Russian Reform and Economics

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

Outline

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


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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

allowedthem 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 fornational 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


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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

explodingTV'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 thegovernment

to resort to rationing. The lack of food caused many health problems

for the

people.

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


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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

governmentand political abuses. Other government regulations also needing reform

were

commercial and financial codes, the existing tax system, and private

property

rights.

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 onCooperatives" 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.


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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 servicesincluded 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 arebecoming

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


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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:

Indiana

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

New

Socialism. England: Edward Elgar, 1989. Pg 51,54-55,93-101,104-107,115,140-

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:


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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,

220,236-242

Documents

Russian Reform and Economics