Suddenly all roads led to London. The G-7 group of seven advanced industrial nations that dominate world trade policies will hold its annual meeting there in mid-July. Gorbachev singled this out as the forum in which to make his pitch for aid, and the amounts he seemed to have in mind were substantial. At one point, he spoke generally of something on the scale of allied expenditures in the gulf war, perhaps $100 billion. A plan developed at Harvard University by senior faculty members and a Soviet team led by one of Gorbachev’s consultants will reportedly seek about $30 billion a year for five years, in both loans and government-to-government grants. The requests touched off a furious debate in the United States. Did the Soviets deserve such largesse? Could they even put it to good use? Or would the money merely prop up the old Communist Party apparatus?
The hard-line Center for Security Policy in Washington cruelly called the proposal “the equivalent of financial date rape.” Some skeptics insisted that any aid be tied to proof of democratization, or suggested that it go to the governments of the separate republics rather than to the Kremlin. On the other side, advocates such as Harvard economist Jeffrey Sachs, an architect of Eastern European economic reform, said, “We have a chance to bring the Soviet Union into the community of nations with a democratic market economy.” As a planner involved in the G-7 preparations put it, “We can all see the prize, and it’s a glittering one. The question is how to get to it.” And a senior British official, noting that the Soviet Union has yet to evolve economic institutions capable of absorbing capital infusions, voiced a telling objection: “Giving Gorbachev the money now would probably prevent you from giving it to them later, when they can actually use it.”
The Nobel speech was the centerpiece of a Soviet campaign that began almost two months ago. Gorbachev clearly subscribes to the canoe theory of politics, as enunciated by former California governor Jerry Brown: paddle on the left side for a while, then on the right, then go back to the left. After seven months on the right side, during which he rejected a market-oriented “500 day” reform plan and at least acquiesced in a brutal takeover of telecommunications facilities in the Lithuanian capital of Vilnius, Gorbachev has once again switched. First came the April 23 “nine plus one” agreement, in which the central government agreed to share power with the nine Soviet republics willing to join such a scheme. This was a sign of the new direction. Moscow then dispatched Grigory Yavlinsky, a 39-year-old economist and a principal author of the 500-day plan, to the United States to formulate a concrete proposal for liberal Western aid to the Soviet Union (NEWSWEEK, June 3) and to scout U.S. sentiment. Meanwhile, Gorbachev set about inviting himself to the G-7 meeting.
It was an awkward moment. The G-7 members had good reason to resist the Soviet leader. They have troubles enough among themselves, notably the faltering talks on renewing the General Agreement on Tariffs and Trade (GATT). Gorbachev’s presence would be a distraction. The United States and Great Britain were particularly hesitant, fearing a political backlash in Moscow if Gorbachev returned empty-handed. “The president personally wants to help Gorbachev,” said a senior White House official. “He doesn’t want to do anything that would in the least bit look like turning his back on him.”
But the quickening pace of events swept all other concerns aside. Suddenly, U.S. and Soviet arms-control negotiators settled disputes on both conventional forces in Europe (CFE) and reopened talks on strategic weapons (START), and a Moscow summit seemed within reach, perhaps even before the London meeting. Last week George Bush underlined his desire for a more amiable relationship with Gorbachev by nominating as his new ambassador to Moscow the Texas and Washington lawyer Robert Strauss, rainmaker and state-of-the-art schmoozer (page 38). Bowing to the inevitable, British Prime Minister John Major, the host to G-7, offered to ask Gorbachev for a session to take place immediately after the group’s official meeting. The dinner was still closed, but the Soviet leader was welcome for brandy and cigars,
In principle, the case for immediate Western help is a strong one. In the just-published summer issue of Foreign Affairs magazine, Graham Allison and Robert Blackwill of the Kennedy School call for “a bargain of Marshall Plan proportions.” (Both men have been working with Yavlinsky on the draft of his aid proposal; Blackwill was George Bush’s top adviser on the Soviet Union at the National Security Council until last year.) They describe a deep political crisis in the Soviet Union, and a decrepit economy in which the government has “stumbled from error to error.” They concede a widespread belief that America has only slight power to influence the course of Soviet domestic politics. But they add, “Such passivity is curious, if not dangerous, on a matter that has such profound implications for the future security of the United States.”
