Heritage. Org web se. Those who ll be joining us on a future occasion on cspan become tv. Inhouse we ask that you see that our mobile devices have been silenced or turned off. For those watching online, we remind them that theyre welcome to send questions for comments at any time, simply emailing speaker at heritage. Org and we will post the program for the heritage home page for your future reference. Leading our discussion is ted broman, Senior Research fellows. He looks the angloamerican relationship, the u. S. Leadership role in the world. Before join hisas yale associate director or International Security studies and also a lecturer in history and International Affairs for yales master of arts program. He is now also an adjunct professor of strategic studies at Johns Hopkins university. School of advanced international studies. Please join me in welcoming ted vroman. Thank you. Normally win we cold events in february i thank those who attend because of the atortious weather because of the snow and sleet. Today i want to thank everyone for attaining edition spite its 65 degrees out there and feels like spring. So thank you for joining us here. As my boss says, sometimes its important for us at think tanks, centers on Public Policy options, to step away from immediate policy concerns for a little while and turn to longer, more historically informed questionses and discussions. When you look the kind of things were worried about here at heritage, certainly in the Foreign Policy realm, a lot of them tend to resolve around questions relating to russias Foreign Policy, russias domestic economy, chinas Foreign Policy chinas domestic economy, and i dont think its colorful to say the common perception out there today is that china is a very strong and rising nation, and russia, although perhaps tactically fairly strong, is in the long run in a relatively weaker position than china. Now, short advertisement were having Event Next Week on tuesday, speaking about asia, which will question a little bit the idea that china is a strong as we believe it is, but certainly thats the common perception. How did we get to this night well in the early 1990s, there was sort of a common perception out there, and i just was digging around in my own personal archives a parent on russia and china and this is the would informed and senior activities were thinking about the question in 90s. If there is a lesson to be gained from the comparative experience of the ussr, hungary and the post soviet city is that common just leaders gamed more stable regime transition when they chose to seek democratic support. It seems the past china is determine to follow, abandoning communist is destabilizing. So in thearm 1990s and one has to remember the importance of Tienmen Square and the notion that the soviet union was 0 the right path, the path to reform and china was on the wrong path, the path of repression instability. And Tienmen Square. It was just prefer goldstone and others who were interested in the comparison between the ussa and china. Mikhail gorbachev what also very interested in this comparison and it in fact comparison and the effort to learn lessons is the center of our event today. Its my pleasure to welcome to hair canaling dr. Chris miller. The associate director of the brady program in yale university, program i know extremely well having been involved in its foundation in 19992000. Dr. Miller was leak tourer in moscow, the visiting researcher the and he has hell fellowship in the german marshall found me and Hoover Institution and received his ph. D ma from yale and day history from harvard university. Join me in welcoming dr. Miller to speak on his first book the struggle tsave the russia economy. Published in 2016 by unc press. Dr. Miller. [applause] thank you very much. An exciting time to talk about russian history not only because russia is in the news a lot tied for good reasons and bad reasons and this is an anniversary for russia. September was the 25th 25th anniversary of the soviet unions collapse and this year is the history of the russia revolution when the communists took power. So very timely period to look back at. The source of russian history that led to the current government taking power. Would like to turn back to period 25 years ago when the soviet union wag beginning to fall apart and ask what went wrong and why. To do so id like to compare that period of history with china. The period the end of the cold war in 1989, the fall of the berlin wall, establishment only democracy in central and Eastern Europe you may not thing o beijing as central but in may 1989, you have photos of a mass in Tienmen Square, but gorbachev was a prophet of democracy. And the chinese protesters were April September belled in may coming to visit beijing, the first visit bay soviet leader to china from time of khrushchev. A period of new relations between the two countrys governments. After 1989, the two countries diverged sharply, heres a chart of chinese and russian gdp. And china has done very, very well, and the soviet union and its successor states have done rather poorly. If grew back to 1985, the year that Mikhail Gorbachev took power, becomes clear that although the soviet union is in stagnation from the entire post war ford 1985 it was not in state of crisis in 198 5689 the budget deficit is at zero when gorbachev took power and then the budget collapses and the question i would to ask what was about perestroika that led to the entire country hurdling towards economic disaster. Why did that happen . There are two basic schools of thoughts in explaining the collapse. One on the left end, the other on the right end and beth arguments make reference to china. On the left of the political speck truck the argue. Is that the soviet union should have followed chinas more gradual economic transition. That capitalism created