Russia and Eastern Europe: Will the West Let Them Fail?

John Edwin Mroz. Foreign Affairs. Volume 72, Issue 1. 1992.

In 1993, Russia faces the challenges of preventing hyperinflation, continuing privatization and obtaining a better price for oil exports. It also faces the problems of runaway crime, failing health services and unemployment. Russia and Eastern Europe remain a priority for renewed and effective US attention.

A Call for U.S. Leadership


Events during the past year in Russia and eastern Europe made clear that the West is not yet prepared to lead the way into a substantially new international system. Distracted by recession, domestic preoccupations and the U.S. election, the West made little headway in redefining its vision and priorities for a world changed by the collapse of Soviet power and its ideology. Western unpreparedness was highlighted by the muted response to the civil war in Yugoslavia and to the urgent need for economic assistance in Russia and other members of the Commonwealth of Independent States (C.I.S.).

The recent revolutionary events in eastern Europe and the former Soviet Union caused first euphoria and then despondency among people there and in the West. While 1992 brought some improvement to the economies of east-central Europe, it also saw a marked increase in nationalism and violence. And in Russia conservative forces gained considerable ground in the continuing struggle over the nature and direction of that country's future.

As a result of these factors, President Clinton faces historic challenges in dealing with Russia and eastern Europe. After 45 years of a successful foreign policy based first on the containment, and then on the defeat, of communism the United States has strong moral as well as practical reasons to provide leadership in bolstering democracy and creating a market economy in Russia and eastern Europe. It has clear geostrategic interests that alone should motivate a more urgent response. Key among them is the daunting problem of dealing with nuclear weapons in Russia, Ukraine, Belarus and Kazakhstan before the inevitable hardening in Russian domestic politics makes that task more difficult, if not impossible.

Although the signing of the second Strategic Arms Reduction Treaty in January 1993 was heartening, many obstacles remain to realizing the treaty's goal of reducing U.S.-Russian nuclear arsenals to one-third of their present levels. The most pressing is the uncertain chances of the treaty being ratified by an increasingly restless Russian parliament. And beyond Russia, the Ukrainian parliament balked at ratifying the first START treaty, a prerequisite before the new one can go into effect. The West also has a geostrategic interest in ameliorating the economic chaos in Russia and the other C.I.S. states. Carried to its extreme, economic collapse could precipitate civil war or large-scale westward emigration that would quickly overwhelm the West's capabilities to maintain stability in central and southern Europe.

Making Sense of 1992


The events of the past year painted a depressing picture for most of post-communist Europe. The world watched in horror as "ethnic cleansing" returned to the former Yugoslavia and the Caucasus. Even well-informed commentators were stunned at the speed of the collapse of the Russian economy. This dramatic slide, combined with the resilience of the military-industrial sector and growing popular discontent, forced President Boris Yeltsin to oust reformist Prime Minister Yegor Gaidar in December 1992.

The Group of Seven (G-7) industrialized nations proved unable to lead a global effort to deal With these destabilizing developments. Throughout the West, recessionary pressures made people profoundly uneasy about their own future and forced weakened political leaders to concentrate on domestic issues. One result was that the West's modus operandi for dealing with Russia became a holding operation.

Beyond headlines, many Western leaders remained unaware of other disturbing developments in the former Soviet Union and eastern Europe. These trends cover an enormous range of problems—from a subculture of lawlessness in each of these countries to substantiated reports that more than half of Moscow's school children are infested with lice due to poverty and a shortage of soap. Many Russian nuclear plants and reactors are not receiving even cursory maintenance due to the wild slashing of the national budget, a shortage of parts, and bureaucratic inertia. In east-central Europe the dispute over the unprecedented diversion of the Danube River by the Gabcikovo Dam has damaged relations between the newly democratic states of Hungary and Slovakia and given rise to extreme nationalist sentiments within both countries. And in 1992 radical Islamic sources poured an estimated $2 billion worth of arms and support into the Central Asian republics of the C.I.S.

