A retired diplomat’s memoirs lead to pondering on whether Gorbachev ever had a chance?

If you have a nephew or niece thinking of going into the foreign service, give them Gerald McGhie’s Balancing Act: Reflections of a New Zealand Diplomat, which is probably as true an account as it gets, excluding the long periods of tedium between the interesting experiences and excitements. They will be struck how much responsibility a young diplomat can sometimes have

McGhie was a diplomat in Samoa (read about his cricketing adventures), in Papua New Guinea, where he tripped to exotic places, and a domestic adviser over the crucial period when we were dealing with apartheid (perhaps a reminder that the diplomat’s role is not as central as it may seem at the time, but can still be important).

However, what this economist found most fascinating was his couple of postings in Moscow, the second time as ambassador. Both times he went there by way of Canada, where the ministry arranged for him to have Russian language tuition. (Actually he ended up as the head of mission the first time too. When in a tit-for-tat the Russians expelled our ambassador in response to our expelling theirs for getting involved in domestic politics – funding the Socialist Unity Party – McGhie ended up in charge.)

The two stints occurred in very different environments. The first from, 1979 to 1982, was the time of Brezhnev with the Soviet Union trundling along in its post-Stalin sclerotic mode. The second, from 1990 to 1993 is aptly described as the ‘fall of the Soviet Union’.

Broadly Michel Gorbachev took over from Brezhnev and tried to liberalise the regime, both economically and politically. Among other things this led to the collapse of the Soviet Empire and a kind of independence for the constituents (some joined the European Union). He was replaced in Russia by Boris Yeltsin and latterly Vladimir Putin, reverting back to a regime which appears to be a continuation of the Stalin-Brezhnev one, albeit based on robber capitalism underpinned by the power of the state rather than state ownership of the means of production, distribution and exchange.

Why did Gorbachev fail? I do not accept that there is something inherent in Russians which makes them unable to function in a liberal regime. (Many emigrant Russians have made major contributions to democracies.) But I do have some respect for the argument that history and institutions have a continuity which does not easily nor quickly change.

The KGB did not fold up with the arrival of Gorbachev. Indeed one of their agents based in Dresden, East Germany, at the time of the collapse of the Soviet Empire was Putin. He was appalled; the experience probably had a key role in forming his extreme Russian nationalism.

But I do not think that economists can dismiss the failure to achieve economic success so easily. Many were promising record Russian growth because it was becoming a capitalist economy. (I was there in 1993 and was appalled by the greed that many of the foreign ‘investors’ showed; many of the Russian officials they interacted with were just as corrupt.)

Gorbachev sought two kinds of liberalisation: a political shift to civil society and an economic shift to a liberal market. Normally we link the two, arguing they go together. It is probably true that civil society requires a degree of market liberalisation but I am not sure that the two necessarily go lockstep. Perhaps one can shift towards a civil society without initially carrying out all the economic changes.

(Curiously the Chinese appear to be trying to liberalise the economy but with very timid moves on the civil society front. We shall see whether the economic changes rip open the state’s political dominance. My guess is that if they do it will take time – perhaps after generational change.)

Moving to civil society seems easier. For instance, the power of the KGB might be wound back. Dimitri Shostakovich’s music is riddled with the anxieties of someone living in an oppressive regime. His wonderful eighth string quartet, written in 1960, is composed around his musical signature. At one point there are three loud knocks, followed by the signature and then a further three loud knocks. It is speculated that they reflect the practice of tapping three times under the table to indicate a KGB agent has entered the room, or perhaps the early morning three bangs on the door when the KGB took you away to the gulag. (Shostakovich kept a packed suitcase by the door, so when it happened to him – fortunately it never did – he could leave the house without disturbing his family too much.)

So pervasive and powerful has been the KGB (it goes under other names today) that winding back is easier said than done. Many benefit from the authoritarian state and do not take easily to the loss of those benefits and power.

The same problem applies with market liberalisation. It makes some worse off and they resist the changes. Too many economists claim that the gains from the changes would be so great that the resistors can be bought off. You will recall that the Rogernomes promised an enormous increase in growth in GDP; they were not too different from overseas ideologues including those predicting Russian gains.

