The Day After Russia Attacks
What War in Ukraine Would Look Like—and How America Should Respond
If the world should erupt before these words are in print, the fault is unlikely to lie with the policy of détente. So far, the advantages of détente have been somewhat more evident than the costs. The capacity of the two superpowers to communicate effectively in the white heat of the Middle East crisis, for instance, must surely be counted as a significant dividend.
The policy of détente, however, is extremely vulnerable. It is exposed to the possibility that differences such as the Middle East imbroglio may prove too large to be contained. And it is exposed to another source of peril-less obvious but no less powerful-namely, that the dividends from détente, including the economic dividends, will be distributed between the parties in a grossly lopsided way.
During two decades of cold war, the economic contacts between the United States and the U.S.S.R. were reduced to a bare minimum. On one side of the iron curtain, the Soviet Union sat sullen and withdrawn. On the other side, the United States was busy imposing an Orwellian mesh of bureaucratic controls to choke off any initiatives that its own businessmen happened to offer.
On the surface, the objective of the U.S. controls was to protect or advance the security of the United States. But even a passing familiarity with these controls suggested that other standards also were being applied. At times the U.S. bureaucracy seemed to be screening all transactions by one simple criterion: How would an ignorant, though well-meaning, patriotic Congressman react? Accordingly, exports were prohibited and imports discouraged even when the effect on U.S. security seemed remote. The Soviet bureaucracy was treated to a dress rehearsal of what would happen if an embargo were applied by force of arms, and one can be sure that it profited from the rehearsal.
Among the various dividends that détente has yielded is a reduction in the masochistic impact of the U.S. restrictions on East-West transactions; no tears need be shed over that development. But even as the United States moves off one set of doubtful policies and dubious practices, it moves onto another set that may be almost as undesirable. Though our restrictions of the cold-war period did not serve U.S. interests well, it does not follow that the simple removal of such restrictions will serve our interests much better. The distribution of the economic benefits from détente may be so unbalanced as to threaten the process of détente itself.
While welcoming the thaw in economic relations with the Soviet Union, I have always been troubled by the possibility that the United States might try to conduct those relations through the same laws, regulations, and institutions as they have applied to Canada or Italy or Taiwan. Concepts such as tariff protection, anti-dumping laws, most-favored-nation treatment, currency convertibility, and patent licensing have meanings that differ according to systems and circumstances. These concepts, and the institutions associated with them, have evolved through trial, error, and adjustment, among nations that shared certain common characteristics. Eventually, the application of these concepts in international economic relations produced a delicate equilibrium that like-minded countries were prepared to accept. Other kinds of economic systems, meanwhile, developed other rules of the game to govern their economic relations. Eastern Europe's economic bloc, COMECON, for instance, is based on rules and institutions quite unlike those in the West, yet quite compatible with centralized trading structures.
The use of concepts and institutions that are incompatible or incongruous in relations between the United States and the Soviet Union generates a double risk. In simple economic terms, the United States is likely to get less out of the relationship than it now expects. If that happens, the fragile foundations on which the mood of détente rests are likely to be burdened by still another heavy weight, along with the conflict in the Middle East, the frustrations of the slow-moving security and disarmament conferences, and other such difficulties.
At the risk of belaboring what is already known, some critical distinctions between the United States and the Soviet Union, bearing especially on their approaches to international economic relations, should be stressed.
Stated simply--perhaps too simply--the prevailing rule of the U.S. government relating to transactions with the rest of the world is that anything is permitted unless it has been restricted by the state. The Soviet rule is just the reverse: nothing is permitted unless it is initiated by the state.
In practice, of course, the difference in approach appears much less obvious. Using their various powers, U.S. authorities restrict some imports through tariffs and quotas, encourage some exports through subsidies and credits, hamper some international capital movements through taxes, and prevent the immigration of some labor. The Soviet authorities, for their part, display the Moskvitch in Geneva, invite Pepsi-Cola's president to Moscow, and offer patent and copyright benefits in the U.S.S.R. to foreign inventors and authors. Is the gap not reduced thereby to manageable proportions?