The past year was a time of great economic turmoil in Russia, where the GDP shrank to 65 percent of its 1989 level. Consumer prices increased 25 times in 1992, whereas income increased only 7.4 times. Inflation runs at 1,300 percent a year. The exchange rate of the ruble collapsed in 1992, falling from 1.6 against the dollar in January to near 400 in December. Industrial output declined by nearly 30 percent, including in the vital oil sector. One of the biggest factors contributing to Russia's economic crisis is the severing of most economic ties between Russia and the other republics. That factor, more than any other, accounted for a decline of nearly 50 percent in Russia's net exports. Most likely the collapse will continue throughout 1993.

In Russia today most citizens suffer visibly, while a small number of their compatriots have become extremely rich and indulge in the conspicuous consumption of fast cars and hedonism. Crime, both organized and random, is rampant. The newly wealthy, along with most officials, are corrupt and often associated with underworld figures. Promises of glasnost and the vision of a market economy mean little to the vast majority of Russians who do not have money to buy milk, vegetables, soap or medicine. The health situation of Russia's youth and elderly has reached crisis proportions. Moreover the majority of Russians have completely tuned out their nation's politics. Society has become atomized with the prevailing philosophy, "every man for himself."

One of the most disturbing long-term developments concerns the intense political struggle in Russia regarding its relations with the outside world. The last months of 1992 witnessed a surge of anti-Americanism reflected in numerous public opinion polls taken across the country. At the core of this public attitude is the belief that the "shock therapy" economic program of the former Gaidar government is American-imposed. A surprisingly large number of Russians actually believe that the United States intends to use economic reforms as a method to destroy the Russian state, much as they think the United States helped to engineer the destruction of the U.S.S.R. under President Mikhail Gorbachev and Foreign Minister Eduard Shevardnadze.

Public opinion polls have shown that the majority of Russians appreciate American humanitarian assistance, but two out of three respondents stated that they would prefer to reject any further non-humanitarian aid if it required a continuation of Gaidar's economic policies. Academic and political elites polled in Russia share the perception that the West, in particular the United States, has done nothing to help Russia during this great crisis other than provide modest humanitarian aid.

In fact, the West really did do very little in 1992. Americans seem surprised when Russian leaders accuse the West of doing little more than talk. The U.S. press glamorized a Western assistance package of $24 billion, although the greatest portion simply constituted normal trade credits. Less than $2 billion of actual assistance has been disbursed. With the notable exception of defense-related projects (destruction of nuclear warheads, support for nuclear scientists) where America's interests are most visible, Washington is viewed even by its friends in Moscow as having failed to respond to Russia's economic straits. Now most democratic elements there fear it may be too late to make a difference. Whereas they appreciated the last-minute debt rescheduling in December 1991, they see little hope that the West will now intervene in a large enough way to have meaningful impact. One of the greatest dilemmas for President Clinton will be managing the Russian relationship when American resources are scarce, when the world faces innumerable crises and when Russia's situation becomes even more critical—which it will.

Washington's capacity to act has diminished even further as powerful Russian elites escalate a conservative offensive against what they describe as "Western interference in areas of Russia's vital interest." This attitude has become more common and has created anxiety in the new democracies of eastern Europe, where there is concern about the lack of concrete security guarantees from the West. These nations fear that although it is not inevitable that Russia will become highly nationalistic and anti-Western, it is distinctly possible.

But not all is doom and gloom; the past year also brought good news. The Polish economic miracle continued to defy pessimistic predictions, as hundreds of thousands of citizens swelled the ranks of its small enterprises. Poland's private sector now accounts for 50 percent of the GDP of this post-communist nation of 38 million people. After several years of substantial decline, Poland was the first east European country to achieve significant growth in industrial production, as well as a stable growth of GDP (three to five percent). Politically Poland has reached a situation akin to that of Italy, with a growing middle class and a powerful business sector providing the necessary stability to offset a splintered party system and still nascent political process. Remarkable success has been achieved at the local level with a strong collection of local self-governing bodies replacing the old authoritarian decision-making structures.

