Financial Post G7 Record

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Financial Post, Weekly edition, Mon 09 Jul 90, page 6. Editorial.


Aid to Soviets a topic for summit

The question of economic aid for the Soviet Union is likely to be one of the issues dominating the economic summit of the group of seven industrialized countries this week in Houston.

West Germany first suggested the idea about a month ago. German Chancellor Helmut Kohl wants Soviet support for a unified Germany. French President Francois Mitterrand has joined Kohl in calling for US$15 billion (C$17 billion) in outright grants and loans to the Soviet Union.

Other leaders disagree. At first, U.S. President George Bush dismissed the idea of giving assistance to the Soviet Union. Now he and his British counterpart, Prime Minister Margaret Thatcher, insist aid be made conditional on economic reforms.

Self-interest in the largest sense, not humanitarian considerations, should dictate the G-7's position on providing aid to the Soviet Union. (There are other countries more in need of humanitarian aid.) Western nations stand to benefit greatly from a prosperous, stable and much less heavily armed Soviet Union. The self-interest of the West is not necessarily in keeping Soviet President Mikhail Gorbachev in power, but in seeing the process he initiated to successful completion.

Aid should be made conditional on both economic reforms and progress on disarmament. As Martin Feldstein has argued in the Wall Street Journal, ''the more that the Soviets are willing to reduce their international nuclear capabliltiy in exchange for consumer goods and technical assistance, the more that the U.S. can safely reduce its own military spending.'' The same rationale applies to all North Atlantic Treaty Organization countries in proportion to their contributions to the alliance.

Five years of perestroika and half-hearted economic reforms have produced no concrete results. The conservative Communist Party members and senior army officers at the 28th Communist Party Congress should be given a clear indication by Western leaders of the costs of their resistance to change. They should be told there is substantial aid available but only if further arms reductions are made and real economic reforms introduced.

Furthermore, even Soviet economists are convinced aid will not help until economic reforms are in place. Aid ''won't solve any of the cardinal problems,'' says Oleg Bogomolov, an influential radical economist.

There is no simple solution to introducing a market economy. There seems to be agreement that what is needed includes freeing prices and interest rates to allocate resources. State monopolies must be broken up and some form of private property introduced to give Soviet producers incentives to be industrious and efficient.

Provided the Soviet Union is willing to make these changes, Western countries should be ready to provide assistance of two sorts. The Soviet Union will need Western consumer goods to facilitate, indeed to make palatable, the transition to a market economy. And we should assist the Soviet Union in improving infrastructure, especially of a technologically advanced nature, for example, telecommunications, most needed for an efficient economy.

These expenditures could be marketed to voters in industrialized countries as an investment in further reductions of military spending in the future and greater world prosperity and security.

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Revised: June 3, 1995

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