Letter #69, 2022, Mon May 2: Catastrophe

    Sachs: “Now I don’t understand the US. To save that people, the war must end” (link)

    Sunday, May 1, 2022

    (Federico Fubini, Corriere della Sera) The Columbia University economist: “The United States is more reluctant than Russia in the search for a negotiated peace. In the nineties, America was wrong to deny aid to Moscow, the responsibility lay with Bush the father and Clinton”

    Jeffrey Sachs, director of the Earth Institute of Columbia University, appointed in 2021 by Pope Francis to the Pontifical Academy, replies with this interview to the article of 23 April in which the Corriere asks whether the errors of the West in relations with post-Soviet Russia, which experienced a dramatic economic crisis in the 1990s, contributed to pave the way for Vladimir Putin‘s revanchist nationalism Putin. Sachs was the Kremlin’s economic adviser between 1990 and 1993.

    Is imposing ever tougher sanctions on Russia the right line?

    Dr. Jeffrey Sachs: Alongside the sanctions we need a diplomatic path. Negotiating peace is possible, on the basis of Ukraine’s independence and excluding it from joining NATO. The great mistake of the Americans is to believe that NATO will defeat Russia: typical American arrogance and myopia. It is difficult to understand what “defeating Russia” means, given that Vladimir Putin controls thousands of nuclear warheads. Do American politicians have a death wish? I know my country well. The leaders are ready to fight until the last Ukrainian. It would be much better to make peace than destroy Ukraine in the name of Putin’s “defeat.”

    But Putin does not want peace. He has shown that he is not interested in negotiating and goes on with an all-out war on Ukraine, without distinguishing between military and civilians. How does he think negotiations work in such a situation?

    Sachs: My guess is that the United States is more reluctant than Russia to make a negotiated peace. Russia wants a neutral Ukraine and access to its markets and resources. Some of these objectives are unacceptable, but they are nonetheless clear for a negotiation. The United States and Ukraine, on the other hand, have never stated their terms for dealing. The United States wants a Ukraine in the Euro-American field, in military, political and economic terms. Here lies the main reason for this war. The United States never showed a sign of compromise, neither before the war broke out, nor after.

    Can you provide concrete elements of what you are saying?

    Sachs: When Zelensky launched the idea of ​​neutrality, the US administration kept a dead silence. Now, they are convincing the Ukrainians that they can really defeat Putin. But, in fact, even the idea of ​​defeating a country with so many nuclear weapons is madness. Every day I sift through the media to find at least one case of a US official approving of the goal of negotiating a deal. I haven’t seen a single statement on this.”’

    Should the United States and Europe have to argue with Putin to reach a peace or should they wait for his regime to end because he is a war criminal?

    Sachs: Arguing, certainly. If they want to try Putin for war crimes, then they must add George W. Bush and Richard Cheney for Iraq, Barack Obama for Syria and Libya, Joe Biden for seizing Kabul’s foreign exchange reserves, to the list of defendants, thus fueling hunger in Afghanistan. And the list doesn’t end there. I do not intend to exonerate Putin. I want to emphasize that peace must be made, admitting that we are in the midst of a proxy war between two expansionist powers: Russia and the United States. Not for nothing outside the United States and Europe, few countries are aligned with the West on this. Just the allies of the United States such as Japan and South Korea. The others see the dynamics of the great powers at work.”

    Russia, however, is the aggressor here, which had not even suffered provocations. Does he not find?

    Sachs: Russia started this war, of course, but in large part because it saw the United States irreversibly enter Ukraine. In 2021, as Putin asked the United States to negotiate the enlargement of NATO to Ukraine, Biden doubled the diplomatic and military stake. He not only refused to discuss NATO enlargement with Moscow, but he ensured that NATO’s commitment in this regard was renewed at the 2021 summit, and then signed two agreements with Ukraine on the issue. The United States also continued military exercises and large-scale arms shipments. Among other things, it is interesting to see how the United States and Australia are pulling their hair out for a security pact between China and the small Solomon Islands, 3,000 kilometers from Australia. This agreement is seen as a terrible security threat by the West. How then must Russia feel about the enlargement of NATO to Ukraine?”

    So what do you suggest?

    Sachs: To save Ukraine we must end the war, and to end the war we need a compromise in which Russia withdraws and NATO does not expand. It is not difficult, yet the United States does not even mention the idea, because they are against it. The United States wants Ukraine to fight to protect NATO’s prerogatives. This is already a disaster but, without a reasonable and rational solution, much greater risks await us.”

    The NATO enlargement argument may not be convincing, Professor. Before the war, Ukraine did not even have a Membership Action Plan (a ‘roadmap’) for membership. And the German Chancellor Olaf Scholz declared to the Kremlin, in front of Putin, that Ukraine would not join NATO “as long as the two of us are in office” (that is, at least until 2036). That doesn’t seem like enough reason to invade …

    Sachs: To say that Ukraine will not enter seems like an American expedient. In fact, the United States was already working hard to achieve Ukraine’s military interoperability with NATO, so that at some point, enlargement would essentially become a fait accompli. As Russian Foreign Minister Sergei Lavrov himself recently said, Ukraine’s defense ministry was already teeming with advisers from the Atlantic Alliance. The idea that enlargement would not have taken place is actually more a PR operation than a truth. It is the path chosen by the United States, as it shows in every politics of today. The bottom line is that the United States refuses to discuss the matter. This is already a clue.