For the third year in a row, Hungary maintained its position as the primary magnet for attracting foreign investment. It continued to introduce legal reforms that inspire increased confidence among private investors. An estimated $2 billion of direct investment flowed into Hungary in 1992. The past year also brought a remarkable drop in inflation and a significant improvement in the balance of payments. Hungary's politics have matured quickly. With a working government based on the separation of powers and an effective multiparty system, the Hungarian political system has provided a stable environment for further transformation despite a worrisome rise of extreme nationalism among some sectors of society.

The breakup of the Czech and Slovak Federative Republic was carried out in a peaceful and civilized manner, becoming final on January 1, 1993. With surprising speed, the CSFR had achieved macroeconomic stability without social unrest. Its mass privatization plan is the most radical in the region, and its inflation rate is the lowest in eastern Europe. The past year witnessed a remarkable growth of foreign private investment, mostly in the Czech republic. The future, however, looks less rosy for Slovakia, as some predict it may drift out of its west European trajectory into the maelstrom of the Balkans. A considerable Western involvement is needed to help Slovakia stay on track as a democracy and market economy. At present it does not appear that such attention will be forthcoming.

One important characteristic of 1992 was the growing differentiation between the various post-communist countries of eastern Europe. Poland, Hungary and the CSFR represent a "western rim" of the region in terms of their progress toward organizing efficient market economies and becoming just and civil societies. All three signed association agreements with the European Community and see themselves as being a decade or less away from full membership in the EC.

Bulgaria, Romania, Estonia, Latvia, Lithuania, Albania, Slovenia, Croatia and the C.I.S. members, however, all lag behind the three first-tier countries. Overall their systems are characterized by distorted prices, large-scale subsidies, high inflation, little Western investment and less advanced privatization. In 1992 several of these countries made progress toward macroeconomic stability while the number of small entrepreneurships increased rapidly, launching the process of privatization. Romania, for example, has defied its critics by undertaking a massive privatization program. Elections there in February 1992 helped to stabilize its political system while allowing more movement toward a market economy. This provides a solid rationale for Washington to restore most-favored-nation status to this strategically placed country.

With respect to Russia, despite the chaos of its overall economy, some important signs indicate that a critical threshold of structural change is at hand. If the Yeltsin government prevents hyperinflation, continues its ambitious privatization program and brings the price of oil closer to market parity, the threshold may in fact be crossed in 1993, ensuring the basis for developing a market economy. If it does not, widespread economic chaos will ensue by the end of the year.

Experience shows that statistical reports from eastern Europe and Russia continue to be unreliable. In east-central Europe, for instance, during 1990 and 1991 decreases reported in various sectors of the economy that averaged between 20 percent and 30 percent were subsequently lowered to 10 percent. In truth, no one has exact data. Official figures from the Russian government do not include the growing number of small private enterprises throughout Russia, most of which are not registered. One example of a statistical problem is the official unemployment estimate. Some 500,000 Russian workers, out of a work force of 70 million, were registered as unemployed in December 1992. But Yeltsin officials publicly concede that the real number of unemployed workers exceeds two million and is likely to climb to five million or more in 1993. Independent observers in Moscow say the number could reach 10 million to 20 million. It is impossible to determine what these figures mean, because they do not include the number of chronically underemployed, nor those with unregistered private sector jobs. Estimated figures used to describe the size of Russia's private economy (from 10 to 20 percent of GNP) are equally unreliable.

With the economy in shambles, Russians are unwilling to accept the introduction of more market mechanisms. Yet an increase in free-market mechanisms is needed to get the Russian economy moving. Although there is no consensus among Russians on what percentage of the economy should be administered by the free market, most analysts agree that market mechanisms should fall somewhere in the 40 to 50 percent range; they currently stand somewhere near ten percent.

The Biggest Challenges


The peoples of eastern Europe and Russia continue to deal simultaneously with four distinct but related sets of problems: dismantling the shell of communism; navigating the transition to new political and economic systems; coping with the challenges intrinsic to building and maintaining a democracy; and facing up to the endemic problems that preceded both communism and the transition to civil societies. Different countries are at different stages in dealing with each level of the transformation from communist to civil society. Western assistance policies must take into account those different levels. Russia also faces an additional challenge: a continuing identity crisis.

