Colloquium 1995 Panel V : Conclusions, Perspectives and Security Implications

Strategic Failures and Assets of Russian Reform Policies Andrei Zagorski Vast differences have emerged between Russia's approach to reform and that of her former satellites, says Andrei Zagorski. Russia seems to lack their commitment to transition. The government devotes its energy to placating interest groups, rather than embarking on a full-bodied reform programme. Defence conversion has all but halted because the grip of the military-industrial complex has not been broken. And the old-style industries are using protectionism not to gain time to adjust, but to keep things as they are. The reform process cannot be stopped, but it can be slowed down. Dr. Zagorski is Vice-Rector of the Moscow State Institute of International Relations (MGIMO-University).

Introduction The purpose of this panel is to make general points on the progress of economic reforms in the partner countries, and to discuss the security implications of those developments. Without neglecting but rather welcoming the discussions over single and particularly important issues at this Colloquium, I would suggest that, for the purposes of this panel, we turn to the issues which, to a great extent, transcend the particular problems which have been intensively discussed for the last two days. Our discussions reveal that there is a differentiation among the partner countries. This distinction is explicit in the new categories that have emerged with the end of the Cold War. First, the concept of Central and Eastern Europe (CEE) has been introduced embracing all partner countries. Later on, with the concept of Eastern Central Europe (ECE), nine (now practically ten) of the partner countries have been singled out. This categorisation implies different modes of relations to be developed between those countries and Western institutions. It is the ECE countries which have signed Association Agreements with EU, thus receiving the prospects for full membership, while other CEE countries have been offered Partnership and Cooperation Agreements implying, for some countries, only the possibility of transforming those agreements into free trade area agreements if the progress of reforms makes it possible. It is the ECE countries which have become associated partners with the Western European Union (WEU) and, with the prospect of becoming EU members, have also the prospects of being admitted to the WEU. It is the ECE countries which are the subject of discussions with respect to the prospective NATO extension, while other CEE countries have little chances of exceeding the level of the Partnership for Peace. There is not only an explicit but also implicit distinction between the CEE partner countries which, though being sometimes vague, largely goes along the border of the Former Soviet Union (FSU) with the exception of the Baltic states. The purpose of this paper is not to lament that there should be no such distinction and that all partner countries should be treated equally and offered similar options. The purpose is to suggest that we should go beyond the political and bureaucratic criteria and ask ourselves the question: whether that distinction has an objective rationale, what is the difference between the two (or even more) groups of countries and what are the implications for the policy toward those countries. Indeed, if this distinction has a deeper rationale and goes beyond the plausible political and geographic preferences, this would imply that also the substantial priorities and techniques of assisting the transition should differ and go beyond the formal differentiation in the status with respect to various Western institutions. The problem appears immense, and this paper does not pretend to provide answers to all the questions. It can only initiate discussion over the issue. Therefore, the paper does not provide for a traditional academically elaborated framework but is merely reduced to raising several aspects of the problem. In the following sections, the paper would elaborate on the cultural-political background of the distinction among the CEE countries, on the strategic problems and failures of Russian reforms which make the difference so important, and on the strategic assets of Russian reforms. In conclusion, some suggestions are developed.

