In the Thick of ItA blog on the U.S.-Russia relationship
Calls by US for Economic Transition in Russia From Reagan Through Trump
U.S. President Ronald Reagan and his secretary of state, George Shultz, as well as U.S. President George H.W. Bush, are well known to have worked effectively with their Soviet counterparts to advance bilateral arms control. What is less known is that Reagan, Bush and successive presidents also sought to convince the Kremlin to give the market economy a chance, as they believed that a transition by the Soviet Union to a market economy would have been in America’s interest. The 1992 Freedom Support Act submitted by the Bush Administration to Congress, for example, stated that “recent developments in Russia and other independent states of the former Soviet Union present an historic opportunity for a transition of the independent states of the former Soviet Union into the community of democratic nations…the entire international community has a vital interest in the success of this transition.”
Today, Russia’s transition to a market economy is at least partially completed, though estimates point to the state holding between 33 and 46 percent of the economy, with this control concentrated in “strategic” sectors such as energy and banking. Nevertheless, this transition did not succeed in embedding Russia into the Western camp. Nor did a similar effort to encourage China’s transition to a market economy yield the results the West had hoped for, such as democratization of the Middle Kingdom and its alignment with the U.S. and its allies.
Despite this, promoting worldwide economic reform has remained popular among U.S. leaders; most recently, Donald Trump sought to convince North Korean leader Kim Jong-un of the benefits of a market economy during their 2018 summit in Singapore. Below, we have compiled a selection of calls for economic reform in Russia, in chronological order, made by U.S. presidents and their administrations beginning with Ronald Reagan.
Ronald Reagan (1981-1989)
In a 1990 New York Times op-ed, entitled “'I'm Convinced That Gorbachev Wants a Free-Market Democracy,” Reagan:
- Touched upon his earlier meeting with the Soviet leader in San Francisco, noting that “I am convinced that Mr. Gorbachev is sincerely determined to convert the Soviet Union to a free market democracy.”
- Touted that the “market system is beginning to bring its positive lessons” to the socialist bloc.
- Noted that there “are many products and much know-how the Soviet Union would like from us. We should use the American impulse for generosity with some caution … The concept of ‘linkage’ can play a role here. For example, we might provide the Soviet Union with some things they want from us in exchange for their agreement to stop propping up their few remaining dictator clients.”
George Shultz, who served as secretary of labor, director of the Office of Management and Budget (OMB) and secretary of the treasury under U.S. President Richard Nixon and later secretary of state under Reagan, also tried to sell the idea of a market economy to the Soviets and Soviet leader Mikhail Gorbachev:
- “In one of the meetings with Gorbachev, which were always rather lengthy, there was always a break and he called a break and I said, ‘While you’re here, let me show you something,’ and I had some charts on this question of what’s happening in the world economy. He became very intrigued, i.e., he would listen and look at these things.”
- In his recollection of conversations the held with Shevardnadze, Shultz said he had prepared and read his Soviet counterpart “a statement about the Information Age and how it’s changing everything, and if you run a closed, compartmented society, you’re going to get left behind. So you have to open up and let people interact, including internationally, and move around. I wrote this out and in a meeting with Shevardnadze, I read it slowly, so their note-taker could take it down exactly. Gorbachev told me it made the Politburo. But at any rate, I was in effect responding, saying it’s to your advantage to make these changes, and eventually they saw it that way.”
- In his recollection of conversations that he held with Gorbachev’s economic aides upon Gorbachev’s request, Shultz said: “A market solves problems, it’s the way you get problems solved without trying to dictate everything from the top. It was hard for them to understand the concept and the orderliness of a market, even though it looks disorderly, but they gradually got it.”
- Shultz (then retired and in residence at Stanford’s Hoover Institution) said that the grand bargain [of massive U.S. investment to aid the Soviet Union’s central government], which he called "the big-bucks approach," would be "a gigantic disservice" to the Soviet Union because it sends the wrong message. He said the Soviets should decide to adopt a market economy on grounds that it will be beneficial, not because the United States will give them money to make the transition.
George H. W. Bush (1989-1993)
The G7’s July 1991 summit, which Gorbachev attended, issued a communique which said:
- “We support the moves towards political and economic transformation in the Soviet Union and are ready to assist the integration of the Soviet Union into the world economy.
