Mobile devices have been silenced or turned off and those watching on wine of your mind you you are welcome to send questions or comments by emailing the speaker at heritage as. Leading the discussion today is the Senior Research fellow at the American Relations and the Margaret Thatcher center for freedom. He looks at the angle of the American Relationship, u. S. And british relationships in the european union, the leadership role as well as International Organizations and treaties you for joining us here he served as the associate director of International Security studies and was also a lecturer in history and International Affairs for the master of arts program and is also an adjunct professor of strategic studies at the Strategic Studies Program at Johns HopkinsUniversity School of advanced international studies. Please join me in welcoming ted. [applause] normally when we hold events in february, i have to thank all of the people. I want to thank everyone for attending a. It feels like spring so thank you for joining us at the heritage foundation. As my boss says, sometimes it is important for us and think tanks to step away from the immediate policy concerns for a little while and turned to longer more historically informed discussions and that is something we would like to do today. If you do the kind of things we are worried about here in the Foreign Policy realm, a lot of them tend to revolve around questions related to the Foreign Policy and the domestic economy, and i dont think that its controversial to say the perception is a strong and rising nation and russia also tactically strong is in the long run in a weaker position and i will show the advertisement at aei next tuesday speaking on his book which will question a little bit the idea that that is the common perception so how do we get to this. In the 1990s, there was a common perception out there and i was digging around in my own personal archives and found a paper from 92 by a distinguished scholar giving his take on china and russia in the way some very informed and senior academics talked about this lesson to be gained from the experience in the postsoviet state as the leaders gained more stable regime transitions for the democratic support and Economic Conditions deteriorating so far for the leadership cannot escape blame it seems china is determined to follow the management to maintain the control of the society as destabilizing. One has to understand the importance of tiananmen square. A fairly common perception is the soviet union, russia was on the right path to reform and china was on the wrong path in tiananmen square. It turns out it wasnt just professor goldstone in the early 90s who were interested in the comparison. It turns out Mikhail Gorbachev was also interested in the comparison and if that comparison and learning from it is the center of the event today it is my pleasure to welcome the associate director of the johnson program, a program i know extremely well preserved as the lectures are at the Economic School in moscow and visiting researcher at the Brookings Institution that we wont hold that against him. Hes held from the Marshall Fund and who her institution and received his phd from yale and harvard universities so please join me in welcoming doctor miller to speak on his first book a struggle to save the soviet economy Mikhail Gorbachev and the ussr. [applause] it is an exciting time to talk about the history not only because as we were all aware russia is in the news a lot for good reason and bad. This past december was the 25th anniversary of the collapse and the entire year marks the revolution when they first took power in st. Petersburg and moscow. The sources that led to the current government taking power to turn back to the period 25 years ago when the soviet union was beginning to fall apart and why and to do so id would likeo compare that with history with china. The fall of the berlin wall was in the central and Eastern Europe and we might not think of it as a history that in 1989 they were looking not to central europeans off towards human rights advocates to see Mikhail Gorbachev written in chinese and russian democracy the current were assembled under tiananmen because they were coming to visit beijing and the soviet leaders. This is a period between the two countries. But of course after, we have a chart with 100 then you can see this as no surprise to anyone theyve done very well and the successor states have done poorly. But if you go back to 1985 what becomes clear from the entire postwar period it wasnt in a state of crisis and it was basicallbasically at this year k power and then it catastrophically collapsed. Why did that happen . Those are the basic schools of thought one is on the left end of the political spectrum and the other is on the right and they make reference to china so on the left, the soviet union should have followed the transitions of the idea that capitalism created too much corruption or output and if only they followed the chinese economic there would have been better results. On the right end of the authoritarian right that we see in russia today, its different but is made reference to china if only they had abandoned democracy that kept the authoritarian rule they could have pushed through the resistance that would have led to better outcomes. So here are different arguments that could have learned