External pressure to change: the USSR as a competitive emerging donor

The USSR emerged from WWII in a new shape: not the isolated pariah it had hitherto been, but despite colossal war losses, it was now a military and industrial power and a key UN member. Soon, however, in Stalin’s clutches, it was isolated once again. By 1947 it had fallen out with the Western powers and the Cold War had begun. Moreover, the Soviet Union had practically no friends in the emerging Third World. Stalin, who had a dualistic view of friends and foes (other nations were either communists or enemies), famously dismissed Third World leaders such as Jawaharlal Nehru in India and Sukarno in Indonesia as “imperialist lackeys” (Berliner, 1958; Walters, 1970, p. 27). He also shunned the UN, which he deemed an

“American organisation”. Finally, relations with the socialist bloc were not going well either. Stalin had broken up with Yugoslavia and had strained Soviet relations with the European satellites and with China – so much for the expected Brotherhood of Socialist States (Deutscher, 1974, p. 29;

Ulam, 1968). Nonetheless, this estrangement was somehow subdued by aid, which as Karl Kautsky and Vladimir Lenin had expected, soon became an instrument to cement the emerging socialist camp (see Chapter 3).

In the early postwar years, the USSR was still in self-reconstruction mode and, far from giving aid, it extracted resources from the countries where it had troops and which would become its satellites (foremost among them East Germany), mostly as war reparations (Berliner, 1958; Central Intelligence Agency [CIA], 1955). By late 1947, however, as the Iron Curtain fell, the USSR signed trade and aid agreements with its Eastern European allies and two years later it created the Council for Mutual Economic Assistance (COMECON) to organise the socialist camp as a coherent common economic space; a sort of Soviet economic and political response to the Marshall Plan, although the aid provided could not match US aid in terms of volume or generosity (Cerda Dueñas, 2018; Lorenzini, 2014, 2019). Soviet aid came mostly in the form of soft long-term loans quoted in roubles that functioned as deferred barter deals: the recipient countries were granted immediate access to a specified volume of Soviet goods (usually capital goods) and were expected to pay back, also in goods, both the capital and the annual interest (normally of 2 per cent) usually within 10 years (CIA, 1955). These barter deals, quoted at world prices, also had the function of promoting trade among the partners. Finally, there was also mutual technical and scientific cooperation among COMECON members.

The USSR came closer to the development aid agenda when Stalin began to supply aid to North Korea and especially to China, both communist but also poor developing countries. Four months after taking power in 1949, Mao Zedong negotiated with Stalin a “Sino-Soviet Treaty of Friendship and Alliance”, which included the promotion of trade, and Soviet military and civilian aid (Stalin & Mao, 1949). Most Soviet aid to China followed the same procedure used with COMECON countries though at a lower interest rate to reflect China’s developing country status. Its overall aim was to support the emergence of an industrial centre in northeast China (Aleksandrova, 2013). The Korean War, however, derailed this strategy, and by 1950 most Soviet aid had switched to military hardware.

Stalin died on 5 March 1953, and a swift process of destalinisation ensued, first under collective leadership and then under Khrushchev, who emerged as leader in 1955 (Carrère d’Encausse, 2006; Deutscher, 1971; Taubman, 2003). In the period known as the Thaw, Khrushchev brought an end to Stalin’s totalitarian regime and one-man rule, gradually transitioning towards a more open and tolerant policy and a more consumer-friendly economy. This did not mean the end of one-party rule or of the commitment to Marxist-Leninist ideology and goals, but it was an attempt to give existing real socialism a more attractive and humane face. The Thaw at home came together with a Thaw abroad (Fursenko & Naftali, 2006) aimed at ending the isolation of the USSR. Its mantra was “peaceful coexistence”, which did not aim to end the rivalry between the two superpowers but rather to change it from military to peaceful competition in the economic and cultural realms.

Khrushchev was keen that this new position reflected the interests and potential of the Soviet Union. In relation to the West, the USSR remained backward in every aspect, including its military. But by the early 1950s, the country was experiencing impressive growth and technological progress. If history was really on the side of communism – as the Marxist Khrushchev believed – the USSR, expecting to maintain its high rates of growth into the future, was bound to win in a “fair” game. The breathing space of peaceful coexistence would allow it to demonstrate the superiority of the socialist system as an alternative and more just model of development (Khrushchev, 1959). Khrushchev was turning Leninism on its head: socialism did not need war (which had become unimaginable) but rather peace to prevail.

The post-Stalinist ideological stance developed hand in hand with a pragmatic approach geared at ending the isolation of the country. The most important step was to work towards a détente with the West, which would

allow it (among other things) to channel military resources to civilian use.

