More than two years ago, I had an “aha” moment. I was attending a conference on the catastrophic effect of the 1919 Versailles peace settlement on a defeated Germany—draconian reparations, hyperinflation, and the rise of Hitler. As I wrote, “Revisiting this history set off a small lightbulb: A great power is disgraced and humiliated, its empire is broken up, its economy is ruined, its legitimate security needs are disrespected, and its weak democracy disdained. An ultranationalist reaction ensues. Remind you of anything?”
With tensions still running high in Ukraine, and Vladimir Putin seeking to use threats of force to direct geopolitical actions, it’s worth thinking back to the circumstances that preceded his rise to power, and the culpability of the West in that process. This observation doesn’t make Putin a good guy. Quite the contrary: He is a thug, an autocrat, and an ally of kleptocrats. But the history shows that the twin conceits of America as sole superpower and abrupt marketization as the cure for communism interacted to create a needless catastrophe that ranks with the Treaty of Versailles.
This piece, first published in January 2020, rings truer today than when I wrote it, and that’s why the Prospect is rerunning it. —Bob Kuttner
History is the sum total of things that could have been avoided.
—Konrad Adenauer
Vladimir Putin is at least as serious a menace to the United States and Western democracy as Soviet communism ever was. Soviet leaders mixed the promotion of a global ideology with the advancement of Russian national interests. They failed—ideologically, geopolitically, and economically. Putinism is far more insidious, and more successful. Putin combines authoritarian rule with corrupt klepto-capitalism and hybrid warfare, functioning as a role model to autocrats and a lethal destabilizer of liberal democracy.
The 40-year Cold War was a well-ritualized dance of armed restraint based on the logic of mutually assured nuclear destruction and spy-versus-spy tradecraft, with clear norms of conduct. The West, in line with George Kennan’s theory of containment, merely needed to limit peripheral conflicts like Korea and Vietnam, resist launching a nuclear war, and patiently wait for the USSR to collapse of its own weight. The old Cold War offered a brand of stability that played to America’s advantage. But Putin has devised new forms of covert warfare with few rules, in which an open society is the weaker party. The new cold war is both more volatile and more tilted toward Russian strengths.
Putin has adroitly worked to undermine American democracy, a goal that pathetically eluded his communist predecessors. The recent best-seller The Spy and the Traitor tells the true story of the most damaging anti-Soviet mole of the Cold War era. Oleg Gordievsky, the London station chief of the KGB, turned out to be an asset of Britain’s MI6. Putin went the MI6 one better. His personal asset is the president of the United States.
Today, liberal democracy is under siege almost everywhere. Contrary to the hopes of 1989 that liberal capitalism linked to democracy would triumph with the U.S. as exemplar, capitalism is increasingly tied to autocracy and corruption. The U.S. is becoming more like Russia rather than vice versa. Much of this outcome could have been avoided.
I. From Polanyi to Putin
Last October, I found myself at a conference on Karl Polanyi, the economic historian who had warned that when markets overwhelm society, the workers of the world don’t unite, but turn to hyper-nationalism and fascism. One of the sessions discussed the 1919 Treaty of Versailles, an emblematic Polanyian moment. The settlement imposed on a defeated Germany was the most disastrous policy mistake of the early 20th century.
At the Versailles Peace Conference, the victorious Allies not only dismembered the German empire. They demanded crippling war reparations, which in turn led to hyperinflation and wiped out the savings of the German middle class. Guided by the folly of what today would be called neoliberalism, they imposed impossible budgetary austerity and debt repayment burdens on the fledgling Weimar Republic, rejecting the idea that debt relief was key to German reconstruction. John Maynard Keynes, then 35, who had been a dissenting adviser to the British Treasury at the Versailles Peace Conference, first came to global attention with his prophetic diatribe against the Versailles terms, The Economic Consequences of the Peace, warning of economic penury seeding a second world war. A decade later, the consequence was Adolf Hitler.
Revisiting this history set off a small lightbulb: A great power is disgraced and humiliated, its empire is broken up, its economy is ruined, its legitimate security needs are disrespected, and its weak democracy disdained. An ultranationalist reaction ensues. Remind you of anything?
The United States might have treated post-Soviet Russia as a security partner rather than a vanquished foe; and softened the market transition with serious economic aid.
