September 27,1999 U.S. Edition

Lousy Advice Has Its Price
Russia's downward spiral is partly a result of mistakes made by Washington a decade ago. What can be done now? Not much.
By Fareed Zakaria

If you blinked, you may have missed it. Washington just had a foreign-policy debate. With fresh reports of Russian corruption--involving sums of money that would make Bill Gates blush--some commentators have tried to take stock of a decade of American engagement toward that country. Our policy toward Moscow has been the most important piece of American foreign policy since the end of the cold war. Perhaps that's why it was a short discussion.

The cross-fire went something like this: Who lost Russia? The Democrats! Clinton, Gore and the International Monetary Fund with their failed policies. But weren't they the same as Bush's policies? So, it was the Republicans? No; Russia wasn't ours to lose anyway. That's it! It was those damn Russians! Whew. Having quickly arrived at this complacent conclusion, Washington moved on, happy not debate any further its own responsibility for the downward spiral of the former Soviet Union.

Obviously, Russians bear most of the blame (and some credit) for their own state of affairs. But Washington has hardly been a bit player in this drama. As the winner of the cold war, as the sole surviving superpower, as the country with the model that works, it played a massive role during the dismantling of Soviet communism. It begged, bribed, cajoled and mostly forced the Russians to take its advice on all sorts of issues. That advice (given by thousands of advisers with billions of dollars of accompanying aid) has proved to have been incomplete, ineffective or counterproductive, depending on whose analysis you accept. Nobody disputes the results. Russia's GDP has contracted by half since 1989, a decline that makes the Great Depression look small. The government collects few taxes and without constant debt rescheduling would be bankrupt. Life expectancy in Russia is actually falling--the only industrial country to witness such a trend. Most important, Russians now believe that all this is the result of Moscow's experiment with Western reform.

The experience yields one clear conclusion--Washington, focused single-mindedly on economic policies, underestimated the political, legal and institutional change that needed to take place in Russia. The United States seemed to believe that if Moscow got its budget deficits under control, nirvana would follow.

Take, for example, the early-1990s advice of Western governments and economists that Russia should adopt a free and floating currency immediately. Anything else was inefficient, according to economic theory. But Russia was in the midst of a wholesale collapse of its political order and state apparatus. In such a vacuum of authority and trust, corruption was bound to thrive. Rather than bet on the uncertain future of their country, Russians chose to spirit the cash out fast. Foreign aid left almost as fast as it came in; so did Russia's own vast dollar earnings from oil, natural gas and minerals. In all, more than $200 billion has leaked out of Russia, most of it into Switzerland. (And while Russians starve, Russian billionaires thrive. The Palace Hotel in St. Moritz is a reliable indicator of the national origins of surplus cash. In the 1970s it translated its menus into Arabic; in the 1980s it was Japanese; today it has them printed up in Russian.) Would another policy have had another result? Almost certainly: The reason you don't see Chinese billionaires cavorting around the French Riviera is not that they have high moral standards but rather that they have a nonconvertible currency.

Capitalism, it turns out, is not a naturally occurring system. It requires rules, laws and customs to protect private property, enforce contracts and ensure fair play. Until those are in place you don't get a free market but a free-for-all, which quickly becomes the rule of the strong. Oligarchs, politicians and bureaucrats have joined together in Russia in a loose alliance to rule and exploit the country. It is reminiscent of Latin America in the 1960s and 1970s--a quasi-capitalist system that is illiberal, corrupt and yet reasonably stable. What should the United States do about all this? At this point, there is little than it can do. Economic and political reforms have a window of opportunity. Russia's came in the early 1990s when the new system was being formed, when dedicated liberal reformers were in power, when Boris Yeltsin was alive in body and spirit and when being pro-Western was not an ugly idea. The United States had enormous leverage over Russia as it made its new way in the world. But we blew it. Now we are left to do damage control.

The West should accept that the attempt to transform Russia into a liberal democracy is over. The United States now has one overriding interest in Russia's future--the safety of the former Soviet Union's still-vast nuclear arsenal. One shudders to think of what could happen if it winds up in the wrong hands. All of Washington's aid and efforts should be tied to the goal of reducing and protecting these weapons. Even if we've lost Russia, we can still get a handle on its nukes.