In fact the research shows almost no evidence of an acceleration of economic growth following neoliberal changes. What it does suggest is that there may have been improvements in the quality of output from the increasing of competition, but even that conclusion is riddled with caveats. To be frank, someone who said that there were no net gains from a neoliberal revolution would find it easier to make their case than that for the fabulous promises the Rogernomes made. I do not think either is right but the economic gains from market liberalisation take time to appear and, as a result, are difficult to measure.

You can see the difficulty that Gorbachev faced. The gains from economic liberalisation would be small, many would be worse off and they would not come quickly – whatever his advisers promised. There was pain, there was little gain and Gorbachev fell.

Better advice from the West would have been for a kind of Marshall Aid plan which was intended to support Western Europe’s path to civil society and a liberal market regime after the Second World War. I’d love to see such an approach to Ukraine and yet I am reluctant to advocate it because the regime is so corrupt and most aid would be wasted. As, no doubt, would have happened in Gorbachev’s Russia. History is riddled with ‘what a pity we did not do better’.

McGhie tells much of this story though not from an economic perspective. But ultimately his account suffers from the defect of being a diplomat, a defect that no doubt your niece or nephew would suffer too. In the middle of the exciting narrative his term in Moscow ended, he was replaced, and there was no follow-up. That is why we need academics and historians – to tell the whole story.

Comments (5)

by Rich on March 23, 2018

 I do not accept that there is something inherent in Russians which makes them unable to function in a liberal regime

Not Russians, but Russia. Most developed countries have at some point had a "bourgeois revolution" (such as the French and American revolutions or the English Civil War) where the merchant classes prevailed over the aristocracy (and subsequently extended at least an illusion of power to the proletariat).

That never happened in Russia (or China) - they went straight into a Marxist revolution (Marx himself was correctly dubious that this would work) and have now reverted to a form of kleptocracy. 

by Charlie on March 25, 2018

Rich makes a good point. In effect today's Russia is just Czarist Russia reincarnated. There are nobles and there are peasants, with not much between.

Friends of mine who worked in Russia for multinationals in that era told me some bizarre stories regarding the state of the place and the people. In essence the nation was completely broken in every sense of the word.

All the physical assets were totally f***ed. Nothing worked. There had been no sustaining investment for decades. Nobody had taken care of anything (why would you? It's not yours) Pretty much the entire industrial and agricultural infrastructure was not just broken, but unfixable.

The people were equally broken. The communist regime had ground down their spirit to such an extent that there was nothing left inside them. It's all very well to wave a flag and say we're all now budding capitalist entrepeneurs but a lifetime of brainwashing, oppression, corruption, utter cynicism and alcoholism had left nothing to work with. It was like asking goldfish to fly.

by Charlie on March 25, 2018

Brian: "Too many economists claim that the gains from the changes would be so great that the resistors can be bought off. You will recall that the Rogernomes promised an enormous increase in growth in GDP; they were not too different from overseas ideologues including those predicting Russian gains"

This little jab at Rogernomics needs dealing with separately. In fact rogernomics DID produce a vast increase in GDP: Not over what had gone before (which was unsustainable)  but compared to what would have happened if nothing had been done.

At the point the 4th Labour government took over, NZ was on the brink of finanical collapse. It is vital to understand just how broken the NZ economy was by 1983. We were on our way to becoming "The Albania of the South Pacific" as a friend who worked in Treasury put it at the time.

Decades of socialist isolationism & protectionism had left NZ incapable of surviving in the modern world. To a far smaller degree than the USSR, our attitudes, equipment and products were uncompetitive, and something had to change.

As a classic example, I have an old friend who owned a sheep farm in central Otago. He totally relied on subsidies to make the business viable, so that when the subsidies were removed he couldn't make the repayments and lost the farm. That was very sad for him and his family and he had to look for a job in the city. However, that land now produces some of the worlds finest pinot noir grapes.


by Brian Easton on March 29, 2018
Brian Easton

‘In fact rogernomics DID produce a vast increase in GDP: Not over what had gone before (which was unsustainable) but compared to what would have happened if nothing had been done.’ What evidence do you have for that, Charlie? It is true that GDP is higher today than it was under Rogernomics. But first, the promise of Rogernomics was to accelerate the growth of economics. The current long term growth rate is much the same as it had been before Rogernomics (including under the Muldoon era), so it failed on that promise. Indeed, because there was the seven year Rogernomics Recession in which per capita GDP stagnated the growth path is about 15 percent lower than it had been before. We are about that much poorer, apparently as a result of Rogernomics policies. 