The Western officials who inflicted raw, uncushioned shock therapy on Russia’s economy and needlessly treated Russia as a defeated enemy rather than a new security partner virtually invited a nationalist reaction likely to produce a Vladimir Putin or someone like him. This observation doesn’t make Putin a good guy. Quite the contrary: He is a thug, an autocrat, and an ally of kleptocrats. But the history shows that the twin conceits of America as sole superpower and abrupt marketization as the cure for communism interacted to create a needless catastrophe that ranks with the Treaty of Versailles. The fact that an American president has been enlisted as Putin’s agent only deepens the disaster. The rise of Hitler, at least, paralleled the ascent of Roosevelt.
As the Russia scholar Michael Mandelbaum observes, looking back at two centuries of great wars, there were two postwar settlements that basically got it right and two that got it disastrously wrong. After the Napoleonic Wars crushed the French, the 1815 Congress of Vienna nonetheless recognized France as a great power with legitimate interests. There was no such treatment of Germany after World War I. After a second world war, the victorious Allies made sure to help promote German economic recovery and bring Germany into both the Western alliance and the Western economic system. But after the Cold War, the triumphalist Americans repeated the folly of Versailles, with similar results.
This winter happens to be the 100th anniversary of the publication of the book that launched Keynes as the world’s leading critic of dumb geopolitics and misguided economics. It’s also the 30th anniversary of the collapse of communism and the bungled effort to help Russia rebuild as a democratic market economy, as well as the 20th anniversary of Putin’s rule. At 67, he is now the longest-tenured leader of any major nation, having served longer than any Russian ruler since Stalin. This is a good moment for a sorting-out. In an effort to assess whether U.S. policy and Russian history might have been different, I reviewed dozens of memoirs, books, documents, and articles from the period, and interviewed more than a score of former senior officials. The record shows there was a better road not taken.
II. Neoliberalism, Neoconservatism, and the Path to Neofascism
To some extent, the rise of Putinism was the consequence of dynamics peculiar to Russia in the chaotic eras of Mikhail Gorbachev (1985–1991) and then Boris Yeltsin (1991–1999). But the United States was a major player in Russian affairs during that period, and its meddling largely backfired.
Neoliberalism holds that if we just allow markets to price all goods and services and get the state out of the way (except to enforce the rules of the market), the economy and by extension the society and democracy will spontaneously thrive. For three decades, the practical expression of neoliberal power politics has been something called the Washington Consensus—a basket of policies imposed on countries that get overly in debt and seek aid from the IMF, the World Bank, the U.S., and the EU. These policies include budget austerity, deregulation, privatization, tax and welfare cuts, wage restraint, currency liberalization, and open capital markets. The premise is that this package will restore confidence for investors and economic growth.
On balance, these policies as applied to Third World nations and European debtors such as Greece have done far more economic and political harm than good. Austerity often led to downward economic spiral and popular backlash. But the policies of the Washington Consensus were particularly ill-suited to Russia, which was not just floundering economically but attempting a transition from dictatorship to democracy and the rule of law, as well as from communism to capitalism—goals that are by no means synonymous.
The abrupt imposition of marketization, full price decontrol, and crony privatization on an unprepared Russia, as a condition of desperately needed goodwill and aid from the West (little of which materialized), drove Russia in the 1990s into two cycles of hyperinflation, austerity, depression, unemployment, corruption, and then ultranationalist reaction. Those in both Moscow and Washington who counseled a more gradualist approach as well as more Western aid were drowned out. On both fronts, what might have been gratitude turned to resentment and then to hyper-nationalism. Approval of the U.S. in Russian opinion polls peaked at 80 percent in 1990. By 1999, it was around 32 percent.
The other policy premise—that the U.S. should maximize its advantage over a weakened USSR rather than treating Russia as a great nation with legitimate security interests—evolved over time, as hard-liners gained more influence. When the Berlin Wall fell in November 1989, and German Chancellor Helmut Kohl sought to annex the former DDR, he needed and obtained the USSR’s formal approval. The Soviet Union under Gorbachev was a full party to the agreement. Secretary of State James Baker personally assured Gorbachev that no NATO troops would be stationed in eastern Germany, and promised no further expansion of NATO eastward (“not one inch” according to the official transcript). There was even serious talk of inviting Russia to become a NATO member.
