Alternative Globalisation: Will Russia become the flagship of a coalition of economic disorder?

The introduction of extensive sanctions against the Russian economy, not supported by many non-Western countries, has turned Russia into the center and driving force of 'alternative' globalisation. This does not imply Russia’s leadership within BRICS or among the Global South – on the contrary, its role there has become marginalised. However, Russia is transforming into a global laboratory for resistance against sanction pressures.

A dangerous consequence of this transformation is the emergence of an economic model characterised by widespread violations of intellectual property rights, opaque foreign trade reliant on its own infrastructure, and the use of unconventional forms of international settlements.

Whereas at the beginning of the 21st century the main driving force behind ‘alternative’ globalisation was criminal associations and networks, today they have been replaced by rogue states. These states are coalescing into a global coalition that opposes the principles of globalisation that previously shaped its course.

The Kremlin sees opportunities to institutionalise this model to fulfill its geopolitical ambitions, attempting to position itself as a leader of an economic world rejected by the West, according to economist Vladislav Inozemtsev.

It is unlikely that the West will be able to overcome this resistance by force. To return to the era of liberal globalisation, a new approach to the global periphery must be found – one that can entice it as effectively as was done forty years ago.

Deformations of globalisation

In recent years, it has become common to assume that globalisation, which has defined the last several decades, is fading into history, giving way to a new era of rising economic autarky. This perspective seems highly convincing – especially as politicians increasingly discuss raising import tariffs, imposing restrictive sanctions, or boosting defense spending in anticipation of looming wars.

These trends appear similar to those that halted the globalisation of the late 19th and early 20th centuries, freezing the development of the global economy for at least half a century. However, on closer inspection, this comparison cannot be taken seriously. Between 1913 and 1938, the share of global trade in relation to world GDP fell from 21% to less than 9%. In contrast, over the past decade, it has grown from 27.2% to 31%. The nominal growth of exports of goods and services during this period reached about 60%, with the total value nearing a historic high of $33 trillion. While the ratio of accumulated foreign direct investments to US GDP plummeted almost threefold to 1.9% of GDP,in the earlier period, it has increased by nearly 1.5 times in recent years, reaching 41.1%.

Yet the sense that liberal globalisation has run its course remains undiminished, and for good reason. In my view, two trends have emerged over the past decade that must be considered when analyzing the modern global economy.

The first trend has been forming since at least the 2008-2009 crisis and took its final shape during the 2020-2021 pandemic. Its foundation lies in the fragmentation of the world and the crystallisation of two distinct models of economic growth. On one hand, the successes and challenges of Western economies, built on symbolic values and meanings, networked interactions, and software-driven industries, have become increasingly evident. Here, a post-industrial economy has emerged in which the creation of each new product unit often involves replication rather than reproduction. In this context, the primary value lies in the know-how of the original product or the meaning embedded within it. The process of multiplying this product requires only a fraction of the labour and resources invested in the original. Examples abound: developing computer software demands immense effort, while downloading it requires almost none; the cost of a legal program bears little relation to its development expense; creating a new drug is extremely costly, while mass production is not; even crafting a dress or handbag by a fashion couturier carries a mark of creativity that ultimately defines its value far more than the tailor’s labour or the cost of silk or leather (→ Vladislav Inozemtsev: Economics without Dogmas).

On the other hand, during the same period, the rapid development of emerging industrial economies has continued. These economies have focused on mass production, initially of relatively basic goods and later of more advanced products. The primary advantage of these goods lies not in symbolic but in practical consumer attributes. Producing each additional unit requires relatively consistent labor and material inputs, but mass production delivers high profits, while low prices secure vast markets for these products.

