West's Summit Could Be Diverted by 'Grand Bargain'

TWO extraordinary events, both concerning the Soviet Union, have transformed the character of this month's London industrial country economic summit. Not only do they threaten to undermine the summit's annual display of Western unity and common purpose, but they risk distracting the summiteers - the heads of government of the seven largest industrial countries - from more important issues.First, a self-appointed group of Russian and American economists and academics gathered at Harvard to design a multiyear "Grand Bargain" of Soviet economic reforms and Western financial aid. Although they had only the loosest connection to their governments, an eager media seized on the project and propelled it onto the front pages of newspapers worldwide, as well as into the consideration of Western leaders. Second, President Mikhail Gorbachev has successfully invited himself to participate in the summit to appeal for a dramatic increase in financial assistance. His "Grand Bargain," at least as outlined in his recent Nobel Prize acceptance speech, was different than that conceived at Harvard Yard: he threatened a return to the cold war if lack of aid led to his downfall. And he spoke of movement toward a "mixed market economy" rather than fundamental economic restructuring. Nevertheless, Mr. Gorbachev won th e invitation, which had eluded all other outsiders since the inauguration of the annual summits in 1975. Undoubtedly, the collapse of the Soviet economy and the gradual disintegration of the Soviet state significantly affect the shape of the international political system. The cold war is over, not because Gorbachev has been converted to democratic pluralism and market capitalism, but because the Soviet Union's political and economic ability to sustain itself has disappeared. The West has already responded positively to this break with the past. Not only did Gorbachev receive the Nobel Prize, but he continues to be treated as though he heads a great country. More importantly, the Soviet Union will have spent at least $20 billion in aid from industrial country governments during 1990 and 1991. Substantial emergency food aid has been made available. Endless technical assistance missions have been dispatched. Western markets are being opened: the United States is preparing to gr ant Most Favored Nation status, lowering tariff barriers to encourage Soviet exports. Yet, the Soviet economy continues to contract, now at an annual rate of at least 10 percent, because the Soviets have not resolved fundamental issues about the nature of their country and of their economy. With the US and other countries still in recession, with international trade negotiations floundering, with a potential shortfall of international savings, and with regionalism distracting world leaders from formulating a coherent strategy to guide the international economy through the 1990s, is the perhaps insoluble Soviet problem really the issue which should dominate the summit agenda? Indeed, the proposed "Grand Bargain" makes little economic or political sense. The enthusiasts meeting at Harvard reportedly talked about a three-year program of reform-linked assistance worth $30 billion per year. But no nation in the postwar period has adjusted faster with money than without money. Turkey in 1980, Mexico after 1985, Bolivia in the late 1980s, and the first phase of the current Polish reform efforts succeeded because there was no alternative. Lacking money, these countries had to make t heir economies more productive, introduce market incentives, rationalize imports, increase savings, and integrate themselves into the world economy. From a political perspective, the so-called Grand Bargain presumes a Soviet leadership able to formulate and implement a rational economic strategy. But Gorbachev has already been in office for six years with little economically to show for his efforts. He has seen - and even encouraged - numerous reform plans, yet failed to implement any of them. By most reports, his legitimacy and credibility are lower today than at any time since he came to power. None of this suggests a stable platform from which a s ustained economic reform could be launched. If some version of the Grand Bargain somehow proceeds, then the dilemmas facing the creditors would further multiply. Any program of aid-for-reform would be conditioned on measured progress toward agreed goals. Would Western creditors be prepared to enforce such conditionality, and would Soviet politicians accept the kind of discipline which is routinely administered to debtor countries by the IMF or the World Bank? And, in an era of growing consciousness of human rights, would the Soviets accept the ste ady diet of international criticism that almost inevitably would accompany large-scale financial assistance? Yet such economic and even political conditionality is an accepted part of the international system and it is inconceivable it would be suspended for the Soviets. It is more likely that a massive dose of new official aid would be frittered away than that it would propel the Soviet economy in the late 20th century. Gorbachev's presence will turn the London summit into even more of a photo opportunity than normal. The Soviets will receive some additional monies, perhaps associate membership in the International Monetary Fund, and renewed offers of technical assistance - all of which would have been forthcoming anyhow. And another opportunity to formulate a coordinated international economic strategy among the major industrial countries will have been missed.