    Sanctions must be to the bitter end or must they be linked to tangible results: perhaps foreseeing that some will jump if Russia accepts a ceasefire or withdraws from Ukraine?

    Sachs: Sanctions should be lifted as part of a peace agreement. The war in Ukraine is terrible, cruel and illegal, but it is not the first war of its kind. The United States has also been involved in countless irresponsible adventures: Vietnam, Laos, Cambodia, Afghanistan, Iran (coup and dictatorship of 1953), Chile, Iraq, Syria, Libya, Yemen. This is just to name a few, because there would be many more. Yet the United States has not been permanently banned from the community of nations. Russia shouldn’t be either. Instead, the United States talks about isolating Russia permanently. Again, it’s typical US arrogance.

    What do you think of the sanctions on Russian oil and gas under discussion in Europe, to financially paralyze Putin’s military machine?

    Sachs: The European Union should move much more decisively to favor a peace agreement. A total embargo on oil and gas would likely throw Europe into a recession. I don’t recommend it. It would not change the outcome of the war in a decisive way and it would not affect a peace agreement much, but it would seriously damage Europe.

    Are you worried that inflation could fuel populism in the West, given that voters blame it on sanctions and not on the war unleashed by Putin?

    Sachs: Yes, war and sanctions are already creating political difficulties in many countries and a sharp increase in hunger in the poorest countries, especially in Africa, which depend heavily on imported cereals. Biden will also pay a political price for the high cost of living in the November elections. Note that these supply-side shocks are occurring after a long period of monetary expansion, so there is ample room for inflation to run. A difficult macroeconomic period awaits us.

    To what extent did the reform failures during the Boris Yeltsin era open the way for Putin’s dictatorship? Was it a failure similar to that described by John Maynard Keynes in 1919 on Germany?

    Sachs: I was economic adviser to Mikhail Gorbachev in 1991 and to Yeltsin in 1992-3. My main goal was to help the Soviet Union, then Russia as an independent country after December 1991, to put up with a severe financial crisis, so as to ensure social stability and improve the prospects for peace and reform in the long run. period. Let us not forget that the Soviet economy had collapsed and entered a violent downward spiral in the late 1980s. In those years, I often referred to “The Economic Consequences of Peace”, the great book by John Maynard Keynes of 1919. That text was probably the most important for my career, because it highlights an essential point: to put an end to an intense and destabilizing financial crisis in a country, the rest of the world must intervene before the situation gets out of hand. This was true in the aftermath of the First World War: instead of imposing harsh reparations on the German people, Europe and the United States should have committed to cooperating for a recovery of all of Europe, which would have helped prevent the rise of Nazism.

    Do you mean that the way the West handled Russia in the early 1990s helped make it a kind of Weimar Republic 2.0?

    Sachs: When I proposed international financial assistance for Poland in 1989 — with an emergency loan, a currency stabilization fund and debt relief — my arguments were welcomed by the White House and European countries. When I made the same proposals for the Soviet Union under Gorbachev in 1991, and for Russia under Yeltsin in 1992-3, the White House rejected them.

    The problem was geopolitical. The United States viewed Poland as an ally, while wrongly viewed the Soviet Union and newly independent Russia as an enemy. It was a huge mistake.

    If another country is treated badly or humiliated, then a self-fulfilling reality is created: that country will truly become an enemy.

    Obviously there is no simple determinism in history, and certainly not over a period of 30 years. The 1919 Treaty of Versailles, with its harshness, did not alone cause Hitler’s rise in 1933. Hitler or someone like him would never have come to power had it not been for the Great Depression of 1929 and, even then, without the terrible miscalculations of Hindenburg and von Papen in January 1933.

    Likewise, the financial errors of the United States and Europe against Gorbachev and Yeltsin certainly did not dictate events thirty years later. Even just suggesting it is absurd.

    But the heavy financial situation of the Soviet Union and Russia in the early 1990s left a bitter aftertaste. It contributed to the downfall of the reformers, the spread of corruption and ultimately Putin’s rise to power. But even then he could have recovered. However, Putin could have had a collaborative approach with Europe. A big problem arose out of the arrogance of the United States, which launched NATO’s eastward expansion after promising in 1990 that it would not.

    Then also for George W. Bush’s absolutely dangerous and provocative idea of ​​promising that NATO would extend to Georgia and Ukraine. That promise, from 2008, dramatically deteriorated US-Russia relations.

