The missed opportunity to put post-Soviet Russia on a stable path

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Robert Brent Toplin, professor emeritus at the University of North Carolina, Wilmington, taught classes at the University of Virginia after retiring from full-time teaching. He has published several books on history, politics and cinema. Contact: rt2b@virginia.edu Website: Presentandpast.com

When the Soviet Union collapsed between 1989 and 1991, many Russians hoped that their society would quickly transform into a democratic and prosperous country. They were terribly disappointed when that wasn’t the case in the tumultuous 1990s. The Russian economy collapsed. Per capita income fell by a third. Inflation jumped. Corruption was everywhere. By the end of the decade, many disillusioned Russians wanted a strongman to take control and impose order. Valdimir Putin seemed to be that savior after incumbent President Boris Yeltsin raised him. In 22 years of rule, Putin has tightened his grip on Russian affairs and become a menacing autocrat.

Was a better outcome possible in the first decade of Russia’s emergence from communism? Did the United States and European countries miss an opportunity to help the Russian people avoid a crisis? Different outcomes were possible, but the political conditions of the time made it difficult to mobilize international assistance.

It is not surprising that Russia’s exit from communism was disastrous. The Soviet Union maintained a command economy for seventy years. The Russian state controlled most economic activities. The factories focused on the production of military equipment and heavy industrial goods. Manufacturing offered only limited products to consumers. Once the communist system was gone, the inefficiencies became transparent. The nation lacked effective tax codes and bankruptcy procedures. Private property barely existed and property rights were poorly protected. There was no carefully designed plan to facilitate the transition to a market economy.

Joseph Stiglitz, a prominent economist and member of President Bill Clinton’s Council of Economic Advisers, recommended an evolutionary rather than a revolutionary transition to market operations. Build effective institutions first, Stiglitz advised, and support talented young leaders who are engaged in democratic processes. The place of government in the Russian economy should not be eliminated haphazardly, he warned. The management of huge extractive industries in oil and gas should remain public to prevent exploitation by oligarchs. When proponents of rapid privatization compared Russian oligarchs to American barons such as the Harrimans and the Rockefellers, Stiglitz noted that Americans got richer but also created wealth for society. The oligarchs aimed to exploit Russia’s assets, leaving the country poorer.

Instead of implementing Stiglitz’s incremental approach to change, American, European and Russian proponents of “shock therapy” prevailed. Lawrence Summers of Harvard recommended increasing efforts to privatize quickly, the “shock” approach. Influential economists in Boris Yeltsin’s government such as Anatoly Chubais and Yegor Gaidar implemented the strategy.

Rapid privatization has left huge industries plagued by investors with political connections. Speculators bought factories for a small price. They sold equipment and then closed operations, leaving many workers unemployed. Some Russian investors have taken over the country’s vast oil and gas industries. Meanwhile, hyperinflation has left millions of poor and middle-class Russians in dire straits.

Just as there was no plan in place to facilitate the economic transition, no plan was well developed to guide the rapid transition from autocracy to democracy. For nearly seventy years, Soviet society was ruled by dictators and the Politburo, the Central Committee of the Communist Party. When this system disintegrated, conflicts increased.

The powers of parliament and the president remained unclear, leading to disputes. President Boris Yeltsin dissolved the Russian parliament in 1993. Parliamentarians tried to impeach him. The nation seemed to be on the brink of civil war. Troops loyal to Yeltsin responded with an attack on the parliament building, saving the president. Yeltsin then promoted a new constitution that accentuated presidential authority. Had there been strong political parties in place, Yeltsin would have faced strong resistance. After decades of Soviet rule, however, political groups were just beginning to form and organize.

The United States provided little direct financial assistance to Russia during this difficult time. In 2001, the United States sent only $1 billion, with about two-thirds of the contribution going to nuclear weapons. The International Monetary Fund (IMF) provided only $22.7 billion to Russia (the $13 billion Marshall Plan aid launched by the United States to Europe after World War II was 135 billion in 2018 dollars).

Jeffrey Sachs, a Harvard economist who promoted shock therapy but also advocated state ownership of Russia’s natural resources and a strong safety net to help the Russian people, lamented the failure. “I think it was tragic how we in the West, with our power and our wealth, failed to contribute to more satisfying change,” Sachs told PBS in 2000. “We could barely find a penny in [the United States] help.” Huge opportunities had been lost, he concluded.

Political conditions made it difficult to mobilize public support for intervention in Russian affairs. In the 1990s, Europeans were obsessed with the unification of Germany and the sudden appearance of newly configured nations after the disintegration of the USSR. In the United States, the administration of President George HW Bush has focused on military operations in Iraq. Then a worrying recession complicated Bush’s re-election prospects. President Bill Clinton followed Bush and soon became preoccupied with challenges from Newt Gingrich and a resurgent Republican Party.

Americans had diminished their interest in world affairs after the end of the Cold War. They wanted to enjoy a “peace dividend”, the financial benefits associated with the new position of the United States as the world’s only remaining superpower. Home affairs trumped interest in conditions abroad. When President Bill Clinton and Republican Bob Dole debated in 1996, nearly all of the questions put to the candidates were on national topics.

A robust European and American effort to help Russia in the 1990s would have been a heavy hitter, but a look back at history suggests the value of greater engagement. After the end of World War II, the United States helped the defeated nations to modernize. The Marshall Plan brought substantial foreign aid to Germany and other Western European countries. Under General Douglas MacArthur, the United States promoted democratic governance in Japan, the development of a market economy, and disarmament. American intervention in these countries has proven extraordinarily successful. In the 1950s, Germany and Japan seemed democratic, prosperous and peaceful.

In some ways, creating a successful free enterprise system was Continued difficult in Russia than in post-war Germany and Japan. Germany had long been committed to capitalist enterprise and Japan had a system of large business conglomerates (zaibatsu) before World War II. Russia lacked fundamental trade traditions, practices and rules.

The threat of communism motivated American efforts after World War II to promote economic prosperity and democratic reform in defeated nations. Americans and their allies feared that the Germans and Japanese would find totalitarianism attractive if a decade of crises followed the end of the war. A later generation of leaders should have sensed the potential for unrest if conditions in Russia turned chaotic after the fall of Communism.

Russia was ill-prepared for a transition to democracy and free enterprise. Conditions deteriorated rapidly, leaving millions desperate. In the late 1990s, many Russians hoped that a strong-minded authoritarian figure could establish law, order and progress. Some believed that this leader arrived when Boris Yeltsin raised a former KGB agent in the Kremlin. Vladimir Putin’s rise was not inevitable. Putin might have remained in obscurity had there been a more successful Russian transformation from dictatorship and communism.

America’s political situation in the 1990s did not favor a robust intervention akin to the vast assistance to Germany and Japan after World War II. But American leaders could have provided better advice and done more to help Russians create and implement effective reforms. Jeffrey Sachs, the Harvard economist who was involved in early efforts to help Russia, understood the tragedy. He admitted in 2000: “We could have done a lot more. We chose not to.

The consequences of this missed opportunity are stark today.

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