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« Back to Is Russia Lost? main page    Transcript for: Is Russia Lost?transcript.726.html ANNOUNCER: Brought to you in part by ADM,feeding the world is the biggest challenge of the new century. Outside the U.S. you'll find 96 percent of the world's population. Inside, you'll find the means to feed them. ADM, supermarket to theworld. Additional funding is provided by the JohnM. Olin Foundation, the Lilly Endowment, the Lynde and Harry BradleyFoundation, and the Smith Richardson Foundation. (Musical break.) MR. WATTENBERG: Hello, I'm BenWattenberg. In the wake of the Cold War Russia founders. It'seconomy is broken, there is massive structural corruption andlawlessness. American businesses and politicians are apparentlyimplicated. All of which prompted the New York Times magazine toask, who lost Russia? Joining Think Tank to examine Russia'sdevelopments since the collapse of the Soviet Union are Lynn Nelson,professor of political science at the Virginia CommonwealthUniversity, and co-author of Radical Reform in Yeltsin's Russia: Political, Economic and Social Dimensions; Leon Aron, residentscholar at the American Enterprise Institute and author of theforthcoming book, Yeltsin: A Revolutionary Life; and Michael McFaul,senior associate at the Carnegie Endowment for International Peace,and author of Russia's 1996 Presidential Election: The End ofPolarized Politics. The topic before the house, is Russia lost, thisweek on Think Tank. (Musical break.) MR. WATTENBERG: Almost eight years afterthe dissolution of the Soviet Union, Russia is in trouble. Russia'sgross domestic product has fallen almost 50 percent since 1989, 60million Russians are said to be living below the nation's povertyline. Life expectancy is down. Disease is up. Billions of dollarshave left Russia for greener and safer pastures. Capital flight overthe last seven years is estimated at between $200 billion and $500billion. The Bank of New York is being investigated for launderingmoney from the Russian mob. A Swiss construction company is accusedof paying credit card bills for Russian President Yeltsin and hisfamily. And Vice President Gore finds his cooperation with formerPrime Minister Viktor Chernomyrdin coming under increasedscrutiny. What happened? Some blame Westernadvisors who pushed for so-called 'shock therapy' measures, urgingrapid privatization of state run industries and an end to pricecontrols. Others fault the International Monetary Fund for notproperly monitoring its loans to the Russian government. On a moreoptimistic note, some experts say that what we see in Russia arenormal growing pains. The Clinton administration is urging patience. National Security Advisor Sandy Berger recently wrote: 'Reform willtake a generation or more. To understand corruption in Russia, wemust understand that it is rooted in the legacy of Soviet Communism.' But might not patience carry its own risks? Cash starved Russiastill has a large supply of nuclear warheads, and may look to sellthem for cash to bad actors on the international scene. Might not the continuing hard economictimes give rise to a new nationalism hostile to America and the West? Amidst all this turmoil, Russia is gearing up for elections toparliament in December, and a presidential election in June of 2000. A few months later, there will be an American election, and we willhear on the hustings the question: Who lost Russia? Gentlemen, thank you for joining us. Iwant to pose three questions during this session. How bad is it overthere? Who is to blame, and what comes next? So, let's start withthat first question and get a quick response around the room. Howbad is it in Russia today? MR. McFAUL: I think you have to ask twodifferent kinds of questions to answer the big question about how badit is in Russia. First, compared to what? And, second, whatquestion are you seeking an answer to? That long list that you started theprogram with about Russia's economic problems, nobody would arguewith that, that things are bad in Russia when it comes to theeconomics. The question is, compared to what? Well, compared to theSoviet Union, maybe not so bad. Compared to how bad it could be inRussia, well, maybe not so bad. Compared to Poland, most certainlyRussia is doing much worse in this transition than we would haveexpected. But, that's just one question, that's justone thing that's going on in Russia. There's also elections comingup. You mentioned that. That means, well, on the democracy front,things are not as bad as we might thing. MR. WATTENBERG: All right. Just holdthat thought. Leon? MR. ARON: We cannot say that things arebad in a country which comes out of about 1,000 years ofauthoritarianism, three-quarters of a century of communist tyrannyand dictatorship, Stalinism, essentially. And, at the same time, hasheld three free and fair presidential -- one presidential, twoparliamentary, one referendum. These are national elections. Andnow has elected governors in 89 regions, again, and locallegislators. This is the problem with the school ofstructured debate, is that it is completely ahistorical and, if youallow me to say