- “Reform to develop the market economy is essential to create incentives for change and enable the Soviet people to mobilize their own substantial natural and human resources.”
- “Yeltsin stands mainly for the thing we would like to see (including) radical economic reforms.”
James Baker, who served as treasury secretary under Reagan and secretary of state and White House chief of staff under George H.W. Bush, also believed the USSR should transition to a market economy:
- He met with Shevardnadze in September 1989, in what became the first time Soviet and American officials discussed the state of Soviet economic changes, according to the New York Times. During the meeting, Baker told his Soviet counterpart that the United States wants the process of change to succeed and, according to the aide, offered unspecified ''technical'' assistance to help the Soviets spur economic growth.
- He lamented that Gorbachev “continued to show little understanding of the basic steps needed to transform a command economy to a market economy.”
- When asked by Harvard Business School professor James Sebenius to “talk a little more about this case, how you helped the other side with their internal problems when that’s in your interest,” Baker said of Gorbachev’s team: “They really want to try and change the Soviet Union, they want to move, if they can, to a free-market model, and we need to help them.”
As of mid-1991, Gorbachev appeared to have been convinced (by the West, or not) that a transition to the market economy was the only feasible option:
- Gorbachev told a G7 summit in July 1991 that “we feel time is at hand to make resolute steps and take concerted action to develop a new type of economic interaction whereby the Soviet economy with its huge production, research and human potential, its extremely rich natural resources and a boundless internal market could be integrated in the world economic system” and vowed “to work to develop a legal foundation for a market economy.”
- “We would like the Soviet Union to be a democratic country with a market economy, dynamically integrated into the Western economy,” Gorbachev said at the G7 summit in July 1991, according to what his aide Anatoly Chernyaev wrote in his dairy on July 23, 1991.
- “M.S. [Gorbachev] said that there is no alternative; if we have a free market, it would be open to the world market… He imagined what he would say in London. In a word, he is for reform, for democracy,” Chernyaev wrote in his dairy on the discussions between Gorbachev and the Security Council on May 18, 1991.
Bush and other G7 leaders allocated $24 billion in 1992 for a one-year program to help propel Russia toward democracy, with the U.S. contributing $4.35 billion.1
Harvard Professor Jeffrey Sachs and other Western economists participated in meetings with pro-Boris Yeltsin reformers who planned Russia’s economic and political future in 1991. Sachs teamed up with Yegor Gaidar, Yeltsin’s first architect of economic reform, to promote a plan of “shock therapy” to swiftly eliminate most of the price controls and subsidies that had underpinned life for Soviet citizens for decades.
- Professor Stephen Cohen recalled in 2000: “The idea that the United States might one day remake Russia in its own image, or at least ‘do their thinking for them,’ originated after World War II among extreme advocates of the forty-year Cold War. By 1992, the first post-Soviet year and last year of the Bush administration, it had reemerged in the American mainstream … But it was the Clinton administration that turned the missionary impulse into an official crusade—though, it should be emphasized, with enthusiastic bipartisan support in Congress.”
Mikhail Bocharov, a Yeltsin advisor and chairman of the Supreme Economic Council of the Russian Republic, asked Stanford Hoover Institute Director John Raisian to send economists to the Soviet Union to advise Yeltsin on arranging a program for a rapid transition to a free-market economy in 1991.
Bill Clinton (1993-2001)
In a speech to the American Society of Newspaper Editors (ASNE), Clinton signaled America’s support for Russia’s political and economic reform:
- “History has once again moved to rejoin the political and economic cultures of the West. President Yeltsin and his fellow reformers throughout Russia are courageously leading three modern Russian revolutions at once, to transform their country from a totalitarian state into a democracy, from a command economy into a market, from an empire into a modern state that freely let go of countries once under their control and now freely respect their integrity.”
- “We must look beyond the Russia of today and see her potential for prosperity. Think of it, a nation of 150 million people able to trade with us in a way that helps both our peoples. Russia’s economic recovery may be slow, but it is in the interest of all who seek more robust global growth to ensure that, aided by American business and trade, Russia rises to her great economic potential.”
Following a meeting between Clinton and Yeltsin between April 3-4, 1993, the two parties released the “Vancouver Declaration,” which said:
- “The Presidents agreed on a new package of bilateral economic programs and measures to address Russia’s immediate human needs and contribute to the building of necessary structures for successful transition to a market economy. They recognized the critical importance of creating favorable external conditions in which the Russian economy can realize its maximum potential.”
