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The transition from planned to market economy in Russia

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In the first chapter, the key events that preceded the fall of the Soviet Union will be analyzed, focusing on the main stages of economic development in Soviet Russia. The second chapter will deal with the fall of the Soviet Union and the initiatives for economic reforms that emerged after this event.

Pre-Soviet Russia and its economic organisation: a starting point for industrialisation 5

In general, improvements in the industrial sector would have been moderate and decidedly slower without the intervention of the State, which. There was then no other solution to ensure stability in the country than to assess the problems of the peasantry.

Soviet Russia, the Five-Year Plans

During the NEP years, industrial production returned to the level of 1913, making full use of all the capital available in the country at that time. Another bias, the investment money illusion, refers to the country's expectation that their investment will yield returns.

The Perestroika

The corporatist organization of the elites was connected with the effort to solve the situation of the working class. This institutional chaos eventually encouraged the emergence of new forces, such as the figure of Yeltsin, who ultimately contributed to the collapse of the Soviet Union.

The last years of the Soviet Union: the 500-day plan

The Belaveža Pact resulted in the gradual emancipation of the republics, with Russia disintegrating under the presidency of Boris Yeltsin on December 12, 1991. At the time, Yeltsin was the president of the newly created Russian Federation and was tasked with reforming the economic system. Returning to the question of the substance of the reform, it is appropriate to begin with the provisions that John Williamson (1989) envisioned, the Washington Consensus.

Shock therapists also underestimated the role that years of living under the command economy played on the expectations and attitudes of the Russian population. This assumption was also related to expectations regarding the level of prosperity, and in general the role of the state in it. The path of gradual reform implementation has also been hampered, especially in the case of Russia, by the size of the country itself.

Russia’s reform path to market economy

Stabilization

On January 2, 1992, the transformation to a market economy was kick-started with the entry into force of the Decree on Liberalization of Prices. Moreover, cuts in the state budget were seen as a fundamental step to be taken in terms of stabilization, which means that further subsidies were absolutely out of the question. The level of domestic financing of the budget was cut to around 2% of GDP by the first half of 1992.

Although economically beneficial, this sudden change in attitude had a drastic effect on the well-being and morale of the Russian population. Above all, the critical point of the latter mainly revolved around the issue of bank lending. The importance of the central bank is unquestionable in every country, and even more so in the case of Russia.

Liberalization

The long-term persistence of the problem has made stabilization much more complicated and with a lower prospect of long-term success. The panorama for Russia's foreign trade was characterized by a double dimension that increased the tensions arising from the dissolution of the Soviet Union. All the Republics that were part of the previous system were intertwined in a system whereby intra-state trade within the same industry was designed in such a way as to sustain the production chain of a variety of goods.

During Soviet times, the value of the Ruble was maintained at overvalued levels, thus making exports relatively expensive and imports cheaper. The removal of these barriers and of the restrictions on how much foreign currency can be held by firms was then necessary. When such a mechanism was eliminated in the second half of the year, creating a unified exchange rate set at the market auction level, the exporters of raw materials benefited enormously from the lower attractiveness, state-fixed, prices on foreign markets had, and could achieve significant profits as a result.

Privatization

The actual strengthening of the communist type of political opposition could have resulted in a drastic setback in the transition to the market economy and had to be mitigated somewhat. Both figures are characteristic of the Russian landscape and a byproduct of the country's economic history. Both monetary policy, with the amount of credit issuance, and privatization contributed to this problem.

If they were privatized, the government would in turn sell controlling shares in the companies to buyers. However, the problem of legitimacy and approval of his time in power remained, as the 1993 State Duma elections saw an increase in the number of seats awarded to the opposition. The other problem that emerged with the birth of the oligarch class was also related to the enormous power they acquired in the economic sphere, coupled with the subsequent ability to influence politics.

Concluding remarks on Russia’s transition

If similarities between the outcomes of the reforms were to be compared, it would probably appear that they all seem to have partially missed the mark. In fact, it is not that the reforms were completely ineffective, because they targeted the scope for which they were designed and fundamentally changed the core structures of the command economy. It is without doubt that most of the fundamentals of a market economy have been established on paper.

The core reason for this rarity may lie in the interaction between the reforms and the specificity of the country. This essentially meant that rather than linking the reforms organically to the economic tradition of the country, the entire past structure was rejected and replaced. The causes of this late failure of the economy are various and well rooted in the first years of reform.

The crisis of 1998

The high levels of the real exchange rate also had an adverse effect on the balance of payments. The trade balance of the Russian federation then turned into negative values, with a deficit of -3.5 billion US$ reached by the beginning of 1998. The problems caused by the now intolerable policy of the nominal exchange rate were exacerbated by the impossibility of maintaining the state budget positively.

In contrast, state expenditure did not decline and reached peaks of 20% of GDP in 1997. As a result of the strict monetary policy, the financing of government expenditure became increasingly dependent on the issuance of government bonds. GKOs), which are sold internally and then on foreign markets. As a result of these policies, the national debt continued to rise, increasing concerns about the state of the national economy.

The demise of the Washington consensus and the myth of stability

This position was also supported by the political conditions that were present in the country after the fall of the Soviet Union. The alternative to this method was the one that emerged in 1991 after the fall of the Soviet Union. The economic dimension must be regulated by the principles of the market, with minimal state interference, and the political one must concern the institution of democracy.

The failure was most visible in the economic dimension, as demonstrated by the 1998 crisis, leaving a lasting negative impression on the health of market economic ideals. The second pillar of discrediting the institution of democracy was mainly linked to the restructuring of the identity of the Russian nation. One of the pillars of this discourse was the instability of democracy compared to the order that was present in Russia.

The economics of stability

Putin’s first presidential term: from 2000 to 2004

The reasons why this support has consequently declined will be analyzed in the following paragraph, hoping that the structure of the economy and the evolution of the political landscape have allowed such a case. 2007). The second main objective of the reform impulse designed by Gref was to try to reduce the bureaucratic burden on enterprises. A number of reforms aimed at improving the business environment were also confirmed by a reform in the Judiciary.

Such an effort was deemed necessary as most of the courts were funded at the regional level, making them vulnerable to micro-dynamics of corruption and generally a rather weak institution. Alongside structural reforms, social reforms were also implemented to target the most pressing issues that had plagued the Russian population since the fall of the Soviet Union. As the following years of Putin's long presidency showed, the incentive to improve the economy's conditions in a direction that promoted entrepreneurs came second to a number of other factors, especially political interests.

Putin’s second presidential term: from 2004 to 2008

Second, the state itself moved to increase its stake in some of the most profitable companies in the economy. First of all, within the natural resource sector itself the dominant presence of the state was harmful. The availability of natural resources also creates drastic effects on the country's political environment.

The fundamental variable that differentiates between Soviet and Russian fusion, however, lies in the capacity of the latter. High Costs and the Gambling of the Witte System: A Chapter in the Industrialization of Russia. Journal of Economic History 13, no. Economic Reform of Socialism: The Soviet Record. Annals of the American Academy of Political and Social Sciences.

Economists, Privatization in Russia and the Waning of the 'Washington Consensus.'" Review of International Political Economy 9, no. Sergey Ermolaev, "Emergence and Development of the Soviet Union's Dependence on Oil and Gas." Carnegie Endowment for International Peace.

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