The centers of these two types of globalisation can be conditionally identified as the Atlantic world (led by the United States, with some variations in competitive methods among different countries) and China (which has become the world’s leading industrial power). A few years ago, I detailed this model using the concept of 'competing globalisations' (→ Vladislav Inozemtsev: On the vicissitudes of ‘globalisation’). With considerable reservations, this process can be compared to the Cold War era, which featured two economic blocs with divergent worldviews. However, back then, these blocs lacked the close economic ties seen today and, more significantly, were based on fundamentally different economic foundations. In contrast, both current models are underpinned by similar market trends and principles.

From ‘competing’ to ‘alternative’ globalisation

In the early 2020s, I concluded that we were dealing with intense but predominantly peaceful competition between economic systems that were deeply interconnected and, therefore, had little interest in causing each other significant harm. Despite the disruptions caused by the pandemic and the emerging tendency of companies and countries to pursue 'de-risking’ where they had previously embraced outsourcing, there was no reason to doubt the viability of a model of civilised and managed globalisation.

However, the events triggered by Russia's aggression against Ukraine, the Western response to this egregious violation of international law, and the Kremlin's attempts to rally a small circle of supporters while circumventing sanctions have given rise to an entirely new phenomenon. This phenomenon can no longer be described as 'competing' globalisation but rather as 'alternative' globalisation – a form of international cooperation that disregards previously established rules. The ‘game without rules,’ long discussed by Kremlin strategists, is now becoming the basis for unprecedented processes.

The elements of this 'alternative' globalisation had been forming for years and were even described by some researchers. Moisés Naím captured these trends best in his works Illicit Trafficking and The Five Wars of Globalisation, where he pointed out how new dynamics pose a clear threat to the established liberal world order and its economic foundations. In recent years, the agents of this 'alternative' globalisation have changed: while criminal organisations and networks were its driving forces at the turn of the 21st century, today it is rogue states that are uniting into a global coalition opposing the globalisation of the past decades.

This shift did not occur overnight. Early signs were evident in Venezuela under Hugo Chávez, where the state oil company PDVSA funneled revenue to offshore accounts, brought cash dollars into the country, exchanged them for bolivars at market rates, and paid salaries at fixed rates. Similarly, Iran sold its oil to China disguised as Malaysian oil exports and used hawala schemes for payment instead of traditional banking systems. But with Russia becoming the largest and most aggressive rogue state in the world, these criminal schemes have expanded to an unprecedented global scale, affecting dozens of industries and services while involving multiple economies.

What has happened during this time, and how has the Kremlin succeeded in creating the infrastructure for 'alternative' globalisation? I would highlight several key points:

For the first time, one of the world's largest economies officially renounced the observance of intellectual property rights. While industrial espionage and counterfeiting existed before, such policies had never been declared at a state level. In response to Western sanctions, the Russian government ‘authorised' domestic companies to produce licensed products without adhering to patent laws or paying royalties if the products were deemed 'essential' for consumers.

First, following a March 2022 government resolution, Russian businesses gained the legal right to use inventions, designs, and industrial models from countries deemed 'unfriendly' without compensating their owners. Initially limited to categories like pharmaceuticals and medical equipment, this practice soon expanded to include the entire intellectual property framework for companies from these 'unfriendly' nations. This categorisation itself can be considered a tool of 'alternative' globalisation. For instance, after Western film producers and streaming platforms exited the Russian market, cinemas began showing pirated copies of the latest American and European films. Similarly, Western software began to be illegally copied, not only for domestic use but also for export to clients in Africa and East Asia. With foreign IT companies severing ties with Russian partners, local providers continued to use their cloud services without paying licensing fees while charging their customers.

Examples of such practices abound, generating significant profits for Russian businesses and preventing the collapse of domestic markets for various goods and services. Although the Kremlin claims these measures are temporary and hints at eventually paying 'frozen' royalties, the reality remains: Russia has become a country that has legalised intellectual piracy.

Second, the very same March decree effectively abolished many previous requirements imposed on importers. Since the mid-2000s, Russia had developed stringent consumer protection laws, mandating importers to sign dealer agreements with manufacturers, provide technical documentation in Russian, test products for compliance with local standards, and ensure warranty service. These requirements were almost entirely lifted in 2022. Now, companies can import smartphones, computers, or household appliances from any producer in any country without certificates or instructions.