The answer is no, not by any stretch of the imagination. In the first place, the capacity of U.S. interests to make contacts within the Soviet economy is still brutally circumscribed, and the actions that U.S. businessmen can take on Soviet territory are narrowly constrained. Besides, a fundamental difference conditions the behavior patterns of the public authorities in the two countries. The U.S. government does not ordinarily buy or sell anything; its role is to encourage or restrict buying and selling by others. In the United States, therefore, it is for Occidental Petroleum and Pepsi-Cola to propose, while the apparatus of government merely inhibits or assists. In the U.S.S.R., the decision-making process also has its ambiguities and its strife. But basically the causal flow is reversed; once the apparatus of the Politburo and the Party has decided what is in the interests of the country, the role of the Soviet manager is to carry out the requirements of the plan. He may grouse or evade, but his responsibility is unequivocal.
The U.S.S.R., in short, is a command economy, in which the managers of productive facilities are normally charged with responding to national requirements framed at the center. Those commands as a rule are couched in physical terms: to produce so many units of steel or shoes, using the ore or coal or leather that is being provided; to earn so much foreign exchange by exporting so much of the planned production; and so on.
The implications of the differences between the United States and the Soviet Union are pointed up in many ways. The manner in which each country is wrestling with the present energy crisis illustrates the inherent difference. The approach of the U.S. government in dealing with its energy problems is mainly to exhort, to cajole, to bribe, to seduce, and only in the final crunch to restrict the country's enterprises. The shale-oil deposits of Colorado may eventually be developed, but only when entrepreneurs decide that the combination of threats and promises is enough to move them to action. The approach of the U.S.S.R. is to set its managers and technicians to the task of developing Siberia's resources, without the option of second-guessing; threats and promises no doubt play a role here, too, but a wholly different role. It is not clear which approach better serves national interests and national values, but it is unambiguously clear that they are profoundly different systems.
Without thinking very much about it, U.S. policy-makers have shaped their policy tools in international transactions-tools such as the tariff, the subsidy, and the interest equalization tax-on a basic assumption consistent with the U.S. system, namely, the assumption that domestic costs and prices play a causal role in international transactions. And the United States has helped create international codes, such as those of the General Agreement on Tariffs and Trade and the International Monetary Fund, based on the same set of assumptions. But in projecting the behavior of the U.S.S.R. in international economic relations, the assumption that domestic costs and prices as we know them figure in such transactions would be quite fallacious.
One kind of problem is ideological. For years, the Soviet Union has felt obliged on Marxist principles to disregard the cost of capital as an input to production; products like aluminum, therefore, were much cheaper in Soviet eyes than capitalist calculations might have suggested. But a more profound difficulty also exists. It stems from the fact that in the U.S.S.R. the fixing of prices is an instrument of policy. The price of labor is determined in the light of a given set of social objectives, the prices of various industrial materials are established in response to still another set of objectives, the prices of consumer products to still another. The managers of enterprises are gauged mainly by their capacity to satisfy certain physical norms. In those circumstances, the meaning of any calculation of cost and price from the viewpoint of an enterprise economy such as the United States is largely lost.
Because the U.S.S.R. sets its prices in order to serve its national objectives, the prices and costs of the enterprise are not the factors that determine the import and the export patterns of the Soviet Union. The government bureaus that administer the country's program of international trade can be separated from the enterprises that produce the goods, without impairing the function of either. The trade bureaus have their goals, their incentives, their restraints. But those bureaus are not guided or stimulated to achieve their goals by the domestic costs of the producing enterprises.
Thus, an economy of this sort ordinarily has no need for a system that links internal prices with the prices of the outside world. Accordingly, the international exchange rate for the ruble is of no consequence in determining the Soviet Union's international transactions. The price of wheat inside the Soviet Union may be very cheap in relation to the price of automobiles, at least by the standards of the rest of the world; yet that fact creates very little strain for the U.S.S.R. Its agents are still free to buy wheat and sell automobiles in foreign markets on a pattern that would seem perverse or impossible for most countries in the West.
The Soviet system of production and trade has evolved over the past five decades through a continuous interaction between the lessons of experience and the requirements of ideology. Still, as the patterns evolve, there are some enduring elements worth noting.
