<html><body><P>American Enterprise Institute</P> <P>November 13, 2006</P> <P>[Edited transcript from audio tapes]</P> <P><BR></P> <P> <TABLE cellSpacing=1 cellPadding=1 width="100%" border=0> <TBODY> <TR> <TD> <DIV class=BodyText>10:15 a.m.&nbsp;</DIV></TD> <TD> <DIV class=BodyText>Registration</DIV></TD> <TD> <DIV class=BodyText>&nbsp;</DIV></TD></TR> <TR> <TD> <DIV class=BodyText>&nbsp;</DIV></TD> <TD> <DIV class=BodyText>&nbsp;</DIV></TD> <TD> <DIV class=BodyText>&nbsp;</DIV></TD></TR> <TR> <TD> <DIV class=BodyText>10:30</DIV></TD> <TD> <DIV class=BodyText><EM>Introduction</EM>:&nbsp;</DIV></TD> <TD> <DIV class=BodyText>Christopher DeMuth, AEI</DIV></TD></TR> <TR> <TD> <DIV class=BodyText>&nbsp;</DIV></TD> <TD> <DIV class=BodyText>&nbsp;</DIV></TD> <TD> <DIV class=BodyText>&nbsp;</DIV></TD></TR> <TR> <TD> <DIV class=BodyText>10:35</DIV></TD> <TD> <DIV class=BodyText><EM>Lecture</EM>:</DIV></TD> <TD> <DIV class=BodyText>Yegor Gaidar, Institute for the Economy in Transition </DIV></TD></TR> <TR> <TD> <DIV class=BodyText>&nbsp;</DIV></TD> <TD> <DIV class=BodyText>&nbsp;</DIV></TD> <TD> <DIV class=BodyText>&nbsp;</DIV></TD></TR> <TR> <TD> <DIV class=BodyText>11:30</DIV></TD> <TD> <DIV class=BodyText>Adjournment</DIV></TD> <TD> <DIV class=BodyText>&nbsp;</DIV></TD></TR></TBODY></TABLE></P> <P>Proceedings:</P> <P>Christopher DeMuth:&nbsp; Ladies and gentlemen, may we come to order, please?&nbsp; My name is Chris DeMuth.&nbsp; I am head of the American Enterprise Institute and happy to welcome you here today for this lecture on  The Collapse of the Soviet Union: Lessons for Contemporary Russia by Yegor Gaidar, president of the Institute of the Economy in Transition in Moscow and former Prime Minister of the Soviet Federation.&nbsp; </P> <P>We are delighted and very honored that Dr. Gaidar would once again include AEI on his itinerary during a tour of the United States of lectures and seminars and meetings.&nbsp; Coming from one of Russia s most renowned and accomplished families of intellectuals, he has been in the last 16 years the most important and impressive of the economic reformers and liberal political activists to emerge in a very distinguished bunch in the wake of the Soviet collapse.&nbsp; </P> <P>During that period he was a senior counselor to President Boris Yeltsin, and in addition to being President Yeltsin s acting prime minister for a period, also served as minister for the economy and minister of finance and in other positions.&nbsp; During the past 16 years, he has been in power and out of power; when out of power he has been back at his institute, now called The Institute of the Economy in Transition.&nbsp; In the late 1990s he also founded political parties, actually first in the early 1990s, Democratic Choice.&nbsp; But in 1998 he was active in the establishment of the Union of Rightist Forces and was a representative of that party in the Duma between 1999 and 2004.&nbsp; </P> <P>He has through it all been a prolific author and a highly original thinker, the author of over 100 papers and numerous books, the most recent of those being, in 2005, Russia in the World: A Very Long Time and this year s newest book The Collapse of the Soviet Empire.&nbsp; I ask that we all give a very warm welcome to Dr. Yegor Gaidar.</P> <P>Dr. Yegor Gaidar:&nbsp; Dear friends, in the summer of 2002 when we introduced the flat income tax, more or less completed the tax reform, completed the reform of the fiscal federalism, created a stabilization fund and introduced private property on land in Russia, somehow I had a feeling that the window of opportunities for the reforms probably will be closed for some years.&nbsp; I was right.&nbsp; So I decided that is exactly the time to start doing the thing which I like the most, and that is writing the books.&nbsp; </P> <P>My latest book is called The Collapse of the Empire: Lessons for Contemporary Russia and it is about, generally, the last few years of the Soviet Union.&nbsp; As usual history matters, and when I was writing about Soviet Union collapse I of course was thinking all the time about the present Russia and Russian problems.&nbsp; There were two factors which pushed me to write this book.&nbsp; One was that the oil price in real terms started to approach the level of the late Brezhnev period - not really approaching in real terms the late Brezhnev period, but approaching.&nbsp; </P> <P>The second point was that if you would read the Russian press, would look at the Russian TV soap opera about the Soviet and Russian past you will have a very clear picture of what happened with our country.&nbsp; Well, there was a world super power, Soviet Union.&nbsp; It was dynamically developing.&nbsp; Of course, it had some problems but name me any country which does not have a problem.&nbsp; Then some strange people came to power.&nbsp; Then there was a possibility of choice.&nbsp; One variant, that they were absolute fools; another variant that they were the spies of the CIA.&nbsp; You can choose what you would like.&nbsp; They started some strange so-called reforms.