Discuss the influence of globalisation on an economy other than

Australia, including an evaluation of the strategies used to promote

economic growth and development.

Globalisation refers to the process by which the world becomes increasingly integrated as a
result of massively increased trade. Globalisation had a significant impact on Russia’s progress
of economic transformation in the post-Socialist world. When Vladimir Putin first ascended into
Russian leadership in August 1999, the country was severely impacted by hyperinflation, a
direct consequence of its sudden shift from a centrally-planned command economy to a globally
integrated market economy. Since then, Russia has achieved a virtual macroeconomic
revolution to the extent where it currently holds the 6th largest GDP (PPP), a testament to its
embrace of globalisation. The implementation of radical economic reforms by Vladimir Putin and
to a lesser extent, Boris Yeltsin has established Russia’s place as a global economic
superpower, allowing its people to reap the benefits of such economic growth through
improvements in quality of life, facilitated by unprecedented foreign direct investment on
infrastructure and employment. However, the onset of globalisation has brought about various
challenges, namely the increased income disparity due to its globally integrated capitalist
economy and its refusal to fully cooperate in its global economic integration, causing its
economic growth and development to some extent to be impeded.

Russia is a country which is situated in Europe, spanning from Eastern Europe to Northern Asia.
It is the largest country in the world, covering over 17,125,191 square kilometers with a
population of 144.1 million in 2020. Russia’s GDP averaged 972.41 USD billion from 1988 until
2020, which ultimately reached its peak in 2013 of 2292.47 USD Billion and a record low of
195.91 USD Billion in 1999. In addition, Russia’s GDP Annual Growth Rate averaged 2.76
percent from 1996 until 2021, reaching an all time high in the fourth quarter of 1999 of 12.9%
GDP growth and a record low in the second quarter of 2009 with a -11.9% GDP growth. Since
the recent years, the Russian Federation has been committed to achieving its Sustainable
Development Goals (SDGs) defined by the international community in the 2030s Agenda. This
is shown within its tangible progress for each of the individual SDGs. Among the most
successful are SGD 1 “Poverty Eradication”, SDG 4 “Quality Education”, and SDG 8 “Decent
Work and Economic Growth”. Since the fall of the Soviet Union, Russia has experienced a shift
from a centrally-planned economy to a mixed market economy, allowing Russia’s economy to
be more globally integrated. Russia’s shift in its economic structure would however, result in
various environmental challenges such as; Water Pollution, increased Nuclear Waste, poor air
quality, and Hazardous waste disposal problems. With the recent emergence of the COVID-19
pandemic, this would have an adverse impact on Russia’s economy, resulting in the negative
economic growth of -4% in 2020 while also experiencing an increase of 6.3% in unemployment
rate in 2020, the highest of in eight years.
Economic growth refers to the sustained increase in a country’s production capacity of
economic goods and services, which is traditionally measured in terms of gross domestic
product (GDP). Since the early 1990s, Russia had undergone a strong economic growth with its
real GDP growth averaging 5% per annum for the past two decades. This was made possible
due to Russia’s liberation of trade and production, which further allowed it to withstand the
Ruble crisis (1998) and the Financial Crisis (2009-2009) relatively unscathed. Russia’s relatively
rapid growth since Boris Yeltsin’s radical market-oriented reforms of “shock therapy” in 1991
arises from its transition from a centrally-planned command economy to a capitalist market
economy. The result of this transition, accompanied with the increased foreign trade and
investment driven by the tax concessions and export orientations of its Special Economic Zones
in St. Petersburg, Zelenograd and Tomsk, has enabled Russia to implement the increased
production of resources such as oil and capital goods to increase gross domestic product.
However, through its experiment with “sovereign globalisation”, a manifestation of the central
dilemma between Putin’s main goals of a controlling state and a prosperous economy, Russia’s
concerted efforts to harness interdependence to the pursuit of power-political ends spectacularly
backfired as a result of the decline in energy-export led growth, global market developments
and EU response to Russian policy. Russia’s self-serving economic strategy allowed itself to
benefit from globalisation while simultaneously retaining domestic control and power autonomy,
which further allowed Russia to maximise its comparative advantage earned from free trade. As
a result, the unravelling of this strategy accelerated events in Ukraine and exacerbated the
existing tensions between Russia and the West. Russia’s political economy would be under
increased pressure as a consequence, with its regional influence waning, Western sanctions
depriving it of goods, capital and technology combined with the aftermath of the Russian
Financial Crisis (2014-2017) which has left its economic growth at 1.5%, one of the lowest
levels since the 1998 Ruble Crisis.

