„Western policy makers acknowledged that the collapse of the Soviet Union was a unique opportunity to help freedom take root in Russia and Eurasia. At the same time, there were also enormous risks involved“.

Stephane Kieninger in „Money for Moscow: The West and the Question of Financial Assistance for Michael Gorbachev(in „Exiting the Cold War –Entering a New World“, eds.Hamilton and Spohr, Johns Hopkins University).

THE FALL OF THE BERLIN WALL in 1989 was a momentous event. It happened almost by accident. A misunderstanding between a low level East German official and his superiors made it possible. This started a chain of events which changed history. This was neither foreseen, preplanned nor ordered by higher authorities.

This was „peoplepower“ in action. One event led to another. Two years later, the once mighty Soviet Union no longer existed. It simply dissolved peacefully – not with a bang, but a whimper. Noone could have foreseen this, although the ailing symptoms of the lethargic empire had long been evident. The man who wanted to heal the patient – reform the system – Mikhael Gorbachev, was instead engulfed by the chain of events and dissappeared with it.

This was thirty years ago. Last fall Johns Hopkins University, in cooperation with the Brookings Institute in Washington D.C., published a book with the aim of analysing the significance of those epoch making events. The editors, Daniel S. Hamilton and Kristina Spohr, brought together a constellation of authors to do the job. Some were contemporary actors on the scene, either in the inner circles of secretary Gorbachev, president Bush, Chancellor Kohl etc., or otherwise politically involved.

Two of the authors deal with the Baltic road to freedom , which we now know by hindsight was the beginning of the end of the Soviet Union. Also, there are interesting pieces by some of the thinkers of the Polish Solidarnosc-Movement, which reveal the intellectual bankruptcy of Soviet communism. Also, there are valuable contributions by scholars, who have had access to the historical archives, in so far as they have now been made available.

When we look back at those historical events thirty years later, there are many questions that demand answers. Why did the Soviet Union fall apart? How did the leaders of Western democracies react? Did they seize this unique opportunity „to help freedom take root in Russia and Eurasia“? Or were they essentially unprepared, simply reacting to events, too little and too late? Did they essentially lose a unique opportunity to make our world a safer place?

WHY DID THE SOVIET UNION COLLAPSE? Here is the answer by Sir Roderic Lyne, her Majesty´s ambassador to Moscow (1987-90):

„It was the peoples of the Soviet Union and the Warsaw Pact countries who ended the Cold War by overthrowing communism. That the Cold War ended when it did, and how it did, was due, not to Ronald Reagan, but to Mikhael Gorbachev, and to the legacy of the failing system which he inherited and tried to reform“

Another way to put it is this: Towards the end of Gorbachev´s reign, the Soviet Union had simply become both intellectually and economically bankrupt. In the end it was Gorbachev‘s fate to beg Western leaders for money – endless petitions for credit and loans –to keep the Soviet system afloat from day to day. Under Yeltsin the unreformed economy of Russia entered a free fall. Even basic commodities failed to reach the shops. A glaring example: „By 1992 the commander of the Northern fleet, Admiral Gromov, had to „beg the Norwegians“ to supply his troops with humanitarian aid“. Humiliation could hardly go further.

David C. Gompert, once assistant to Secretary of State, Henry Kissinger, describes the situation in those words:

„Fundamentally, these events occurred because Soviet communism – a mix of Marxist ideology, economic central-planning, state and party bureaucracy, Russian imperialism and confrontation with the West – collapsed of its own dead weight. Its ideology could not tolerate truth; its economic central planning retarded modernisation; its bureaucracy was obese; its propaganda was stale;its military was outsized; the arms race drained it of investment capital; and its imperialism, including demands for military intervention, caused bankruptcy and, in Afghanistan, intolerable loss of life. The Soviet Union could no longer compete with the West technologically, economically, militarily, or in the war of ideas. To make matters worse, the price of its principal revenue source, fossil fuel, nose-dived“.

Another British ambassadorto Moscow (1988-92), Sir Roderich Braithvaite, summarizes the situation in those words:

„The Soviet collapse was followed by a decade of economic misery and political dysfunction. Western experts with ill-adapted theories and little practical experienc showered the Russians with inadequate advice about how to dismantle a communist economy of continental scale. People later wondered why Poland was able to manage economic change fairly smoothly, while Russia was not. The answer lies partly in Russia´s vastly greater size, its lack of any recent freemarket experience, and the fact that the communist system in Russia was imposed by the Russians on themselves, whereas in Poland it was a comparatively recent alien import, more easily disentangled and jettisoned“.

THIS IS PARTIAL TRUTH – but only partial.True enough the Soviet Empire was in its dying phase. It could not be saved anymore than the British or French empires could be given a lease of life after the Second World War. The Soviet leader, Michael Gorbachev, who wanted to reform the system had neither the ideas nor the resources to do it. He was desperate for help.

What was the Western response? It did not make any sense. On the one hand they wanted to maintain Gorbachev in power as a partner in ending the Cold War. But on the other hand, President Bush was adamant, not to give any financial assistance, which was a precondition for any reform plan to succeed.

What was needed was a new Marshall plan. Comparable in scale and implementation to the one that helped rebuild Europe from the ruins of the Second World War.The Yavlinsky-plan was such a plan. To implement it would have cost ca. $150 billions over a period of five years. Not to be sunk into the black hole of the bankrupted system, but to seize the opportunity to help the Russians to „help freedom take root in Russia and Eurasia“.

