Fri, Apr 29, 2022 page8

• Bet failed on Russia, China reform

  • By Michael Boskin
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  Russian President Vladimir Putin’s invasion of Ukraine and Chinese President Xi Jinping’s (習近平) increasing authoritarianism have belatedly awakened much of the world to the failure of a geopolitical wager made by the US and its allies a generation ago.

  Their necessary response to today’s grim new realities reflects the cost of losing that bet, and it could change everything from security alliances, military budgets and international trade to financial flows and environmental and energy policies.

  The bet Western countries made in the 1990s was that integrating Russia and China into the international community through trade and commerce would hasten domestic political, as well as economic, reforms. Nobody expected either country to turn into a capitalist democracy overnight, but it was assumed that greater prosperity would gradually round off their rough ideological and authoritarian edges, allowing cooperation to replace confrontation.

  To understand the context in which this bet was placed, we need to go back to 1980, when the US was reeling from stagflation and the tragic conclusion of the Vietnam War. The Cold War was in full swing, pitting capitalism against communism, and democracy against totalitarianism. Proxy wars erupted regularly, and the sobering risk of a nuclear confrontation was ever-present.

  Deng Xiaoping (鄧小平) had just announced the opening of China’s economy, but the country was not yet on many radar screens in Western capitals or boardrooms. Moreover, the Soviet Union and the Warsaw Pact were still intact. With their trade restricted to the Council for Mutual Economic Assistance states, they had few ties to countries in the General Agreement on Tariffs and Trade — a bloc that accounted for the bulk of global GDP.

  The next year, Ronald Reagan became US president and initiated a military buildup to thwart perceived Soviet threats and ambitions. His administration’s economic reforms unleashed a long US expansion.

  This was the setting in which Nobel laureate economist Milton Friedman and Singapore’s founding father Lee Kuan Yew (李光耀) championed the idea that economic reform would lead to political reform. Friedman said that all people — regardless of their ethnicity, religion or nationality — would demand greater political freedom once they had gotten a taste of economic freedom. Although it might take longer in some contexts than in others, freedom would triumph eventually.

  These ideas were extremely and broadly influential among educated elites in academia, government and multinational businesses in the last two decades of the 20th century. After Mikhail Gorbachev became general secretary of the Communist Party of the Soviet Union in 1985, he soon became convinced that the Soviets could not match the US’ economic might.

  To try to keep up with the Reagan administration’s military buildup would bankrupt the Soviet economy, so he launched liberalizing political and economic reforms known respectively as glasnost and perestroika.

  When the Berlin Wall fell in 1989, my Stanford University colleague Francis Fukuyama suggested in a famous essay that all countries would wind up as mixed capitalist democracies. In Hegelian-Marxist terms, history would unfold through a dialectical process culminating in capitalism, not communism.

  This idea, too, was infectious. When I accompanied a delegation of US business leaders to Poland shortly thereafter, then-Polish president (and communist party boss) General Wojciech Jaruzelski declared that historic forces had inevitably led Poland to capitalism. Clearly, he could not escape Marxist teleology; the communists’ mistake was simply that they had gotten the end wrong.

  Given the perceived stakes, it is easy to understand why Western leaders rushed to help Gorbachev when the Soviet economy started to falter.

  Declaring: “We cannot lose Russia,” then-British prime minister John Major, then-French president Francois Mitterrand, and then-German chancellor Helmut Kohl called then-US president George H.W. Bush every week to plead for a US-led US$100 billion bailout — the equivalent of US$220 billion today.

  I led those negotiations as the chair of the White House Council of Economic Advisers at the time. In the end, we provided some small aid and technical assistance, and soon thereafter the Soviet Union dissolved into the Commonwealth of Independent States.

  Despite the failure of Soviet liberalizing reforms, and despite the massacre in Tiananmen Square in June 1989, Bush and successive US presidents continued to encourage reform in China, which has since become an economic and trading powerhouse, dwarfing Russia.

  For a generation of leaders who had lived under the shadow of nuclear superpower rivalry fueled by clashing political ideologies, the 1980s and 1990s were truly a remarkable period.

  However, the champagne corks were popped prematurely. Putin has no intention of respecting global norms, and China has consistently avoided the path it was expected to follow when it was admitted to the WTO in 2001.

  Still, it is worth remembering that Deng’s reforms, like Gorbachev’s, seemed far-fetched only a few years before they were enacted. In today’s context, one can only hope that Putin and Xi would be succeeded by a new generation of reformers. If that happens, perhaps Friedman and Lee would be vindicated.

  However, it is anyone’s guess when either leader’s rule might end. The challenge for Western leaders is to manage the risks posed by Russia’s nuclear weapons, and by China’s centrality to the global economy and its growing military might. It is a task best performed with open eyes and a healthy dose of skepticism for grand historical narratives.

  Michael Boskin, a professor of economics at Stanford University and senior fellow at the Hoover Institution, was chairman of former US president George H.W. Bush’s Council of Economic Advisers from 1989 to 1993.

  Copyright: Project Syndicate
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