Can Putin Survive?
The Lessons of the Soviet Collapse
THE war confronts the whole horizon of spirit and of mind. Our own participation in it advances step by step. We do not know the cost or duration of the struggle, only that it must be won. Still the impulse survives, amidst the deepening fury, to seek the terms on which a peaceful world, more satisfactory and more stable than the one we have known, may be established. Students and public officials, responding sympathetically and almost instinctively to the feeling of the nation, join in this search. I do not know whether it was true of other wars; but certainly in this one, though laws may be silent, students are not. This being so, one more brief suggestion for the improvement of the future can add little to the distraction. This must be my apology for this article if one is needed.
My aim is to advance for critical consideration a suggestion for improving the basis of international economic relations. In essence, it is a suggestion for what might be termed a "Trade Stabilization Budget or Fund." In form it may appear to be novel. But most of its elements have in substance already made their appearance in agreements and actions of the United States.
The rapid and widespread defection of the nations, in the last few years, from the arrangements and agreements which in the past had come to form the pattern of international trade was sudden and unexpected. For these arrangements and agreements had seemed so solidly established.
Before 1914, in fact, they appeared to represent an almost perfected international system. Governments intervened but little in the trade and financial dealings between peoples of different countries. The view prevailed that the operation of the system served the interests of all nations decidedly well; and this appeared to be receiving marked corroboration by cumulative experience. The world's trade was doubling each decade. Cheap sources of supply were replacing costly ones. The condition of life in most countries was definitely improving. Work was becoming less burdensome for most of the people of the world. The capital that accumulated in the wealthier and more industrialized lands was engaging on a vast scale in the development of new lands and resources. The credit of almost all countries inspired faith. In fact, the advantages and benefits of the international trade system seemed to have made it a formative influence in the political and diplomatic relations of countries, and not merely an instrument.
Few observers perceived deficiencies in these arrangements. A school of German thought found them insufficient to enable the state to assume the rôle which they desired for it. True, also, the diplomatic archives show that commercial rivalries had become a serious poison in the relations of nations, and there were some who thought that these rivalries and the quarrels over colonial gains forecast eventual disaster. But they were not many. For the tendencies complained of were generally regarded as results of abuses in the system and not inherent characteristics. The cure, and it seemed in course of application, was to cleanse the system thoroughly of the infection of over-intense nationalism.
The system itself and these judgments concerning it survived the war of 1914-1918. In the following years, private interests and governments alike set about industriously to make repairs and improvements. Until the onset of the great depression in 1929 little basic doubt was entertained as to the ultimate prospect of success. But in the depression years nation after nation had recourse to measures that constituted in effect withdrawal in some measure from the international system. And then recovery from the resultant economic disorder by the reconstituting of the international system was finally made impossible by the resumption of policies of military aggression by certain Great Powers. Germany and Italy made economic planning a branch of military strategy, and slowly and belatedly other countries were compelled to follow the same course.
To discover what form of economic relations will best serve the interests of individual nations and best contribute to the maintenance of a peaceful and an orderly world we must pursue two lines of inquiry. First, what are the benefits which nations seek from trade with one another? Second, what imperfections in the customary trade arrangements of the recent past may have contributed, in part, to their disintegration?
Briefly the benefits sought are these:
In the first place, most countries live in chronic fear of unemployment. Thus each believes it important to have foreign markets for its chief export products on reasonably satisfactory terms and each is apt to bear resentment against other nations when these markets fail. Some possess greater productive capacity and enterprise than others, and a greater ability to change the direction of their working effort in response to changes in the demand for their products. But all have shown an increasing wish to avoid being forced to execute drastic internal adjustments as a result of changes in external markets. They have become less inclined to regard as satisfactory a system of international trade which incessantly requires such changes.
Secondly, they expect trade to provide essential goods, i.e. to meet needs which they cannot satisfy from their own resources and abilities. This expectation exists in the mind of each nation, be it large or small, well-endowed or not, industrious or lazy. The desire for consumption goods has become strong among the masses of the people, not solely in small, well-placed groups. The demand for goods wanted for use in further production is no less eager. It has grown as the knowledge of production methods has spread throughout the world.
Third, and perhaps most important, nations have come to expect to find in their trade exchanges with other nations a stabilizing influence in their own economic life. They desire certainty that from year to year they will be able to sell abroad, at relatively stable prices, at least a basic minimum of the export products on which they depend for prosperity. This would assure, in turn, ability to pay for imports deemed essential.
This statement of the benefits sought by nations in trade with one another takes heed only of their more modest expectations, their restrained desires. Yet such expectations and desires have been fulfilled in the past in the case of only a few nations and only during favorable periods.