something from china but failed to do so. I spend two years in moscow digging through the papers to find the references as they studied the chinese example to make the economy grow and how much were they transitioning and what lessons could they have learned from the experience so first why would they be looking at the chinese as a growth to begin with you might not expect that as they transition to look at the countries in central and Eastern Europe and yugoslavia have a mixed economy for most of the cold war period but by the 80s heres the chart of gdp growth of market socialism being designed. Its a less appealing model in the 70s stagflation unemployment and hire. Across japan was number one. There were fewer strikes in japan and this was a new model of capitalism. They were fighting as number one and they were looking to say what is going on here. But if they were looking at the place to turn wasnt throughout the 1980s they visited to learn about the industrial farms in thindustrial formsand to visd after all the visits they wrote a memo to the leaders including gorbachev themselves saying this is how they are transitioning to capitalism and these are the lessons they could learn in the mid to late 1980s everyone was thinking about what lessons might be drawn from that experience. I hope i have convinced you of the ideas of what is going on in the soviet political system into structures that dominate the politics and here my research was shaped by the archives to give you a sense of where the data is coming from first is the Research Institutes and the think tank and a second source or the finance ministry and implementing the reforms and third the top policymaking body which is all of the important positions from the period of 1985 because for most of the period they are closed but when gorbachev was in power, three of the aids took regular note so we have a glimpse into the top levels unlike any other period in the cold war era and we start looking through the us forces delete code sources. But there were also Interest Groups that played a role in politics. One was the militaryindustrial complex and the Energy Complex that work at the companies that made up the biggest export into these were words translated into english people at the time used to describe the groups in soviet politics. What i found was when they saw china implementing the groups and shaping the outcomes when he wanted to push for the political system, he had to compromise with the groups as they were threatened by the changes comes to give you the new ideas and the politics pushing back and demanding that they get some benefits in exchange, the first case study is in the industrial reforms so the soviet economists were studying what they were doing to make the industrys more efficient to introduce the Market Mechanisms in its planned economy into a realized there was a new set of incentives and they placed whereby firms had to turn over all the profits to the state so they suddenly have an incentive to make a profit and so they liked what they saw and believed they were encouraging them to be more efficient and to make mone money but wendys ides were introduced there was immediate pushback that happened on two Different Levels the first ideological which was the basis of the social system and the second was the Interest Group, they threatened the groups that were powerful. So for example when the introduced the idea of more incentives to run more efficiently i immediately pushback on that in two different ways. Its tough the Industries Equipment is extremely old us of these ideas threatened the ideology and could you please spend money on tech race. So please spend more money on the industries and that is how we respond to the reform initiatives. The advisers were not impressed that they had no choice but to deal with them and they were too powerful so had to find a way to compromise and by the end of the soviet union, they did compromise and they implemented reforms that looked very similar to what china had implemented years earlier. By 1988 they had a private businesses towards capitalism and more or less copying what china had done. But there was a big difference between the soviet union and the compromise they had to cut with their own Interest Groups to promise a new wave of Capital Investment almost all of which was wasted but that was a quid pro quo so we have a chart of production measures. It is entirely wasted and stresses the budget and monthly for the cost of the program but no economic benefit to. Its like an industry that soviet union was interested in and agricultural reforms china had the largest that the hundreds of farmers worked. You are paid based on the fact of the members of the collective farm. So they moved into the individual farming and household in control of the production and i immediately imagined the incentives that lead to higher output so they looked at this and said we can implement the business measures on our own collective farms but as an industry this type of idea was a pushback one was ideological and the second so here is the ideological number two person in the hierarchy directly below and enormously influential figure who argued the socialist allies are very worried by the publications and they see the capitalist road is threatening and gorbachev says bull. But at the same time the they fw it up by saying by the