Policy Watch: U.S. Economic Policy toward the Soviet Union and Eastern Europe

As the Soviet Union and the countries in Eastern Europe take steps towards market economies and democratic political systems, the U.S. and other western countries have been confronted by a range of difficult and important questions about the appropriate economic policy response. What role should government policies play? How much assistance should be given? In what form? What actual policies have been undertaken? Are they a lot or a little? At one extreme, some argue that the United States and other developed countries should finance the rebuilding of the Soviet Union and Eastern Europe—even though it may cost tens of billions of dollars per year, for at least a decade. At the other end of the spectrum are those who argue that Eastern Europe does not warrant official U.S. assistance, other than for humanitarian purposes, because the situation is just too precarious, because there are worthier uses of scarce government resources, or because any restructuring should be undertaken by the private sector. This paper suggests a framework for answering these questions that considers both the nations of Eastern Europe and recent proposals for direct assistance to the Soviet Union. It draws upon the valuable lessons to be learned from assistance to the developing countries and from historical experience.