Sachs: «On Ukraine, Joe Biden doesn’t want to compromise»
Jeffrey Sachs on the West’s “proxy war” in Ukraine and America’s failure to support post-soviet Russia. He thinks America forgot Keynes’s lesson on the long-term costs of humiliating a defeated enemy
Jeffrey Sachs, 68, director of The Earth Institute at Columbia University and a member of the Pontifical Academy for Social Sciences, played a leading role in advising the Kremlin’s economic policy in the early 1990s. In this interview, he reflects on the West’s approach to the war in Ukraine and what he sees as America’s tragic mistakes that helped set post-soviet Russia on the road of extreme, resentful nationalism.
Do you think imposing ever-tighter sanctions on Russia is the appropriate course of action for the US and the EU?
“We need to have a diplomatic track alongside the sanctions. It is
possible to negotiate peace, based on Ukraine’s independence and no NATO
membership. The big mistake of the Americans is to believe that the
NATO alliance will defeat Russia. This is typical American hubris and
shortsightedness. It’s even hard to know what ‘defeating Russia’ means
since Putin has thousands of nuclear weapons. Do US politicians have a
death wish? I know my country well. The leaders are prepared, as is
sometimes quipped, to “fight to the last Ukrainian.” It is vastly better
to make peace than to destroy Ukraine in the name of ‘defeating’
Putin”.
But Putin doesn’t want
to make peace. He has repeatedly shown he is not interested in
negotiating in good faith and he is moving ahead with full-out war,
making little difference between military and civilians in Ukraine. How
can negotiations work in such a situation?
“My guess is that the US is more resistant to a negotiated peace
than is Russia. Russia wants want Ukraine’s neutrality, and also access
to Ukraine’s markets and resources too. Russia stated clear negotiating
aims. To be sure, some of them are unacceptable, but they are
negotiating aims nonetheless. The US and Ukraine have never stated clear
negotiating terms. The US wants Ukraine firmly in the US-EU camp,
militarily, politically, and economically. That’s what this war is
mainly about. The US has never shown a single sign of compromise, not in
the lead-up to the war, and not since the outbreak of the war”.
Can you provide examples?
“When Zelensky floated the idea of neutrality, the US leadership was
dead-silent. Now, the US is talking the Ukrainians into the belief that
they can actually defeat Putin. The entire concept of defeating Putin
is madness. What does it mean to defeat a foe with thousands of nuclear
warheads? A death-wish? I have scoured the news daily to find a single
instance where a senior US official endorses the aim of negotiating a
settlement. I don’t know of a single utterance”.
Should the EU and the
US engage with Putin to broker a peace or should they just declare him a
war criminal and wait out the demise of his regime?
“They should engage, definitely. If they want to try Putin for war
crimes, they need to add George W. Bush and Richard Cheney for Iraq,
Barack Obama for Syria and Libya, Biden for confiscating Afghanistan’s
own foreign exchange reserves and thereby stoking hunger in Afghanistan,
and the list goes no. I am not meaning to exonerate Putin. I am meaning
to emphasize the need to make peace, recognizing that we are in the
midst of a proxy war between two expansionist powers, Russia and the US.
Take note that few countries outside of the US and Europe, just US
allies such as Japan and South Korea, are siding with the West on this.
The others are staying neutral. They see big-power geopolitics at work”.
Don’t you think Russia carries responsibility for being the unprovoked aggressor here?
Russia launched the war, of course, but in no small part because it
saw the US making irreversible inroads into Ukraine. In 2021, as Putin
was calling on the US to negotiate over NATO enlargement, Biden doubled
down diplomatically and militarily with Ukraine. Not only did Biden
reject outright any discussion about NATO enlargement, but he actually
had NATO recommit to enlargement at the 2021 NATO Summit, and then twice
signed high-level US agreements with Ukraine to commit to the process.
The US also continued large-scale arms shipments and military exercises.
It’s interesting to see how the US and Australia are making somersaults
over a security pact between China and the tiny Solomon Islands, 3,000
kilometers away from Australia. This new agreement is viewed as a dire
security threat by the West. How then does Russia feel about NATO
enlarging to Ukraine? Of course, this all plays into crazy election
politics. The opposition Labor Party in Australia recently called the
Solomon Islands pact the “worst failure of Australian foreign policy in
the Pacific” in 80 years! Practically speaking, to save Ukraine we need
to end the war, and to end the war, we need a compromise, in which
Russia goes home and NATO does not enlarge. It’s really not that hard,
but the US doesn’t broach the idea – because it is against it. The US
wants Ukraine to fight to protect NATO prerogatives. What a disaster
already, and much greater risks ahead until there is a reasonable and
rational settlement.
I am not convinced by
the NATO enlargement argument. Ukraine didn’t even have a Membership
Action Plan (roadmap) for accession. And chancellor Olaf Scholz of
Germany declared in Moscow, in front of Putin, that Ukraine would
certainly not enter NATO “while we are in office” (meaning, at least
until 2036). Not really a reason to invade now, is it?