But the backpedaling from Baker’s pledge began almost immediately, and the NATO expansionists prevailed. By the late 1990s, Poland, Hungary, and the Czech Republic were in NATO, with the three Baltic nations soon to follow. After Putin succeeded an ailing and politically discredited Yeltsin in 2000, the George W. Bush administration added insult to injury by proposing NATO membership not just for all of Eastern Europe but for the former Soviet republics of Georgia and Ukraine, prompting a much more bellicose policy by Putin with respect to both. Bush’s fraudulent Iraq War to topple Russia’s ally Saddam Hussein was taken as further proof of American expansionist designs on Russia’s doorstep. Just to pile on further, Bush, prompted by his neocon colleagues, soon withdrew from the 1972 ABM treaty, stoking long-standing Russian fears that the U.S. would contemplate a first strike.
In a reciprocal feedback loop, American hawks and Russian hawks energized and vindicated each other. This is not to say that Vladimir Putin was ever destined to be a Russian Thomas Jefferson, only that he might have been less of a geopolitical foe; and that Russia might not have turned to Putinism at all.
III. America’s Contradictory Goals for Post-Soviet Russia
What’s evident now is that American leaders in the 1990s had several different goals for the post–Cold War era. It was assumed that these distinct goals facilitated one another. In fact they often collided.
One goal was to neutralize post-Soviet Russia as a security threat, and to protect newly liberated nations. But a contradictory goal was to enlist the new Russia as a security partner and co-guarantor of the new order. Clinton’s advisers were split on which goal to pursue, and the result was muddled policy that managed to antagonize the Russians while weakening Yeltsin at home as a tool of the wily Americans.
A separate goal was to bring capitalism to former communist countries. But advisers disagreed on the pace, the mechanisms, the needed cushions, and the likely popular tolerance of the inevitable upheaval. Another goal was to promote democracy. Yet the resistance in the Russian Duma to the dislocations of marketization led many Western advisers to encourage Yeltsin to proceed by decree, and democracy be damned. A further goal was to weaken local communist parties, but the calamitous impact of abrupt privatization produced popular outrage, and brought “reformed” communists and nationalists to power in the Duma, undercutting the liberal Yeltsin.
American foreign-policy goals were likewise the subject of crosscurrents. At first, the administrations of both George H.W. Bush and then Bill Clinton treated Gorbachev and Yeltsin with great respect, recognizing both the audacity and fragility of what these Russian democrats were attempting. Gorbachev not only permitted free expression and multiparty competition for office in the USSR. He allowed the Warsaw Pact nations to go their own way. Yeltsin, who considered himself not a reform communist but an anti-communist, went Gorbachev one better by dismantling the Soviet Union.
Bush and Baker saw Gorbachev as a potential ally. Yet Bush was baited by neocons who viewed the moment as a chance to cripple Russia as a global power once and for all. In August 1991, hoping to shore up a beleaguered Gorbachev, Bush went to Ukraine, where there was growing pressure for outright secession. He gave a high-profile address urging the leadership to find a way to federate with Russia. The reaction from American hawks was withering. New York Times columnist William Safire termed it Bush’s “Chicken Kiev speech.”
When Gorbachev fell from power to be succeeded by the anti-communist Yeltsin in late 1991, on the eve of the U.S. 1992 presidential campaign, Bush and Clinton were dueling over who was Yeltsin’s better friend. In April 1992, Clinton demanded more aid for Yeltsin, prompting Bush to rush out a preemptive announcement that the G-7 nations were assembling a $24 billion aid package. But nothing close to that magnitude ever materialized.
Paltry U.S. aid and self-defeating economic advice interacted with the affront of NATO expansion to discredit Russian liberals, both economically and politically. When Clinton succeeded Bush, he encountered the same pressures that led to the seemingly inexorable expansion of NATO. Newt Gingrich’s 1994 Contract with America called for NATO expansion. Robert Dole, Clinton’s 1996 opponent, attacked Clinton for his “Yeltsin first” policy. With the 1996 election expected to be close, Clinton needed the votes of Polish and Hungarian Americans in the Midwest.
