World Savvy Monitor

Many have said that Russia’s economy operates under the façade of Western style free market capitalism.  However, Russia’s economic profile, and entire growth trajectory, is very different from that of the West. 

Modernization has come to Russia unevenly over the last century.  The country’s leaders have tried to harness natural resources to build a viable economy and to position Russia as a frontrunner in the global community.  The 20th Century saw it lurch from system to system:  feudalism to socialism to capitalism in modified, overlapping, and distinctly Russian iterations.  Largely isolated from the West, Russia evolved from a poor agrarian nation to a Communist imperial military-industrial power to a quasi-capitalist petrostate, all against the backdrop of a bloody revolution, two devastating world wars, a protracted Cold War, and the swift and dramatic loss of its empire.  

Western economies all began embracing common philosophies, practices, and institutions after WWII.  In fact, it was during this period (led by the United States’ reconstruction efforts in Europe and Asia) that Western economies grew dramatically.  At the same time, the West was locked in an ideological and geopolitical struggle with the Russian-led Soviet Union which prevented economic cooperation or integration.  When the Soviet Union broke open in the late 1980s, the economies in the new republics bore little resemblance to those in the West.

The Crisis of the 1990s

Experts generally agree that the dissolution of the Soviet Union in 1991 into fifteen separate republics was largely an event of economic necessity.  It was less a ‘collapse’ than a relinquishing by Russia of its control over the other republics, which went on to achieve independence from Moscow.  Gobachev’s Glastnost and Perestroika reforms unleashed simmering ethnic, social, and political tensions that would likely have destroyed the empire in the long term.  In the end, it was a crushing financial crisis that made it necessary for Russia to shed its possessions and satellites beyond its administrative borders.  Low prices for its oil and gas exports, decreased domestic productivity, high prices on critical imports, and mounting debt triggered the collapse of the economy.  Russia could literally no longer afford its empire, and so it was forced to extend sovereignty to the other Soviet republics and remove its troops from occupied nations in Eastern and Central Europe.

Structural weaknesses in the Soviet economy over the previous decades contributed to its dissolution. Massive military expenditures related to the Cold War arms race, the war in Afghanistan, and the inefficiency of central economic planning under the Communist regime were all part of the disastrous equation.  The Soviet Republics, including Russia, had not modernized.  The arms and aviation industries that had been critical during the Cold War represented almost all of industrial capacity.  Gorbachev’s economic reforms began to chip away at state ownership and control of economic assets, attempting to introduce nascent capitalist incentives to spur growth.  However, upon its demise, the Communist regime had tremendous difficulty not only growing the economy, but providing for its citizens’ basic needs. 

Next:  Inside Modern Russia:  The Russian Economy:  The Transition from Socialism to Capitalism