What is the Difference? One of the distinctions between the ECE countries and Russia (and, indeed, most other Newly Independent States - NIS) refers to the recognition that Russia is "another world", as if it does not belong to the European civilisation or community of values. Many authors note that Russia itself avoids identifying itself as a European nation. The validity of a universal model of development was explicitly rejected by President Boris Yeltsin in a speech made in February 1994, in which he explained why the leading market-oriented reforms had been left out of the Russian government. Russia is different, Yeltsin said, the national character of the Russian people is not like the other Europeans. He promised that reform would continue, but reform a la Russe, not according to the recipes of the International Monetary Fund. (1) Most recently, Yeltsin has reconfirmed that the reform in Russia would be pursued à la Russe (2) whatever that implies. And the issue of belonging or not belonging to Europe, of the applicability or non-applicability of European values and standards to Russia provides an important background for political debates in Moscow. (3) Hence the discussion of the eventual security implications of developments in the FSU: while remaining a major European actor, Russia may either re-emerge as a new imperialistic power, as a European problem, (4) or it may develop as a cooperative partner, as part of the European family and of the European community of values. Whatever the political importance of this debate, it does not imply the impossibility of a deeper systemic transformation in Russia. While acknowledging the presence and the strength of the traditional culture, one should not imply that traditional culture is not capable of modernisation. The history after World War II reveals that such modernisation is possible. This was largely the case with Germany and especially with Japan, and is largely the case with many of the ECE countries. As admitted by Max Jakobson, before World War II Czechoslovakia was the only democratic and advanced industrial state among the ECE states. All the others were agrarian countries ruled by authoritarian regimes. (5) Therefore, the possibility of a systemic transformation in (and of) Russia cannot be neglected on the basis of a pure recognition that, traditionally, Russia did not reveal a stronger commitment to European values, although such a transformation should not be taken for granted either. Thus, though there is a traditional distinction between Russia and Europe, it is not the distinction which, per se, justifies scepticism with regard to Russian reforms. What makes a difference, however, is the lack of obvious progress of reforms in Russia. It is a general feeling, apart from particular problems, that reforms in Russia and most other NIS do not advance with the same speed or enthusiasm on the side of the government as in most of the ECE countries. While reforms in the latter (including the Baltic states) are considered rather advanced, at least in the economic field, (6) Russia hardly appears even to have firmly embarked on that road. Indeed, what is lacking in Russia is the strong commitment to the kind of complex reform which is usually assumed in the ECE countries. The lack of such commitment is not due to the abstract cultural gap between Russia and Europe, and it is not due to the lack of expertise (at least at the macro-level). It is mainly due to the interplay of complex factors and interest groups. Instead of revealing a strong commitment to democratic and market reforms, Russian leadership is merely manoeuvring between social, political and economic pressures. To put it in the words of Jakobson, "Russia does have one foot in the open market, but the other foot is stuck under the heavy weight of old structures. The country is straddling two worlds, shifting its weight from one foot to the other in response to conflicting pressures, external and internal". (7) The following sections of this paper provide a brief survey of several strategic problems and failures, as well as opportunities for further reform in Russia.

Strategic Problems and Failures Conversion of the military-industrial complex Early in 1994, the editor-in-chief of the Moscow Journal 'International Affairs', Boris Pyadyshev, while interviewing the President of Lithuania, Algirdas Brazauskas, asked him what had been the major mistake of Mikhail Gorbachev during perestroika, which appeared rather successful in the first years beginning with 1985. The answer of Brazauskas, at first glance, was a surprise: "First he committed a grave mistake by trusting the industrialists and first and foremost the military-industrial complex. ... By that time it was assumed that it was possible, with a strong desire, to change and turn the car of the defence industry, to make a sharp curve. Thick ordinances of the Union's Central Committee and of the Council of Ministers were issued addressing the development of the machine tools building, food processing, electronics industry etc. ... Gorbachev trusted those people who engaged in this adventure". (8) Brazauskas knew well what he was talking about. In the early stages of perestroika he was Secretary of the Central Committee of the Lithuanian Communist Party responsible for industry. He could learn himself that it had proved impossible to build upon the expectation that the Soviet military-industrial complex could be transformed from being a burden to the economy into becoming the driving force of its modernisation on the basis of most advanced "golden" technologies developed in this sector. Then and now, the conversion of the Russian defence production, with a few exceptions, has largely failed. Meanwhile, the Russian government appears ready to make the same mistake and to believe that the inherited military-industrial complex is capable of becoming the driving force of the modernisation of the Russian economy. Though having suffered drastic reductions since 1992, this complex has largely proved incapable of adjusting to market rules and of modernising the civil economy; instead, it appears to misuse its increasing weight in decision-making to preserve remaining capabilities rather than to promote deeper transformation. (9)