One of these elements has been the execution from time to time of a vast exercise in the absorption of selected Western technologies. That phenomenon made its first appearance in the 1920s and early 1930s, as the Russians used firms like Ford, Du Pont, and General Electric to catch up on the technology of the production of trucks and tractors, heavy chemicals, and radios. It came to the surface again in the 1950s, with a great surge in the acquisition of plants and processes to produce fertilizers and synthetic fibers. And it is appearing once more in the 1970s with the wholesale absorption of the technologies of automobile production and selected branches of the electronics industry.
These technological splurges are no symptom of any lack of Soviet technical sophistication. On the contrary, the achievements of the Soviet Union, both in the pure sciences and in industrial and military applications, have been quite remarkable. Other factors seem to explain the policy. One is the apparent fact that though the best of Soviet scientists and engineers can match those of any other country, the supply of skills just below the top still seems relatively thin. Accordingly, Soviet industry and Soviet technology often give the impression of conforming to Herman Wouk's unkind description of the U.S. Navy: a system designed by geniuses to be run by clods.
One way of looking at the Soviet Union's periodic orgy in the acquisition of foreign technology, therefore, is that it is buying the embodied output of the middle-level scientists and engineers of the West, paying with its more abundant natural resources or semi-skilled labor. As between creating its own indigenous technologies or buying them ready-made from the West, the purchase route could easily be the better bargain. This is especially likely as long as the U.S.S.R. can afford to delay its acquisitions in any branch of industrial technology until the time when a number of Western firms are in the field and can be counted on to compete for the opportunity to supply the needed package of machinery and technology.
There is another way of looking at the technology acquisitions of the Soviet Union. In such an economy, it may be that large-scale, lumpy, discontinuous changes in plant and technology are more efficient than the small incremental ones that characterize Western economies; indeed, no other pattern may actually be possible in the U.S.S.R. as long as the center retains its jealously guarded powers. If significant questions of technological change have to be addressed at the overburdened center of the Soviet system, the organizational costs of debating and analyzing any policy choice are bound to be very high; hence, the decisions themselves had better be large. Besides, in a system that is devised by geniuses to be run by lesser men, there is always need for the extensive use of standard operating procedures; hence, uniformity and standardization have a tremendous virtue.
Though the factors that underlie the Soviet pattern may be quite rational, the result has been a disconcerting pattern of fits and starts in Soviet purchases abroad. The discontinuities in the patterns of Soviet acquisitions are exacerbated by the fact that the U.S.S.R. generally relies on foreign sources only for the acquisition of prototypes, not for expansion and replacement. In practice, technology acquired by any Soviet unit from abroad can generally be appropriated by other units in the Soviet Union without further cost. Accordingly, once the Soviet Union has acquired the necessary prototypical machinery and technology, duplication from domestic sources may well be the optimal policy. That source of discontinuity, therefore, could well be another logical aspect of the system.
Abrupt shifts are to be anticipated from time to time not only in the imports of the Soviet Union but also in the export mix. This is not because the Soviet officials concerned with trade policy are capricious or irresponsible; it is rather because of the relatively centralized character of the decision-making process. In the United States the decision whether to export is made independently by the various suppliers, each taking into account its own costs, expectations, and strategies; this leads to diffused patterns of behavior. In the Soviet Union, on the other hand, the decision is generally one for central determination, leading to more angular shifts in trade patterns.
In practice the distinction between the U.S.S.R. and the United States may not always seem quite that clear. The U.S. government, after all, has been known to embargo the export of some scarce commodity-witness its sudden imposition of an embargo on soybeans for several weeks in the summer of 1973. However, the soybean case, far from blurring the distinction between U.S. practice and that of the Soviet Union, points up how profound the differences in the two systems continue to be. The American gaucherie, it will be remembered, generated a brouhaha of monumental proportions among foreign buyers of soybeans, precisely because the idea of an abrupt embargo by the U.S. government was not within the range of normal expectations on the part of buyers. Purchasers of Soviet products, on the other hand, pursue their trade relations with exactly the opposite expectation; nothing is assured from the Soviet Union until it has actually been released, and continued releases are not to be expected if Russia sees no positive gain in the transaction.