Most economists would have judged even the foregoing formulation somewhat Utopian. Their customary arguments made plain that in order to sustain a substantial and advantageous trade with other nations a country must be both competent and industrious. They likewise called for willing and able internal adjustments to meet the requirements of international competition. And it was their judgment that fluctuations of fortune must be endured -- bad times being the preparation for good times, and good times being all too likely to sow the seed of bad times. Withal they were consoled by the prospect that out of our changing sea of fortune there was in the long run a haul for each nation -- but especially for the industrious, the well-endowed, and the ingenious.
In their reasoning about international trade relations they dealt most often (there are exceptions, such as Adam Smith) with textbook lands named "A" and "B" and "C." The inhabitants of these lands, we now see, had different natures and ideas from those prevailing among the real nations occupying the earth at the present time. For it was presumed that each would accept without much question the place and destiny allotted to it through the operation of the universal system. One looks in vain now for any such large measure of reason and of patience. The doctrines and promises of political leaders do not instill it. The mind of the nations is colored by expectations of plenty; this is true not only of those few countries that have established their own power to produce plenty, but of many others. Each has a high standard of anticipation and, if this is disappointed, seems ready at least to flirt with the devil.
This impatience arises, in part, from a belief that human ability to develop the natural resources of the world and to convert them into useful products has now become great enough to make possible the satisfaction of all mankind's reasonable and basic needs. A sister belief is that intelligence should be able to bring steadiness into human affairs. These beliefs shape standards of judgment in the matter, and tend to set the terms and problems of statesmanship. The machine is expected to produce the miracle; and the system of international trade is expected to reproduce it in every country.
So much for the continuing spur to discontent arising from a failure to secure the benefits which nations have come to expect from international trade. What, now, were the main deficiencies of the trade arrangements as they have existed in the recent past?
First. Even during periods of political order, the prospects of each country in the field of international trade (as also in internal trade) remained uncertain. The uncertainty was of different kinds, and became particularly marked during periods of depression.
Markets for exports were uncertain. Year by year, no country knew within wide limits what quantities of its products it was going to be able to sell abroad, or at what prices. True, the breadth of the world market afforded much more stability and certainty than any narrower unregulated market could have done. Still, each country experienced great fluctuations in its export trade, arising from the fluctuations of business conditions, from changes in sources of supply, and from the introduction of new trade restrictions. This uncertainty in external markets affected domestic conditions within each country, as well as the ability to pay for imports; it introduced irregularity into the development of natural resources and into manufacturing enterprise.
True, loans from abroad often helped to overcome the results of such fluctuations; but in turn they became new burdens. True, also, the expansion of the sources of supply prevented prolonged substantial advances in the price of what was needed. But the safeguards against the failure of exports and of purchasing power were weak.
Second. All countries were called upon to face the full consequences of international competition. Thereby, productive improvement was stimulated and economic advantages were distributed among the nations. But this competition sometimes proved so great and variable as to be deeply disturbing. It grew in intensity in recent years as new technical knowledge and methods were applied more rapidly and more extensively. The adjustments imposed upon all countries in consequence have grown in difficulty. Each country could and often did resort to protective devices as safeguards against competition, thereby often causing additional disturbance elsewhere.
International finance often provided the means for helping nations through difficulties of adjustment, but they were primarily guided by calculations of ability to pay by ordinary trade means. Since a country's economic prospects always seem worse when it is suffering from some severe dislocation, the least help often was available just when it was most needed. If the resort to protective devices is to become less extensive in the future, it seems to be indicated that trade arrangements must somehow provide a cushioning reserve which will help nations to bear the force of international competition.
Third. There were substantial differences in the terms on which individual nations participated in the international exchange of goods. All drew some benefit; and it may well be that those that were poorest and neediest secured the greatest benefit, measured in the scale of total human welfare. But measured by the scale of the human effort exchanged, some countries participated in the exchange on severe terms. Nations in this position were frequently tempted, particularly when depression conditions brought an adverse turn in their already meager economic life, to seek improvement in the terms of exchange by securing a privileged position in some special deal from which competitors were more or less excluded.
When a country seems definitely incapable of holding its own economically, of sharing in a general course of economic improvement (and particularly if it is backward in other ways), this situation has sometimes been accepted as justification for placing it in a colonial position or even for absorbing it territorially. In some instances this may be the only satisfactory solution. But the most clearly indicated adjustments of this type have already taken place; and unless they are worked out in each instance with a large measure of consent by all the other nations concerned they are likely to raise dangerous issues. In other instances, a recognition of the economic handicaps of particular regions has disposed governments to turn to customs unions or similar attempts to create economic boundaries which are more satisfactory than the political ones.
