New insights on the Soviet Union's collapse

Crude oil prices last week were flirting with a record high. It's great news – for the Russians.

Low oil prices contributed to the fall of the Soviet Union in 1991. In Russia today, high oil and natural gas prices are, to a large degree, the reason for an economic boom.

In the first quarter of this year, Russia's economy steamed along at a level 7.9 percent above the same three months of 2006. Last year, Russia's gross domestic product was up 7.8 percent, notes Charles Movit, an economist at PlanEcon, part of Global Insight, a consulting firm in Waltham, Mass.

Russia's growth rate is not quite up to that of China. But, as Mr. Movit puts it, the rate is "pretty enviable from a Western standpoint."

With its massive exports of gas and oil (at least $200 billion a year), Russia has considerable economic clout in Western Europe. It supplies 40 percent of Germany's natural gas, for instance.

"Russia is very strong," says Marshall Goldman, an economist at Wellesley College in Massachusetts. It may even be "stronger than in its history" – a view not widely shared by other Russia experts.

In November, the Brookings Institution will publish the English translation of "Collapse of an Empire: Lessons for Modern Russia," now a bestseller in Russia. Written by Yegor Gaidar, an economist who was Russia's acting prime minister between 1991 and 1994, the book uses information from Soviet archives to tell the story of the last few years of the Soviet Union. It tries to shoot down the "myth" held by most Russians that the Soviet Union was "a dynamically developing world superpower until usurpers initiated disastrous reforms." It also warns that Russia should avoid the peril of another collapse in oil prices.

What happened, states Mr. Gaidar, is that Soviet grain production stagnated between 1966 and 1990. Meanwhile, 80 million people moved from farms to cities. New Soviet output of oil and gas was not sufficiently expanded to provide the hard currency needed to buy grain abroad. Eventually, the Soviets had to borrow foreign money to buy grain.

Mikhail Gorbachev, the last leader of the Soviet Union, told a meeting of the Communist Party, "We are buying [the grain] because we cannot survive without it," noted Gaidar in a talk to the American Enterprise Institute (AEI) in Washington last fall. An associate of Mr. Gorbachev had warned in March 1991 of the risk of famine in June if foreign grain wasn't obtained.

The result was that Moscow could not suppress revolt in its empire – as it had done in earlier years in East Germany, Hungary, and Czechoslovakia – without losing Western loans.

Gaidar argues that if the Soviet military had crushed Solidarity Party demonstrations in Warsaw, "the Soviet Union would not have received the desperately needed $100 billion from the West." Similarly, when the Soviets tried to use force to reestablish control in the Baltic states in January 1991, the reaction from the West, including the United States, was: "You can choose any solution, but please forget about the $100 billion credit." The Soviets backed down.

Oversimplifying history, Gorbachev was perceived as weak for allowing the dissolution of the Russian empire, overthrown in a military coup, and eventually replaced by Boris Yeltsin.

Gaidar's thesis isn't accepted in its entirety by other experts. Leon Aron, a fellow at the AEI and a friend of Gaidar, says glasnost – Gorbachev's effort to bring openness and transparency into the activities of Soviet institutions, with greater freedom of information – opened the USSR to new political, ideological, and spiritual ideas. "The economic side made collapse faster," he says.

Goldman figures that Gorbachev's dismantling of the Soviet military-industrial complex was the main cause of the collapse. The aluminum industry, for example, supplied raw material for military aircraft, the steel industry for the 60,000 tanks facing the West. Afterwards, "there was no longer anything there," he says. At its peak, the military absorbed 30 percent of total Soviet output. Today, Russia spends about 5 percent on its military.

Of course, not all is shiny in Russia today. The nation is not yet investing enough, says Stephen Cohen, a Russia expert at Princeton University in New Jersey. Too much investment money held by the elite is fleeing abroad.

The World Bank says only 14 percent of Russians were living below the poverty level last year, compared with 30 percent in 1999. But Mr. Cohen says "an awful lot of people" are hit by a crumbling infrastructure, the privatization of government property after the Soviet Union's collapse, and poor pensions, healthcare, and education. Per capita income is a mere $10,600 a year, Movit reckons (versus $22,000 in the US).

But Russia today has a budget surplus, a $112 billion "Stabilization Fund" to counter a big drop in oil and gas prices, and some $400 billion in its international reserves.

Unlike Rodney Dangerfield, Russia gets some respect nowadays.