Worth reading both his cover note and the original memo, now declassified, in full.
The most interesting aspect of this whole affair was the crucial role played by the Treasury. They were running the American effort in Russia, and would not listen to career foreign service officers’ critique of their policy. When Merry wrote a critical memo, it was squashed by the Treasury: “it would give Larry Summers a heart attack.”
Full text (part 4)
Do Russia’s leaders today understand this threat? the answer is both yes and no. Yeltsin, Chernomyrdin, Soskovets and their colleagues are not stupid, the opinions of some Western commentators notwithstanding. These men have learned a great deal in the past two years, as their recent very cautious statements about credit policy indicate. Even so dubious a figure as central bank chairman Gerashchenko (whose appointment Gaydar acknowledged was his worst mistake) would not repeat the wholesale credit giveaway he supervised in the past. If nothing else, Chernomyrdin and Gerashchenko have learned that enterprise managers often do not use credits for the purposes intended by the government. In 1994, the government will be far more parsimonious in doling out the meager state funds at its disposal and will want accountability of a kind not previously required. Of necessity, nonessential sectors will be left pretty much to their own devices.
Unfortunately, it is also true that Yeltsin, Chernomyrdin and their peers suffer from an intellectual blindspot where public finance is concerned. (The August 1993 currency reform fiasco is a case in point.) Products of the old system, they think of money in primitive terms and scarcely comprehend finance in anything like the Western sense. With backgrounds in centrally-planned production and distribution, this generation of Russian managers is crippled in financial sophistication. In fact, few Russians above the age of forty think or money in dynamic terms, let alone grasp how loose public finances can swamp an economy like the floods overtaking the sorcerer’s apprentice. It is in this key area that the youthful Gaydar and Fedorov were important voices in top government counsels.
Prospects for success in balancing public spendin[g] with inflation are not good. These remain, however, Russian decisions with consequences first and foremost for Russians. Unless the outside world is prepared to offer a financial stabilization package of the scale and terms requisite to the needs of the Russian economy, it does no good and considerable harm to lecture the Russians on financial probity (not, after all, the strong suit of many Western governments). As the West has a small purse, and the Russians know it, it will be Russians who pay the piper, call the tune, and live with the results.
VIII
Even if the West had both will and wallet, the task of turning Russia into an economy primarily driven by private capital would be beyond our talents and, more important, against Russia’s preferences. Western, and particularly American, attitudes toward Russian reform in the past two years have been characterized by an ignorance and naivete similar to early West German thinking about the job of rebuilding the former GDR. No one can reasonably argue that economic “shock therapy” (lavishly funded by Bonn) was not used in eastern Germany, but confident early predictions of rapid market transformation have given way to a sober realization that even the deep pockets of the federal republic will be stretched for decades to bring a relatively advanced industrial country the size of Ohio to the point of full competitiveness with the West.
Why, then, did so many in the West think of Russia—vastly larger than all of eastern Europe and much worse-managed for far longer—as an appropriate laboratory for swift market reform? The experience of nearby Poland, similar in many ways to Russia, should have warned anyone of the immense difficulties and limitations of even bold policies. Although certainly no economist, Boris Yeltsin recognized the dimensions of the challenge in early 1992 when he predicted that Russia, after five to seven years of radical transformation, might hope to reach a standard of living enjoyed then by the Poles (a standard of living which recently provoked a sharp electoral backlash in Poland itself).
IX
Almost regardless of the economic policies it pursues, Russia for decades (if not generations) will be constrained by the blunders and the crimes of its Soviet past. Seventy-four years of socialist mismanagement stand in the way of rapid economic transformation. Russia has inherited an economy designed to produce the wrong things, in the wrong places, in the wrong ways, and without any of the logic or discipline of rational prices. The Russian economy is that of a garrison state, structured to support a vast empire. The empire is gone, but the legacy of the garrison state remains, and will remain, in all aspects of the economy for a very long time.
Beyond its misconceived industry, Russia faces special and intractable problems in demographics, ecology, infrastructure, and agriculture.