&nbsp; </P> <P>The results of these reforms were disastrous; and only in the late  90s when those who really do believe in a strong Russia and are prepared to defend Russian state interest, the situation in the country started to improve.&nbsp; If you take a poll in Russia about whether this picture of the world is true, I can assure you 80 percent at least will tell that,  Of course. &nbsp; It is just out of the discussion.&nbsp; </P> <P>It happens when these kinds of myths being established are starting to be extremely dangerous.&nbsp; The best known case, of course, is the Germany between the First and Second World War with the idea that Germany had nothing to do with the start of the First World War; that Germany was never defeated in the battlefield; that it was a stab in the back, and it was done by the Jews and the Socialists.&nbsp; But now we are strong enough and we will show that we can take revenge.&nbsp; </P> <P>All of these were done to some degree by the hands of the democratic German governments because they had to deal with the problem over there of reparation payment to the Allies so they were unprepared to publish the materials about what practically happened before the First World War and after the First World War, and that, of course, they have given to the opponents of the democracy in Germany the weapons which were used.&nbsp; Of course, now the amount of the documents about the Allied-Soviet Union starts to be more and more restricted but still we were able to make public a lot of things which can explain seriously what happened with our country.&nbsp; And I thought that it is important to explain.&nbsp; </P> <P>To tell you frankly, I never thought that the book half of which is either the tables or graphs or the official materials of the Soviet government could be a bestseller in my country.&nbsp; It is a bestseller, and that at least creates some basis for hope.&nbsp; That means that the people do want to understand what practically happened in the country.&nbsp; So, really, the story of the collapse of the Soviet Union in a very, very simplified way could be told as a story about grain and oil.&nbsp; </P> <P>The grain -- well, really, the turning point which more or less decided the story of the Soviet Union was done during so-called economic debates of 1928-29.&nbsp; There are also discussions about whether Russia could choose the Chinese way of development.&nbsp; It could, probably, and it was seriously discussed.&nbsp; It was the essence of the discussion of  28,  29 in the Soviet leadership.&nbsp; As you see from this point that there are just a few indicators you can find that at that time Soviet Union was exactly at the level of development in which China was in the late  70s before China started the so-called Chinese way.&nbsp; And in the late  20s, the chief of the Soviet government, Rykov, and the chief ideologist of the party, Bukharin, really defended the idea of the path which later was called Chinese private agriculture, keeping financial stability, keeping the market, and keeping political control.&nbsp; </P> <P>But then another solution was made.&nbsp; That was the solution which was defended by Stalin and that was expropriation of the private peasantry - forced collectivization, extraction by force of food from the countryside.&nbsp; The essence, really, of the discussion, if you are looking at the documents, was extremely simple.&nbsp; Bukharin and Rykov were telling,  It is impossible in the peasant country to make peasant army extract by force grain from the peasantry.&nbsp; It will be civil war. &nbsp; And Stalin was telling,  Well, I will do it. &nbsp; Think of that.&nbsp; In the short term he was right.&nbsp; The problem is that these types of solutions have a long term consequence.&nbsp; </P> <P>As a result of what was done to Russian agriculture between the late  20s and early  50s we had the downfall of the factor productivity of agriculture, which no big country ever experienced in the 20th century.&nbsp; I would not even try to explain the details; I think they are more or less easy to understand.&nbsp; So the key problem with which Soviet Union then was confronted was very well expressed in the letter sent by Nikita Khrushchev, First Secretary of the Central Committee, to his colleagues in the leadership of the Party.&nbsp; </P> <P>It is very simple:&nbsp;  Well, we are not getting the increase of the collection of the grain during last 15 years.&nbsp; We are having the radical increase of those living in the big cities.&nbsp; How will we resolve this problem? &nbsp; There was a serious discussion about this in the early  50s in Soviet leadership, and there were two positions.&nbsp; One was that we need to try to improve the situation in usual regions of the grain productions, so-called  nechernozemye .&nbsp; Another was that we should try to resolve the problem by involving another area in the process of agriculture production.&nbsp; </P> <P>The second idea from the point of view of the socialist system was quite rational.