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Essay/Term paper: Russia' economic transition

Essay, term paper, research paper:  Economics

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Russia' Economic Transition

In August of 1991, the collapse of the communist system in the USSR and
it's neighboring republics occurred. Out of the smoke emerged fifteen new
republics and a union known as the Commonwealth of Independent States. These new
regimes faced formidable obstacles. The collapse brought massive inflation which
in turn forced the economy into a spiraling decline and a state of almost
worthless value. Many people were quick to point the finger at their communist
past, and even more eager to lay blame. Traditional communist ideology was to
"provide for every individual an equal amount of goods and services, thus
creating a state of equality amongst the populous" (Leveler, 16). Many people
felt as if their current hardships could be blamed on the communists and their
economic policies, specifically their "Core-Periphery" plan.

The communist sponsored "Core-Periphery" economic policy that was
evident in Russia was quite simplistic in nature. The theory, traditionally used
to describe inter-continental trading and production, was adapted for use in the
Russian economic zones. The theory was as follows; Areas which surround the
capital (core region), usually rich in one material or another, would be used
for the extraction of raw materials. These materials would then be shipped back
to the capital in order to be manufactured into goods. From there, the
manufactured products would be shipped back to the surrounding regions
(periphery region) for resale. The citizens of Russia were surviving on this
system, but barely. The Core-Periphery policy was not efficient, nor effective,
for usually a product needed on one side of the federation, was produced at the
other end. Factors such as transportation costs and adequate use of human
resources was very inefficient and cost-consuming. Strong influences from the
world urged Russia to make the transition into the market-oriented economy. This
seemed tempting, for the market-oriented economy preached individual wealth and
prosperity. Seeing no better solution to their current economic woes, Russian
policy-makers took the plunge.

By 1995, 4 years since the beginning of the transition into a market-
oriented economy, no satisfactory economic improvment had taken form.
Productivity in many states such as Turkmenistan and Belarus continued to fall
(Table 2), and inflation was still at high levels. Many new Russian capitalists
in the regions chose to exploit what had already been exploited in the past; raw
materials. Looking to make a fast income, these new Russian capitalists sold
whatever they could get their hands on, for practically no cost at all (Co-
Existence, 146). Expropriation of state property, shady deals, and corruption
were rampant. Productivity in industries such as agriculture declined as farmers
did not want to take care of their land (Co-Existence, 146). Nobody had money to
buy their goods, so they questioned as to whether or not they should take the
time to produce them. The economy was contracting and in turn, people were
actually getting poorer.

The newly separated states were yearning for economic growth and
prosperity. This would hopefully bring stability and a much needed improvement
in the standard of living as well as individual wealth. This however, has not
been the case. Many of the breakaway republics have actually experienced
considerable negative growth. Many of the republics made the transition to the
market economy hoping to make the individual citizen wealthier. In many of the
republics this did not actually take place. In 1995, all but 2 of the 15
countries saw their net exports per capita fall drastically. Lithuania, once
with a net export per capita rating of 49.2, was experiencing one of -54.1 in
1995 (Table 1). On average the citizens now had less than before.

Many countries began to realize that they were in many ways still
dependent on so-called "mother Russia". The past Core-Periphery policy had made
them heavily rely on internal domestic trade. Being nothing more than satellite
states in the centrally planned economy, these countries were traditionally used
for the extraction of materials or the production of a singular industry. Their
economies were not diversified. Traditionally supplies had to be brought in, and
this was still the case. Import statistics in the newly independent republics
have seen a drastic rise in totals. In 1992, the Ukraine with a population of
approximately 51 million people imported a total of 2.2 billion million dollars
worth of goods (Table 1). In 1995 however, the Ukraine with a population less
than what it had been in 1992, actually imported more; 5.6 billion dollars
worth of goods (Table 1). This rise in imports was also evident in Georgia,
Lithuania, and Uzbekistan (Table 1). For these countries, importing more than
they are actually exporting is proving to be a tough economic obstacle to
overcome. In order to import, they have had to borrow heavily from international
sources. Without exports, they have been lacking sufficient funds to make these
re-payments. Diversification was not happening rapidly enough to help them cope.
Many feared that their debts will become so large, that no matter what
diversification occurred, it will be too late, thus making is almost impossible
to repay what they have borrowed.