In response to Yeltsin dissolving parliament on Sept. 21, 1993, Clinton said:
- “From the beginning of my administration, I have given my full backing to the historic process of political and economic reform now underway in Russia. I remain convinced that democratic reforms and the transition to a market economy hold the best hope for a better future for the people of Russia.”
In 1996, the International Monetary Fund approved a $10.2 billion loan, endorsed by Clinton, to assist Russia in implementing economic reforms.
During a joint news conference with Yeltsin on Sept. 2, 1998, Clinton signaled that increased U.S. support to Russia was contingent on continued market reforms:
- “If the reform process can be completed, then I for one would be strongly supportive of greater assistance to Russia from the United States and other big economic powers.”
- “If there is a clear movement towards reform, I’ll do everything I can to accelerate outside support of all kinds.”
On March 27, 2000, Clinton called Vladimir Putin to congratulate him on his presidential election victory. During the call, Clinton emphasized that he wanted to work with Putin on many key areas of interest, including Russian economic reform:
- “I know you have an ambitious market reform agenda, but I wanted to make clear that I am convinced the international community wants you to succeed and wants Russia to succeed. I think that there will be a real reward if you achieve these objectives.”
During a press conference between Clinton and Putin in Moscow on June 4, 2000, Clinton discussed the progress on Russian economic reform:
- “We spent a large share of our time discussing economics. I’m encouraged by the economic plan President Putin has outlined and by the current recovery. I look forward to Russia’s continuing to implement proposed reforms that will actually make the recovery last, reforms such as tax reform, anti-money-laundering legislation, strong property rights protections. I look forward to Russia’s successful negotiations with the IMF. This is a good economic team with a very good opportunity to increase investment in Russia, both the return of money that Russians have placed outside the country and new investments from other countries.”
- “Later this month, our former Ambassador to Moscow, Bob Strauss, will come to Russia with a delegation of investors, including some of America’s best-known chief executive officers, to discuss opportunities in Russia and the steps Russia is taking to improve its investment climate. I think this will be only the beginning of a very successful effort at economic reform, if the intentions that President Putin outlined become reality.”
George W. Bush (2001-2009)
On Nov. 14, 2001, George W. Bush and Putin released a joint statement on a new relationship between the United States and Russia that said:
- “We recognize a market economy, the freedom of economic choice and an open democratic society as the most effective means to provide for the welfare of our citizens. The United States and Russia will cooperate, including through the support of direct contacts between the business communities of our countries, to advance U.S.-Russian economic, trade and investment relations. The achievement of these goals requires the removal of legislative and administrative barriers, a transparent, predictable investment climate, the rule of law and market-based economic reforms. To this end, it is important to reduce bureaucratic constraints on the economy and to combat economic crime and corruption.”
On May 25, 2002, Bush and Putin spoke at St. Petersburg University about Russia’s economic reforms during Bush’s trip to Europe and Russia:
- When asked by a reporter what steps Russia needs to take in order for the United States to support its accession to the World Trade Organization, Bush said that it starts with “having a president who thinks you ought to be in the WTO and I think you ought to be. And I think the accession to the WTO ought to be based upon the rules that every other nation has had to live up to. Nothing harsher, nothing less. And I’ve told Vladimir in private and I’ve told the American people, I’m for Russia going into the WTO. Just like I asked Congress yesterday once in a press conference in Russia to get rid of [the] Jackson-Vanik [amendment]. So, to answer your question, I vote aye, assuming that the Russian government continues to reform her economy, open it up, make [a] market-based economy work.”
Barack Obama (2009-2017)
During a graduation ceremony at the New Economic School in Moscow on July 7, 2009, Barack Obama emphasized to young Russians and other guests the promise that comes with embracing economic reforms and a free market:
- “We meet in the midst of the worst global recession in a generation. I believe that the free market is the greatest force for creating and distributing wealth that the world has known. But wherever the market is allowed to run rampant—through excessive risk-taking, a lack of regulation or corruption—then all are endangered, whether we live on the Mississippi or on the Volga.”
