Michael de Groot, assistant professor of foreign relations of the Russian Federation in the Hamilton Lugar School’s Department of International Studies, is writing a history of the end of the Cold War. Or, rather, he is rewriting the history of the end of the Cold War.
His current book project, which is built on the foundation of his dissertation, draws upon source material from eight countries and five languages. By examining Soviet and Eastern Bloc primary sources from the 1970s, which only in recent years have become available to scholars, De Groot—a newcomer to HLS—is able to tell the story of how economic shocks of the decade strained the relationship between the Eastern Bloc and Moscow. These shocks led to unmanageable debt, harsh austerity measures, reliance on the West, popular uprisings, and economic liberalization.
Central to De Groot’s argument is that the Cold War was a competition over which method of organizing a nation’s political economy—capitalism or communism—would provide its citizens with the highest standard of living. As De Groot says, “If socialism could not create a standard of living that was higher than that in the West, then there was no justification for why socialism should exist.”
It was the Soviets themselves, De Groot says, who set this bar. During The Kitchen Debate between Richard Nixon and Nikita Khrushchev in 1959, Khrushchev claimed that the Soviets would “speed past” the typical American’s standard of living. In the late 1960s, Walter Ulbricht, the First Secretary of East Germany, believed that “East Germany would be selling computers to the West” within a decade.
Both of these claims turned out to be wrong. De Groot says, “The 1970s is…this point where people are realizing that that promise [of consumerist abundance in a socialist country] is not becoming fulfilled, which is one reason why I find it so fascinating.”
Other scholars point to individual policymakers or long-term structural problems within the Soviet Union for the decline of the socialist bloc. De Groot, informed by primary sources, has a different approach. He sets himself apart by arguing that the process of globalization—and the shocks that occurred within that process—were central to socialism’s decline in Eastern Europe.
The first shock was the oil crisis of 1973. Traditionally, scholars have thought the oil crisis aided the USSR because the country was so oil rich that it was insulated from the spike in oil prices caused by OPEC. In fact, some point out that the USSR was able to enrich itself by selling oil outside its borders at a high market price, leading to wealth that they could use for military spending and the purchase of goods on the world market. But De Groot, after reading sources central to Soviet and Eastern Bloc economic planning, discovered something different. He found that the USSR and its allies weren’t talking about oil surpluses; they were talking about energy shortages. De Groot found this strange. “I was sort of puzzled when I got into the Russian, East German, and Bulgarian archives: how can they be talking about energy shortages? Isn’t the Soviet Union the largest oil producer on the planet by 1975?”
Energy shortages were so central to discussions because the USSR, while it was rich in oil, faced three problems. First, much of the oil was in Siberia, where it was difficult to get out of the ground. Second, the oil was difficult to transport long distances, particularly in the brutal cold, without special technology. And third, the USSR experienced poor harvests, leading to food shortages that had to be made up for by purchasing grain from abroad. Despite these problems, Eastern Bloc countries wanted Soviet oil for a price below the market rate. So the Soviets faced a choice: they could sell oil to Eastern Europe for a discounted price, thereby aiding their allies, or they could raise the price of their oil so that they could make up for food shortages as well as purchase energy equipment from the West.
This conundrum gets at the heart of one of De Groot’s concerns: “One of the long-term trends that I’m trying to show is that the Soviet Union operated as what I’m calling a welfare empire—that is, it accepted disadvantages economically at certain points, whether it’s giving the Eastern Europeans oil energy at cheaper prices [or] serving as a lender of last resort in case they ran into problems,” De Groot says. In the case of energy shortages, would the USSR serve primarily as a “welfare empire,” or would it enrich itself to make up for food shortages and the need for modern technology?
Ultimately, the USSR decided to raise the price of their oil for their allies and sell significant amounts of oil to the West at the high market rate. The result was a disaster for the Eastern Bloc countries. They couldn’t get enough energy from the USSR, so they had to pay exorbitant prices for oil on the world market. The only way to purchase this oil was by borrowing vast sums of money.
To De Groot, this need for oil masked a deeper problem: Eastern Bloc countries’ economies were based on energy-guzzling industries. Their inability to shift to less energy-intensive activities made them vulnerable and weak. De Groot says, “The big problem was [Eastern Europeans] could not shift from extensive growth—putting more resources, throwing more manpower into heavy industry—versus intensive growth, which is learning how to use those resources better, being able to make the turn to the computer age.” The failure to turn to a more modern economy, which required less energy, turned out to be devastating for the Eastern Bloc. They were never able to fully satisfy their energy needs, and their economies suffered.
