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
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
allowed
them 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 for
national 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
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
exploding
TV'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 the
government
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
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
government
and 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 on
Cooperatives" 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.
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 services
included 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 are
becoming
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
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
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