April 24, 2007
The tasks of reform Yeltsin bequeathed to his successors
“A man has died thanks to whom a whole new era began. A new democratic Russia was born: a free state open to the world in which power really does belong to the people.” Thus did Vladimir Putin laud Boris Yeltsin, the man who chose him for the presidency of his country. Mr Putin was both right and wrong. Yeltsin was the most democratic ruler Russia has ever possessed. Yet what is emerging under his successor is not the vibrant democracy that many hoped for. Yeltsin’s legacy is as mixed as was his turbulent nature. Yeltsin was among a small number of leaders who have transformed the world. His name will ever be linked to that of Mikhail Gorbachev, the last general secretary of the Communist party of the Soviet Union, an organisation that played so catastrophic a part in the history of the 20th century. Yeltsin’s courage and charisma brought to an end both the party and the Soviet Union itself. His enemies will never forgive him for his role in ending the party, the state and the Russian empire in 1991. But those who lived most of their lives in the shadow of the cold war will always be grateful to him. The sight of him standing heroically against the attempted coup of August 1991 is unforgettable. It was the end of a ghastly era of human history, in which despotism went almost beyond the limits of the imagination. The remainder of Martin Wolf’s column can be read here (FT.com subscribers only). Discussion from our guest economists is free.
Lawrence Summers: I am in general agreement with Martin’s thoughtful appreciation of Boris Yeltsin and his strengths as well as his weaknesses. I’d be interested in people’s thoughts on three issues.
1) Was it really a mistake ex-ante to provide financial support in May/June 1998, given the stakes involved and the possibility of success and the reality that it was not ultimately costly given that IMF and others have been fully paid back?
2) Was loans-for-shares a necessary price for Yeltsin to pay when he paid it for winning against the communists/staying afloat? What were the right alternatives at the time?
3) Does Martin really mean to take the strong “resource curse” view that it would be better for the Russian people if oil prices went down and so more reform was spurred?
4) Given corruption issues/absorption capacity problems etc., in what form should a greater level of assistance earlier on been provided? I am sympathetic to this but uncertain how it could have been done. My sense is that expost it looks right not to have written off debt but others may disagree.
5) Should policy have been as personalized towards Yeltsin as it was? Is the G7 better off for being a G8?
Posted by: Lawrence Summers | April 24th, 2007 at 7:52 pm | Report this commentI thank Larry Summers for his prompt response. He was, of course, heavily involved in the policy decisions of the 1990s. I recognise that they were extraordinarily difficult to make and that there is, in consequence, a degree of hindsight in any judgement.
Let me respond to his questions in the spirit in which they were asked.
1. Yes, I do believe it was a mistake to give support in May/June 1998. The difficulty, by then, was not just that there was an excellent chance of failure. That, in itself, is not a decisive objection to taking such risks. On the contrary, official intervention exists to take risks. I think the big mistake was to associate ourselves so closely with a morally bankrupt and increasingly unpopular regime.
2. I have never understood why loans for shares was the best strategy for defeating the communists. Yes, I understand that Yeltsin needed some finance for his campaign. But he (or, more precisely, Mr Chubais) didn’t have to give so much of Russia’s wealth away to achieve that end. His financiers had an overwhelming personal interest in his victory (since the communists would surely have taken everything away). They should have been told to make contributions to the campaign on which their own survival depended. As it was, this deal tainted capitalism in Russia for the indefinite future.
3. Yes, I actually do believe strong “resource curse” view, in this case. Actually, the Russian government has done rather a good job of containing the fiscal and exchange rate effects of the increased oil revenues. But I really do believe that reform would have gone far further and the long-term prospects for Russia would be much better if the oil price had remained at, say, $20 a barrel. This is a country with considerable human capital. It should not be living of natural resources. But if it is to use that human capital, the policy and institutional regimes must change.
4. I think the crucial requirements in the beginning were a debt moratorium, at the least, and, above all, a massive technical assistance effort orchestrated at the highest level. In the first few years, the reformers were simply overwhelmed by the task. What they needed was not just an army of good advisers, but strong political engagement from the western side. Just think of the disastrous consequences of the monetary laxity in the rouble zone after the dissolution of the Soviety Union. I would guess that this window existed for little more than a year and a half. Once it had gone, it had gone. We did enough to be blamed by Russians for everything that went wrong, but not enough to give the country a reasonable chance of success.
5. I think it was absolutely reasonable to bet on Yeltsin for at least the first term and the election to the second (since the alternatives were so bad). After 1996, it was a mistake. I am uncertain whether it was a mistake to invite Russia into the G8. It may have been a reasonable gamble at the time, though not one that has paid off.
Posted by: Martin Wolf | April 26th, 2007 at 4:35 pm | Report this commentOver at the Atlantic Monthly’s website, Matthew Yglesias is writing that Summers and Wolf (and me):
“to an extraordinary extent … are willing to accept the premise that the only goal of US policy toward Russia in the 1990s was a good-faith effort to induce Russian prosperity, with such efforts being hampered by political constraints, the objective difficulty of the task, and pure policy errors …”
Well, yes. Russia was once a superpower and may be one again. One would have thought that the history of 1914-1945 would teach ample lessons about the national security undesirability of trying to keep great powers - like Weimar Germany - poor and weak. One would have thought that the history of 1945-1990 would teach ample lessons about the national security desirability of trying to help great powers - like Japan and West Germany - become prosperous, democratic, and well-integrated into the world economy.
One top of the national security strategic argument there is the economic argument: the fact that richer trading partners are better trading partners: they make more and more interesting stuff for us to buy.
Plus there is the moral argument. “Russia” is not a government. “Russia” is people, families of people - people dead, living, and unborn. Those of us alive today in western Europe, North America, and elsewhere are weighted down by a heavy burden. We owe an enormous debt to many Russians who are now dead: the soldiers of the Red Army, the peasants who grew the food that feed them, and the workers of Magnitogorsk and elsewhere who built the T-34C tanks they drove saved us from the Nazis. We are all under the enormous obligation created by this debt to repay it forward, and Russia’s living and unborn would be appropriate recipients for this repayment.
Last, there is the credibility argument. The people of the United States, the nation of the United States, and the government of the United States will have a much easier and happier time if they are and are perceived to be a people, nation, and government that plays positive-sum games of mutual aid and prosperity and resorts to negative-sum games of encirclement, sabotage, and war only when the necessity is dire. And the the necessity now is not dire.
Compared with these four mighty, weighty, and heavy reasons to make the only appropriate goal of US policy a good-faith effort to induce prosperity in Russia, the prospect of a minor advantage in some penny-ante Bismarckian-Metternichian-Tallyrandish-Kissingerian game of diplomatic realpolitik is lighter than a small chickenhawk feather.
But Matthew Yglesias does not see it that way:
“In the real world … policymakers and presidents - though perhaps not Treasury Department economists like Summers - concern themselves with questions of power politics. A prosperous Russia was seen as … not nearly so good as a Russia … willing to concede to the United States an equal (or even greater than equal) share of influence in Russia’s “near abroad”. This is a big part of the story of the relatively uncritical backing the Clinton administration provided to Boris Yeltsin …”
Not inside the Treasury it isn’t. Inside the Treasury the belief is that a Russian that is properly assertive would be much better in the long run than if reformers were to be seen as beholden to foreigners who want a weak Russia. That was, after all, the card that Hitler and company played against Rathenau and Stresemann in the 1920s.
Posted by: Brad DeLong | May 10th, 2007 at 4:53 am | Report this comment