Clinton’s short-run strategy was to delay having his hand forced by Congress, while sweet-talking Yeltsin. The administration came up with a device called the Partnership for Peace, which was sold to Yeltsin as a structure parallel to NATO, with Russia as a full member, that would be the real guarantor of the post–Cold War peace. Strobe Talbott, Clinton’s coordinator of Russia policy, argued that the Russians could accept a modest NATO expansion if it were combined with a Partnership for Peace that had real power. But as NATO expanded, the Partnership withered into window dressing. The Russians felt they had been played for suckers. “Clinton practiced duplicitous diplomacy,” says Jack Matlock, who served as U.S. ambassador to Russia from 1987 to 1991 under Reagan and Bush I. “He was telling the Russians that the Partnership for Peace was the alternative to NATO expansion, and the Poles that it was a step toward NATO expansion.”
By the mid-1990s, the administration was divided into two camps. Senior Pentagon officials, who knew military needs firsthand, opposed NATO expansion. The opponents included Clinton’s two defense secretaries, Les Aspin and Bill Perry; the assistant secretary in charge of post-Soviet affairs, Graham Allison; and the chairman of the Joint Chiefs of Staff, General John Shalikashvili. According to Allison, “the entire Defense Department was against it.” Clinton’s national-security adviser Tony Lake supported it. Clinton’s Czech-born U.N. ambassador and later secretary of state Madeleine Albright was a passionate advocate. Some U.S. ambassadors in the region, such as Peter Galbraith, ambassador to Croatia, proposed an enlarged NATO with Russia in it. Lawrence Taylor, U.S. ambassador to Estonia in the mid-1990s, recalls urging the Estonians not to seek NATO membership. The “soft security” of involvement in Western economic institutions such as the EU, he felt, would be more than sufficient. These splits were echoed in Congress, where Sam Nunn, chair of the Armed Services Committee, strongly opposed enlarging NATO, while Joe Biden, then chair of Foreign Relations, fervently supported it.
Poland, Hungary, and the Czech Republic were admitted in 1999. And on December 19, 2000, when Clinton met with the new president-elect, Clinton asked Bush what his priorities would be in his relations with Russia. Bush singled out two objectives: further expansion of NATO, and withdrawal from the ABM treaty. After Bush took office, NATO in 2004 added Bulgaria, Estonia, Latvia, Lithuania, Romania, Slovakia, and Slovenia.
But with post-Soviet Russia no longer threatening Western or Central Europe, the rationale for NATO had vanished. Who was NATO an alliance against? Some of the wisest old Russia hands warned that NATO expansion, right into what Russia calls its “near abroad,” would be a catastrophe. “It was totally predictable that NATO expansion would cause the most vigorous reaction on Russia’s part,” Matlock told me. “For those of us who ended the Cold War, this ruined the possibility of further collaboration.” George Kennan, still active in his nineties, called NATO expansion “the most fateful error of American policy in the entire post–Cold War era.”
Doug Mills/AP Images
George W. Bush first met Vladimir Putin on June 16, 2001, in Ljubljana, Slovenia.
IV. Too Much Shock, Not Enough Therapy
The phrase “shock therapy” has been used to describe demands by Western advisers, American officials, and the International Monetary Fund that Russia abruptly end price controls, cease subsidizing goods and inflating its currency, balance its budget, and privatize inefficient state-owned enterprises. But the phrase confuses more than it clarifies, because different Western advisers (and different Russians) proposed very different routes to reform of the post-Soviet economy. In the event, the actual policy path could hardly have been worse.
As in the case of NATO expansion, the Americans did not speak with one voice. Economist Jeffrey Sachs, who had advised the Poles in 1990–1991 and the Russians in 1991–1993, counseled cushioning shock therapy with massive economic assistance. Sachs called for a $30 billion Marshall-scale aid plan for Russia, as well as a cancellation of Russia’s debts to the West. He was told flatly by Bush’s deputy secretary of state Lawrence Eagleburger that large-scale aid to Russia was inconceivable in an election year.
The U.S., which saved an estimated $1.3 trillion in military costs thanks to the end of the Cold War, was stunningly stingy and short-sighted when it came to lubricating Russia’s transition to capitalism. Between 1993 and 1997, real financial aid from the U.S. to Russia averaged under $2 billion a year. Once again, the contrast with the postwar Marshall Plan era and the similarity to the treatment of Weimar Germany could hardly be clearer or more depressing.