it, ageographical. Russia is being compared to theUnited States and Western Europe instead of being compared to its ownhistory, and to its own neighborhood. MR. WATTENBERG: Lynn Nelson, I gatheryou're somewhat more skeptical than these optimists here? MR. NELSON: In addition to the problemsyou mentioned at the very start, one of the more troubling signs thatI see is the nature of public opinion itself, because it's people whoare doing the voting. It is people who are going to determine whatthe outcomes of the next elections are. And those signs have beenworsening for some time now. MR. WATTENBERG: Worsening in whatsense? MR. NELSON: Well, at the present time,the Russian people overall are nostalgic for the Brezhnev era. MR. WATTENBERG: How do you measure that,Lynn? MR. NELSON: Seome (sp), which is thelargest public opinion research organization in Russia, they've beenasking people now for several years, do you think you'd prefer tolive in that time or this time, and what they've been finding is thatit's going up. And this year it was 58 percent who said they wouldprefer the Brezhnev period to today. And a full 50 percent nowexpress negative opinions about multiparty elections. Thedissatisfaction I'm talking about gets to the heart of democracy andfree market. I think it can be said with no questionthat in the early 1990s, Russian people, for the most part, wereexcited, enthusiastic, and ripe for a free market and for democracy. And that mood has changed. It has changed in both the cities and thecountryside. MR. WATTENBERG: What happened? MR. McFAUL: Well, the mood has changed,but that's what happens in all revolutions. And I think that's whatwe need to remember. I teach a course at Stanford on revolutions,and throughout history, it doesn't matter if you're French, Russian,Angolan, South African, the moment when you're in opposition, youfinally topple the ancient regime, that's when expectations areincredibly high. You know, I was living in Russia at that time. Itwas an incredibly euphoric time. MR. WATTENBERG: The year was 1991? MR. McFAUL: 1991, 1990-'91. I mean, Iwent to those giant demonstrations, 800,000 people on the streetevery weekend to protest, brought down communism. And then everybodyexpected, well, now the revolution is over. Now we're going to havetwo cars and live like they do on TV watching Santa Barbara soapoperas, as we all were back there in Russia. Well, it didn't happenthat way. Now, the problem with the expectations isworsened still by, one, Yeltsin who told the people, it's going tolast seven to eight months, and then we're going to live better. And, two, by the West. We promised them lots of aid. We told themit's going to make this transition easy, and then we didn't deliveron that aid. And it's been a much longer process. But I think it is important to remember,this is the biggest change, I think transformation, politically,economically, borders of the state, in the history of the modernworld. We're only seven or eight years into this revolution, and Ithink it's wrong to expect that we would be at the end of thisrevolutionary phase. MR. WATTENBERG: Okay. Second question,we're all agreed that things are a long way from perfect, and haven'tworked out as well as most people had hoped. Whose fault? Who is toblame for this? MR. NELSON: Ultimately Russia is toblame. But a large qualification needs to be added to that becauseRussia followed some of the tracks that it has followed with strongurging from other people. So, when Russia was looking to create afree market, where did they look? They looked to places such as ourcountry, where markets exist. And they heavily followed some of ouradvice, not all of it, and this is a deep subject, but some of it. And we gave some very bad advice. MR. WATTENBERG: You are referring toProfessor Jeffrey Sachs among others? MR. NELSON: I'm referring to the generalapproach of rapid privatization without controls, without buildinglaw before. MR. WATTENBERG: This was also theposition taken by the man who is now the Secretary of the TreasuryLarry Summers who was then with the World Bank. MR. NELSON: That's right. MR. WATTENBERG: And, they were in favorof what is called 'shock therapy'? MR. NELSON: Yes, and rapid privatizationinto whatever hands property might fall. They were in favor ofallowing this kind of process to develop with very little care toprevent corruption. MR. WATTENBERG: And you think not onlyretrospectively, but from that time -- MR. NELSON: At the time, it was beingwritten about by not only me, but several others also. MR. WATTENBERG: Saying it's amistake? MR. NELSON: Yes. This isn'tretrospective. This is things we were saying at that time aswell. MR. ARON: Ben, I beg to differ here. Weall know that it's very difficult to build capitalism, buildcapitalism, in a democracy. The mode of privatization, contrary tothe established opinion, at least in our mass media, the mode ofprivatization actually chosen in Russia was extremely mild therapy. In the end, 51 percent of all the stocks in about 90,000 enterpriseswent to the managers and the workers. This is a social democraticmodel. In fact, that partly was the problem, because those