to much corruption or not enough output and if only gorbachev followed the chinese economic path he would have head better results. On the authoritarian right, the argument is very different but made a reverence to china. The argue. If only gore chef had abandoned democracy and kept authoritarian rule others the he could have pushessed reforms that would lead to better outcome. Soen oright to very different arguments but both assume the soviet union could have learn something but china but failed to do so. And i was struck when i first began my research in soviet archives and i spent two years in moscow digging through papers to find dozen of references from gore chef and his top advisers as the study the chinese example. That the chinese were doing to make their economy grow, how were the chinese transitioning from a socialist economy to a market economy and what lessons could they learn from chinas experience. So first maybe rolling back as to why would the soviets be looking the chinese as a model Economic Growth to begin with . You might expect that as the soviets transitioned towards market socialism they would look at hungry or yugoslavia which had a mixed economy. But by the 1980s in perestroika was being form lated the were in the midst of derecessions. This is gdp in several European Countries none of them looked like appealing examples of market sojim when perestroika was being designed. At the same time to many soviet officials and many in the west america was a less appealing mod of capitalism. It was the era of stagflation and then when the feds hiked Interest Rates many in west questioned whether capitalism hat a future across the world as a period over japan as number one, and Many Americans believed that japan found a new model of combining democracy and capital limp that provide higher growth rates and less social division. Fewer strikes, a lot of Political Tension less political attention and. And it went only in the u. S. Where people were looking at japan. I was surprised to find dozens of footnotes in soviet sources citing the book, jap is number one, Say Something new is going on here. But if you were the soviet union looking for asia models of capitalism, then the natural place to turn was not japan or south korea or the asia tigers but to the socialist country in east asia, china. And that dozens on dozen of leading soviet economists, officials, political advisedders, visited china in 1980s and visited shanghai to lauren about Chinese Industrial forms and visited the countryside to learn about agriculture and after all the visits they wrote memos to tone leaders saying this how china is transitioning to capitalism and these are the lessons the soviet union could learn. So across the soviet political system, everyone was aware of what china was doing and everybody was thinking about what lessons might be drawn from that experience for the soviet union. So i hope ive convinced you that the ideas about what was going on in china during the 1980s, the next question is how do the new examineds interact with the political structures that dominated soviet politics. Here, too i was my research was very much shaped by the archives i visited. Three types of sources. The first are papers from soviet research institutes, the think tanks of the soviet union. The second sores are papers from government bodies like the state bank or finance ministries that were actually implementing reforms and third, the most important, records from the soviet politburo, th policymaking party that made all editions. From 1985 to 1991 a view instinct into the papers because for most of to post war period the papers closed but when gore chef was in power, three of his aides took regular notes testify moot examination deposited the notes in a different archive and we have the this unique glimpse into the top levels of soviet politics unlike any other period during the cold war era. When you look through the sources, you immediately discover that not only was the communist party itself powerful, naturally enough, sings it was running the government, but also Interest Groups that played an enormous role in soviet politics and the first group is the military industrial complex, the second was the fuel energy complex, the network of gas and Oil Companies that made up russians biggest export industry. And the their its the agroindustrial complex are words that i didnt these are russian words translated into english. The words they used to describe groups that bread an imsentence role in soviet politics. Found as the soviet union debated reforms they saw china implementing, these three Interest Groups played a big role in shaping the outcomes and gorbachev had to compromise with these groups who felt threatened. Want to give you to okayed studies of gorbachev announcing new reforms and the Interest Groups pushing back and demanding they get benefits in exchange. The first case study is industrial reforms, it was a province in china which fit experimented with industry forms. So the soviets visited china to study what they were doing to toe make industries more efficient. And they realized that china had provided a knew set of incentives for state opened form and replaced the policy of profit confiscation, to suddenly having incentive to make a profit. Soviet officials believed they chinas new incentives were illinois couraging enterprises to be mow efficient and produce more and make money, but when the ideas were introduced into the pollitt bury rove they failed the politburo they faced pushback, the new ideas threatened socialism the basis of the soviet political system and the second push back was Interest Group based. These ideas threatened Interest Groups which were powerful in the soviet political system. When gore chef introduced the idea of introduces more incentives to make the soviet enter prizes one more