&nbsp; Big projects, concentration of the resources; you are giving the privileges to those involved, similar to the privileges which you are giving to the workers in the cities.&nbsp; So, of course, from the very beginning there was the doubt that you will have even higher fluctuations of the amount of the production.&nbsp; But that was ignored and once again, tactically, it was a success.&nbsp; </P> <P>They increased quite seriously the amount of the grain procured by the state between the mid- 50s and the early  60s.&nbsp; But the problem with the strategy is you have limited amount of suited land for agriculture which you can bring to be used and you do not have these limitations to the growth of the population in the big cities.&nbsp; So, already, in the late  60s it was evident that the strategy has its limitations.&nbsp; </P> <P>In 1963, Nikita Khrushchev is working on the letter which we have to send to the Eastern European leaders of the Socialist bloc that the Soviet Union is unable to supply them with the grain anymore.&nbsp; At this year, we bought 12 million tons of grain; we spent one third of our gold reserves to do it.&nbsp; Nikita Khrushchev, as you see, is commenting it like this:&nbsp; So a power cannot tolerate anymore the shame that we had to endure &  63.&nbsp; </P> <P>The problem is not what the Soviet leadership thinks about it; the problem is the realities.&nbsp; So in the  60s the state procurement of the grain stabilized and whatever the Soviet leadership was trying to do they were approximately on the same level of 65 million tons per year, in the mid-60s, early-80s, late-80s; but the populations of the cities continued to increase.&nbsp; And what will you do if you have zero increase of the grain procurement and the increase of the population of the cities in a country which is state-controlled by the 80 million people?&nbsp; Answer those questions.&nbsp; So the only answer is, of course, possible: Start increasing the grain and general agriculture in particular.&nbsp; </P> <P>That is the picture.&nbsp; Russia, which used to be the biggest grain exporter before the First World War - significantly bigger than the United States and Canada together - starts to be the biggest world importer of grain, much bigger than, following us, Japan and China together.&nbsp; Splendid, but then you somehow have to pay for this import.&nbsp; The organization of the Soviet foreign trade had nothing to resemble the Ricardian principles of comparative advantages; Soviet Union would prefer not to import anything from the West.&nbsp; </P> <P>So Mikhail Gorbachev, early, Gorbachev is quite frank in one of the meetings of the CPSU in telling,  We are buying it because we cannot survive without it. &nbsp; So we are buying the things without which we could not survive.&nbsp; Splendid.&nbsp; Then of course if you do not know very well the practical Soviet economic history you will think,  What is the problem? &nbsp; Japan also is a big importer of grain and general agricultural products.&nbsp; It is selling the products of its machine-building, processing industries and buying the agriculture.&nbsp; </P> <P>Why could we not do the same?&nbsp; The problem was that the result of the chosen path of the socialist industrialization was that we were unable to sell anything which is processed.&nbsp; Nikolai Ryzhkov, the Soviet Prime Minister, is quite frank in one of the meetings in expressing it:  Nobody will take our machinery production.&nbsp; That is why we are exporting mainly raw materials. &nbsp; </P> <P>Well, the share of France s machine building export on the hard currency was approximately two percent, never more.&nbsp; Well, but then everything depends on our ability to produce and export commodities and first of all, oil products and gas.&nbsp; And here Soviet leadership was extremely lucky because exactly at the time when we started to have a serious problem with the import of grain and general agricultural products we discovered extremely rich oil fields in Tyumen .&nbsp; Extremely rich, easy to exploit and of course we are starting to rapidly increase oil production.&nbsp; </P> <P>Already, in 1970 Western Siberia was a big, by international standards, oil province.&nbsp; During next 12 years we increased oil production there by 12 tons.&nbsp; There was intensive debate inside the Soviet leadership about how we should exploit the oil of Western Siberia.&nbsp; And the leadership of the oil industry was telling to the CPSU leadership, government state planning committee that it is impossible to increase the production in that speed; that it is extremely dangerous; that we will be confronted with technical problems in the oil fields.&nbsp; And they were told: well, you have to.&nbsp; </P> <P>Our quite competent Prime Minister, Mr. Kosygin, used to call the chief of the Tyumen Neftegaz, Muravlenko, with approximately these words:  Please give three million tons above the planning level because there is a very difficult situation with the grain   Dai tri milliona ton sverkh plana, s khlebushkom sovsem plokho. But then you have to pay for it, and the payment was like this.