Openness and Foreign Policy Reform in Communist States

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His goal was quite plain: to bring the Soviet Union up to par economically with the West. This had been a goal of Russian leaders since Peter the Great unleashed the first great wave of modernization and Westernization. After two years, however, Gorbachev came to the conclusion that deeper structural changes were necessary. In —88 he pushed through reforms that went less than halfway to the creation of a semi-free market system. The consequences of this form of a semi-mixed economy with the contradictions of the reforms themselves brought economic chaos to the country and great unpopularity to Gorbachev.

Yavlinsky, counseled him that Western-style success required a true market economy.

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Gorbachev, however, never succeeded in making the jump from the command economy to even a mixed economy. He believed that the opening up of the political system—essentially, democratizing it—was the only way to overcome inertia in the political and bureaucratic apparatus, which had a big interest in maintaining the status quo. In addition, he believed that the path to economic and social recovery required the inclusion of people in the political process.

As the economic and political situation began to deteriorate, Gorbachev concentrated his energies on increasing his authority that is to say, his ability to make decisions. He did not, however, develop the power to implement these decisions. He became a constitutional dictator—but only on paper.

Glasnost - Wikipedia

His policies were simply not put into practice. By the summer of , however, Gorbachev had become strong enough to emasculate the Central Committee Secretariat and take the party out of the day-to-day running of the economy. This responsibility was to pass to the local soviets. The new body superseded the Supreme Soviet as the highest organ of state power.

The Congress elected a new Supreme Soviet, and Gorbachev, who had opted for an executive presidency modeled on the U. This meant that all the republics, including first and foremost Russia, could have a similar type of presidency. Moreover, Gorbachev radically changed Soviet political life when he removed the constitutional article according to which the only legal political organization was the Communist Party of the Soviet Union.

Gorbachev understood that the defense burden, perhaps equivalent to 25 percent of the gross national product , was crippling the country. Moreover, the huge defense expenditures that characterized the Cold War years were one of the causes of Soviet economic decline. Gorbachev therefore transformed Soviet foreign policy. He traveled abroad extensively and was brilliantly successful in convincing foreigners that the U.

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His changes in foreign policy led to the democratization of eastern Europe and the end of the Cold War. As the U. The reemergence of Russian nationalism seriously weakened Gorbachev as the leader of the Soviet empire. Yeltsin came into conflict with the more conservative members of the Politburo and was eventually removed from the Moscow post in late However, a Siberian deputy stepped down in his favour.

Yeltsin for the first time had a national platform. In parliament he pilloried Gorbachev, the Communist Party, corruption, and the slow pace of economic reform. Yeltsin was elected president of the Russian parliament despite the bitter opposition of Gorbachev. In March , when Gorbachev launched an all-union referendum about the future Soviet federation, Russia and several other republics added some supplementary questions.

One of the Russian questions was whether the voters were in favour of a directly elected president. They were, and they chose Yeltsin.

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Soviet attempts to discourage Baltic independence led to a bloody confrontation in Vilnius in January , after which Yeltsin called upon Russian troops to disobey orders that would have them shoot unarmed civilians. Those policies included annulling thousands of orders and bans, allowing Czech and foreign subjects to enter the market, liberalizing prices and foreign trade, and privatizing state enterprises. All the while, we kept in mind the two indispensable preconditions for the success of economic transformation: macroeconomic stability and gradual creation of the infrastructure needed for the functioning of the market.

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All of us who were thinking about economic reforms at that time knew that it was necessary to take all of those steps simultaneously. We did not consider any of them less important than the others. However unbelievable it might sound today, we had to fight hard over every sentence in the Scenario for Economic Reform. We knew that there was nothing to wait for, because the euphoria that followed the collapse of communism would not provide us with unlimited time and room for unpopular and painful steps.

We knew that it was necessary to take advantage of the temporary weakening of all the various interest groups, which, as Mancur Olson explained, would under normal circumstances obstruct change, and promote their own special interests. We knew that any fundamental change in a free democratic society is, not an exercise in applied economics, but a real social process, which cannot be designed and gradually implemented by constructivists. Thus, the advice given by Joseph Stiglitz—that we should have made our transformation more gradual as the Chinese have done—is laughable.

Early Attempts at Reform

Also, we had to avoid partial reform because partial reform creates new disequilibria that harm the economy as a whole. It was, therefore, essential to take a big step and create a "critical mass" of reforms that signaled that there would not be a return to the past. We also knew that we could not destabilize the economy and with it millions of people's lives. We had to minimize inflation as well as the unavoidable losses of output—some of which, unfortunately, was irretrievably lost.

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  • We tried to achieve the best possible shape of the proverbial J-curve. If we were to create our own "Tobin's" index showing the losses suffered by the Czech economy because of transformation, I am confident that it would be the most favorable such measure among all the transforming countries. The key to minimization of transformation losses was a cautious fiscal policy—in particular a surplus budget in —and a cautious monetary policy.

    That allowed us to avoid the risks resulting from price and foreign trade liberalization, a price-wage spiral, and an exchange rate spiral.

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    It can be said that we did avoid them even though—especially when we were looking for the correct rate of devaluation of the Czechoslovak crown at the end of December —we did not sleep for a few nights. In the end, we did only what we were allowed to do by the social and political consensus of that time. But it was far from being all that we dreamt about and that we considered correct. Other evolutionary, but not revolutionary, changes would follow, and the system would be fine-tuned in the future and within the framework of the intricate process of parliamentary democracy. I believe that much concerning the challenges we faced was not understood by those who criticized us then and is still not understood by those who criticize us today.

    Over the years, we were criticized for price liberalization in a monopolistic economy. But we knew that that monopolistic structure was the main reason for parallel liberalization of foreign trade. Essentially, we had to "import" competition. The results bore out our hypothesis, and our country had the lowest rate of inflation of all countries where prices had been liberalized. We were also criticized for the extent of the crown's devaluation, but our rate of devaluation secured our main aim—equilibrium of the balance of payments.

    We also won our fight with the International Monetary Fund when we refused to accept the even greater devaluation that the IMF advocated. The exchange rate survived at the level chosen by us in December for six long years. We accepted the dominant doctrine at that time that argued in favor of a fixed exchange rate as the only possible anchor of a sharply fluctuating transformation economy—even though I feared that measure.

    We wanted to liberalize prices and trade and fix the exchange rate afterwards. It came out well. Unfortunately, after a couple of years, we missed the moment when we should have left the fixed exchange rate. That mistake was partly responsible for the exchange rate problems of I consider amusing a recent criticism that I promoted the fixed exchange rate at that time but today do not want to fix our exchange rate by accepting the euro.

    In the fixed exchange rate was a key element in the stabilization of our economy, whereas today it would lead to our economy's destabilization. Moreover, we pushed for privatization of businesses as we found them and not, as some of our critics wanted, after first bailing them out financially.