In the last two decades roughly two-thirds of the world’s

population have experienced economic reform:

• Transformation from planned to market economies

• Deregulation to stimulate competition
• Opening up to the world economy and
• Strengthening of property rights.

In 1922, the USSR (also called the Soviet Union)was establised. Over the
next few decades, the Soviet Union tried to spread communism to other
nations.

During World War II, Soviet troops occupied much of Eastern Europe,
including eastern Germany. After the war, the Soviet government set up
Communist governments in that region.
During the Cold War, both the United States and the USSR built huge
quantities of conventional and nuclear weapons. The cost of the Cold War
was driving the Soviet Union to the edge of ruin. The Soviet economy was
far less healthy than the U.S. economy and less able to support huge
military budgets.

The Soviet system in which government officials set goals for industry and
agriculture was inefficient because the people who made economic
decisions knew little about day-today operations. As a result, Soviet
citizens often suffered shortages of food and consumer goods. The
government stifled criticism with repressive measures, for what people
were afraid to complain about the economy or to suggest change.

In the 1980s, that fear of speaking out began to lift. The older generation
of Soviet leaders died and a much younger man, Mikhail Gorbachev,
became head of the Communist Party in 1985.

The world's largest state-controlled economy faced all the reform

processes in just few years. In 1992 it liberalized both the trade and the
production system.
1. Comment on the transition process of Russian Economy.

Russia has an abundance of natural gas oil, coal, and precious metals. It is also
rich in agriculture. Russia has undergone significant changes since the collapse of
the Soviet Union, moving from a globally-isolated, centrally-planned economy to a
more market-based and globally-integrated economy.

The Russian economy underwent tremendous stress as it moved from a centrally

planned economy to a free market system. Difficulties in implementing fiscal
reforms aimed at raising government revenues and a dependence on short-term
borrowing to finance budget deficits led to a serious financial crisis in 1998.

The two fundamental and interdependent goals of this reform were -

Macroeconomic Stabilization

Economic Restructuring
2) To what extent the market economy is responsible for the current growth of
Russia?

To the minimal extent market economy was responsible for the growth of Russia

The Russian economy underwent tremendous stress as it moved from a centrally

planned economy to a free market system. The Russian Economy recovered after the
Collapse of the Early 1990s and the Crisis of 1998.The current growth of Russia was a
part of the economic restructuring measures that included Liberalization,
Privatization and establishment of policies, commercial, legal and institution entities.
Thus attainment of the macroeconomic stabilization was the one of the factor for
the current growth of Russia.
But the main determinant for the growth of Russia economy was due to the rise of
Oil price. Payments from the fuel and energy sector in the form of customs duties
and taxes accounted for nearly half of the federal budget's revenues. The findings
indicate that the positive impact of rising oil prices on Russia's GDP growth has
increased in recent years, but tends to be buffered by an appreciation of the real
effective exchange rate which is stimulating imports.
3 .”The failure of absolute form of communism was wrongly interpreted as the success
of capitalism in Russia”. Discuss.

According to the supporters of capitalism the growth of Russian economy-

From 1999 to 2006 is attributable to the reforms that led to macroeconomic and
political stability. The results of which have been tighter budget discipline,
restructuring of foreign debt, vivid growth, rising living standards, new wealth and
confidence.

On the other hand ,the critics point out that growth have been mainly due to the rise
in fuel prices which are not in the hands of Russian reformers, as even after six years
of reforms, one quarter of the population still live below the poverty line, income
disparity has widened, the crime graph has shot up, role of law is not strictly
enforceable, policy formulation and implementation is not transparent impartial
implementation of the taxation system is missing and economy lacks diversification.

Therefore it is said that the failure of absolute form of communism was wrongly
interpreted as the success of capitalism in Russia.
The nation was not able to produce the quantity or quality of goods that its citizens
wanted which led to extreme dissatisfaction and a growing interest in capitalism.

Another reason for the fall of communism was growing knowledge of democracy. In
the Soviet Union, Mikhail Gorbachev introduced democratization to Soviet
government.

Nationalism, the belief that people should be loyal mainly to their own nation also
played a significant role in defeating communism. In the Soviet Union, the desire of
national groups to have their own states led various republics to declare
independence. The people involved felt greater loyalty to their national groups than
to communism.

Citizens demonstrated for democratic government, even though they risked arrest,
injury, or death by doing so. Their nonviolent protests caught the world’s attention
and inspired their fellow citizens. The Communist governments fell because they had
lost their authority with the people.
4) According to you, what approach the Russian economy must have followed after
the breakup of Soviet Union?

Stimulation of demand

Complete stabilization

Privatization
Erroneous estimation of inflation

Russia could liberalize its policies towards international trade thereby globalizing
itself
5. Highlight the weaknesses of capitalism and communism as reflected by the case.

Communism Capitalism

• More focused on the economic

• Market failure
performance compared to market
based economies
• Market instability
• Loosening of price control
• Income disparity
• Everything belongs to the state and
• A free economy
should be run by the government
on
• Choice of many parties for
behalf of the people
Government, chosen by the
• A controlled economy people. A democracy

• Only one party of Government - no

need for any more