At bottom, Allison and Blackwill argue that the West must regard the Soviet Union the way U.S. financial institutions regard the money-center banks: too big to be allowed to collapse. At the extreme, dismemberment of the union could bring “chaos and civil wars.” Nuclear or chemical weapons could fall into irresponsible hands. Instability could spill across borders into Eastern Europe. Even short of such a cataclysm, they say, U.S. interests require helping Gorbachev. He has shown a readiness to cooperate with Washington on regional conflicts such as those in the Middle East and southern Africa. He has accepted the first meaningful conventional-arms reductions since the cold war began. A regime spurned might not be so forthcoming.
The conclusion: the West should give generously to the Soviet Union, provided there is continued progress toward pluralism and a market economy–“real assistance for real reform,” as Allison and Blackwill put it, or, as German Chancellor Helmut Kohl says, “help for self-help.” Here, aid advocates tend to follow the precedent of the Marshall Plan. The devastated European recipients had to agree on a reconstruction plan before they got their money. In the Soviet case, the necessary steps would include:
Fiscal and monetary reform, to curb the current Soviet preference for covering deficits by printing money;
Deregulation of prices, to reflect true production costs and scarcities;
Wage decontrol, to link earnings to productivity;
Privatization, encompassing legal guarantees for competition and property rights, and an end to state monopolies;
Currency convertibility, to allow for foreign competition and to find the market value of Soviet goods and resources.
It’s an ambitious docket. Nor is there any precedent. Poland underwent its own “shock therapy” beginning in 1990, but the Soviets face the dismantling of socialism on a previously unimaginable scale. Poland is a basically homogeneous society of 38 million people. The Soviet population is more than seven times greater. It is multicultural in every sense: ethnicity, language and religion. The country’s economy is awkwardly divided among the 15 republics. Its finances are deformed by an outsize military-industrial establishment. As Yavlinsk likes to say, it’s easy to turn an aquarium into fish soup: you just boil it. It’s quite another thing to reverse the process.
Given its history, the Soviet Union verges on political and economic arteriosclerosis. The Communist Party, though reduced in power from the Brezhnev years and facing a formidable challenge in the Russian Republic from the populist forces coalescing behind Boris Yeltsin, remains the single most coherent political force in the country. It is also the only truly national one, and shows no interest in political reforms that would gut its power. Nor does the state bureaucracy applaud the idea of a loss of monopoly power that would throw its members out of work. The reforms carried out so far have all been piecemeal, and all directed from the top. The Soviet Union will never address its economic problems, says Yegor Yakovlev, editor of the progressive Moscow News, “until our leadership gives up the hope of being half pregnant.”
At the same time, the Soviet people display the collective psychology of 73 years under communism–a deference to higher authority, a reluctance to take risks. There is almost no understanding of the most basic market concepts, despite nearly universal lip service to “the market.” The Western notion of money as a commodity, for example, is alien to minds brought up on the Marxist labor theory of value. New ideas need time. “Only beginning last autumn did serious economic discussion take place [in the Soviet Union],” says Aleksandr Yakovlev, a Gorbachev adviser who was one of the founders of perestroika. “Two and a half years ago, I was reprimanded at the very highest level for saying things even the birds in the trees are singing about now.”
Readiness for the rough-and-tumble of a market society is probably many years away. This is not to say that pure market societies exist elsewhere in the industrial world. They do not. All the Western economies have some degree of government intervention. Japan has a distinctive notion of international competition. But for the Soviet Union, it is a great distance even to a social democracy in, say, the German manner. Institutions that can make effective use of capital are still in the process of gestation. Existing institutions are still mainly run by party opportunists, who will siphon off the money.
The West should proceed one step at a time. “One does not support an alcoholic by giving him free drinks,” says Anders Aslund, director of the Stockholm Institute of Soviet and East European Economics. “The Soviet economy … needs sobering up.” Aslund suggests “a maximum of intellectual exchange and training,” until the power of the party and the old psychology are finally broken. In fact, the West is prepared to go a little further. President Bush may well offer most-favored-nation trade status to the Soviet Union even before the London G-7 meeting, along with American backing for a “special associate status” in the International Monetary Fund and the World Bank. This would be a first step to bringing the Soviets into the global economy. The other G-7 members are equally determined to give Gorbachev something to take back to Moscow, even if they have to scramble to assemble a package. Pending a specific reform program from the Soviets, the G-7 planners are considering, among other things, a currency stabilization fund that would ease the ruble’s transition to full convertibility. This is an essential step to breaking the monopolies; currently, no prospective investor in or buyer of a Soviet state enterprise knows its value because there is no way of making meaningful comparisons with similar firms in other countries. Similarly, the West may be willing to offer infrastructure assistance in crucial areas of the Soviet economy, such as transportation and energy-again, once further reforms are underway.
