World Economy Feels Impact of Perestroika

Will Gorbachev survive, and does it matter anyway? In perestroika ‘s latest episode, U.S. Secretary of Defense Richard Cheney said a week ago that Soviet leader Mikhail Gorbachev’s attempts to reform his country’s economy would lead to his downfall.

Cheney’s comment was countered somewhat by President Bush, saying he told Gorbachev that we in America want perestroika to succeed and backing that sentiment with an OK for subsidies on grain sales to the Soviet Union.

But more than American exports will be affected by Gorbachev’s policies, which bring the challenge of change to the United States as well as to the Soviet Union. The promise of lowered East-West tensions is already producing second thoughts about NATO missiles in West Germany. And no doubt it is also contributing to the prospect of long-term shrinkage in the U.S. defense industry--a $300-billion-a-year mainstay of the U.S. economy.

Gorbachev, in short, makes a difference. In speculating on his possible downfall, Cheney wasn’t arguing for higher defense spending but cautioning against a hasty withdrawal of U.S. troops from Europe lest today’s sweet talk is replaced by tomorrow’s growl.

Opening up closed economies is difficult and perilous. The exhilaration of free markets is soon replaced by confusion and rage at rising prices. What people don’t realize is that inflation has always been there but evident in shortages rather than high prices.

“There are two kinds of inflation,” an official of East Germany’s government once explained succinctly, “the kind in which I cannot buy because the price is too high and the kind in which I cannot buy because the products are not there.” Perestroika, literally restructuring, means awakening from illusion. But that doesn’t make it less painful.

Next will come unemployment, as state-owned railroads and airlines, factories and offices try to lay off surplus staff and become efficient. Still, with all the difficulties, voters in Moscow (and students in Beijing) are calling for further change--having tasted economic freedom, they want political self-determination. Ultimately, what is going on in the reforming Communist world will present profound challenges to U.S. foreign and economic policies.

Weakening Hold on Asia

“Within 25 years, if not sooner, the Russian empire will have disappeared,” says Peter F. Drucker. “In fact, the more Gorbachev’s perestroika succeeds in reviving a decaying Russian economy, the faster will the Russian empire unravel.”

Drucker is best known as an authority on business management, but he is more an historian of economics and culture. At 79, he is publishing his 25th book this month, “The New Realities,” a collection of essays based on lectures he gave last fall at the Claremont Graduate School about the implications of the information age.

In one of the book’s arresting essays, Drucker writes not only of the Soviet Union’s changing relationship with Eastern Europe but the weakening hold of the European Russian leadership over vast stretches of Asia, as the Russian half of the Soviet population grows at one-third the rate of the country’s Central Asian peoples.

The Soviet Union is not a melting pot society; the ruling Russians don’t even equip Asian soldiers with live ammunition. One reason Gorbachev offered to reduce Soviet troop strength by 500,000, says Drucker, is that lacking Russian youths to fill the ranks, he would have to recruit and arm Asians.

So Russia is changing in more ways than one. Which means, writes Drucker, that the United States has to rethink 44 years of foreign and economic policies that centered on the Soviet Union. Protecting countries from Soviet power is difficult, after all, when they no longer think that they need protection.

West Germany is already turning eastward toward the vast and underdeveloped Soviet market. The Soviet Union has a gross national product of about $2.2 trillion, comparable to that of Japan and double that of West Germany. But 286 million Soviet citizens have a standard of living--GNP per person--that is less than half that of Japan or Germany. Germany’s second thoughts about NATO are related, of course, to its ambitions for trade and ties with the East.

In Asia, too, things are changing. Japan wants to build its own fighter plane, the FSX. Does the United States support this reach for independence or demand continued dependence?

Of course, all these developments are positive. They mean that the American postwar policy of fostering economic recovery in Europe and Japan has succeeded. There’s a lot of truth in President Bush’s remarks last week that “the United States should hope that economic reform succeeds everywhere in the world. With its emphasis on incentives and market economics, economic reform leads to more freedom.”

What does it all mean? Militarily, America won the war; philosophically, it has won the postwar. Now it is challenged to come up with an encore.