    American support for the ouster of the pro-Russian president of Ukraine Viktor Yanukovych in 2014 and the subsequent large-scale rearmament of Ukraine by the United States have also dramatically worsened relations between Russia and the United States, who launched NATO’s eastward expansion after promising in 1990 that they would not. Then also for George W. Bush’s absolutely dangerous and provocative idea of ​​promising that NATO would extend to Georgia and Ukraine. That promise, from 2008, dramatically deteriorated US-Russia relations.

    You were a consultant to the Kremlin in 1992-93, through your role in the Harvard Institute of International Development. During the 1990s, the “big bang” of market liberalization prevailed over the construction of institutions and the structures of democracy. Was it a mistake?

    Sachs: These complaints are academic chatter, they have nothing to do with the real world. My role in 1990-1992 was to help Poland, Estonia, Slovenia and other countries avoid a financial catastrophe. This was also my goal for the Soviet Union and Russia. I recommended measures that proved successful in many countries: currency stabilization, debt suspension, long-term debt relief, emergency loans, emergency social support measures. The United States accepted these arguments for countries like Poland, but rejected them in favor of Gorbachev and Yeltsin. Politics and geopolitics, not good economic policy, dominated the White House. Institution building and democratic reforms would take years, even decades. Russia had never had a true democracy in a millennium of history. Civil society had been destroyed by Stalin. But in the meantime there was a heavy financial crisis going on. People needed to eat, live, survive, have shelter on their heads, have health care, while the long-term changes would be gradually introduced. That is why I have been recommending large-scale financial support for Russia for many years. And that’s why I kept quoting Keynes’s lesson.

    But, in hindsight, should the reform approach have been less focused on “shock therapy”?

    Sachs: Again, my role was to deal with the financial crisis. I knew well — from Poland, Czechoslovakia and elsewhere — that many reforms would take a long time. My goal was to prevent hyperinflation and a financial collapse. I have never spoken out in favor of rapid privatization, for example. I knew that those policies take years, even decades to complete.

    It is true that Poland and other Central and Eastern European countries have been much more successful applying the same recipes as Russia. But Poland has had currency stabilization aid from the United States, so institution building and the contribution of EU legislation, don’t you think?

    Sachs: Sure, that’s the point. The ability to reform depends on the international context. Everything would have been much more difficult in Russia than in Central-Eastern Europe for countless reasons of history, politics, economic geography, transport costs, the existence of civil society, geopolitics. The dissolution of the Soviet Union, like that of Yugoslavia, also dramatically complicated the situation, adding instability and recession. Yet, for all these reasons, the West should have been much more ready to help Russia financially, instead of declaring ‘victory’ and ignoring the harshness of conditions in Russia.

    Was the problem the “shock therapy” as such or the refusal of Germany to forgive the foreign debt of Russia and the United States to provide aid as for Poland? Was “shock therapy” with little external financial support the wrong mix?

    Sachs: The so-called” shock therapy “meant ending price controls in early 1992, as Poland had done in 1990. The reason was that with the collapse of the centrally controlled economy, with massive financial instability and prices, all transactions basically took place on the black market. Food did not reach the cities either. Price deregulation should have been combined with large-scale financial support from the United States and Europe and social policy measures, such as in Poland. And this is precisely what I advised, every day. But the United States and Europe did not listen. It was a shameful and terrible failure of Western governments. Had stabilization been actively supported by the West…

    Andrei Shleifer, then at the Harvard Institute of International Development with you, was in charge of advising Russia on the “big bang” of privatization. What relationship did he have with him?

    Sachs: My role for Gorbachev and Yeltsin was that of macro-financial advisor. I gave advice on how to stabilize an unstable economy. I was not a consultant on privatization. Shleifer, yes. As far as I’m concerned, I have not advocated privatization with the early 1990s voucher model (which created the first oligarchs, ed) and I have not given advice on abuses such as “equity loans” (a scheme designed in 1995 that has allowed the oligarchs to finance Yeltsin’s re-election in exchange for large shares in state-owned companies at reduced prices). I advised Gorbachev in 1991 and then Yeltsin in 1992 and 1993 on financial matters. After the first year of trying to help Russia I had resigned, saying I was unable to help as the US did not agree with what I was recommending. My stay was to be for just one year, 1992. Then a new finance minister was appointed, Boris Fyodorov. A wonderful person who died young. He asked me to stay as a counselor to help him. I accepted, reluctantly, and stayed another year, only to resign at the end of 1993. It was a short and frustrating period, because I was deeply frustrated by the negligence and incompetence of both the White House of Bush Sr. in 1991-1992, both of the Clinton White House in 1993. When I learned that Shleifer was making personal investments in Russia, I fired him from the Harvard Institute of International Development. Of course, I had nothing to do with his investment activities or his advice on Russian privatizations. Nor have I ever received a single kopeck for my work, nor a single dollar. My government consultancy, since its inception 37 years ago in Bolivia, has never provided compensation beyond my academic salary. I don’t recommend governments for personal gains.

(Corriere della Sera)

(Corriere della Sera – Ucei)