Protectionism In the Russian economic policy, there is a notable struggle between the liberal intention to further open up the domestic economy, and the increasing tendency towards protectionism. Most recently, the debate focused on the protectionist measures taken by the Russian government to impede imports of food. In fact, protectionism appears to be an important element of the economic policy of countries in transition, with Russia hardly providing an exception. The former Prime Minister of Japan, Yasuchiro Nakasone, pointed out that protectionism was one of the most important features of the "East Asian development model" - a necessary prerequisite of the strategy of any developing country seeking to close the gap dividing them from the industrialised countries. Nakasone believes, following the German economist Friedrich List, that it is only developed industrialised countries which can afford liberalism. The application of a protectionist policy is regarded by Nakasone as an important element of the success of both Japan and other East Asian new industrial countries. (10) From that perspective, the application of a protectionist strategy may appear not only inevitable but also welcome for Russia. However, the crucial issue is in which environment the protectionist policy is applied and what purposes it serves. In the case of Russia, protectionism is mainly pushed forward by the lobbies representing old industries (and agriculture) which are not competitive even on the domestic market. Protectionism, however, is perceived by those lobbies only marginally as a tool for gaining time for adjusting to the world markets, but mainly as an important instrument for lowering the pressures toward modernisation and structural reform of the Russian economy. Indeed, the protectionist policy of Russia now appears more to serve the purposes of preserving what is remaining of the old Soviet economy (and its system) rather then to promote its transformation.

Reintegration of CIS The kind of policy Russia develops toward the Commonwealth of Independent States (CIS) again should be raised as a strategic dilemma of Russian reforms. (11) The re-integrationist temptation in Russian policy, (12) the kind of quasi-restoration of the FSU in a new form, or of a quasi-CMEA out of the CIS states strengthens both trends: the increasing role of the military-industrial complex which is unwilling or unable to adjust to the new requirements, and the orientation towards preserving the old Soviet standards of production defended by a protectionist policy. If the emerging re-integration of the FSU is not replaced by another strategy of "new integration" (13) injecting market criteria into the cooperation within the commonwealth, the currently developed conception of a CIS Economic Union, providing, inter alia, for the establishment of a free trade area and of a customs union of the member states may become a serious obstacle for developing cooperative relations of Russia with GATT, European Union, etc. Though the Partnership and Cooperation agreement between Russia and the EU provides for a transition period during which Russia may maintain beneficial relations with the CIS countries, later on it will have to choose the priorities of its policy: either further rapprochement with Europe or further consolidation of the CIS regardless of its compatibility or incompatibility with the world markets. Strategic Assets of Russian Reforms Whatever criticisms one may make of Russian policy, the failure of Russian reform should not be taken for granted. There are several developments strengthening the motivation for continued transformation. Lack of resources Whatever disagreements develop in the Russian ruling elite, the possibilities for further balancing between real reform and cost-intensive manoeuvring are limited politically, economically and financially. Governmental support for inefficient industries is shrinking, and the competition among the old sectors (and the army) for sharing the shrinking cake is increasing. Despite the ever stronger re-integrationist rhetoric in the Russian elite, for economic reasons Moscow has abandoned far-reaching conceptions of a confederation or a union of the NIS. The most recent negotiations with the International Monetary Fund over the latest stand-by loan to Russia have revealed both the severe budgetary constraints on Russian politics as well as Moscow's dependence on external funding. This does not imply that reforms in Russia would not go ahead a la Russe - indeed, they will in a sense that no one can prescribe the particular shape and features of that reform instead of Russia itself. However, it does imply that there is a space for the basic principles of the market to be integrated into the reform plans of the Russian government.

