To speak of the future of U.S.-Russian relations without consideration of the present domestic situation in both countries is a little like discussing the business prospects of two firms when it is uncertain that both will survive to do business together. This is not to suggest that there is any danger that either Russia or the United States will disappear in the near future, but only that both countries are now constrained by serious domestic challenges that will inevitably have a bearing, perhaps a decisive one, on their performance on the international scene. These domestic factors in each of our countries must be kept in mind as we ponder the future of the relationship.

The domestic problems faced by Russia and the United States are in no way comparable, either by their nature or by their gravity. Russia is currently facing no less than a possible breakdown of its state structure. The United States is led by a president whose personal behavior placed his presidency in jeopardy, although the country's economy and system of government are strong and resilient. The main effect of the current turbulence in Washington is to constrain major new initiatives that are controversial. Although President Clinton has escaped impeachment and conviction, he can now be regarded as a lame duck. Although the president is capable of reacting to direct threats to the security of the United States or its citizens-a policy with popular and congressional support-the possibility that he could mobilize significant additional resources to support Russia's transition to a market economy is exceedingly slim. Prudence would dictate an assumption that, absent direct security threats, U.S. policy changes over the next two years will be confined to details and nuances, and that the administration will be inhibited in undertaking any fundamental policy innovations. Major policy changes, however, could become realistic possibilities from 2001, and our analysis should look far enough ahead to take that into account.

So far as Russia is concerned, the new government's reaction to the current financial and economic crisis will be crucial in determining whether the state structure now in place survives. This is not the place to debate who, if anyone, might be responsible for the current disarray, but it is important to recognize where the trouble lies. In my opinion, many commentators, both in Russia and abroad, miss the fundamentals in their zeal to identify culprits and heroes. What is important to understand is that neither democracy nor a free market economy has failed in Russia because neither has been tried. Elections and a press not controlled by the government or a single political party may be essential for democracy, but they are insufficient unless they operate in a civil society with a reasonably efficient government of limited powers. Similarly, while private property is essential both for a market economy and for democracy, neither is served by monopolistic or oligarchic control of productive resources. A democratic society must keep its tax rates and methods of collection in line with what the population as a whole considers reasonable and fair, and at levels that permit honest taxpayers to engage in profitable enterprise. Additionally, and over the long run, it must keep its expenditures in balance with its receipts, with shortfalls bridged by borrowing, the magnitude of which does not exceed a modest portion of the country's productive capacity. Pyramid schemes never work, whether they are sponsored by finance ministries or con men.

Simply stating these principles highlights how far Russia still must travel to have a healthy, stable, and prosperous economy. But unless Russia moves in that direction, relations with the United States will be limited at best and very likely increasingly troubled. This will not be because of anything the United States does, but because demagogues will attempt to blame Russia's woes on foreign countries, most notably the United States, and their irresponsible claims are bound to poison the atmosphere in many ways. With presidential elections coming up in the Year 2000, the temptation for chauvinistic posturing will exist in both countries, but particularly in Russia.

Many of the suggestions one hears for dealing with the current situation (printing money to pay salaries in arrears, bailing out the failing banks, re-nationalizing enterprises, price controls, limits on imports and capital flows) risk making the situation worse. Some of these things will probably happen, but the crucial question will be whether they are temporary and limited, and also whether whatever respite they may buy is used to carry through radical reform of the tax and budgetary system and to establish a pattern of bankruptcy for enterprises that are not viable. The way must be cleared for profitable investment in productive assets and blocked for those who use insider deals and political influence to pile up unearned fortunes.

If Russia is to come out of its current difficulties without further collapse of its economic structure, it must attract massive investment flows, both from its own citizens who now hold their capital abroad or in their mattresses, and from foreigners. This will not be easy, given what has happened, but in view of Russia's enormous potential it is not an impossible goal. To reach it, however, the Russian government must rebuff attempts by the insiders responsible for the current crisis to exclude direct foreign competition by appeals to national chauvinism. Russian industry and banking, in particular, need the competition of responsible foreign firms to force them to operate openly, honestly, and efficiently. The Russian government desperately needs the revenue from the taxes and royalties the foreign firms would pay. But the investment will not occur unless taxes and regulations are fair and property owners are protected from arbitrary mistreatment by the bureaucracy.

The most serious challenge facing those responsible for managing U.S.-Russian relations over the next few years will be to keep the relationship focused on those broad areas where U.S. and Russian interests coincide or at least run parallel, and to prevent disputes over secondary issues, tactics, or a misreading of intentions from dominating our public discourse. Differences of opinion are inevitable; the challenge will be to prevent them from overshadowing the fundamental compatibility of long-term U.S. and Russian interests.

There is no question that the integration of Russia into the world economy and the creation of a stable, prosperous society is in the interest of the United States and, in fact, of the entire world. For Russia, this goal is not merely an interest; it is a vital necessity if the current Russian state is to survive. Whether this desirable goal can be reached depends entirely on Russia itself; no matter how supportive the rest of the world may be, outsiders cannot bring about the changes Russia requires. The first requirement of a mature, rational, productive U.S.-Russian relationship is recognition of this basic fact. Russia's future is not in the hands of foreign governments, international organizations such as the IMF, or of some potential aggressor from abroad. The United States can neither save Russia nor keep it weak if it saves itself. But all will benefit if the Russian polity can aim its country's economic and political trajectory on the goals of stability, economic growth, and an improving quality of life for its citizens. Reverting to structures, policies, and habits of the past-which failed to achieve any of these goals-will inevitably bring further damage to the Russian state and will undermine its ability to play a full and constructive role in world affairs.

