I first met Kosygin in the summer of 1971 after a Dartmouth meeting in Kiev. It was my first visit to Moscow since my memorable encounter with Khrushchev. I found the Soviet capital had changed markedly in those intervening years.
Kosygin’s emphasis on producing goods for the consumer sector had resulted in more cars on the streets and a greater availability of clothing and other items. There were massive road construction projects everywhere, and the Moscow subway system was a marvel—modern, clean, comfortable, and cheap. Moscow itself was relatively clean and litter free, and hippies and long hair were largely absent. Western fashions were making an impact. I observed that “skirts are about four inches above the knees, though what is exposed often leaves something to be desired!”
I was part of the Dartmouth delegation that paid a courtesy call on Kosygin in his Kremlin office. We spent most of our time talking about trade, and Kosygin urged our group to work “to remove the obstacles” in the United States that hindered trade with the USSR. It was clear the Soviets were anxious to expand commercial relations. Our second meeting coincided with the opening of the Chase office in May 1973. Kosygin was pleased with this development and seemed optimistic that the “obstacles” preventing increased U.S.-Soviet trade would now be eliminated. He focused on the large gas field explorations in Siberia, at one point brandishing a pointer and locating strategic deposits on a wall map. “On the economic side,” he said, “we are ready to proceed, but we do not know how far the United States will go.”
By 1974, Kosygin’s concerns had shifted dramatically. This was by far our most technical and economically oriented dialogue. He expressed deep concern about the OPEC oil price increases and the impact they were having on the U.S. dollar, and European and Japanese balance of payments. He was eager to hear my analysis of the consequences of these developments. We discussed the relative merits of alternative energy sources such as coal and atomic power.
Kosygin said he was convinced that Western nations would have trouble reducing their energy consumption and that effective solutions would take years to implement. The Premier suggested that increased atomic power production would ultimately drive down the cost of oil. He then asked if Chase would help finance the construction of nuclear power plants in Russia, to be jointly owned by the United States and the USSR. I was astonished by his revolutionary proposal because it indicated how important both U.S. investment and technology were to the Soviets and how far they were willing to go to secure both. Although he promised to send me a proposal on this unique idea, I never heard from him again on it.
Kosygin concluded our meeting by saying that those “who are endeavoring to block the new relationship between the United States and the USSR would be proven wrong by history,” and the “leadership in the Soviet Union had faith in the leadership of the United States, and they were unanimous in their desire to seek new ways of continuing this new relationship between the two countries.”
UNCONVERTIBLE CURRENCY
In each of the first three meetings Kosygin had been upbeat and expansive, eager to suggest potential areas of cooperation and ways in which joint ventures could be pursued. Our April 1975 encounter followed a different direction. In the wake of the Jackson-Vanik Amendment and Brezhnev’s bitter denunciation of the American failure to grant MFN to the USSR, Kosygin displayed a confrontational style I had not seen before. Using rhetoric eerily reminiscent of Khrushchev’s, he extolled the superiority of the Soviet economy and his country’s growing influence in world economic affairs.
I challenged him by asking, “If the Soviet Union is truly to become a world economic power, it must be a major factor in world trade. How is that possible if you do not have a convertible currency, one that is accepted everywhere in the world?” In fact, I noted, the ruble was not accepted anywhere outside the Soviet bloc. I said I realized that to make the ruble convertible would create other complications for the USSR “because your ideology requires that you severely restrict the movement of people, goods, and currency. How do you reconcile these two realities?”
He looked at me for a second, rather nonplussed, then gave a confused, not particularly relevant response. He clearly had never given serious thought to the practical implications of a convertible currency.
About a week later I was lunching at a restaurant in Amsterdam when Fritz Leutwiler, governor of the Swiss National Bank, saw me and strode across the room. Leutwiler said he had just come from Moscow. He said that after my visit Kosygin had learned he was in Moscow and summoned him to his office. Kosygin was concerned about what I had said, and they had spent two hours discussing the implications of convertibility for Russia.
For the Soviets there was no satisfactory answer to the question I had posed. It precisely defined their dilemma: They could not become an international economic power without a fully convertible currency, but that was impossible as long as they adhered to Marxist dogma and maintained a repressive authoritarian society.
EPILOGUE
In December 1987, Mikhail Gorbachev, the energetic and able general secretary of the Soviet Communist Party, came to Washington for his third summit meeting with President Ronald Reagan to sign the Intermediate-Range Nuclear Forces Treaty with the United States. While this was an enormously important event in relation to disarmament, most people, including myself, were equally interested in Gorbachev’s proposals for reform of the Soviet domestic economy and political order.
Through perestroika, which could be loosely translated into English as “restructuring,” and glasnost, or “openness,” Gorbachev proposed to renew and revitalize Soviet society by granting genuine legal and political freedoms. Lost in the American acclaim for Gorbachev and his proposals was the fact that he remained strongly committed to the essentials of a centralized Communist economy. He might be a “Socialist reformer,” but he still rejected “bourgeois capitalism” and the market economy.