It is true that the growth on real incomes of the top 10 percent was hardly affected. That was because the tax and benefit changes protected them from the stagnation. On the other hand the bottom 30 percent did not regain their pre-Rogernomics level of income for two decades.

by Gerald McGhie on June 28, 2019
Gerald McGhie


I am indebted to Brian Easton for his informative discussion of my book “Balancing Acts” in the 21 March 2018 issue of Pundit.

First an explanation. I came across the review only recently quite by chance hence my delayed comment.  Nevertheless the USSR’s reversion from Bolshevism to a more traditional Russian system should be an ongoing discussion. 

Easton has focused on the three chapters on Russia. The world of the diplomat differs from that of the economist.  Essentially a diplomat is a practitioner who implements policy.  I will not attempt to define the role of the economist today but she or he is clearly more involved in theory than the diplomat. 

Easton does not accept that there is something inherent in the Russian psyche that makes it well-nigh impossible for that vast country to function as a liberal regime.  Nevertheless, there is a great deal of truth in the often expressed idea that Russians fear anarchy more than repression. And of course many Russians have participated effectively in both the marketplace and academia in the West.  My point is, however, that Russian history provides little evidence that a liberal, market-based regime can function within Russia itself.  During the turmoil at the start of the 1990s it was clear that Russians themselves and some of the leadership were looking for new ideas and Gorbachev constantly stated his wish for change through references ad nauseam to glasnost and perestroika while a group of economists - what I would rather call soothsayers - put forward ideas.  The “500 Day Plan” which was meant to convert the Soviet state into a free market economy was one of these. The plan, which called for mass privatisation, prices determined by the market, integration into the world economic system, a large transfer of power from the central government to the Republics and a competitive market economy, bore all the hall marks of having been written by the massive Soviet planning agency, Gosplan, but was nevertheless expressed in the language of market reform. 

Above all, in typical Soviet style, the plan was published without any attempt to educate a public that had absolutely no experience of how a market economy worked.  For over two generations through a system that obsessively controlled every aspect of life and meted out severe punishment to transgressors, they had been educated to reject capitalism for the benefits of the centrally controlled Bolshevist system.  Russians, nevertheless, have a strong streak of realism and as they looked at the world of the newly emergent Russia, life during the Gorbachev and Yeltsin era, was just as hard, food queues were just as long while inflation began to bite into their savings, their jobs came under threat and serious crime rates rose.

Occasionally and in a circumlocuted way, bureaucrats would convey to me their rejection of Gorbachev as a little more than a talker.  Even to the casual observer, the huge protest marches surging through Moscow and the on-going problems with the currency should have conveyed to the Soviet leadership that there was a dangerous volatility emerging within the Russian population.  

Easton is quite right when he says I was a diplomat but I am not sure that I “suffered” from this.  The reason for my being in Moscow was to promote New Zealand’s interests in what was once our seventh largest market.  That required active analysis of political, economic and social developments in terms of how they would possibly affect the Russian ability to buy – and, more important, to pay for - our exports.  This activity involved the important role of supporting New Zealand exporters as they worked to close deals with the gargantuan Soviet/Russian bureaucracy which, to repeat, had at best only a skeletal idea of how a market economy worked.

In the course of my time in Russia I had the benefit of exchanges with Easton while he visited Moscow.  He saw the need to have economists and academics follow up the work done within the Embassy.  That would certainly help. But to me what is even more necessary is that New Zealand needs to train more diplomats with language skills and a dedication to selling our products to Russia and who can see a career path within a Ministry of Foreign Affairs which is dedicated to using these skills. MFAT has done a superb job in training diplomats for the Beijing Embassy where most of our ambassadors have had an enviable grasp of the language, culture and people.

As I see it co-ordination of effort between the private sector, informed economists/academics and diplomatic staff would represent a start. 

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