“Actually, the idea that ‘Ukraine won’t join’ looks like a US ruse.
In fact, the US was making major efforts at Ukraine’s military
interoperability with NATO so that NATO enlargement would be a fait
accompli. As Lavrov himself recently said in an interview, Ukraine’s
Defense Ministry was swarming with NATO advisors. The idea that it
wouldn’t happen is actually more public relations than truth. It was the
chosen path of the US, as exemplified in every actual policy. What is
key is that the US refuses to discuss the issue! That’s the hint”.
Would you say
sanctions should be open-ended or should they be tied to tangible
results – with maybe some restrictions to be lifted if, say, Russia
accepts a ceasefire or withdraws from Ukraine?
“Sanctions should be lifted as part of a peace agreement. The war in
Ukraine is terrible, cruel, and illegal, but it is not the first such
war. The US has also been involved in countless reckless adventures –
Vietnam, Laos, Cambodia, Afghanistan, Iran (1953 coup and dictatorship),
Chile, Iraq, Syria, Libya, Yemen – just to name a few, as there are
many more. The US was not permanently banished from the community of
nations. Russia should not be permanently banished either. The US talks
about permanently isolating Russia. This, again, is typical US hubris”.
How about the
oil-and-gas sanctions on Russia under discussion in the EU, in order to
break Putin’s military machine financially?
“The EU should move much more aggressively to push a peace
agreement. A full oil-and-gas embargo would probably throw Europe into
an economic contraction. I don’t recommend it. It would not decisively
change the outcome of the war and a peace agreement, but it would hurt
the EU massively”.
Are you also concerned
cost-of-living issues may fuel populism in the West as voters blame
sanctions, not Putin’s war, for inflation?
“Yes, the war and sanctions regime are already causing political
difficulties in many countries, and a sharp rise in outright hunger in
the poorest countries, notably in Africa, which depend heavily on
imported grains. Biden too will pay a political price in the November
elections for the inflation. Note that these supply shocks are occurring
after a long period of monetary expansion, therefore there is ample
headroom for inflation. We are in for a difficult macroeconomic period”.
To what extent the
failures of Yeltsin era’s reforms are to blame for paving the way to
Putin’s aggressive dictatorship? Is this a failure akin to the one
described by Keynes in 1919 about Germany?
“I served as an economic advisor to Gorbachev in 1991 and to Yeltsin
in 1992-3. In that capacity my main goal was to help the Soviet Union,
and then Russia, as an independent country after December 1991, to end
an intense financial crisis so as to stabilize society and improve the
chances for peace and long-term reform. Remember that the Soviet economy
had crashed and entered into an intense downward spiral in the late
1980s. In those years, I referred often to John Maynard Keynes’
remarkable 1919 book The Economic Consequences of the Peace. That book
was probably the most important book for my professional career, as it
made one essential point in my view: in order to end an intense and
destabilizing financial crisis in a country, the rest of the world
should pitch in, before the situation gets out of hand. That was true in
the aftermath of World War I. Instead of putting harsh reparations
payments on the German people, Europe and the US should have engaged in
cooperation for a recovery for all of Europe, which would have helped to
prevent the rise of Nazism”.
Do you mean to say
that the way the West managed Russia in the early 1990s contributed to
making it a sort of Weimar Republic 2.0?
“When I argued the case for international financial assistance for
Poland in 1989, including emergency loans, a currency stabilization
fund, and debt relief, my arguments were accepted by the White House and
European countries. When I made the very same arguments vis-à-vis the
Soviet Union, under Gorbachev in 1991, and Russia under Yeltsin in
1992-3, the White House rejected them. The problem was geopolitics. The
US viewed Poland as an ally, while it mistakenly viewed the Soviet Union
and the newly independent Russia as a foe. This was a huge mistake. If
you treat another country badly or humiliate that country, you will
create a self-fulfilling reality. That country will indeed become a foe.
Having said all of this, there is no simple determinism in history, and
certainly not over a long period of 30 years. The harsh Versailles
Treaty of 1919 did not guarantee by itself the rise of Hitler in 1933.
Indeed, Hitler or his ilk would never have come to power but for the
Great Depression in 1929, and even then, but for Hindenburg’s and von
Papen’s dreadful miscalculations in January 1933. Similarly, the
financial mistakes of the US and Europe vis-à-vis Gorbachev and Yeltsin
certainly did not dictate events thirty years later. Even to suggest so
is absurd. But the harsh financial situation in the Soviet Union and
Russia in the early 1990s left a bad taste. It contributed to the fall
of the reformers, the rise of corruption, and ultimately the rise of
Putin to power. Even then, the situation could easily have been
salvaged. Putin might well have cooperated with Europe. A big problem
came with US hubris that adopted NATO‘s eastward enlargement after
promising in 1990 not to enlarge NATO eastward, and then to the
absolutely dangerous and provocative idea of George W. Bush Jr. to
promise that NATO would expand to Georgia and Ukraine. That promise,
made in 2008, dramatically worsened US-Russian relations. The US support
for the ouster of Ukraine’s pro-Russian president Viktor Yanukovych in
2014 and the subsequent arming of Ukraine on a large scale by the US
dramatically worsened the relations between Russia and the US”.