way we need more spending in the culture. It turned out to be owned far too many tractors and spend too much on fertilizer and had too much per worker. The problem wasnt the investment that was used very poorly. They cut a deal and by 1991 they were able to push through the reforms. They were based on output and the farmland is essentially the collective highest. They had to agree to a quid pro quo. We have a chart of farm subsidies as you can see they increased steadily through the 1980s and they reached a point where by 1989 the increase was around half the size of the total budget deficit of the unions and enormous amount was increased in farm subsidies so it was truly enormous. Stepping back to the comparison of china on the one hand i hope they show you agricultural reforms were pretty similar to what china did and it looked fairly similar but the difference was the budget deficits that they didnt have to do these deals or develop. He had to spend the money to do it. At the beginning and is reaching one third of gdp and more data where it was a large budget deficit. One was the decline of the oil l prices and certainly it is true in 1984 and thi to this day hure soviet union but also it explained only a portion. But so did the subsidies and there is no evidence that it would worsen the farm subsidies. There were many causes that were no less more important. Any government that has a budget deficit has three basic options. One you can cut spending and to, you can increase taxes and number three, issue. Gorbachev felt the first two options were not valuable because if you try to lobby you would try to spend on civilian households and it would in pow power. American, german, other lenders were willing to issue that by 1989 the markets are basically closed because they were seen as risky so the only option left for gorbachev was to print money so they did in the massive sca scale. There was no creation until 1989 and this was the cost of the deal in the various industrial grapes so this was the money throughout. When it increases very rapidly in the prices but in a planned socialist economy they are set by the government so they cannot increase in illegal markets but the incentives are controlled in the nonlegal markets so the production rushed to the market and you could get ten or 20. By 1991 when you get to the military coup and when they locked them in for three days it wasnt actually gorbachev it was Boris Yeltsin and the president of the russian republi republice he was already so weak government of power anticipated the needed more control but several months later meeting with the president , they decided to abolish and had no tools yet going back to my initial question if the beijing consensus and a couple of quotes they argued is a traitor to welcome the business classes and the Chinese Communist party. His son said my father thinks that he is an idiot and that is popular interpretation today. Why, nobody was a real man that could resist. The Chinese Party was more interested and they were not willing to racist so of course you go to beijing and theres increasing talk abouthere isincs looking toward russia as a model for how to evolve the process today so a strong idea remains alive and well in beijing. I hope what ive suggested is that the comparison between china and russia are the soviet union but the vast differences in the politics, so in the soviet union the Interest Groups were strong and gorbachev was bleak and they saw it as a threat rather than an opportunity and most importantly they strongly opposed the reform rather than all these things were different in china they were enormously powerful in the Reform Efforts and the domestic politics were the exact opposite and one of the ironies is the one reason that gorbachev tried to embrace the democracy which is the critique that he had given that was his only hope from the Interest Groups that dominated it to push through the reforms so they couldnt use the party apparatus, the they have o find another source of legitimacy. So the democratization wasnt only a political strategy but also economic to find a way around the Interest Groups and nominate the party. This is of course going to go across the graph shooting upwards it collapses and is evidence of the wisdom that is performing more slowly or keeping the authoritarian grip on power for the failure of the domestic politics to bring the Reform Coalition to power that could have actually found a way without political collapse. Thank you very much. Whatever he thought was a good idea. Apparently tom brady was right. The Chinese Government was would you care to take on contemporary china. Id be happy to. Mainly it was similar to the soviet union 1980s. There are striking similarities and the economic class the most important fact in the immense rule is that the policymaking in china almost everyone in chinese politics invest too much in economic waste. Too much investment, not enough in the economy now with money. If you listen to speeches and is to come and we will ask Economic Data that in fact there is will ship levels have declined and the reason for that is he says Economic Policy and policy in which a great investment levels concerned government having an ornament policy effect with money and increasing theres concerned that although leaders very powerful and the Training Party elite. Judging by the evidence in