Why Sanctions Don't Work, And Why They Mostly Hurt Ordinary People

Summary

• Moody's and S&P Global have both downgraded Russia's credit rating.
• Purchasing power and income and employment will be significantly impacted, and many Russians will suffer serious setbacks to their standards of living.
• Sanctions might also bring undesirable side effects.

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By Ryan McMaken

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 (KO) and McDonald's (MCD) 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 income 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 German 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 powers.

Nationalism Trumps Economic Interests

When it comes to economic sanctions, there are several reasons that sanctions fail to achieve stated ends.

First of all, sanctions will fail unless there is near-universal cooperation from other states. In the case of the American embargo of Cuba, for instance, few other states cooperated which meant the Cuban state and the Cuban population could obtain resources from many sources other than the United States. US-led sanctions against Iran, on the other hand, have been more successful because a large number of key trading states have cooperated with the sanctions.

The situation with Russia sanctions is likely to be somewhere in between Cuba and Iran. While several key Western states like the US and the UK have taken a hard line against Russia, many other sizable states have been reluctant to impose similar sanctions.

Germany, for example, has refused to impose sanctions in the near term, noting that Germany - as well as much of Europe - cannot meet its energy needs without first making time-consuming changes in energy policy and industrial output. Several key medium-sized states, as well, have shied away from a hard line on sanctions. India, for instance, has refused to void a weapons agreement with Russia. Mexico has stated it will not impose sanctions, and Brazil states it is seeking out a neutral position.

Most importantly, China has not cooperated with US-led sanction efforts, and China stands to benefit from sanctions imposed by other states. While China has not yet signaled outright support for Moscow in recent days, it nonetheless abstained in the UN vote condemning the Russian invasion of Ukraine. This is likely less than what Moscow hoped for, but Russia can likely count on China as a willing buyer of Russian oil and other resources. After all, China has been uncooperative with US-led sanctions in Iran and has been a significant buyer of Iranian oil. The Chinese are likely to strike similar deals with Russia. Moreover, if Russia faces a restricted number of buyers for oil, this enables Beijing more leverage in obtaining Russian resources at a discount.

So long as Russia can continue to trade with sizable states like China, Mexico, Brazil, and possibly India, Russia will not face the sort of isolation the US hopes to impose.

A second reason that sanctions fail is that nationalism - a potent force among most populations - tends to impel sanctioned populations to support the regime when threatened.

As Robert Keohane has noted, even in non-crisis situations, nationalism can be a general source of strength for a state since nationalism can unify populations behind the regime. Moreover, as John Mearsheimer shows in The Great Delusion: Liberal Dreams and International Realities: "Nationalism is an enormously powerful political ideology. ...There is no question that liberalism and nationalism can coexist, but when they clash, nationalism almost always wins."

That is, in crisis situations, we can often expect even disgruntled liberal reformers to defer to nationalistic impulses over liberal ones, further strengthening national opposition to sanctions imposed from the outside.

To see the plausibility of our claims we need to look no further than the United States which has long been remarkably safe from any realistic threat of foreign conquest. Yet even in the United States, it doesn't take much in terms of foreign aggression to convince the population to unite in support of the regime. Certainly, the regime has rarely enjoyed more support than in the wake of Pearl Harbor and 9/11. Were some foreign power - say, China - to attempt to coerce Americans to commit to regime change through economic sanctions, it's hard to imagine this would produce much pro-Chinese sentiment in the US as a result.

Similarly, US sanctions have not exactly invigorated pro-American or anti-regime efforts in Cuba, Iran, North Korea, Venezuela, or any other state where the US sought to bring about domestic political change through sanctions.

To find the few cases where sanctions might have worked, we have few choices. The two go-to examples of this, however - i.e., Iraq and Serbia - are cases where economic sanctions were accompanied by overwhelming military force or plausible threats of it. Needless to say, that's a very specific type of sanction and has little to do with a conflict involving a nuclear power like Russia.

Sanctions might also bring undesirable side effects. As Richard Haass at the Brooking Institution shows:

Trying to compel others to join a sanctions effort by threatening secondary sanctions against third parties unwilling to sanction the target can cause serious harm to a variety of U.S. foreign policy interests. This is what happened when sanctions were introduced against overseas firms who violated the terms of U.S. legislation affecting Cuba, Iran, and Libya. This threat may have had some deterrent effect on the willingness of certain individuals to enter into proscribed business activities, but at the price of increasing anti-American sentiment ... Sanctions increased the economic distress on Haiti, triggering a dangerous and expensive exodus of people from Haiti to the United States. In the former Yugoslavia, the arms embargo weakened the Bosnian (Muslim) side given the fact that Bosnia's Serbs and Croats had larger stores of military supplies and greater access to additional supplies from outside sources. Military sanctions against Pakistan increased its reliance on a nuclear option, both because the sanctions cut off Islamabad's access to U.S. weaponry and by weakening Pakistani confidence in American reliability.

And finally, even if sanctions "worked" that would be insufficient to justify their use. They are, after all, a type of protectionism on steroids that requires sanctioning American individuals and American firms that run afoul of these government regulations - many of them difficult for Americans to navigate legally.

Yet, sanctions remain popular because they placate the voters who insist "we" must "do something," and government officials are more than happy to engage in policies that grow state power and can be used to reward friends of the regime.

But having the regime "do something" is a dangerous game, and if the voters want to signal their virtuous opposition to perceived foreign enemies, the voters can always take action on their own. If Americans don't like Russian goods and services, they're free to boycott these goods, just as the Americans boycotted British goods during the Revolution. But embracing yet more federal power in the name of teaching foreign regimes a lesson tends to harm ordinary people in many ways few can anticipate, while also potentially placing many Americans in legal jeopardy. And all of this will be done, no less, with little hope of success.

Disclosure: No positions

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Editor's Note: The summary bullets for this article were chosen by Seeking Alpha editors.