After all, the Soviet Union is not yet in desperate straits. It is true that the gross national product may fall by 15 percent this year. But unemployment in 1990 was less than 2 percent–negligible by Western standards. Inflation is in fact a growing problem: even before government-mandated increases on April 2, prices of consumer goods rose by an estimated 24 percent in the first three months of the year. But that is manageable by comparison with other non-Western countries. Shortages are endemic. But it is a long way from shortages to famine. The West may not offer as much as Mikhail Gorbachev might want. Still, there would be suggestions of more later. And in any case, it was more than Karl Marx would ever have expected from the capitalists.
FIRST STEPS TO A FREE MARKET
The West is unwilling to give the Soviets anything like the “grand bargain” they seek. More likely is small-scale–but vital–aid to a decaying infrastructure in key industries.
A crumbling distribution system is to blame for many chronic shortages in Soviet shops. Western countries could help repair railbeds and build new highways for a country with only 460,000 miles of paved road.
The Soviet telecommunications system is primitive by Western standards: few digital exchanges and only 2,000 to 3,000 international direct-dial lines. Modernization in this sector is essential to a global economy.
Lenin once defined communism as “Soviet power plus electrification,” but the energy industry is hobbled by deteriorating oil and gas facilities. Western companies could modernize in return for access to supplies.
George Bush’s new ambassador to Moscow, Robert Strauss, has always been able to play both sides. Although the former Democratic national chairman likes to be called “Mr. Democrat,” he has made it his business to be close to the powerful in both parties. “Bob Strauss is a very loyal friend,” joked Jimmy Carter. “He waited a whole week after the election before he had dinner with Ronald Reagan.”
Strauss is an old and close friend of George Bush. As Bush edged closer to war in the Persian Gulf, the two men occasionally dined at a favorite Chinese restaurant, where Bush sought Strauss’s help in keeping Congress on board. Strauss is close to another old Texas buddy, Secretary of State James Baker. Fearful of the political risks of going to war, Baker enlisted Strauss’s help in trying to check Bush’s more bellicose instincts. Publicly neither a hawk nor dove himself, Strauss cheerfully performed both roles.
Whether Strauss can play Mikhail Gorbachev so skillfully remains to be seen, but few Washington insiders would bet against him. Strauss can match Gorbachev’s bluster and blarney any day. He doesn’t speak Russian, and freely admits that he is no Soviet expert. But he is a master at building intimacy with a blend of Texas humor, fond insults and freely confided political judgments. Bush hopes that by winning over Gorbachev on a personal level, Strauss can prod the Soviet leader to step up reform.
Strauss won’t be talking in measured diplo-speak. As Middle East peace negotiator for Jimmy Carter, he advised Egyptian President Anwar Sadat and Israeli Prime Minister Menachem Begin, “I’m used to bullshit because I’m from Texas and it’s all over the fields down there. The point is, you have to learn how to keep from stepping in it.” How will Strauss translate in Moscow? “We’ll use two translators,” he laughs. “One for the Russian, one for the profanity.”
What Strauss does know is how to make a deal. Earlier this year he earned $8 million for arranging the takeover of the Hollywood entertainment company MCA by the Japanese conglomerate Matsushita. (His fee was paid by both sides, unusual for a lawyer.) Conservatives fear that Strauss may be a little too willing to cut a deal that could end up costing U.S. taxpayers billions. Retorts Strauss: “I don’t believe in spending anything until you know what you get for it.” Strauss has a knack for driving a hard bargain without alienating his opposite across the table. He and Baker faced off during the 1980 election when Strauss ran the Carter campaign and Baker helped run Ronald Reagan’s, but the two men remained close.
On the wall of Strauss’s conference room hangs a photograph of him and Baker at a black-tie dinner. The inscription from the secretary of state reads: “Bob, it’s just ‘2 pols in a pod’.” Strauss (like Baker) wants to be remembered as more than a pol, and that may help explain why he is now willing to sacrifice the long lunches at Duke Zeiberts, the frequent trips to the track and the huge fees he raked in as a Washington lawyer. Still, Strauss can smell a loser from a long way off. He’ll be nearly 73 when he arrives in Moscow this fall, and he’s made no promises to stay the usual three years. If Strauss starts packing his bags within a year, investors in the Soviet Union would be wise to unload their rubles.