Post-Soviet Russia cannot now even replace its own population, with still-declining life expectancy (lower than in some third world countries), fertility rates and public health. Even with miracles in all these areas (and miracles cost money), the positive impact on the country’s working population would not be felt until well into the twenty-first century. Without miracles, public health will deteriorate even further, with the realistic prospect of major epidemics.
The brutalization of nature in the name of communist “heroic materialism” left Russia a ravaged environment which will get worse, probably much worse, before rectification can even begin many years in the future. Ironically, today’s poor industrial performance is a comparative blessing for the country’s air, land and water; as the economy revives, the damage will increase.
Economic revival will depend critically on transportation, communications and urban services, all starved of maintenance funds and replacements for years and often in need of total renewal. The inability of the Soviet central plan to make the “right” choices is most apparent in the disastrous state of railway transport, essential in a country of Russia’s scale and geography.
Restoring the Russian agricultural slum to a breadbasket will require much more than privatization of land. All the infrastructure of modern private agriculture must be created from scratch, with the more daunting task to recreate the skills of farming and the passion for the land among the rural population which Soviet policies did their vicious best to eradicate. The agricultural reform experiences of Eastern Europe and China are not adequate guides, because the Russian problem is of much longer duration and deeper impact.
Thus, “reform” of the Russian economy will, of [necessity], be the work of many years. The Russian approach to this process will be different from our own, reflecting a better appreciation of their needs and societal preferences. In facing the colossal mistakes of the Soviet period, Russia can and will fall back on traditions long pre-dating the Leninist state: traditions amenable and sometimes even rational in a Russian context, even if they differ sharply from American experience and inclination.
At the heart of the Russian approach are the realities of geography and climate. All far northern countries differ from their neighbors in temperate climates in important ways, including the role of government, land tenure, and social relationships. In many ways Alaska has more in common with Russia than with the lower forty-eight states, reflecting reasonable responses to objective realities of latitude and climate. In Russia, geography is destiny, affecting everything from energy use, to vitamin requirements, to freight transport, to the operation of communications satellites. Above all, latitude and terrain place the Russian people much closer to the limits of human subsistence than most Americans recognize.
Time out of mind, Russian society has favored a communitarian approach to dealing with its problems. This preference for collective over individual decision-making reflects the realities of a hostile climate and of a hostile historical environment, realities American individualism has largely been spared. At the national level, Russians have always opted for a statist approach to setting societal priorities, adopting aspects of appropriate foreign models ranging from medieval Byzantium to modern France. Even the most “capitalist” episode in Russian history, the end of the nineteenth century when tsarist rule lavished opportunities on foreign and domestic business, was also marked by strong state direction of economic priorities and financing. If the Russians have a Western intellectual mentor in economics, it is Jean Baptiste Colbert, not Adam Smith—nor are they alone in the world in this choice. Russians would, however, have little difficulty appreciating the views of Alexander Hamilton and Henry Clay about the role of government in a developing economy.
Full text (part 5)
The relationship between private property and the growth of democratic institutions—a central factor in any transition from authoritarian to [representative] government—will differ in Russia from the experience of many other countries, largely due to Russia’s Soviet past. For most of this century, public policy in Russia was made, in theory, on the basis of Marxist economic determinism. In reality, economics was the captive servant of political power, and most state policies were largely devoid of economic logic. Post-Soviet Russia reflects—and will continue to reflect—this inverted relationship between the material and the political. In most Western societies the ownership and use of private property preceded democratic institutions and, indeed, often gave birth to the impulse for political liberty. In contemporary Russia, the opposite is the case. The Soviet system failed on the political level before its economic shortcomings became critical. The collapse of Soviet power in 1991 was the result or a loss of legitimacy and or political will, not of economic breakdown, unemployment or hunger. In the years ahead, the relationship between the expansion of private property in Russia and the evolution of its democratic institutions will be complex: to some extent interlocking and reinforcing, to some extent independent and even competitive. In contrast to most Western societies, in Russia the predominant direction of causality will be from the social and political realms toward the economic, rather than the reverse.