Peggy and I were invited to several of the official ceremonies connected with his visit, including the formal welcoming of Gorbachev and his wife, Raisa, to the White House and the state dinner that same evening. Gorbachev impressed us with his charm and easy manner, so different from the stiff and distant demeanor of the other Soviet leaders I had met.
Two days later I attended a formal reception at the Soviet embassy. Ambassador Yuri Dubinin had invited a number of American financial and business leaders to meet Gorbachev, who spoke at some length about the changes that he planned to introduce, including freer trade and broader contacts with the capitalist world. He then opened the floor to questions.
Gorbachev pointed to me, and I reprised the question I had asked Kosygin a dozen years earlier. I told him I was pleased to hear that the Soviet economy would be opening up, but I wondered what the implications of this policy would be for the ruble. How could he expect to play a major role in international markets if his currency was not accepted in satisfying commercial transactions outside the USSR? On the other hand, could the ruble become an international currency without removing restrictions on the free movement of people and goods across international borders?
Gorbachev responded quickly. “We are studying this issue and will be making some important decisions before long.” And that was the extent of his answer.
Ultimately, while Gorbachev recognized the difficulty of operating a centrally planned economy within the context of a dynamic global market system, he never produced a workable solution to the inherent contradictions the Soviets faced. In the end, despite introducing important political reforms, Gorbachev failed in his effort to shore up a dying economic order. Within four years he fell from power and with him went the last vestiges of the Marxist ideology that had sustained his country’s totalitarian system for most of the twentieth century.
*I remember one occasion on which I was the object of LBJ’s irritation. I had made a speech in Chicago critical of his economic policies and a week or so later attended a meeting in the White House along with a number of union leaders. I had to leave
early, and as I attempted to depart quietly, Johnson called out, “David, I didn’t appreciate what you said about me in Chicago last week.”
CHAPTER 18
PENETRATING THE BAMBOO CURTAIN
Late in the evening of June 29, 1973, barely a month after the opening of Chase’s Moscow office, Peggy and I sat in the Great Hall of the People in Beijing talking with Premier Zhou Enlai, a man second in rank and power only to Mao Zedong.
This was my first trip to China, and it was a historic one, as I was the first American banker to visit the People’s Republic of China (PRC). That afternoon I had signed an agreement that made Chase the first U.S. correspondent bank of the Bank of China since the Communist takeover twenty-five years earlier.
In 1973 a trip to China could be viewed as quixotic, given the Communist antipathy to what the Chase and I represented. The Chinese remained implacably hostile to capitalism, and their xenophobia knew no bounds. The country was still in the brutal grip of the Great Proletarian Cultural Revolution, and Mao Zedong’s enigmatic leadership style made it impossible to judge whether the radicals headed by Mao’s wife, Jiang Qing, or the moderate reformers, who were being quietly sustained by the cautious Zhou, would prevail.
I could only speculate on their motives for agreeing to invite me. One possibility was that in the wake of Nixon’s visit Mao and Zhou were seeking ways to broaden the range of contacts with the United States. A remark I had made in 1970 in Singapore, during a tour of Chase’s Southeast Asian branches, may also have played a role. At a press conference I was asked about the Nixon administration’s decision to relax restrictions on trade with the PRC. I said that it was a “logical and good step toward seeking some sort of contact.” In fact, I noted it was unrealistic for the United States “to act as if a country of 800 million people did not exist.” While my statement attracted only a modest amount of attention in the United States, I have a feeling that the Chinese leadership took note of it.
Admittedly, when I made those remarks, I imagined it would take years even to begin the process of restoring relations with the PRC, so deep was the enmity between our two nations. Thus, I was surprised and encouraged when Nixon linked the process of détente with the Soviet Union to an equally powerful initiative directed at promoting rapprochement with the PRC. Nixon’s visit to Beijing in February 1972, followed a few months later by his Moscow summit with Brezhnev, shattered the Cold War stalemate that had controlled international relations for a generation and transformed the global balance of power.
I saw Nixon’s China initiative as a potential business opportunity for Chase, similar to the ones we had pursued and recently secured in the Soviet Union and other Communist bloc countries of Eastern Europe. In addition, I hoped it would provide me with an opportunity to renew my connections with a country in which my family had had an important interest for many years prior to the Communist revolution.
THE ROCKEFELLERS IN CHINA
Grandfather, like many entrepreneurs of his generation, had been eager to tap the potential of the “China market.” “Oil for the lamps of China” was one of Standard Oil’s first advertising slogans, reflecting the enormous demand for kerosene that developed throughout that vast country during the last years of the nineteenth century. In fact, by the mid-1920s, Socony-Vacuum (one of Standard Oil’s successor companies) had established a comprehensive marketing network that stretched from the Great Wall in the north to Hainan Island in the south.
China also had been a focus of my family’s charitable giving ever since Grandfather contributed a few pennies from his first paychecks to well-established Baptist missionaries working there. By the second decade of the twentieth century, this early and primarily religious interest had been replaced by larger philanthropic disbursements, both from my father directly and from Rockefeller-related foundations, to a broad array of projects ranging from comprehensive economic development efforts in the Yangtze Valley to the restoration of the Ming Tombs near Nanjing, public health and medical education, and even an effort to reform the Chinese Customs Service.