This 'parallel import' system cannot formally be classified as smuggling, as some duties and taxes are still paid. However, it deviates from standard practices by eliminating many obligations to manufacturers. Parallel imports have saved the Russian market, preventing consumers from feeling the full impact of sanctions. According to official data,the volume of parallel imports exceeded $20 billion in 2022. As a result, products like smartphones remain available to Russian consumers almost simultaneously with their release elsewhere (albeit at significantly higher prices) and work in Russia as in the rest of the world.

Third, faced with European energy sanctions, the EU’s ban on Russian oil, and the introduction of price caps, Russian firms – backed by the government – boldly assembled their own tanker fleet. Until recently, most Russian seaborne oil exports relied on foreign ships registered in low-tax jurisdictions but owned by Greek, Maltese, or Cypriot companies and insured by European corporations. By mid-2023, Russia had purchased about 1000 aging oil tankers at fire-sale prices, allowing it to transport its oil without Western assistance (→ Re:Russia: Russia's Shadow Fleet).

To better evade sanctions and circumvent oil price caps, Russia’s shadow fleet operates covertly. Its vessels frequently disable transponders to hide their routes and transfer oil to other tankers on the high seas. This practice poses significant risks, including environmental damage and inadequate insurance coverage. Recently, evidence of these risks surfaced in Russian territorial waters, where two small tankers, unfit for open-sea navigation, ran aground, causing an environmental disaster on the shores of the Black Sea. Despite such dangers, the profitability of this system suggests that other countries facing trade restrictions may eventually adopt similar practices.

Fourth, Russia has effectively legalised both armed mercenarism and the unrestricted trade of weapons and ammunition, including transactions with countries under UN sanctions supported by Moscow itself (e.g., North Korea and Iran, from whom Russia purchases shells, missiles, drones, and more). Over ten countries have confirmed that Russian authorities have attempted to recruit their citizens into the Russian army through deception or force. For example, the Indian Prime Minister had to negotiate with President Vladimir Putin to release dozens of Indian citizens forcibly conscripted into the Russian military in conflict zones. This has not, however, deterred Russian recruitment efforts in other parts of the world. Meanwhile, Russian authorities strive to conceal evidence of illegal arms trading, employing clandestine measures such as dispatching ships to North Korea and Iran or moving shipments from North Korea to Siberia under strict secrecy. This secrecy also extends to smuggling components for military production and dual-use goods.

As Western powers, particularly the United States, ramp up sanctions on intermediary states like China, these smuggling operations are becoming more sophisticated, involving multiple intermediary countries. Conversely, Russian goods reach buyers through third-party countries that violate Western sanctions. For instance, despite EU sanctions, Armenia reportedly increased its gold exports 17-fold in 2023, with most of this increase attributed to the re-export of Russian gold). It is no exaggeration to say that an informal coalition of states has formed around Russia, assisting it in conducting these illicit operations.

Fifth, the most critical development is the emergence of a payment system designed by Russian, Indian, Chinese, and other companies to circumvent restrictions imposed by Western financial authorities. As sanctions have intensified, transactions have increasingly been conducted in third-country currencies (e.g., India routing payments through the UAE in dirhams), offshore jurisdictions (e.g., Singapore or Hong Kong), cryptocurrencies, and hawala networks. Today, funds sent from Moscow can be received in nearly any major city on any continent within two hours, at a cost significantly lower than what services like Western Union charged for transfers before the war.

Recently, nations of the so-called Global Majority have expressed interest in creating not necessarily an alternative reserve currency but a new payment mechanism and independent clearing system. Such a system would enable money transfers without disclosing any information to Western central banks or financial regulators (→ Re:Russia: BRICS minus). Ironically, by sanctioning the banks of these countries in an attempt to maintain the dominance of dollar- and euro-denominated transactions, the US and EU governments might inadvertently undermine the long-term special status of their currencies on the global stage.