In eastern Europe tremendous progress has been made in attacking the first great challenge—the legacy of communism. The remaining problems, however, are deep-seated and will require a generation or more to overcome. Apart from undoing the formal trappings of communist rule, eliminating the legacy of communism means changing the psychology of the population—convincing them of the capacity of the individual to act singly and in small groups to bring about change. Communism was highly effective in destroying the horizontal links of society. Rebuilding these connections between individuals requires greater attention at the regional and local levels, especially in encouraging the development of the private voluntary sector. Currently, teams of American and European volunteers—from retired corporate executives providing management expertise to unemployed college graduates teaching English—are making significant strides in these areas, but much more needs to be done.

The biggest successes in eastern Europe have been in the second area—the massive effort to construct new political and economic systems. Although democratic systems in most east European countries are beginning to stand on their own, large parts of the old economic infrastructure remain, thwarting any movement toward a fully functioning free market. Four decades of communism have retarded and deformed the economies of the region. Greater emphasis must be placed on assisting the development of sectors such as banking and insurance. In Russia the situation is even more dire. A major effort to combat organized crime must be undertaken if people are to believe in the benefits of a market economy and if the fledgling businesses that are its lifeblood are to survive and flourish.

The third set of problems is one that faces every democratic society: constant internal challenges to democratic traditions and values. Germany's struggle with a small band of militant fascists—mostly in the five eastern Lander of what was formerly the German Democratic Republic—illustrates the kind of problem facing other east European states. When the second most powerful leader of the Hungarian Democratic Forum issued a statement that included antisemitic and other racist statements, potential Western private investors recoiled. This reaction sent a much needed sharp message to the Hungarian government that politicians will be held accountable by their own citizens and the international community for statements or actions that violate the concept of a just and civil society.

In the case of Poland and the Czech state, there is a democratic tradition on which to build. But Romania, Bulgaria, Slovakia, Serbia and the former Soviet republics have almost no democratic tradition. One must expect some domestic turmoil over the years as those societies learn to cope with the vagaries of democracy. In the meantime, there is a great deal more the United States and the West can do to share the wisdom of their experience while learning from the new experiences of the region. Nowhere in the world, including the United States, can so many people quote the Federalist Papers as in the post-communist countries of Europe. The feverish debates of Alexander Hamilton, John Jay and James Madison are real and equally valid in this region.

The greatest obstacles lie in the fourth challenge—endemic problems that preceded both communism and the present transition to civil societies. Centuries-old ethnic and religious feuds, border and resource disputes, and age-old cultural biases like those against gypsies in central Europe and the Balkans were frozen by the half century or more of Soviet rule. They have reappeared with a vengeance. These problems pose a tremendous threat to the stability of the newly created democracies. The international community will have to do much more, including innovative efforts to settle border disputes, foster transnational cooperation and increase economic development for the most poverty-stricken areas. The most exciting initiative to date is that of local authorities in Hungary, Poland, Slovakia, Ukraine and Romania to create a Carpathian Euroregion. By emphasizing transnational cooperation with respect for borders and the rights of minorities, this Carpathian Euroregion effort offers great promise as a model for the future of interstate relations in post-communist Europe.

One of the most difficult challenges for the West is the fifth one—Russia's identity crisis. These remarkable people have a sense of mission and destiny that is almost spiritual in nature but always in flux. The constant search to redefine themselves is something particularly Russian. It is also sometimes destabilizing. The collapse of the Soviet Union and the current impotence of the Russian state is a cause of great shame for many Russians. The West must be sensitive to this fact or it may suffer the consequences of a transformation of pride in Russian nationhood into extreme chauvinistic Russian nationalism.