the past failed to do that in a way that actually seems to me that theres a real elses from the 1980s. Authoritarianism to the attacks. Thank you very much doctor muller. If you have an affiliation, please state that affiliation please state your name. In the form of a question gentleman sitting right there on the isle. Doctor muller, could you repeat the question. [inaudible] back certain expectations about the growth, go back to the soviet archives and the forecasting institutes of the soviets had of chinese growth in the 1990s and what you find is that they were fairly optimistic about chinese growth. The cultural evolution, they believed that he change political economy and stapled growth forward. They thought it was an interesting model to learn from. Just recently graduated from the London School of economics. One thing i took a class on his soviet union and the rise and fall of the soviet union, in the gorbachev class how the cold war affected soviet economics, did the antagonistic relationship effect the soviet military for gorbachev to implement reforms. There was a great george bush met right after the berlin wall fallen and joined forces from europe and court costs said here cutting military spending and gorbachev says bush, this will make the army rise up. He feared correctly, for a clue. He wanted to cut military spending and until the coup legitimized but basically the summit evidence until 1991. He was fighting proxy wars that was a testament to the manpower wielded over the soviet politics another hand earlier. Yes. Retired u. S. Navy and the quote from gorbachev is that an exact translation for that word that he used. I forget the russian word that he used but yes. He didnt always use the cleanest language in russian politics. Arctic moderators privilege and ask another question. How did it affect american politics Interest Groups where the. Of any meaningful economic, that diagnosis harder times with Margaret Thatcher and it turned out that systems were less significant than. The been argued. Soviet discussion before gorbachev comes along, building up enormous Interest Groups in this country and the person to a historical, Political Science as it relates to the west. To the soviets to see that this is a problem . 87, 88, 89 or didnt, 89 or do not come up . During this period, the mindset of the soviet 70s and 80s they look to stalinism, soviet officials were rotated rapidly, sent to the gulag and that was stalins way of baring elitists around the country. Under stalin if you were strong incentive to make your factory produced. When constructs and breast of a trend they try to move away from the aversion to the party, the brutal methods used against the elitists. They moved away from the Political Violence which is that there wouldnt be a lot of rotation is an active attempt to have less violence than stalin. As you have your people moving between to act efficiently and this is a comparison with china too. He was able to enact these reforms in china and it was an attack on the communist party. They were torn apart by the violence of the revolution. The uncomfortable silverlining was that it destroyed the infrastructure and made it possible for very large scale reform. Severe context, everyone had lived through and there was a lot of resistance to rotation even by nonviolent methods. The gentleman at the very back, if you could wait for for the microphone. Thank you. I have a question. [inaudible] i think the answer is not that much one of the things that you have certainly they were political and economic tools. The direct tie to the decline of the labor camps and reform cc later on. Its a onetoone comparison between. Pc for the microphone. Looking forward after the gorbachev years how do these Interest Group politics affect the process in russia when it collapsed in 1991, the different Interest Groups because the military led the coup against the court off it was very heavily damaged. Military spending fall sharply because its politically possible. The Agricultural Sector faced they lost the repartee representation and they had sustained them from the entire. And so they twofaced cultural income from the 1990s. When you got to the. With privatization for the the duma past reforms if it gave significant managers who were largely force the duma against an ownership stake for free. When you step back and look at the significant change in before privatization happened in legal terms, after 1991 soviet manager sees control and iran them a special property. The mafia groups actually misses the fact the presentation in the legal changes actually control that already. If anyone has not read this book i encourage you to read the 1970s Interest Groups build up in society and polities especially ones that dont lose wars. The best thing in the long run is to lose a war is to flush the system out. In cultural revolution is maybe a war on the chinese people, its not an industrial war but its the kind of work. The end of the soviet union from the perspective feel like a partial war although not a complete one. He was writing about communist china he was writing about society. Remarkably insightful book that confirmed to certain extent the research youve done. When you look at the comparison between soviet and russian economy it turns out that historically from 1945 to the present, democracy in the long run has proven reasonably