More Than They Bargained For

Controversy Surrounding the Kennedy School of Government's Widely-Publicized 'Grand Bargain' Plan for Soviet Economic Reform Rages On In the Wake of the Dramatic Political Upheaval

For the past several months, debate about the Soviet Union's transition to a market economy has focused on a plan claiming to offer the United States a "Grand Bargain." The brainchild of former Kennedy School of Government Dean Graham T. Allison Jr. '62, the ambitious plan was jointly conceived by a team of Soviet economists and Kennedy School policy experts.

Although the scheme is officially titled the "Window of Opportunity," it has become known throughout the world simply as "The Harvard Plan."

But in the aftermath of last month's attempted Soviet coup, all bets are off. Although the Harvard plan once seemed like a leading model for economic reform, the options have since multiplied a hundred fold, and the future of the Soviet economy--if there is a Soviet economy--is far from certain. And although one of the plan's co-authors, Grigory Yavlinsky, is now deputy head of the State Council's economic management committee, it is highly unlikely that the plan will be implemented intact.

Before the coup, the Harvard plan served as the framework for an ongoing debate among academics and practitioners about the Soviet Union's economic path. Since the coup, that debate has only increased, and an economic plan for a nation 4500 miles away seems to have revealed deep rifts right here at Harvard.

The most fundamental debate centers on whether the plan, as originally conceived for the pre-coup Soviet Union, represents the best path to economic reform. The plan proposes using Western monetary aid, in the tens of billions of dollars, to make democratic reforms possible.

Under this carrot-and-stick arrangement, aid would be conditional upon the implementation and continuation of six principal reforms: stabilization of the macroeconomy, liberalization of prices, establishment of private property, opening of the economy to foreign trade and limitation of governmental intervention in the economy.

Supporters of the plan say it answers the concerns of President Bush, who opposes aid to the Soviets on the grounds that they do not yet have the market mechanisms to make efficient use of such funds. Although a good number of experts agree with the plan's central premise, some here at Harvard say the very concept of a Grand Bargain is flawed.

"The plan was premised on the notion that if we pumped all this money in we would automatically be able to bring about reforms," says Mark Kramer, a fellow at Harvard's Russian Research Center.

"If you think about the situation in reverse, you realize how ludicrous that idea is," he says. "Imagine that during the depression, [U.S. President Franklin Delano Roosevelt '04] had approached Stalin and said, 'Give us $20 billion to create a larger state intervention.' The idea is laughable, obviously."

But the plan's authors insist that Western aid would reduce the risk of economic and political chaos during the Soviets' reorganization of their economy and society. They conclude, "When measured in terms of the value of success in this endeavor, the costs will be low--much less than costs imposed by the likely alternatives, and if provided sooner, lower than later."

Both supporters and opponents of the plan agree that the breakup of the strongly centralized Soviet Union has created a host of new obstacles to pursuing any kind of widespread reform plan. "The report assumed that there would be a coherent central government," says Stanley Fischer, an MIT economics professor and member of the Allison-Yavlinsky team. "Those assumptions are obviously no longer valid."

Fischer noted that it has become more difficult for the West to give general monetary aid to the Soviet Union because it is not even clear whether the aid would go to President Mikhail S. Gorbachev's federal government or Boris Yeltsin's Russian Republic.

Do-It-Yourself Reform

Some observers argue that political and economic changes have been taking place so rapidly that the plan is no longer a relevant model to follow. "All the conditions that the plan was supposed to achieve, we've achieved without giving a cent," says Gabriel Schoenfeld, a senior fellow in Soviet Studies at the Washington-based Center for Strategic and International Studies.

However, Harvard's Dillon Professor of International Affairs Joseph S. Nye Jr. says that such statements are overly optimistic. "Only some of the changes have happened so far," Nye says. "There's still a long way to go."

Some of the plan's supporters have said that its basic premise of "change-through-aid" was proven effective in America's postwar economic intervention in Western Europe and Japan. Many Soviet scholars, however, explain that a number of factors make the Soviet situation unique. Not only is the region in a period of extraoridnary political instability, but it is also divided along ethnic and cultural lines that make centralized reforms difficult. Furthermore, the Soviets may have considerable difficulty in establishing market mechanisms, such as a system of private property, after 74 years of central planning--a factor which critics say receives inadequate attention in the Harvard plan.

Left Out of the Bargain

Some of those who are quickest to point out the flaws in the Harvard plan are those who were excluded from its development. The Window of Opportunity team consisted of some Soviet scholars, but mostly well-known experts from other fields, including Stone Professor of International Trade Jeffrey Sachs '76, the Harvard economist who has been a principal adviser to the post-Communist Polish government.

Among those not included on the roster were the two leaders of Harvard's Russian Research Center--Adam B. Ulam and Marshall I. Goldman. Goldman suggests that some of the plan's problems might have been avoided if the Allison-Yavlinsky team had drawn on the expertise of Harvard's many Soviet scholars.

In fact, Goldman says, the center's staffers were somewhat "miffed" to be left out of the project "partly out of professional jealousy, of course, but also because we thought the project would have benefitted from some intellectual give and take."

