Why Sanctions Don’t Work, and Why They Mostly Hurt Ordinary People
The United States and its western European allies have in recent days repeatedly increased economic sanctions against not only the Russian regime, but against millions of ordinary Russians.
It has done this by cutting much of Russian trade and Russian finance out of international markets. Moody’s and S&P global have both downgraded Russia’s credit rating. The US has frozen Russian reserves and cut many Russian banks off from SWIFT, the international banking communications system. Europe is planning on big cuts to its purchases of natural gas from Russia. The US is mulling a stop on all purchases of Russian crude. The ruble has fallen to a record low against the dollar. Russia is at risk of defaulting on its foreign debts for the first time in more than a century. Many of the sanctions appear targeted at only certain wealthy Russians, but these moves greatly increase perceptions of geopolitical risk for anyone invested in Russian investments, or investments connected to Russia. That means many investors and corporations will “voluntarily” cut back their activities in Russia to reduce risk and because they figure they might be targeted next. Ground-up pressure is mounting also: corporations like Coca-Cola and Mcdonald’s are being pressured to close their operations—and thus lay off all their workers—in Russia. This means a real decline in overall investment in Russia far beyond just some Russian banks and oligarchs.
The trickle-down effect to ordinary Russians will be immense. Purchasing power and incomes and employment will be significantly impacted, and many Russians will suffer serious setbacks to their standards of living. The Russian ruling class will be affected too, but given they live much further from subsistence levels, they’ll fare much better overall.
And yet, if history is any guide, the sanctions won’t work to get the Russian military out of Ukraine, or to achieve regime change in Russia.
The Political Logic of Sanctions
The idea behind sanctions has long been to make the population suffer so that “the people” will revolt against the ruling regime and force the regime to cease the policies that the sanction-imposing regimes find objectionable. In many cases, the stated goal is regime change. It’s essentially the same philosophy behind Allied efforts to bomb Germany civilians during World War II: it was assumed the bombing would ruin civilians’ morale and lead to domestic demands that Berlin surrender.
Economic sanctions are less despicable than bombers targeting civilians, of course, but they are also likely less effective. Instead of convincing the domestic population to abandon their own regime, foreign attacks on civilians—whether military or economic—often cause the domestic population to double down on their opposition to foreign
Article from Mises Wire