This would not be easy. Distrust of the USSR was deeply entrenched in the West and with hardliner John Foster Dulles as US Secretary of State, détente was bound to advance slowly, if at all. Furthermore, several sharp disagreements remained, particularly regarding the future of Germany. The USSR also tried to improve its relations with the socialist camp. In 1955, Khrushchev and his prime minister Nikolai Bulganin visited Belgrade and made peace with Josip Broz Tito. There was also an attempt to improve strained relations with the Eastern European countries by giving them more leeway to follow their own policies (Ulam, 1968, p. 548).⁵⁰ The idea was to create something more akin to the “socialist community” of countries that Lenin and Kautsky had envisaged, rather than the subjugated bloc that Stalin had created (Deutscher, 1974). Finally, in 1954 Khrushchev also visited Beijing to improve relations with Mao. The Korean War was now over, and the new Soviet leadership was ready to renew and boost Stalin’s aid programmes and give full support to China’s industrialisation through its first five-year plan (1953-58). Though Soviet and COMECON allies’ aid to China is today underrated, contemporaries had no doubt at the time that China’s first five-year plan was giving impressive results and that the role of socialist aid was key to reaching them.⁵¹ As a 1955 CIA report concluded,

“Without Soviet equipment and technical aid, the progress which has been made under the First Five-Year Plan, would have been impossible” (CIA, 1955, p. 67).

Finally, the post-Stalinist leaders radically changed their policy towards the emerging Third World: indifference or hostility gave way to friendliness, collaboration and support. To overcome political and economic isolation, they tried to improve relations and establish new friendships wherever they could, from India to Paraguay. In coordination with their communist allies, they oiled their overtures with offers of development aid, under the same conditions as their earlier aid to socialist countries: technical and scientific

50 The situation in the region was so bad that three months after Stalin’s death a rebellion broke out in Eastern Germany. The new Soviet troika in power violently repressed it. The episode accelerated a more lenient approach in the other “popular democracies”.

51 Politics is behind such understatement: from Mao onwards, Chinese accounts naturally damp the contribution of a former ally turned foe, while most Western accounts pretend that China started from zero (or below zero) when market reforms began in 1978. For a traditional account of the USSR as “stingy” with China, see Ulam (1968). For new Russian accounts see Romanova (2018), Aleksandrova (2013) and Miasnikov (2009).

cooperation combined with long-term “deferred barter” concessional loans, also aimed at fostering trade. The COMECON donors, and China, had their own interests to defend and did not just follow orders, as the concept of the Soviet bloc implied (Lorenzini, 2014; US State Department, 1958, p. 6). The Soviet-led programme, which started in 1954, expanded rapidly to reach committed loans of around $1.6 billion by 1957, covering 16 countries, mainly in Asia, but also in Europe, (North) Africa and Latin America (Berliner, 1958, p. 57). This new friendly stance toward the developing world was reinforced with a new policy of engagement towards the UN, which, as its membership grew, was becoming less attached to the United States and closer to the cause of the Third World (Rubinstein, 1964).

Soviet-led development aid could not match that supplied by the United States, let alone that of the Western world. Yet the US establishment was taken off guard by what it soon labelled the Sino-Soviet economic offensive in the less developed countries (Berliner, 1958; US State Department, 1958).

It was concerned about two aspects of the economics of Soviet aid. The first was its rapid rate of growth. By 1956, only two years into the programme, Soviet aid to those 16 countries amounted to one third of the US aid that year to the same countries and in 1957, it had risen to two thirds, an impressive achievement (Berliner, 1958, p. 59). The second factor was the perception that Soviet aid had a number of economic advantages. Although it came in the form of loans, while US development aid was given to a large extent as grants, Soviet interest rates were below those offered by both the WB and the Export-Import Bank of the United States (EXIMbank), the agency that up to 1957 handed out US aid loans. Furthermore, the barter component could be a real advantage. Developing countries often had difficulties in generating foreign exchange. They complained that their exports (mostly commodities) suffered from low and widely fluctuating prices and had limited access to the markets of developed countries. As the USSR was usually happy to get almost any type of domestic goods as loan payments, the savings in terms of hard currency were often considerable. Finally, Soviet aid, unhindered by rules governing private intellectual property, often carried real and generous transfers of technology (see Chapter 8). At a more general level, many in the US feared that Khrushchev might be right after all: that however repellent they were to western values, communist authoritarian regimes had advantages over liberal ones in harnessing economies and generating growth. The Soviet economic offensive looked impressive.