The Transition from totalitarianism to democracy - Jon Baldwin Hannibalsson, Toronto (Tartu College) 2015

I bet this would have sounded like music to the ears of Mr. Putin, had it been repeated one of those days, perhaps on the occasion of the May 9 celebrations in the Red Square, to commemorate the victory over nazism in the Great Patriotic War, as the Second World War is known to Russians.

This raises some sobering questions. What was the Cold War all about? Freedom vs tyranny? Liberating the captive nations? How come, when the Second Warld War was at long last being brought to and end in Eastern Europe, that everything had been turned upside down? Here was the leader of the democratic West, appealing to the captive nations, to accept their fate – so that the rest of us might enjoy peace and stability.

Tha Baltic Road to Freedom

The Baltic road to freedom signaled not only a national reawakening. Those three small nations – Estonia, Latvia and Lithuania – wanted to restore their independent states. They had suffered more than most during and after the Second World War, having been the victims of invasion, military occupation and annexation into the USSR, as well as repeated deportations en masse to the Gulag. But this was a democratic revolution as well. The leaders of the independence movements had therefore every reason to expect, that they would be welcomed with open arms back into the familiy of European democracies.
But they were in for a rude awakening. They were, as a matter of fact, admonished for irresponsibility and even labeled as „spoilers of the peace”, treated as unwelcome intruders into the amiable company of the major powers. They were told to behave responsibly for the greater good of all and to settle for a compromise with their Kremlin masters, without any preconditions. Wouldn´t some form of home-rule within the USSR be good enough?

Why? Because in breaking away from „the evil empire” – in the words of Reagan – those rebellious nations were said to be endangering the peace. If the Baltic nations were to be „allowed” to leave the Soviet Union, the likely sequence of events was often pictured like this: Mr. Gorbachev – our partner in ending the Cold War – would not survive the break-up of the empire. Then the „hardliners”, (old time communists) would be back. That would mean a return to the Cold War. In the worst-case-scenario it could even mean the outbreak of war in Eastern Europe, since the hardliners would not hesitate in using force to prevent the captive nations from breaking free.

There was a lot at stake. Western leaders were right on this score. Major disarmament agreements, both nuclear and conventional, were at stake; also, end of the arms race, reduction in armed forces and withdrawal of occupation troups – labeled „the peace dividend”; the peaceful reunification of Germany and acceptance of united Germany´s continued membership in NATO; the liberation of the nations of Central and Eastern Europe. An embryonic „New World Order”.

In short: Those were indeed serious issues, involving War or Peace. And it all depended – it was presumed – on the political fate of a single individual – Mikhail Sergeivich Gorbachev. Nothing should be said or done that could undermine his position as our partner in ending the Cold War. This mantra had somehow become official Western policy. If that meant keeping the Soviet Union together, so be it. Faced with this dilemma, the leading statesmen of the West were asking themselves privately, if they should allow unknown rebels on the margin of the Soviet empire to put all of this at risk? Wasn´t that too much to ask?

By breaking out of the Soviet Union, the Baltic nations placed the Western leaders squarely on the horn of a dilemma of their own creation. This was the (logical) consequence of theirs´ having put all their stakes on the fate of a single individual. What a fateful mistake!

This is why president Bush gave his infamous „Chicken Speech” in Kyiv.

This is why Chancelor Kohl and president Mitterand wrote a joint letter to president Landsbergis, urging him to postpone the implementation of Lithuania´s declaration of independence of March 11, 1990.

This is why the leaders of the restored Baltic democracies were turned away from conferences, where the „New World Order” was being negotiated between the old Cold War adversaries; they were not even allowed to plead their case at a conference on human rights, as potential „spoilers of the peace”.

This is how the official rhetoric about democracy, national self-determination and the rule of law contradicted the realpolitik actually persued by the major powers.

And this is why faraway Iceland – in the name of solidarity of small nations – tried to solicit support among the smaller nations of Europe for the Baltic cause, since the voice of the Baltic leaders themselves had been silenced and the leaders of the Western alliance were obviously beholden to a different agenda.

Why? We were simply convinced that the Western infatuation with Mr. Gorbachev was illconceived and dangerous and based on a fundamentally faulty analysis of political reality inside the Soviet Uninon.

We were convinced that the Soviet system itself was in the throes of an existential crisis, for which their leaders had no solution. The empire was in the process of falling apart, just as had been the fate of the British, French and other European empires after World War ll.

Contrary to Putin, I was convinced that the dissolution of the Soviet Union should be welcomed as perhaps the most beneficial event of the 20th century. If it needed a little push from the Baltic nations, so much the better.

