«The New Market-Oriented Russia» - Great Essay Sample

«The New Market-Oriented Russia»

Introduction

Background

There have been significant changes in Russia since the collapse of the Soviet Union. The country made a transition from the nation that seemed to be globally isolated and whose economy was planned and controlled centrally toward the economy that is market-based; and it also has global integration. However, it has stalled as a partly reformed and statist economy where the largest share of the wealth being held in official hands. The majority of the industries were privatized in the 1990s except the sectors related to energy and defense (IndexMundi, 2015). There is still massive interference from the state in private matters, and the property rights protection is still significantly weak. It is one of the global leading oil and natural gas producers, and it also exports metals (IndexMundi, 2015). However, the manufacturing sector does not compete efficiently in the global market, and most of its products are consumed domestically. The country relies heavily on the commodities export, which increases its vulnerability to the boom and bust cycles that result from price swings in the global market.

After the 2008-2009 global financial crisis, oil prices plummeted that led to a downward review in its economic growth forecast up to 2030, which currently stands at 2.5% per annum, from a prospected 4 to 4.2% (IndexMundi, 2015). After the Russian military intervened in Ukraine in 2014, the economic growth prospects of the country dropped further, with the growth in GDP expected to reduce. In a market-oriented economy, the majority of the decisions are made by business firms and private individuals, while the federal and private governments purchase the required goods and services from the private marketplace (IndexMundi, 2015). However, even with these developments, corruption is still rife. As a result, a question arises on the possibility of the new freedoms created by this latest form of government to make it easier for corruption to thrive and create great disparity between the wealthy and the poor.

Research Aim

The aim of the current research is to investigate whether the market-oriented system that Russia adopted after the collapse of the Soviet Union has promoted corruption, which is stimulating the development of income disparities between the poor and the wealthy.

Research Objectives

  1. To identify the governmental and economic system that existed in the Soviet Union and the current system in Russia
  2. To analyze the main differences in the governance system adopted by the Soviet Union and the governance system that is employed by Russia
  3. To develop a link between the successes and failures of Russia and the Soviet Union

Research Questions

  1. What governmental and economic system existed in the Soviet Union, and what is Russia’s governmental and economic system?
  2. What are the differences between the governance systems adopted by the Soviet Union and the governance system employed by Russia?
  3. What is the link between the successes and failures of Russia and the Soviet Union?

Rationale of the Study

The Soviet Union was created in order to promote the well-being of the member nations. Its development occurred during the industrialization period prior to 1940, and the post-war period between 1945 and 1960. However, the system started failing after getting to its peak in the 1970s. It is the Russians who paid a lot for their contribution in the building of the national industry foundation in the 1940s and 1950s, as well as civil freedoms during the 1990s. Russia has suffered numerous hardships, which would lead an individual to asking whether the modern Russia has benefited from its reforms. It also creates the need to identify to what extent Russia is more effective compared to the Soviet Union. One would also want to investigate what the future holds for the modern Russia. In order to answer these questions, the current study will involve the review of the existing literature with relevant information on Russia and the Soviet Union. A conclusion will be derived responding to the research queries.

Literature Review

The transition of Russia after the collapse of the Soviet Union is the event that has attracted the attention of numerous authors and researchers. Diverse issues relating to the topic have been raised, and people have attempted to answer them. One of the questions raised is whether the transition to the market economy would solve the economic problems faced by Russia. Zweynert (2010) refered to the question in a quest to review whether it was the solution to the resource problem that Russia encountered. Economists in Russia were in agreement that the transition experienced problems and that the nature of those problems was not temporary but would last longer than anticipated. Zweynert (2010) described the approach of reforms in Russia as a formless mixture of late socialist nepotism, Soviet redtapism, and Western capitalism. Matlock (2011) stated that when the Russian government outlined the plan to privatize the resources, the communist party officials and other senior individuals in the military and government joined the criminals to loot from the public. Matlock (2011) added that the system would have been successful if the privatization was done gradually. Aven (2013) stated that the privatization of resources that occurred during the transition improved the efficiency of the economy. However, he added that it also created massive inequalities that damaged the public perceptions regarding the program (Aven, 2013). David-Fox & Muse (2015) also explained the transition from the Soviet Union to the modern Russia and discussed how the transition faced problems due to the ideologies and cultural factors. 

Theory

The current study will use a theory that is based on a number of details, which will enable the visualization of a chronological approach in understanding the issue in Russia and what the system in the Soviet Union was. It will include a review of the Soviet economy, the trnsition to the market economy, recovery and growth, the current economy, and its future.