Private property in Russia will always coexist with a domineering (if not dominant) public sector. The current rapid increase in private economic activity is a tribute to the vast gaps in the state-directed sectors, but does not portend the end of those sectors. In our lifetimes, the Russian economy will be “market oriented” or “market led” at best. New enterprise can fill a vital role in providing sources of employment to absorb layoffs from featherbedded state industries but, while the private economy will certainly be almost the sole creator of new jobs, it will not replace the old, outmoded industrial structures as the mainstay of most urban areas. Even the privatization of large-scale industry will not alter this reality, as “privatization” represents more the breakdown of central authority (long overdue) than the creation of genuine private capital (and often, unfortunately, of local kleptocracy). This is not entirely bad news, as privatization of industry will at least shift decision-making much closer to the production line than ever in the Soviet era and will introduce a welcome and necessary element of accountability into much of the country’s economic activity. This is not, however, “capitalism” or “the market” in any sense we know them.
X
Sadly, very few of the multitudes of American “advisors” in Russia since the Bolshevik demise acquainted themselves with even the most basic facts of the country whose destiny they proposed to shape. As a result, to say that America is wearing out its welcome in Russia is no longer a prediction; it is descriptive fact. Even the most progressive and sympathetic of Russian officials have lost patience with the endless procession of what they call “assistance tourists” who rarely bother to ask their hosts for an appraisal of Russian needs (in sharp contrast to the basic approach underlying the Marshall plan). Russians of all political persuasions are also less than charmed by the frequently-expressed American attitude that their country is a social-economic laboratory to test academic theories. If there is one thing Russians learned to distrust in seventy-four years of socialism, it is economic theory and theorists.
Foreigners, whether officials or businessmen, are justified in complaining of the difficulties in getting anything done in Russia. However, the serious foreigners—those interested in long-term relations and who can listen as well as speak—are often doing quite well, and look to do even better over the long haul. Many American businessmen qualify as “serious” and are the most effective presence our country has in Russia. Infortunately, most United States government assistance efforts do not meet these criteria.
Acknowledging that we support a number of positive and worthwhile programs (particularly exchanges and small-scale technical assistance), it is nonetheless a sad truth that United States assistance in Russia has become a net detriment to the bilateral relationship, for three major reasons.
First, we have badly oversold an assistance program composed for the most part of financial intangibles and technical assistance. The result is that very few Russians have seen anything at all of the vaunted billions of dollars in American aid, and most simply do not believe the money ever existed.
Second, much of the assistance money never left our shores or ever entered Russian hands. Our aid programs are often of benefit mostly to domestic contractors, but in Russia the problem has been particularly bad, compounding the perception problem.
Third, our assistance efforts have themselves often become friction points with the Russians, both because of the intrusive character of some programs and because of our insistent habit of linking assistance with Russian actions in other spheres. On issues ranging from Russian troops in the Baltics, to cryogenic rocket engines, to the Ames case, to the Russian state library’s holdings of Hebraica, we have created or compounded disputes through the medium or assistance. Indeed, over the past two years the bilateral relationship has often been dominated by problems which would not have existed or would have been much less difficult without a link to assistance.
XI
Even though we cannot do much good for the Russian economy, we can and should focus our attention where our interests are directly involved, in Russian conduct outside its borders. Fortunately, the breakup of the Soviet Union effectively prevents continuation of global rivalry with the United States or serious challenge to our interests beyond the Eurasian landmass. Use of the term “the world superpower” by many diplomats to refer to the United States reflects this reality. Nonetheless, Russian behavior can still be of great importance, to our benefit or hindrance, while some parts of the world welcome Russian influence as a counterweight to our own, as was recently shown in the Middle East and in Bosnia (where an active Russian presence as the leading Orthodox state is essential to any effort at conflict resolution along the fault line between Western and Eastern Christianity).
The area where Russia can and will exercise the most influence, for good or ill, is the so-called “near abroad”. This term masks the complexity of Russian policy toward the states of its former empire, implying a unified and monolithic approach. In fact, Russia under czars and Bolsheviks always differentiated its neighbors, altering policies to fit local circumstances, and will continue to do so. As a broad generalization, Russians regard the Baltic nations with respect and envy, the Belarussians and Ukrainians with “fraternal” possessiveness, and the Central Asians and Caucasians with a contempt often tinged with racism. The attitudes of the states of the “near abroad” themselves and their behavior toward Moscow also will form a mosaic rather than a single picture.