It would be equally illusory to think that Russian reform depends on the influx of public funds (whether from individual countries or from international organizations) from abroad. While Russia needs investment desperately, most will have to come from the private sector. The willingness of the private sector to invest depends on Russian policies and Russian conditions, not on political decisions by foreign governments.

No one can predict with confidence that the new Russian government will be able to cope adequately with the enormous challenges it faces. If its response is wrong or inadequate, we face the prospect of an unpredictable world in which the weakness of the Russian state will present a major security problem not only for Russia's immediate neighbors but also for the world at large. The implications of such an unfortunate development are too large and varied to be examined in the confines of a brief paper. Therefore, the discussion of the concrete issues that follows is based on the presumption that, within the next two to three years, Russia will successfully revive its course to a free enterprise economy and a government of limited but effective power.

The principal challenge to both governments will be to recognize that basic U.S. and Russian interests are not in conflict and that both countries can benefit from a maximum of cooperation. This will require, on the U.S. side, some changes in tone and some policy adjustments. On the Russian side it will require a more precise definition of policies to promote long- and medium-term Russian interests over short-term tactical goals, and also a willingness to resist demands to oppose U.S. policies simply to prevent a "unipolar world"-which does not in fact exist and has no realistic prospect of developing.

The integration of Russia into the world economy and the acceptance of Russia into European, Pacific and, through them, global security structures will require more emphasis on inclusion rather than exclusion from the United States, and more emphasis on cooperation rather than confrontation and exceptionalism on the Russian side. The most difficult issue in the security area will be developing greater NATO-Russia cooperation in the face of further NATO enlargement, should the latter (unfortunately) occur.

Full cooperation in security of nuclear materials and expertise in both countries will require more transparency and cooperation on both sides. Russia must permit more direct assistance from the United States in security procedures, and to make this politically possible, the United States must be less secretive about its own facilities.

Following the nuclear tests on the Asian subcontinent, it is imperative that both countries review their policies in a cooperative spirit and adopt an approach to nonproliferation issues that can receive the solid support of the world community as a whole. A greater effort should be made on both sides to narrow gaps in policies toward Iraq, Iran, and other potential nuclear-weapon states, and also toward dealing with the implications of nuclear testing in India and Pakistan. Furthermore, for any nonproliferation policy to be successful, the momentum of weapons reduction must be maintained. Thus, ratification of START II is of key importance, as will be a successful START III. Both countries must work to avoid delays because of extraneous issues.

A way must be found for more cooperation in dealing with the complex of issues, some interrelated, some not, in the Middle East and in the Balkans. This could be facilitated by some change of U.S. rhetoric (if not necessarily actual policy) regarding Iraq, Iran, and the use of force in the Balkans, and also by changes in Russian approaches to the issues there. Both countries could be more active in encouraging political stability in Afghanistan (which inter alia will require pressure on Pakistan, Iran and Saudi Arabia). Russia must refrain from appearances that it is trying to increase tensions in the area (e.g., by supporting Greek Cypriots against the Turks, or defending Saddam Hussein's defiance of U.N. resolutions), while the United States must give more weight to Russian interests and perceptions as it formulates its policies in these areas.

Russia's relations with those immediate neighbors that were once part of the Soviet Union have the potential to affect U.S.-Russian relations negatively and will require careful management. Policy makers in both countries need to understand that the geopolitical stereotypes of the past are not relevant today. There is, for example, no reason for what could only be a farcical imitation of the so-called "Great Game" played out in the 19th century for imperial conquest and dominance. The time that empires were viable has passed, and "hegemony" in the classical sense brings neither economic nor political benefit.

Russia's relations with its neighbors will depend on mutual benefit, not the exercise of some droit de seigneur derived from former imperial relations. The United States has an interest in open economies and in friendly bilateral relations with all countries. Russian policy makers must understand that promoting investment in areas that were once in the Soviet Union is not a bid for dominance, and that Russia itself can benefit from revived and expanding economies along its borders. For its part, the United States must pay greater attention to the impression some of its actions can leave. It is unwise, for example, to conduct military exercises under the NATO Partnership for Peace, which could be interpreted as directed against Russia. The United States must also recognize that it is legitimate for Russia to take an interest in the security situation near its borders, just as the United States does in areas close to its territory. Both countries must cultivate the habit of living by the same rules: direct military intervention in the affairs of other countries should either have international sanction (as the United States did in Haiti and Russia does in Tajikistan), or else be a measured and appropriate response to a demonstrable threat (such as strikes against terrorist bases). Military support for breakaway regimes in other countries, as has occurred with or without official sanction in Moldova and Georgia, creates problems for Russia, not increased influence, just as earlier U.S. practices in the Caribbean and Latin America damaged U.S. interests in the area and created domestic political problems.

The issues that require management (and there are many not mentioned above) constitute opportunities as well as real or potential problems. In addition, there is a broad array of issues, most transnational, that provide an opportunity for mutually beneficial cooperation. They include environmental protection, action against international organized crime, combating drug trafficking, and a whole range of issues relating to health and quality of life. All these are areas where long-term interests are virtually identical; some can be ameliorated only by cooperation. But Russia's role has been limited by its economic (and to a lesser degree) political disarray; the U.S. role has also not been what it should be because of political complications at home, including a pervasive distrust of multilateral approaches in the legislative branch of government.

Transnational issues may well turn out to be the dominant ones of the 21^st century, rather than the sort of security issues that dominated the 20th century. The threat of foreign invasion and foreign domination is much less likely to be a source of insecurity in the next century than that of hunger, disease, poverty, crime, terrorism, and environmental degradation. The sooner our governments organize themselves to deal with these issues, the more adequately they will be able to meet the challenges of the future.

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