In terms of enduring impact, however, the Rockefeller Foundation’s support for the Peking Union Medical College (PUMC) was the most notable. Beginning in 1915, the foundation officers created a first-class research institute focusing on parasitology, communicable diseases, and nutritional deficiencies, problems endemic to China at the time. The PUMC also trained a generation of physicians and nurses who played an important role in developing China’s public health system between the two world wars.
My parents traveled to Beijing in the summer of 1921—the only time they visited Asia—to participate in the formal opening of the PUMC. More than seventy-five years later I vividly recall having missed them very much during their three-month absence in Japan, Korea, and China. It was a consequential trip for both of them; their interest in Asian art deepened, and they became collectors of ceramics, textiles, prints, paintings, and sculpture from all three of the cultures they encountered. More important, Father was persuaded that while American philanthropy had an important role to play in the modernization of China, traditional American missionary work had become outmoded and irrelevant to the needs of the country. The lessons drawn by each of my parents had not only an enduring impact on them but also on the lives of my brothers and me.
THE NEW CHINA
During the half-century separating my parents’ trip and my own journey, China had experienced a long period of internal disorder, a devastating war with Japan, and finally a civil war that drove Chiang Kai-shek’s Guomindang government from the mainland to the island fortress of Taiwan. Mao’s victory in 1949 began an era when the Communist Party attempted to obliterate all traces of Western influence. The PRC closed Christian missions and forcibly suppressed the practice of all religious faiths, abolished private property, expropriated the assets of foreign corporations and banks, expelled representatives of Western foundations and other charitable organizations, and stripped the educational system of its Western faculty and purged its “corrupt” curriculum. In a small but telling example of this antiforeign fervor, in the mid-1960s PUMC’s name was changed to the Anti-Imperialist Medical College.
Mao and his compatriots sought to build a “new China” through Leninist means adapted to Chinese circumstances. Modernization would be achieved through the restoration of national unity and the creation of a powerful centralized government. The power of the state would then be used to communalize agriculture and stimulate rapid industrialization. Mao initially pursued these goals by turning to the Soviet Union for assistance. Thousands of Soviet advisors helped China’s new leaders create a Staliniststyle command economy and plunge China into an era of extreme isolation.
From the start the United States refused to accept the new regime in Beijing and continued to recognize Chiang Kai-shek as the legitimate ruler of all of China. With the outbreak of the Korean War in 1950 we interposed the U.S. Navy in the Taiwan Straits, supplied billions of dollars in foreign aid, and supported Chiang’s retention of China’s seat as a permanent member of the U.N.’s Security Council.
The PRC, for its part, supported revolutionary movements in Asia and Africa that fought for independence from European colonial powers; when combined with their passionate commitment to Marxist-Leninist ideology, this brought our two nations into direct conflict, especially across the western arc of the Pacific Rim from Korea in the north to Indonesia in the south and, most tragically, in Vietnam.
The United States and the PRC viewed each other as eternal enemies. Each government had implemented political, economic, and military strategies designed to weaken and ultimately defeat the other. Of course, by the early 1970s, neither government had achieved this objective, and many people, including me, thought the time had come to try something new. Thus, Nixon’s willingness to explore a new strategy with the leadership of the PRC had set the stage for a dramatic new chapter in East Asia.
CHASE’S RETURN TO ASIA
At an earlier point in its histo
ry, Chase had been an active participant in China’s export trade. During the decade following World War I, the Equitable Trust Company had opened branches in Shanghai, Tientsin, and Hong Kong, all of which specialized in trading silver bullion. After the 1930 merger Chase became known as “Dahtong Yinhang,” roughly translated as “the silver bank doing business all over the world.” Our branches prospered during the uncertain years of the 1930s and up to the time the Japanese closed them after Pearl Harbor. We reopened the branches in 1945, but with Chiang’s defeat, we again terminated our business on the mainland—or, more accurately, it was terminated for us in 1950 when the PRC nationalized our branches and interned our employees.
Chase’s fortunes in Hong Kong also took a decided turn for the worse the following year. When the People’s Liberation Army intervened in the Korean War by crossing the Yalu River and driving General Douglas MacArthur’s forces back down the peninsula, most American government and military officials felt this was the opening of a broader Communist Chinese offensive and that Mao had set his sights on Hong Kong, Taiwan, and the rest of Southeast Asia. Winthrop Aldrich agreed with this view and abruptly closed our Hong Kong operations. His decision was a significant mistake since other foreign banks decided to await developments and did not follow our lead. When the PRC failed to move against the Crown Colony, our Hong Kong clients felt we had abandoned them.
To give Winthrop credit, however, he had shown foresight in persuading the Defense Department in 1947 to allow Chase to open military banking facilities in Occupied Japan. With the growing American military presence in the region after the outbreak of the Korean War and the signing of the United States–Japan Security Treaty, these facilities flourished, and a few years later the Japanese government permitted us to add full commercial branches in Tokyo and Osaka.
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