Russian Reform and Economics: The Last Quarter of Essay
the 20th CenturyOutlineThesis: As the reformation of the USSR was becoming a reality, Russia’s economywas crumbling beneath it. Russia began its economic challenge of perestroika inthe 1980’s. The Russian people wanted economic security and freedom, while thegovernment was trying to obtain democracy. The previous management stylesneeded to be changed along with the way that most businesses in Russia operated.
I. Reformation of USSRA. 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 BodyAs the reformation of the USSR was becoming a reality, Russia’s economy wascrumbling beneath it.
Russia began its economic challenge of perestroika in the1980’s. The Russian people wanted economic security and freedom, while thegovernment was trying to obtain democracy. The previous management stylesneeded 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 roughly76.2 percent of the former USSR, and covers about 12 percent of the earth’s landsurface. The Russian Federation’s population in 1991 was 147.3 million (Smith,A., 7).
During the 1980’s the Russian government started a reformation processcalled “perestroika,” meaning restructuring (Aganbegyan, 1). Perestroikasignifies qualitative changes and transformation in the government and in theeconomy. 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 (November1987 onwards)” (Hill & Dellenbrant, 140). The government also identified twoother processes. “Glasnost,” which means openness, supported the strong economicreform (Aganbegyan, 1; Hill & Dellenbrant, 54). The acceleration of economicreform was called “uskorenie” (Aganbegyan, 1).
Many changes took place during the years contained in each of the stages ofperestroika. This changes ranged from government policies and structure toindustrial production procedures to economic policies. The major change came in1991 with the breakup of USSR. This freed the individual states and allowedthem to become independent countries. All of these new countries went throughradical government changes. Many of them, including Russia, chose to implementdemocracy. This change from a central military based structure into democracyeffected all of the former soviet states’ centralized economic departments.
The assets were owned by the people and were distributed by the stateduring the communist reign in Russia. All of the resources were alsodistributed by the state for the betterment of the people. The government ranall state budgeted enterprises. All of the private enterprises, that marketedconsumer goods, were taxed by the government and were also closely regulated.
Before the democratic government, Russian workers received the same paywhether they worked hard or not, causing wages to be low and work conditions tobe very poor. Russian workers would steal from the government in order tosupplement their low wages. The Russian theory was that people were motivated bytheir collective interests. This proved to be very wrong. The actual growth fornational income in 1987 was 1.6 percent less than what the government hadpredicted (Hill ; Dellenbrant, 106).
With all of the changes going on in each of the stages of perestroika therewas a lot of political, bureaucratic, managerial, and intellectual opposition towhat the leaders were establishing. This goes to show that people will alwaysresist change.
Perestroika identified many problems with the existing government,economics, and living conditions of the people. The lack of overall governmentregulations like unemployment insurance, a decent taxation system, and acentralized market caused many of the conditions. Another problem was the lackof legal infrastructure and protected property rights.
The old factories in Russia couldn’t keep up with the new technology of theInformation Age. In 1987 Russia had less than 200,000 computers compared to theUnited States’ 25,000,000 (Smith, H., 239). Innovation in Russia was looked atas a disruption of the flow of production even though technologicalmodernization was needed badly. The idea of quantity overruled quality in mostof the factories. Many pieces of machinery were built but not the parts toreplace broken ones, millions of shoes produced in the odd sizes, and explodingTV’s were common place under this idea.
Russia had a total economic collapse in 1990-1991 causing total imports tofall under 1988’s 135.9 billion roubles and exports down from 1988’s 102.5billion roubles (Smith, A., 199-200). Russia exported 76 percent of USSR’stotal exports and imported 68.4 percent (204). In 1988, Russia’s produced 569million tons of oil, 590 million cubic meters of natural gas, and 425 milliontons of coal (206). Industrial output was down 13 percent in the first quarterof 1992 (Smith, A., 178). National income was down 14 percent and retail priceswere up to six times the previous prices (178). 13 percent of the industry wassubsidized to make up for operating losses (Smith, H., 238). There was manyreasons for the economic growth rate falloff including centralized pricedetermination, centralized allocation of resources and products, to manyexchange rates, hard currency problems, and retention quotas.
Glasnost revealed many of the problems dealing with issues in the societyand the peoples’ living conditions. The people of Russia had very little incomeand very little food. The food supply was very limited and caused the governmentto resort to rationing. The lack of food caused many health problems for thepeople.
The outcome of Russia’s problems are based on the decisions and policiestaken in the first steps of perestroika.
