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Essay/Term paper: Russian reform and economics: the last quarter of the 20th century

Essay, term paper, research paper:  Economics

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Russian Reform and Economics: The Last Quarter of the 20th Century


Thesis: As the reformation of the USSR was becoming a reality, Russia's economy
was crumbling beneath it. Russia began its economic challenge of perestroika in
the 1980's. The Russian people wanted economic security and freedom, while the
government was trying to obtain democracy. The previous management styles
needed to be changed along with the way that most businesses in Russia operated.

I. Reformation of USSR
A. The change from communism to democracy.
B. The change in government has had a great effect on the Russian people
and workers.
C. The reformation left the Russian economy upside down. II. Post-Reform
economy versus Pre-Reform economy.
A. There were many steps in the reformation of the economy.
B. What are some of the effects of a reforming economy?
C. There are many changes that are still needed in order for the Russian
economy to grow. III. What will be the future of Russia's Economy?

Main Body

As the reformation of the USSR was becoming a reality, Russia's economy was
crumbling beneath it. Russia began its economic challenge of perestroika in the
1980's. The Russian people wanted economic security and freedom, while the
government was trying to obtain democracy. The previous management styles
needed to be changed along with the way that most businesses in Russia operated.
The Russian Federation consists of 17,075,400 square km, which is roughly
76.2 percent of the former USSR, and covers about 12 percent of the earth's land
surface. The Russian Federation's population in 1991 was 147.3 million (Smith,
A., 7).
During the 1980's the Russian government started a reformation process
called "perestroika," meaning restructuring (Aganbegyan, 1). Perestroika
signifies qualitative changes and transformation in the government and in the
economy. The four stages of perestroika are the "Preliminary stage (March 1985-
February 1986)," the "Stabilizing stage (March 1986 - January 1987)," the
"Expansive stage (January - November 1987)," and the "Regrouping stage (November
1987 onwards)" (Hill & Dellenbrant, 140). The government also identified two
other processes. "Glasnost," which means openness, supported the strong economic
reform (Aganbegyan, 1; Hill & Dellenbrant, 54). The acceleration of economic
reform was called "uskorenie" (Aganbegyan, 1).
Many changes took place during the years contained in each of the stages of
perestroika. This changes ranged from government policies and structure to
industrial production procedures to economic policies. The major change came in
1991 with the breakup of USSR. This freed the individual states and allowed
them to become independent countries. All of these new countries went through
radical government changes. Many of them, including Russia, chose to implement
democracy. This change from a central military based structure into democracy
effected all of the former soviet states' centralized economic departments.
The assets were owned by the people and were distributed by the state
during the communist reign in Russia. All of the resources were also
distributed by the state for the betterment of the people. The government ran
all state budgeted enterprises. All of the private enterprises, that marketed
consumer goods, were taxed by the government and were also closely regulated.
Before the democratic government, Russian workers received the same pay
whether they worked hard or not, causing wages to be low and work conditions to
be very poor. Russian workers would steal from the government in order to
supplement their low wages. The Russian theory was that people were motivated by
their collective interests. This proved to be very wrong. The actual growth for
national income in 1987 was 1.6 percent less than what the government had
predicted (Hill & Dellenbrant, 106).
With all of the changes going on in each of the stages of perestroika there
was a lot of political, bureaucratic, managerial, and intellectual opposition to
what the leaders were establishing. This goes to show that people will always
resist change.
Perestroika identified many problems with the existing government,
economics, and living conditions of the people. The lack of overall government
regulations like unemployment insurance, a decent taxation system, and a
centralized market caused many of the conditions. Another problem was the lack
of legal infrastructure and protected property rights.
The old factories in Russia couldn't keep up with the new technology of the
Information Age. In 1987 Russia had less than 200,000 computers compared to the
United States' 25,000,000 (Smith, H., 239). Innovation in Russia was looked at
as a disruption of the flow of production even though technological
modernization was needed badly. The idea of quantity overruled quality in most
of the factories. Many pieces of machinery were built but not the parts to
replace broken ones, millions of shoes produced in the odd sizes, and exploding
TV's were common place under this idea.
Russia had a total economic collapse in 1990-1991 causing total imports to
fall under 1988's 135.9 billion roubles and exports down from 1988's 102.5
billion roubles (Smith, A., 199-200). Russia exported 76 percent of USSR's
total exports and imported 68.4 percent (204). In 1988, Russia's produced 569
million tons of oil, 590 million cubic meters of natural gas, and 425 million
tons of coal (206). Industrial output was down 13 percent in the first quarter
of 1992 (Smith, A., 178). National income was down 14 percent and retail prices
were up to six times the previous prices (178). 13 percent of the industry was
subsidized to make up for operating losses (Smith, H., 238). There was many
reasons for the economic growth rate falloff including centralized price
determination, centralized allocation of resources and products, to many
exchange rates, hard currency problems, and retention quotas.
Glasnost revealed many of the problems dealing with issues in the society
and the peoples' living conditions. The people of Russia had very little income
and very little food. The food supply was very limited and caused the government
to resort to rationing. The lack of food caused many health problems for the
The outcome of Russia's problems are based on the decisions and policies
taken in the first steps of perestroika.
1988 to 1990 was the transition phase for the Russian government and