Globalisation or Westernisation?

The attempt to build a separate financial system marks a radical departure from previous strategies pursued by Russians (and others, such as Arabs and Chinese). In earlier decades, these actors sought to penetrate Western financial systems and integrate into the so-called ‘Golden Billion’. Many Russian tycoons, for example, opened offshore companies and bank accounts in Switzerland, Luxembourg, Monaco and London, and legalised their assets by hiring lawyers all over Europe, and invested in real estate or industrial companies in Western countries. At a time, this era of thriving business led analysts to speculate about the ‘corruption’ of Western financial and judicial systems – they were entirely correct in their assessments. This desire to ‘integrate’ with the West once bolstered its global influence and concentrated wealth in financial capitals worldwide (a phenomenon I have termed ‘third colonialism’). Today, however, we are witnessing a reverse trend. The Global South is striving to establish its own financial system and wealth hubs, such as Dubai and Hong Kong. Leveraging tools developed in the West, particularly cryptocurrencies and blockchain transactions, the Global South is advancing an 'alternative globalisation' that may fall beyond the West’s ability to control.

‘Alternative’ globalisation reflects the ambitions of several revisionist powers to construct a 'new world order' to replace the one that emerged in the 1990s during the undeniable dominance of the Western world. While similar efforts have been made before, they remained largely experimental irritations to the West, failing to gain significant traction even in regions where Western principles were only weakly established. Russia’s war against Ukraine has sharply accelerated the process of 'alternative' globalisation – not because peripheral countries admire Putin’s reckless adventure, but because Western governments have begun restricting economic freedoms through sanctions. These sanctions, not always fully legitimate since they are neither imposed by the UN nor consistently well-justified, have become a catalyst. I do not argue that sanctions lack justification – they are a necessary and logical response to Russia’s unlawful actions. Yet, the fact remains: the policies of Western powers are stimulating 'alternative' globalisation and pushing the global periphery toward unity—not necessarily in opposition to the West, but in attempts to shield themselves from its policies.

Liberal globalisation, as we knew it from the 1990s, was built on the economic, social, and cultural 'charisma' of the West – its evident appeal amplified by the often disreputable image of its primary adversary, the communist bloc, and the apparent inability of non-market and undemocratic regimes to provide even a modest standard of living for their people. Over time, as liberal globalisation succeeded, the West came to view itself not as one of several alternative models of development but as the pinnacle of human progress – a notion captured in the famous 'end of history' theory. From this position, it began to act quite differently than before — not by stimulating those who felt solidarity with it, but by punishing those who disagreed or were dissatisfied. I cannot condemn the Western world for this approach — but to assume that it would not meet resistance was simply short-sighted. The more the Western powers continue to use sanctions against the rest of the world, the more popular ‘alternative’ globalisation will become, and the less orderly the world of the 21st century will become.

The globalisation of the late twentieth century was a process that was driven by the trends of the time. It was not orchestrated by the West but emerged from opportunities the West had unlocked – free-market economies, democratic governance, technological advances, and cultural shifts driven by the human rights doctrine. Virtually every country and people contributed to this globalisation, whether they liked it or not.

Today, however, we are witnessing something closer to what occurred a century ago: not globalisation, but Westernisation (→ Von Laue: The World Revolution of Westernisation). Westernisation, as the imposition of certain norms from a single center, has historically provoked resistance. Previously, such resistance was local, but today, it has become truly global. Overcoming this resistance by force is unlikely for the West. To revive an era of liberal globalisation, the West must find a new approach to the global periphery and entice it as it did 40 years ago. However, this task appears far more challenging now than it was then. Many technologies and practices that were once the exclusive domain of the West are now widely accessible, and the reach of material abundance has extended far beyond the Western world.