The accession of Russia to the World Trade Organisation at the WTO Ministerial conference in
Geneva in August 2012 opened the country up to a global market of over 150 nations and thus
through the removal of barriers of trade, it is likely to stimulate greater and more diversified
trade between Russia and the rest of the world. The decrease of the average bound tariff rate
from 10% in 2011 to 7.8% in 2017, its establishment of free trade agreements with the EAEU
and proposed bilateral agreement with the European Union are all products of its accession into
the WTO, in respect to David Ricardo’s theory of comparative advantage in creating economic
benefits. Transnational enterprises which are state owned such as Aeroflot and Gazprom have
all been publicly listed in stock exchanges in Moscow and St Petersburg, and the privatisation of
former SOEs of Alrosa, banking group VTB and oil and gas behemoths Basheft and Rosneft are
all aimed to raise capital by attracting portfolio investment. The massive influx in foreign direct
investment due to globalisation has been to some extent suppressed by US and EU led
sanctions, resulting in the limitation to the access of such enterprises to Western capital
markets, acting as a deterrent to equity investment, restraining its economic growth.
Furthermore, Russia’s stringent internet control policies has limited the access of transnational
corporations such as Telegram and LinkedIn from operating, not only isolating it from complete
access to the World Wide Web, a key driver of globalisation, but also limiting the efficiency of its
own local businesses with the prohibition of Telegram estimated to cost Russian businesses $1
billion by the end of 2018.

In The General Theory of Employment, Interest and Money (1936), John Maynard Keynes
states that aggregate demand was composed of consumption, investment, government
spending and net exports. In addition to increased investment and spending, Russia’s
abundance in natural resources exports has propelled the emerging economy’s strong
economic growth within the past 20 years. However, Russia’s overreliance on its resource
economy has resulted in a state of extreme volatility under the ever changing circumstances of
the global business cycle with a minuscule shift in resource prices resulting in massive shifts in
GDP, state budget and exchange rate of the ruble. As such, Russia’s government has
continuously tried to formulate an economic strategy that would wean it off its growing
dependence on energy and serve as a blueprint for market oriented economic reform. These
attempts were exhibited within Vladimir Putin’s “2020 Concept” and Dmitry Medvedev’s
“Forward Russia” but never came to fruition due to systemic corruption and fraud in
implementation. If the Russian economy fails to find a sustainable solution to shift from its
overdependence on resources, Russia will continue to suffer from its consequences during
times of economic downturn, reversing growth that has taken years to achieve, ultimately
leading to economic stagnation and freezing its economic growth in the long term.

FIGURE 1

Economic development is a qualitative measure which measures improvements in the quality of

life through the provision of social and economic infrastructure. The strong conflict of economic
growth and development as the wealth inequality is so great, and is continuing to rise, Russia’s
recovery from its financial crisis is disproportionate with an increase in the level of life quality. As
shown in Figure 1, Russia’s embrace of globalisation has drastically increased its GDP and by
extension its GDP per capita and correspondingly, its HDI has risen significantly from 0.720 in
2000 to 0.816 in 2017, improving consistently even during periods of economic hardship.
Despite this, Russia’s transition into a market economy has created an enormous income
disparity with so called voucher-privatisation programs enabling a handful of “oligarchs” to
become extremely wealthy. The GINI coefficient rose from 0.26 in 1991 to 0.42, and the
proportion of income of the richest 20% has risen from 32.7% in 1990 to 46.6% whilst the
income of the poorest 20% has fallen from 9.8% in 1990 to only 6.1% today. Policies of housing
subsidies for the poor and targeted allowances have been, to some extent, effective in raising
the living standards of citizens within the lower quintiles promoting greater economic growth.
However, these strategies combined with the relatively negligible increase of the minimum wage
to the basic subsistence level indicate a deliberate but ineffective strategy to achieve improved
economic development levels matching an OECD nation. This is especially demonstrated in the
Lorenz Curve below which compares the inequality within Russia and Belgium whose GINI
coefficient of 25.9 represents.

LORENZ CURVE

Likewise, Russia’s economic development can also be considered using the Phillips curve
which highlights the inverse relationship of unemployment and inflation. The levels of
unemployment in Russia have been steadily consistent at around 5% for the past 5 years
through the Russian Financial Crisis as a result of government plans to create 25 million high
productivity jobs by 2020. Similarly, inflation has also remained relatively low at around 3.5%
due to its sticking to moderately tight monetary policy despite pressure from the government to
support growth with lower interest. Thus the existence of both low unemployment and low
inflation represents a complete contradiction of the Phillips curve which is explained through the
existence of a significant “working poor” of 5 million working Russian who are severely
underpaid. Thus reduced unemployment would have a minor contribution to an increase in
consumption and by extension, aggregate demand, and thus does not have any substantial
effect on inflation.
The presence of such low wages discourages businesses to introduce advanced technologies,
which as a consequence would keep labour productivity stagnant. Russia’s refusal to
prioritise economic development and the wellbeing of its individuals at the same level as
economic growth will have an adverse effect on both and as such limit the efficiency and
competitiveness of its economy in an increasingly competitive global environment.

Overall, despite its supposed commitment to global economic integration and accession into
various free trade organisations such as the WTO, Russia’s refusal to completely embrace
globalisation has to a certain extent caused a reduction in the effectiveness of its economic
strategies. The remaining trade barriers and economic disputes that arise from their repudiation
to assimilate, prevents substantial connections between income and trade, threatening to keep
Russia behind other BRIC nations such as China and India, leaving it unable to adapt in a
rapidly changing economic environment.
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