The economic transition occurring in Russia has also led to political
strife. Diplomatic relations between many of the republics and the Russian
nation have been drastically reduced, if not completely severed. Ukraine, and
Georgia have officially laid out in their constitution that they will have no
formal ties with their Soviet past (McLelland 108).

The Ukraine was fortunate to border one of the only Soviet access points
to a large body of water; the Black Sea. It was from this port that the former
Soviet Union established one of it's larger naval divisions, known as the Black
Sea Fleet. Consisting of over 1700 warships of various sizes (McLelland 63),
this fleet was one of the most dreaded in the world. Aboard those ships, there
were approximately 430 thousand employed operational personnel (McLelland 66).
Indirectly, in areas such as food production, and maintenance staff at the
shipyards, there were approximately 15 thousand people employed (McLelland 66).
When the dissolution occurred, the Russian government declared that the Black
Sea would fall under its permanent control. To the newly formed Republic of
Ukraine, this was very alarming. To lose the Black Sea would mean to lose all
the jobs that were directly or indirectly associated with it. Knowing that the
upcoming years may be harsh in terms of economics, the Ukraine was not readily
willing to accept a sharp blow to it's employed work force. The Ukraine already
had an unemployment rate of 7% (McLelland 24), and this was straining the
limited social safety nets. The last thing the Ukraine was prepared to do was
pay out more to it's people without getting anything in return. The Ukrainians
were yearning for a future free of any Russian grip. The Russians, on the other
hand, were still deeply in favour of upholding their Tsarist ancestors
conquestial territorial gains. Ultimatums were sent back and forth between
Moscow and the Ukraine. Neither side was willing to budge. Finally Russia backed
down, and control was left to the Ukraine. Nevertheless, during that period of
stalemate, Russo-Ukrainian relations, diplomatic and more importantly economic,
suffered a great lose. Slander and many outcries of corruption had been directed
at many of the policy makers in both countries. Trade between the two nations
has also dropped to an all time low. Out of Russia's total exports, only a
meager 1.7% gets shipped to the Ukraine (Dart, 117). In these harsh times of
economic transition in the region, one would expect that the two countries would
be more willing to co-operate for the goal of greater good.

The Russian republic has also seen it's fair share of strife; internally.
Harsh economic times, and less than admirable results from the transition to the
market oriented economy have paved the way for much political opposition.
Communists, the former leaders of the Soviet Union, were one of the first
political movements to wage war against the newly formed liberal government.
Traditionally, communist ideology preached that "no citizen will be in any
greater position of status or economic wealth that that of another citizen"
(Perdues, 66), and that "all citizens shall live with ample food on the plate,
and little worries as to life" (Perdues, 93). For the communists the time of
economic hardship was heaven sent. Capitalizing on the citizens disgust in the
shape of the country would be no challenge. This has led to the communists
waging wars inside of the Russian parliamentary house. The Duma as it is known,
is where most legislation and debate over domestic and foreign policy goes on.
It is in this institution that the Communists have on numerous occasions
attempted to gather support to impeach the liberal government. The Communists'
goal: dissolution of the current government, and establishment of the old.
Instead of attempting to reform and fine tune the new economic policies, they
wished to return to policies more consistant with the Communist ideology. The
Communists are not alone. In Russia itself, there has been a spawning of over 12
new political parties (Co-Existence, 147) that pose threats to the current
government's stability. Amongst those parties, over 86% of the individuals do
not approve of the market-place economy (Co-Existence, 149).

Though Russia is constantly hindered by economic downfall in many
aspects, that is not to say that all is bad . Some of the new countries who have
embarked on the long road to growth, have in fact showed signs of improvement.
Many of them have realized that diversification is needed desperately. Both
Uzbekistan and Georgia were traditionally used as resource extraction states in
the Core-Periphery economic plan of the centrally planned economy. Since the
establishment of independence, Uzebekistan now promotes a large degree of
exploration, and thus has a large oil and gas industry (Blij, 321) they have
also experienced growth in their new found service sector. Georgia is also
experiencing diversification. With its fertile lands, Georgia has harnessed it's
agricultural sector into producing tabacco, various fruits, and even timber
(Blij, 150). It also has a booming tourist industry because of it's warm climate
and scenic beauty (Blij, 150). Recent statistics show that in the year 1995,
because of this diversification, countries such as Uzbekistan and Georgia have
drastically improved their overall Gross Domestic Product when compared to
statistics recorded in 1992. Uzbekistan had a rating in 1992 of -11.1% and
Georgia had a whopping -45.6%. In 1995, the totals showed signs of great
improvement; both at -5.0% (Table 2). Contraction was still occuring, but at a
slower rate. This in turn provided some hope. There was even a larger increase
in the country of Armenia where the 1992 statistic for GDP was -52.4%, and in
1995, it had improved to a +5.0% (Table 2).