It would seem necessary to devise, as part of an orderly and peaceful international system, some less far-reaching means for providing the necessary measure of aid for weaker economic regions so that they may increase their productivity and improve their terms of trade, thereby lessening the need of special and exclusive arrangements of a character apt to incite political fears and hostilities.
Such, in brief summary, are the deficiencies -- as compared with contemporary needs and expectations -- of the trade and financial arrangements customary before the present crisis. The main task that lies ahead is to find effective means of overcoming the deficiencies of the arrangements, while preserving the productive vitality and freedom by which nations have set such store.
Given a return of political order and trust in the world, so that productive energies can again be turned to peaceful purposes, countries will devote themselves to this task individually and jointly. Hundreds of proposals and initiatives will be tested for practicability and acceptability. None of them can be effective or important by itself. Let the following be considered as one of the many.
For purposes of exposition,the plan is presented first as a possible basis of economic agreement between the United States and other countries -- a possible supplement to the Trade Agreements Act. However, its usefulness would largely depend on a wider application; indeed, if it were so limited its defects might prove serious. Moreover, its nature is such that it might be utilized in substantially the same form as the basis of coördinated action by several countries; or possibly (though negotiations grow more difficult as the number of parties thereto become more numerous) it might even be developed into a broad internationally organized and administered arrangement.
In its simplest form, then, the suggestion is made that at the beginning of each year the American Government set aside, in the Federal Reserve Bank (or other institution), a designated sum of dollars which would be made available to foreign nations for external payment of goods, services or debts. This sum might at the beginning be, say, three to four billions of dollars. This is designated as a rough estimate of the minimum urgent future needs of foreign countries for dollars for these purposes; but it might well have variable limits. By a process of negotiation -- in which past record and current analysis would establish the limits that were reasonable -- the various parts of this total sum could then be allocated for the use of particular nations. The purposes for which the allocated sums were to be available, as well as various other details of their use, such as the fractions which might be drawn upon by governments and for what purposes, could also be settled by negotiation.
This annual minimum budget of dollars at the disposal of foreign nations would assure them of a minimum ability to secure and pay for products and services needed from the United States.[i] Price movements would lessen the actual certainty represented by any designated sum. But nations would be much better able to reckon with foresight their ability to import essential consumer and producer goods; and indirectly, also, to assure the minimum movement for their export products.
To the extent that each foreign country drew upon the dollars allocated for its use, it would be obligated to set aside an equivalent amount in its own currency (or of other currencies, as might be agreed) available for expenditure by the United States at a designated rate of exchange. The foreign currencies so accruing to the American account would be on sale by the Federal Reserve Bank to private interests. Here also, again presumably within variable limits, the purposes for which they could be employed would be specified. There necessarily would be substantial variations in the terms of different agreements to accord with the different positions of the countries concerned -- as there are, for example, in the Lend-Lease agreements under negotiation with the other American republics.
No permanent debt would come into existence. If at the end of a specified period (say, each two years) foreign countries had not yet drawn fully upon the fund of dollars allocated, the unused remainder would be canceled. If, on the other hand, uses had not been found for the amounts of other currencies accruing to the account of the United States, these should also be canceled. The arrangement could be so framed as to permit use of the allocated funds within agreed limits, by private individuals for investment in the other country, or for loans to private individuals within the other country.
Governments and private interests alike would retain their freedom to undertake loans with funds not included in the allocations. But the accords themselves would not originate any permanent debt or clearing deficit requiring payment by any country. The design of each agreement would be to place each country in a position to pay for needed minimum imports and services to the other. Each would be left to choose the amount of goods and services it wished to accept. A country in the position of the United States, in possession of huge gold reserves and enjoying a tremendous demand for its products, would in many instances be called upon to grant allocations beyond its usual needs for foreign funds -- and have the choice of using these funds or accede to their cancellation.
The agreements would have to contain provisions designating the exchange rates that would be effective, and the contracting governments would have to pledge themselves to dispose of the allocated currency of the other only at the designated rate. The rates employed should be, as far as possible, the "normal" ones -- determined by the same process of judgment that is now exercised in working agreements between existing stabilization funds. The purchase and sale of dollars allocated could be executed through the free private system of monetary exchange -- working in agreement with central banking institutions.
It is contemplated that in each instance the existing direct exchange control would be ended as soon as underlying circumstances make this possible. Thus private interests would again be free to buy and sell, and freely to make payments in dollars and other currencies, using for this purpose not only the funds specified in the agreement but other available supplies. In order to avoid a rigid control of allocated sums, as well as for other reasons, it would be highly desirable that all such transactions were carried out at the designated rate, or very close thereto. This would appear to make necessary arrangements either for free gold movements at the designated rate, or coöperative currency stabilization accords similar to the Tripartite Accord in operation before the war.