Under Clinton, economic policy toward Russia was largely the province of the Treasury, specifically Lawrence Summers, undersecretary for international affairs and later secretary. Summers, who worked closely with the IMF, sought to use the leverage of IMF loans, granted or withheld, to push Russia more in the direction of shock therapy and to condition U.S. policy on Russia’s progress. Key Russian leaders were lobbying Clinton to allow Russia to join the G-7, as a way of taking some of the sting out of the NATO decision. Summers blocked that as long as he could, to keep up the economic pressure.
Vice President Gore, according to Talbott, warned Summers that “the strict conditions the International Monetary Fund attached to its loans to Russia put economic reform on a collision course with the political realities of a fledgling democracy.” Nonetheless, Summers and the IMF prevailed. Functioning as loyal opposition was Joseph Stiglitz, chair of the Council of Economic Advisers and leading apostle of gradualism. The marketizers, he warned, “tried to take a shortcut to capitalism, creating a market economy without the underlying institutions.” Stiglitz later advised the Chinese, cautioning them against flinging open their capital markets. Stiglitz today has the satisfactions of Cassandra; but at the time, Summers and Treasury, not Stiglitz, controlled policy.
Meanwhile in Russia, the economy was collapsing. In 1991, Russia ran out of hard currency reserves. As abrupt price decontrol led to inflation, Russia’s central bank resorted to printing rubles to finance subsidies and wages. This worsened inflation, now running at over 100 percent a year, which in turn led to budget austerity and higher interest rates as a condition of IMF aid.
Partly in desperation and partly in the hope of currying favor with the West, Yeltsin appointed a new cabinet and brought in two advocates of abrupt marketization, Yegor Gaidar as deputy prime minister, and Anatoly Chubais as minister of privatization. These appointments were applauded in Washington. But the execution of a dubious strategy was badly bungled. In a major speech to the Russian Duma on October 28, 1991, Yeltsin announced that all prices would be decontrolled on January 1, 1992. This virtually guaranteed hoarding before the fact and massive price inflation afterward. (“How dumb can you be?” says Sergei Plekhanov, one of Gorbachev’s senior economic advisers.) Russia almost overnight went from an economy of widespread shortages to one where the shops were full of goods that nobody but the rich could afford. By the end of 1992, inflation peaked at an annual rate of 2,333.30 percent. During this period, the IMF repeatedly extended credits in principle, then withheld disbursing the money because Russian austerity measures were not sufficiently draconian.
Vice President Gore warned that the IMF’s strict conditions on its Russia loans “put economic reform on a collision course with the political realities of a fledgling democracy.”
The execution of privatization was even worse. Chubais’s approach was called voucher privatization. Each Russian citizen would be given vouchers, which could be used to purchase shares of state-owned industries. But the vouchers could also be sold on the open market, and a great many people chose to take the money and run. In 1993–1994, vouchers were selling for about $20, the price of a few bottles of vodka. Through the voucher scheme, many of Russia’s crown jewels ended up in the hands of oligarchs via closed auctions run by insiders. When Gazprom was privatized via vouchers in 1994, managers gained control at a cost of about $250 million. By 1997, the Moscow stock exchange valued the company at $40.5 billion. This scale of privatization, before regulatory institutions were in place, was a disastrous error.
The first wave of privatization, which led to the creation of Russia’s billionaire oligarchy, was positively benign compared to the second wave in 1995–1996. Yeltsin was up for re-election in 1996 and his chances looked bleak. In the parliamentary elections of December 1995, the Communists won 157 seats compared to just 55 for Yeltsin’s party. The government was also close to broke. Chubais came up with a scheme known as “loans for shares,” in which private businessmen would lend the government money, collateralized by shares in state-owned companies. The loans were never intended to be repaid. It was a way of getting cash to the government and windfall wealth to oligarchs, who in turn would spend an estimated $1 billion to $2 billion on Yeltsin’s re-election campaign. In 1996, Yeltsin was narrowly re-elected, and more of Russia’s largest state companies had been transferred to oligarchs.
