The New Domestic Order?

Two years ago, the sun began to shine on the Western democracies. The collapse of the communist system, first in Eastern Europe, then in the Soviet Union, brought about a general euphoria that reached deceptive proportions. Now the situation has become dark and chaotic. In the Persian Gulf, Iraq’s invasion of Kuwait led to a confrontation which resulted in a crushing military defeat for Saddam Hussein without, however, removing his regime from power. Although the risks of military confrontation have been sharply reduced, the volatility of the region still presents major risks. Until a regional settlement is reached that is both political and economic, the potential for an explosion remains very real.

The breakup of the Soviet Union is a spectacular victory for the ideals of Western freedom and democracy, and, in particular, a victory for the US as the standard bearer of these ideals. It also may have unpredictable and dangerous consequences. The bold nuclear arms initiative announced by President Bush should make the world a safer place. However, it is impossible to predict the social, economic, and security impact of the breakup of the Soviet empire and the collapse of the Soviet economy. Every day, another plan is brought forward to “stabilize” the Soviet economy, each one a fantasy. No Western plan will be worth the paper it is written on until the various Soviet republics have decided on their political relationships, until they have sorted out their individual currencies, their banking systems, their internal and external security arrangements. This could take years: one cannot create a currency stabilization fund without a currency.

Nor can one speak of economic assistance to the Soviet Union without recognizing that the amount of capital which may be required is entirely beyond the capacity of the West to provide. West Germany may well have invested between $500 billion and $1 trillion in East Germany by the end of the decade. If this is required to bring a relatively advanced country of 17 million people up to Western standards over a decade, what will it take to bring fifteen republics of over 200 million people into some form of relative competitiveness when they are now fifty years behind the East Germans? For political as well as humanitarian reasons, the West must provide as much food, medicine, clothing, and other basic necessities as possible this winter. The original request for food amounted to $1 billion. It then grew to $7 billion and now stands at $14 billion. This is only the beginning. Another immediate concern will be to help the Soviets in the servicing of their external debt of over $60 billion. A default on this debt is imminent and would create serious new economic problems.

Over the longer term, a practical measure to assist the Soviet economy might be to increase the price of gold by international agreement gradually to, say, $500 per ounce; this could enable Russia, as the world’s largest gold producer, eventually to provide a gold-backed currency that would be…

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