The Global Emerging Market in Transition: Articles, Forecasts, and Studies

Siberia: A Warm Place for Investors

SIBERIA: A WARM PLACE FOR INVESTORS The breakup of the Soviet Union presents great opportunities for U.S. investors and business people. But to grasp them they will have to recognize that there no longer is a Soviet Union. Shortly before the failed coup took place, this joke came out of the Soviet Union: Mikhail Gorbachev sits in his office, musing on a huge portrait of himself. ‘‘Soon, my friend, the people will take us down,’’ murmurs Gorbachev. ‘‘You are a fool,’’ the portrait responds. ‘‘The people will unhang me. They will hang you.’’ The joke was close to the mark. Leaders of the coup had counted on the Soviet people’s being ready to dump Gorbachev. In that they were probably right. But the coup leaders, along with most foreign governments, ignored the fact that Gorbachev had become irrelevant. It was Boris Yeltsin and his Russian government, not Gorbachev and the Soviet government , that the people and large parts of the military defended against the coup. Which is another way of saying that the Soviet Union is dead. In its place 15 sovereign nations are emerging— Russia, the largest by far. Some of these new nations, or old ones reborn, will gravitate economically toward Russia; others will move closer to Eastern Europe or the Balkans. Each of these new nations will seek a seat in the United Nations, will establish its own diplomatic relations and create its own military forces. Most of them will be as independent of the old center as Poland or Hungary has become. What remains in the Kremlin will be something like the British Commonwealth of Nations: a ceremonial, consultative body based upon common interests whose commonality will fade over time. A late August headline in The Wall Street Journal said that people ‘‘worry’’ that the Soviet Union may break up. Why this should worry anyone in Washington or anywhere else is beyond me. I suppose Forbes, September 16, 1991, pp. 96–97. siberia: a warm place for investors 299 some people simply cannot confront change. This fission is a wonderful development. Breaking the vast empire into more manageable pieces, grouped on economic rather than political lines, presents tremendous opportunities for foreign business. The USSR will no longer be the Union of Soviet Socialist Republics . The terms ‘‘socialist’’ and ‘‘soviet’’ will disappear, just as the word ‘‘empire’’ disappeared with the emergence of the British Commonwealth . Its disappearance will be of more than formal significance because the breakup hastens the move toward market-based economies. All political maps, encyclopedias, political directories will become outdated. The Baltic republics, Georgia, Moldavia, Armenia, Ukraine, Belorussia have called it quits. Others may follow. They will not even be part of the new, loose union. Altogether, more than 80 million people will secede entirely. From now on, the republics remaining in the union will decide what rights, functions, and money to delegate to the center. The one who pays is the one who orders the music. Republics will finance the army, which will shrink because of that. Civil war? Most unlikely, except for the small-scale continuing war between Armenia and Azerbaijan and some ethnic clashes in Georgia and Central Asia. Over the last 18 months the leaders of the republics proved that they can solve mutual political and economic problems directly. What’s the timetable for the new order? The treaty that will replace the one aborted by the coup will last for about three years as a progressive document of a transition period. It will take at least that long for the various republics to stand on their own feet economically . Except for Russia, Ukraine, Belorussia, and Georgia, none of the other, smaller new republics has an economic basis for independence . At least not yet. Every historical epoch creates its markets out of a mixture of politics and economics, and this one will be no different. There was the European Hanseatic cities union in the 14th to 16th centuries. There were trade routes like the Silk Route. Now America, Canada, and Mexico are uniting in one market, as European countries were. In place of one gigantic market created by force and maintained by force in the old Soviet Union, the new market groupings will follow more economic logic, which itself will lead to different politi- 300 the emerging market of russia cal ties. While lecturing in Austria recently, I witnessed a similar process close up. Austrian, Hungarian...