&nbsp;&nbsp; You then are having a serious problem with the output.&nbsp; The output of new oil wells being food and operation the USSR,  75 to  90.&nbsp; That means that you need much more investment, much more money for the current operation to get the same amount too.&nbsp; But, still, once again we were lucky; we get unusually high oil prices starting from the middle  70s.&nbsp; </P> <P>Oil market is very unusual.&nbsp; In the presence of Anne Krueger, it is even, from my point of view, somehow difficult to discuss the oil market.&nbsp; But that is very unusual because of the very different level of elasticity of the demand and supply in the short and the long-term.&nbsp; The fluctuations of the prices are enormous.&nbsp; There is a very well known concept of so-called external shocks.&nbsp; In the biggest in the world, U.S. economy, the biggest external shock was in the  74 during the last 50 years and it was approximately 15 percent.&nbsp; </P> <P>Here we are speaking about oil-dependent economy.&nbsp; We are not speaking about 15 percent, 100 percent; we are speaking about 800 percent.&nbsp; So this is the peak of the Soviet power, and that is the start of the downfall there of the Soviet power.&nbsp; The fact that the imperial ambitions based on so unstable sources like the sources connected with the resources was not first discovered in the Soviet Union.&nbsp; </P> <P>It was well-analyzed in the experience of Spain of the 16th and 17th century by the University of Salamanca.&nbsp; Here you can see these two graphs and maybe you will see that something is comparable.&nbsp; On the histogram there is a story about the inflow of the gold and the silver from America to Spain; in the graph, the story of the inflow of the oil and gas revenues to the Soviet Union.&nbsp; Here are two samples.&nbsp; You see the point when Spain, without losing one single battle on the ground for 50 years, is losing all of its possessions in Europe outside of the Pyrenees and losing Portugal and is very close to losing Aragon and Catalonia.&nbsp; </P> <P>Here in  89 without losing any battle in the field during the 50 years, we are losing control over Eastern Europe.&nbsp; But, of course, the Soviet leadership was not intellectually well-prepared to learn some lessons from the school of Salamanca University.&nbsp; The shortest quotation about the intellectual quality of the Soviet leadership was extraction from the Politburo minutes which I can quote for a few seconds, about Mr. Zasiadko:  Mr. Zasiadko stopped to drink.&nbsp; Resolution:&nbsp; Nominate Mr. Zasiadko as a Minister on Ukraine. &nbsp; </P> <P>So, high level of intellectual capacity was not the strongest quality of the Soviet leadership of that time.&nbsp; But still they could understand that the oil market is a very specific market, at least if they manipulated the market itself.&nbsp; Here there is extractions from the Politburo materials in which the head of the KGB, Mr. Andropov, is informing the chief of the party, Mr. Brezhnev, about the contacts between the KGB and the Arab terrorists, in which Arab terrorists are asking KGB for assistance in the terrorist attacks on oil fields to keep the oil prices high.&nbsp; As you see, the general idea is that we should support the Arab terrorists in this battle.&nbsp; But when you are operating in this very specific market, you should not misunderstand that you are not the only operator in this market.&nbsp; </P> <P>The Soviet Union leadership was stupid enough to spend a significant amount of additional oil money to start the war in Afghanistan.&nbsp; We not only lost a lot of lives and money in Afghanistan.&nbsp; It changed radically all of the geopolitical situation in the Middle East because Saudi Arabia, which, I would remind you, in  74 decided to impose embargo on the oil supplies to the United States to cut down the production 80 percent was promising that it would explode the oil deposits if it will be attacked by force by the Americans.&nbsp; Somehow starting from  79, started being very interested in American protection because it understood our invasion of Afghanistan as a first step toward, or at least attempt, to gain the control over the oil fields.&nbsp; </P> <P>To tell you frankly, my guess is that there were such ideas in the Soviet General staff.&nbsp; Not any made solutions, but ideas.&nbsp; But when you have these ideas on this side and other ideas on another side, then you need Big Brother, and Big Brother needed to lower oil prices.&nbsp; So somehow the discussions between Saudi Arabia and United States started to be much friendlier, starting from the Afghanistan invasion.&nbsp; </P> <P>Practically, the time of the collapse of the Soviet Union is well established and of course it is not the August  91 and it is not December  91; it is the 13th of September 1985. On this date, Sheikh Yamani, the Minster of Oil of Saudi Arabia declared that Saudi Arabia is radically changing its oil policy.&nbsp; It stopped protecting the level of the oil prices and it started to regain its share in the world market.