What had the Cold War been about, if not the liberation of the captive nations? I was appalled listening to Western leaders preach to the subjugated peoples that they should accept their fate as captive nations – so that we in the West could enjoy peace and stability. To my ears this was not only a shameful betrayal – but also a blatant mistake.

An impertinent question

When recounting this story, almost a quarter century later, many questions remain unanswered. One of them is this one: Were the leaders of Western democracy really so callous as to be ready to sacrifice the legitimate claims of the Baltic nations to restored independence – in return for political gain in dealing with the Soviets? Although it looks like it, it is perhaps a little more subtle.

Keep in mind that the Baltic nations had disappeared from the political radar screen for almost half a century. In that sense they had become „forgotten nations”. I remember, when pleading the Baltic case with one of my colleagues in the NATO ministerial council, he countred by asking: „Haven´t these peoples always belonged to Russia, anyway?”

If this was really the accepted view in the chancelleries of Europe, Western leaders were, presumebly, not thinking in terms of sacrificing anything. Bear in mind that most of those major powers in the West – the U.K., France, Spain and also the US – were all ex-colonial powers. The US suffered a devastating civil war to prevent the break- up of the union. The United Kingdom today is in the grip of an existencial crisis – as is Spain – in mortal fear of the break-up of the union. Colonial powers – think of the British, the French and the Spanish empires – have fought ferocious wars trying to prevent the break- up of their empires.

The leaders of major powers with a colonial past are not to be expected to be at the forefront in defending the rights of small nations to national self-determination. Rarely have small nations been liberated by a benevolent act of major powers. They simply have to liberate themselves. Under such circumstances the concept of „solidarity of small nations” may have some practical relevance, against all odds.

The transition.

How do you go about building democratic institutions and a functioning market economy – from scratch? It is a daunting task. The transition from a centralized command economy to a diversified market economy, had never really been tried before. Despite their glorification of the German Reich, the Nazis had never abolished the market economy. There was therefore nothing in the textbooks on how to do the job.

In the beginning, inevitably, there is chaos. The productive machinery and state administration of the previous regime was more or less paralysed. There was a real danger of a complete break-down. A market economy is based on the recognition and protection of property rights. It is based on private enterprise rather than centralized state planning. So, one of the first tasks is to privatize state assets, where applicable.

It is a process wrought with danger. If you can do it by public tender, fine. But how is it going to be financed? If valuable state assets are handed out as booty to favoured cronies, you have opened up the gates of hell, in the form of corruption. Corruption is a way of life. Once that genie is out of the bottle, it is hard to lock it up again. It stakes out the way towards plutocracy, or worse still, to kleptocracy. Either way, it is incompatible with genuine democracy.

The privatization process in Russia under Yeltsin has been called „The Theft of the Century”. The same process in Ukraine after the break-up of the Soviet Union, was, if anything, worse. Entrenched corruption is the worst enemy of Ukrainian society, even worse than overt Russian agression.

Let us make a comparison with Norway. I am talking about natural resources, such as oil and gas. In Russia it was handed out as booty to a few powerful oligarchs. In Norway those precious natural resources are by law the property of the nation. The licencing fees are deposited with a public investment fund – mostly invested abroad to avoid run-away inflation at home, and to hedge against a rainy day in the future.

In the Baltic states this process opened up many opportunities for quick enrichment – even profiteering. But I am not aware of any major scandals on a scale that might be comparable to the Russian or Ukrainian experience. But of course we are talking about profiteering. That´s the point. After all private profit is meant to be the driving force of a market economy.

But the role of a democratic state is to lay down the rules of the game. In such a state it is the responsibility of the legislative, executive and judicial powers of the state to make sure that all participants play by the rules of the market. In reality there is no such thing as free or perfect markets.That is why the state should take care of the public interest by preventing the formation of monopolies and other market distortions.

Shock therapy or gradual reforms?

In a command economy, prices are set by political fiat. They are therefore neither an indication of effective demand nor a guide to optimal allocation of resources. In a market economy prices are supposed to be determined by the laws of supply and demand. When prices are set free for the first time, there is a grave danger, under unavoidable circumstances of extreme shortages, that inflation will get out of control. To fix it, you will have to do everything possible to enhance competition.

This requires a series of important decisions: Are you going to opt for protectionism or open up to foreign competition right from the beginning? Are you going to expose your national currency to the vagaries of the financial markets, or are you going to tie it, in the name of stability, to a strong foreign currency? Are you going to offer incentives for foreign direct investment? How are you going to design your tax system? Are you going to give priorities to incentives for investment, in the name of economic growth? Or can you afford to emphasize equitable distribution from the start?

