America Abroad

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How to rescue the people of the former Soviet Union from the economic abyss? It is a question of money, obviously, but not of how much we should give them. The most important task is to help them develop real money of their own.

In a normal country, currency is more than just a medium of exchange between a buyer and a seller: a dollar bill or a thousand-yen note is a contract between the individual and the state. The citizen does his part by producing and consuming, while the government ensures what economists call a stable standard of value -- a sound currency -- for the transactions of life.

Money must be versatile. It can be used to purchase goods and services at rates determined by the laws of supply and demand. Or it can be saved for moments of need or retirement. Or it can be converted into the currency of other countries. In this way, money both reinforces national identity and stimulates international commerce.

The Soviet Union, however, was a very abnormal country. Genuine money did not exist. Instead, the state issued little pieces of paper like scrip redeemable only at the company store, or like the play money used in Monopoly, with the Kremlin making all the rules. Those rules had nothing to do with basic economics. What was in supply had little to do with what was in demand, and prices had little to do with the cost of production. Too many rubles chased too few goods, and too many citizens spent too much time in lines.

The social compact was a joke: "We pretend to work; they pretend to pay us." As for savings, which are an economic statement of faith in the future, what was the point? To have more rubles with which to scour empty shelves or to stuff under the mattress? But there was also no point in complaining. The Ministry of Finance was, like everything else, subordinated to the Ministry of Fear. The ruble, quite simply, was the monetary manifestation of totalitarianism.

Moreover, while the ruble was nearly worthless at home, it was totally without value abroad. No banker or investor wanted to hold an artificial, or "soft," currency. The ruble was an impediment to foreign trade and contributed to the isolation of the U.S.S.R.

Then came Gorbachev, glasnost, democratization and their natural consequence: the collapse of the Soviet state. We in the West have tended to underestimate the economic factor in the breakup of the U.S.S.R. We saw Balts, Georgians and Ukrainians venting their hatred of Russia and wrenching free of those notorious Russian-dominated institutions of repression -- the Communist Party, the KGB, the Soviet army.

But the secessionists also wanted to escape the tyranny of the ruble. So did many Russians. In 1990 I paid an eye-opening visit to the Pacific port of Vladivostok. The population there is overwhelmingly Russian, yet the local leaders were almost as eager to break with Moscow as the most fire-breathing nationalists in Lithuania and Georgia. I got the feeling that the city fathers of Vladivostok would have happily annexed their fair city and, better yet, the entire Maritime province of the U.S.S.R. to South Korea or Japan -- if they could only turn in their rubles for won or yen.