so-calledmanagers, Red Directors, of course, manipulated -- MR. WATTENBERG: They were called the RedDirectors. The old communists. MR. ARON: Yes, Red Directors. MR. NELSON: It was nothing like that. Many, many workers didn't even know that they owned those shares. Many other workers were forced to turn them over to their manager. There was very, very little participation by workers. MR. ARON: Excuse me. That's right. ButI think two things. First of all, on the privatization, the workersdidn't get their shares. But it wasn't the fault of the reformers,it was the fault of the directors who took control of thosethings. MR. WATTENBERG: If the reformersperpetrated reform and didn't manage to control these Red Directorswho then diverted the funds, isn't it also the fault of the peoplewho set it in motion if they didn't follow through? MR. ARON: You would have to have a civilwar, Ben. You can't send an armed detachment to every factory anddislodge every director. That was the greatest dilemma ofprivatization. MR. NELSON: No, that wasn't the greatestdilemma. The greatest dilemma was what to do with this huge amountof state property as we tried to make it private. Now, the SupremeSoviet had one plan, and that plan was to truly privatize to thepeople of Russia to prevent them from selling their shares in thesecompanies for at least three years. That plan was scuttled byChubais and his advisors in favor of the kind of plan that wasadopted. MR. McFAUL: Hold on, that's just nottrue. The privatization law was passed in June 1992. MR. ARON: By the Supreme Soviets. MR. NELSON: The Supreme Soviets did not. This is one of the mistakes that many people are making in historytoday. The Supreme Soviet never approved that part of the plan. That was changed by Chubais, and it was changed and implementedthrough Yeltsin's decree. MR. WATTENBERG: Let me ask a question ofyou, Lynn Nelson, isn't it possible, and I sense this is what I'mhearing on this side of the room, that this apparent economic anarchyis, as we speak, as ugly as it may be, growing what we callcapitalism? MR. McFAUL: If I could, I want todistinguish between two things, because this debate needs to get outof the kind of shock therapy versus not. That doesn't help thestory. I think you need to talk about two things, you need to talkabout what economists call macroeconomic stabilization, which isbasically stopping inflation and balancing the budget. That's oneset of things. That's what macroeconomists do. Privatization iswhat microeconomists do. That's getting property rights right at theenterprise level. I think ten years out now in thesepost-communist transitions, the overwhelming data, economic data,shows if you get the budget right, if you stop inflation, if you getmacroeconomic stabilization, that's the best way to get economicgrowth. And the countries that did that, Poland and Hungary, aremuch better off than the countries that didn't do that. Russiadidn't do that. In other words, Russia had no shocktherapy. They tried it, and it didn't work. It was rolled back bypolitics. Privatization is a different issue. It turns out in apost-communist world. The data that we now have. That whether youwent fast or slow, whether it was insiders or outsiders that gotcontrol of the enterprises, there's no direct correlation betweenthat and economic growth. Places like Poland and Hungary, forinstance, didn't do shock privatization. MR. NELSON: And neither did China, neverprivatized. MR. McFAUL: But there isn't an economicrelationship there. And so to bundle it all together and say, Russiafailed with shock therapy because they failed with shock therapy tome is just such a gross injustice to real story of what wenton. MR. NELSON: It is, in fact, simple. Onething that needs to be pointed out when we talk about Poland andother countries of the former Soviet bloc is, those countries hadnothing like the level of state ownership that Russia, that the USSRhad. They had nothing like the centralization and specialization ofmanufacturing that the Soviet Union had. They had nothing like thelevel of corruption that the communist government had. So, we'retalking about apples and oranges here. MR. WATTENBERG: How bad is the corruptionnow? I mean, every society has aspects of corruption, some more,some worse. Many of them proceed for decades, generations, andcenturies. Except for the fact that somebody is skimming money, theydo just fine. Is this what is going on in Russia, or is it so deepand so endemic that it is just distorting the whole system? MR. ARON: Ben, I think there are severalfactors. And, again, I don't want to be Panglossian -- MR. WATTENBERG: No, that's my job. MR. ARON: I think the elite is verycorrupt. But there is history, there is geography, and then there ispolitical economy. History is that, yes, the country has beencorrupt. I mean, you read Marquis De Coustine (sp) who traveledthere in 1840, corrupt, completely corrupt, even compared -- I mean,France has its problems, but compared to France. The neighborhood, Imean, you go east, southeast of Russia, it's Turkey, it's Pakistan. I mean, the Ukraine is far more corrupt than Russia even today by allaccounts. And