Soviet Economy

When the Soviet Union was formed from the Czarist Russia, it inherited an underdeveloped economy. Over a period of about 70 years, the Soviet Union managed to become one of the global industrial superpowers (McCauley, 2014). The government of the Soviet Union controlled virtually all the aspects of the economy. It dictated the prices and levels of wages, as well as the allocation of resources. It also made the ultimate decision on what would be produced and the manner in which the distribution of the goods would be conducted. Almost all of the nation’s resources were under the ownership of the central government. It was the responsibility of a government ministry known as Gosplan to direct the economy, and it designed the plans required for the attainment of the economic goals that the state set (McCauley, 2014). The plans that it designed were referred to as the Five-Year-Plans, and they later became the models for numerous other Communist nations. It is not until the period between 1985 and 1991 that the state began loosening the grip on economic control through the restructuring program introduced by Mikhail Gorbachev, the last leader of the Soviet Union. The program allowed the managers of individual enterprises to have more control over the decision-making. Additionally, it is between 1990 and 1991 that the government made an approval of various measures that were aimed at elimination of the massive control that the government had over the national economy (McCauley, 2014).

In the agricultural sector, the economy of the Soviet Union followed some of the goals of the revolutionaries who overthrew the czar, which was the elimination of private properties and nationalization of the sector. The nationalization of this sector took place between 1928 and 1937 through a program where the state would confiscate all agricultural produce and farmland (McCauley, 2014). It was faced with hostility from rural populations but still succeeded. The farming that took place after the success of this program was unproductive, and most of the products got wasted due to poor storage and produce management systems (McCauley, 2014). The industry sector was founded on the vast population, which provided an ample labor supply. The Soviet Union was the leading producer of oil, iron ore, and natural gas. It was also among the leading producers of lumber, gold, and coal. The planners of the Soviet Union were successful in the development of heavy industries, including building of machineries, metal works, generation of power, and chemical manufacturing (McCauley, 2014). However, there was neglect in the production of consumer goods as most of the research and development focused on the military applications. The industry faced numerous problems as the government disregarded market forces as they established the production quotas. Consequently, there were always massive shortages or great surpluses (McCauley, 2014). In addition, quality was compromised, and pollution escalated. Trading in the country, both domestic and foreign, was controlled by the government. The majority of the foreign trade was done mainly with other communist nations, especially those within Eastern Europe. The country also provided economic aid to communist nations such as Cuba, Vietnam, and Mongolia (McCauley, 2014).

Transition to the Market Economy

The transition of the Soviet Union to the market-oriented economy began after the election of Boris Yeltsin as the President of Russia in 1991. After the election, he announced that the country would proceed to engage market-oriented reforms. The president received an entire year of special powers to enable him to remake the economy of Russia (Klein, 2007). There was a sudden privatization of almost quarter million of state-owned businesses; there was also a release of price and currency controls; state subsidies were withdrawn; and trade was also liberalized. One of the problems with the transition is that the country was engaging into the free enterprise with the lack of people who possessed adequate experience in decision-making in a free market economy. Almost all the managers and employees in the Soviet Union lacked this expertise (Klein, 2007). The nation also lacked laws that would fit a free enterprise system. Although Yeltsin had promised that there would only be six months of difficulties followed by years of economic prosperity and superiority, the year after the reforms were initiated the nation faced devastating economic problems (Klein, 2007).

There was high inflation that led to the devaluation of the national currency, which in turn led to the loss of savings. In addition, the abrupt withdrawal of the subsidies meant that there would be no pay for a significant number of the Russians. Being desperate to keep control over the inflation, the government adopted austerity through the raise of interest rates and reduction in state welfare expenditure. As a result, there were political consequences as hostility increased toward Yeltsin. In 1993, Yeltsin made an announcement that disbanded the Supreme Soviet as well as the Congress of People’s Deputies. In addition, he added that he would rule by decree until the country went into the election and the referendum on a new constitution and elected a new parliament (Klein, 2007). However, the Soviet Congress responded by announcing that it had ousted Yeltsin from power alleging that he had breached the constitution. Nevertheless, Yeltsin received backing from the army and the Ministry of Interior Forces, and finally, the Supreme Soviet was dissolved in October 1993. In December 1993, elections were held, and Yeltsin won as well as the referendum for the new constitution. The president gained the power to appoint government executives, dissolve the parliament, and dismiss the Prime Minister (Klein, 2007).

