Who Lost Russia? Why Not Try Saving It?

A consensus seems to be developing that the West’s response to the crisis in Russia should be to do nothing and instead focus on “who lost Russia.” The list of candidates for the latter honor seems to be growing: ailing President Boris N. Yeltsin, corrupt bankers, the obstructionist Duma, naive reformers and a misguided cabal of Harvard economists.

Yet, we should prepare for the possibility that we will have to do something. The partial collapse of the Russian economy has caused profound perturbations in the world economy. Its complete collapse would pose a severe threat to Western security, both economic and military.

Continued crisis in Russia could produce several unexpected nuclear powers. It could flood the world with hungry nuclear technicians ready to work for the highest bidder. It could convulse the economies of neighboring countries and erode confidence throughout Europe.

Perhaps that is why a number of people--a few brave senators from both parties, Bob Dole’s former campaign speech writer, the foreign ministers of the European Union, the secretary general of the North Atlantic Treaty Organization--are saying we cannot let this happen. They suggest we must rethink our approach and be prepared, if Russia responds, to do far more than we have.

Indeed, there are measures we could take if we had the courage to face up to past mistakes. The first truth we must acknowledge is that we have attempted to reform Russia and Ukraine on the cheap. Believing the free market alone could accomplish the historic task of integrating these two giant countries into the world economy, the West’s approach to the transformation of the former Soviet Union has been precisely the opposite of the one the United States adopted after World War II, when it helped Western Europe get back on its feet.

Then, the United States recognized that Western Europe would not be able to pay back its loans. That was a mistake we made after World War I. So, the United States offered generous grants, which were spent importing U.S. goods, provided Europe first came up with an effective plan.

By contrast, the Russians received primarily commercial loans, which now they cannot pay back. Despite the talk of hundreds of billions in lost “aid” between 1992 and 1996, as Sen. Daniel Patrick Moynihan (D-N.Y.) has pointed out, the United States gave Russia $3.1 billion in bilateral assistance. This compares with $500 billion in grants to Western Europe, in today’s prices, under the Marshall Plan.

Then, the United States allowed the Western Europeans to protect their domestic industries and capital markets until they could stand on their own and compete in world markets. The Russians immediately were forced to open up completely. Almost no domestic industry, not even the vodka industry, could withstand the overpowering Western competition. Whereas Western Europe was allowed to control capital markets, we forced the Russians to open the doors to large-scale capital flight.

Then, the United States opened its own markets to Western Europe, notwithstanding the protectionist measures Western European governments were taking against U.S. goods. The Russians have discovered that whenever they do find a market niche, the West Europeans or the Americans immediately launch antidumping suits. One was recently lodged against the Russian steel industry.

Then, the United States empowered West Europeans to come up with their own ideas for reform. We were in the position of friendly critic and tough auditor. The Russians were flooded with Western advisors who told them what to do. Small wonder they have no sense of ownership in the reforms.

It is time to turn the page. If we began to listen to those calling for a change in approach, we could learn from the past and adapt to the present.

The West must develop a serious grant program for Russia and the other former Soviet states. At the grass roots, the United States should intensify its efforts to assist Russia to build a civil society and strengthen institutions that stand between the state and its citizens. In this regard, assistance should be given to launch a Small Business Administration-like loan-guarantee program for small and medium-size businesses and to support the creation of private-pension systems, a key element of a social safety net.

At the macrolevel, the West, particularly Western Europe, with its high unemployment, must focus on job-creating infrastructure projects that will yield economic benefits for years to come. Russian workers whose factories will be downsized or closed can work in these projects. As in the rebuilding of Europe, the payoff for the United States will be orders for capital goods that will be shipped to the aid recipient. World Bank officials in Moscow, for example, point out that the Russian water system is outdated. Cities are losing as much as half their water through leaking pipes. One project could involve laying new water pipes throughout all major Russian cities, creating jobs and future benefits.

Roads in Russia are terrible. So are airports and rail stations. All these are employment generators. The United States has experience of its own to offer. Officials in Washington should get out the list of projects launched under the New Deal to see which were most successful in yielding long-term gains while creating employment during the Great Depression.

As was the case with the Marshall Plan, no money should flow to Russia until it responds, as Western Europe did, to the challenge of coming up with its own plans for recovery. As before, the donor role should not be that of policy master but of hard-headed, experienced partner.

There are other measures, some symbolic, some practical, the West can take:

* Russia accepted the burden of the Soviet debt, now more than half its total. This statesmanlike act should be recognized and the debt should be renegotiated, delayed or canceled.

* Russia has long permitted free emigration. The Jackson-Vanik Amendment, which annually threatens Russia’s equal trading status with the United States, should be repealed.

* Under great duress, Russia accepted a bilateral agreement with the United States regarding space launches. The price for Russian admission into the launch club was restrictions on launches (and their prices) from the country with the greatest success rate to date in the launch of commercial and other satellites. Numerical restrictions on launches should be eliminated.

* Russia faces trade discrimination because of an enriched-uranium agreement with the United States. The “privatization” of U.S. Enrichment Corp. has seriously undermined revenues that Russia rightly anticipated from this agreement.

* Russia suffers from unfair use of the antidumping laws. Not only do these laws restrict its uranium and magnesium exports, but, as a result of an action just filed, they will soon restrict steel, Russia’s second-largest export to the United States. It is imperative that the administration inject foreign-policy concerns, such as the need to keep the Russian economy viable, into the application of antidumping laws.

* Russia faces unfair regulatory harassment. U.S. procedures for certifying certain Russian imports--for example, helicopters--are time-consuming and expensive. The United States should simplify them.

Skeptics will argue that the political climate will not support such a program, that the mood toward aid is far different from what it was in the postwar period. But as James Chace’s new biography of former Secretary of State Dean Acheson makes clear, the mood then was no better. Bold plans for Europe’s recovery got little support in the Congress or the country. What changed the equation was the realization among top officials that they simply had to persuade Congress and the country. They believed they were racing against the clock and were determined to succeed.

Can there be such leadership today, on either side of the Atlantic? Much depends on leaders’ assessment of the stakes involved. We believe they are great. With time, our leaders will see this, too.