The single most important policy decision that will determine the basic nature of Western relations with Russia will be whether to recognize the geographic integrity of the Russian federation. Some members of Western parliaments, for example, have given mixed signals to delegations of Tartars, Chechens and other people of autonomous republics within the Russian federation who are demanding independence. Some argue that Russia remains a colonial empire and must be broken up, while many Russians believe that the ultimate goal of the West is to destroy the Russian state. How the West responds to this issue will determine relations between Russia and the rest of the world.

The United States should have a strong moral commitment to assist in the creation of a more decentralized, federal Russian state. It would be a serious mistake for the United States and its allies to meddle with the integrity of the Russian federation by encouraging or recognizing the independence of any of the peoples living within Russian borders. The experience of Yugoslavia shows that the traditional Western answer to ethnic nationalism—self-determination—cannot be applied continually until it reaches its lowest denominator. If it is, the international community will be incapable of creating and maintaining an order based on justice between peoples.

A more complicated variant of this issue is the Russian federation's relationship with the former Soviet republics. Most Russians see the entire territory of the former Soviet Union, including the Baltics, as their special sphere of influence. A major effort is underway in Moscow to recreate a new close relationship using the C.I.S. or its successor organization as a vehicle. Such efforts will continue to be resisted by Ukraine, Georgia, Moldova, the Baltic states and others. The West will have to determine how far it is prepared to go to ensure the independence of these states. Whereas Poland, Hungary, the Czech republic and Slovakia do not fear a Russian military threat any longer, the states of the former Soviet Union do. The large Russian minorities in these neighboring states will increasingly be used to justify Russian military intervention.

Coping with a New Russia, Eastern Europe


The continuing crisis within the EC about its future, combined with the serious internal problems of its member states, including Germany, make it unlikely that Europe will provide the necessary leadership for dealing with Russia in 1993. Only America has the requisite authority and power to take command. Moreover it has a historic opportunity to provide it. The Clinton administration should work closely with Europe and Japan to address Russia's problems. President Clinton should not, however, wait to take bold steps until a consensus is achieved. Real Western leadership in dealing effectively with the five challenges is needed. The president must focus on two particular areas: developing a strategy for Russia and eastern Europe and reorienting American assistance to the region.

The administration must first come to grips with key strategic questions: Is the United States prepared to provide leadership for the two decades it will take to complete the transformation in eastern Europe and make the process irreversible in the former Soviet Union? Is the United States resolute in recognizing the territorial integrity of the Russian federation, while trying to assist in the creation of a new form of federalism? Is the United States prepared to take the necessary steps to help ensure the sovereignty and independence of the former Soviet republics and protect them from Russian domination? Is the United States prepared to abandon its policy of double standards toward Russia on a host of subjects, such as arms sales (for example the United States pressured Russia not to sell arms to Taiwan and then turned around and did so itself, thus greatly angering Moscow authorities). Is the West prepared to extend security guarantees to the new democracies of eastern Europe or to visibly strengthen the peacekeeping role of the Conference on Security and Cooperation in Europe (CSCE)? Is the United States prepared to see Russia as a long-term, global strategic partner, or will Russia continue to be skeptically viewed as an unreliable and potentially hostile Eurasian power?

Until these questions are answered, there can be no Western or American strategy, only tactical responses to a revolutionary situation. Some ideas for the Clinton administration, Japan and Europe to consider include:

  • With respect to Russia and other C.I.S. members, the single highest priority for the Clinton administration is to redefine and increase the amount of U.S. assistance classified as humanitarian. Medicine, hygienic products, vitamins and other nutritional supplements should be included in such an expanded definition of humanitarian assistance. Apart from the ethical reasons for doing so, such actions would build considerable goodwill among the Russian populace and help counteract the growing anti-American sentiment among important sectors of the society.

  • The United States should organize an international working group to conduct a detailed analysis of present and future security risks in central and eastern Europe, the Balkans and the former Soviet Union. The United States should then present these findings at a summit in order to press for the creation of a security framework that is responsive to the clearer understanding of actual risks. In particular, the United States needs to develop a new approach—a form of "peace insurance"—that effectively engages the international community before a crisis erupts requiring "peacekeeping" or "peacemaking."