&nbsp; And during the next six months the oil production of Saudi Arabia increased by four times; oil prices collapsed approximately four times in real terms.&nbsp; </P> <P>The Soviet Union lost approximately $20 billion per year and once again it was the money which was used for the things without which the country could not survive.&nbsp; The Soviet leadership was confronted with a very difficult choice: what to do, how to adjust.&nbsp; We were not the only country which was confronted by a similar choice, but it was a very difficult choice.&nbsp; There were practically three options, or combination of the three options.&nbsp; </P> <P>First, to dissolve East European empire.&nbsp; To stop supplying for barter, not for hard currency, oil and gas in Eastern Europe.&nbsp; But to tell to the Soviet leadership in  85 that we will dismiss all of the results of the Second World War?&nbsp; The person who tried to enter with this idea on the CPSU central committee meeting would not leave this meeting being the general secretary of the CPSU.&nbsp; </P> <P>Second idea, to cut radically the food imports - exactly this 20 billion order of food import which we were financing through these high oil prices.&nbsp; But in practical terms, it meant the introduction of the rationed supply for food stuffs on the norm similar to the Second World War on the 70 years of the Soviet power.&nbsp; The system would not survive next month after the idea will be implemented; this was clear to everybody.&nbsp; The idea was never seriously discussed.&nbsp; </P> <P>Third solution is to cut radically military production; cut radically the investment; cut radically all of the production in which we needed the important components.&nbsp; Absolute conflict with all of the elites and terrible programs with many modern cities dependent on the military production.&nbsp; This was also never seriously discussed.&nbsp; </P> <P>So, if we are unable to adopt these solutions and we have a real problem, what to do?&nbsp; And the Soviet leadership decides to adopt a very  strong policy - to close your eyes and to think that somehow the problem will be resolved.&nbsp; But then you still need this $20 billion per year for the grain and other agricultural products; so what to do?&nbsp; They started to radically to borrow while the credit rating of the Soviet Union in  85 is still perfect - so you can borrow as much as you would like.&nbsp; So we are starting to heavily borrow in  85,  86, 87, and  88.&nbsp; And then in  89, Soviet economy stalled.&nbsp; </P> <P>Well, splendid but the money is over.&nbsp; Nobody is willing to lend you money on any commercial terms.&nbsp; We are trying to create a consortium of 300 banks to provide a big loan for the Soviet Union in  89.&nbsp; We are told that only five of them would like to participate and some of the loan, which would be 20 times lower than we expected.&nbsp; Then we are starting to get the signals from the Deutsche Bank and from our big international partners that money from commercial sources will never come.&nbsp; If you urgently need money, you have to go to our governments and then start to negotiate with the governments about politically-motivated credits.&nbsp; </P> <P>The idea that Soviet Union would start bargaining about politically motivated credits, with the inevitable concessions, in  85 was absolutely ridiculous to the Soviet leadership, to anybody in the world.&nbsp; In  89, it is a reality; all of the Soviet correspondence starting from  89 is about this.&nbsp; How and what should we do to get $100 billion of political contributions?&nbsp; Gorbachev usually mentions this. The dollars are politically motivated credits.&nbsp; Still, as the money is not there, we are starting to have more and more severe problems, including our oil industry.&nbsp; That is how Soviet leadership is discussing the situation in the oil industry.&nbsp; As you know, it is the chairman of the state planning committee who said:&nbsp; </P> <P> We understand that the only source of our cash is, of course, the source of oil.&nbsp; If we do not make all necessary decisions now, next year may turn out to be beyond our worst nightmares. For the socialist countries, it may end up in a most critical situation.&nbsp; All these will lead us to the inevitable collapse and not only us, but all our system. </P> <P>He understood the situation -- then his Chief Mr. Ryzhkov is commenting his statement on the same meeting: </P> <P> The Vneshekonombank guarantees are needed, but it cannot provide them.&nbsp; You must make the decision.&nbsp; We shall not even get 547 million tons.&nbsp; I see that if there is no oil, there will be no national economy. &nbsp; </P> <P>It is very interesting for me to hear how Mr. Shevardnadze was a traitor to Soviet Union, how he betrayed the interest of the Soviet Union, et cetera, especially when I had the chance to read the documents that were prepared for him.&nbsp; For instance, when the various Soviet agencies urged him at any cost to bring the politically motivated credits.