The only Western leader to understand this and to seize the opportunity was Chancellor Kohl. In a series of agreements with Secretary Gorbachev, Kohl procured Gorbachev´s consent for the peaceful reunification of Germany and united Germany´s continued membership of NATO. And marshalledthe financial resources (20 billion DM) to make it possible. He paid the bill and got what he wanted.

President Bush did nothing of the sort. He was totally unprepared. To prove it there is his infamous „Chicken Speech“ given in Kyiv August 1st, 1991, three weeks before the declaration of independence of Ukraine and exactly 145 days before the collapse of the Soviet Union. What was his message? He appealed to the Ukrainians „not to succumb to suicidal nationalism“, but to keep the Soviet Union together – in the name of peace and stability. A „colossal misjudgement“ of reality in the words of the NY Times columnist, William Safire. Even that is an understatement.

WAS THIS THE GREATEST OPPORTUNITY LOST to change the course of history for generations? A failure of leadership – the „vision thing“ – as Bush himself so disparagingly put it? Gorbachev was a willing partner. With a new Marshall plan for reforming Russia, would the democratic forces in Russia have had a chance of succeeding in reforming the economy and building the institutions of democracy? Would we have succeeded in laying the foundations for a new „Eurasian-Atlantic-security system“ for the future? I don´t know. Noone knows, because this was a lost opportunity. But beforehand there was no reason to believe that this was a mission impossible.

Was the transition from a centralized economy of the Soviet type towards a decentralized but functioning market economy a terra incognita in economic science? Far from it. It is called a social market economy.

It is in the words of Mr. Acemoglu, an MIT economics professor: „a policy framework that emerged and took hold in Europe, especially in the Nordic countries, over the course of the 20th century. It is focused on reigning in the excesses of the market economy, reducing inequality, and improving living standards for the least fortunate… Simply put, European social democracy is a system for regulating the market economy, not supplanting it“.

And professor Acemoglu has this to say about the practical success of the social market system:

„Social democracy, broadly construed, became the foundation of post-war prosperity everywhere in the industrialized world. That includes the UnitedStates, where the New Deal and subsequent reforms strengthened or introduced important components of the social-democratic compact, including collected bargaining, social welfare policies and public education“.

WERE THE DISSIDENTS, the leaders of the reform movements in Central and Eastern Europe, and even inside Russia, unaware of those ideas? Certainly not. There is even a widely acknowledged school of thought on „socialist market economics“, associated with the name of the emigré Polish economist, Oskars Lange. Ironically it is sometimes referred to as the other Chicago School: The Chicago School of Oskars Lange, not the one associated with the name of Milton Friedman and neoliberalism.

Many years ago, in 1961, to be exact, as a young student of political economy, I was invited with a group of economics students from the Nordic countries and the UK to participate in a seminar in Zakopane in Poland on exectly this subject: They called it „The socialist market economy“. Our teachers were learned scholars from Poland (Bobrowsky) and Czechoslovakia (Ota Sik). The subject matter was how to dismantle the centralized command economy in stages.

First in agriculture, allowing the tillers of the soil to sell their produce in the markets of the cities. Second, to acknowledge various forms of property rights in ordinary business, under competitive marketing conditions, both in production and distribution. Ownership of natural resources, on the other hand, would be communal, and basic services (such as education, health care, energy and public transport) should be provided as not-for-profit public service.

This is essentially the Nordic model. It is, by now, widely acclaimed as the most successfull socio-economic model on the planet. What is needed during the transition phase is primarily financial support to secure a stable currency, to control inflation after deregulation of prices and to secure foreign capital for investment and technological transfers. The tax system has to secure the relevant incentives for making this effective. The Chinese call this the Chinese model and give the patent-rights to Deng Xiao Ping. It has been a roaring success. It has lifted hundreds of millions from medieval poverty to decent living standards.

IF THE COLLAPSE OF THE SOVIET UNION was in fact a unique opportunity to build a new and democratic Russia on the ruins of the failed communist system, we know by now that it was a „unique opportunity“ missed. After the chaos and disintergration of the Yeltsin years, Russia has returned to her past as an authoritarian state with imperial ambitions – and hence dangerous to her neighbours. This was indeed a failure of Western leadership.

The high hopes we had at the time of a New World Order, based on solid foundations of a social market economy, democracy and the rule of law, have not been realized. We have swung from one extreme to the other; from the inefficiency of the centralized command economy to the rampant inequality of market fundamentalism, out of social control. The rising oligarchies – both in the US and in Russia – are a threat to genuine democracy. Again in the words of professor Acemoglu:

„What is needed, then, is not market fundamentalism… but social-democracy. The US needs effective regulation to rein in concentrated market power. Workers need a greater voice, and public services and the safety net need to be strengthened. Last but not least, the US needs a new technology policy to ensure that the trajectory of economic developement is in everyone‘s interest“.

The same applies for the rest of us.

(Mr Hannibalssonwas leader of Iceland´s Social Democratic Party and minister for foreign affairs and external trade 1988-95. His most recent books are: The Baltic Road to Freedom – Iceland´s Role and The Nordic Model vs. the Neoliberal Challenge, Lambert Academic Publishing.)