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Bill and Boris

Mises Daily: Monday, September 14, 1998 by

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President Bill Clinton went to Russia, a country whose economy is still crippled by massive state ownership and control, where private property is not secure, contracts are not enforced, and enterprise is free in name only. What did he say?

He opened his speech with praise for Stalin's military victories, which occurred in the midst of the Gulag, led to tens of millions of deaths, and fastened down Soviet power across the empire. He proceeded to praise the old regime's "great achievements" in "medicine, science, space flight," thereby implicitly praising the mythical glories of communism in words any of Stalin's successors would have cheered.

What should Russia do now? According to Clinton, the first priority is enhanced tax collection, as if Russia hadn't had enough of that. "In tough times," he said "governments need stable revenues to pay their bills, support salaries, pensions and health care. That requires decisive action to insure that everyone pays their fair share of taxes."

"It is tempting," Clinton continued, "for everyone to avoid wanting to pay any taxes. But if everyone will pay their fair share, the share will be modest and their incomes will be larger over the long run because of the stability and growth it will bring to this Russian economic system."

He underscored the point again later, and went on to embrace patent laws, securities regulation, "social spending," a "safety net," and environmental regulation. There was nary a word for what Russia actually needs: private property rights.

Will someone tell this president that it is people, not governments, that create wealth? That Russia has tried government control of the economy for eighty years and that it produced mass suffering, disease, and death? That urging the tax police to take a harder line against the exploited people of Russia is not an act of friendship?

Some American commentators have expressed regret that Clinton went to Russia with little to no moral credibility. But perhaps this was for the best. As one Russian woman told a television reporter: "He has his own agenda in visiting us. I do not think he really cares about anybody, his family included. All politicians are only interested in power and coercion."

There's truth here, underscored by the unavoidable analogies between the respective political fortunes of Boris Yeltsin and Clinton. They are heads of what were once called "superpowers," a laughable term today. Yeltsin is supported only by those whose checks he signs, and only then in public. Even aside from his legal troubles, Clinton is under fire the world over for approving a bombing raid on a pharmaceutical factory in Sudan that provided half the medicines available in Africa.

Putting aside their attempt to recapture the status that came with power from days gone by, one wonders what, if anything, these two leaders have to offer the world. In a world dominated by globalized stock markets, money markets, non-stop trading, and fast-paced innovations, these two can only posture like relics from the Cold War.

To be sure, the Russian crisis is real, but the crisis dates not to last month but to 1917, when the state fastened controls on the economy it has yet to fully release. For fifteen years, we've been hearing about the Russia's moves toward a market economy. In reality, there is no private ownership of land, no legal mechanism or guarantees for the repatriation of profits, and no legal protection for private property rights. The bribe is still the grease that makes nearly all economic activity possible.

When Yeltsin and Clinton talk of stability, they mean stability of the state. When they talk of growth, they mean growth in government revenue. When they talk of great "achievements" they mean government projects. Clinton went out on a limb to praise the rise of computer-related industries in the U.S.. But he failed to mention that his administration is attempting crush the largest software maker with an antitrust suit.

Meanwhile, the short-term prospects for foreign investment in the Russian economy remain quite limited. The business climate will remain risky so long as investors have to worry about economic instability, an unreliable currency, rampant political conflicts and uncertainty. The quickest path to economic recovery is to attract foreign investment. But the Russian government is doing nothing to make that likely in the near term.

The institutions of private property, free contract, freedom of exchange, freedom of enterprise, and hard money are themselves the great regulative forces in the economic world. Without these institutions, the economy is doomed to be vulnerable and inefficient.

The Clinton administration is in no position to preach to the Russian government, and it's fortunate for Russia that nobody is listening to either Bill or Boris anyway. As the Russian lady said, governments pursue their own self interest, which these days is mostly about their own survival. If the Russian people are to do the same, reform will have to come from the bottom up.

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Yuri N. Maltsev, professor of economics at Carthage College and senior fellow of the Ludwig von Mises Institute, worked on Russia's economic reform team in the Gorbachev years.