&nbsp; But as the money from the commercial sources stopped to come and from politically motivated credits is not coming yet, we are starting to be more and more in a debt to foreign suppliers.&nbsp; They do not like it, so they are stopping to supply us, for instance, everything, including grain.&nbsp; </P> <P>So we are starting to have more and more serious problems with the food supply, including the grain supply in the big cities.&nbsp; That is one of the very close people to Mr. Gorbachev, Mr. Cherniayev, that is how he explained the situation in Moscow in early  91.&nbsp; When you are looking at the situation in the Soviet Union from the financial and hard currency perspective, it is much easier to understand what Gorbachev was doing at this time.&nbsp; </P> <P>When you are negotiating the problem of the politically motivated credits with well-established democracies, you have to understand the rules.&nbsp; For instance, if you will crush by military force the demonstrations in Warsaw of Solidarity, will you get politically motivated $100 billion?&nbsp; It is crazy.&nbsp; But then this idea starts to appear in the minds of the Polish elite.&nbsp; The system was stable when everybody understood that Soviet Union will use as much force as necessary to reestablish control.&nbsp; They demonstrated it Germany, Hungary and Czechoslovakia.&nbsp; When you have shown it few times; we do not even have to do it all day.&nbsp; </P> <P>But when  89 Polish elites have to understand that there is a zero chance that Soviet tanks will be used to defend the Polish communist government, then the only way is to start immediate negotiations about the condition of surrender.&nbsp; It practically starts.&nbsp; And when you have the evident effect that in Poland you will have no communist Soviet loyal government, then you have zero chances to keep the GDR because from the logistical perpective, you just cannot support the Zapadnaya Gruppa Voisk there.&nbsp; </P> <P>So it is only then negotiations about the terms of withdrawal began.&nbsp; You do not even have to tell, like Gorbachev had told to Bush Senior in Malta, that we will not use the force to support the communist regimes in Eastern Europe; it was evident at that time.&nbsp; Six weeks after the moment when he told that, no communist regime survived.&nbsp; But then the problem is the perception of what you should or should not do when, and if your negotiations about politically motivated credits are not limited to the borders of the Soviet Union.&nbsp; </P> <P>Of course, when the Lithuanian authorities are approaching the American Embassy in Moscow, asking whether the United States would support independence of Lithuania or help them in any way, they are getting the response that  no way, we will not recognize you, we will not support you.&nbsp; It is against the principles of the American force. &nbsp; </P> <P>But also when the Soviet Union tries to use the force to reestablish control in Baltic States in January  91, it is getting a very, very direct reaction from the West, first of all from the States:&nbsp;  Do what you wish.&nbsp; It is your country.&nbsp; You can choose any solution, but please do not bother us anymore with this idea of $100 billion of credit. &nbsp; </P> <P>What could Gorbachev do?&nbsp; First of all, he cannot dissolve the Empire, because all of the Soviet leadership is strongly against this idea.&nbsp; He cannot avoid the dissolution of the empire without the massive use of force.&nbsp; But using this force, he could not the chance to get the $100 billion of their politically motivated credit.&nbsp; Without getting this $100 billion, you have got no chances of staying in power.&nbsp; </P> <P>So that is the source of his fluctuation when he was starting to make the deal with Yeltsin and the military, then once again with Yeltsin.&nbsp; He just did not know the way out of this mess.&nbsp; Then we had the people who thought it is only because Gorbachev was weak that we are not able to help the country, the GKCHP.&nbsp; Head of the KGB, head of the Army, the military industrial -- in three days it was clear that they failed.&nbsp; </P> <P>From my point of view, one of the reasons why they failed was that they really could believe that they did not understand how to deal with the situation.&nbsp; For instance, let us imagine that they were able to find one division which is able to crush all of those who are against the GKCHP, will the grain appear?.&nbsp; Will the West&nbsp; rapidly give this $100 billion of the credits? Where to find the food necessary to feed the bigger cities?.&nbsp; When and if there will be serious problems with the public order they will find another division to control it.&nbsp;&nbsp;&nbsp; Prime Minister Pavlov was probably the best informed about the economic situation of the leaders of the GKChP.&nbsp; It was probably not by chance, as we know from the materials, that he got absolutely drunk on August 18th - because I think he understood better than anybody else that the case is entirely lost.&nbsp; </P> <P>After August 22nd, the story was the state which does not control its borders, its military forces, its money, is not getting budgetary revenues, it just cannot exist.