Russian Political Economy & Development Economy? What economy?

Soviet Economy

LENIN - solves Marx’ problem – the PARTY leads AND he changes from Communism (except during the civil war) to Socialism (N.E.P.) “Peace, Land and Bread” STALIN –collectivize and terrorize Command economy Prices and land controlled by gov’t Foreign economic relations highly controlled Communist System Making profit prohibited

Problems With The Soviet Economy

Environmental destruction Chernobyl No Profit, No Incentive Shoddy products State Price & Production control= law of supply & demand disobeyed High demand products resulted in “breadlines” while other products were overproduced IGNORES THE FACT THAT PEOPLE NEED INCENTIVES/COMPETITION TO ACHIEVE

Advantages Low inequality Russia rapidly industrialized High rates of education & social welfare Advancement of key industries Space exploration Military

R EFORMS AND TRANSITION

Late Soviet Era Perestroika Economic restructuring Initiated by Gorbachev Some private business allowed

Boris Yeltsin

Shock Therapy! Radical, rapid reforms called shock therapy Privatization vouchers & joint stock experiments Begun by Boris Yeltsin in 1992

4 Pillars of Yeltsin’s Reforms Opening Economy to Foreign Influence Privatization of State enterprises Encouragement of Small Business Ending of price controls (I would know these for a quiz/test)

Pillar #1 Get foreign investment into Russian econ Make business respond to competition Better product, better prices, more foreign $$ Russia wanted foreign investors like Fry, so they reformed.

Pillar#2 1992: Privatized most of gvnt owned industry through joint stock, gave vouchers to employees to purchase stock in their employer ("insider privatization") 1995: Firms allowed to sell remaining stock on public market

But Wait! There's More! Pillar #3 Encouragement of Small Business Small business increased dramatically Pillar #4 End price regulation, encourage competition

Effects Of Shock Therapy Many new businesses failed, no foreign $ Wages down 50% Inflation up No structure for capitalist econ existed, Corruption Govt reclaimed some business Small business not much success Privatized farms didn't work Shock therapy has some nasty side effects...

Causes of the Depression Bad tax-collection system o Government turned to Mafia & private contractors to provide basic services Rise of oligarchy o 17 Capitalists who did well from privatization and gained political power Led to corruption

In 1998, the government defaulted on its debts PYRAMID DEBT USED!!!!! Stock market lost 90% of its value Rapid devaluation of the ruble o Fewer imports, putting Russian workers back to work

The Big Recovery? Fossil Fuel prices increased, pumping extra revenue into state coffers Reduction in foreign held debt from 1998 to 2006 Economic growth increased to 6 or 7 percent

Vladimir Putin Simplified tax system Increased shareholder's rights Restricting labor unions Control of corruption Pension Reform Customs reform

Russian Economy And Society

Life in the USSR o Citizens received benefits from workplace o Unemployment was low o Retirement age was 55 for women and 60 for men o Little reward for innovation or hard work

Goods were becoming short in supply Productivity and discipline was low in the workforce Budget constraints Goods rose immensely in cost Nearing the End

After deterioration of USSR People expected a broader range of Social Welfare Benefits o Certain groups benefited while others were hindered

The 90s Low wage levels and homelessness was rising there was high consumer price inflation at first but this gradually lessened over time Unemployment was low. There was a rise in suicide, alcoholism, and crime

2000's By 2000 personal consumption was on the rise However many individuals still held 2-3 jobs just to make ends meet. There were protest demonstrations in Moscow 2005 asking for the Modernization of Social Benefits.

Liberal Market Reform This was the response to the protests. It reduced prices and gave benefits to certain groups. Many Citizens saw this as the government taking benefits away from those who worked. It was meant to increase role of market and reduce burden on gov't.

Women of Russia Through the existence of the Russian Federation women still faced soviet like conditions. They occupied lower status jobs in many positions (triple burden) Today they can go on a three year maternity leave

Economic Culture Russian culture not suited to capitalism: Weak tradition of entrapreneurship Strong commitment to egalitarianism Reliance on personal trust over contracts Support more important than profit Business favors personal connections than merit Older population may have internalized soviet incentives Culture of bribes and favors Younger generation adapting more to market system and values

Russia in the Global Economy Soviet period: Most trade within Eastern Europe o Ruble non-convertible o Foreign trade channeled through state Gorbachev began to allow foreign investment 1990s loans: World Bank, IMF, EU Increasing foreign investment Mainly exports raw materials