‘New Deal’ a Beacon of Hope for Russia Amid Economic Chaos

For seven years, Russia has suffered through an economic collapse deeper and more destructive than the U.S. Great Depression. The stock market has crashed, many factories are idled, incomes are dropping and millions of families are barely scraping by.

What Russia needs, Prime Minister Yevgeny M. Primakov has said repeatedly, is a New Deal. And 100 days ago, after delivering a speech invoking the memory of Franklin Delano Roosevelt, he was resoundingly voted into office by the lower house of parliament.

But Primakov is no FDR. And 100 days into his term as prime minister, it remains to be seen whether he will come up with anything approaching a New Deal.

“I think they’re shooting in the dark,” scoffs Eugene White, an economic historian at Rutgers University.

FDR a Russian Folk Hero

It may seem odd that Russians seek inspiration from such a distant period in U.S. history. After all, the countries were hardly friendly during the Great Depression of the ‘30s, and many Russians associate their current troubles with “capitalism” and “reform” urged on them by the United States after the Soviet Union’s collapse in 1991.

But Russians have long admired FDR. He forged a winning alliance with the Soviet Union during World War II, and he provided war materiel through lend-lease that helped the Russians beat back an invasion by Nazi Germany.

Most important, Russians find FDR’s promotion of a paternalistic form of capitalism extremely appealing at the moment, when many feel the free market has done little except tear apart their nation.

“When Franklin Roosevelt was presenting the New Deal,” Primakov said in a recent speech, “he said: What I have in mind is not a totally regulated and planned economy, but necessary state intervention in economic life. . . .

“That,” Primakov concluded, “is the slogan our government is working under.”

But it is one thing to draw inspiration from the New Deal; it’s another to draw up a similar plan.

FDR’s first 100 days as president in 1933 passed in a blitz of activity. He shepherded dozens of laws through Congress that restructured the banking system, started jobs programs, established the minimum wage and tightened control over the financial markets. He accomplished so much that “100 days” became the measure for leaders the world over.

Against that standard, Primakov is falling short. Since he took office Sept. 11, he has produced lists of goals but can cite few results. Parliament has not voted on a single law he has proposed. And analysts call his 1999 draft budget unrealistic.

One difference between Primakov and FDR is style. Roosevelt was bold, inventive and sometimes brash. He alternately persuaded and bullied to get his way. Primakov is methodical, cautious and diplomatic to a fault. He holds meeting after meeting, nudging participants toward consensus. Speed is not of his essence.

“The Russian people see all this indecision, wavering and procrastination by the prime minister, and it has undermined his standing,” warns Andrei A. Makarov, an independent deputy in the Duma, the lower house of parliament. “He has lost a lot of time.”

Primakov refers frequently to the New Deal, but he is not clear about which elements he intends to borrow. He appears to invoke Roosevelt to justify three likely policies: increased state regulation, printing additional money and deficit spending.

Those policies make Western economists nervous. The first raises the specter of a return to a Soviet-style planned economy, the second and third of rapacious inflation.

Primakov insists that he intends nothing of the sort. The kind of system he envisions, he said in a recent interview, is a “socially oriented market with the participation of the state.” And although a small amount of money will be printed, he promises it will be kept within strict limits.

“In absolutely no way will we retreat from organizing our society according to the market,” he has pledged. “But at the same time the influence of the state must be strengthened.”

Unrestricted Free Market

Some Western analysts agree with him. When it comes to the financial markets, they say, Russia has had too much of the free market, not too little. The market was introduced in Russia with few of the supporting institutions taken for granted in the West: a functioning legal system, banking regulators, bank deposit insurance, a stock regulatory agency, and a social safety net for the poor and jobless.

“Free markets can be very destructive,” said Alan Brinkley, a New Deal historian at Columbia University. “No free market has ever been successful without a stable institutional basis.”

Roosevelt spent a good portion of his first term building such institutions--the Federal Deposit Insurance Corp., the Securities and Exchange Commission, unemployment insurance and Social Security.

If that’s the kind of state regulation Primakov has in mind, he is likely to win praise from the West. But Western economists and the International Monetary Fund firmly oppose the other two policies--printing money and deficit spending.

Primakov’s position is supported by many Russian economists. They believe the economy is hobbled by a severe cash shortage that has made it impossible for the state and many companies to pay wages and pensions. They point out that as a percentage of national output, the amount of currency in circulation is less than half what it is in Western countries, and they have urged the government to print new money to expand the supply.

“The deficit of money in this economy is very large,” said Boris Z. Milner, who is heading up a research group on the New Deal at the Russian Academy of Sciences’ Institute of Economics. “What we are talking about is a cash emission as a means of relieving the acute crisis.”

Inflation will result, he acknowledges, but Russia can follow Roosevelt’s example and set prices on basic foods. In Milner’s view, inflation is a lesser evil than ever-decreasing production and ever-increasing social discontent.

Most Western economists see the situation differently.

Barry W. Ickes, an economist at Pennsylvania State University, says the money shortage Milner describes is an illusion. Factories can’t pay workers, he says, because they don’t produce goods that sell on the free market. If they did, they would have the cash they need.

In Russia’s twisted economy, such factories aren’t forced to shut down or cut staff. Instead, they continue to produce and exchange their unsalable products with other factories in an elaborate and damaging barter network that keeps many businesses nominally alive and official unemployment low.

But it also generates what has been dubbed the “nonpayments” crisis: Companies can’t pay their taxes in cash, which means that the Primakov regime can’t pay pensioners, state workers or local governments. As little of value is being produced, the mutual debts keep accumulating.

The Russians believe that if they print money to pay off the arrears, the companies can wipe out their debts and start over. Meanwhile, the infusion of cash will stimulate demand, “priming the pump” for economic growth.

Ickes and others think they have it wrong. Printing money will have little effect on the barter economy, they say, because demand will never increase for inferior products.

“The U.S. economy in the 1920s was the most productive in the world,” Ickes said. “In the Depression, there was lots of unused productive capacity. You don’t have that in Russia. In Russia, what you have is not a decline in demand but an economy in desperate need of restructuring.”

The debate over deficit spending is somewhat different. Many people--including the Russians--believe it was FDR’s deficit spending that fueled the U.S. recovery from the Depression. The Russian federal budget is out of balance because tax collections are low while social spending is high. The idea that deficit spending will let Russia fix its economy without reducing pensions and other benefits is tremendously appealing to Russian officials.

But U.S. analysts say the effect of New Deal deficit spending on the U.S. economy has been exaggerated. Economic historian White says that although the jobs programs lifted morale, they did little to pull the economy out of its slump.

First, he says, FDR did far less deficit spending than many people believe--less than many recent U.S. governments and less than the Russians intend. Second, it had less effect than other policies, especially FDR’s decision to go off the gold standard.

Greatest Achievement Was Psychological

In the end, all agree that the greatest achievement of Roosevelt’s first 100 days wasn’t economic but psychological.

“Most of the first-100-day efforts were failures,” said Brinkley of Columbia University. “What was most important was the image he projected of activity and commitment to solving the crisis.”

In that sense, Primakov--in his own way--may come close to the Roosevelt mark. After suffering years of upheaval, many Russians seem to take comfort from his steady, deliberative style.

“About 60% of the population approves of his actions--that’s unprecedented in our country, where people usually curse those in power,” Yuri A. Levada, director of the respected Russian Center for Public Opinion Research, told the Kommersant Daily newspaper. “This is partially because, thanks to him, people are gradually recovering from the shock.

“In a word,” he said, “there hasn’t been a complete collapse. If this continues, people will remain calm.”