1988 to 1990 was the transition phase for the Russian government andeconomy. During this time Russian leaders were forecasting a full recovery fromthe economic collapse by the year 2000 (Colton & Legvold, 70). Russian leadersstarted changing the government from the top down. In the preliminary phasethey changed the highest levels of the administration. In the stabilizing stagechange was in the lower levels and was had an emphasis on politics instead ofthe economy. 563 of 965 party members were replaced between March 1985 andAugust 1988 (Hill & Dellenbrant, 144). In the expansive stage changes broughtabout a wider democracy, decentralization in politics and the economy, verticaland horizontal reform, electoral reform, and the rights of information act. Theelectoral voting system began experimentation during June 1988 (Hill &Dellenbrant, 101). Reform brought about the allowance of protesting governmentand political abuses. Other government regulations also needing reform werecommercial and financial codes, the existing tax system, and private propertyrights.
A policy in 1991 approved the establishment of a free market economy calledthe “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 proceededto create a real economic market system.
The Russian government was pushing for the adoption of the InternationalMonetary Fund among the new nations of the former USSR. Russia was attemptingto change to one fixed exchange rate by July 1, 1992 (Smith, A., 191). Thecreation of a stabilization fund of $6 billion was to help price reform andstabilize 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 onCooperatives” in May 1988 (Hill & Dellenbrant, 93). The “Law on StateEnterprises” 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 inRussia. 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 ofthese cooperatives were restaurants, bakeries, and repair shops were profits andmember voting are equally shared. The cooperatives were modeled after thecooperatives established in Hungary. All cooperatives set their own pricesbased on demand not by the state pricing system. The future outlook of thecooperatives is that they should help to keep unemployment down during thereformation years.
Many private enterprises were allowed to produce consumer goods andconsumer services. The private enterprises were only allowed to hire workers ifthey were in the family. Most of the workers were required to use it as asecond job to their existing state directed job. The goods produced by theseprivate enterprises were mostly hand made items. Most services included repairtype services like home repair, car repair, appliance repair, etc. The newprivate enterprises are looking to be very successful. Private farms havebecome more productive than the state run collective farms. President Gorbachevaddressed the private enterprise managers “Be your own bosses, run your ownbusinesses, do your own investments, keep your profits, and make your plantsefficient” (Smith, H., 241). This gave independence and accountability to theindustrial producers and other private enterprises. Gorbachev also stated thatthe 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 tojustify the process to the people and the administrators. Gorbachev promisedthat unemployment would not be an outcome of the new economic reform, whileconsumers are now able to choose imported or domestic goods in the newly createdopen economy. The Russian television programs now covered more and are becomingmore exciting. They are covering international news, doing investigative typereports, and are even having phone-in programs on controversial topics. All ofthe new implementations are bringing in new technology and money.
Some of the problems to the economic reformation have been the side effectsand opposition to the reform. Most of the opposition has come from thepolitical, bureaucratic, managerial, and intellectual sides of the governmentand industrial producers. There has been strong resistance to farm reform fromseveral government leaders. One side effect of the reformation has been anunstable rouble, which has fluctuated from 70 roubles to $1.00 all the way to230 roubles to $1.00 causing much chaos (Colton & Legvold, 57). There has been alarge number of negative trends in trade and production (Colton & Legvold, 61).
High inflation rates have resulted from fighting over control of the supply ofcredit and money amongst the former soviet states. Prices of consumer basedproducts and services have tripled and then doubled within a very short periodof time (Colton & Legvold, 55). All of these problems has pushed the actualimplementation dates the 1990s.
What will it take for Russia to end the slumping economy while trying toachieve a free market and democracy? Some economists have predicted that inorder for Russia to stabilize its economy and achieve capital equality ofEuropean countries that an estimated $1.7 trillion dollars or $1.2 trillioninvested at 7 percent or $571 billion per year was needed (Smith, A., 218).
Works CitedAganbegyan, Abel. The Economic Challenge of Perestroika. Bloomington, IN:IndianaUP, 1988. Pg 1,6,17-18 Colton, Timothy J. and Robert Legvold. After theSoviet Union: From Empire toNations. New York: W.W. Norton, 1992. Pg 51,54-57,59-62,64-65,70,74,78Hill, Ronald J. and Jan Ake Dellenbrant. Gorbachev and Perestroika: Towards aNewSocialism. England: Edward Elgar, 1989. Pg 51,54-55,93-101,104-107,115,140-142,144 Lawrence, Paul R. and Charalambos A. Vlachoutsicos. Behind theFactory 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 178,187,209,220,236-242Category: Business