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Aid to Russia that helped no one


WILMINGTON, Del. -- In 1992, the United States promised Russia to help with the difficult task of economic reform. There was talk of assistance involving tens of billions of dollars, but in the end only $4 billion was given.

Still, had that money been spent wisely, economic reform would have alleviated life for Russians, half of whom are worse off economically now than under communism. Instead, however, most of this money was used to provide corporate welfare to politically connected American companies. Thus the need for assistance is as compelling today as at the beginning of 1992.

Almost half of the $4 billion went to "USDA Food Assistance" and "Humanitarian Assistance." In plain English, the U.S. gave Russia surplus farm products purchased from U.S. agricultural companies for prices that yielded good profits. U.S. shippers also benefited since they were paid as much as four times what some foreign shippers would have charged.

While these food shipments did not save any lives, since Russians were not starving, some people did eat better for a short while, and a few made fortunes by obtaining shipments and reselling them at huge profits.

About $1.8 billion was spent on technical assistance. Unlike food aid, technical assistance was badly needed, but what was delivered was mainly good deals for American companies.

Consider the most important program, assisting privatization. Huge contracts were given to KPMG/Peat Marwick, Price Waterhouse and other accounting firms to set up offices in Moscow to obtain private-sector business. But the assistance to Russians was given almost entirely by people with little experience in business management -- and usually with insufficient knowledge of Russia.

The result was that the U.S. aid program contributed to the mess that was made of the rapid privatization program. One huge mistake was that American advisers ignored the potential for corruption, and this led to a few Russians becoming very rich by buying state assets for a minute fraction of value.

Another error was that no attempt was made to provide needed economic education. An estimated 25 million Russians were swindled by get-rich-quick schemes in their initial experience with capitalism. That might have been avoided had the aid program presented economic education in an interesting way on Russian television, where programs can have audiences of 100 million.

Token and ineffective

Perhaps most important, only token and ineffective actions were directed at assisting newly privatized companies to be successful.

Congress contributed to the failure of the aid program by enacting "earmarks" for expenditures that benefited American constituents more than Russia.

Had the U.S. aid program done its job, Russia could have capitalized on its rich natural resources. Oil exports could have been increased quickly by billions of dollars had the Russians been helped to reduce the terrible waste of energy in their industrial plants.

The aid program should have trained Russian engineers in methods, such as the use of steam traps, that allow costs to be recouped in one to seven months, and assisted the Russians in implementing such techniques. Instead, the Agency for International Development gave a sweetheart deal to Hagler Bailly, one of over 30 companies that do most or all of their business with AID. The company then subcontracted with poorly qualified Americans to audit several district heating plants and supplied American equipment to improve efficiency.

It is ironic that while our objective was to teach the Russians to use market forces to improve their economy, the U.S. aid program did just the opposite. If it had emphasized teaching needed skills, far more American products would have been sold in Russia. Rich countries import more than poor ones.

What could be accomplished by a proper aid program is shown by what has been achieved by McDonald's, which now has six restaurants in Moscow. One of these, with 40,000 customers a day, is the busiest McDonald's in the world. This operation relies on 150 independent Russian suppliers who have been assisted by McDonald's to produce quality products.

Boris Yeltsin's post-election shift back to reform, indicated by his appointment of Anatoly Chubais as chief-of-staff, is an opportunity the United States should seize. Economic aid to Russia has been cut this year to $160 million, only 20 percent of the average of the two previous years. It should now be increased -- in our own interest. Providing economic assistance to make Russians more prosperous will make Russia's fragile democracy more stable -- and make the world far safer.

James L. Hecht teaches political science at Temple University.

Pub Date: 8/06/96

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