As the global economic crisis transitions from free-fall to finger-pointing, a chorus of pundits and commentators are placing the blame for our current woes on American fiscal policy during the 1980s. In the frantic search for a smoking gun, some have pointed to Reaganomics and its open support for free markets and deregulation as the seed that blossomed into catastrophe. In reality, Reagan should be remembered as more than the man who asked Gorbachev to tear down a wall. His aggressively anti-communist policies ended the Cold War and in so doing paved the way for global trade and economic growth.
Prior to the collapse of the Soviet Union, the emergence of a world economy had been stifled at every turn by the failed policies of the communist state. Trade was alternately stifled and distorted by a regime that sought strategic advantage over the well-being of its vast population. Throughout the presidencies of Nixon, Ford and Carter, the policy of acquiescence to the realities of communism and socialism was the norm. Poised to change that policy -- indeed to rewrite how America did business politically and economically -- was Reagan, a seemingly inexperienced leader who shrewdly manipulated Soviet economic weaknesses to win the Cold War and open new markets to the world.
Reagan took a multi-faceted approach to confronting global communism. Perhaps the most inspired component of his policy was his effort to smother the Soviet economy through constant pressure. He offered financial aid to groups which opposed totalitarianism; cut the price of oil – the major source of hard currency for Moscow -- by stabilizing the dollar; limited the Soviets' access to emerging technologies and undertook a strategic arms buildup that stressed the already-feeble Soviet economy.
Of all these approaches -- and perhaps that which ultimately sounded the death knell for the Soviet Union -- was Reagan's plan to increase arms production and undertake the Strategic Defense Initiative. To counter the U.S. buildup, the Soviets would have to spend an exorbitant amount of money they simply didn't have. Mr. Gorbachev was helpless to do anything but bargain. He was politically and economically bankrupt.
In hindsight, it seems obvious the Soviet Union was teetering on the brink of economic collapse. But most expert opinion at the time was very different, as prominent economists and pundits proclaimed the communist state as strong as ever. John Kenneth Galbraith declared the Soviet system "a success" in 1984, while Arthur Schlesinger, Jr. argued that anyone who thought the USSR was on the verge of collapse was "only kidding themselves."
Yet, it was Reagan's view that the Soviet system, while ghastly and inhuman, was also inherently ridiculous. The system of rigid, bureaucratic -- if not counter-intuitive -- control of production and consumption was doomed to failure. And the president's philosophy on the matter guided his policies. With enough pressure exerted in the right places, Reagan reasoned, the Soviet Union would collapse all by itself. And at the heart of that collapse would be the failed policies and mismanagement of an ultimately unsustainable economic system.
When the wall finally fell in 1989, a new world economy was born; free, open and ready to do business.
While the transitions from communist economics to free markets were not smooth, almost all once-Soviet-dominated nations ultimately made it. And not only former-communist countries benefitted. India and numerous countries in Africa and Latin America opened up their economies. China continued its headlong growth and its ostensibly communist government lost any resemblance to its massively-murderous ideological past.
In the end, Reagan can be recognized for the profoundly positive aspect of our global economy: its truly broad inclusive nature. His bold policies precipitated the fall of the Soviet Union and opened the door for trade and commerce across borders that had been closed for generations. It's true that Reagan demanded the destruction of a wall. It's also true that he helped construct something greater -- the global economic prosperity we have enjoyed ever since. Never before have so many people in so many parts of the world advanced so quickly economically. Recent setbacks to this far-reaching expansion of prosperity and human happiness are only a detour -- a temporary one -- to what Ronald Reagan wrought.
Steve Forbes is chairman and CEO of Forbes Inc. and editor in chief of Forbes magazine. He is a trustee of the Reagan Foundation.
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