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Who Lost Russia? Why Not Try Saving It?

October 11, 1998|Sarah Carey and Charles William Maynes | Sarah Carey, a lawyer, is chair of the Eurasia Foundation. Charles William Maynes is its president

WASHINGTON — 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.

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