So far, the Soviet Union has not been a critically important market or a key supplier to the United States and Western Europe. Though Soviet trade has risen at an impressive rate in recent years, the totals themselves remain fairly small. Abrupt changes in Soviet trading patterns, therefore, have not been deeply unsettling for the West, being easily lost in the vast volumes of imports and exports among the advanced countries themselves. One outstanding exception to that generalization-an exception not likely to be forgotten for some years to come-has been the huge program of grain purchases instituted by the Soviet Union in 1972. That abrupt surge in demand threw Western grain markets into a succession of wild gyrations from which they are unlikely to recover for some seasons to come. But on the record to date, this kind of impact has been the exception, not the rule.
The problem lies mainly in the future. Given the levels of trade that one hopes for in a period of détente, do the more-or-less open economies of the West have to guard against the abrupt surges in supply and demand that seem possible under the Soviet system of foreign trade? It may be that one is entitled to a certain optimism on this score. After all, the Soviet Union's willingness to discuss long-term deals for the development and export of Siberia's gas resources and to discuss long-term technological interchange agreements with some Western firms does suggest a new durability in Soviet trade relations, rarely glimpsed in the past. But these remain fragile signs. One has to assume some quite profound alterations in the Soviet trading system before such signs add up to any strong sense of organic change. And the required shift could hardly take place without a major ideological struggle in the arcane chambers of the Politburo and the Party.
The question of abrupt changes in trade patterns takes on a special importance because the economies of the United States, Western Europe, and Japan have managed to lower their trade barriers so dramatically over the past 25 years. For all the talk about resurgent protectionism, the economies of the West are relatively exposed to the risk of sudden surges in either supply or demand that arise in any one of them. To let loose a strongly disequilibrating source of supply or demand anywhere in the system is to involve all the members of the system and to increase the risk that the trade restrictions which were so painfully dismantled in years past would have to be reimposed.
The introduction of Soviet trade on a large scale in the West suggests still another problem, namely, the possibility that such trade will undermine agreements among the Western countries such as those embodied in the General Agreement on Tariffs and Trade. Agreements of this sort generally place limits on the use of highly discriminatory and restrictive devices. As long as Soviet trade has been small, nations of the West have been able to handle their trade with the U.S.S.R. as an exceptional feature of their foreign trade system. From time to time, European nations have been known to reserve corners of their national markets for Soviet products, by applying de facto restrictions on competing imports. At other times, state-owned enterprises in the West have in effect bartered materials with the Soviet Union on terms that seemed implicitly discriminatory against other sellers. In cases of this sort, other nations have generally turned a half-blind eye to the discriminatory and restrictive aspects that have sometimes been involved in such trade. Once the Soviet Union has increased its trade beyond some critical mass, however, such a studied policy of tolerance could probably not be continued without imperiling the whole system.
From the viewpoint of many Soviet policy-makers, the observations of the past few pages will seem out of focus, perhaps even distorted. Seen through Soviet eyes, the marketing policies of that country are simplicity itself: purchases and sales are made at going market prices, neither more nor less. What difference does it make, therefore, that these transactions are unrelated to prices inside the Soviet Union? And how can these transactions be thought of as disturbing to the markets of the Western economies?
The Soviet reaction is all the more understandable because it is based upon a long period during which the U.S.S.R. was no more than a marginal force in world markets. For decades, the imports and exports of the Soviet Union were sufficiently small so that the Russian traders in world markets could be thought of as price takers, not price makers. Occasional exceptions occurred, such as the Soviet disruption of the world's oil markets in the 1920s, a searing episode that stimulated the agreements among the leading oil producers which created the world oil cartel. A pale shadow of that sort of market role was seen once again in the late 1950s, as Soviet oil appeared briefly on world markets; but this time, the Soviet propensity to cut prices and disturb markets was tempered by experience. Shaving prices by only 10 or 15 percent, just enough to persuade some marginal buyers to shift their sources of supply, the U.S.S.R. managed to leave the oligopoly price structure of the oil industry only slightly ruffled.
As a general proposition, therefore, Soviet officials are right. With the passage of the years, they have gained in experience and information. They have learned the classic strategies of marginal suppliers who sell in oligopolistic markets: to cut the price only to the point at which retaliation will not be provoked, lest the reaction wipe out the oligopoly rent that was being shared by all the sellers. Forbearance of this sort on the part of the Soviet Union has been seen at various times in the recent past, not only in oil, but also in diamonds, aluminum, tin, and other non-ferrous metals. Indeed, in some instances, the Soviet Union has made a point of choosing distributors in the West whose loyalty to the existing market structure would be above question in the eyes of other sellers.