What all these states have in common is the reality that Russia will always be the dominant external presence in their lives. Simple size and proximity demand pride of place for Russia in their estimations of self-interest. Much as the states of West Africa look toward Paris or the countries of the Western Hemisphere toward Washington, the states of the former Russian Empire regard Moscow with a combination of need and unease. This is the destiny of small states, as Eduard Shevardnadze recently gloomily acknowledged. Most of Russia’s neighbors (not only of the former Soviet Union) would identify easily with Porfirio Diaz, who summed up his own country’s geographic dilemma, “Poor Mexico! So far from God and so close to the United States.”
Full text (part 6)
As with all former imperial states, Russia will be as much or more influenced by its former subjects as they by Russia. Culturally, Russia fears isolation if the West prefers her Western neighbors. Ethnically, Russia is permeated with nationals of its former subjects. Economically, Russia is mutually dependent on these countries and does much of its business with them and through them to the world beyond. In security terms, Russia worries that conflicts in the “near abroad”, especially among its Islamic neighbors, will endanger its own territory. Politically, the most dangerous and unstable element of Russia’s population is the growing number of ethnic Russian refugees from the former Soviet republics (at least two million), potentially a pool of radical and ultra-nationalist sentiment similar to the French-Algerian “pied noirs” or German “Volksdeutsche”. In all respects, Russia cannot ignore these countries and will interact with them to an extent we never shall.
In practice, Russia’s relations with her neighbors will be as messy as those of any former imperial power with its former subjects (Turkey in the Mideast and Balkans, France in Africa, Japan in the Far East). Some parts of the “near abroad” will be sunk in ethnic and other conflicts for years, if not generations. Some of the present borders may not last long, as they are the product of Stalinist divide-and-rule policies. Many people who voted for independence from Moscow in the referenda of late 1991 did so in expectation that independence would equate with prosperity. In some of the new states, this expectation has given way to the bitter recognition that Russia has done a better job than most in preserving living standards. Recent events in Belarus, Crimea, eastern Ukraine, Georgia and elsewhere point to an increasing inclination to restore some of the Soviet-era economic relationships, with consequent political tensions within the newly independent states and turmoil in their relations with Russia.
The key issue for stability within the former Soviet domain is the status and well-being of the twenty-five million ethnic Russians beyond the borders of the federation. The key country is Ukraine, home to about half of them. Despite considerable bickering over more than two years, the governments in Moscow and Kiev have worked hard to prevent disputes becoming conflicts, and have dealt fairly responsibly with issues ranging from nuclear weapons, to the Black Sea Fleet and its bases, to terms of trade. Nonetheless, few Russians even begin to comprehend the depth of national feeling among ethnic Ukrainians or the hostility toward Moscow in much of western and central Ukraine. Russian arrogance toward the “little Russians” (and toward the “[White] Russians”, for that matter) is very similar to the prevailing attitude of Czechs toward Slovaks, with an understandable human reaction among the recipients. The danger is that Russians will feel sympathy if the predominately ethnic Russian Crimea and eastern Ukraine should seek to rejoin the Russian “motherland”. Crimea and the eastern salient of Ukraine are by far the most dangerous potential conflict zones of the former Soviet empire, dwarfing the localized conflicts in the Caucasus and Central Asia in importance.
Whether the comparative Russian restraint of the past two years toward its neighbors will endure will depend on the challenges Russia faces from them. The interplay will not be easy, nor will it fit the stereotypical Western view or a rebirth of Russian imperialism. Russians across the political spectrum view their neighbors and former subjects with varying perspectives, but with a marked lack of enthusiasm. Yeltsin’s recent treaty with Georgia, seen by many in the West as nascent neo-imperialism, was dead on arrival in the Duma among all factions from Gaydar through Zhirinovskiy. Similarly, there has been no groundswell of support for the proposed currency union with Belarus or for the independence movement in Crimea. Why the caution? Everyone sees the problems and the risks, and wants to know the price tag. The prevailing mood in Moscow toward neo-imperialism (for now) is caveat emptor.