&nbsp; It was the problem of how it was possible to dissolve it without the too dangerous consequences to the world.&nbsp; </P> <P>The document which practically finished the history of the Soviet Union, it is a letter from the Vneshekonombank in November of  91 about the fact that the Soviet Union has not a cent of money.&nbsp; You probably can imagine that you cannot support the world super power without having one cent of money.&nbsp;&nbsp; Then, it was a very interesting and dangerous story of how the Soviet Union was dissolved, why we were able to avoid a Yugoslavian-type scenario.&nbsp; </P> <P>And I do not think that a lot of observers thought that we would avoid a Yugoslavian-type scenario and Yugoslavia will have a Yugoslavia-type scenario, and I have my position about why it happened.&nbsp; But it is a different story -- so if you will allow me I will stop here.&nbsp; Thank you.</P> <P>Christopher DeMuth:&nbsp; Questions?</P> <P>Yegor Gaidar:&nbsp; Yes, of course, if somebody would like& </P> <P>Christopher DeMuth:&nbsp; I will ask the first question, if I may.&nbsp; What lessons do you draw from this very riveting story that you have told us for Russia s current circumstances?</P> <P>Yegor Gaidar:&nbsp; First of all, we have to remember that we are an oil-dependent economy.&nbsp; We are not the only oil-dependent economy in the world.&nbsp; We can find a lot of oil-dependent, but&nbsp; quite developed economies, like Norway, for instance.&nbsp; But when you are managing macro-economy policy in the oil dependent economy, you have to understand the risks, and to organize your economic policy in a way to minimize these risks.&nbsp; And to tell you frankly, it is much easier to tell especially in this audience than to explain to any public in any oil dependent country, including Russia, because you always will have political crooks that will come to the TV, radio, et cetera, and say in just a few sentences:&nbsp;  The country has a lot of money.&nbsp; These crooks are sitting on the banks with money.&nbsp; We have enormous programs and education, healthcare environment, and they would not spend one single ruble, preferring to invest them in American economy, American currency. &nbsp; Splendid, simple, politically effective.&nbsp; To explain why it is wrong, you need 30 minutes and an audience which is willing to hear it.&nbsp; </P> <P>So in my experience, I was confronted with these questions many times.&nbsp; So, one of the reasons why I decided to write this book was that when you are telling the people how practically their country was bankrupt and destroyed, that is probably the best way to try to make the case for the sensible and conservative economic policy in the presence of the higher oil price.&nbsp; </P> <P>Second, the point is that autocratic regimes, which are seemingly very strong, are really very fragile in the situation of the crisis.&nbsp; When they need the support of the people that can -- well, oil price has come down four times.&nbsp; They say,  We have to tighten our belts.&nbsp; We have to tighten our belts. &nbsp;  For the 70 years you are telling us that you know better than anybody what to do in our country and now you are asking us to tighten our belts. </P> <P>Christopher DeMuth:&nbsp; I have not jumped to the head of the line.&nbsp; The first question of my own, I only have to say that we are out of time.&nbsp; We do have a luncheon that we have to clear a place for and get ready for with Judge William s book and Dr. Gaidar will be involved in that as well.&nbsp; But I think we do have time for one or two questions.&nbsp; So if there are some?&nbsp; This gentleman here.&nbsp; Yes, sir?</P> <P>Ariel Cohen (Heritage):&nbsp; Yegor Timurovich.&nbsp; This is a fascinating presentation.&nbsp; I really appreciate it.&nbsp; I did do research in the presidential archives in  92 and I know from reading the minutes of central committee and politburo how desperate they were and how they did not contemplate cracking down on all these crises that were going simultaneously.&nbsp; But beyond the social populism danger that you just pointed out, is there also a danger that this oil wealth will support an aggressive foreign policy, be it in the near abroad, so-called, or in the far abroad?&nbsp; I think Georgia is a good example of what can happen, if the leadership -- if bolstered by the revenue?&nbsp; </P> <P>The second question is in what do you.&nbsp; This is a cautionary tale.&nbsp; Is there any lesson that you see for the Western strategy on how we can diminish our dependence on oil and diminish our security threats that are coming from the regions that sell a lot of oil and get a lot of oil wealth as a result, in the Middle East and elsewhere?&nbsp; Thank you.</P> <P>Yegor Gaidar:&nbsp; Well, first question.&nbsp; Yes, of course, these dangers exist.&nbsp; In on of my articles in Russia, I was quite frank in explaining to the Russian public how it is dangerous to base your foreign policy on the factor which you cannot control and about which you know very little.