"I think we could have made a contribution," Goldman says, but adds, "To be honest, the way things worked out, we're kind of happy that we didn't have anything to do with it."

"In some senses [the group's composition] made it more of a public relations stunt than a serious economic effort," says Kramer.

Program participants point out that it was natural for the project to take place at the Kennedy School since it was conceived and brought about by Allison, a former dean of the school. Allison did not return repeated phone calls from The Crimson for this article.

However, in the November 1990 issue of the Kennedy School Update, Allison said of the project, "In the course of doing this we will learn more about the political economy of these great transitions and about the interaction between the political, economic and cultural issues that are often neglected by a specialist approach than we could by any other research strategy I can imagine."

But the project's critics say that it ended up relying on people with little academic background--though often extensive practical experience--in the field. "Harvard does have a very strong collection of Soviet experts," says Schoenfeld. "But they're not at the Kennedy School, they're at the Russian Research Center."

Gaps in Understanding

Although the committee's composition may have bruised some egos, scholars point out several more substantive ways that the lack of intellectual diversity harmed the final product. Goldman says he believes that there were gaps in the program participants' understanding of each other's economic systems. For instance, he says, the plan made no allowance for the introduction of wholesaling to the marketplace.

"The U.S. side took for granted that wholesaling would exist, while the Soviet side didn't understand what it meant," he says.

Goldman says the proposal as it stands is "seriously flawed." He says he believes that, despite the planners' best intentions, the project has already had distinctly negative consequences inside the Soviet Union. "It gave a lot of people the impression that the Soviets were going around hat in hand begging for money," he says. "For a proud people, I think they would have preferred it would be done with a little more subtlety."

In fact, Goldman says, at a Soviet economic forum he attended last Thursday, Yavlinsky said that his government did not want to be given money by Western nations. "They're so over-whelmed by their country's problems," he says. "That's just not what they want right now." Others argue that the project damaged reform efforts by diverting attention away from the question of internal commitment to reform.

Worse Than Useless?

"It skewed the whole debate," says Kramer, who calls the project "worse than useless." "It focused attention on the role of the West, which is really peripheral. We can't make them reform," he says.

But the project's participants maintain that their work has benefitted the course of economic change in the Soviet Union. They point out that if nothing else, the publicity surrounding the plan catapulted the topic of Soviet aid back onto the American agenda. Furthermore, says Nye, the project started people thinking about concrete reform goals. "It established in principle a plan for reform, at a time when a lot of people were saying that reform was impossible," he says.

Fischer says he thinks most of the criticism of the report has come from people who formed their opinions of it before it actually came out. "There was a lot of advance publicity and the publicity turned a lot of people off," says Fischer. "In terms of the actual substance of it I have no hesitation standing by it as an economist."

Not a Dead Document

There is little chance at this point that the controversial plan will be adopted explicitly. But Soviet officials say that the ideas it raises continue to play an influential role in debate over the future of their troubled economy.

They say that the central government of the newly-named Union of Sovereign States hopes soon to establish a plan of economic reform that will move them to a market-based economy. "Very frantic work is being carried out right now," says Yuriy N. Isakov, senior counsel for economic affairs at the Soviet mission in New York City.

Isakov says that within the next several weeks, Soviet officials expect to have a unified economic program to present to the people of their 12 republics and to the rest of the world. Economists in Moscow are considering a number of different possible models, he says, ranging from a loose Russian economic federation to a "unified economic space," extending as far west as the nations of Eastern Europe. And he says that the Allison-Yavlinsky plan is "by no means dead."

"It is a valuable document which draws attention to quite a number of useful ideas," Isakov says. "A part of [the final document] will definitely reflect the ideas of Mr. Yavlinsky, as well as of others," he says.

But it remains to be seen whether the new post-Soviet government will have the political authority to put any unified economic reform plan into practice. Harvard's scholars at the Russian Research Center are dubious, if not pessimistic. "Economically it's pretty easy to say what should be done, but it's difficult politically to tell if they'll be able to do it," says Kramer.

And Goldman says, "In the range of history, [the Allison-Yavlinsky proposal] didn't make matters any worse, but it certainly hasn't made them any better."

The Grand Bargain

The timetable for economic change proposed by the authors of the "Window of Opportunity" economic plan:

1991-1992

* Development of a new political framework, including the negotiation of treaties and of agreements with international monetary institutions.

* Development of a new legal framework, including the establishment of contract and corporate law.

* Preparation for macroeconomic stabilization, including controls of social spending and government credit.

* Small-scale privatization and liberalization programs.

1992

* Commencement of large-scale Western financial aid ($15-30 billion annually) led by the IMF and contingent upon the continuation of reforms.

* Creation of an independent central bank and a balanced budget.

* Large-scale price liberalization on all but essential consumer goods.

* Opening of the economy to the West, including the creation of a convertible ruble.

1993

* Privatization of large enterprise.

* Conversions of portions of the defense industry into new, non-defense enterprises.

* Upgrading of the infrastructure.

1994-1997

* Intensification of changes previously set in process.

* Development of the social programs required by a market economy.