What may not yet be clear to Soviet policy-makers, however, is that their role as price takers rather than price makers can only continue so long as they are very junior partners in the markets of the West. If the Soviet Union manages to bring its foreign trade up to much higher levels, its role as a price taker will be imperiled. In the oligopolistic markets that prevail in metals and minerals, it is likely to find itself among the leading sellers, playing a critical role in determining whether competition or forbearance is to be the prevailing mood of the market. At the same time, the Soviet Union's decisions as a buyer may prove important enough to generate major ripples all through the markets of the Western world.
Having stated the problem, however, I have strong doubts that many Soviet policy-makers would be persuaded to take my formulation seriously. Indeed, in Soviet eyes, the very articulation of the problem may be seen not as an effort to avoid bear-traps on the road to economic détente but as a provocation designed to terminate détente.
One reason why Soviet policy-makers tend to shrug off any serious discussion of these problems may be that they are to some extent the prisoners of their own perceptions. Though the more sophisticated Soviet scholars have long since discarded their early primitive analyses of the U.S. economy, they (and not they alone) still see the United States as held in thrall by monopoly capitalism. They see Alcoa or IBM or GE as elements in a "superstructure," a system of governance in the United States which also includes the Pentagon, the State Department and the office of the President. When warfare breaks out between Alcoa and Kaiser or between IBM and Honeywell, this is seen as a quarrel among giants that will shortly be held in check by the system. When antitrust proceedings are brought by the U.S. government against IBM or Exxon or GE or du Pont, this is interpreted either as a cynical political gesture to deceive the public, or a struggle among the interests for control of the system, or, simply, as aberrant pathological behavior. In any event, the model of the monopoly capitalist state exercises great force in shaping Soviet views of the pertinent and the possible in relations with the United States. In short, though the analyses of the U.S. economy by Soviet scholars has become quite sophisticated, the conclusions continue to be doctrinaire and primitive.
The seeming Soviet propensity to analyze U.S. economic behavior in terms of the monopoly model is probably enhanced by the fact that so much of the Soviet Union's interaction with the Western world has been in the oligopoly industries. When selling fur and timber to the West and when buying grain from the West, Soviet traders often confront-and occasionally exploit-the phenomenon of a decentralized competitive market. But their larger and more important experiences are with the oligopolistic industries, as they sell oil and metals and buy factories and power plants on world markets. Moreover, given the propensity of the U.S.S.R. to demand long-term credits in connection with the purchase of capital equipment, the experience of Soviet buyers with government banking agencies is especially extensive. Small wonder that Soviet officialdom seems to see the foreign trade of the West as being conducted on a basis very much like that of the Soviet Union.
What can be done to reduce the risk that U.S. interests may eventually feel victimized as a result of increased economic contacts with the Soviet Union? When the question is raised with Soviet scholars as a problem which should be of mutual concern, it is generally turned away with a standard response: "Don't expect us to change our system simply to meet your needs." When the question is raised with U.S. business interests, it generally elicits responses that are not much more helpful.
One approach that is supported by some American businessmen is to suspend the U.S. antitrust laws and to permit U.S. business to confront Soviet monopoly with U.S. monopoly. That step, it is thought, will deal with at least one problem, that of confronting the Soviet monopoly with a united position. There is an obvious irony in the proposal: it is altogether consistent with the Soviet model of monopoly capitalism and with Soviet perceptions of U.S. political power. Despite the fact that the proposal is sometimes made from business quarters and despite the fact that it fits Soviet expectations, it is rather doubtful that the proposal would serve its intended purpose. The assumption is that the antitrust laws are the main impediment to concerted action on the part of U.S. business. For my part, however, I am not at all sure Occidental could be persuaded to lie down with Mobil, nor Honeywell with IBM, even if the antitrust laws were suspended. So the problem of matching power with power might still remain.
Even if that difficulty could be mitigated or solved, two other difficulties of a much larger order would still remain: how to ensure that the business conducted by a state monopoly on the Soviet side and a private monopoly on the U.S. side was of a kind that served the interests of American society as a whole; and, further, how to incorporate the activity of the U.S.S.R. in a global system of trade and payments that was consistent with the interests of the United States and its friends.
