Opening Up The Soviet Economy
The prospect of serious reform in the Soviet economy greatly complicates the choices the United States must make about trade, technology transfer, joint ventures, human rights and relations with allies. Professor Hough of Duke University shows why and makes the case for relaxing American policy. Unlike others, he does not think Gorbachev would make concessions on arms control or foreign policy solely to get better economic treatment. The gains for both countries would come through long-run changes in the U.S.S.R. and a reduction of the anti-Western and protectionist forces there.
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Russia does not need a Pinochet, but it does need the Chilean economic model. For Russia to grow at self-sustaining annual rates of seven to ten percent for a decade or two -- the only way it can pull itself out of poverty -- it needs much more economic liberalization. Four reforms inspired by Chile's dramatic turnaround can help Russia out of its doldrums: pension privatization, tax reform, radical deregulation of coddled industries, and the replacement of the ruble with the euro. The indispensable element is not a strong four-star general but a team of determined economic policymakers who know that freedom works.
Russia's popular new president is better positioned than his predecessor was to enact needed reforms. But all of Vladimir Putin's efforts will come to nought unless he can do what Boris Yeltsin never did: rein in Russia's plutocrats. These ruthless oligarchs have fleeced Russia of staggering sums, seizing control of its oil industry -- one of the world's largest -- in the process. Through payoffs and intimidation, they have insinuated themselves into electoral politics and virtually immunized themselves from prosecution. None of Russia's problems -- neither its crippled economy, nor its emaciated infrastructure, nor its wheezing democracy -- will be solved while the robber barons retain their power. America cannot afford to sit on the sidelines any longer.
Russia is being called upon to accomplish the 'conversion' of its military production capacity to civilian production, yet history shows that conversion policy, even in the USA, has never worked, because "defense work has little in common with civilian work". Defence conversion should not even be regarded 'conversion' at all: "Rather it is the result of two independent and parallel actions: shedding many elements of the defense sector; and absorbing those assets into a new entrepreneurial consumer sector. The way to increase the production of sausage-making machines is to expand the sausage factory... not to annoint the rocket makers as sausage makers... The bad news here is for the managers, most of whom become unsalvageable". It is the old corporate culture that has to be bulldozed out of the way.

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