Failure of Economic Reform In Russia Essay

This essay has a total of 1312 words and 7 pages.

Failure of Economic Reform In Russia



Thomas J Milone-Clapp
Macroeconomics
4/25/00


Formerly the preeminent republic of the Union of Soviet Socialist Republics, Russia has
been an independent nation since the dissolution of the Soviet Union in 1991. Because of
its great size, its natural resources, and its political domination, the Russian
Federation played a leading role in the economy of the Soviet Union. In the years
preceding the disintegration of the union in 1991, the economy of Russia and the union as
a whole was in decline. In 1992, immediately after the separation, the Russian government
implemented a series of radical reforms. Price controls were abolished as the beginning of
a transition from a centrally controlled economy to a market economy. An immediate series
of sharp price increases caused extreme hardships for the Russian people.

Inventor of the fictional five-year plan,
The fake harvest,
Russia introduced another novel economic concept in 1996. It was a society modeled after the capitalist society.
High expectations of economic growth even with “shock therapy”-- unemployment, social
discontent and opportunities for corruption; influence of western politicians and the U.S.
policy; and failing to completely reform the communistic system were some factors to why
some became rich but led many to misery and an early death. Despite the huge infusions of
Western money, millions of ordinary Russians struggled to survive in an economy neither
capitalist nor communist, but something brand new and strange, which ultimately led to the
failure of economic reform in Russia.

In the fall of 1996, Boris Yeltsin won the presidential election in Russia. He was viewed
as the “personification of reform in Russia.... who had vanquished the Communist dragon
during the hard-line coup attempt of August 1991 -- and the leader best placed to
introduce democratic, market-oriented reforms.”

In the same year Yeltsin became the President of Russia, the U.S. ambassador to Russia,
Thomas R. Pickering, predicted by the fall of 1999, Russia would be one of America’s top
trading partners. But in fact, three years after Pickering addressed his farewell speech
to the American Chamber of commerce in Moscow, Russia ranked thirtieth in the list of
American trading partners. In 1998, Russia’s gross national product plummeted by nearly
fifty percent over the last decade. More than sixty million Russians, which are nearly
half of the population, lived below a very low official poverty line. A steep fall in
prices of their natural resources -- oil, gas and gold consequently led to reducing both
the export revenues and tax collection in Russia. Almost an article of faith for Russian
reformers and their Western supporters, an assumption made was that Russia's salvation lay
in tight monetary discipline, rapid economic liberalization and a massive privatization
program.

According to Richard E. Rawles, head of the Russian Psychology Research Unit, in
University College London, western financial institutions were unaware of “the cultural
traditions of Russia and complicated interactions of psychologies and mentalities with
social structures” that had been largely ignored.

E. Wayne Merry, who was head of the political section from 1991 to 1994, sent a telegram
early 1994 which criticized America's "evangelical attempt" to remold Russian society in
its own image. Just as Rawles had argued that Russia was physiologically and culturally
unprepared for a free market so suddenly, Merry argued that such efforts would almost
certainly fail because Russia -- unlike Eastern European countries such as Poland and the
Czech Republic -- had little tradition of free markets or the rule of law. The

United States, in Merry's view, would end up getting blamed for the failure of “shock
therapy”. Reformers were well aware of the risks -- unemployment, social discontent, and
opportunities for corruption. Nevertheless, foreign investors disregarded these handicaps
and invested in the Russian stock market to unprecedented heights. It was believed these
problems would resolve themselves if the economic medicine were applied with sufficient
vigor.

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