Despite the existence of such a formidable array of questions, only one issue bearing on U.S. trade policy with the Soviet Union has been ventilated publicly so far-namely, whether the U.S.S.R. should be granted most-favored-nation treatment in the application of U.S. tariffs. As matters now stand, the U.S. tariff rates applicable to Soviet goods are considerably higher than those applicable to the same goods originating in other parts of the world; the question is whether to eliminate that discrimination.
It is a reflection of our national innocence that this issue should have become the center of the debate over economic relations with the U.S.S.R. The most-favored-nation question may have symbolic significance of a sort; but it is evident from one or two serious studies of the subject that the substantive economic implications of extending most-favored-nation treatment to Soviet products are trivial. For one thing, many Soviet exports are admitted to the United States free of any duty. Even where a duty is applied, however, it is unlikely to affect the Soviet decision to export. Under the Soviet system, it should be remembered, the usual cost-of-production calculations that an individual firm would undertake do not apply, and Soviet trade officials can set their price at any level necessary to sell the product in the United States. Naturally, if U.S. tariff rates were prohibitively high, Soviet officials might hesitate about giving away so much to acquire so little in net revenue. But the U.S. tariffs that apply to Soviet exports are generally not high enough to provoke that sort of reaction on the part of the Soviet Union.
For one thing, many of the products exported by the Soviet Union are counted as having a very low social cost, either because they provide a basis for populating the empty spaces of Siberia, or because they are the result of errors in Soviet planning, or for similar reasons. Moreover, in light of the curious preoccupation of Soviet officials to balance their trade in every major currency zone, sales are bound to be pushed in the United States if purchases are planned in that market. Accordingly, the question of most-favored-nation treatment boils down mainly to how much revenue the U.S. Treasury will collect in duties on Soviet goods. If tariffs are high, the U.S. Treasury collects a bit more revenue; if tariffs are low, the U.S.S.R. pockets the difference.
On any reasonable assumption about the future level and composition of trade, what is at stake in the most-favored-nation question may be a few millions of dollars a year in government revenue, perhaps even a few tens of millions. This is no trivial sum, but it is hardly the key question on which economic détente should turn. More to the point would be the question of how far the United States is prepared to centralize and control its trade with the Soviet Union in order to ensure that the interaction between the two economies brings adequate benefits to the U.S. side. Though a simple relaxation of the antitrust laws may not strengthen the U.S. capacity to increase its benefits from trade with the Soviet bloc, other means of pooling U.S. buying or selling power may conceivably produce larger benefits for the U.S. economy. Moreover, there is something to be said for envisaging a bilateral negotiation with the U.S.S.R. which begins with an assumption of total embargo and total non-access on both sides, and which commits each side to a relaxation of its embargo according to explicit measures appropriate to its system.
Finally, there is the question of adapting the international regime of trade and payments that prevails in the West to the existence of a higher level of economic interaction with the Soviet Union. Any effort at coördination which the United States sponsors in the field of East-West trade starts out under a heavy handicap, a legacy of the fact that its coördination efforts in the past were largely devoted to restrictive ends and largely propelled by exhortation and arm-twisting. The ill-conceived exercises of the past will not easily be lived down. Yet unless some coöperative action is undertaken, a greatly expanded level of trade with the Soviet Union could generate new stresses in the already overburdened trade and payments system of the West. Some of the shopworn issues that nations have felt obliged to place on the agenda for the current trade talks in Geneva-preliminaries to the Nixon Round-could well be deleted to make place for an exploration of this pressing question. Possibilities advanced from various sources in the past need exploring once again, such as securing guarantees from the U.S.S.R. regarding the minimum size of its global imports and guarantees regarding the practices to be used or eschewed in the conduct of its foreign trade.
The instinct of officials in most countries will be to draw back from these sensitive questions. The reaction is understandable, even laudable; it stems in part from a fear of upsetting the process of détente itself. In our eagerness to continue the process of détente, however, it is dangerous to pretend that the problems outlined here do not exist. If we succumb to that very strong temptation, one of the casualties of pretending may be the very process of détente itself.