  • The United States should take the lead in establishing a new Western economic strategy for Russia. Any assistance that might accelerate inflation should be avoided. The U.S. government should establish a risk capital fund to match the capital investment of those medium- and small-scale American companies willing to invest in Russia and other states in the region. This fund should emphasize advanced technology businesses. The United States should also take the lead in establishing a food sector fund to facilitate food production and distribution.

  • Washington must send a clear message to leaders in Moscow that, despite the current failure of macroeconomic stabilization, the West is prepared to increase the size of the International Monetary Fund's standby loan for Russia, but is not prepared to soften the loan's conditions. At the same time, the United States should provide leadership for the international community to conclude a five-year, 100 percent debt relief agreement with only token interest payments.

  • To discourage the resurgence of Russian chauvinism and to give legitimacy to the Russian army as a peacekeeping force in internal C.I.S. disputes—especially those involving the protection of Russian minorities—President Clinton should recommend that military observers, acting under CSCE auspices and drawn primarily from NATO countries, be included in all peacekeeping missions within the territory of the former Soviet Union.

  • To prevent "warlordism" and to more effectively safeguard the Soviet nuclear weapons stockpile, the West must obtain greater leverage with the Russian military. This can best be accomplished by embarking on an energetic policy of providing facilities for troops returning to Russia; retraining programs for the Russian military, especially officers, to allow their integration into the civil economy; and speeding up the dismantling of nuclear weapons and securing their fissile material. In general the United States should reorient assistance toward activities that will demilitarize Russian society.

  • The West must promote meaningful independence for the non-Russian members of the C.I.S. It can no longer downplay their status as full international entities. Embassies should be opened in all C.I.S. capitals and ambassadors dispatched. Russian behavior in these states must be judged by the same standards America applies to Russia's conduct in other neighboring states.

Making Western Assistance Relevant


A great deal has been learned since 1989, when the world witnessed the stunning collapse of communism in Europe, that should be taken into account in developing Western assistance policies. Though it is unlikely that major new sums of support will be forthcoming, a great deal more could be done to make better use of existing appropriations. In particular, the following kinds of actions could be undertaken:

  • Reorient the primary U.S. assistance programs, particularly those administered by the Agency for International Development, toward the grass roots. In central and eastern Europe where macroeconomic stabilization has been basically successful, America should focus its assistance on the microeconomic level, working with enterprises and workers to help ease structural transformation.

  • Invest in the technology that helps east European nations move from the industrial age to the information age. This "leap-frog" technology could be an effective way to strengthen democracy by providing greater access to information. It could revitalize these economies through the development of advanced telecommunications infrastructure, and can be economically beneficial to Western companies with leading technologies.

  • Concentrate on those countries—Slovakia, Romania, Bulgaria, Ukraine—that are at the more pivotal stages of transition. In Poland, Hungary, Slovenia and the Czech Republic, America should focus on specific problems (environmental pollution, unemployment, inadequate health care) and specific regions that lag behind in the transition, such as North Bohemia and Suwalki. A sizeable portion of U.S. support should be devoted to transnational cooperation ranging from transportation and energy to agriculture and telecommunications.

A long-term strategy to assist the process of transformation is no less important than was the Marshall Plan after the Second World War; the stakes are equally high. What happens to Russia and eastern Europe affects America and the world. A conflagration in Kosovo or Macedonia could engulf both Turkey and Greece, two NATO allies. The potential chain of reactions is almost infinite. Waiting for an international consensus to build around a new strategy will mean that America will be too late and too uninvolved to make a difference. Playing to the grandstands by speaking about the triumph of democracy and American values means nothing in the transitional world of post-communist Europe.

President Clinton, as the maestro of Western policy, can make a difference if he accepts the toughest parts of the challenge. He should remember the words of the late conductor George Szell: "Conductors must give unmistakable and suggestive signals to the orchestra—not choreography to the audience." This is what the people of eastern Europe and the former Soviet Union expect. So do many Americans.