The second shock De Groot analyzes is the birth of global financial markets and the shift, in the 1980s, of the United States toward becoming a debtor nation that was selling its debt on the global market at extremely high interest rates. The rise of Euromarkets in the 1970s—exchanges where speculators could buy and sell currency—made it easier for major financial players to pour money into currencies in which they thought they could make a profit. During the 1980s, Paul Volcker, the Chairman of the US Federal Reserve, used high interest rates and fiscal discipline to combat inflation. These high interest rates attracted foreign investors, who could turn a significant profit. The US needed foreign investment to finance its debt, which was growing due to high military spending and lower taxes.
In this light, De Groot seeks to correct the record on the legacy of Ronald Reagan. “It’s amazing the way Reagan is remember as this very small government kind of guy because he’s spending a lot of money. And the only way the US can support that spending is to get money from abroad.” High interest rates were crucial to attracting this foreign capital.
This situation affected the Eastern Bloc because investors who had previously been putting their capital in Eastern Bloc countries now saw a better deal in the United States, and they decided to invest in the US instead. Investment for the Eastern Bloc dried up. In this climate, De Groot says, “Poland has basically gone bankrupt, Romania is not far behind, [and] everybody else has these very, very large accumulated debts, and it doesn’t look like they’re going to be able to pay [them] back.”
Eastern Bloc countries reacted to these debts differently. Romania drove down its debts through “draconian austerity measures,” De Groot says, ultimately leading to violent civil unrest due in significant part to the cost of basic consumer goods. East Germany accepted loans from West Germany, paving the way for unification. Others went to the International Monetary Fund, which demanded political and economic liberalization as conditions for loans. Hungary liberalized on its own, which signaled to investors, particularly in Japan and West Germany, that it was moving toward open markets and a more Western-style economy. These countries needed to liberalize, De Groot says, because under their previous economic system they were not able to provide a suitable standard of living, and without that, “the people were going to take to the streets.” These economic shocks, De Groot believes, are crucial to understanding the end of the Cold War.
This sort of historical understanding demands not just a knowledge of the USSR and Eastern Europe, but also a knowledge of the United States and Western Europe. What happens in the United States affects the rest of the world in a profound way due to its economic power and the desirability of US dollars. There is a lesson here. De Groot says, “One of the great lessons of the post-1945 period is that the United States cannot do well at home unless the international economy is functioning, and I think vice versa… The United States will not be secure and it cannot prosper without a very close relationship [to the global economy]; it can’t put up walls because the two are just too intertwined.”
De Groot became interested in the history of the Cold War as an undergraduate at Stanford University, where two classes in particular fascinated him: one on the history of nuclear weapons, and the other on US foreign policy. Inspired, he decided to pursue international history, because, as he says, “I didn’t want to just concentrate on one country; I wanted to figure out ways to integrate them.” With a global lens, he was able to study historical issues from multiple perspectives. He did so both as a student and intern at the Lawrence Livermore National Laboratory in the San Francisco Bay Area, where he was principally interested in nuclear weapons.
With that background, he thought he would study nuclear weapons when he arrived at graduate school. But, as he familiarized himself with primary source documents from the 1970s that were just becoming available, he found something interesting. He says, “What was really on policymakers’ minds both in the East and in the West was not nuclear weapons; it was economics, because both were in this malaise and didn’t really see a way out.”
He followed that trail to his dissertation and current book project, which were aided by the Hamilton Lugar School before he ever joined the faculty. For two summers, De Groot studied Russian as part of the Language Workshop, which since 1950 has been educating students and professionals through intensive summer foreign language classes. De Groot says the program “got me to a level that I needed to be” to make use of the archives in Moscow.
And now he’s teaching his own class at HLS, Russian Foreign Relations and Eastern Europe. The multi-disciplinary course starts in 1945 and, as De Groot says, “tries to look at different ways of understanding how Moscow looks at the region, both using primary source evidence as well as theory.” De Groot adds, “One of the fundamental premises of the course is that you’re not able to understand what’s going on in Moscow right now unless you have some background in how Russians have thought about foreign policy in the past.”
De Groot knows that a keen understanding of the past is necessary to make informed choices in the present, but he doesn’t view his role as pinpointing specific past policy problems or advocating for specific policies in the present. Instead, he says, “What the historian can do is …give [policymakers] a deeper understanding of the contours of problems, how these problems have come into being.” With that deeper understanding, he says, policymakers can “develop better solutions.”
A native of Castro Valley, California, De Groot was a baseball star growing up, but he gave up the sport in order to pursue academic opportunities. That journey has led him here, to the Hamilton Lugar School, where he is making a contribution to the community through research and teaching. “I really couldn’t be happier,” De Groot says of his new home here. And HLS is lucky to have him.
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