Why there was no Marshall plan for 1990s Russia?

Question

Just imagine the completely different world today if Russia were a part of Free World, member of NATO and a prosperous democracy, like Germany.

Was it ever discussed, and if so, why wasn't it implemented?

Answer 1

Short answer: the situations in 1940's and in 1990's were significantly different. The scale of the required aid and nature of reforms was incomparable. There were talks of increased aid in exchange of massive reforms and nuclear disarmament, but they appeared to be unsuccessful.

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1. The U.S. budget deficits were high throughout the 1980s. President Bush and the Congress were standing off over the federal budgets, spending cuts, and tax increases. It was difficult, if possible at all, for U.S. to afford massive official aid;
2. European states after WWII still had market economy and private enterprise. The Russia in 1991 required fundamental transition in its economic (and political) foundations prior to accepting any economic aid;
3. The size of economy of European states in 1947 were incomparable to the size of Russian economy of 1991;

4. The major plague of Russian economy was not lack of finance. Instead, the structure of production was based on extraction of mineral resources and everything directly related. So filling it with money would not help establishing a better structure of production;

   The items above are greatly summarized in early "Chicago Tribune" article of 1991:

   Even if the United States were in a position to underwrite generous aid for the Soviet Union, as it did for Western Europe after World War II, there are ample reasons why it shouldn`t. Domestic woes, the U.S. budget deficit and the undetermined direction of Soviet change suggest caution.

5. One of the key goals of Marshall plan was containment of Russian expansion. In other words, it was a strategic defensive plan aimed to strengthen economical and political security of European countries of late 1940's. And there was no Russian threat in early 1990's.

   Many people see Marshall Plan as a purely economical program. Others also think it was act of generosity. Churchill called Marshall plan "the most generous act in history." However, it wasn't.

   The Marshall Plan was the Truman Administration's plan to rebuild war-torn Europe in order to aid building strong, self-sustainable economies, facilitate global trade and free markets, encourage European peace, and prevent the spread of communism. George F. Kennan formulated the policy of “containment”: "A long-term, patient but firm and vigilant containment of Russian expansive tendencies".

6. Some political forces on Russia (like the first government of Yegor Gaidar, Nov'91 - Apr'92) attempted to negotiate "Marshall plan" in exchange of massive economic reforms, deregulation of prices, and nuclear disarmament. Unfortunately, these forces were not in power for enough time and they couldn't convince the U.S. officials that such aid would be used properly:

   [Aven and Kokh] slip in an interview with the 85-year-old James Baker, US secretary of state from 1989 to 1992. Aven presses Baker hard on why the US didn’t give Russia more financial aid, saying it could have allowed them to embed liberal reforms. Baker didn’t think so, and still doesn’t. — Financial Times

   I could not find this interview in English. Here's the Russian version at Forbes.ru.

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As a result, at the G7 meeting in Houston (1990), it was decided that offering the Russia official aid would not help. The task of providing aid has been authorized to the IMF, which usually operates with "standard-sized" crises, but is not adapted to resolving consequences of collapse of entire economies.

A decade and a half after, Yegor Gaidar, in his book "Смуты и институты" ("Time of Troubles and institutions"), recalled:

«План Маршалла» был реализован потому, что его выработало и провело в жизнь руководство страны, вышедшей из Второй мировой войны. Оно понимало, что столкнулось с новой войной – холодной. Это позволяло консолидировать усилия, мобилизовать финансовые средства, сделать программу помощи важнейшим приоритетом американской политики. В начале 1990-х годов ситуация была иной.

"Marshall Plan" was implemented because it was developed and put into practice by a country who survived World War II. They understood that they faced new war — the Cold War. This made it possible to consolidate the efforts, mobilize financial resources, and help make the program the top priority of American policy. In the early 1990s, the situation was different.

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Reading:

• Houston G7 Declaration (1990)

Answer 2

There was no Marshall plan for the 1990s Russia for the same reason there was no Marshall plan (or other significant aid) for Brazil, India, China, Indonesia, the countries of Central and Latin America, and all of Africa.

That reason is that the US government helps countries only when doing so provides a clear benefit ... to the US elites. As explained in Part 5 of the earlier answer, rapid development of Western Europe (and to a lesser degree South Korea, Japan, Taiwan) was meant to help contain the spread of communism.

The US elites however have no need for competition from a strong Russia. On the contrary. The US elites need a weak Russia that would be nothing more than a source of cheap natural resources similar to the Middle East, Africa, or Central and Latin America.

Answer 3

It was believed that privatisation would create the great economic growth by itself. That all problems related to it will be gone in few years. That the loss of industry is not important as new, better industry will soon emerge. Hence massive help with the industry was not seen as priority.

Economic researchers failed to provide the adequate analysis.

This was a wrong view that resulted in economic decline and then autocratic regimes coming through democratic elections.

Answer 4

... imagine the completely different world today if Russia were a part of Free World, member of NATO and a prosperous democracy, like Germany ...

(Historical anecdote: The Marshall plan funds were offered to all Soviet Union states back in 1948 but were rejected.)