effective from shifting elites to not having Interest Groups nowhere near on the scale as they had in the soviet union. What are the institutions we need to make sure that we dont have Interest Groups that are stronger than they already are because interest benefit from power and its bad for everyone. Gentleman right at the front. If you could wait for the microphone. I am from bulgaria and i graduated business. I missed the beginning of your lecture unfortunately, basically the chinese comparison we know theyll be successful and it misses the fundamentals from china and russia. [inaudible] [laughmac] the most important thing that you alluded to is that russia is tremendously more militarized than china and all the things about the Defense Budget is their Defense Industry to position to any other markets that was useful in any way. Those three things are very important in incorporating those description. The most important thing is that gorbachev credited democracy and 87 or or 88 was passed a law which made congress with the soviets deputies. He created a body which was not directly party obedient and the system which was completely based on vertical power is open the door for corruption. You have all of these groups and have it collapse of Central Control and people expect all these things that youve mentioned to be relevant but it was de facto privatization going to the 80s that made all these things not relevant. Thats a big difference between the Chinese Communist party. They change the rules enforced the rules. Yes. Final comment, is that you have a picture of gorbachev. One on the centrality of orbits have Reform Efforts thats right and its a huge difference between china. Its important to realize that democracy if youre running a country thats dead set against economic reform, you cant work with the party. Your only option is to find a way around the party and gorbachev try to do that. He held free elections, brought new people and the power, but china was facing an entirely different situation. But hierarchy from beijing on down were supportive of reforms. Gorbachev had to turn democracy into an Economic Strategy to push through. It wasnt only a political effort. Will you comment ons question on soviet regionalism versus russia or chinese centralism. Is easy to overlies chinese centralism. These provinces suggest that theyre not, the second issue is that when we look at chinese Economic Policy over the past 30 years, the debate is between the regions and the center. One of the challenges is that china has is reducing its investment is hard to do, investments are largely made at the local level and local government officials to direct this in the center. Right now theres a big back and forth push between local and central in china. Its been going on for a long time where china struggles to get local officials to follow. Its not substantially different from gorbachev, because it collapsed and government had no more tools to discipline local leaders or incentivize them to follow their instructions. China the government has always been able to keep that revenue coming to beijing and in incentivize rather than punish local leaders when they dont follow them. Federalism needs to be met and manage better in china because they have more resources. Ill take the obsession with asking the final question and then will close. There is the person in what youre saying, the idea that things could have gone better for the soviet union or things could have gone worse for the chinese economy. One of the ways soviet union might have been not cutting spending, not raising taxes, not participating war but growth. Growth is the fourth option they didnt get. China gets growth. The soviet union gets collapsed. And growth even of a moderate kind, say the soviet union or gorbachev, it certainly wouldnt hurt, why was china able to get growth fairly rapidly however its reforms at soviet union by your telling didnt get any growth at all . Its the time lab. In 76 and in 78 he started his reforms very early and there is not in immediate demand to result. They start in the countryside and pulled into the sentry and he has a decade to improve his reforms are working. Gorbachev faced opposition and didnt have the time. He had to make a big bet and hope that it paid off. The result was that he only got a couple of years, very rapid growth in couple of years to get results but unfortunately he doesnt get that resort in the time. And then you have this big fiscal limitation crisis that led to a class. If you look up the privatized business over time you see substantial growth and improvement but it doesnt happen in a quick time frame which gorbachev had. You had to rush and hope it comes rapidly and it doesnt come rapidly enough and that the problem fixed. Good note to close on. Always a question of time and we have run out of time today. There are copies of doctor millers book available outside for purchase. I did and asked him but i feel sure that around for a few minutes and sign copies if anyone would like to swim. In either case, lets think doctor muller for his presentation. [applause] heres a look at the books that are being published this week john gideons that shares her journal entries from her southern road trip to 1970 after time reporting on the patty hearst trial in 1976 in south and west. Political satirist examines the 2016 president ial election and