- “In America, we're now taking unprecedented steps to jumpstart our economy and reform our system of regulation. But just as no nation can wall itself off from the consequences of a global crisis, no one can serve as the sole engine of global growth. You see, during your lives, something fundamental has changed. And while this crisis has shown us the risks that come with change, that risk is overwhelmed by opportunity.”
- “Think of what's possible today that was unthinkable two decades ago. A young woman with an Internet connection in Bangalore, India can compete with anybody anywhere in the world. An entrepreneur with a start-up company in Beijing can take his business global. An NES professor in Moscow can collaborate with colleagues at Harvard or Stanford. That's good for all of us, because when prosperity is created in India, that's a new market for our goods; when new ideas take hold in China, that pushes our businesses to innovate; when new connections are forged among people, all of us are enriched.”
- “There is extraordinary potential for increased cooperation between Americans and Russians. We can pursue trade that is free and fair and integrated with the wider world. We can boost investment that creates jobs in both our countries, we can forge partnerships on energy that tap not only traditional resources, like oil and gas, but new sources of energy that will drive growth and combat climate change. All of that, Americans and Russians can do together.”
On June 24, 2010, Obama and Russian President Dmitry Medvedev discussed deepening economic ties between the United States and Russia during the U.S.-Russia Business Summit, and Obama encouraged the further modernization of the Russian economy:
- “President Medvedev and I agreed to expand trade and commerce even further. We agreed to deepen our collaboration on energy efficiency and clean energy technologies. We reached an agreement that will allow the United States to begin exporting our poultry products to Russia once again. Chicken is important. I want to again thank President Medvedev and his team for resolving this issue, which is an important signal about Russia’s seriousness about achieving membership in the World Trade Organization. And that’s why I told President Medvedev that our teams should accelerate their efforts to work together to complete this process in the very near future. I believe that Russia belongs in the WTO. That’s good for Russia. It’s good for America. And it is good for the world economy.”
- “I pledged to President Medvedev that the United States wants to be Russia’s partner as he pursues his vision of modernization and innovation in Russia, including his initiative to create a Russian Silicon Valley outside of Moscow. American companies and universities were among the first to invest in this effort. And I’m pleased that a number of you here today are going to be working with it as well. Now, there’s still a lot more that we can do to encourage trade and investment. And obviously in Russia—and President Medvedev and I discussed this—issues of transparency and accountability and rule of law remain absolutely critical. This is the foundation on which investments and economic growth depends. And I very much appreciate and applaud President Medvedev’s efforts in this area.”
- “Today, we took another step forward. Our two governments are making a joint commitment to open government that fosters transparency and combats the corruption that stifles economic growth. Of course, ultimately, it’s you—the private sector, our entrepreneurs—who create jobs and unleash economic growth. It’s the market that’s been the most powerful force in history for creating opportunity and prosperity. It’s not the resources we pump or pull from the ground. It’s the imagination and the creativity of our people, our workers and their dreams for themselves and their children that ultimately drives the modern economy. Last year in Moscow, I learned a Russian proverb, which says, ‘Every seed knows it’s time.’ A year ago, we planted a seed of cooperation and commerce. And today, that cooperation is bearing fruit—with new partnerships and prosperity for both our peoples. And I think that if we stay on the course that we’re on, with a spirit of mutual respect and mutual interest, we are going to make even more progress, sell more goods, create more jobs, get more cross-border financing than ever before.”
In an interview with Buzzfeed News on Feb. 11, 2015, Obama attributed Russia’s economic woes to Putin looking at problems through a Cold War lens:
- “I think he's missed some opportunities for Russia to diversify its economy, to strengthen its relationship with its neighbors, to represent something different than the old Soviet-style aggression. You know, I continue to hold out the prospect of Russia taking a diplomatic offering from what they've done in Ukraine. I think, to their credit, they've been able to compartmentalize and continue to work with us on issues like Iran's nuclear program. But, if you look at what's happened to the Russian economy, even before oil prices collapsed, it is not an economy that's built for the 21st century. Unfortunately, those forces for modernization inside of Russia, I think, have been sidelined. That's bad for Russia and, over time, it's bad for the United States, because if Russia is doing badly, the concern is that they revert to old expansionist ideas that really shouldn't have any application in the 21st century.”