Recovery and Growth

As earlier discussed, the collapse of the Soviet Union left Russia with an array of problems in the political, social, and economic sectors. The nation lacked law and order; there was no central control; corruption intensified; and the nation faced a financial crisis. The nation started its recovery and growth after Vladimir Putin became president, when the country’s share of the global GDP was as little as 1.5%. The country began reemerging on the international scene, and there was recentralization of power (Aggarwal & Govella, 2012). The country began experiencing the economic growth at an average annual rate of 6.7% between 1998, after the collapse of the ruble, and 2007, when the global financial recession started. It translated into extraordinary increases in personal incomes and consumptions as the per capita GDP grew by about 120% from 1999 to 2006 (Aggarwal & Govella, 2012). The majority of this emanated from the increase in efficiency, which resulted from the transition to private ownership of businesses and the creation of new enterprises in mobile telephony, financial services, and retail trade.

Additionally, the relationship between Russia and the European Union grew stronger as the EU began buying half of Russia’s exports and supplying about 2/5 of its imports (Aggarwal & Govella, 2012). The most notable pillar of Russia’s recovery and growth is the boom in earnings realized from the export of oil and gas as the global crude oil prices rose between the 1990s and 2000s. The country’s earnings from petroleum, gas, and refined-oil products exports increased from about USD 28 billion in 1998 to about USD 217 billion in 2007 (Oliker, Keith, Lowell, & Catherine, 2009). The country was able to build currency reserves, and it also began repaying its foreign debts. It was also able to invest massively in its military, which provided it with the leverage over its customers. The consolidation of power also enabled the execution of vital tax reforms, which improved the country’s extractive capacity and fiscal health.

Current Economy

Russia’s economy has its service sector as the largest among all sectors, and it accounts for about 58 percent of the gross domestic product. However, other sectors also contribute significantly to the economy.

Primary

The energy sector makes a significant contribution to the country’s economy. The country has minerals, oil, and gas among other natural resources. Exports of oil and gas are the main source of the nation’s foreign exchange. The country has the largest reserves of natural gas, and it is second in coal reserves. Russia is a major producer and exporter of minerals, including gold. The nation’s major exports into the USA are minerals and other raw materials. In addition, the nation is the global leading producer of diamonds (Connolly, 2015). The expected climate change may melt the ice in the Arctic region, where more natural gas and oil are expected to be found. The nation’s fishing is among the leaders in the world, following China, Japan, and the USA. The nation also has more than 1/5 of the world’s forests, and it is expected that the country does not use its forest resources to the maximum. Russia’s area covers more than three-quarters of the former Soviet Union’s territory (Connolly, 2015). Although the nation’s agricultural sector had been suffering after the collapse of the Soviet Union, it later started to improve as the sector was modernized technologically and organized. The northern region concentrates on livestock rearing, while the southern parts produce grain.

Industry

Russia is one of the leading nations in relation to industrialization. In the 2000s, the nation’s industries performed exemplarily due to the increased demand for its products, which enabled it to emerge from the crisis that had led to the collapse of the Soviet Union (Connolly, 2015). However, most of the equipment in these industries require massive modernization. The nation’s defense industry provides employment for up to 3 million individuals, which is about twenty percent of the manufacturing jobs. Russia is only second to the USA in the exportation of conventional arms. The country is popular for its production of tanks, helicopters, infantry vehicles, and MiG fighters among others (Connolly, 2015). Russia is a major player in the production of military aircrafts. It also participates in the space industry through production of space machinery. Its automotive industry also performs well as the nation is among the top 15 automotive producers in the world (Connolly, 2015).

Services

Russia’s main retail industries include banking, retail, transport, telecommunication, insurance, IT, and construction. The retail sector is significant as Russians spend most of their income on shopping. It is mainly attributed to the fact that most of them do not pay rent or house payments as they own their homes. However, the country’s banking sector lacks capability, resources as well as trust from the population. As such, most people invest their money in the sectors other than banking (Connolly, 2015). The IT and communication sectors are some of the most dynamic in Russia as the country is only behind China and India in software exportation. The country has attracted global IT companies, such as Intel, Sun Microsystems, Hewlett-Packard, and Motorola among others, which have invested in this sector.

Future

There are many possibilities for Russia in the future. However, they rely on the present events. The crisis between Russia and Ukraine will contribute significantly as the West and other European Union nations are looking at Russia’s reaction in order to stop the sanctions or intensify them. However, there is a possibility for the country that integrates with other nations peacefully and one that is not isolated like the modern Russia seems to be. However, it will be dictated by the leadership of the nation. The foreign policies adopted by the country will assist in shaping its future. However, due to the nature of the resources and industries that the country possesses, it is expected to have strong influence globally in the future.

Research Design

The current paper will make use of the latest facts and figures available about the Soviet Union and Russia. Consequently, connections will be made in order to identify both the success and failure aspects of the countries.

 

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