&nbsp; How easy it is -- well, let's take Spain.&nbsp; It was extremely easy for the Spain to take a lot of external obligations trying to build the European Empire when the oil and silver were coming rapidly from America.&nbsp;&nbsp;&nbsp; And when they stopped coming, it was evident that it is very difficult to cut down these obligations.&nbsp; Like, for instance, they are worrying Netherlands.&nbsp; </P> <P>So I think that, for Russia, the lesson from all of this is that we should be realistic&nbsp; in our foreign policy and do not have, each time when oil prices are high and oil revenues are high, to start speaking with the world from the position of force.&nbsp; That could be dangerous.&nbsp; That is the first point.&nbsp; Second point, what could the West do?&nbsp; Of course, I do believe in the power of the economy and economic forces.&nbsp; I do not think that anything that the government will do, will change the situation.&nbsp; But when and if the oil prices I will quote here.&nbsp; Anne Krueger once again, when everybody will think that the oil prices are high for long, there will be serious chances that they will go down, because then everybody will understand that they are sensible to invest in a variety of projects, including conservation of oil, etc...&nbsp; </P> <P>I would prefer the downfall of the oil prices not to be as rapid and as radical as we suffered in the mid  80s.&nbsp; But I really am not a great believer in the stories that, well, now here, when we have the India and China, when usual projects which are lower than 60 percent are not efficient, we will have the very high oil prices forever.&nbsp; Well, if I would not hear all of these stories in the early  80s, maybe I would be able to buy it at the present stage.</P> <P>Male Voice:&nbsp; Yegor Timurovich, have you studied the documents from Beria.ru?.&nbsp; From the documents I saw, it was known that the gentleman had very creative idea on foreign policy, political system, and national issues.&nbsp; Are there any documents about his economic agenda?</P> <P>Yegor Gaidar:&nbsp; To tell you frankly, I was unable to find it.&nbsp; Yes, everything he mentioned was absolutely clear.&nbsp; But, for me, the problem was whether he ever seriously considered dissolution of the collective farms.&nbsp; Never were we able to find any documents about it.</P> <P>Female Voice:&nbsp; Everything you say sounds incredible, it fits, and very well done.&nbsp; Question:&nbsp; Given that everybody accepts that Russia is so oil dependent, and given the low productivity of people in the rest of the economy, one would think that the leadership would pay more attention to getting things in place that will enable productivity to rise.&nbsp; And yet from what I know, no lessons had been learned in that regard.&nbsp; Am I wrong?</P> <P>Yegor Gaidar:&nbsp; Well, the situation when the oil prices are high is extremely comfortable.&nbsp; So, the reforms are always a difficult thing to do, not very politically popular, but difficult to organize.&nbsp; So usually the governments are doing reforms when they are pushed to do it, when then they cannot have the choice.&nbsp; When everything is so good, who is pushing you to reform?&nbsp; Because I can spend it all my time trying to explain that, well, it is much better to do the reforms which all the same will have to do a little late -- exactly now, when you have a lot of flexibility.&nbsp; It does not work.</P> <P>Christopher DeMuth:&nbsp; We have one final question.</P> <P>Male Voice:&nbsp; What is your assessment of the situation with democratic freedoms in Russia today, six years after Putin came to power?&nbsp; Do you see any short to medium-term perspectives for the Liberal forces?</P> <P>Yegor Gaidar:&nbsp; Well, generally bad.&nbsp; I was asked here in Washington, I think not in this audience, but in another audience in early 2000.&nbsp; What do -- who is Mr. Putin?&nbsp; And my general answer was that on the economic policy, I think he ll be reasonably good.&nbsp; On the foreign policy he ll be reasonably good.&nbsp; I do not think that he is great believer in democratic freedoms, at least for now, and for Russia.&nbsp; In the economy, it was during the first years, he was better than I expected.&nbsp; In foreign policy, it is during the first years, he was better than I expected.&nbsp; On the democracy, he was much worse than I ever predicted.</P> <P>Christopher DeMuth:&nbsp; We will pursue this subject, if we wish, in the reception room where we will retire right now.&nbsp; There is a luncheon for several people that I think have accepted for that and a talk on an earlier epic of dramatic change in Russia, the land reforms of 100 years ago this month, as analyzed in the wonderful new book by Judge Stephen Williams.&nbsp; Judge Williams will give a talk on the book, and there will be commentary by Dr. Gaidar.&nbsp; For now, I would like to thank Dr. Gaidar for this extraordinarily deep insight [applause].</P> <P>[End of file]</P> <P>[End of transcript</P> <P><BR>&nbsp;</P></body></html>