its allies will impose stiffer sanctions on Russia. But sanctions have failed to deter Putin, and a different path must be chosen in dealing with Russia.
Ludwig Von Mises provided guidance in finding a new path toward peace with Russia. Mises argued that the two pillars of prosperity are property rights and peace. The quid pro quo for a lasting peace in Ukraine is recognition of the property rights of citizens in both Russia and Ukraine. Putin must agree to recognize the sovereignty and independence of Ukrainian citizens. The U.S. and its allies must lift sanctions and return the property rights of the Russian government and Russian citizens. Sanctions that froze Russian assets in U.S. financial institutions, and that precluded Russian access the international financial institutions, must be lifted. Sanctions that restricted Russian international trade and investment must also be lifted.
Mises argued for the fundamental concept of property rights incorporated in the Bill of Rights in the U.S. Constitution. The founders perceived property rights to encompass both personal and economic liberties. This natural rights concept evolved over many centuries in the common law tradition of Great Britain and the U.S. The Founders would not ratify the Constitution without the formal statement of these property rights in the Bill of Rights.
A restoration of the property rights of Russian and Ukrainian citizens could result in a lasting peace. Property rights and peace could set both countries on the path to prosperity as Mises argued. However, we should not expect a sudden transformation of Russian political institutions. Russia had a more open and democratic society after the collapse of the Soviet Union; but, over the past decade Putin has reversed these reforms and imposed a military dictatorship. As Milton Friedman argued, we should not underestimate the power of military dictators to repress their citizens, political reform in Russia will continue to occur in fits and starts, as it has over the past half century.