Russian Reform And Economics Essay, Research Paper

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 wascrumbling beneath it. Russia began its economic challenge of perestroika in the 1980’s.The Russian people wanted economic security and freedom, while the government wastrying to obtain democracy. The previous management styles needed to be changed alongwith 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 wascrumbling beneath it. Russia began its economic challenge of perestroika in the 1980’s.The Russian people wanted economic security and freedom, while the government wastrying to obtain democracy. The previous management styles needed to be changed alongwith the way that most businesses in Russia operated. The Russian Federation consists of 17,075,400 square km, which is roughly 76.2percent of the former USSR, and covers about 12 percent of the earth’s land surface. TheRussian 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 qualitativechanges and transformation in the government and in the economy. The four stages ofperestroika 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 governmentalso identified two other processes. “Glasnost,” which means openness, supported thestrong economic reform (Aganbegyan, 1; Hill & Dellenbrant, 54). The acceleration ofeconomic reform 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 to industrialproduction procedures to economic policies. The major change came in 1991 with thebreakup of USSR. This freed the individual states and allowed them to becomeindependent countries. All of these new countries went through radical governmentchanges. Many of them, including Russia, chose to implement democracy. This changefrom a central military based structure into democracy effected all of the former sovietstates’ centralized economic departments. The assets were owned by the people and were distributed by the state during thecommunist reign in Russia. All of the resources were also distributed by the state for thebetterment of the people. The government ran all state budgeted enterprises. All of theprivate enterprises, that marketed consumer goods, were taxed by the government andwere also closely regulated. Before the democratic government, Russian workers received the same pay whetherthey 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. Thisproved to be very wrong. The actual growth for national income in 1987 was 1.6 percentless 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 lotof political, bureaucratic, managerial, and intellectual opposition to what the leaders wereestablishing. This goes to show that people will always resist change. Perestroika identified many problems with the existing government, economics, andliving conditions of the people. The lack of overall government regulations likeunemployment insurance, a decent taxation system, and a centralized market caused manyof the conditions. Another problem was the lack of legal infrastructure and protectedproperty 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 the UnitedStates’ 25,000,000 (Smith, H., 239). Innovation in Russia was looked at as a disruption ofthe flow of production even though technological modernization was needed badly. Theidea of quantity overruled quality in most of the factories. Many pieces of machinery werebuilt 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 under1988’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 naturalgas, and 425 million tons of coal (206). Industrial output was down 13 percent in the firstquarter of 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 was subsidizedto make up for operating losses (Smith, H., 238). There was many reasons for theeconomic growth rate falloff including centralized price determination, centralized allocationof resources and products, to many exchange rates, hard currency problems, and retentionquotas. Glasnost revealed many of the problems dealing with issues in the society and thepeoples’ 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. Thelack 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 economy. During this time Russian leaders were forecasting a full recovery from the economiccollapse by the year 2000 (Colton & Legvold, 70). Russian leaders started changing thegovernment from the top down. In the preliminary phase they changed the highest levelsof the administration. In the stabilizing stage change was in the lower levels and was hadan emphasis on politics instead of the economy. 563 of 965 party members were replacedbetween March 1985 and August 1988 (Hill & Dellenbrant, 144). In the expansive stagechanges brought about a wider democracy, decentralization in politics and the economy,vertical and 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 government and political abuses. Othergovernment regulations also needing reform were commercial and financial codes, theexisting 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). Thispolicy contained the removal of government constraints, privatization, and economicassistance from the west. Boris Yeltsin proceeded to create a real economic marketsystem. The Russian government was pushing for the adoption of the International MonetaryFund among the new nations of the former USSR. Russia was attempting to change to onefixed exchange rate by July 1, 1992 (Smith, A., 191). The creation of a stabilization fundof $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 ofCooperatives” between October 1986 and February 1987, and “Law on Cooperatives” inMay 1988 (Hill & Dellenbrant, 93). The “Law on State Enterprises” passed in June 1987allowed 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. Manyof these joint ventures were between Russia and the United States. These joint venturesproved to be very difficult to operate at first. Cooperative enterprises were also started tohelp boost the economy. Many of these cooperatives were restaurants, bakeries, andrepair shops were profits and member voting are equally shared. The cooperatives weremodeled after the cooperatives established in Hungary. All cooperatives set their ownprices based on demand not by the state pricing system. The future outlook of thecooperatives is that they should help to keep unemployment down during the reformationyears. Many private enterprises were allowed to produce consumer goods and consumerservices. The private enterprises were only allowed to hire workers if they were in thefamily. Most of the workers were required to use it as a second job to their existing statedirected job. The goods produced by these private enterprises were mostly hand madeitems. Most services included repair type services like home repair, car repair, appliancerepair, etc. The new private enterprises are looking to be very successful. Private farmshave become more productive than the state run collective farms. President Gorbachevaddressed 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 otherprivate enterprises. Gorbachev also stated that the use of uskorenie on science andtechnology would help to boost the economy (Smith, H., 178). Many of the positive outcomes of the economic reformation have helped to justify theprocess to the people and the administrators. Gorbachev promised that unemploymentwould not be an outcome of the new economic reform, while consumers are now able tochoose imported or domestic goods in the newly created open economy. The Russiantelevision programs now covered more and are becoming more exciting. They are coveringinternational news, doing investigative type reports, and are even having phone-in programson controversial topics. All of the new implementations are bringing in new technology andmoney. Some of the problems to the economic reformation have been the side effects andopposition to the reform. Most of the opposition has come from the political, bureaucratic,managerial, and intellectual sides of the government and industrial producers. There hasbeen strong resistance to farm reform from several government leaders. One side effectof 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 ofcredit and money amongst the former soviet states. Prices of consumer based products andservices 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 afree market and democracy? Some economists have predicted that in order for Russia tostabilize 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).

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Aganbegyan, Abel. The Economic Challenge of Perestroika. Bloomington, IN: Indiana UP, 1988. Pg 1,6,17-18Colton, Timothy J. and Robert Legvold. After the Soviet Union: From Empire to Nations. New York: W.W. Norton, 1992. Pg 51,54-57,59-62,64-65,70,74,78Hill, 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- 142,144Lawrence, Paul R. and Charalambos A. Vlachoutsicos. Behind the Factory Walls: Decision Making In Soviet and US Enterprises. Boston: Harvard Business SP, 1990. Pg 3-4,11,39,43,45-47Smith, Alan. Russia and the World Economy: Problems of Integration. London: Routledge, 1993. Pg 1,7,177-178,187-188,191,199-200,204-206,218,221Smith, Hedrick. The New Russians. New York: Random House, 1990. Pg 178,187,209, 220,236-242