So much for the basic notion. Obviously there would be innumerable subsidiary questions to be reckoned with, but I think they would prove soluble in the course of actual negotiation. I avoid entering them here in this preliminary and conjectural exposition -- with one exception, the important matter of the transfer or resale to the other countries of allocated sums. Admittedly this presents difficulties. Some freedom to transfer would appear to be essential, first, to make it possible for trade to move freely and internationally in the channels marked by economic advantage; and second, to avoid multiple price levels in each country. But to grant complete freedom of transfer might appear to many countries too generous. The practical compromise would probably turn out to be an agreement permitting transfer in part, and for agreed purposes.
Certainly the whole arrangement visualized would operate more satisfactorily if it were to be employed simultaneously by two, three or more of the wealthier and larger trading countries. If numerous countries adopted the plan, they might well reach an agreement to allow the free transfer among themselves of all the allocated sums -- forming a common pool. Going even further, they might determine the allocations by joint accord.
The process of international collaboration could, conceivably, be carried further in various ways if the will existed and experience proved the feasibility of the first steps attempted. A common agreement might be worked out regarding the bases on which sums were to be allocated by countries, and this might be made an international obligation. There might be international agreements providing international direction over certain parts of the allocations, and joint administration of certain uses.
Armchair speculation could open up even further vistas. But it may already for many have gone too far. One feature of the suggestion, however, that may recommend it is that it does not require to be elaborated and adopted in one swift and far-reaching effort. Nor does it present difficult problems of international administration for immediate solution -- such as are presented, for example, by proposals for an international Reconstruction Corporation. It could be gradually blended into established economic ways.
The foregoing suggestion is advanced for discussion and the judgment of others and with no intention of making a plea on its behalf. However, the reasons for believing it worth consideration may be indicated briefly. It should tend to establish a rough minimum assured basis for total trade movement, and in this way it should increase the stability of international trade, and lessen competitive pressure to export. It is susceptible of expansion according to the desires of the countries concerned. It could be developed into, and operated as, an international system. It should lessen the injurious effect of trade restrictions, and stimulate the inclination of each country concerned to find a way to absorb products from abroad compatible with its domestic economic situation. It might facilitate a lessening of preferential trade restrictions and colonial arrangements. It could be used as a means of giving special assistance to countries passing through a phase of unusual difficulty. It could be shaped so as to help those countries which in the past have participated in international trade on unsatisfactory terms, and so lessen the possibility that they may become centers of discontent and political manœuvre.
These results might be achieved, I believe, without impairing or restricting the activity of private individuals in trade at any vital point, and without too greatly disturbing the operation of international competition. True, adoption of the plan would be likely to cause some trade to move somewhat differently than it would in freely open world-wide competitive markets -- if these are reëstablished. This means there would be need for wisdom and restraint in the determination of the terms of the agreements.
Other disadvantageous possibilities should be remarked as a matter of precaution. If it is to accomplish the purposes for which it is designed, the plan would -- at the beginning, at least -- turn out to be a subsidy, in one form or another, by countries with the strongest economic and trade position to other countries. The subsidy would be extended in order to enable the less advantageously placed countries to maintain a not-too-unsatisfactory standard of living and to avoid excessively serious and abrupt adjustments in their customary occupations. Thus operating, it might in some directions deter the development or use of the best or most efficient means and sources of supply and production. It might be viewed in the same light as the type of subsidy payment involved in social security plans or those frequently conveyed within countries, through operation of the tax system, by some regions to other regions. The general purposes of such internal subsidies have been the same -- to ease problems of adjustment, to maintain a minimum of stability and harmony within the country.
It might be argued that both the negotiation and operation of agreements of the type suggested might engender diplomatic friction. The risk exists. There is reason for thinking, however, that such differences as might arise would be more susceptible of satisfactory adjustment than the trade frictions prevalent under the arrangements of the past.
This is not intended to be either a comprehensive presentation of my suggestion or a conclusive inquiry into its method of operation. The plan would not, of itself, help much to maintain peace; that must rest on the deeper determination of the nations. It does not pretend to be a substitute for settling equitable frontiers, or for concluding the more far-reaching economic and political arrangements which are needed in various parts of the world. But it may deserve a place in the pile of memoranda which students are preparing against the day when constructive steps for economic advancement again become possible. I need hardly add that this has been an entirely personal intellectual excursion, and in no way must be taken to engage the responsibility of the State Department.
[i] Or elsewhere; the matter of transfer will be dealt with at a later point.