What the U.S. Can Still Do to Help Capitalism in Russia
To make sense of disturbing events in Russia, look closely at the economy. Notice the dog that isn’t barking: Unemployment has not risen appreciably despite a drop in industrial production estimated at 25%.
How can production fall and workers hold their jobs? Simple. The government is printing money to pay wages and keep the country reasonably stable. Russian inflation is high, but has been kept from runaway levels because government controls still keep a lid on many prices.
The whole artificial economy has been possible until now because 90% of industry remains state-owned in Russia, Ukraine, Belarus, Kazakhstan and other ex-Soviet republics. In other words, aerospace workers in Los Angeles have suffered more fallout from the end of the Cold War than factory workers in Smolensk.
But Russia’s leaders, whether in Parliament or President Boris Yeltsin’s office, know that game cannot be maintained much longer. Their real argument is over how quickly or gradually to dismount from the tiger--decontrol prices, restructure industry, lay off employees.
For help in making such economic changes, Russia is reaching out to the West. And the United States and its partners in the Group of Seven rich nations--Japan, Germany, France, Britain, Italy and Canada--are responding. Reports Tuesday had the G-7 nations preparing a $30-billion package of credits and debt relief for the former Soviet republics.
Substantial aid is not an easy decision, given the chaos and corruption behind the scenes in Russia’s economy these days. Some officials and factory managers who favor economic reform are also lining their pockets in spurious deals with Western companies. Heroes are few--Yeltsin is not the free-market democrat he is sometimes painted, Parliament members are not all the totalitarians they’re made out to be.
Housing is being privatized, and Moscow apartments are selling for U.S. dollars. Often those who held power in the old Communist regime are profiting from such trade and from other deals.
A U.S. businessman tells of one deal to send coal to Denmark. Papers were issued, foreign currency permission obtained, funds transferred outside Russia. But then there was no coal shipped--the deal’s purpose had been to enable a Russian official to get money out of the country.
Small wonder that ordinary Russians lack confidence in the new economy. Russian workers last year were issued vouchers, which they could turn into shares of ownership in newly privatized industry. Each voucher was worth 10,000 rubles but is now trading for about 4,000 rubles.
Yet despite the chaos, substantial aid properly administered is the right decision. We should remember that events were chaotic in Germany and Japan after World War II, but with a boost from America--through the Marshall Plan and other means--those economies got rolling to prosperity.
And the U.S. stake in Russia today may be even greater than it was 45 years ago in Europe and Japan. “If Russia falls into anarchy or despotism,” said Secretary of State Warren Christopher in a speech on Monday, we could face “renewed nuclear threat . . . spreading instability . . . a devastating setback for the worldwide democratic movement.”
But at the same time, Christopher added, the former Soviet republics present “a historic opportunity to build a more secure world.”
So what should U.S. policy be? “Purposeful not personal,” says Charles Wolf, director of RAND Corp. and an expert on Russia. He means that programs should be geared to the long-term benefit of Soviet republics, not to support Yeltsin or any other individual. On specific programs, Wolf suggests debt relief, international insurance for industrial ventures and efforts to clean up Chernobyl and other sites of Soviet nuclear accidents.
In Russia, the words Marshall Plan are heard, says Prof. Jerry Hough of Duke University, who has just returned from Moscow. Alexander Rutskoi, Yeltsin’s vice president and emerging political rival, asks that the United States treat Russia as an ally, as it shifted focus after WWII to treat Germany and Japan as allies. That way, something like a Marshall Plan could lead to private investment for Russia.
Investment in the former Soviet Union may pay off big, but not quickly. Dean LeBaron, chairman of Batterymarch Financial Management, found payoff expectations in Russia too long-term for a conventional investment fund last year. But LeBaron isn’t discouraged--he believes that long-term investments will do very well there. And smaller-scale entrepreneurs, such as Jeff Straub of San Diego’s America-Ukrainian Joint Venture Network, find promising companies starting up even in today’s general chaos.
We should take a long view also of Russia as a threat, says Wolfgang Demisch, a defense industry analyst with Union Bank of Switzerland. “Russia and the republics are going to be looking inward, trying to overcome economic depression as the United States and other countries did in the 1930s,” Demisch says. “That doesn’t argue for expensive foreign adventures, although it does put a premium on what kind of leader Russia gets--whether a Roosevelt or a Hitler.”
Avoiding a repetition of Hitler was a big reason for the original Marshall Plan, which gave 16 European countries $3.4 billion a year from 1948 to ‘52--the equivalent of about $35 billion a year today. Appropriately, a similar amount--$30 billion--is what the G-7 nations have in mind for their package of debt relief, export credits and currency stabilization funds.
If they come through with that money and it helps the ex-Soviet republics reform their economies, the G-7 Plan might bring the world even greater benefits than the Marshall Plan.