BIG questions. Few answers. You simply proceed by trial and error. Most developed countries initially developed their industrial infrastructure behind protective walls. They opened up their markets to foreign competition only after some time, when they felt confident about some domestic comparative advantage. Even the Asian tigers, in the latter half of the 20th century, adopted this approach. But in a globalized world, time is a precious commodity for nations, that lost out on the latter half of the 20th century. Most national leaders nowadays feel they have no choice but to jump into the deep end of the pool at once. In Eastern Europe in the 1990s the choice seemed to be between two options: Shock therapy or gradual reform.

Those are medical metaphors. Shock-therapy means surgery. But for the patient to survive surgery he must be robust enough to endure it. Sometimes the body politic is so fragile that it is advisable to prescribe medication (e.g. subsidized energy or basic food stuffs) while the patient is building up his immune system. Sometimes you have to mix the two approaches in the name of flexibility.

This is politics. But the common goal is to get the chaos under control; to start the productive machinery and run it at maximum speed; to give wealth creation precedence over equitable distribution á la the Nordic model. The policy mix adopted depends on the strength of the democratic institutions and the willingness of the public to endure sacrifices now for greater benefits in the future. All of this depends on the level of trust and confidence in the political leadership. And trust can only be earned through proven deeds.

European integration.

During this crucial period of transition, your prospects for success will be greatly enhanced, if you can rely on positive external support.

The lessons of history are deeply rooted in the psyche of the Baltic nations. When the Second World War broke out they were left alone to deal with their fate. They were caught unprepared to face an overwhelming and brutal adversary.

That is why it was uppermost in the minds of their political leaders, right from the start, to do everything possible to consolidate their fragile independence; and to take out a trustworthy insurance policy against potential external threats in the future. This meant joining the European Union and NATO at the earliest possible opportunity. When formulating policy and making important decisions, they had an overall guiding principle: Would this policy or that decision enhance their capacity to fulfill the entrance requirements, as defined by those organizations, or not?

The European Union is not merely a customs union or a free trade area. Its primary purpose, right from the beginning, was to prevent war and maintain peace in Europe. It is a political union, first and foremost. The nations of Europe voluntarily apply for membership but undertake the obligation to fulfill the entrance qualifications. They are ready to give up part of their formal sovereignty in order to share in the enhanced sovereignty of the union itself.

As for the EU-internal market, every nation state is under the obligation to play by the same rules. The four freedoms of trade – in goods, services, financial transactions and the labour market – are meant to ensure a level playing field – or a win-win situation, as you Americans would put it.

Although the EU is not a military organization, nonetheless it provides the member states with the „soft power” projected by the most important player globally in international trade. NATO, on the other hand, is a military alliance, open to democratic societies and providing them with collective security vis a vis external threats. In both cases only functioning democracies need apply.

Perhaps, this is the most important lesson to be learnt from the Baltic post-independence experience: Right from the beginning, the political leadership stood united, across all political dividing lines, behind the long-term goal of joining both the EU and NATO. Those ultimate goals enjoyed solid support among the majority of the populations. This unity of purpose gave their domestic politics – despite all the turmoil and social upheaval of the most difficult transition period – the internal discipline needed to pull through and stand by difficult and even unpopular decisions.

Whenever demagogues or populists wanted to take the easy way out, such moves could be thwarted, if they conflicted with the declared purpose or undermined the capacity to fulfill the entrance qualifications. Steadfastness of purpose and long-term strategy, despite the social upheaval of the transition, helped the Baltic nations to pull through. This has helped make the Baltic post-independence experience a success story.

Despite ethnic divisions, economic hardship and political strain, they have managed to build functioning, democratic institutions. They have achieved their declared aim to return to the family of European democracies. Their economies have successfully been integrated into the inner market of the European Union They have shown the self-discipline required to fulfill the entrance qualifications of both multi-national organizations, the EU and NATO. They are well on their way of catching up with their richer neighbours.

And as members of the North Atlantic Alliance they have the full force of NATO behind them in standing up to hostile military threats to their security. That proved to be a sufficient deterrent force against potential agression during the Cold War. I bet it still is.

This is a success story from which others can learn a lot.

The author was minister for foreign affairs and external trade of Iceland 1988-1995

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The Transition from totalitarianism to democracy – Jon Baldwin Hannibalsson, Toronto (Tartu College) 2015

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