The question of economic coexistance between Russia and its former
republics still remains a mystery. There are many stronger, much more
controversial issues in Russia's republics, when it comes to the issue of
economics, independance, and growth. Many of the citiznes in the breakaway
republics are not eager to have peace and open relations with their russian
counterparts. The republics have yearned for independance for sometime now.
Russian Census data showed the majority (60 to 80 percent) of the ethnic
populations in Russia itself have supported movements for more autonomy. The
root of the turnaround in opinion from supporting the federation to wanting
soverign nation states, has been caused by one simple reason; nationalism.

Oppressed for many years, culturally speaking, the republics wanted to
bring rise to their ethnic beliefs and values. The intelligentsia, long
considered instigators threatening the Russian Federation, have been primarily
concerned with cultural objectives, such as defending the use of national
languages or controlling the local educational system, to ensure that history is
taught from the perspective of indigenous peoples (Drobizheva, 2). There is a
direct relationship between identity and peace. In an oppressed society,
ethnicity assumes a stronger role, however, when democracy and ethnicity are
balanced, political stability is possible. As a result of a lack of democratic
institutions and means for dialogue, the former Union's inhabitants were
increasingly identifying themselves as members of ethnic groups rather than as
citizens of the Russian Federation.

Many of the breakway republics are filled with ethnic russians;
Kazakhstan 41%, Lithuania 8%, and the Ukraine 21% (Wells, 31). Hatred and
distrust of these Russians is infact growing. This is especially true when
Russians are in the minority, as in the republic of, for example, where Russians
comprise 30 percent of the population (Drobizheva, 2). In such circumstances,
many perceieve the Russians as developing a "hyperidentity," characterized by a
low degree of tolerance for others and a feeling of being threatened (Drobizheva,
3). Many of these Russians tend to consider themselves members of a higher
ethnic group whose rights are above others (Drobizheva, 3). This has fueled mch
anger towards the Russians, and in many regions the Russians are now being
alienated. Due to past abuse of rnatural and human resources, opression of
fundamental rights such thought, voice, and opinion, has led to a severe feeling
of disgust towards the Russians, and more importantly distrust.

In Short, the market economy did not bring any good to Russia
immediately following its implementation. That is not to say however, that
growth and prosperity will not occur in Russia and it's former states.
Statistics as recent as 1995 have shown that since 1992, on average, there has
been an upward trend. Overcoming the obstacle of the core-periphery based
economy that was imbedded in the Russian culture, and the ideology aswell, has
proven to be no easy task. Relying on imports has taken its toll on many of the
nations. To combat this, the republics must build their own production base, and
produce goods domestically. Diversification will mean continued growth, and who
is to say that the newly sperated republics and Russia itself can not join
forces in an effort to produce one large core zone, with the world as it's
periphery. As the nations utilizing the market driven economy continue to
increase and reap it's benefits, it was only a matter of time before the
inefficeint bankrupt communist system would have to topple. The key to success
in the region is not to expect too much too soon. Ultimately everything must
start somewhere, and in today's fast paced, market oriented global economy, so
too must the newborn Russian capitalist baby.


Drobizheva, Leokadia. Democratization and Nationalism in the Russian Federation.
Moscow:Russian Academy of Sciences, 1995

Mclelland, Kelter. Russia At It's Peak. New York:Puffin, 1995

Russia And The Republics. Co-Existence. 1994-1995 Edition.

Leveler, Eisen. Crash and Burn. London:Earl Of Johnstonson, 1995

Wells, Michael. Harsh Economic Transition. New York:The Regency, 1995

Blij, Muller. Geography; Realms Regions and Concepts. New York:Wiley And Sons.
Eighth Edition

Perdues, Gregory. The Red Menace?. Chicago:Bantam, 1995

Dart, Simon. A Seat At The Global Table. London:Willamson, 1996


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