Some U.S. neoliberal advisers to Russia in that era even served as role models for the corruption. A personal adviser to Chubais was Andrei Shleifer, a Russian-born émigré and tenured Harvard professor, who ran the Moscow office of the Harvard Institute for International Development, which had the main Russia contract from USAID. Shleifer was prosecuted in 1997, after it was revealed his wife operated a hedge fund that speculated in privileged information based on Shleifer’s official work. Harvard paid fines totaling $26.5 million to settle the case, and Shleifer paid $2 million.
Ironically, when Putin became president, he expropriated several privatized companies and returned them to state control. One of the most powerful oligarchs, Mikhail Khodorkovsky, who had committed the sin of financing opposition parties, was arrested and prosecuted in 2003 on trumped-up charges of fraud and tax evasion. His Yukos oil company, worth about $15 billion, was confiscated and returned to state control. By 2007, state-owned enterprises accounted for about 40 percent of the capitalization of the Russian stock market, including 64 percent of banking and 47 percent of oil and gas. Some 39 percent of Russians worked either for the state or for enterprises that are wholly or partly state-owned.
So the claim that rapid privatization was a necessary element of market efficiency was misguided in several respects. The state is evidently competent to run extractive industries and banks. Had these industries simply stayed in state hands during the first phase of the transition, rather than being sold off in two fire sales, Russia might have been spared the corrupt regime of autocracy backed by friendly oligarchs, and liberals might have been less discredited.
Looking back on the 1990s, Sachs recalls that market transition done properly should have included not only massive aid from the West and debt forgiveness, but also the conversion of state enterprises into public corporations that could acquire private shareholders only gradually with safeguards against corruption. Real gradualism, Sachs told me, should have included an extensive welfare state to cushion shocks, with no abrupt privatization of state companies in the commodities sectors such as oil, gas, minerals, and metals.
Russia managed a feeble recovery in the mid-1990s, but then suffered an even more dire economic catastrophe in the late 1990s, also the indirect gift of neoliberal ideology and policy. The IMF, the U.S. government, and the other institutional proponents of the Washington Consensus had pressured East Asian nations to open up their capital markets. When inflows of hot money produced financial and property bubbles, the money flowed out just as fast, and several Asian currencies crashed. The crash in turn spread to speculative attacks against other currencies perceived to be weak, including the ruble, which had been liberalized to float freely in money markets as recommended by the IMF.
The voucher privatization scheme corruptly delivered many of Russia’s crown economic jewels to oligarchs via closed auctions run by insiders. Putin later renationalized some.
In late 1997 and 1998, Russia descended into a full-blown economic collapse, leaving the liberalizers like Yeltsin, Gaidar, and Chubais thoroughly disgraced—along with the premise that the U.S. could be trusted as an ally or source of advice. The central bank raised interest rates to 150 percent to defend the currency. But the overvalued ruble, propped up by the conservative monetary and budget policy demanded by the IMF, soon crashed, losing 75 percent of its value. Russia suspended domestic interest payments on its bonds, devastating the new middle class, then suspended international debt payments as well. While the West was providing Russia with modest official credits, Russian oligarchs were spiriting money out of the country, as large net outflows made clear. Poverty and inequality dramatically rose, while life expectancy fell. For men, it declined from 64 years at birth in 1989 to 59 in 2000 (it has since rebounded to over 67).
By 1999, Yeltsin was a spent force. His heart condition was worsening, and he continued to drink to excess. He reversed policy with regularity, and went through five prime ministers in his last 15 months. When the game of musical chairs came to a halt in mid-1999, a relative unknown, Vladimir Putin, found himself in the prime minister’s seat. Putin, it was widely reported, ascended to the presidency upon Yeltsin’s resignation based on a deal in which Putin promised that neither Yeltsin nor his family would be prosecuted for corrupt gains.
Yet the Putin who became acting president in January 2000 was not yet the Putin who invaded Crimea with “little green men” in 2014 and schemed to help Donald Trump. Putin, despite his KGB background, had been a relative liberal in his role as a deputy mayor of Saint Petersburg in the 1990s under that city’s liberal mayor Anatoly Sobchak. He organized the local chapter of the liberal party affiliated with Yeltsin, Our Home—Russia.