You were involved in
advising the Russian government in 1992-1993, through your role in the
then Harvard Institute for International Development. During the 1990s,
big-bang market liberalization trumped institutions’ building and
democratic reform. Do you think that proved to be a mistake?
“Such complaints are academic chatter, not the real world. My
expertise in 1990-1992 was to help Poland, Estonia, Slovenia, and other
countries to avoid a financial catastrophe, and that was my aim to help
the Soviet Union and Russia too. I recommended measures that proved
their success in many countries – currency stabilization, a debt
standstill, longer-term debt relief, emergency funding, emergency social
support measures. The US accepted such arguments for some countries,
such as Poland, US turned them all down in the case of Gorbachev and
Yeltsin. Politics and geopolitics dominated the White House, not good
economics. Of course, institution building and democratic reforms would
take years, indeed decades. After all, Russia had never had a true
democracy in a thousand years. Civil society had been destroyed by
Stalin. But in the meantime, there was an intense financial crisis.
People needed to eat, live, survive, have shelter, have healthcare,
while the long-term changes would gradually be introduced. That’s why I
recommended large-scale financial support for Russia for many years.
That’s why I referred repeatedly to Keynes’s lessons”.
With the benefit of
hindsight, should the approach to reforms have been more democratic and
gradual, but less focused on “shock therapy”?
“Again, my role was to address the financial crisis. I knew full
well – from Poland, Czechoslovakia, and elsewhere – that many reforms
would take a long time. My goal was to prevent a hyperinflation and
financial collapse. I never argued for quick privatization for example. I
knew that such policies require years, even decades to complete”.
It’s true that Poland
and other central-eastern European countries were far more successful by
applying the same script as Russia. But then Poland got currency
stabilization help from the US and institution-building and law reform
from the EU, don’t you think?
“Of course, that’s the point! The ability to make reforms depends on
the international context! Everything was going to be much harder with
Russia than in Central and Eastern Europe for countless reasons of
history, politics, economic geography, transport costs, the existence of
civil society, and geopolitics. The dissolution of the Soviet Union, as
with the dissolution of Yugoslavia, also dramatically complicated the
situation, and added to instability and economic contraction. Yet for
all of those reasons, the West should have been much more prepared to
help Russia financially, rather than to declare ‘victory’ and ignore the
harsh conditions in Russia”.
Was the problem shock
therapy as such or in the refusal by Germany to forgive Russia’s foreign
debt and by the US to provide aid like for Poland? Was shock therapy
with little external financial support the wrong mix?
“The so-called shock therapy meant ending price controls at the
start of 1992, as Poland had done in 1990. The reason was that with the
collapse of the command economy, and with the massive financial
instability and price controls, all transactions were essentially in the
black market. Even food grains were not reaching the cities. The point
is that the step of price deregulation should certainly have been
combined with large-scale financial support from the US and Europe and
social policy measures, as was the case in Poland. And that is precisely
as I advised every day. But the US and Europe did not follow through.
That failure of the Western governments was shameful and awful. If
stabilization had been actively supported by the West, that would have
set the groundwork for the next stages of reform, which in turn would
have led onward to other reforms, all over a period of years and
decades”.
Andrei Shleifer, then
at Harvard Institute of International Development, was in charge of
advising the Russia on a bing bang of privatizations. How was your
interaction with him?
“My role for Gorbachev and Yeltsin was as a macro-financial advisor.
I was advising on how to stabilize an unstable economy. I was not an
advisor on privatization. Shleifer was an advisor of privatization, as
you said. I did not advise on voucher privatization and did not advise
on abuses such as ‘loans for shares’ (a scheme designed in 1995 that
allowed oligarchs to finance Yeltsin’s reelection in exchange for large
shares in State-owned companies at distressed prices). I advised
Gorbachev in 1991, and then Yeltsin in 1992 and 1993 on financial
issues. Interestingly, after the first year of trying to help Russia, I
quit, saying that I was not able to help since the US was not at all
agreeing to what I was advising. My stay would have been a single year,
1992. But then, a new finance minister was appointed, Boris Fyodorov. He
was a wonderful person who died young. He strenuously asked me to
remain as an adviser to help him. I agreed, reluctantly, and stayed one
more year, and then resigned at the end of 1993. It was a short,
frustrating period, because I deeply regretted the neglect and
incompetence of both the Bush White House in 1991-1992, and the incoming
Clinton White House in 1993. When I learned that Shleifer was making
personal investments in Russia, I dismissed him from his position in the
Harvard Institute of International Development. Of course, I had
nothing to do with his investment activities or his advice on Russian
privatization. Moreover, just in case there is any question, I did not
receive a single kopek for my work, nor a single dollar. All of my
advising for governments from the start 37 years ago in Bolivia has been
without compensation beyond my academic salary. I do not advise
governments for personal gain”.