the principles of political economy,Ben, when you have such huge transfer of ownership of the economyfrom an authoritarian or semi-authoritarian state to private,semi-private, insider, outsider, but the bottom line, you remove --you put that beached whale on the shore, and that whale is there, andhe vultures come and pick the carcass. And, the problem is that in every singlecountry, be it South America, Asia, be it South Korea, be it Brazil,Argentina, Mexico, even Britain under Thatcher, corruptionimmediately becomes the main or one of the main issues in publicopinion and in politics. In other words, apart from the fault, andthis is not to abet or excuse the persons who are guilty, I thinkthere are very important structural problems for that corruption toemerge. And here the geography and history and the transfer ofimmense national wealth from the state that guards it with guns toprivate owners, semi-private owners, soft owners, hard owners,immediately produces a great deal of corruption. And the real question, Ben, is this,speaking of curves. The real question is, whether the Russiancorruption is really what I call a systemic or fatal. In otherwords, you would go Colombian, Venezuelan -- MR. WATTENBERG: Hold on, that's whatwe're going to come to. Let's move into part three. MR. ARON: Or whether it be the Italianmodel, where you could co-exist with 25 percent of taxes not paid,and still become a thriving economy. MR. NELSON: The situation has beendescribed very well. Corruption was present at the time the SovietUnion was dismantled, and that needed to be recognized. It needs nowto be recognized as well. It wasn't recognized well then, and that'swhy the privatization program failed so badly, because it should havebeen seen that these vultures were going to come. And that's whysteps were needed. Today, steps are needed also. The situation isworse now than it was then. Corruption is more rampant than it wasthen. MR. WATTENBERG: Did America, in our roleas a newfound good friend, did we make any effort to point thatcorruption out and to stop it? MR. NELSON: Quite the contrary. Welargely closed our eyes to it. It was pointed out by analysts, andmost of that was ignored by both American and Russianpolicymakers. MR. WATTENBERG: Will someone tell us thestory of Vice President Gore and the so-called barnyard epitaph? Areyou familiar with what I'm talking about? MR. McFAUL: Well, allegedly, right, hedid get a memo from the CIA saying there is this corruption with Mr.Chernomyrdin, the prime minister, and he wrote a word that I don'tthink I should say on television. But the question, I think, thereare two questions there. There is one, how deep is corruption inRussia, and I think we should be very concerned about that. And weshould do everything we can to expose it. But the second question isabout -- MR. WATTENBERG: But Gore's position, as Icensored it, admittedly that's a pretty brief statement, but wasn'the saying, in effect, look, this is the nation that for 70 years wasour sworn adversary. It still has thousands of nuclear weapons. Itis absolutely critical that we be on their side, and onboard. Don'tbother me with a billion here, or a billion here, there is a greattask before us, and let's just cool it. I mean, is that, in effect,what you would divine his position was? MR. McFAUL: I think so. And I think itraises a question, because here's corruption in Russia, of course. There are corrupt -- you know, the biggest oligarchy in China is theChinese military. They are the most corruption organization inChina. The head of that country, for instance, puts people in jailbecause of religious beliefs. Does that mean that the president ofthe United States shouldn't be meeting with the president ofChina? We met with Soviet leaders who committedhuge atrocities, millions and millions of people were killed by thosegentlemen, general secretaries of the communist party. And yet, ourpresidents continued to meet with them. MR. NELSON: But meeting with presidentsis not quite the same as what we have done with Boris Yeltsin. Wehave put in Boris Yeltsin the personification of democracy in Russia. The personification of future hope for Russia. And that is a hugemistake on our part. We should never have personalized it the way wedid. That's much more than meeting with Yeltsin. And we've donethat consistently in the last several years. MR. WATTENBERG: Leon, you're Yeltsin'sbiographer. MR. ARON: I'm always puzzled by thisbusiness about, we've put a great deal of stock in him. The Russianpeople put a great deal of stock in Yeltsin. In revolutions, Ben,people matter. I mean, it's true that Yeltsin probably started with'98, I would say, you know, the stars started to set. But, you know,deGaulle mattered, Churchill matter, Lincoln mattered, maybe for ashort period of time. In revolutions, they matter. Yeltsin was, byfar, the best hope for democratic Russia. And I think that time willshow that he has left a mixed but a very, very importantlegacy. MR. WATTENBERG: Let's play a little game. We have to get out now. This is 1999, let's make believe it's 2009,let's look ahead 10 years from now. And I say, Mike, how are thingsin