After taking office, Putin looked for areas of common ground with the U.S. At his first summit with Putin in June 2001, the new American president embarrassed himself by declaring that he had looked Putin in the eye, “found him to be very straightforward and trustworthy … and was able to get a sense of his soul.” Putin, still dealing with a very rocky economy, asked Bush for relief of the debt that Russia had inherited from the old Soviet Union. Although Bush seemed to want a constructive relationship, he failed to respond to Putin’s plea.
As Ivan Krastev and Stephen Holmes write in a new book, The Light That Failed, “In the first years after 1989, liberalism was generally associated with the ideals of individual opportunity, freedom to move and to travel, unpunished dissent, access to justice, and government responsiveness to public demands. By 2010, the Central and Eastern European versions of liberalism had been indelibly tainted by two decades of rising social inequality, pervasive corruption, and the morally arbitrary redistribution of public property into the hands of a few.”
V. The Road Not Taken
Despite conflicts, Russia and the U.S. did manage to find several areas of collaboration under Clinton, then Bush, and then Obama. Washington and Moscow worked creatively over more than a decade to bring thousands of nuclear warheads strewn across the newly independent republics of Ukraine, Belarus, and Kazakhstan back under Moscow’s control. The stunning success of this joint U.S.-Russian effort, which required the sharing of highly sensitive nuclear secrets, demonstrated the promise of deeper security collaboration. Other joint efforts at nuclear nonproliferation continued. The two nations concluded four new arms-control treaties that reduced missiles and warheads to 1,550 warheads on 700 delivery vehicles for each nation (down from 6,000 warheads in the Start I treaty of 1991) as well as joint diplomatic efforts that ultimately produced the agreement with Iran to limit development of nuclear weapons, a goal sought as eagerly by Putin as by Obama.
Russia and the U.S. also had a common interest in suppressing Islamist terrorism. After the attacks of 9/11, Putin was the first world leader to phone President Bush, offering help. Overriding the objections of his defense minister and senior generals, Putin offered Bush access to Russian bases in Central Asia, the first time U.S. troops had ever been on Russian soil. Russia also shared extensive intelligence about Afghanistan. In return, Bush kept Putin informed of details of the U.S. attack.
Even the two U.S.-led wars of the 1990s against fellow Slavs, in Serbia and Kosovo, which might have been flashpoints in U.S.-Russian relations, were ended with the full participation of Russia as joint guarantor of the peace. Yet both U.S. military interventions, via NATO rather than the U.N., left the Russians wary of U.S. intentions.
Certainly, while U.S. and Russian interests sometimes overlapped, they were not identical. Russia’s conception of fighting terror included its often brutal repression of independence movements in contested spaces in and near Georgia and Chechnya. Even so, the potential for cooperation was notable. But it was later blown away by the Iraq War, the U.S. withdrawal from the ABM Treaty, and then by the threat to expand NATO to Georgia and Ukraine. America also took a harder line against Russia under Obama’s secretary of state, Hillary Clinton.
Russia has increasingly become the kind of autocracy, geopolitical adversary, and corrupt statist economy that U.S. policy in the 1990s ineptly sought to avoid.
Looking back on the past three decades, it’s evident that the U.S.-Russia relationship might have been dramatically different. The U.S. did not have to expand NATO right up to Russia’s borders, much less inside parts of the old Russian Empire. Bringing the former satellites into the EU, and devising a post–Cold War package of joint security guarantees by Washington, Moscow, and major NATO members, could have been more than sufficient.
On the economic front, the West might have provided more aid and fewer demands for compliance with the recipe of the Washington Consensus. The demands on Russia were similar to the conditions for aid imposed on Greece, with similarly calamitous results and much higher stakes. Had, say, Joseph Stiglitz rather than Lawrence Summers been in charge of U.S. economic policy toward Russia, we might have seen the U.S. using its influence to give Russia more debt relief and more transitional assistance, and withholding demands for abrupt (and corrupt) privatization.
Had that course been followed, there would have been more gratitude toward the West on the part of ordinary Russians and less resentment. Westernization has a long history in Russia as a fraught concept and loaded word, going back to the era of Peter the Great. The idea of their nation at last joining the West as a liberal democracy enjoyed a peak of prestige among Russians around 1990. By 2000, westernization was again in bad odor. Putin epitomizes that backlash.