economy. During this time Russian leaders were forecasting a full recovery from
the economic collapse by the year 2000 (Colton & Legvold, 70). Russian leaders
started changing the government from the top down. In the preliminary phase
they changed the highest levels of the administration. In the stabilizing stage
change was in the lower levels and was had an emphasis on politics instead of
the economy. 563 of 965 party members were replaced between March 1985 and
August 1988 (Hill & Dellenbrant, 144). In the expansive stage changes brought
about a wider democracy, decentralization in politics and the economy, vertical
and horizontal reform, electoral reform, and the rights of information act. The
electoral voting system began experimentation during June 1988 (Hill &
Dellenbrant, 101). Reform brought about the allowance of protesting government
and political abuses. Other government regulations also needing reform were
commercial and financial codes, the existing tax system, and private property
A policy in 1991 approved the establishment of a free market economy called
the "Memorandum on the Economic Policy of the Russian Federation" (Smith, A.,
177). This policy contained the removal of government constraints,
privatization, and economic assistance from the west. Boris Yeltsin proceeded
to create a real economic market system.
The Russian government was pushing for the adoption of the International
Monetary Fund among the new nations of the former USSR. Russia was attempting
to change to one fixed exchange rate by July 1, 1992 (Smith, A., 191). The
creation of a stabilization fund of $6 billion was to help price reform and
stabilize the economy.
Several major reform laws were passed between November 1986 and June 1987.
The first was the "Law on Individual Labour Activity" in November 1986,
"Formation of Cooperatives" between October 1986 and February 1987, and "Law on
Cooperatives" in May 1988 (Hill & Dellenbrant, 93). The "Law on State
Enterprises" passed in June 1987 allowed state enterprises more independence,
profits, and investments by the government (93,98).
A reform in the foreign trade system allowed for new joint ventures in
Russia. Many of these joint ventures were between Russia and the United States.
These joint ventures proved to be very difficult to operate at first.
Cooperative enterprises were also started to help boost the economy. Many of
these cooperatives were restaurants, bakeries, and repair shops were profits and
member voting are equally shared. The cooperatives were modeled after the
cooperatives established in Hungary. All cooperatives set their own prices
based on demand not by the state pricing system. The future outlook of the
cooperatives is that they should help to keep unemployment down during the
reformation years.
Many private enterprises were allowed to produce consumer goods and
consumer services. The private enterprises were only allowed to hire workers if
they were in the family. Most of the workers were required to use it as a
second job to their existing state directed job. The goods produced by these
private enterprises were mostly hand made items. Most services included repair
type services like home repair, car repair, appliance repair, etc. The new
private enterprises are looking to be very successful. Private farms have
become more productive than the state run collective farms. President Gorbachev
addressed the private enterprise managers "Be your own bosses, run your own
businesses, do your own investments, keep your profits, and make your plants
efficient" (Smith, H., 241). This gave independence and accountability to the
industrial producers and other private enterprises. Gorbachev also stated that
the use of uskorenie on science and technology would help to boost the economy
(Smith, H., 178).
Many of the positive outcomes of the economic reformation have helped to
justify the process to the people and the administrators. Gorbachev promised
that unemployment would not be an outcome of the new economic reform, while
consumers are now able to choose imported or domestic goods in the newly created
open economy. The Russian television programs now covered more and are becoming
more exciting. They are covering international news, doing investigative type
reports, and are even having phone-in programs on controversial topics. All of
the new implementations are bringing in new technology and money.
Some of the problems to the economic reformation have been the side effects
and opposition to the reform. Most of the opposition has come from the
political, bureaucratic, managerial, and intellectual sides of the government
and industrial producers. There has been strong resistance to farm reform from
several government leaders. One side effect of the reformation has been an
unstable rouble, which has fluctuated from 70 roubles to $1.00 all the way to
230 roubles to $1.00 causing much chaos (Colton & Legvold, 57). There has been a
large number of negative trends in trade and production (Colton & Legvold, 61).
High inflation rates have resulted from fighting over control of the supply of
credit and money amongst the former soviet states. Prices of consumer based
products and services have tripled and then doubled within a very short period
of time (Colton & Legvold, 55). All of these problems has pushed the actual
implementation dates the 1990s.
What will it take for Russia to end the slumping economy while trying to
achieve a free market and democracy? Some economists have predicted that in
order for Russia to stabilize its economy and achieve capital equality of
European countries that an estimated $1.7 trillion dollars or $1.2 trillion
invested at 7 percent or $571 billion per year was needed (Smith, A., 218).

Works Cited

Aganbegyan, Abel. The Economic Challenge of Perestroika. Bloomington, IN:
UP, 1988. Pg 1,6,17-18 Colton, Timothy J. and Robert Legvold. After the
Soviet Union: From Empire to
Nations. New York: W.W. Norton, 1992. Pg 51,54-57,59-62,64-65,70,74,78
Hill, Ronald J. and Jan Ake Dellenbrant. Gorbachev and Perestroika: Towards a
Socialism. England: Edward Elgar, 1989. Pg 51,54-55,93-101,104-
142,144 Lawrence, Paul R. and Charalambos A. Vlachoutsicos. Behind the
Factory Walls:
Decision Making In Soviet and US Enterprises. Boston: Harvard Business SP,
1990. Pg 3-4,11,39,43,45-47 Smith, Alan. Russia and the World Economy:
Problems of Integration. London:
Routledge, 1993. Pg 1,7,177-178,187-188,191,199-200,204-206,218,221 Smith,
Hedrick. The New Russians. New York: Random House, 1990. Pg 178,187,209,


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