XII
The other states of the former Soviet Union certainly cannot be expected to evaluate their neighboring colossus in other than anxious terms, experienced as they all are with the carnivorous traditions of the Russian bear. Must Russia now behave as it did in the past? If we regard a rebirth of Russian imperialism as inevitable, the United States will be effectively left with no creative Russian policy because a renewed Russian empire will require an authoritarian and non-democratic Russian homeland (“democratic imperialism” was no great success even for the British and is certainly beyond Russian capacities). Our strategy would then be limited to a resumption of containment on different geographic lines, with the consequent resumption or American-Russian mutual hostility and a potential renewal of the thermonuclear balance of terror.
Such a dismal course of events is not inevitable. The twentieth century provides numerous object lessons in loss of empire by states long accustomed to exercise dominion over their neighbors and territories further afield. Indeed, our external agenda today is dominated by the problems created by imperial breakup (Bosnia, Somalia, Cuba, Palestine, Iraq—to name just a few), but not by the former imperial states themselves, most of whom are prosperous democracies well-disposed toward the United States, regardless of their previous political systems. While no state gave up its external realm without regrets, the ease of the transition and the domestic political impact of loss or empire were always critically influenced by the policies of the dominant Western powers. The rise of European fascism was equally the result of lost empires and or policies designed to humble the former imperial metropoles.
The experience of our relations with post-Ottoman Turkey illustrates the path our policy toward post-Soviet Russia should take. Despite persistent difficulties in the Turkish economy, serious human rights problems and a tradition of authoritarian government, modern Turkey has been a major success for American post-war foreign policy. (We might also recall that even such a darling of the Western financial community as Turgut Ozal employed strongly statist methods of economic control and engaged in highly inflationary public financing.) Despite some continuing frictions between Washington and Ankara, this is one of the most consistently beneficial of our far-flung alliances, with Turkey exerting a stabilizing influence in a dangerous part of the world, restraining the irredentist tendencies of several of its neighbors, and giving the United States solid support when it counted. Both Russians and Turks would reject the comparison, but the parallels are significant: both are post-imperial states spanning Europe and Asia, each with religious and cultural traditions at odds with those of Western Europe, each rejecting the territorial and religious/ideological claims of its predecessor, each seeking acceptance by the West while preserving its own Eurasian identity.
As in republican Turkey, in post-Soviet Russia attitudes toward the “near abroad” tend to parallel views on democracy and relations with the West. While few Russians regard the loss of empire as an unalloyed good, those Russians who recall the former union as Russia’s burden tend to be those most favorably disposed toward reform, while those who h[e]arken back to the empire as Russia’s glory are also nostalgic for the authoritarian system and military power which sustained the empire. Thus, support for viable democracy in Russia is the best support we can give to the states of the “near abroad”, and certainly a better policy for the United States than an effort to construct an eighteenth century-style “cordon sanitaire” around Russia (as some have advocated) composed of states which fail, other than perhaps the Balts, to meet the standards to which we hold Russia.
XIII
There will inevitably be domestic reflections of its external policy within Russia we will not like. Chief among these will be the use of Russian nationalism by all political factions, including democrats, as a unifying force in the evolving political system. With the bankruptcy of the Soviet power structure and its ideology, Russia is a society badly in need of the restoration or some kind of ethical center. Much of the alienation of voters from the political process is the result of the ethical vacuum in which political debate takes place. Part of Zhirinovskiy’s success among young and disaffected working-class voters was his willingness to violate the taboos of democracy and proclaim their frustrations publicly. Ironically, Boris Yeltsin is himself the ultimate taboo-breaker of modern Russia, establishing most of his popular credibility through his willingness as a member of the CPSU politburo to proclaim openly that the party was morally naked.
The challenge for Yeltsin and for other democrats is to counter the surge of destructive negativism within Russian society. The substitute for ideology will almost certainly be nationalism, with a strong tie to the Orthodox Church (as noted above, almost no Russians imbue the market with positive ethical dimensions). If linked to constitutional democracy and to the steady growth of representative institutions, Russian nationalism can become a positive force, as patriotism and national feeling are in Western democracies. Divorced from democracy, Russian nationalism will become a terror.
