Perilous Ties? Economic Reform and Russian "Imperialism." (Cover Story)

By Hough, Jerry F. | Brookings Review, Summer 1994 | Go to article overview
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Perilous Ties? Economic Reform and Russian "Imperialism." (Cover Story)

Hough, Jerry F., Brookings Review

In recent months, especially since the victory of Vladimir Zhirinovsky's Liberal Democratic Party in the December 1993 Russian elections, many Westerners have expressed alarm about the rebirth Russian imperialism. There are, indeed, many signs of increasing integration within the Commonwealth of Independent States. But much of the West's anxiety is not a product of close analysis of likely scenarios, let alone of its long-term security interests. Rather it is a reflex reaction from the past.

Why is a word such as "empire" used so freely when more contemporary alternatives, such as common market, confederation, economic union, bloc, or federation, are not even considered? After all, the United States favors the economic integration of North America and does not call NAFTA an empire. Is it possible that we are overlooking, in the case of the former Soviet Union, a necessary relation between economic reform and economic integration?

Economic Reform and the Union

Russian politicians who want gradual economic reform, an emphasis on industrial production rather than on macroeconomic policy alone, the Chinese economic model--however they phrase it--invariably want closer economic ties with the former Soviet republics. Their preference is not the result of some psychological link between "conservative" economic policy and "imperial nationalism," but of a logical and necessary connection between the two.

The link between economic reform and the union first emerged clearly in the great debate among Boris Yeltsin's closest advisers in the late summer and early fall of 1991. One group was headed by Yeltsin's chief political adviser, Gennadii Burbulis, and included two young economists, Yegor Gaidar and Aleksandr Shokhin. It insisted on the freeing of prices, a tight money policy, a free trade foreign economic policy, and an independent Russia. The other group was headed by Yeltsin's chief lieutenants in the Sverdlovsk party organization, Oleg Lobov and Yurii Petrov. They argued for moderate economic reform and for a strong economic union with the republics.

As they often acknowledged in private, Gaidar and his associates favored a policy of deindustrialization. They well understood that their shock therapy program would lead to a big drop in industrial production, the closing of many plants, and massive unemployment, but this they saw as a positive good. They knew that the big industrial plants were grossly overstaffed and inefficient and that they produced too many of the wrong goods--too much steel, too many large tractors, too many unwanted consumer goods--and not enough of the right ones. The Gaidar group assumed that gradual change would be too difficult and painful in the long run. Only if managers had to compete desperately for business, only if mass industrial joblessness forced people to work in the service sector to survive, could the economy be transformed. The shock would be painful, but not as painful as the alternative.

The Lobov-Petrov group, of course, warned that the Gaidar program was politically impossible, that workers and the military would not tolerate a policy so destructive of heavy industry and the defense industry. They also argued that it could not work because of the complete monopolization of the Soviet economy. Soviet planners had so emphasized specialization of production that key supplies were produced in only one or two plants in the country. Hence, in this view, significant capital goods plants, even if inefficient and unprofitable, could not be shut down without having a catastrophic ripple on other industries downstream. Moreover, monopoly producers would not respond to a freeing of prices by becoming more efficient, but by raising prices. To create competing suppliers would take years--and a major government investment program.

Both the Gaidar and Lobov-Petrov economic positions had clear implications for Russian policy toward the Soviet Union and Russian independence.

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Perilous Ties? Economic Reform and Russian "Imperialism." (Cover Story)


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