efficiently. The longtime soviet foreign minister pushed back in two different ways. First he said this questions the basic foundation of our socialist regime. Capitalism, not socialism, and not a good thing. In a socialist country. The second pushback which grow mikko was that actually its tough for military factories, our industries are lean on legs and no movement, equipment is extremely old. So, a. , these ideas threaten our ideology, and b. , by the way, can you please spend more money on factories that are associated with me. Always this onetwo punch of critiques, threatening socialitt and plies spend money on my favorite industries. All the response. Bogey chef and his advisers were not impress but had no choice but to deal with them. The Interest Groups were too powerful and by the end of the soviet union, 1991, the compromised and they were similar to china. The 1986 it walling now legal to work out of the stateowned business in the soviet union. The law in the state enterprise of 1987 strengthened the incentives for interpries to work effective live and by 1988 the law on cooperative legalized private businesses. Human steps kurds capital him chinaing china. But one big difference between what the soviet union did and the compromises that gore chef had to cut with gorbachev had to cut and he had to promise a huge way of new Capital Investment, all which was wasted but that whats quid pro quo to buy off support from the industrial Interest Groups and i have a chart of a number tv Industrial Production members. They shoot up after 1985 as gore chef summers money into the industrial sector. That the industries demand in exchange for support but the soviet destroys are no mow efficient in 1987 than 1985 sew investment is wasted but stress stretches the budget. The huge cost of the program but no economic benefit. Second indication study, agriculture. Like in industry, the soviet union was very interested in arningbo chinas agricultural reforms. China had this large collective farms like the see yet union where round farmer worked on the same fashion an incredibly inefficient system because individual farmers lacked incentive to produce grape because you were paid not how much grape you prowls elfed but the fact you were a member of the collective farm. The soviet union watched as china moved to individual farming where individual household were given control over their own production and you can imagine this improved incentives and led to higher output. So the soviet union says this looks very sensible, we can implement this measures on our own collectives. But this idea face aid twopart push back. One was ideological and the second was Interest Groups based. The person directly before gore chef influential, he argued in 1989 that the czechs are very worried by the publics on agrarian questions, threatening the victory of social. You. Gorbachev said bullshit. Tame he follows that up by saying by the way, our Capital Investment in agriculture was very effective and we need more spending on agriculture. Turned out that the soviet union in the early 1980s, even were perestroika had by one estimate the largest Farm Subsidy Program in human history. Farms were immensely inefficient and owned far too many tractors, spend too much or first lieder and far less output either per acre or worker than comparable farms in western europe or the united states. The problem wasnt a deficit investment. It was investment was used very poor bailout from the perspective of the farm lobby it made them better off. So as in the industrial sector, gorbachev cut a deal and by 1991 he was able to push through reforms that on paper looked very similar to china. For example, 1991, individual farmers could at least on paper lease land, could de facto own their own land. Payment was based on outand it farm land is decheck tithized and farms were broken into peaces and all this was very similar to china, but like in the industrial reforms, gorbachev had to agree a quid pro quo. In exchange for the legal changes he had to promise more spending on farms. We have a chart of farm subsidies and you can see any measure they increase steadily throughout the 1980s, and they reach the point whereby the increase an form subs did were half over the see eyes of the total budget deficit for the soviet union, an enormous Farm Subsidy Program when you think become to the chart of deficit have of that was explained by increase inside farm subsidies so theit is a enormous. To step can back to the comparison win china, what went wrong. I hope showed that agricultural reforms on paper were similar to china and industrial reforms an well an paper were copied off china but the big difference was the budget deficit. China didnt have to do these deals so didnt have to develop this massive budget deficit and gorbachev had no choice. I he wanted to push reforms through he had to cut deals with Interest Groups and had to spend money to do it so thats how you get this is the same graph i showed the begin this massive budget deficit reaching a third of gdp by 1991. Eform mouse figure. Makes greece look like a very wellmanaged country. In some ways unprecedented. Hard to find other examples of dat where countries with such a large budget deficit. Theres a common theory that one of the major causes of the soviet budget deficit in the 1980s wall decle in International Oil prices. Its true the oil presses fell and this hurt the soviet union ask decrease the export revenue. But its also important to recognize that the decline in oil export rev enough explained only a portion, less than half of the increase in the budget deficit. So certainly oil stressed the budget situation but so too did farm subsidies and there is no i think its important not to blame it all on outside factors like oil prices when in fact there were many domestic causeses that were no less impo