Full text (part 7, final)
XIV
For the United States to be in a position to encourage restraint and responsibility in Russian external policy will require corresponding restraint on our part toward Russian-internal policy, particularly in the economic field. We are forced to choose: is our priority in Russia fledgling democracy or market economics? In the years remaining in this century, we cannot have both. Despite shallow roots in Russia, democracy enjoys a degree of public approbation which the market does not. Skeptical as they are of their politicians, Russians for the most part do want their country to be a democracy of some kind. In that vague and inchoate aspiration lies the basis for a successful long-term partnership between the two countries and for a comparatively benign Russian outlook on the world—if they and we don’t force other reforms faster than objective Russian conditions allow. Late last year, the Russian radical reformers imposed a complex foreign electoral system (the German) onto an unprepared electorate and produced a (predictable) shambles. To impose a complex foreign market economic system onto an unprepared Soviet-era structure will produce (also predictably) an even greater shambles.
The key to a constructive American role in supporting the growth of Russian democracy is mutual respect. The reservoir of goodwill which overwhelmed Americans at the collapse of Soviet power is not yet empty, but has become dangerously shallow. Some of that loss is the result of exaggerated expectations of what the West, and America, would and could do for Russia. Some of the loss, however, is the product of our own intrusive, if well-intentioned, efforts to define success for Russia in terms appropriate for our own country. While very few Russians regret the passing of the Cold War or wish to resume an adversarial stance toward the United States, equally few appreciate the missionary zeal or the superior tone which pervade our monologue toward them.
The Russian standard of success and failure in any undertaking—economic, political, social—is not the same as the American. The American national experience (a singularly favored one) is dominated by the theme and reality of success, to the extent that “success” has become the false deity of our society. The Russian national experience (an especially difficult one) has been dominated by pain, and by the memory and expectation of tragedy. To the Russian mind, our obsession with goals and goal-fulfillment is peculiar at best, at times offensive.
One might ask why we should show respect for a country which has inflicted upon itself so many failures over so many years. We should do so, first, because respect is the appropriate medium of interchange with any emerging democracy possessing thirty thousand thermonuclear weapons. Second, we should because many Russians (especially among the young) recognize their failures and were themselves the victors over the communist regime. Finally, we should show respect because Russia is their country to do with as they see fit, the more so as we are not prepared to match our advice with money.
XV
There is a growing trend in this part of the world away from the democratic reformers who shattered the icons of Soviet power. In Poland, Lithuania, and Belarus we have seen fatigue with the human impact of reforms delay, and potentially reverse, important political achievements. This is now happening in Russia, but with enormous implications for the world at large and for the United States. If Russia’s leaders, including many dedicated to broad systemic reform, turn away from Western pressure and retreat to a myopic and hostile outlook on the world, some of the blame will be ours. In only two years, post-Soviet Russia has moved from a naive and overly expectant faith in the wisdom of the West (and especially of America) to frustration tinged with animosity as Russians look beyond their truncated frontiers. If Andrey Kozyrev in 1994 sounds increasingly like Aleksandr Rutskoy one year earlier, it is not only because Russia’s foreign minister is tacking with the political wind.
Kozyrev reflects the exhaustion and disappointment of many of Russia’s youthful Westernizers with the meager fruits of their efforts to achieve acceptance by the West for Russia as a responsible emerging democracy. Failing this acceptance and the embrace of Western institutions it would entail, Russians (including the Westernizers) will fall back on their country’s inherent power and on its ability to exert influence beyond its borders. Keenly aware of Russia’s manifold deficiencies, even democrats may come to share Pushkin’s bitter judgment of Russia’s status, “if we did not stretch across half the earth, who would notice us?”
1994 is a dangerous year. The recent amnesty of Yeltsin’s opponents by the Duma should remind us that the struggle for democracy in Russia is still far from irrevocably won. If the West, with the United States in the front rank, prefers the role of economic missionary to that of true partner, we will assist Russian extremists to undermine the country’s nascent democracy and will encourage a renewal of Russia’s adversarial stance toward the outside world. Incidentally, we will also fail on the economic front.
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