Russia, the year is 2009, what would you guess you wouldsay? MR. McFAUL: Well, the two things thatworry me, I guess, about the future, I think the trajectory are inthe right direction on democracy, on markets, and on imperialism. Wehaven't talked much about that, but we don't have this messianicimperial power in Russia today. And I think if you look at publicattitudes, and elite attitudes, there is a much greater consensus onall three of those issues most certainly than there was ten yearsago. But the two things that worry me a lotare, one, oligarchy capitalism. That is, do the big guys that havecontrolled the big resources in Russia continue to do that and pushto the side the small businessperson, push to the side what I wouldcall real competitive market economy. That's number one. And, number two, what I would callcreeping authoritarianism. I'm less worried about the Bolshevikscoming into power in some revolutionary situation. What I'm reallyworried about is that a set of consensus guys come together, win thisnext election, and then through a quiet way break down the press,through a quiet way arrest the opposition. And so you'll still haveelections, but not competitive elections. MR. WATTENBERG: Leon, I asked for ascenario, and I got an analysis of, on the one hand, on the otherhand, it's a common academic disease. MR. McFAUL: Only fools predict 10 yearsof history, but real fools do it when you're talking aboutrevolutionary Russia today. MR. ARON: I'll be a real fool, and I hopeyou will remember the things I'm doing for you. It's Italy in the1960s. Tremendous disparity, say, as between Palermo andMilan. MR. WATTENBERG: Disparities ofwealth. MR. ARON: Disparities of wealth, wellbeing, openness to the West, progress. Kind of corrupt orsemi-corrupt governors of regions. Elections are held, theparliament is very difficult and fractured. Presidential power mostlikely diminished compared to what we have now through constitutionalamendments. The press is boisterous, free, people are free toexpress their opinions. Everybody is moaning and groaning anddissatisfied. The economy is growing 3-4 percent a year. MR. WATTENBERG: So, you're saying tenyears from now we will have continued chaos along with economicgrowth. MR. ARON: Continued, non-fatal chaos atthe local level. And pretty much well established democracy, not ofthe Anglo-Saxon, Northwestern European type, but Southern Europeantype. MR. WATTENBERG: Now, to close this show,we hear from our Kevorkian figure here. Now, why don't you tell mewhat it's going to be like ten years from now? MR. NELSON: Mike referred to creepingauthoritarianism. It isn't creeping, it's rampant right now. Andall the signs are negative in terms of the development ofdemocratization because Yeltsin now has more power than thepresidents of both the U.S. and France combined, as someone recentlysaid. A constitution that is made for a dictator for someone whouses authoritarian power. So, Russia has got to reverse its currenttrend. It's got to reverse the corruption trends. It's got toreverse the life expectancy trends. It needs to reverse the people'sdisillusionment with democracy. Can it happen? It can happen. Whatbothers me is, Russia is further from that today than it was in 1992. It's getting further and further every year from that. So, it couldbe reversed, but reversal is what's needed. My two friends aretalking about a trajectory that's upward. I'm not seeing that upwardtrajectory. And if you look at the hard data, I think you'll find ithard to see an upward trajectory. So, it can be reversed, but it'sgoing to be hard. MR. WATTENBERG: At least we have adivergence of opinion, which is what programs like this areabout. Thank you very much, Lynn Nelson, MichaelMcFaul, and Leon Aron. And thank you, we encourage feedback from ourviewers, particularly via email. It is very, very important to us. For Think Tank, I'm Ben Wattenberg. ANNOUNCER: We at Think Tank depend onyour views to make our show better. Please send your questions andcomments to New River Media, 1150 Seventeenth Street, Northwest,Washington, D.C. 20036, or email us at thinktank@pbs.org. To learnmore about Think Tank, visit PBS Online at www.pbs.org. And pleaselet us know where you watch Think Tank. This has been a production of BJW,Incorporated, in association with New River Media, which are solelyresponsible for its content. Brought to you in part by ADM, feeding theworld is the biggest challenge of the new century. Outside the U.S.you'll find 96 percent of the world's population. Inside, you'llfind the means to feed them. ADM, supermarket to the world. Additional funding is provided by the JohnM. Olin Foundation, the Lilly Endowment, the Lynde and Harry BradleyFoundation, and the Smith Richardson Foundation. (End of program.) Back to top  Think Tank is made possible by generous support from the Smith Richardson Foundation, the Bernard and Irene Schwartz Foundation, the Lynde and Harry Bradley Foundation, the John M. Olin Foundation, the Donner Canadian Foundation, the Dodge Jones Foundation, and Pfizer, Inc. ©Copyright Think Tank. All rights reserved. 
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