None of this is Monday-morning quarterbacking. Many of the people who knew Russia best were making these very arguments at the time.
In fairness, not all of these outcomes were the result of bad decisions in Washington. To navigate this transition, Russia needed leaders with the wisdom, political savvy, and high principle of a Vaclav Havel or a Nelson Mandela. That, sadly, did not describe either Gorbachev or Yeltsin. Gorbachev at first looked like just such a leader, but while his principles were admirable, his political instincts were dismal. Failing to lock in a Western guarantee against NATO expansion was an inexplicable blunder. (Gorbachev wrote in his memoirs that such a guarantee was unnecessary because at the time NATO expansion was unthinkable.) Gorbachev also failed to legitimatize his rule by calling a popular presidential election in the period 1988–1990, which he surely would have won and thus strengthened his hand. By 1991, when the economy faltered, Gorbachev’s political capital faltered with it. Yeltsin, though a willing ally of the West, was a mercurial drunk, who careened from policy to policy and cabinet to cabinet and ended up creating and then relying on corrupt billionaire oligarchs. Even so, all leaders have flaws and U.S. policies served to fatally undermine the prospects of these imperfect Russian liberals.
VI. Russia Today
In this century, Russia has increasingly become the kind of autocracy, geopolitical adversary, and corrupt statist economy that American policy in the 1990s dearly sought to avoid. Under Putin, the chaotic rudimentary democracy of the early Yeltsin period was snuffed out. As we were going to press, Putin fired his cabinet and proposed altering the constitution to strengthen a currently ceremonial State Council, which he could head and thus remain de facto leader even if he left the presidency in 2024.
Events in both China and to a lesser extent Russia have shown that a nation can indeed combine autocratic state capitalism with a tolerably successful economy. Putin also benefited from a dose of luck, in that oil prices, which collapsed in the middle and late 1990s, rebounded nicely after 2000, just in time for Putin to take credit. In his first two terms, from 2000 to 2008, Russian GDP grew by 72 percent. Inflation subsided, unemployment stabilized at about 6 percent, and in three decades the purchasing power of wages rose about sixfold relative to 1990. Inequality soared, however, and much of the money made by oligarchs was stashed in the West, rather than reinvested in Russia. Klepto-capitalism suffers from multiple inefficiencies, but to ordinary Russians it is a definite improvement over both communism and the chaotic market messes of the 1990s. It works well enough to be a political success.
Putin, in a backhanded compliment, did take one piece of advice from the Washington Consensus. He has run a tight fiscal and monetary policy, and used Russia’s oil reserves to bolster the ruble, leaving Russia fairly impervious both to currency speculation and to IMF conditions. Like the East Asians after 1998, the Russian leadership resolved to stockpile massive reserves, so as never again to be at the mercy of the IMF. In a new and mostly critical book, Russia’s Crony Capitalism, the Swedish economist Anders Åslund, one of the architects of shock therapy, credits Russia with having a very low public debt of under 20 percent of GDP, low inflation of around 2 percent, and impressive gold and foreign currency reserves in the range of $500 billion. Though Russia is to some extent a petro-state—its top exports are oil, gas, coal, and other primary products—its economy has weathered the vagaries of oil prices better than many Western observers expected.
In sum, it was probably never in the cards for Russia to become a Western-style democracy. But it might have been less of a kleptocracy and geopolitical enemy, if only the U.S. had not been so relentless both in trying to impose neoliberalism and assuming that Russia was now a third-rate power and could be treated as such.
Oddly, American foreign-policy pragmatists have been willing to make alliances with nations such as Saudi Arabia, which are even nastier than Putin’s Russia was in the early 2000s.
Collaboration breeds trust and more collaboration. Deception engenders distrust and defection. Had the U.S. invited more partnership with Russia, pursuing valued common interests on such fronts as joint security guarantees for Central Europe, arms control, economic conversion aid, and efforts to limit Islamist terrorism, it’s hard to imagine Moscow making the kind of frontal assault on American democracy that Putin did in 2016.
Indeed, with different policies over the past three decades, we might have been spared both Putin and Trump. Alas, you can’t rerun history. We will never know for sure; we will only suffer the consequences.
