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An Economic Interpretation of the Crimean Secession/Annexation

April 1, 2014

As with the Venetian secession, regions of larger states often secede because they resent being taxed to subsidize other regions of the country. Less often is the case that a region leaves one nation state because it can get more and better subsidies in another nation states. According to Jason Ditz at antiwar.com, however, this is a big factor in Crimea’s decision to leave Ukraine for Russia. And if Ditz’s assertions about Crimea’s poverty and economic dependence are right, we might also extrapolate that Crimea’s poverty could be a reason that true independence was not on the table.

While not quite the same, this phenomenon might be compared to situations in which client states bolt one sphere of influence to join another. The US understands this as well as anyone, since it spends many billions annually in cash or in-kind gifts to cultivate close ties with a variety of brutal dictatorships like those found in Egypt and Saudi Arabia.

But on the Crimean question, Ditz writes:

I love a good argument too, but I think the Crimea situation is less about race, nationalism and the East-West divide than it is economics.

Crimea is dirt poor, even by Ukranian standards, and was intensely dependent on government aid. The regime change brought about a lot of philosophical shifts in government, but the big change from the Crimean perspective was economic in that:

a) Ukraine’s struggling economy is heading further into the ditch, with EU trade ties likely not to make a major difference for years and the loss of Russia trade ties likely to be a quick impact.

b) The IMF bailout came amid intense conditions of austerity, which means Crimea’s subsidies were likely to be on the chopping block .

Whatever else one may say about Russia’s economy, it’s got a lot of money from oil and gas exports, and they were in a position to not only replace the aid Ukraine had been giving Crimea, but to increase it considerably. I’d say you can’t buy that kind of loyalty, but you clearly can.

Interviews on the streets with Crimeans told similar stories, of local retirees expecting their pensions to go from $100 a month under Ukraine to $500 a month under Russia. Similar pay hikes were expected for soldiers who transferred to the Russian military, and they played a big role in the sheer size of the defections.

From Russia’s perspective, it’s also a pretty straightforward economic move. They kept the Yanukovych government close with billions in subsidies and loans for all of Ukraine, and with the regime change removing that option and the Sevastopol base the only real asset Russia needs to keep, it is much easier to just buy Crimea’s accession into the Russian Federation (which will cost Russia billions annually anyhow) than it was to try to get another Yanukovych elected.

Historical claims to the peninsula certainly provided a pretext for the secession/annexation, and are interesting from an academic perspective, but if Ukraine wasn’t broke I don’t think we’d be having this discussion at all.

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