Chapter 10: States and Markets in the World Economy


Accept both offers
The discounted energy resources will more easily enable Chechnya to develop its infant domestic industries and/or build up its military. Russian capital would allow the Chechen government to more easily invest in its economic or military development in the short term. This economic assistance could benefit Chechnya greatly in the short term, but would also create a large dependency upon Russia in the long term.


Remember, as a pure economic liberalist, your infant domestic industries are fully open to both domestic and international competition, but the Chechen economy will also enjoy absolute gains and access to markets and resources. Your decision to accept the Russian offers for capital loans and cheap oil will enable you to either develop your economy further or invest in your military. In the long run, economic growth and development is your goal as the Minister of Finance. In the short term, you have to decide between expanding your military or investing in your economy. You should keep in mind that the Russian threat is still real but the US bloc may come to your aid if Russia invaded.

What do you do now?

Strengthen the military in the short termYour military will be able to produce more tanks, weapons, fighter jets, and defense systems than it normally would have. If Russia were to invade, they would still be able to win a conflict because they have one of the best militaries in the world, but your military will be strong enough to both lengthen the war and raise the costs of war. Even if the communist bloc was weakened, the military buildup may deter the Russians from invading. This military buildup would come at the opportunity cost of investing in your developing domestic industries.
Further develop the economyThe capital could be used to artificially lower the costs of production for your domestic industries. The cheap energy would also directly lower the costs of production. The lower costs of production will allow for your domestic industries to invest in innovation and more easily compete in international markets. Given that your industries are all relatively new, there is a lot to be gained from rapidly developing them because the more developed an industry is, the more it stands to gain from global economic integration. That being said, your military capabilities will be no match for the Russians if they choose to invade. The US bloc's security guarantee is still uncertain at this point.