Russia: The End of a Time of Troubles

Russia: The End of a Time of Troubles

After the disintegration of the Soviet Union in 1991, there was an official declaration on the transition from socialism to capitalism; to this end, a shock transition was instituted under the sponsorship of the IMF and the US government. However, what resulted was a severe depression that affected nearly every sphere of the Russian economy. The first democratically elected president Boris Yeltsin resigned and handed over the nation to Vladmir Putin (Fig 1) (see Exhibit 1) with the hope that new leadership would set the nation on the path to recovery. The objective of this paper is to examine what went wrong? Who should take the blame? and What action should be taken to solve the resultant problems?

What Went Wrong ?

 Russia’s transition to capitalism did not go as planned. What went wrong? Instead of the transition they expected, the nation was forced to contend with a series of social economic and political problems that resulted from their attempt to radially shift gears without considering that the impact it may have on the nation in the long run (Cohen, 1998).  What the government failed to realize at the time was that one could not simply change the fiscal system and ignore the ideological and cultural underpinnings on which it had been built over the years.  Socialism in Russia was more than just an economic system, it represented a way of life a political and cultural setup that should have been accounted for but never was in the attempted transition. As he gave his resignation speech, Boris Yeltsin (see Exhibit 2) under whose leadership the change had been orchestrated acknowledged that the dream of converting Russian from a post cold war (Exhibit ) into a western styled democracy had been a naïve and not particularly well thought out one (Wolosky, 2000).  The nation, he believed had attempted to Jump from a grey totalitarian past and automatically become at per with countries that had a background or capitalism and democracy. He handed over power to Vladimir Putin, a choice supported by most Russians as was evinced in the overwhelming majority by which he won (see Exhibit 3).  Furthermore, Russia was taking lessons from the US, which irrespective of its noble intentions was founded on a system that was radically different from Russia’s. They took for granted that privatization would work in the same way it did in the US and when it was implemented, it ended up flopping and required several years before the nation could finally become stable (see Exhibit 3).

 In addition, the privatization process was not very well controlled as is evinced by the voucher program in which citizens could purchase the stock in several public firms and become stockholders so they could become “privately” owned (Boycko et al., 1993).  The privatization did not spare even the security industry; it was commercialized and privatized with a significant number of companies being registered (Exhibit 4). During the mid-90,’s there emerged a group of Russian referred to as Oligarchs (Black, Kraakman & Tarassova); these were the main beneficiaries of the privatization because they had purchased most of the stock and shares in the newly privatized companies. Therefore, even after the attempts to privatize the nations resources so that more Russians could have access to them, the bulk went to a wealthy few who could afford the capital to make massive investments (Exhibit 5).  The chart below shows the distribution figures for the privatized firms by the year 1999 (see Exhibit 6).

Who is to blame ?

Who is to blame for the failure to successfully and abruptly turn Russian into the capitalist it had intended on becoming?  This question has been asked since the 90’s but there cannot really be an objective answer to such a subjective question. Different people hold various points of view on the same, depending on what role they perceived the culprits to have played of how they were directly or indirectly opposed.  For many, the US and IMF should shoulder the blame because of their attempt to force the change upon Russia with no regard to the background on which the wanted to build a socialist economy (Rutland, 1999).

One of the consequences of the crisis was the devaluation of the ruble, which resulted from the efforts by the IMF triggering depression and instantly impoverishing most of the Russian population (Ellerman, 2003; Buchs, 1999) (see Exhibit 11).  The weakness of the federal budget put the ministry of finance in a situation where they could only fund 50% of the budget from taxes (Zyuganov, 2001). (Fig 2)For the rest they had to depend on money borrowed from the markets and IMF (Cohen, 2001). Ergo, when this money stopped coming in, it was impossible for the nation to function effectively and Russian ended up heavily in debt (see Exhibit 8).

 The Russian government on the other hand must be allocated some of the blame for several reasons. It failed to propose a plan that was based on the reality on the ground and instead let outsiders literally run the country in the hope that they would get a system like the US (Treisman, 2000). In addition, the process of privatization was not well controlled which resulted in the control of the country’s resources by a few wealthy people leaving the rest of the nation practically destitute. It must also be acknowledged that much of the corruption was in the government departments was responsible for the long-term problem. The party and its bosses was  very corrupt and a lot of the money collected through taxation or the IMF ended up being mis-appropriated by connected government ministers and top-level civil servants.

Prior to the collapse of the Soviet Union, 20% of the wealthiest part of the population accounted for 30.7% of the income.  The same fraction of poor accounted for 11.9%.  The economic changes predating the shock adjustments in the economy resulted in the richest 20% holding 46.8 in 2006 while the poor share had declined to a partly 5.4% (Cooper, 2009). According to most analysts, the oligarchs were to blame for the nation’s misfortunes; she argues that they betrayed Russia’s capitalist revolution and the Kremlin literally took a conscious decision to allow this to happen (Abdelal & Thompson, 2003).  The time when the government made a deal with a group of startup capitalist in her opinion was the beginning of Faustian bargain that lay a corrupt and anti-egalitarian foundation for everything postdating it hence the ultimate failure.

What is to be done?

After Yeltsik’s resignation, the nation’s inflation escalated under the debts and new policies (Exhibit 10) (Fig 6) the new premier was left in a very difficult position where he had to deal with a plethora of problems none of which had obvious solutions.. Retrospectively, after the disintegration of the Soviet Union, the period was referred to as “miraculous” (Abdelal & Thompson, 2003). However, by 1999, Russians begun to sense that their country was in the midst of a “time of troubles”, the same phase used to describe the country’s economic and political upheavals in the 17th century.  Among Putin’s first initiatives after taking office was a reorganization of the country’s federal system by adding a political layer between the center and regional government.  He issued a decree in 13th may 2000 creating super regions headed by his appointees tasking them with the implementation of laws and presidential decrees (see Exhibit 12).

Recommendations 

The relationship between the country and the oligarchs who were in the eyes of many responsible for the collapses of the capitalism transition has to be reexamined (Rutland, 2003). Putin had one of the major ones Vladimir Gusisnsky detained and finally forced him to write off some of the funds the government owed him (see Exhibit 9).  Vladmir Gusinski Ranked among the most politically connected men. . (Guriev and Rachinsky, 2005)

Russia should develop home grown solutsions for its problems and it should never try to mode itself after the US or any other country.  The retrospective attempts at this resulted in the near collapse of their economic system and for this lesson should serve as a lesson to leaders in posterity. The state should continue to investigate other oligarch’s and their firms to protect the nation from their manipulative practices. In the year 2002, the signs of the Oligarch power that Putin was trying to fight were evinced by the fact that they had outperformed the private Russian industry by over 8% in terms of productivity (see Exhibit 13). Ultimately, Russia’s economy could never have taken off as long as there were a few people controlling most of the nation’s wealth and Putin was well aware of this.  (Fig 4 and Fig 5)

Conclusion

Even today, some of the economic problems that plagued Russia in its attempt to become a capitalist nation are still being felt but a lot has changed (Goldman, 2005).  The system is more inclusive and although the Oligarchs still wield a considerable amount of influence and power, the economic growth that people desired so much is gradually taking hold (sees Exhibit 14). In the end, the solution for Russian’s troubles is not any different from those of most other nations in similar situations.  There is a need for accountability both within and without government and the gap between the rich and the poor (Fig 3) should be narrowed as much as possible to provide every citizen with an opportunity to pursue their own social economic success.  
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