:: Vitaly Shlykov: Which past is better for the future?

Détente is a realistic model for East-West relations, while reliance on one’s own forces is the best economic policy. But we will have to study the latter option again. This is the opinion of Vitaly Shlykov, Former Deputy Chairman of the State Committee on Defense Issues in the Boris Yeltsin government, member of the Council on Foreign and Defense Policy, and one of the speakers at the regular meeting of the Valdai International Discussion Club this September. He was interviewed by RIA Novosti correspondent Alexei Pankin.

Question: Mr Shlykov, the agenda for the club’s next meeting has a paradoxical title: “Russia and the West: Back to the Future”. Speaking about international relations, which past – that of Stalin’s Cold War, Brezhnev’s détente, or Yeltsin and Gorbachev’s partnership – will offer us the best option for the future?

Answer: With Barack Obama’s rise to power, the trends reminiscent of the Cold War have come to a halt, thank goodness. President Dmitry Medvedev was pleased to note this positive change. The goal of think tanks, like Valdai, is to discuss the opportunities presented by the new situation.

Détente was the time of pragmatic relations. Both sides badgered each other a little bit, but by and large they respected each other’s main interests and did not seek a major change in the alignment of forces. However, partnership with the U.S.S.R. and Russia showed that the West, primarily the United States, was not averse to changing the balance of power in its favor.

Question: Détente is associated with Leonid Brezhnev’s rule. This was the time when the majority of people reached the highest living standards in the history of the Russian Empire, the U.S.S.R., and independent Russia, something we can judge more or less accurately…

Answer: Yes, the economy was well balanced, society was stable and, most importantly, we did not have today’s social inequality. However, this period is called “stagnation” with good reason. The trouble was that neither Gorbachev, nor Yeltsin, nor their entourages had the slightest idea of how to reform the economy, how to switch it from an economy of 100% militarization to a market economy.

Question: This meeting of the Valdai Club will be the first one during the peak of the economic crisis. While trying to find a way out of it, the West is also scrutinizing the past. Thus, many commentators predict that the current crisis will do away with market liberalism and facilitate the return of protectionism. What is your opinion on this issue?

Answer: Let’s first define the terms. Protectionism is protection of the national economy from foreign competition through high customs tariffs. In contrast, the principle of free trade calls for opening the markets to foreign commodities. And economic liberalism limits the state’s interference in the economy as much as possible in each given historical period. But that’s a different story.

Here’s an example. In the early 1990s, the “young reformers,” headed by Yegor Gaidar, proposed the following way of switching to a market economy: let’s end price control and open the borders for imports. I proposed a different way: let’s end price control and protect domestic producers against foreign competition during the transitional period. Both concepts are liberal, that is, aimed at allowing market mechanisms to work, but Gaidar’s pattern amounts to free trade, and mine is protectionist.

A historical example is the best way to illustrate this issue. Contrary to common opinion, the Civil War in the United States in 1861-1865 was by no means about eliminating slavery, but instead about controlling customs policy. The South was exporting cotton produced by cheap slave labor, and importing quality goods from Britain and the Netherlands, and luxuries from France, that is, from the most industrially advanced countries of that time. The South looked down on the commodities offered by the free North, which had begun industrialization. The South did not require machinery or equipment at all. It favored free trade, that is, low import duties. In contrast, the North needed markets for its consumer and industrial products, and advocated high import tariffs.

This was the main conflict in America in those times, which was resolved by means of war. Elimination of slavery was just a consequence. The victorious North dictated to the South the conditions of surrender, which can be described in three words: “Buy domestic products!” Subsequently, within several decades the U.S. industry became the most powerful in the world, and the United States became the main advocate of free trade. If the South had won, America today would be a third-rate country, like Argentina.

Question: Let’s return to today. Are protectionist trends really growing stronger?

Answer: To begin with, pure models do not exist anywhere. Even among the countries that favor competition, most have always supported different areas of domestic production for this or that reason. These trends always grow stronger during crises, and I don’t see any fundamental changes.

At the start of the crisis, some analysts predicted that it would follow the severe scenario of the Great Depression, in which case we would have seen a change in the economic paradigm. But this scenario did not materialize.

Question: Are there any countries in the world that do not follow the dogma of free trade?

Answer: I will name two: Norway and North Korea. Both strongly protect their national economies. North Korea is a totalitarian regime with a hungry population. Norway is one of the most prosperous and democratic countries in the world.

Incidentally, the Norwegian model could suit us very well. They use profits from oil and gas not to maintain competitiveness at all costs, but to develop domestic consumption, high living standards, and high quality medicine, all of which bring jobs primarily to the domestic economy. Luxury is not encouraged. We have better starting conditions because our domestic market is much bigger.

Question: Maybe this goal is being pursued by our leaders when they are talking about the protection of national producers?

Answer: As you have probably noticed, I favor protectionism, but I think that its time has passed. We had two windows of opportunity in recent times: during the crisis of 1988-1989 under the Yevgeny Primakov government, and in 1992. We still had industry then, and our people had not been spoiled.

Now, after a period of prosperity from expensive oil, people will have to be coerced into giving up imports and buying domestic products, like in North Korea, or will have to be persuaded to do so in the name of some lofty national idea, or the government will have to invest very intelligently in industries where we still have a chance of being truly competitive. The current government is unable and unwilling to choose any of these options. But there seem to be no potential leaders who will do any better. Thus, if we interpret the confrontation between free trade and protectionism as the confrontation between the interests of the consumer and the government (developing the economy), we can conclude that the government and society have reached a compromise to the benefit of the consumer.

To be honest, I don’t quite believe in the success of surgical protectionism, that is, protection of certain industries. In industrialized countries, this is accomplished through huge staffs of highly qualified officials. We are lagging behind them in the number of such officials, not to mention their quality.

However, during these unpredictable times, it would be wrong to extrapolate unthinkingly the current trends into the future. Russia’s international environment may change so that should appear the national interest and readiness to make sacrifices.

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