Germany was completely beaten and occupied by the Allies after World War II. In the years after the war, Germans frequently suffered from hunger. The idea of the Marshall plan was to restore economic capacity in Western Europe and money was given mostly to Britain, then to France and to Germany, Italy and the Netherlands, but the total amount was relatively small (3% of national income, 1% of GDP) over 3 years and part of it were loans that needed to be repaid. This is not so much. It surely jump-started an economic recovery, alleviated sufferings and boosted morale. On the other hand, the US enjoys extra-ordinary influence in Western Europe until today with for example large US military bases in Germany.

A similar or even bigger economic aid offer could surely have been made for all successors of the Soviet Union in the 1990s, even paid alone by the US by taking on some debt for example. For comparison, the US debt soared from 4 trillion US-$ in 1995 to 30 trillion US-$ in 2022 without any aid to Russia and the US credit ratings in 2022 are still superb. Surely it would have been politically imaginable to save 1 or 2 trillion US-$ from that during that time and give it to Russia instead. If other nations would have joined in, the effect could even be much higher. Remember that in poor nations (and Russia was poor in 1990s) every dollar spent has a much higher impact on life conditions than the same dollar spent in rich countries.

The economy of the Russian Federation suffered a deep slump in the 1990s before re-emerging in 2000s. Maybe with already modest (on a grand scale) financial help (a few hundred billion US-$) and some conditions (like it must be invested in education, health care, infrastructure or non-resource related industries) the slump could have been avoided. Subsequently, maybe the Russian economic crisis of 1998 wouldn't have happened and Russians wouldn't have turned to Putin in 1999, who nationalized some key resource industries, restarted the economy and then transformed Russia into a warmongering nation (seriously reducing the standard of living for many Russians again, not to speak of the deadly impact on Ukrainian lives subsequently). Russians could probably live a much more wealthy life by now, if only they themselves or other nations would have taken better decisions.

So why wasn't it done? I see three possibilities:

1. The US and other nations like Germany, France, ... may not have been smart enough to see these chances. They may have thought that Russia just takes the money and wastes it all. Or the voters in these nations may have thought that Russia can become a friendly, prosperous nation all on its own (couldn't sell giving money away for free, even though that would have done more good than not doing it).

2. Russia may have been suspicious or too proud to take the money. They could have feared foreign influence (they are just wanting to buy us, they don't have our best interest in mind) or not being convinced that they needed the money (we can do it on our own). Especially the later is what you see often in nations with a high level of national pride, often overestimating their own capabilities.

3. Russia would have taken the money and spent it unwisely resulting in no gain, then still turning Russia into what Russia is today (it would not have made a difference then). Remember, the Russian economy was transitioning from a planned model to a market oriented model and that transition is inherently difficult and somewhat slow. Now add corruption on private and public levels and you may have vastly different conditions than in Europe after World War II. In general the Russian state was considered very weak in the 1990s.

The IMF could have played a similar role in the 1990s in helping Russian financially and it helped somewhat to keep inflation under control, but not with financial aid but rather only assistance on fiscal and monetary policy and also promoting privatizations of Russian economy. Indeed in a 2006 IMF staff paper the conclusion is rather that a lack of fiscal prudence ("Had the fiscal consolidation that was agreed upon between the government and the IMF in every year up to 1996 (when the medium-term program to 1998 was set) been achieved, it is unlikely that the crisis would have occurred.") contributed to Russian economic difficulties in the 1990s, not a lack of foreign economic aid. In 1998, the IMF finally decided to bailout Russia with $11 billions. That simply may have been too little, too late to help.

All in all I would conclude that:

• Foreign help towards Russia in the 1990s may have been misguided (see this critical semi-academic contribution for example).
• A more generous financial support package (comparable to the Marshall plan for example) coupled on different conditions (not only fiscal prudence, but rather democratic values, fight against corruption, social participation) might have made a difference, but was outside of the mindset of people in rich nations at that time.
• Russia already back then developed or nurtured existing distrust of the US and foreign influence, making it not very willing to be integrated into external structures (see discussions about NATO membership for example).
• Some countries like Germany invested in Russia (privately and publicly with buying gas for example) but that all came only after the 1990s and these economic ties were too little to affect politics and trajectory of the Russian Federation until their invasion of Ukraine in 2022 ("Wandel durch Handel" = change through trade, just doesn't work as well as expected).

Answer 5

Many things were already mentioned in previous answers, so I will tallk only about the ones not mentioned.

Marshall Plan was in the first place not so much about helping Europe, but helping US economy as the credits given to european countries had to be used to buy some US goods. At the end the Marshall Plan opened the european market for US exports. Marshall Plan spending allowed the US to recover from a short-term economic slump in 1946-7 and enter a period of economic boom. American corporations built networks and established trade links in Europe that continued well after the ERP had run its course.

Marshall Plan has some strict conditions about political and economic system of the country participating, making it unaceptable for the most russians.

It would be also problematic to limit the new Marshall Plan to Russia and excluding other former soviet republics and members of Warsaw Pact.

Also this question seems to have being discused in the WSJ more then 20 years ago.