In response to intelligence reports that Russia interfered in the U.S. presidential election in 2016, Obama criticized Russia’s lack of economic reforms, stating:
- “The Russians can’t change us or significantly weaken us … They are a smaller country. They are a weaker country. Their economy doesn’t produce anything that anybody wants to buy except oil and gas and arms. They don’t innovate. But they can impact us if we lose track of who we are.”
Speaking at the Fort Ross Dialogue Event on May 30, 2017, Obama-appointed U.S Ambassador to Russia John Tefft reflected on the future of commercial economic ties between the United States and Russia despite U.S. sanctions policy:
- “Looking at this from a business perspective, we of course recognize that sanctions remain an important part of the calculus of doing business in Russia. This is the subject of my discussions with many businesses, both Russian and American. To the greatest extent possible, we have worked hard with our European allies to maintain an even playing field for American firms. And while we continue to ensure our sanctions policy is implemented in designated areas, we also look for opportunity to grow our commercial ties in non-sanctioned sectors. Beyond this, we must not lose focus of the pillars of any strong commercial relationship: reducing barriers to trade and maintaining a sound and fair investment climate.”
- “Given the tough years we have recently gone through, it is easy to forget a simple fact: in 2013, our nations did more trade than ever, over $38 billion. This shows in clear numbers the proven opportunity that trade and investment could have to create jobs and wealth in both of our countries. Our Economic Section, Foreign Agricultural Service and U.S. Commercial Service are working with Russian and American firms on a daily basis to improve the general business investment climate, address regulatory issues and impediments to trade and navigate these difficult times and allow companies to do what they do best—develop long-term, profitable relationships.”
- “Recent data show that nearly 175,000 Russians are working for American companies, and Russian companies employ thousands of Americans. Indeed, many Russians are now the CEOs and CFOs, and hold other positions of major responsibility not only in the Russian corporate entity, but in the global enterprise. In the same vein, the intellectual talents of the Russian people have helped American investment in this country grow and succeed in so many ways. This development of human capital is perhaps the most enduring American investment in Russia—and one that we all wish will continue and expand.”
Donald Trump (2017-2021)
While our research did not show that Donald Trump and members of the Trump administration made explicit calls for economic reform in Russia, they did comment on and discuss business development and the U.S.-Russian economic relationship with their Russian counterparts.
During a press conference following the 2018 U.S.-Russia summit in Helsinki, Finland, Putin announced greater economic engagement between the two countries:
- “We paid more attention to economic ties and economic cooperation. It’s clear that both countries, the businesses of both countries, are interested in this. The American delegation was one of the largest delegations in the St. Petersburg economic forum. It featured over 500 representatives from American businesses. We agreed, me and President Trump, we agreed to create a high-level working group that would bring together captains of Russian and American businesses. After all, entrepreneurs and businessmen know better how to articulate this successful business cooperation. We’ll let them think and make their proposals and suggestions in this regard.”
During a joint press conference on May 14, 2019, between Russian Foreign Minister Sergei Lavrov and U.S. Secretary of State Mike Pompeo, Lavrov discussed initiatives to foster greater economic cooperation between the two nations:
- “We believe it is also useful to create a business advisory council that could unite representatives of larger—of major businesses from both countries, and they could draft recommendations how the governments could create conditions for a conducive environment for economic cooperation.”
U.S. Ambassador to Russia John Sullivan has emphasized cultivating business and economic ties between the United States and Russia:
- During a roundtable with journalists on April 22, 2020, Sullivan emphasized that “the interests of U.S. businesses and U.S. investors [in Russia] is extremely important to me … I have told the American business community here that promoting business ties in the non-sanctioned portion of the Russian economy is one of my key priorities as ambassador.”
- In an interview with Konstantin Remchukov from Nezavisimaya Gazeta on Dec. 18, 2020, Sullivan reflected on how much economic ties between the U.S. and Russia have changed since the Cold War: “We now have over 1,000 U.S. companies doing business here in Russia. We did not have 1,000 U.S. companies doing business in the Soviet Union. People-to-people exchanges, cultural exchanges, have grown and prospered because of the relationship between our peoples.”
- The program provided $11 billion in aid from members of the group and other wealthy countries, $4.5 billion in loans from international institutions like the International Monetary Fund and the World Bank and $2.5 billion in deferral of Russian debts.
Photo by difotolife shared under a Pixabay license.
Aleksandra Srdanovic is a graduate student at Harvard University.