ORTEL: Why America’s feeble response to Putin Doctrine threatens world order

ANALYSIS/OPINION:

Before elected officials in Russia last week, President Vladimir Putin expressed a simple doctrine: once a people anywhere vote to affiliate with the Russian Federation, he will swiftly embrace the expressed will of the people.

Proclamation of the Putin Doctrine came scant months after Secretary of State John F. Kerry said “the era of the Monroe Doctrine is over,” renouncing the policy under which the U.S. had long rejected meddling by foreign powers in our own hemisphere. While Russia now dares to project power abroad defiantly, America anemically retreats from many fronts.

Dangers lurk in new world of disorder

The implications of the words and actions of Mr. Putin, and those of President Obama are chilling for investors who care about the long-term.

In Central Europe, Crimea is no longer part of Ukraine and that is cold, hard fact. Forget offering Russia an “off-ramp” — Mr. Putin speeds along in the fast lane breezily projecting newfound confidence, while almost effortlessly extending Russia’s domain. He will not stop in Crimea, or even in Ukraine itself.

A close reading of Mr. Putin’s remarks reveals his stalwart belief that the Western system is flawed, not so much for cherishing liberty but because we shun taking responsibility for fixing evident, mounting problems in our own economies.

Opening the World Economic Forum at Davos in January 2009, Mr. Putin correctly stated: “Excessive intervention in economic activity and blind faith in the state’s omnipotence is another possible mistake.”

Moments later, he added: “In the 20th century, the Soviet Union made the state’s role absolute. In the long run, this made the Soviet economy totally uncompetitive. This lesson cost us dearly. I am sure nobody wants to see it repeated.”

Looking at the course of events since January 2009, I am not so sure. Since then, America and its Western allies have followed a dangerous course by running excessive government deficits, by suppressing key borrowing rates, and by piling on towering debt burdens that soon must be brought under control. The chief business in America has become government — in a form that seems beyond apparent control.

In contrast, Russia under Mr. Putin practices important economic policies that are far to the right of America’s policies. Russia’s personal and corporate income tax rates remain well under those of comparable nations and Russia’s budget deficit is also lower. Moreover Russia’s external debt (net of foreign exchange reserves) is less than 10 percent of that country’s annual economic output so Russia actually has substantial untapped resources and ready external markets outside Europe.

What near-term future may portend

Now, Mr. Putin has his eyes set on May, when he presides over the annual victory celebrations and when he meets with the leader of China.

He is a different drummer than our president. He is fully engaged on underlying facts, on history and on economic reality.

So, the heady days that started in 1981 when American ideals and influence spread throughout the world chiefly unchecked are now plainly over. Watching five years of incompetent stumbling, Russia rose first to challenge the U.S., but China and perhaps other nations will soon likely also challenge a humbled America.

In the immediate future, American and Western companies will face stronger headwinds expanding internationally at a time when our own economies remain sluggish. Rising geopolitical tensions will heighten risks and lessen interest in making cross-border investments most places.

Worst of all, the dominance of the U.S. dollar in international trade and the power of America’s Federal Reserve System stand in question. It cannot be long before Russia, China, and other nations force U.S. dollar interest rates upward in face of evident inflation consumers feel everywhere.

Bad as economic prospects look now, we make a huge mistake assuming that Mr. Putin strives to re-create a communist or socialist sphere on the foundation of the former Soviet Union and its neighbors. Instead, Mr. Putin woos lagging nations from the cold embrace of flawed crony capitalism.

As a different spring blossoms, this is certainly a time for caution. Most American securities do not yet reflect inherent risks posed in Mr. Putin’s aggressive, headlong dash forward across the world stage, to the detriment of American and Western interests.

• Charles Ortel serves as managing director of Newport Value Partners (newportvalue.com), which provides economic research to executives and to investment firms.