Self-dynamics of Reforms Despite the manoeuvring of the government which, so far, has largely failed to meet its declared ends, the short period of shock therapy in 1992, and the introduction of the principle of economic freedom, have released new forces which are continually at work and are expanding market relations in the Russian economy. Many of those developments are reminiscent of "wild capitalism" and entails criminality, corruption and not the "civilised" market which has been expected. However, most important is the fact that, in the end, the still rather narrow entrepreneurial sector is becoming an ever more important actor in the national economy. The preferences of this sector in favour of an integration of Russia into the global economy are clearly manifested in the dynamics of Russia's foreign trade. Russian trade with the CIS states has dropped from 56 percent in 1991 to 20 percent in 1994, and the EU has become Russia's major trading partner. During the first half of 1994, Russia's trade with the EU14 amounted to 37 percent of Russia's total foreign trade volume and exceeded the trade with CIS countries by 50 percent. Russia already has changed and is still changing. Those changes already have developed a self-dynamic and are driving the reform initiated in 1992 even despite the uncertain policy of the government. Emergence of Civic Society It is the beginning of a civic society which may be the most important sign of that ongoing change. Though the strengthening of this phenomenon should not be taken for granted - it has often occurred in Russian history but was again and again oppressed - the importance of this development cannot be underestimated. The emergence of a civic society and of economic freedom, two developments which both go hand in hand, are most important for the spread of democratic values in Russia. It may have been the only positive effect of the Chechenya crisis that, though remaining passive, the majority of Russian society did not welcome the adventure, thus abandoning the centuries long tradition of following the government. Conclusions The analysis of developments in Russia requires a complex approach and cannot be reduced to traditional categorisation. Russia is neither a true democracy nor a clearly authoritarian state, neither a market nor a planned economy. It is a country in an extremely complex transition, the outcome of which is not yet clear. What trends take the upper hand can be influenced by the outside world only marginally. However, while generating no immediate security challenges, the long-term failure or success of reforms in Russia may have important security implications. Among possible suggestions for how to promote a more reform-friendly outcome of those developments, only two will be mentioned here. Without neglecting the importance of the stabilisation of the Russian state, i.e. through financial support, the emphasis should be on strengthening the emerging civic society and free enterprise in Russia. Though the shift toward supporting private rather than state institutions has been taking shape through the last two years, even greater emphasis should be placed on the activities of NGOs, and the development of the public sector (education, infrastructure, etc.). While designing such programmes, the emphasis should be put not on imposing criteria on the recipients but on jointly developing those criteria in order to meet the real needs of the latter. The major partner for this work should be not the state structures but a body of independent experts both from Russia and from outside. While the normative work previously done by the OSCE has been largely overshadowed by security considerations, the OSCE still can return to the important task of promoting the consolidation of the rule of law and economic freedom. It is especially the economic dimension of the OSCE which has been largely ignored by the EU countries. However, combining both the legal and the economic dimensions of the OSCE while elaborating more specific standards for economic legislation, and of an OSCE mechanism for the implementation of those standards - similar to the OSCE human dimension mechanism - could, in a longer perspective, contribute to the development of a more homogenous legal-economic space in Europe including Russia.

Footnotes Max Jakobson, 'Collective Security in Europe Today', in: The Washington Quarterly, Vol. 18, no 2, Spring 1995, p. 60. See Interview with Boris Yeltsin in Izvestiya, Moscow, 10 June 1995. For a review of this debate see. i.e.: Andrei Zagorski, 'Russia and the CIS', in: Redefining Europe: New Patterns of Conflict and Cooperation, edited by Hugh Miall, London; New York: Pinter, 1994. S. Neil MacFarlaine, 'Russia and European Security', in Hans-Georg Ehrhart, Anna Kreikemeyer, Andrei Zagorski (eds), The Former Soviet Union and European Security: Between Integration and Disintegration, Baden-Baden, 1993. Max Jakobson, 'Collective Security in Europe Today', p. 60. For a differentiated analysis of the progress of reforms in the ECE countries see, i.e.: Demokratie und Marktwirtschaft in Osteuropa. Hrsg. von Werner Weidenfeld, Gutersloh, Bertelsmann, 1995. Max Jakobson, 'Collective Security in Europe Today', p. 60. Algirdas Brazauskas, ' "Divorce Lithuanian-Style" and After', Mezhdunarodnaya Zhizn, Moscow, 1004, no 4, p. 14. On this see, i.e.: Pavel Ivanov, 'Military Industry and Conversion', in: From Reform to Stabilization... Russian Foreign, Military and Economic Policy: Analysis and Forecast, 1993-1995, Edited by Alexander Lopukhin, Sergio Rossi and Andrei Zagorski, Moscow, 1995. Yasuchiro Nakasone and others, Posle Kholodnoi Voiny (After the Cold War), Moscow: Progress, 1993, p. 180-194. See: Andrei Zagorski, 'Strategic dilemmas of Russian reform policies', in: Economic Developments in Cooperation Partner Countries from a Sectoral Perspective. Colloquium 30 June, 1 and 2 July 1993, Brussels: NATO, 1993, p. 282-284. See, i.e.: Sherman W. Garnett, 'The Integrationist Temptation', in: The Washington Quarterly, Vol. 18, no 2, Spring 1995, pp. 35-44. For the distinction see, i.e.: Andrei Zagorski, Reintegration in the former USSR?, in Aussenpolitik, 1994, Vol. 45, no 3, p. 263-272. This data includes trade with the four countries that were expected to become EU members from 1 January 1995. Nonetheless, the negative outcome of the referendum in Norway on the country's participation in EU does not affect significantly the cited data.